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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-K

(Mark one)

|  |  |                                                                                         
|- |  | ----------------------------------------------------------------------------------------
|x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|  |  | For the fiscal year ended December 31, 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 000-29215

LENDINGTREE, INC.

(Exact name of registrant as specified in its charter)

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

(704) 541-5351

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(Registrants telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value
(Title of class)

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 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 o.

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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [ ] No o

The aggregate market value of the voting common equity held by
non-affiliates of the registrant, based upon the closing sale price of common
stock on June 30, 2002 as reported on the NASDAQ National Market, was
approximately $286 million

As of January 31, 2003 there were 22,586,247 shares of Common Stock, $.01
par value, outstanding, excluding 237,673 shares of treasury stock.

Documents Incorporated by Reference

Portions of the definitive Proxy Statement to be delivered to security
holders for the 2003 Annual Meeting of Stockholders to be held on April 23,
2003 are incorporated by reference into Part III of this Form 10-K.

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Forward-Looking Statements

This Annual Report on Form 10-K may contain certain forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended, and Section 27A of the Securities Act of 1933, as amended,
that represent our current expectations or beliefs concerning future events or
projected financial results. Words such as expect, anticipate, estimate,
intend, believe, plan and similar expressions are used to identify these
forward-looking statements. Such forward-looking statements are about matters
that are inherently subject to risks and uncertainties. Factors that could
influence the matters discussed in certain forward-looking statements include
the timing and amount of revenue that may be recognized by us, continuation of
current expense trends, absence of unforeseen changes in our markets, continued
acceptance of our services and products and general changes in the economy.
The cautionary statements made in this Form 10-K should be read as being
applicable to all related forward-looking statements whenever they appear in
this Form 10-K. Our actual results could differ materially from the results
discussed in the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
under the section captioned Factors That May Affect Our Results of Operations
or Reported Results in Item 7 of this Form 10-K as well as those cautionary
statements and other factors set forth elsewhere herein. Except as otherwise
required under federal securities laws, we do not have any obligations or
intention to update publicly any forward-looking statements after filing of
this Form 10-K.

PART I

Item 1. Business

General Development of the Business and Overview

LendingTree, Inc. was incorporated in the state of Delaware on June 7,
1996 and commenced nationwide operations on July 1, 1998.

We are an online exchange empowering consumers, Lenders, REALTORS® and
related service providers with convenience, choice and value. Through our
exchange, which can be accessed online at www.lendingtree.com or by calling us
directly at 1-800-555-TREE, consumers can access a nationwide network of nearly
200 banks, lenders and loan brokers (Lenders) and approximately 650 real
estate brokerages to obtain loan offers or the services of a real estate agent.
We attract consumers to our exchange through various forms of advertising and
through arrangements with both online and offline partners.

Consumers seeking loan products begin the LendingTree process by
completing a simple online credit request (which we refer to as a
qualification form). Consumers can also call us directly at 1-800-555-TREE
and we will complete the form based on their instructions and answers to
questions. After the qualification form is complete, our Lend-X technology
automatically retrieves the credit score for the particular consumer. The
consumers data and credit scores are then automatically compared to the
underwriting criteria of the Lenders participating on our exchange. Qualified
consumers can receive multiple loan offers in response to a single credit
request and then compare, review, and accept the offer that best suits their
needs.

Lenders on our exchange can generate new business that meets their
specific underwriting criteria at a lower cost of acquisition than traditional
marketing channels. Our lending exchange encompasses most consumer credit
categories, including mortgages, home equity loans, automobile loans, credit
cards, and personal loans. We earn revenue from the Lenders on our exchange
that pay us fees for qualification forms that meet their underwriting criteria
and are transmitted to them (transmission fees). Since a qualification form
can be transmitted to more than one lender, we may generate multiple
transmission fees for the same form. We also earn revenue for loans that the
Lenders on our exchange close with consumers that we transmitted to them
(closed-loan fees).

Consumers interested in working with a real estate agent to buy or sell a
home can access an online form through our exchange at www.lendingtree.com or
through one of the websites of participating membership programs, such as
Costco, Delta Skymiles, Continental, United Airlines, USAirways, Northwest
Airlines and American Express. Based on the information entered by the
consumer, our system automatically provides the consumer with a choice of
references to REALTORS® from our nationwide network and also forwards the
consumers information to the chosen real estate agents desktop via our
proprietary web-based technology. If the two parties agree to work together,
the remainder of the transaction is completed locally. Consumers closing a
transaction with a REALTOR® on our exchange are eligible for rebates and
promotional incentives. REALTORS® are able to efficiently access new,
highly-qualified potential customers.

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We earn fees from real estate brokers that pay us when consumers requests
that we transmit to them result in a purchase or sale of a home (realty
services fees).

Our technology
platform, Lend-XSM, is the technology that powers our
internet based exchange. In the past, we have also licensed the use of our
Lend-X technology to other businesses and have enabled them to create either
private-labeled or co-branded exchanges on their websites. However, in 2002,
we have shifted the primary strategy for Lend-X to support the growth of our
Exchange by using our technology in arrangements with our Lenders and other
online businesses that transmit consumers to our Exchange.

Industry Background  Lending

For lenders, the traditional loan origination process is paper-intensive,
time-consuming, and usually accompanied by high fixed costs and labor expense.
This inefficient process often involves significant marketing and origination
costs.

For consumers, the traditional loan process is time-consuming, requires
completion of multiple forms, and can often be frustrating and confusing.
Consumers typically search through a variety of loan products from many
different lenders, apply to one lender at a time for that lenders offered
price, and then wait for that lender to approve or reject the application.

Many online lending sites and lenders with telephone centers generally
mirror the traditional loan origination process. Consumers visit the website,
view a list of loan products, apply for one product from one lender, and are
either given an offer or rate quote or are rejected by the lender. While the
consumer proposition presented by online lending websites is the same as the
traditional offline process, the business models for online lending websites
generally fall into the following two categories:



| |  |  | Lender/Broker Model. The operators of websites such as
Mortgagebot.com, QuickenLoans, Eloan and Ditech.com generate a large
portion of revenue in the same way as traditional lenders, from selling
the loans for a mark-up or by holding the loans in their portfolio and
earning a spread over their cost of capital. These lenders/brokers also
undertake the document processing, verification, and customer
interaction. In addition, to the extent the lenders/brokers fund
originated loans with their own capital, they are often directly
exposed to interest rate risk, credit risk, liquidity risk and must
also effectively manage their loan pipeline.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Referral Agent Model. The operators of websites such as Providian
Financial Corporations GetSmart.com typically generate revenue by
providing referrals to lenders. Because referral agents typically
receive an upfront fee, there is little incentive for these companies
to ensure that lenders and consumers consummate the loan transaction.
Additionally, because referral websites typically do not offer the
consumers multiple offers on their sites, they are not able to
continually give best practices and pricing data to lender
participants.                                                                                                      

LendingTree believes that the inefficiencies of the traditional lending
process and the shortcomings of other online business models, combined with the
large and recurring nature of consumer loan demand, offer a substantial
opportunity for our exchange business model.

The Lending Exchange

The LendingTree loan process consists of the following steps:



| |  |  | Credit Request. Consumers access our exchange either at
www.lendingtree.com or by calling 1-800-555-TREE or through partner
sites and select a loan product from our multiple loan categories.
Consumers complete a single qualification form for the selected loan
product with information such as income, assets and liabilities,
loan preferences and other data. Consumers also consent to our
retrieval of their credit report.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  |  | Qualification Form Filtering and Transmission. Our
filtering process matches the consumers qualification form data,
credit profile, and geographic location to the preset underwriting
criteria provided by participating Lenders. Lenders are able to
modify their underwriting criteria in real-time directly through a
password-protected website known as our LenderWeb. Once
qualification forms pass the filters, they are automatically
transmitted to up to four Lenders.                                                                                                                                                                                                                
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Lender Evaluation and Response. Using our automated response
engine (which we refer to as ADE), Lenders can automatically
evaluate and respond to the qualification forms that pass their
filters. Otherwise, Lenders can evaluate qualification forms using
their own automated tools or through manual processes and respond
via our LenderWeb on our system.                                                                                                                                                                                                                                                                                                                                   
|
| |  |  | Communication of Offer. Once a Lender evaluates a
qualification form and responds with an offer, our system
automatically notifies the consumer via e-mail and displays the
offers on the website where the request originated. The e-mail
contains instructions to return to the website and provides
instructions directing the consumer to the Check Status page where
consumers can view and compare the terms of each offer including:
interest rate, closing costs, monthly payment amount, lender fees
and other information. If the consumer does not have access to
e-mail, the responses from the Lender are provided to the consumer
when the consumer calls back and/or via facsimile.
|
| |  |  | Offer Acceptance.The consumer has the ability to accept,
reject or request more information about any particular loan offer.
When the consumer selects one of these options, our system
automatically notifies the chosen Lender, or the consumer responds
to the Lender directly and the remainder of the process is conducted
offline.                                                                                                                                                                                                                                                                                                                                                          
|
| |  |  | Ongoing Consumer and Lender Support. We provide active email
and telephone follow-up and support to both Lenders and consumers
during the loan transaction process. This follow-up and support is
designed to provide technical support and increase overall
satisfaction of the participants in our exchange, as well as
increase the percentage of consumers who accept and close a loan
from our lending exchange.                                                                                                                                                                                                                                                                             

Industry Background -Realty

Service providers in the real estate industry consist of large regional
brokers, one national entity, members of national franchises and independent
agencies. Many consumers are served by the independent agencies.

For all parts of this industry, customer acquisition is essential, but is
highly inefficient and consists of advertising through direct mail, newspapers,
for-sale signs, word of mouth and franchise media marketing. Franchises
such as Century21, Coldwell Banker, Re/Max, ERA and GMAC create name
recognition and provide national advertising and other services in exchange for
franchise fees from brokers.

The Realty Exchange

LendingTrees Realty Exchange consists of a national exchange of
participating real estate brokers and certified agents who have agreed to
provide local, high quality real estate services to LendingTree consumers. The
consumer receives a choice of real estate brokers to serve them and also
receives a substantial incentive when using one of our recommended brokers to
close a transaction.



| |  |  | Our Realty Exchangeconsists of approximately 650 real estate
brokerages representing over 2,500 branch offices to provide services
to the customers of LendingTree and its clients. Because participating
brokers have no protected territories, LendingTree is able to provide
consumers with a choice of up to four real estate brokerages. Our
participating brokerages include members of all of the national
franchises and a number of independent brokerages. The participating
brokerages must agree to service standards, have qualified agents who
are all REALTORS®, go through our certification process, and use the
LendingTree web-based software. They must also agree to maintain a
relocation department to process all
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |   |  | LendingTree consumers and protect
the consumer experience by allowing LendingTree to replace any agent
or brokerage at a consumers request regardless of the reason.                                                                                                                                                                                                                                                   
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The Consumer Experience.Consumers can access the Find a
REALTOR® service from the home page of www.lendingtree.com, from
their status pages if they are obtaining a mortgage through the
Lending Exchange, from any of our clients web pages, (e.g.,
Costco.com, Delta, United Air Lines, US Airways, American Express,
MSN, etc.) or by dialing 1-800-555-TREE and accessing a LendingTree
Customer Care Consultant.

In addition to the referral service, LendingTree provides additional
services and content through www.lendingtree.com and our clients sites such
as:



| |  |  | an automated valuation tool which allows consumers to
estimate the value of properties and be more informed about the
homes they are interested in buying or selling;                                             
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | listings of homes for sale which also allow for the
education of the consumer and reduce the amount of time required
to be spent with real estate agents in searching for properties
that meet their requirements;
|
| |  |  | the ability to schedule appointments with a network
broker to see properties directly from the website; and                                                                                                       
|
| |  |  | the ability to request more information from the
network brokers about properties.                                                                                                                                

LendingTree is a licensed real estate broker in all states that require
licensing.

Lend-X

Lend-X is our online lending exchange technology that offers a fast,
adaptable and reliable online lending solution for lenders and non-lenders
alike, providing valuable access to our online lending exchange of nearly 200
Lenders.

The Lend-X technology platform is made up of the following integrated
components:



| |  |  | ConsumerWeb  Consumer interactions                                       
| |  |  | --------------------------------------------------------------------------
|
| |  |  | 4 Consumer-tested online form with help tips                              
|
| |  |  | 4 Resource center with more than 100 pages dedicated to consumer education
|
| |  |  | 4 Cross-sell opportunities                                                
|
| |  |  | 4 Online communication of offers                                          
|
| |  |  | 4 Customer care support                                                   
|
| |  |  | 4 Automated email tools and customer surveys                              



| |  |  | ADE Product and pricing                                               
| |  |  | ----------------------------------------------------------------------
|
| |  |  | 4 Product and pricing configuration for automated pre-qualified offers
|
| |  |  | 4 Offer conditions and rules-based closing costs                      
|
| |  |  | 4 Credit-pull capability                                              



| |  |  | Exchange Platform  System integration                         
| |  |  | ---------------------------------------------------------------
|
| |  |  | 4 Interfacing to connect front-end sources and back-end systems
|
| |  |  | 4 Routing capability based on loan request and business model  

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| |  |  | LenderWeb  Lender interactions                                               
| |  |  | ------------------------------------------------------------------------------
|
| |  |  | 4 Lead management tools                                                       
|
| |  |  | 4 Point of sale tools                                                         
|
| |  |  | 4 Configuration of workflow, product and pricing, and administrative functions
|
| |  |  | 4 Reporting capability                                                        

Customers

LendingTree Exchange Customers

Our lending exchange offers consumers (both online and via telephone) the
opportunity to obtain the loan products listed below. We do not charge
consumers a fee to use our services and our network of Lenders (our
customers) pay us fees for transmitted qualification forms and closed loans.

As of December 31, 2002:



| |  |  | Home Mortgage.LendingTree had 139 Lenders providing home mortgage loans.
| | - |  | ------------------------------------------------------------------------
|
| |  |  | Home Equity.LendingTree had 61 Lenders providing home equity loans.     
|
| |  |  | Automobile Loans.LendingTree had 12 Lenders providing automobile loans. 
|
| |  |  | Credit Cards.LendingTree had 6 credit card issuers.                     
|
| |  |  | Personal Loans.LendingTree had 7 Lenders providing personal loans.      

Some Lenders provide more than one type of loan product through our
exchange. Accordingly, the sum of the Lenders by product category above
exceeds the nearly 200 individual Lenders on our exchange.

Our realty exchange offers consumers the opportunity to obtain the
services of a REALTOR® from one of the nearly 650 real estate brokerages
participating on our exchange. We do not charge consumers a fee to use our
services. Our customers are the participating real estate brokers on our
network that pay us a fee when a referred consumer closes a real estate
transaction.

For the years ended December 31, 2002, 2001 and 2000, no Lender or real
estate broker exceeded 10% of our total revenue. All of our revenues are from
transactions originating in the United States.

For 2002, two customers accounted for 39% and 20%, respectively, of our
total Lend-X technology revenue. For 2001, two customers accounted for 35% and
32%, respectively, of our total Lend-X technology revenue. For 2000, one
customer accounted for 71% of our total Lend-X technology revenue.

As of December 31, 2002 and December 31, 2001, no customer exceeded 10% of
our accounts receivable balance. As of December 31, 2000, one customer
accounted for approximately 22% of the accounts receivable balance.
Concentrations of credit risk with respect to accounts receivable are limited
due to the large number of Lenders comprising our customer base.

Reference is made to our consolidated financial statements, beginning at
page F-1 herein, for further disclosures about our business segments.

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Geographic Information

All of our revenue is generated from transactions originating in the
United States. All of our fixed assets are located in the United States,
principally at our headquarters in Charlotte, North Carolina.

Competition

Lending Exchange

LendingTree operates a unique lending exchange, matching the requests of
borrowers with up to four Lenders on our network. The primary competitive
factors for the exchange model are as follows:



| |  |  | Brand awareness: To be competitive as an exchange, competitors
must have the ability to attract consumer demand in consistently high
volumes. Competitors will need to make significant investments to
build and maintain a compelling brand that will compete against
LendingTrees established brand.                           
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Lender network: In order to provide value to prospective
borrowers, a competitor must create strategic alignment with a critical
mass of lenders to fulfill consumer demand. This takes significant
investments in time and resources and will require learning about
lending practices both online and through off-line channels.
|
| |  |  | Online relationships: Access to consumers from other major portals
or internet sites is essential for developing market share.                                                                                                                                                                                                    
|
| |  |  | Scalable technology: Infrastructure that integrates easily with
lenders and can adapt to support extended product offerings.                                                                                                                                                                                                      
|
| |  |  | Efficiency: Ease of use and convenience for consumers and lenders.                                                                                                                                                                                                                                                                

Our success depends upon increasing our market share of consumers who
initiate loan requests through the internet and telephone. In order to do
this, we must continue to build on our first mover advantage, maintain brand
awareness among consumers and lenders, expand our network of Lenders, and
continually upgrade our technology.

Many of our current competitors, however, have longer operating histories,
larger customer bases, and significantly greater financial, technical, and
marketing resources than we do. In addition, participants in other areas of
the financial services industry may enter the consumer loan industry.

We believe that our primary competitors are traditional lending
institutions developing their own online lending channels (a click and mortar
approach). Established entities such as JPMorgan Chase, GMAC and Countrywide
have entered the online lending business as a way to diversify their revenue
streams, maintain growth and broaden their appeal to a wider base of consumers.
These companies do not operate a true exchange; rather they are set up to
process, close, and fund the loan as a stand-alone lender. The single-lender
model enables lenders with recognized brand names and established customer
bases to attract consumers to their own website, creating potential for
efficient loan acquisition and processing. However, because the channel is
usually small as compared to the lenders traditional channels, service
standards may lag, and consumers may not receive a differentiated experience.
Because the internet consumer is expecting a faster, more convenient
experience, and because other lending institutions are easily accessible via
the internet, click and mortar competitors must refine their sales and
fulfillment processes to be effective. Also, they must resolve substantial
channel conflict issues to price the channel attractively, and large lenders in
particular must resolve internal barriers in order to distribute consumer leads
to the right internal departments and ensure appropriate follow-up. Like
traditional

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channels, the model exposes the lenders to interest rate risk,
credit risk and liquidity risk. Certain products such as personal loans and
credit cards are particularly prone to adverse selection, requiring stringent
underwriting to manage risk.

Additional competition comes from lending websites, including Ditech.com,
Eloan, Quicken Loans, MortgageExpo.com and Mortgagebot.com. These lenders
originate the bulk of their loans through their websites or the telephone, and
are considered e-lenders. Some of these e-lenders are also Lenders on our
exchange. In addition, some online financial services companies, including the
online brokerages and internet banks, have extended consumer products to
include online lending. These companies typically operate a consumer-branded
website and attract consumers via online banner ads, key word placement on
search engines, partnering with affiliates and business development
arrangements with other properties, including major portals. They may also
attract consumers via off-line advertising. The e-lenders process, close, and
fund loans and thus are subject to credit risk. As compared to click and
mortar competitors, the online lenders do not need to invest heavily in branch
offices and infrastructure and, given sufficient scale, may provide a
cost-effective and convenient way for consumers to obtain a loan. To be
successful, the online lenders must build and maintain a brand, develop
relationships with online portals and other sources of potential consumers and
build out loan product offerings to appeal to a mass audience.

An additional competitor is Providian Financial Corporations
GetSmart.com, which is a referral model. Similar to LendingTree, GetSmart
transmits consumers to multiple lenders. The consumer receives the name, email
address and phone number of the lender, plus a link to its website. At that
point GetSmart exits the process.

By contrast, in the LendingTree exchange model, the consumer gets up to
four loan offers for the consumer to review and make a decision. LendingTree
works with both the borrower and Lender to move the loan to closure. The key
consumer benefit provided by LendingTrees lending exchange is choice, combined
with empowerment, speed and convenience. Additionally, LendingTree can match
consumers across the credit spectrum with a wide array of loan products.
Lenders gain access to
consumers usually at a lower cost of acquisition. As an exchange,
LendingTree is not exposed to consumer credit risk. The challenges for online
lending exchanges are that they must build and maintain a brand as well as a
lender network. The exchange providers must also build and maintain their own
technology.

Online Realty Services Exchange:

Our primary competitor in the area of offering online real estate referral
services for a fee is Homegain.com. In their model, similar to our own, the
consumer completes an online form and is referred to a real estate agent that
is participating in the network of agents. This website offers a variety of
real estate related tools and helpful hints for the consumer. Other
competitors are websites that offer real estate broker lists but provide
neither rebate nor continuous customer support (e.g., Realtor.com and Yahoo
Real Estate.)

Business Development

Our business development teams target and establish relationships with
Lenders to increase capacity and our ability to handle different types of loan
requests. We also continue to add REALTORS® to our realty services network
such that we can provide consumers more choice and local, recognized resources.
Although we do not charge fees to consumers for use of our lending or realty
services, our marketing objective is to increase consumer awareness of the
LendingTree brand name and the services available through our online exchange,
thus creating demand for the Lenders and REALTOR® participating in our
exchange.

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Customer Service

We employ a staff of customer service and technical support personnel who
provide support to all users of our services. They provide support via
telephone, email and chat services. The responsibilities of the customer
service and technical support personnel include:



| |  |  | Responding to consumers questions about the status of their credit
request, how to use our website, and other frequently asked questions.       
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Completing a qualification form over the phone for mortgage and
home equity loans.                                                               
|
| |  |  | Acting as a liaison between consumers and Lenders/real estate
agents, to ensure consumers receive prompt service from Lenders/real
estate agents.
|
| |  |  | Acting as a facilitator for the consumer and real estate agent.                                                                                  
|
| |  |  | Providing technical support to lender technical and systems
questions 24 hours a day, seven days per week.                                       
|
| |  |  | Providing technical support to Lend-X clients.                                                                                                   

Marketing

Our principal marketing objectives are to maintain our leading brand
awareness position and to increase volume on our exchange through growth in
market share. These efforts include television and radio advertising, online
advertising and direct marketing. We also collect and analyze consumer data to
enhance our consumer marketing programs, subject to compliance with our privacy
policy.

Offline Advertising



| |  |  | Television Advertising. Our television advertising has proven to
be an effective medium to drive both brand awareness and transaction
volume to both our website and telephone channels. Utilizing both cable
and network television, we have created significant brand awareness of
our brand promises of When Banks Compete, You Win® and Find a
REALTOR®.                                                                                          
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Radio Advertising. Our radio advertising also directly increases
transaction volume on our website and to our telephone channel.
Through a combination of network and spot buying of radio
advertisements, we are able to reach our target audience in a
cost-effective manner both nationally and locally. We select our spot
radio markets based on a variety of factors including population
density, housing starts, and overall home buying activity.

Online Advertising



| |  |  | Online Advertising and Sponsorships. Online advertising and
sponsorships play an important role in our overall effort to reach
potential consumers. We focus on those portals and websites having a
high affinity to consumer lending, such as real estate, personal
finance and automobile-related websites. We have also partnered with
major search engine companies such as Yahoo! Finance and incorporated
banner advertising into our online strategy to maximize consumer reach.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The LendingTree Affiliate Network. We have agreements with other
websites that route consumers to www.lendingtree.com. We pay
advertising fees to our affiliates in exchange for the placement of
banner ads and links from their site to ours. Our affiliate program has
been a cost-effective source of loan request volume. These affiliates
are independent third parties and LendingTree does not have any
ownership interest in any such affiliate.                              

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Direct Marketing

We believe that direct marketing is an effective means of increasing loan
requests and closure rates, and a way to develop more sustainable relations
with consumers. Our direct marketing initiatives have been executed through
both offline and online channels, within the guidelines of our privacy policy.
Our direct marketing initiatives include:



| |  |  | Direct Email. We use email to encourage customers to visit
our website, to allow consumers to complete the loan request
process, to communicate with consumers throughout the lending
process, to offer additional product and service values to our
customers and to facilitate consumers ability to obtain loans.                                                                                      
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Direct Mail. We use direct mail to compliment our online
email efforts to build brand equity and increase overall transaction
volume.                                                                                                                                                                                                                                                                     
|
| |  |  | Cross-Selling. We use cross-selling and other adaptive
marketing activities to provide consumers the opportunity to
purchase related products and services from selected third parties
at various points in the LendingTree loan process. We previously
added the cross-sell of real estate services to consumers in
addition to existing cross-sell programs such as home, auto and
credit card products.

Employees

As of December 31, 2002, we had 260 full-time employees. Of these, 90 were
in technology and project management; 45 were in lender relations, broker
relations and product management; 55 were in customer care; 37 were in sales,
marketing, and business development; 21 were in finance and legal; and the
remaining 12 were in human resources and administrative positions. We also had
94 temporary employees assisting in our customer care department as of December
31, 2002. None of our employees are represented under collective bargaining
agreements. We consider our relations with our employees to be good.

Privacy Policy

We believe that issues relating to privacy and use of personal information
of internet users are becoming increasingly important as the internet and its
commercial use grow. As a result, we have adopted a detailed privacy policy
that outlines how we use consumer information and the extent to which Lenders
and other third parties may have access to this information. This policy is
prominently displayed on our website. We do not sell, license or rent any
personally identifiable information about our consumers to any third party, and
use the information about our customers for internal purposes only.

Government Regulation

The loan products and real estate agent referral services available
through our website are subject to extensive regulation by various federal and
state governmental authorities. Because of uncertainties as to the
applicability of some of these laws and regulations to the internet and, more
specifically, to our business, and considering our business has evolved and
expanded in a relatively short period of time, we may not always have been, and
may not always be, in compliance with applicable federal and state laws and
regulations. Failure to comply with the laws and regulatory requirements of
federal and state regulatory authorities may result in, among other things,
revocation of required licenses or registrations, loss of approved status,
termination of contracts without compensation, loss of exempt status,
indemnification liability to Lenders and others doing business with us,

10



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administrative enforcement actions and fines, class action lawsuits, cease and
desist orders, and civil and criminal liability.

Many, but not all, states require licenses to solicit or broker to
residents of those states, loans secured by residential mortgages, and other
consumer loans, including credit card, automobile and personal loans. We are
not currently licensed and able to accept credit requests for all loan products
in every state. We are not currently accepting credit requests for loan
products from residents of states in which we are not licensed to provide those
products or are exempt from licensing. In many of the states in which we are
licensed, we are subject to examination by regulators. In addition, as a result
of our Realty Services offerings, we are required to obtain real estate broker
licenses, additional mortgage broker licenses and individual customer care
department personnel licenses in numerous states. Failure to obtain and
maintain these licenses and approvals could prevent us from receiving fees from
the real estate agent referral and mortgage services programs we offer and may
subject us to the types of fines, forfeitures and litigation discussed above.

As a computer loan origination system or mortgage broker conducting
business through the internet, we face an additional level of regulatory risk
given that most of the laws governing lending transactions have not been
substantially revised or updated to fully accommodate electronic commerce.
Until these laws, rules and regulations are revised to clarify their
applicability to transactions conducted through electronic commerce, any
company providing loan-related services through the internet or other means of
electronic commerce will face compliance uncertainty. Federal law, for example,
generally prohibits the payment or receipt of referral fees in connection with
residential mortgage loan transactions. The applicability of referral fee
prohibitions to the advertising, marketing,
distribution and cyberspace rental arrangements used by online companies
like ours may have the effect of reducing the types and amounts of fees that we
may charge or pay in connection with real estate-secured products.

Regulations promulgated by some states may impose compliance obligations
on any person who acquires 10% or more of our common stock, including requiring
that person to periodically file financial and other personal and business
information. If any person acquires 10% or more of our common stock and refuses
or fails to comply with these requirements, we may not be able to obtain a
license and existing licensing arrangements in particular states may be
jeopardized.

The parties conducting business with us, such as Lenders and other website
operators, may similarly be subject to federal, state and local regulation.
These parties act as independent contractors and not as our agents in their
solicitations and transactions with consumers. Consequently, we cannot ensure
that these entities will comply with applicable laws and regulations at all
times. Failure on the part of a lender or other website operator to comply with
these laws or regulations could result in, among other things, claims of
vicarious liability against us or have a negative impact on our reputation.

In addition to licensing requirements, federal and state laws regulate
residential lending activities and record keeping requirements of brokers and
lenders. At the federal level, our services are regulated by, among other laws,
the Truth in Lending Act and Regulation Z, the Equal Credit Opportunity Act and
Regulation B, the Fair Housing Act, the Fair Credit Reporting Act, federal
privacy laws, and the Real Estate Settlement Procedures Act and Regulation X.
These laws generally regulate the manner in which loan services are made
available, including advertising and other consumer disclosures, payments for
services, record keeping requirements, and the privacy and reporting of
consumer data. State and federal laws also prohibit unfair and deceptive trade
practices and require companies to adopt appropriate policies and practices to
protect consumer privacy.

Under the Truth in Lending Act, creditors are required to provide
consumers with uniform, understandable information concerning some of the terms
and conditions of loan and credit transactions being offered, which may include
disclosures in advertising. This particular federal law is generally applicable
to lenders and applies to us primarily in the context of advertising.

The Equal Credit Opportunity Act prohibits discrimination against
applicants on the basis of race, color, sex, age, religion, national origin, or
marital status in all consumer credit transactions, and the Fair Housing Act
similarly prohibits discrimination in residential mortgage lending. The
regulations under the Equal Credit Opportunity Act also restrict creditors from
requesting various types of information from loan applicants and require
lenders to supply applicants with a notice, referred to as an adverse action
notice, when the lender denies its applicants credit. Our Lenders are generally
obligated to provide the required disclosures. While the applicability of

11



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these
disclosure requirements to us is unclear, we nevertheless provide such
disclosures to consumers in the event that a qualification form cannot be
transmitted to any Lender.

The Fair Credit Reporting Act is a consumer privacy statute that generally
governs the assemblage, evaluation, maintenance, and dissemination of
information on consumers that has been collected for the purpose of evaluating
their qualifications for credit. The Fair Credit Reporting Act also requires
that users of consumer credit reports notify consumers when their loan
applications are denied on the basis of those consumer credit reports. In
addition, consumer privacy legislation enacted as part of the
Gramm-Leach-Bliley Act restricts the dissemination of nonpublic consumer
information to non-affiliated third parties and will require institutions to
maintain privacy policies, and give notice of such policies. We have made
numerous changes to our website and procedures to address the consumer privacy
provisions of the Gramm-Leach-Bliley Act.

The Real Estate Settlement Procedures Act, or RESPA, and related
regulations generally prohibit the payment or receipt of fees or any other item
of value for the referral of a real estate-secured loan to a loan broker or
lender. RESPA and the related regulations also prohibit fee shares or splits or
unearned fees in connection with the provision of residential real estate
settlement services, including mortgage brokerage and lending services.
Notwithstanding these prohibitions, RESPA permits payments for goods or
facilities furnished or for services actually performed, so long as those
payments bear a reasonable relationship to the market value of the goods,
facilities or services provided. Failure to comply with RESPA may result
in, among other things, administrative enforcement actions, class action
lawsuits, cease and desist orders and civil and criminal liability.

The mortgage and home equity products offered through our exchange are
residential real estate secured loans subject to these provisions of RESPA.
Consequently, our online relationships with Lenders, other companies and
websites on which we offer services are subject to RESPAs prohibitions on
payment or receipt of referral fees and for unearned fees or fee splits. We
believe that we have structured these relationships to comply with RESPA. The
applicability of RESPAs referral fee and fee splitting prohibitions to these
types of internet-based relationships, however, is unclear and the appropriate
regulatory agency has provided limited guidance to date on the subject. See the
section of this Form 10-K entitled Risks Related to the Internet and Our
Technology Infrastructure for more information.

Copyrights, Trademarks, Patents and Licenses

We regard our intellectual property
as important to our success. We rely
on a combination of patent, trademark, copyright, and trade secret
and licensing law to protect our proprietary rights. We have obtained a U.S.
patent on our Lend-X technology and our online loan market process
and have a related patent application pending. It is possible that
the patent we have received and the patent application which is still
pending, if granted, have been (or will be) granted in a limited
manner such that they offer little or no basis for us to deter
competitors from employing similar technology or processes or they do
not allow us to defend ourselves adequately against third-party
claims of patent infringement. We also pursue the protection of
our intellectual property through trademark and copyright
registrations and license agreements. We have registered
LendingTree®
and the phrase When Banks Compete, You Win!® as
trademarks in the United States. We have also applied for trademark
registration in the United States for Lend-X. We consider the protection of
our trademarks to be important for maintenance of our brand identity and
reputation.

In addition, we seek to protect our proprietary rights through the use of
confidentiality agreements and other contractual arrangements with our
employees, affiliates, clients, Lenders, real estate brokers, Lend-X licensees,
and others. We cannot assure you that these agreements will provide adequate
protection for our proprietary rights in the event of any unauthorized use or
disclosure, that employees, our affiliates, clients, Lend-X licensees, or
others will maintain the confidentiality of such proprietary information, or
that such proprietary information will not otherwise become known, or be
independently developed, by competitors. Occasionally, we have been, and expect
to continue to be, subject to claims in the ordinary course of our business,
including claims alleging that we have violated a patent or infringed a
copyright, trademark or other proprietary right belonging to a third party. For
example, see our description of the Block Financial Corporation litigation in
Item 3 below entitled Legal Proceedings. We cannot assure you that the steps
we have taken to protect our proprietary rights will be adequate or that third
parties will not infringe or misappropriate our proprietary rights. Any
infringement claims, even if not meritorious, could result in the expenditure
of significant financial and managerial resources on our part, which could
materially adversely affect our business, results of operations, and financial
condition.

12



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A substantial portion of our intellectual property is licensed to third
parties. We license the right to use Lend-X technology to well-known regional
and national Lenders, other online companies that create single and
multi-lender online marketplaces, and other websites providing lending
services.

Available Information

You may find copies of our Annual Reports on Form 10-K, Quarterly Reports
on Form 10-Q and Current Reports on Form 8-K, and any amendments we make to
these reports pursuant to Section 13(a) and 15(d) of the Exchange Act, on our
website at www.lendingtree.com. We post such reports as soon as reasonably
practicable after filing them with the SEC.

Item 2. Properties

Our principal executive offices are currently located in approximately
54,000 square feet of office space in Charlotte, North Carolina under leases
that expire in 2010.

Item 3. 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. Contemporaneous
with that filing, we filed a motion for a stay of all proceedings in the United
States District Court for the Western District of Missouri pending the
reexamination of the Block patent by the USPTO. On August 23, 2002, the USPTO
issued an Order granting our request for reexamination of the Block patent,
finding that a substantial new question of patentability affecting the claims
of the Block patent has been raised by the request. Additionally, pursuant to
an order from the District Court, the action against us is stayed until the
reexamination proceeding is complete. 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.

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

No matters were submitted to a vote of our stockholders during the fourth
quarter of the fiscal year ended December 31, 2002.

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PART II

Item 5. Market for Registrants Common Stock and Related Stockholder Matters

Market for Common Stock

Our common stock is traded on the NASDAQ National Market System under the
symbol TREE. The following table sets forth the high and low sale prices for
the common stock for the periods indicated as reported by NASDAQ. Such prices
represent prices between dealers without adjustment for retail mark-ups,
markdowns, or commissions and may not necessarily represent actual
transactions.

|                  |  |              |       |     |  |   |       | 
|----------------- |  | ------------ | ----- | --- |  | - | ----- | 
|                  |  | Price Ranges
|                  |  |             
|                  |  | High         |       | Low
|                  |  |              |       |    
|Year Ended        |  |              |       |     |  |   |       | 
|December 31, 2002 |  |              |       |     |  |   |       | 
|                  |  |              |       |     |  |   |       | 
|Fourth Quarter    |  | $            | 15.85 |     |  | $ | 10.37 | 
|Third Quarter     |  | $            | 16.25 |     |  | $ | 8.40  | 
|Second Quarter    |  | $            | 15.99 |     |  | $ | 10.75 | 
|First Quarter     |  | $            | 13.50 |     |  | $ | 5.45  | 

|                  |  |   |      |  |  |   |      | 
|----------------- |  | - | ---- |  |  | - | ---- | 
|Year Ended        |  |   |      |  |  |   |      | 
|December 31, 2001 |  |   |      |  |  |   |      | 
|                  |  |   |      |  |  |   |      | 
|Fourth Quarter    |  | $ | 6.10 |  |  | $ | 3.00 | 
|Third Quarter     |  | $ | 6.74 |  |  | $ | 3.35 | 
|Second Quarter    |  | $ | 7.39 |  |  | $ | 2.81 | 
|First Quarter     |  | $ | 4.41 |  |  | $ | 1.88 | 

Holders of Record

As of
February 27, 2003, there were approximately 7,100 beneficial holders
of our common stock.

Dividends

We have never declared or paid any cash dividends on our common stock. We
do not anticipate paying any cash dividends on our common stock in the
foreseeable future. The holders of our Series A Preferred Stock are entitled
to receive dividends on their shares equal to eight percent (8%) per annum of
the stated value per share payable at our option (i) in cash on each quarterly
dividend date or (ii) by an upward adjustment to the stated value per share on
a quarterly dividend payment date. The Series A Preferred Stock ranks senior
to any class of our common stock with respect to dividend rights. Our
revolving credit agreement with GE Capital Commercial Services (GE) prohibits
us from paying cash dividends on common stock or Series A Preferred Stock
without the prior written consent of GE. We obtained the consent of GE to pay
cash dividends on the Series A Preferred Stock and have paid such dividends in
cash for the quarterly periods ending June 30, 2002, September 30, 2002 and
December 31, 2002. We also have obtained consent for the payment of cash
dividends for the quarterly period ending March 31, 2003.

Securities Authorized for Issuance Under Equity Compensation Plans

Certain information related to securities authorized for issuance under
our equity compensation plans is incorporated by reference to the information
under the caption Approval of Amendments to Our 2001 Stock
Compensation Plan to be included in our Proxy Statement for our 2003
Annual meeting of Stockholders, scheduled to be held April 23, 2003.

14



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Item 6. Selected Financial Data

The following table sets forth selected financial and operating data for
our business. You should read the information together with our consolidated
financial statements and the accompanying notes included in this Form 10-K and
the information under Item 7, Managements Discussion and Analysis of
Financial Condition and Results of Operations. The statement of operations
data for the years ended December 31, 2002, 2001 and 2000, and the balance
sheet data as of December 31, 2002 and 2001, are derived from, and are
qualified by reference to, our consolidated financial statements that have been
audited by PricewaterhouseCoopers LLP and are included elsewhere in this Form
10-K. The statement of operations data for the years ended December 31, 1999
and 1998 and the balance sheet data as of December 31, 2000, 1999 and, 1998 are
derived from our consolidated financial statements that have been audited by
PricewaterhouseCoopers LLP and are not included in this Form 10-K. Historical
results are not necessarily indicative of the results to be expected in the
future.

|                                                   |                                                                                            |                                                                |               |             |         |         |         |             |        |        |         |            |        |        |         |            |       |       |        |           |     |     | 
|-------------------------------------------------- | ------------------------------------------------------------------------------------------ | -------------------------------------------------------------- | ------------- | ----------- | ------- | ------- | ------- | ----------- | ------ | ------ | ------- | ---------- | ------ | ------ | ------- | ---------- | ----- | ----- | ------ | --------- | --- | --- | 
|                                                   |                                                                                            |                                                                |               |             | 2002    |         | 2001    |             | 2000   |        | 1999    |            | 1998  
|                                                   |                                                                                            |                                                                |               |             |         |         |         |             |        |        |         |            |       
|Statement of Operations Data:                      |                                                                                            | (Amounts in thousands, except per share and per transmit data) |               |             |         |        
|                                                   | Revenue                                                                                    |                                                                |               |             |         |         |         |             |        |        |         |            |        |        |         |            |       |       |        |           |    
|                                                   |                                                                                            | Exchange                                                       |               | $           | 106,743 |         |         | $           | 57,478 |        |         | $          | 27,465 |        |         | $          | 6,112 |       |        | $         | 273 |    
|                                                   |                                                                                            | Lend-X technology                                              |               |             | 4,663   |         |         |             | 6,541  |        |         |            | 3,348  |        |         |            | 852   |       |        |           | 136 |    
|                                                   |                                                                                            |                                                                |               |             |         |         |         |             |        |        |         |            |        |        |         |            |       |       |        |          
|                                                   |                                                                                            |                                                                | Total revenue |             |         | 111,406 |         |             |        | 64,019 |         |            |        | 30,813 |         |            |       | 6,964 |        |           |     | 409 | 
|                                                   |                                                                                            |                                                                |               |             |         |         |         |             |        |        |         |            |        |        |         |            |       |       |        |          
|Gross profit                                       |                                                                                            |                                                                | 94,365        |             |         |         | 50,330  |             |        |        | 21,441  |            |        |        | 4,443   |            |       |       | 25     |          
|Net income (loss)                                  |                                                                                            |                                                                | 8,901         |             |         |         | (28,915 | )           |        |        | (66,003 | )          |        |        | (24,745 | )          |       |       | (6,485 | )        
|Accretion and dividends related to preferred stock |                                                                                            |                                                                | (4,068        | )           |         |         | (2,912  | )           |        |        | (2,461  | )          |        |        | (2,816  | )          |       |       | (24    | )        
|                                                   |                                                                                            |                                                                |               |             |         |         |         |             |        |        |         |            |        |        |         |            |       |       |        |          
|                                                   | Net income (loss) attributable to common shareholders                                      |                                                                | $             | 4,833       |         |         | $       | (31,827     | )      |        | $       | (68,464    | )      |        | $       | (27,561    | )     |       | $      | (6,458    | )  
|                                                   |                                                                                            |                                                                |               |             |         |         |         |             |        |        |         |            |        |        |         |            |       |       |        |          
|                                                   | Net income (loss) per common share  basic                                                 |                                                                | $             | 0.23        |         |         | $       | (1.66       | )      |        | $       | (4.15      | )      |        | $       | (7.74      | )     |       | $      | (1.88     | )  
|                                                   |                                                                                            |                                                                |               |             |         |         |         |             |        |        |         |            |        |        |         |            |       |       |        |          
|                                                   | Net income (loss) per common share  diluted                                               |                                                                | $             | 0.20        |         |         | $       | (1.66       | )      |        | $       | (4.15      | )      |        | $       | (7.74      | )     |       | $      | (1.88     | )  
|                                                   |                                                                                            |                                                                |               |             |         |         |         |             |        |        |         |            |        |        |         |            |       |       |        |          
|                                                   | Weighted average shares used in basic net
income (loss) per common share calculation (4)   |                                                                |               | 21,137      |         |         |         | 19,160      |        |        |         | 16,512     |        |        |         | 3,560      |       |       |        | 3,435     |    
|                                                   |                                                                                            |                                                                |               |             |         |         |         |             |        |        |         |            |        |        |         |            |       |       |        |          
|                                                   | Weighted average shares used in diluted net
income (loss) per common share calculation (4) |                                                                |               | 24,389      |         |         |         | 19,160      |        |        |         | 16,512     |        |        |         | 3,560      |       |       |        | 3,435     |    
|                                                   |                                                                                            |                                                                |               |             |         |         |         |             |        |        |         |            |        |        |         |            |       |       |        |          
|Operating Data:                                    |                                                                                            |                                                                |               |             |         |         |         |             |        |        |         |            |        |        |         |            |       |       |        |          
|Qualification Forms transmitted:                   |                                                                                            |                                                                |               |             |         |         |         |             |        |        |         |            |        |        |         |            |       |       |        |          
|                                                   | Number (in thousands)                                                                      |                                                                |               | 1,845       |         |         |         | 1,445       |        |        |         | 716        |        |        |         | 186        |       |       |        | 18        |    
|                                                   | Dollar volume (in thousands)                                                               |                                                                | $             | 390,493,000 |         |         | $       | 115,557,000 |        |        | $       | 54,997,000 |        |        | $       | 16,210,000 |       |       | $      | 1,597,000 |    
|                                                   | Lending exchange revenue (1) per transmitted Qualification Form                            |                                                                | $             | 52.79       |         |         | $       | 37.21       |        |        | $       | 37.31      |        |        | $       | 32.90      |       |       | $      | 14.96     |    
|                                                   | Variable cost (2) per transmitted Qualification Form                                       |                                                                | $             | (28.27      | )       |         | $       | (27.31      | )      |        | $       | (74.91     | )      |        | $       | (95.12     | )     |       | $      | (99.30    | )  
|                                                   |                                                                                            |                                                                |               |             |         |         |         |             |        |        |         |            |        |        |         |            |       |       |        |          
|                                                   | Contribution margin (3) per transmitted Qualification Form                                 |                                                                | $             | 24.52       |         |         | $       | 9.90        |        |        | $       | (37.60     | )      |        | $       | (62.22     | )     |       | $      | (84.34    | )  
|                                                   |                                                                                            |                                                                |               |             |         |         |         |             |        |        |         |            |        |        |         |            |       |       |        |          
|Loans closed:                                      |                                                                                            |                                                                |               |             |         |         |         |             |        |        |         |            |        |        |         |            |       |       |        |          
|                                                   | Number (in thousands)                                                                      |                                                                |               | 285         |         |         |         | 292         |        |        |         | 145        |        |        |         | 22         |       |       |        | 1         |    
|                                                   | Dollar volume (in thousands)                                                               |                                                                | $             | 21,897,000  |         |         | $       | 12,148,000  |        |        | $       | 4,641,000  |        |        | $       | 941,000    |       |       | $      | 26,000    |    
|Balance Sheet Data:                                |                                                                                            |                                                                |               |             |         |         |         |             |        |        |         |            |        |        |         |            |       |       |        |          
|Cash, cash equivalents, short term investments     |                                                                                            | $                                                              | 27,187        |             |         | $       | 6,164   |             |        | $      | 12,716  |            |        | $      | 29,472  |            |       | $     | 3,085  |          
|Working capital                                    |                                                                                            | $                                                              | 28,149        |             |         | $       | 1,958   |             |        | $      | 7,937   |            |        | $      | 26,474  |            |       | $     | 2,666  |          
|Total assets                                       |                                                                                            | $                                                              | 50,687        |             |         | $       | 27,931  |             |        | $      | 37,957  |            |        | $      | 33,767  |            |       | $     | 3,687  |          
|Capital lease obligations                          |                                                                                            | $                                                              | 930           |             |         | $       | 1,034   |             |        | $      | 1,580   |            |        | $      |        |            |       | $     |       |          
|Total liabilities                                  |                                                                                            | $                                                              | 17,351        |             |         | $       | 17,254  |             |        | $      | 14,261  |            |        | $      | 6,030   |            |       | $     | 751    |          
|Preferred stock                                    |                                                                                            | $                                                              | 21,691        |             |         | $       | 23,878  |             |        | $      |        |            |        | $      | 59,118  |            |       | $     |       |          
|Total shareholders equity (deficit)               |                                                                                            | $                                                              | 11,645        |             |         | $       | (13,201 | )           |        | $      | 23,696  |            |        | $      | 27,737  |            |       | $     | (1,695 | )        



---

|(1) |  | Computed by dividing exchange revenue derived from our Lenders by
the number of qualification forms transmitted in the period.                                                                                       
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Computed by dividing variable marketing and advertising costs
(including media advertising and affiliate network costs) by the number
of qualification forms transmitted in the period.                              
|   
|(3) |  | Computed by subtracting the variable cost per transmit from the
lending exchange revenue per transmit.                                                                                                               
|   
|(4) |  | Refer to Footnote 3 to the consolidated financial statements
included herein for a reconciliation of weighted average outstanding
shares used in the 2002, 2001 and 2000 income (loss) per common share
calculations.

15



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Item 7. Managements Discussion and Analysis of Financial Condition and Results
of Operations

LendingTree, Inc. was incorporated in the state of Delaware on June 7,
1996 and commenced nationwide operations on July 1, 1998.

We are an online exchange empowering consumers, Lenders, REALTORS® and
related service providers with convenience, choice and value. Through our
exchange, which can be accessed online at www.lendingtree.com or by calling us
directly at 1-800-555-TREE, consumers can access a nationwide network of nearly
200 banks, lenders and loan brokers (Lenders) and approximately 650 real
estate brokerages to obtain loan offers or the services of a real estate agent.
We attract consumers to our exchange through various forms of advertising and
through arrangements with both online and offline partners.

Consumers seeking loan products begin the LendingTree process by
completing a simple online credit request (which we refer to as a
qualification form). Consumers can also call us directly at 1-800-555-TREE
and we will complete the form based on their instructions and answers to
questions. After the qualification form is complete, our Lend-X technology
automatically retrieves the credit score for the particular consumer. The
consumers data and credit scores are then automatically compared to the
underwriting criteria of the Lenders participating on our exchange. Qualified
consumers can receive multiple loan offers in response to a single credit
request and then compare, review, and accept the offer that best suits their
needs.

Lenders on our exchange can generate new business that meets their
specific underwriting criteria at a lower cost of acquisition than traditional
marketing channels. Our lending exchange encompasses most consumer credit
categories, including mortgages, home equity loans, automobile loans, credit
cards, and personal loans. We earn revenue from the Lenders on our exchange
that pay us fees for qualification forms that meet their underwriting criteria
and are transmitted to them (transmission fees). Since a qualification form
can be transmitted to more than one lender, we may generate multiple
transmission fees for the same form. We also earn revenue for loans that the
Lenders on our exchange close with consumers that we transmitted to them
(closed-loan fees).

Consumers interested in working with a real estate agent to buy or sell a
home can access an online form through our exchange at www.lendingtree.com or
through one of the websites of participating membership programs, such as
Costco, Delta Skymiles, Continental, United Airlines, USAirways, Northwest
Airlines and American Express. Based on the information entered by the
consumer, our system automatically provides the consumer with a choice of
references to REALTORS® from our nationwide network and also forwards the
consumers information to the chosen real estate agents desktop via our
proprietary web-based technology. If the two parties agree to work together,
the remainder of the transaction is completed locally. Consumers closing a
transaction with a REALTOR® on our exchange are eligible for rebates and
promotional incentives. REALTORS® are able to efficiently access new,
highly-qualified potential customers.

We earn fees from real estate brokers that pay us when consumers requests
that we transmit to them result in a purchase or sale of a home (realty
services fees).

Our technology
platform, Lend-XSM, is the technology that powers our
internet-based exchange. In the past, we have also licensed the use of our
Lend-X technology to other businesses and have enabled them to create either
private-labeled or co-branded exchanges on their websites. However, in 2002,
we have shifted the primary strategy for Lend-X to support the growth of our
Exchange by using our technology in arrangements with our Lenders and other
online businesses that transmit consumers to our Exchange.

16



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##### 



2002 Compared to 2001

Consolidated Results

Revenue

For the year ended December 31, 2002, consolidated revenue was
approximately $111.4 million compared with approximately $64.0 million for the
year ended December 31, 2001, an increase of 74%.

Our Lending Exchange segment accounted for approximately 88% of our
consolidated revenue in the year ended December 31, 2002 and $44.5 million of
the overall $47.4 million increase in consolidated revenue over the year ended
December 31, 2001. Our Realty Services segment accounted for 8% of our
consolidated revenue in the year ended December 31, 2002 and $4.8 million of
the increase in consolidated revenue over the year ended December 31, 2001.
Lend-X technology revenue was 4% of our consolidated revenue in the year ended
December 31, 2002 and was $1.9 million lower than in the year ended December
31, 2001. See details by segment below.

Gross Margin

For the year ended December 31, 2002, the consolidated gross margin was
$94.4 million, or 85% of consolidated revenue, compared to $50.3 million, or
79% of revenue, for the year ended December 31, 2001, an increase of 88%.

Our Lending Exchange segment contributed to $43.0 million of the overall
$44.0 million increase in gross margin from the year ended December 31, 2001.
We attribute this increase in gross margin primarily to the scalability of our
Lending Exchange business model. Our Realty Services segment added
approximately $2.8 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 $1.8 million due primarily to the decline in
revenue noted above.

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). 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.

For the year ended December 31, 2002, Lending Exchange revenue increased
approximately $44.5 million, or 84%, to $97.4 million from $52.9 million in the
year ended December 31, 2001. The table below illustrates several key
components of our Lending Exchange revenue for 2002 compared to 2001.

|                        |                        |         |                              |        |                              |        |              |              |              |         |           |        |  |        |    |              |              |   |              |        |           |  |     |       |  |  |       |       |  |  |     |     | 
|----------------------- | ---------------------- | ------- | ---------------------------- | ------ | ---------------------------- | ------ | ------------ | ------------ | ------------ | ------- | --------- | ------ |  | ------ | -- | ------------ | ------------ | - | ------------ | ------ | --------- |  | --- | ----- |  |  | ----- | ----- |  |  | --- | --- | 
|                        |                        |         | Year Ended December 31, 2002 |        | Year Ended December 31, 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                |                        | $       | 58,688                       |        |                              |        | 884          |              |              |         | 2,404     |        |  |        | 79 |              |              | $ | 26,940       |        |           |  | 606 |       |  |  | 1,339 |       |  |  | 40  |    
|Home Equity             |                        |         | 28,108                       |        |                              |        | 316          |              |              |         | 949       |        |  |        | 72 |              |              |   | 17,660       |        |           |  | 216 |       |  |  | 652   |       |  |  | 51  |    
|Auto                    |                        |         | 4,864                        |        |                              |        | 370          |              |              |         | 910       |        |  |        | 44 |              |              |   | 2,801        |        |           |  | 237 |       |  |  | 403   |       |  |  | 23  |    
|Credit Card & Personal  |                        |         | 2,790                        |        |                              |        | 275          |              |              |         | 661       |        |  |        | 90 |              |              |   | 4,530        |        |           |  | 386 |       |  |  | 743   |       |  |  | 178 |    
|All Other Exchange Fees |                        |         | 2,942                        |        |                              |        |              |              |              |         |           |        |  |        |    |              |              |   | 994          |        |           |  |     |       |  |  |       |       |  |  |     |    
|                        |                        |         |                              |        |                              |        |              |              |              |         |           |        |  |        |    |              |              |   |              |        |           |  |     |       |  |  |       |       |  |  |     |    
|                        | Total Lending Exchange |         | $                            | 97,392 |                              |        |              | 1,845        |              |         |           | 4,924  |  |        |    | 285          |              |   | $            | 52,925 |           |  |     | 1,445 |  |  |       | 3,137 |  |  |     | 292 | 
|                        |                        |         |                              |        |                              |        |              |              |              |         |           |        |  |        |    |              |              |   |              |        |           |  |     |       |  |  |       |       |  |  |     |    

The growth in revenue during the year ended December 31, 2002 was
significant with purchase mortgage (initial mortgage on property) revenue
increasing 102% and refinance mortgage revenue increasing 124% over the

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same
period in 2001. For the year ended December 31, 2002 compared to 2001, the
overall mix of mortgage revenue derived from consumers refinancing existing
mortgages increased just slightly from 76% to 77%.

There are many factors that can influence consumer loan demand, such as
increased brand awareness, advertising spending and, as discussed more fully
below, initiatives we undertake to grow the business and increase market share.
However, we believe the continued historical low levels of mortgage interest
rates have also influenced consumers to apply for and close purchase mortgages
or to refinance their existing mortgages, thereby benefiting our business.

We also believe that initiatives we undertake
contribute to our improving results. Some of our
initiatives are ongoing and are 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. Other initiatives are
implemented from time to time, such as in periods of rising interest rates or
when mortgage refinance volume is expected to decline, and are aimed at
increasing consumer visits to our exchange. Some of our initiatives are
listed below:



| |  | We increase capacity. We 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 December 31, 2002 we had nearly
200 participating Lenders on our exchange compared to approximately 140
participating Lenders at December 31, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | We improve Lender efficiency. We offer advisory services and
several tools to enable our Lenders to process qualification forms and
close loans more efficiently. These tools include benchmark and best
practices studies and automation tools, including our ADE feature in
our Lend-X technology offering. This ADE feature allows Lenders to
provide automated responses to pre-qualification requests. As of
December 31, 2002, we had 44 Lenders utilizing our ADE compared to 14
Lenders as of December 31, 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 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.
| 
| |  | We enhance the opportunities for consumers and Lenders to close
transactions. We have made arrangements with several of our Lenders 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 such as the
following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    



| |  |  | We improve the opportunity of consumers to receive
multiple loan offers. In 2002 we 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 four loan offers.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | We incent the consumer to close a transaction. From
time to time we provide consumers with incentives or rewards,
such as cash, gift certificates and airline miles, for using our
services.                                                                                                                                                                                                        
|
| |  |  | We expand or alter our marketing efforts. From time
to time we increase or decrease our marketing spending relative
to promoting specific loan products or promoting our telephone
channel. We also utilize direct mail marketing and other
programs aimed at increasing consumer volume from a variety of
supply sources.                                                                          

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As a result of these initiatives and the higher number of refinance
mortgages, we have seen substantial increases in our average closing rate for
mortgages. For the year ended December 31, 2002 the average close rate was
9.3% and for the year ended December 31, 2001 the average close rate was 7.2%.
Further, we anticipate that in periods of higher interest rates and lower
refinance loan demand, we will experience increases in our purchase mortgage
transmit rates and multiple transmits of qualification forms, as well as a
shift to more home equity loan demand from consumers and potentially
improvements in closing rates as Lenders have more time available to service
consumers.

Mortgage Revenue

As a result of both our initiatives and the continued low interest rate
environment, mortgage revenue more than doubled to $58.7 million in the year
ended December 31, 2002 from $26.9 million in the year ended December 31, 2001,
an increase of $31.7 million. More specifically, the increase in mortgage
revenue can be broken into the following components:



| |  |  | The number of closed mortgage transactions increased nearly
100% to approximately 79,000 closed transactions in the year ended
December 31, 2002 from approximately 40,000 in 2001. This increase
of 39,000 additional closed-loan transactions in 2002 contributed
approximately $14.3 million to the overall increase in mortgage
revenue.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Multiple transmissions of mortgage qualification forms
increased by approximately 1.1 million in the year ended December
31, 2002 from the year ended December 31, 2001 and resulted in an
increase in revenue of $8.2 million. We realized this benefit
partially due to the increase in Lenders and the resulting increase
in capacity for the exchange in 2002. On average, we were able to
transmit each discrete mortgage qualification form approximately 2.7
times in the year ended December 31, 2002 compared to approximately
2.2 times in the year ended December 31, 2001, an increase of nearly
23%. Assuming our close rates remain at or near current levels, we
anticipate that the increases in multiple transmission late in 2002
will also benefit our closed loan revenue for mortgages in the first
quarter of 2003.
|
| |  |  | 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 $6.2 million to the increase in
mortgage revenue for the year ended December 31, 2002. In November
2001 we also increased our standard transmit fee from $8.00 per
transmit to $9.00 per transmit. This increased our average revenue
per transmission and contributed approximately $1.2 million to the
increased in mortgage revenue for the year ended December 31, 2002.                                                                                                                                                                                                                                    
|
| |  |  | Approximately $1.2 million of the 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, United Priority
Club, 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
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 identified
closed mortgage transactions that were not reported to us through
our normal reporting process. These transactions accounted for less
than 2% of our mortgage closed transactions in the year ended
December 31, 2002 and $0.6 million of the increase in mortgage
revenue over the year ended December 31, 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.                                                                                                                                                                                    

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Home Equity Revenue

Home Equity revenue increased approximately $10.4 million, or 59%, to
$28.1 million in the year ended December 31, 2002 from $17.7 million in the
same period of 2001. We believe most of this increase can be attributed to
higher consumer demand for home equity loans reflecting the success of our home
equity focused marketing campaigns and the underlying low interest rates for
these types of loans. Additionally, we have achieved higher transmit rates as
a result of increased Lender capacity.

In the year ended December 31, 2002, the number of closed home equity
transactions increased by 41% to approximately 72,000 from approximately 51,000
closed transactions in the same period of 2001. This increase of 21,000 closed
transactions contributed $4.9 million to the increase in home equity revenue.

Multiple transmission volume of home equity qualification forms increased
by approximately 45%, or by approximately 296,000 transmissions, in 2002
compared to 2001, and resulted in an increase of home equity revenue of $2.4
million. While the average rate at which we were able to transmit each
discrete home equity qualification form remained constant at 3.0 times in the
years ending December 31, 2002 and 2001, we had an increase of 46% in the
number of discrete home equity transmissions. We realized this benefit
partially due to the increase in Lenders and the resulting increase in capacity
for the exchange in 2002.

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 during 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 an additional $0.7 million of
home equity revenue.

A small portion of the 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 less than 2% of our closed home equity transactions in the year
ended December 31, 2002 and $0.3 million of the increase in home equity revenue
over the year ended December 31, 2001.

Auto Revenue

Fees from auto loan transactions accounted for approximately $4.9 million,
or 5% of our Lending Exchange revenue, in the year ended December 31, 2002 and
approximately $2.8 million, or 5%, in the year ended December 31, 2001. This
was an increase of approximately $2.1 million from period to period. This
increase is a result of 87% more closings in the year ended December 31, 2002
as compared to the year ended December 31, 2001. This increase in closings is
due to increased volume generated through new and expanded business
relationships with online portals and better Lender coverage of the auto loan
category resulting in a higher number of loan offers per consumer.

Credit Card and Personal Revenue

Credit card and personal revenue accounted for approximately $2.8 million,
or 3% of our Lending Exchange revenue, in the year ended December 31, 2002 and
approximately $4.5 million, or 9%, in the year ended December 31, 2001. This
decrease was due to 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. In addition, during 2002 we implemented prompts
on our personal loan application that informed consumers of the potential tax
advantages of borrowing on a home equity loan instead of a personal loan. We
believe this also contributed to the decline in personal loan revenue and the
increase in home equity revenue.

All Other Lending Exchange Revenue
20

All other Lending Exchange revenue, as shown in the table above, increased
to $2.9 million in the year ended December 31, 2002 compared to $1.0 million in
the year ended December 31, 2001. The increase can be attributed to new
arrangements with other online businesses that offer various complementary
products to our customers through their websites, including credit reports and
related services, as well as home security services and insurance. Due to the
overall increase in volume of consumers on our website, we have also seen more
people using these services and therefore an increase in the fees we earn from
the providers of such services.

Cost of Revenue and Gross Margin

For the year ended December 31, 2002 the gross margin for the Lending
Exchange segment was $86.8 million, or 89.1% of Lending Exchange revenue. This
is a $43.0 million improvement from the same period in 2001, in which we had a
gross margin of $43.7 million, or 82.7% 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 closed-loan fees,
as discussed above, also favorably impacted our gross margin this period.

The scalability of our exchange model is demonstrated by comparing the
growth in our costs of revenue to the increase in our revenue. Lending
Exchange costs of revenue increased by $1.4 million, or 16%, to $10.6 million
in the year ended December 31, 2002 from $9.2 million in the year ended
December 31, 2001. During the same period our Lending Exchange revenue grew
approximately 84%.

Our costs of revenue primarily include salary and benefit costs of our
customer care center and lender implementation group, credit scoring fees,
consumer incentive costs and the website network hosting fees.

The 2002 increase in cost of revenue over 2001 includes a $1.7 million
increase in our employment expenses (employees and 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 want to use the internet
to complete a loan request. This has resulted in an increase in our overall
call volume as well.

In 2002, we also incurred approximately $0.2 million of finders fees
related to closed loans that were not reported to us through the normal
reporting process and $0.1 million more on network hosting fees.

Partially offsetting the above increases in expense was a reduction in
promotional payments and gift certificates to consumers who closed a loan
through our Lending 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 $0.6 million to $2.5 million in the year ended December 31,
2002 compared to $3.1 million in the year ended December 31, 2001.

Realty Services Segment Results

Revenue

We earn Realty Services revenue from real estate brokers participating in
our network. Participating brokers pay us a fee when consumers referred by us
purchase or sell a home with that broker.

Realty Services revenue more than doubled to $9.4 million in the year
ended December 31, 2002 from $4.6 million in the year ended December 31, 2001.
This $4.8 million increase is due to a higher number of closed transactions in
the year. The number of closed transactions for this segment increased 95% to
approximately 4,300

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in the year ended December 31, 2002 from 2,200 in the year
ended December 31, 2001. This was primarily a function of a 16% 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
utilizing our services. Further, during 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
year ended December 31, 2002 from the same period of 2001. Gross margin was
$4.1 million, or 43.7% of Realty Services revenue, and $1.3 million, or 28.7%
of Realty Services revenue, in the years ended December 31, 2002 and 2001,
respectively.

Realty Services cost of revenue includes consumer incentive costs, salary
and benefit costs of our real estate network support staff and server costs.
Cost of revenue increased approximately $2.0 million, or 62%, from the year
ended December 31, 2001 compared to the year ended December 31, 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.

On a per transaction basis, however, we have improved margins by
decreasing the incentive amounts offered to certain Realty Services consumers
in 2002 with many incentive offers set at a fixed dollar amount. Accordingly,
we anticipate that consumer-incentive costs associated with our Realty Services
segment will continue to decrease as a percentage of revenue in the future.

Lend-X Technology Segment Results

Revenue

Lend-X technology revenue totaled $4.7 million, or 4% of our total revenue
for the year ended December 31, 2002, compared to $6.5 million, or 10% of total
revenue for the year ended December 31, 2001. In 2002, we 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.

Cost of Revenue and Gross Margin

For the year ended December 31, 2002, Lend-X technology gross margin was
$3.5 million, or 75.0% of Lend-X technology revenue, compared to $5.3 million,
or 80.7% of Lend-X technology revenue, for the year ended December 31, 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 $0.1 million in the year ended December 31, 2002
compared to the year ended December 31, 2001 primarily due to less
labor-intensive consulting and implementation projects in the year ended
December 31, 2002.

Consolidated Operating Expenses

Product Development
22

Product development expense was approximately $2.9 million for the year
ended December 31, 2002 compared to $4.6 million for the year ended December
31, 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 95% of product development expense during the
year ended December 31, 2002 and 93% in the year ended December 31, 2001.

The decrease in expense is primarily due to fewer employees involved in
product development, $0.2 million in lower server costs and $0.6 million more
capitalized technology department employment expenses in the year ended
December 31, 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.

Marketing and advertising

Marketing and advertising expenses of $50.2 million were approximately 45%
of our consolidated revenue in the year ended December 31, 2002 compared to
$39.9 million, or 62% of our consolidated revenue, in the year ended December
31, 2001. Although we had an overall increase of $10.2 million, or 26%, in
marketing and advertising expense in the year ending December 31, 2002 compared
to 2001, we were able to increase revenue by $47.4 million, or 74%, during the
same period.

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



| |  |  | Improved brand awareness.We have seen continued improvements in
consumer awareness of LendingTree that resulted in a 67% national brand
awareness in online lending for 2002, up from 59% in 2001. We believe
this has increased the number of consumers using our services.                                                                                                                                                                          
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 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 as
well as the overall low interest rate environment.                                                                                                                                                                                     
|
| |  |  | More product-focused advertising. We have adjusted our advertising
mix to promote both the mortgage and home equity products. We continue
to emphasize the home equity product because it contributes the highest
revenue-per-consumer and therefore has the greatest impact on our
marketing and advertising costs as a percentage of revenue. We also
expect home equity transactions to grow at a faster rate than mortgage
if interest rates rise.
|
| |  |  | 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 $10.3 million increase in marketing and advertising expenses in the
year ended December 31, 2002 as compared to the same period in 2001 is
primarily the result of $6.7 million more in spending for media costs such as
cable television commercials, network radio and internet-based advertisements.
Additionally, we incurred $4.4 million more marketing and advertising expense
with online partners and for the costs of promoting our brand and services
within various third-party membership programs. Partially offsetting these
increases was a $0.8 million decrease in direct-mail campaign spending.

Management intends to continue spending increased amounts on marketing and
advertising, using broadcast and cable television and network radio as our
primary advertising mediums. We will periodically evaluate and use mediums such
as 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
fresh, compelling and relevant.

Sales, general and administrative

Sales, general and administrative expenses primarily include employment
expenses, facilities costs, depreciation and amortization, equity based
non-cash stock compensation charges and professional service fees.

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For the year ended December 31, 2002 these expenses were $32.6 million, or
29% of consolidated revenue, compared to $33.6 million, or 53% of consolidated
revenue, in the year ended December 31, 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 as a result of the scalability of our business
model.

There were several significant contributing factors to the $1.0 million
decrease in sales, general and administrative expenses from year to year.

First, we experienced a $1.7 million decrease in incentive compensation
expense from period to period. In 2001, our total incentive compensation
expense included a $0.4 million cash and stock award to our Chief Executive
Officer for performance and services relative to attainment of key goals.
Additionally, throughout 2001, our results significantly exceeded our
bonus-plan targets and this was reflected in higher estimated incentive
compensation accruals for all employees for that period. However, in the
quarter ended March 31, 2002, when the Board of Directors approved the 2001
bonuses, the payouts were approximately $0.6 million below the December 31,
2001 estimated bonus accrual. As a result of this change in estimate, we
recorded a $0.6 million credit to our operating results in the first quarter of
2002. Further, in 2002 we established fixed upper limits on incentive plan
payouts and we substantially increased our financial targets that had to be
achieved to pay bonuses in full. Accordingly, as a result of these changes,
the incentive compensation expense accrued for the year ended December 31,
2002, was approximately $0.7 million lower than for the same period of 2001.

Additionally, in 2001 we had $1.4 million of non-cash compensation expense
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 year ended
December 31, 2002. This promissory note was repaid in full in December 2002.

Further, amortization and depreciation expenses decreased year to year by
approximately $1.3 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.

These decreases in sales, general and administrative expenses were
partially offset by several increases in expenses. Employee salary and
benefits costs (excluding incentives) were approximately $1.7 million more in
the year ended December 31, 2002 as compared to 2001. These increased costs
were primarily the result of more employees for the period ending December 31,
2002 compared to 2001, reflecting the overall business growth, and increased
health insurance costs.

Additionally, we experienced a $0.4 million increase in bad debt expense
primarily as a result of two customers that encountered financial difficulties
and a $0.4 million increase in travel expenses as a result of new Lenders on
the network and an increase in the number of employees throughout the year. We
also recorded several non-recurring expenses in the second half of 2002. In
September 2002, we recorded a $0.2 million reserve related to the estimated
loss on a sublease arrangement. In December 2002 we recorded $0.6 million of
expense related to the acceleration of the vesting period of certain of our
stock options that were granted below fair market value in December 1999 and
January 2000.

Loss on Impaired Investment

In 2001, we determined that the value of our minority investment in
another company was impaired after its merger with a third company and in light
of the underlying financial condition of that company. Accordingly, we wrote
down the investment to its estimated fair value of $0, recording $0.6 million
as a non-operating loss on impaired investment in the year ended December 31,
2001.

Interest and Other Non-Operating Income

Interest and other non-operating income consist 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-

24



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operating income was
approximately $0.7 million in the year ended December 31, 2002 and $0.6 million
in the year ended December 31, 2001. In the year ended December 31, 2002, we
earned approximately $0.3 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 $0.4
million and $1.1 million for years ended December 31, 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 December 31, 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 December 31, 2002 was approximately $3.80.

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 and recorded a dividend charge of the same
amount. We also recognized 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 (or fair value dividend
charges).

For the remaining three quarters of 2002, we elected to pay the quarterly
dividends in cash. This resulted in dividend charges of $1.4 million while
incurring no additional fair value dividend charges for those periods.

In the aggregate, for the year ended December 31, 2002, we recorded a
total of approximately $3.4 million of cash and fair value dividend charges.

During the year ended December 31, 2001, we elected to pay the scheduled
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 $1.5 million and recorded dividend charges of the same amount.
We also recognized fair value dividend charges of an additional $0.9 million.
Therefore, for the year ended December 31, 2001, we recorded a total of $2.4
million of cash and fair value dividend charges.

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 income (loss) available to common
shareholders. In the years ended December 31, 2002 and 2001, we recorded
approximately $0.7 million and $0.5 million, respectively, of accretion
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

25



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##### 



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. At December 31, 2002, each share of
Series A Preferred Stock was convertible into approximately 1.085 shares of
common stock.

Realization of Deferred Tax Benefits

We have net operating loss carryforwards for income tax purposes of
approximately $112 million available at December 31, 2002 to offset future
federal and state taxable income. These net operating loss carryforwards begin
to expire in 2011. As a result of these significant net operating losses, we
are in a net deferred tax asset position for which a full valuation allowance
has been recorded. We have recorded a full valuation allowance against the
deferred tax asset because management believes there is significant negative
evidence, primarily our historical, cumulative net losses, indicating the
realization of these benefits may not be reasonably assured. We will
periodically re-evaluate the available evidence surrounding the realization of
the deferred tax assets and make adjustments to our valuation allowance as
appropriate.

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2001 Compared to 2000

Revenue

Total revenue was approximately $64.0 million in the year ended December
31, 2001, an increase of $33.2 million, or 108%, from $30.8 million for the
year ended December 31, 2000.

Exchange Revenue

For 2001, our exchange revenue was approximately $57.5 million, or 90% of
our total revenue, compared with approximately $27.5 million, or 89% of total
revenue, for 2000. This is an increase of 109% from year to year. As shown in
the following table, this revenue growth reflected a substantial increase
across all products in the volume of discrete transmissions of qualification
forms (a discrete qualification form can be transmitted to more than one lender
generating multiple transmission fees for the same form) and in the number of
closed loans. Realty Services also contributed $3.9 million to the increase
in total Exchange revenue.

|                            |                |                           |        |                               |        |                               |     |              |       |           |     |       |     |   |        |              |        |           |     |  |     |  |    |  |     | 
|--------------------------- | -------------- | ------------------------- | ------ | ----------------------------- | ------ | ----------------------------- | --- | ------------ | ----- | --------- | --- | ----- | --- | - | ------ | ------------ | ------ | --------- | --- |  | --- |  | -- |  | --- | 
|                            |                |                           |        | Year Ending December 31, 2001 |        | Year Ending December 31, 2000
|                            |                |                           |        |                               |        |                              
|                            |                |                           |        | (in thousands)               
|                            |                |                           |        |                               |        |                               |     | Discrete     |       | Number    |     |       |     |   |        | Discrete     |        | Number   
|                            |                |                           |        |                               |        |                               |     | Transmission |       | of Closed |     |       |     |   |        | Transmission |        | of Closed
|Exchange Transactions -     |                | Revenue                   |        | Volume(*)                     |        | Loans(*)                      |     | Revenue      |       | Volume    |     | Loans
|Mortgage                    |                | $                         | 25,764 |                               |        |                               | 577 |              |       |           | 38  |       |     | $ | 11,133 |              |        |           | 277 |  |     |  | 15 | 
|Home Equity                 |                |                           | 17,660 |                               |        |                               | 216 |              |       |           | 51  |       |     |   | 10,308 |              |        |           | 141 |  |     |  | 32 | 
|Auto, Personal, Credit Card |                |                           | 7,331  |                               |        |                               | 623 |              |       |           | 201 |       |     |   | 4,453  |              |        |           | 298 |  |     |  | 98 | 
|All Other Exchange Fees     |                |                           | 2,170  |                               |        |                               |     |              |       |           |     |       |     |   | 879    |              |        |           |     |  |     |  |    | 
|                            |                |                           |        |                               |        |                               |     |              |       |           |     |       |     |   |        |              |        |           |     |  |     |  |    | 
|                            |                | Subtotal Lending Exchange |        | $                             | 52,925 |                               |     |              | 1,416 |           |     |       | 290 |   |        | $            | 26,773 |           |     |  | 716 |  |    |  | 145 | 
|                            |                |                           |        |                               |        |                               |     |              |       |           |     |       |     |   |        |              |        |           |     |  |     |  |    | 
|Realty Services             |                |                           | 4,553  |                               |        |                               |     |              |       |           |     |       |     |   | 692    |              |        |           |     |  |     |  |    | 
|                            |                |                           |        |                               |        |                               |     |              |       |           |     |       |     |   |        |              |        |           |     |  |     |  |    | 
|                            | Total Exchange |                           | $      | 57,478                        |        |                               |     |              |       |           |     |       |     |   | $      | 27,465       |        |           |     |  |     |  |    |  |    
|                            |                |                           |        |                               |        |                               |     |              |       |           |     |       |     |   |        |              |        |           |     |  |     |  |    | 

(*) 2001
mortgage volume and closed loans presented in the 2001 compared to
2000 Management Discussion and Analysis exclude certain transactions
with third party membership programs. However, for the 2002 compared
to 2001 Management Discussion and Analysis, such amounts have been
included in the mortgage transaction totals.

Discrete transmission volume increased 98% to approximately 1,416,000
qualification forms in 2001 from approximately 716,000 in 2000. We attributed
this increase to several factors:



| |  |  | First, we believe the effectiveness of our advertising
elevated and maintained consumer awareness of the LendingTree brand.
Throughout 2001, we continued to sharpen the focus of our media
expenditures, particularly cable television and online advertising,
targeting key audiences to keep the LendingTree brand name
recognition high. A study performed by a third party for us in 2001
showed that we enjoyed an overall brand awareness of 59% nationally
among our key target audience, adults 18-54, improving from overall
brand awareness of 41% in the prior year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Second, there continued to be an expanding acceptance of the
use of the internet to find a loan. According to various industry
publications, in 2001 the volume of mortgage loans applied for
through the internet was estimated to have more than doubled when
compared to 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  |  | Third, although our revenue and exchange volume have shown
growth both in periods of rising and falling interest rates, we also
believe that the lower interest rate environment during 2001
contributed to the increase in the number of consumers applying for
loans and refinancing existing debt through our exchange. For
example, in 2001, when interest rates were generally
declining, 76% of our mortgage revenue was derived from mortgage
refinancings, approximately double our rate in 2000. Mortgage
revenue was approximately 40% of our total revenue; accordingly the
higher mix of refinancings contributed to 17% of our total revenue
growth in 2001 over 2000. Conversely, in periods of rising
interest rates, we have seen Lenders on our network focus more
aggressively on the qualification forms we send them as volume from
their traditional channels slows down. This also increases our
average number of transmits per qualification form and our closing
rates. Additionally, as interest rates increase, consumers have a
greater incentive to receive multiple competitive loan offers to
ensure they are finding the loan best suited for them.

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Closed loan volume increased 100% to 290,000 in 2001 from 145,000 in 2000.
This increase was substantially all due to the increase in transmission volume
as discussed above.

In order to continue to capitalize on the substantial increases in
transmission volume in 2001 we implemented several significant initiatives
aimed at improving the rate at which loans close through our exchange. 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 December 31, 2001 we had 145 active participating Lenders on
our exchange compared to 114 active participants at December 31, 2000.
Additionally, we began offering several new tools to enable our Lenders to
process and close loans more efficiently, including automation tools and
benchmark studies. We also implemented several closed-loan incentives,
including gift certificates and other payments to reward borrowers for closing
loans through our network of Lenders.

In addition to the volume increases, our revenue is also impacted by our
pricing structure. Through October 2001 we generally charged a set fee to all
Lenders for mortgage and home equity transmissions and closed loans. However,
beginning in November 2001 our revenue was impacted by a pricing change. The
standard fee for a transmitted loan request increased from $8.00 to $9.00 for
both our mortgage and home equity services. The standard fee for closed-loans
also changed, beginning with loans that originated from qualification forms
completed on and after November 5, 2001. For a closed home equity loan the fee
increased from $250 to $275. The standard fee for a closed mortgage loan
changed from a flat $400 to a tiered structure with fees ranging from $300 to
$750 depending on the amount of the loan.

All other lending exchange revenue, as shown in the table above, increased
147% to $2.2 million in 2001 compared to $0.9 million in 2000. The $1.3
million increase was primarily attributed to fees that we earned from
transactions involving arrangements with third party membership programs, such
as Deltas Skymiles and Costco Wholesale, which allow us to provide mortgage
brokerage services to their members. We provide the loan referral to selected
Lenders and earn a fee from the lender for each loan that closes.

Realty Services revenue increased to $4.6 million in 2001 from $0.7
million in 2000. We launched our Realty Services in August 2000.
Consequently, 2001 was our first full year with realty revenue and results for
2000 represented only a partial year. Although the growth in Realty Services
revenue in 2001 was substantially due to 2000 being a partial year, we also
grew this business by increasing our marketing efforts and adding to the number
of real estate professionals participating in our exchange.

Lend-X Technology Revenue

Lend-X technology revenue totaled $6.5 million, or 10% of our revenue, for
2001 compared to $3.3 million, or 11% of revenue for 2000. The growth in
Lend-X technology revenue was the result of several significant new
customizing, licensing and hosting contracts that were entered into in 2001.
These new arrangements typically contained certain up-front fees that are being
recognized as revenue over the expected term of the arrangement. For 2001, two
customers accounted for 35% and 32%, respectively, of our total Lend-X
technology revenue. For 2000 one customer accounted for 71% of our total
Lend-X technology revenue. Additionally, some of our Lend-X arrangements
provide for transactional exchange revenue derived from volume from these third
party sites that have been enabled by our technology. The total of Lend-X
technology and transactional exchange revenue derived from Lend-X customer
sources was approximately $9.6 million and $5.6 million for 2001 and 2000,
respectively, which represents 15% of 2001 and 18% of 2000 total revenue.

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Gross Profit and Cost of Revenue

Our 2001 gross profit of $50.3 million, or 79% of total revenue, improved
by $28.9 million over the 2000 gross profit of $21.4 million, or 70% of total
revenue. The improvement in gross profit and gross profit percentage in 2001
was primarily due to the substantial increase in closed-loans as noted above.
Because closed-loans generate a higher fee for us and because a significant
portion of our costs of revenue are incurred up-front related to the
transmission of a loan request, when more loans close our gross profit tends to
increase. Additionally, some of our costs of revenue did not increase in
direct proportion to the increase in volume. As an example, our volume based
credit-scoring fees increased only 58% and network-hosting fees decreased 42%
as a result of negotiated vendor price reductions that were successful in
lowering our monthly costs.

Overall, our revenue increased over 100% while our total cost of revenue
increased only 46% to $13.7 million in 2001 from $9.4 million in 2000. As
further discussed below, this increase was principally due to costs related to
an increase in the number of closed-loan transactions such as consumer
incentives and other promotional costs.

Exchange Gross Profit and Cost of Revenue

For 2001, our exchange gross profit was $45.0 million, or 78% of exchange
revenue, compared to $20.0 million, or 73% of exchange revenue, for 2000, an
increase of 125%. Our lending exchange segment contributed $24.7 million of
the $25.0 million increase in gross profit over 2000 while our Realty Services
segment added $0.3 million of the increase.

We attribute this increase to the scalability of our exchange business
model. Although our volume increased approximately 100% in 2001 compared to
2000, a proportional increase in costs was not necessary.

Overall, exchange related cost of revenue expenses increased only $4.9
million, or 66%, to $12.4 million in 2001 from $7.5 million in 2000.

The addition of Realty Services in August 2000 contributed to $3.5 million
of this increase in 2001 and reflects the full year impact of increased
staffing and incentives and promotional payments made directly to consumers
that closed a realty transaction with a real estate professional on our
exchange.

The lending exchange accounted for the other $1.4 million of the increase
in exchange cost of revenue in 2001, reflecting the growth in the number of
closed loans in 2001 over 2000, which resulted in an increase in the
promotional payments and gift certificates to consumers who closed a loan
through our exchange.

Lend-X technology Gross Profit and Cost of Revenue

For 2001, Lend-X technology gross profit was $5.3 million, or 81% of
Lend-X technology revenue, compared to $1.5 million, or 44% of Lend-X
technology revenue, for 2000. The lower gross profit percentage in 2000
reflected the impact of expending significant hours on a large fixed-price
customization contract. Comparatively, in 2001, substantially all of our
technology revenue was earned from the revenue recognition of certain fees that
are being recognized over the expected term of each arrangement and from less
labor intensive consulting and implementation projects, resulting in a
significantly improved gross profit for 2001.

Costs of revenue associated with Lend-X technology are principally
employment costs related to customizing and/or implementing Lend-X for third
parties, as well as ongoing server costs related to hosting Lend-
X for these companies. These costs decreased approximately $0.6 million
from 2000 compared to the same period in 2001.

Operating Expenses

Product Development

Product development expense was approximately $4.6 million for 2001
compared to $2.7 million for 2000. Product development costs consist of
expenses incurred related to the ongoing efforts to enhance and maintain the
functionality of our Lend-X technology and our website and include compensation
costs, purchased software and

29



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consulting costs. Compensation costs accounted
for 93% of product development expense in 2001 compared to 74% in 2000. The
overall increase from 2000 to 2001 was principally related to higher staff
levels in the technology department. Additionally, in 2000 there were
approximately $0.9 million more compensation costs classified in cost of
revenue primarily related to a significant labor-intensive, fixed fee contract.

Marketing and Advertising

Marketing and advertising expenses decreased $16.7 million to
approximately $39.9 million for 2001 compared to $56.6 million for 2000.
Marketing and advertising expenses were approximately 62% of our total revenue
in 2001 compared to 184% of our total revenue in 2000. Management uses
variable marketing cost and contribution margin per transmitted qualification
form as key measures of our advertising efficiency. In 2001 our exchange
revenue per transmit was $37.21 while our variable marketing cost per transmit
was $21.70, resulting in a contribution margin of $15.50 per transmit.
Comparatively, in 2000 our exchange revenue per transmit was $37.31 and
advertising cost per transmit was $64.20 for a negative contribution of $26.89
per transmit. The substantial improvement in contribution margin per
transmit, as well as the decrease in advertising costs in 2001 reflects the
following:



| |  |  | In 2000, following the launch of our national advertising campaign,
we spent significantly on combinations of television, radio and other
forms of advertising in order to establish and grow awareness of the
LendingTree brand. Comparatively, during 2001, our focus shifted more
to maintaining and building on the high-level of awareness for our
brand. By improving the targeting of our advertisements, such as
selecting cable television as a primary medium and expanding our
advertisements to include home equity and auto-specific messages, we
were able to improve the cost effectiveness of our ads.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | In 2001, as a result of the continued adoption of online lending, a
declining interest rate environment and decreasing prices in the
advertising market we were able to decrease advertising spending by 30%
over the prior year and still achieve 108% growth in revenue.                                                                                                                                                                                                                                                                                                                                            

Sales, general and administrative

Sales, general and administrative expenses in 2001 decreased to 53% of
total revenue, or $33.6 million, from 92% of total revenue, or $28.3 million in
2000. While our revenue increased $33.2 million in 2001, our sales, general
and administrative costs increased only $5.4 million. We had hired
approximately 130 people throughout 2000; accordingly, the increase in expense
in 2001 is primarily the result of the full year impact, or $3.4 million, of
higher employee compensation and other related costs.

Another $1.4 million of the 2001 increase in sales, general and
administrative expenses is due to non-cash charges incurred as a result of
variable accounting charges related to a loan to our Chief Executive Officer
that was secured by shares of our common stock and Series A Preferred Stock.
This loan was modified in August 2001 resulting in fixed accounting treatment
for this arrangement going forward.

Additionally, the amortization of the intangible assets and software
related to an acquisition made in August 2000 contributed to $2.8 million of
the increase in sales, general and administrative expenses. Depreciation
expense also increased $1.6 million from 2000 to 2001, reflecting new equipment
and software purchases.

Through improved cost management, we were able to reduce our spending on
consulting and travel by approximately $1.9 million in 2001 compared to 2000.
Our recruiting and relocation expenses were approximately $1.0 million lower
due to decreased hiring efforts in 2001. We had 234 employees at December 31,
2001 compared to 230 at December 31, 2000. Bad debt expenses were
approximately $1.0 million lower in 2001 compared to 2000 due to improved
collection efforts.

Loss on Impaired Investment

In February 2000, we made a $2.5 million equity investment in a company
providing wholesale mortgage marketplace services for brokers and lenders over
the internet. In December 2000, we determined that the carrying value of this
investment was impaired and we wrote the investment down to its estimated fair
value of $0.6 million,

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recording $1.9 million as a non-operating loss on
impaired investment. In June 2001, this company and another company merged and
received an additional investment of $9.5 million. We determined that the
value of our investment in this combined company was further impaired based on
our reduced ownership percentage of the combined company, the financial
condition of the combined company, the terms of the preferred securities issued
to the new investors, and the historical losses from operations of both
companies before the merger. Accordingly in June 2001, 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 December 2001, this
company began evaluating strategic alternatives in light of its deteriorating
financial condition. The company announced its plans to sell its assets to
third party in a transaction in which we received no proceeds. Accordingly, we
wrote off the remaining $0.25 million investment as a non-operating loss on
impaired investment for the period ending December 31, 2001.

Interest Income

Interest income consists of interest earned on cash and cash equivalents
and restricted and short-term investments. Interest income decreased to $0.6
million in 2001 from $2.2 million in 2000. This decrease was primarily due to
lower average interest earning account balances in 2001 than in 2000.

Interest Expense, Financing and Other Charges

Interest expense, financing and other charges consist of bank service
charges, interest on capital leases and borrowings and other expenses related
to our credit facilities. The $0.9 million increase in interest and financing
charges in 2001 from 2000 is primarily due to $0.6 million of charges related
to the termination of a credit facility and the issuance of a warrant to
purchase shares of our common stock and a $0.3 million charge related to the
write off of deferred costs associated with an equity line. The equity line
had not yet been used and in the fourth quarter of 2001 management determined
any possible use would be remote. Note 7 to our consolidated financial
statements contained herein provides further details of the terminated credit
facility and the equity line.

Through December 31, 2001, we elected to pay the quarterly dividends on
our Series A Preferred Stock by increasing the stated value per share of the
Series A Preferred Stock. As a result of these dividends, through December 31,
2001, we increased the carrying value of the Series A Preferred Stock on our
balance sheet by approximately $1.5 million. We also recognized, as an
increase to our net loss attributable to common shareholders, an additional
$0.9 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 total, we recorded $2.4 million of dividend charges for the
year ending December 31, 2001.

We are required to redeem all Series A Preferred Stock shares remaining
outstanding on the fifth anniversary of the issue date of such shares 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. As of
December 31, 2001, we had recorded approximately $0.5 million of accretion
charges.

For the year ended December 31, 2000 we recorded dividend charges of $2.5
million on our Series D Preferred Stock, including additional dividend charges
related to the increasing value of the common stock underlying the dividends on
the preferred stock. Effective upon the closing of our initial public offering
of common stock on February 22, 2000, all outstanding shares of Series D
Preferred Stock and accumulated undeclared dividends were converted into shares
of common stock.

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Liquidity and Capital Resources

At December 31, 2002 we had approximately $27.2 million in cash and
restricted cash. For the year ended December 31, 2002, we had $12.6 million
of cash flow from operating activities. We also used $4.3 million in cash for
investing activities, primarily deposits to restricted cash accounts and
investments in computer equipment and software. Our financing activities for
2002 generated $11.0 million in cash, primarily from common stock sales,
exercises of stock options and repayment of a loan by our Chief Executive
Officer. As of December 31, 2002 we had an increase in cash from December 31,
2001 of $19.3 million.

Restricted cash at December 31, 2002 ($4.5 million) and 2001 ($2.8
million) primarily includes funds that are maintained in an escrow account
established by us and our advertising agency to maintain funds set aside by us
for expenditures and services of the advertising agency. Disbursements from
the escrow account can only be made for advertising expenditures we have
approved in advance. In addition, at December 31, 2002, $1.6 million of the
restricted cash balance represents funds set aside as collateral for a letter
of credit issued by our 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.

We believe that the existing cash and cash equivalents, restricted cash
and cash generated from operations will be sufficient to fund our operating and
capital needs and the payment of cash dividends to the holders of our Series A
Preferred Stock through 2003. We believe cash from operations will be
generated from revenue growth resulting from the continued growth in
online-lending, expansion of our network of Lenders and real estate brokers 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 and
utilizing our new, product-focused advertisements and by developing business
relationships with significant web-portals and finance-oriented online
businesses.

Although we have historically experienced significant revenue growth and
have achieved positive cash flows from operations in 2002, the operating
results for future periods are subject to numerous uncertainties. While there
are many factors that can influence consumer loan demand, such as increased
brand awareness, advertising spending and other company initiatives, we believe
the continued historical low levels of mortgage interest rates have generally
influenced consumers to seek and close purchase mortgages or to refinance their
existing mortgages. Significant increases in interest rates may deter
consumers from seeking loan products such as mortgage and auto loans, which may
result in lower consumer volume on our site.

Further, 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. However, if revenue does not
grow as anticipated or if we are unable to successfully raise additional debt
or equity capital, management would reduce discretionary operating
expenditures, including advertising and marketing and certain administrative
and overhead costs. Failure to generate sufficient revenue or to reduce costs
as necessary could have a material adverse effect on our ability to continue as
a going concern and achieve our business objectives.

If needed, additional financing may not be available or, if available,
such financing may not be on terms favorable to us. If additional funds are
raised through the issuance of equity securities, our shareholders may
experience significant dilution.

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Contractual Obligations

The following table represents the amounts of payments due under the
specified types of contractual obligations:

|                                |  |                             |       |             |  |            |       |            |  |   |        |  |  |   |       | 
|------------------------------- |  | --------------------------- | ----- | ----------- |  | ---------- | ----- | ---------- |  | - | ------ |  |  | - | ----- | 
|                                |  | Payments Due (in thousands)
|                                |  |                            
|                                |  | Less than                   |       | One to      |  | Three to   |       | More than 
|Obligation                      |  | one year                    |       | three years |  | five years |       | five years
|                                |  |                             |       |             |  |            |       |           
|Long-term debt (1)              |  | $                           |      |             |  | $          |      |            |  | $ | 23,913 |  |  | $ |      | 
|Capital lease (2)               |  |                             | 666   |             |  |            | 323   |            |  |   |        |  |  |   |       | 
|Operating lease (2)             |  |                             | 1,444 |             |  |            | 2,416 |            |  |   | 2,225  |  |  |   | 3,189 | 
|Purchase obligations (3)        |  |                             | 7,559 |             |  |            | 1,987 |            |  |   |        |  |  |   |       | 
|Other long-term liabilities (4) |  |                             | 55    |             |  |            |       |            |  |   |        |  |  |   |       | 
|                                |  |                             |       |             |  |            |       |            |  |   |        |  |  |   |       | 
|                                |  | $                           | 9,724 |             |  | $          | 4,726 |            |  | $ | 26,138 |  |  | $ | 3,189 | 
|                                |  |                             |       |             |  |            |       |            |  |   |        |  |  |   |       | 



| | (1) |  | Includes the required redemption of our Series A Preferred
Stock. See note 8 to our consolidated financial statements herein
for further details related to our Series A Preferred Stock.
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | Includes our obligations under existing capital and operating
leases. See note 10 to our consolidated financial statements herein
for further details related to our lease obligations.  
|
| | (3) |  | Represents fixed payments due under contractual arrangements
primarily under marketing and advertising arrangements with online
businesses.                                              
|
| | (4) |  | Primarily represents security deposits obtained from Lenders
on our exchange.                                                                                                            

Factors That May Affect Our Results of Operations or Reported Results

In addition to the other information in this Form 10-K, the following
factors should be considered in evaluating LendingTree. If any of the events
or circumstances described in the following risk factors actually occurs, our
business, financial condition or results of operations may suffer.

The Estimates and Judgments Used in the Preparation of Our Financial
Statements

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.

The significant accounting policies listed in note 3 to the consolidated
financial statements, included herein beginning on page F-1, affect our
estimates and judgments in preparing the consolidated financial statements.

Specifically, these significant estimates affect our results of operations
and financial condition as follows:



| |  | Under our incentive compensation plan, employees can earn
awards based on achievement of various financial and operational
performance factors or other specific goals. The actual award
formula may vary by individual and the goals are not the same from
year to year. During the year, management makes monthly estimates
of the amount of an award each employee has earned based on levels
of achievement relative to the goals and performance factors.
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. Under our 2002
incentive
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | compensation plan, 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. As of December 31, 2002 we had $4.7 million
remaining in an accrual for the 2002 plan year bonus payouts and
for the year then ended had charged $5.1 million to operating
income as incentive compensation expense. For 2002, the
Companys results were substantially above targeted levels and in
many cases individual bonus earnings hit established maximum
amounts. 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 would have
increased (or decreased) 10% from the above-target revenue
and earnings levels for the year, the expected payout for the
year would have increased (or decreased) by approximately $0.1
million and our incentive compensation charged to operating
income through December 31, 2002 would have been $0.1 million
higher (or lower).
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | If the employees actually achieved 90% (or 70%)
of their individual performance goals instead of the 80% we
had calculated, the expected payout for the year would have
increased (or decreased) by approximately $0.1 million and our
incentive compensation charged to operating income through
December 31, 2002 would have been $0.1 million higher (or
lower).            



| |  | At December 31, 2002 we have $1.3 million of intangible
assets, net of accumulated amortization on our balance sheet related
to the real estate agent network and affinity program partner
contracts we acquired from HomeSpace, Inc. in August 2000. We are
amortizing these assets over their estimated useful lives ranging
from 2 to 3.75 years. We estimate the useful lives of these assets
considering our expected use of the assets, technological advances
and the competitive environment.                                                                                                                                                                                                                                                                                                                                                 
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | For Lenders joining our exchange, we charge an initial set-up
and implementation fee, generally ranging from $5,000 to $20,000.
For these arrangements we estimate the expected life of that
relationship under the contract terms and recognize the applicable
revenue and costs over that period if it is longer than the stated
term of the related contract. Currently, our estimates of the
expected term of the initial Lender arrangement are 2 years. At
December 31, 2002 we had approximately $1.2 million of deferred
revenue and $0.1 million of deferred cost related to such
arrangements. 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.                                          
| 
| |  | We estimate liabilities for payouts under various consumer
promotional programs. In order to estimate the expected payout for
any period we consider historical payout levels, the number of
consumers the promotions are being offered to and the rate at which
consumers have historically responded to the promotions. At
December 31, 2002, the accruals for consumer promotional programs
totaled $1.3 million. Of that amount, approximately $1.0 million of
the accrual is fixed or known based on actual transactions and
calculations of amounts owed and $0.3 million is estimated for
expected payments based on historical trends and consumer
participation levels.                                                                                                                                                                      
| 
| |  | We account for income taxes using the liability method
whereby deferred tax assets or liabilities are recognized for the
temporary differences between financial reporting and tax bases of
our
assets and liabilities and for tax carryforwards. In estimating
future tax consequences, we generally consider all expected future
events other than enactment of changes in tax law or rates. If it
is more likely than not that some portion or all of a deferred
tax asset will not be realized, a valuation allowance is recorded.
The valuation allowance is based on our judgment as to future
taxable income in light of historical results, the current
environment, forecasted performance and other factors. In making
these judgments we consider the evidence, giving greater weight to
historical results than forecasted improvements.

Actual results could differ from our estimates.

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Risks Related to Our Financial Condition

Our Limited Operating History Makes Our Business and Prospects Difficult
to Evaluate.

We have a limited operating history. We were formed in 1996 and began
serving consumers across the United States in July 1998. There is little
significant historical basis to assess how we will respond to competitive,
economic or technological challenges. Our business and prospects must be
considered in light of the risks and uncertainties frequently encountered by
companies in the early stages of development, particularly companies like ours,
which operate in new and rapidly developing online marketplaces. Our failure
to address these risks and uncertainties could materially impact our results of
operations and financial condition.

The Long-Term Viability of Our Business Model is Unproven and Could Fail.

The long-term viability of our business model is unproven and no
assurances can be made that we will be able to sustain profitability. Our
revenue model depends heavily on revenue generated from Lenders participating
in our network who pay us fees based upon their receipt of credit requests
(referred to as transmission fees) and fees based upon loan closings (referred
to as closed-loan fees). We have rapidly achieved broad market acceptance of
our service by both Lenders and consumers who have traditionally used other
means to lend and borrow money. However, to maintain profitability, we must
maintain such broad market acceptance. In addition, although we have attracted
a sufficient number of consumers with credit profiles targeted by our Lenders
and the revenue per consumer has exceeded the cost of attracting such consumer,
there is no guarantee that we will continue to be able to attract sufficient
customers or that the revenue per customer will exceed the costs of attracting
the customer. We cannot accurately predict what, if any, changes we would
make to our business model in response to any uncertainties in the lending
market.

Our Operating Results May Be Negatively Impacted By Significant
Fluctuations in Interest Rates.

Although we have historically demonstrated growth during periods of either
rising or falling interest rates, future operating results may be negatively
impacted by significant fluctuations in key interest rates.

Mortgages are in a market segment that is traditionally impacted by
significant changes in interest rates. In 2002, when interest rates were
generally falling, revenue from mortgage transactions represented approximately
53% of our total revenue. Further, revenue from mortgage refinancing
transactions alone represented approximately 39% of our total revenue. While,
our business has continued to show increases in transmitted qualification forms
and loan closings for all of our products, there can be no assurances that
during future periods of rising interest rates that we will not experience a
decline in consumers using our services due to shrinking credit demand.
Conversely, during periods of robust credit demand, typically associated with
falling interest rates, Lenders may have less incentive to use our marketplace.
Either of these events could reduce our revenue and we cannot assess the
effects of interest rates on our business over a broad range of interest rate
environments.

Our Quarterly Operating Results Are Not an Indication of Our Future
Results.

Our quarterly operating results may fluctuate significantly in the future
due to a variety of factors that affect our revenue or expenses in any
particular quarter, and investors should not rely on the results for any period
as an indication of future performance. Our quarterly results will fluctuate
in part based on the demand for and supply of consumer loans, which are a
function of seasonal demand and fluctuations in interest rates and related
economic factors, all of which are outside of our control. These temporary
fluctuations could adversely affect our business. If revenue falls below our
expectations in any quarter and we are unable to quickly reduce our spending in
response, our operating results would be lower than expected.

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In addition, we expect that as our business matures we will experience
seasonal fluctuations in our operating results due to fluctuations in consumer
demand during the year, particularly for mortgage loans. For example, home
buying behavior is seasonal. Typically there are a greater number of mortgage
closings in the second and third quarters of a year as compared to the first
and fourth quarters. Because of our limited operating history, it has not been
possible for us to assess the impact of seasonal effects on our business.

Pledged Assets

Under our revolving credit facility with GE, we have pledged our accounts
receivable as collateral security. As of December 31, 2002, we have no
borrowings from this credit facility.

Risks Related To Our Markets And Strategy

Our Continued Success Is Dependent Upon Increased Acceptance Of The
Internet By Consumers And Lenders As A Medium For Lending.

Increased consumer use of the internet is subject to uncertainty. If
consumer and lender acceptance of our online exchange does not increase, our
business will not succeed. The online lending market is new and rapidly
developing. The adoption of online lending in general, and our exchange in
particular, requires the acceptance of a new way of conducting business,
exchanging information and requesting credit by consumers, as well as
acceptance by Lenders that have historically relied upon traditional lending
methods. As a result, we cannot be sure that we will be able to compete
effectively with traditional borrowing and lending methods.

Lenders In Our Network Are Not Precluded From Offering Consumer Credit
Products Outside Our Exchange.

If a significant number of our potential consumers are able to obtain
loans from our participating Lenders without utilizing our service, our ability
to generate revenue may be limited. Because we do not have exclusive
relationships with the Lenders whose loan products are offered on our online
exchange, consumers may obtain offers and loans from these Lenders without
using our service. Our Lenders can offer their products directly to consumers
through brokers, mass marketing campaigns, or through other traditional methods
of credit distribution. These Lenders can also offer their products over the
internet without using our Lend-X technology, either directly to prospective
borrowers, through one or more of our online competitors, or both.

If Our Participating Lenders Do Not Provide Competitive Levels Of Service
To Consumers, Our Brand Could Be Harmed And Our Ability To Attract Consumers To
Our Website Could Be Limited.

Our ability to provide a high-quality borrowing experience depends in part
on consumers receiving competitive levels of convenience, customer service,
pricing terms and responsiveness from our participating Lenders. If our
participating Lenders do not provide consumers with competitive levels of
convenience, customer service, price and responsiveness, the value of our brand
may be harmed, our ability to attract consumers to our website may be limited
and the number of consumers using our service may decline.

If We Are Unable To Maintain Our Brand Recognition, Consumer And Lender
Demand For Our Services May Decrease

If we fail to promote and maintain our brand successfully, or incur
significant expenses in promoting our brand and fail to generate a
corresponding increase in revenue as a result of our branding efforts, our
business could be materially adversely affected. We believe we have
successfully built a recognizable brand. We believe that continuing to build
and maintain brand awareness of the LendingTree exchange is critical to
achieving increased demand for our service. Brand recognition is a
key-differentiating factor among providers of online lending services, and we
believe it will be increasingly important as competition intensifies. In order
to increase our brand awareness, we must succeed in our marketing efforts,
provide high-quality services and increase the number of consumers using our
exchange. If visitors to our website do not perceive our existing service to be
of high quality or if we alter or modify our existing service, introduce new
services or enter into new business ventures that are not

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favorably received,
the value of our brand could be diluted, which could decrease the
attractiveness of our service to consumers and Lenders.

Continued Terrorist Attacks, War or Other Civil Disturbances Could Lead to
Further Economic Instability and Depress Our Stock Price or Adversely Affect
Our Business.

On September 11, 2001, the United States was the target of terrorist
attacks of unprecedented scope. These attacks have caused instability in the
global financial markets and contributed to the volatility of the stock prices
of many United States publicly traded companies. In the future, there may be
armed hostilities, further acts of terrorism and civil disturbances in the
United States or elsewhere, which may further contribute to economic
instability in the United States. Additionally, such disturbances could have a
material adverse effect on our business, financial condition and operating
results.

Risks Related To The Internet And Our Technology Infrastructure

We May Experience Reduced Visitor Traffic, Reduced Revenue And Harm To Our
Reputation In The Event Of Unexpected Network Interruptions Caused By System
Failures.

Since a majority of the consumer demand for loans at LendingTree is
received via the internet, any significant failure to maintain the satisfactory
performance, reliability, security and availability of our website, filtering
systems or network infrastructure may cause significant harm to our reputation,
our ability to attract and maintain a high volume of visitors to our website,
and to attract and retain participating consumers and Lenders. Our revenue
depends in large part on the number of credit requests submitted by consumers.
Any system interruptions that result in the inability of consumers to submit
these credit requests, or more generally the unavailability of our service
offerings, could have an adverse impact on our revenue. In addition, we believe
that consumers who have a negative experience with our website may be reluctant
to return to our website or recommend LendingTree to other potential consumers.
If an outage occurs, it may severely harm our reputation and our ability to
offer our service. Our computer hardware is located in leased facilities in
Beltsville, Maryland. If this location experienced a system failure, the
performance of our website would be harmed. These systems are also vulnerable
to damage from fire, floods, power loss, telecommunications failures, break-ins
and similar events. Our insurance policies may not compensate us for any losses
that may occur as a result of any failures or interruptions in our systems. Any
extended period of disruptions could materially adversely affect our business,
results of operations and financial condition.

Breaches Of Our Network Security Could Subject Us To Increased Operating
Costs As Well As Litigation And Other Liabilities.

Any penetration of our network security or other misappropriation of our
users personal information could cause interruptions in our operations and
subject us to liability. Claims against us could also be based on other misuses
of personal information, such as for unauthorized marketing purposes. These
claims could result in litigation and financial liability. Security breaches
could also damage our reputation with our consumers, Lenders, brokers and
service providers. We rely on licensed encryption and authentication
technology to effect secure transmission of confidential information. It is
possible that advances in computer capabilities, new discoveries or other
developments could result in a compromise or breach of the technology that we
use to protect consumer transaction data. We cannot guarantee that our security
measures will prevent security breaches. We may be required to expend
significant capital and other resources to protect against and remedy any
potential or existing security breaches and their consequences.

We also face risks associated with security breaches affecting third
parties conducting business over the internet. Consumers are generally
concerned with security and privacy of the internet and any publicized security
problems could inhibit the growth of the internet and, therefore, our online
business.

Failure To Protect Our Intellectual Property Rights Could Impair Our
Ability To Compete Effectively.

Failure to protect our intellectual property could harm our brand and our
reputation, devalue our content in the eyes of our customers and adversely
affect our ability to compete effectively. Further, enforcing or defending

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our
intellectual property rights, including our service marks, patent, copyrights
and trade secrets, could result in the expenditure of significant financial and
managerial resources. We regard our intellectual property as important to our
success. We rely on a combination of patent, trademark and copyright law, trade
secret protection, confidentiality agreements, and other contractual
arrangements with our employees, affiliates, clients, Lenders, real estate
brokers and others to protect our property rights. The protective steps we have
taken may be inadequate to deter misappropriation of our proprietary
information. We may be unable to detect the unauthorized use of, or take
appropriate steps to enforce, our intellectual property rights. We may be
unable to prevent third parties from acquiring domain names that are similar
to, infringe upon or diminish the value of our trademarks and other proprietary
rights. We have applied for a U.S. patent and filed a Patent Cooperation
Treaty international patent application on our Lend-X technology and our online
loan market process. While the number of software and business method patents
issued by the U.S. Patent and Trademark Office has been growing substantially
in recent years, there is still a significant degree of uncertainty associated
with these patents. It is possible that our patent applications will be denied
or granted in a very limited manner such that they offer little or no basis for
us to deter competitors from employing similar technology or processes or
allows us to defend against third party claims of patent infringement.

Risks Related To Legal And Regulatory Uncertainty

As an operator of an online exchange we may be liable as a result of
information retrieved from our website or the websites of businesses with which
we maintain relationships. Further, we may be subject to legal claims relating
to information that is published or made available on our website and the other
websites linked to it. Our service may subject us to potential liabilities or
claims resulting from:



| |  |  | Lost or misdirected messages from our network Lenders, consumers or vendors;      
| | - |  | ----------------------------------------------------------------------------------
|
| |  |  | Illegal or fraudulent use of e-mail; or                                           
|
| |  |  | Interruptions or delays in transmission of qualification forms or Lenders offers.

In addition, we could incur significant costs in investigating and
defending such claims, even if we ultimately were not found liable. If any of
these events occur, our business could be materially adversely affected.

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.

The loan products and services available through our website and the real
estate agent referral and other business relationships in which we operate
essentially as a non-processing mortgage broker are subject to extensive
regulation by various federal and state governmental authorities. Because of
uncertainties as to the applicability of some of these laws and regulations to
the internet and, more specifically, to our business, and considering our
business has evolved and expanded in a relatively short period of time, we may
not always have been, and may not always be, in compliance with applicable
federal and state laws and regulations. Failure to comply with the laws and
regulatory requirements of federal and state regulatory authorities may result
in, among other things, revocation of required licenses or registrations,
termination of contracts without compensation, loss of exempt status,
indemnification liability to Lenders and others doing business with us,
administrative enforcement actions and fines, class action lawsuits, cease and
desist orders, and civil and criminal liability. The occurrence of one or more
of these events could materially affect our business and results of operations.

Many States Require Us To Obtain and Maintain Licenses To Offer Many Of
Our Products And We Are Not Licensed to Offer all of Our Products in Every
State.

Many, but not all, states require licenses to solicit or broker to
residents of those states loans secured by residential mortgages and other
consumer loans, including credit card, automobile and personal loans. We are
currently neither licensed nor able to accept credit requests for all loan
products in every state. We are not currently accepting credit requests for
loan products from residents of states in which we are not licensed to provide
those products or are exempt from licensing. In many of the states in which we
are licensed, we are subject to examination by regulators. In addition, we are
required to obtain real estate broker licenses, additional mortgage broker
licenses and individual customer care department personnel licenses in numerous
states. Failure to obtain these licenses and approvals could prevent us from
receiving fees from the real estate agent referral and mortgage services
programs we offer and may subject us to the types of fines, forfeitures and
litigation discussed above.

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If Our Lenders Fail to Produce Required Documents for Examination by State
Regulators, We May be Subject to Fines, Forfeitures and the Revocation of
Required Licenses

Many of the states in which we maintain licenses require us to collect
various loan documents from our Lenders and produce the documents for
examination by state regulators. While our Lenders are contractually obligated
to provide these documents to us upon request, we cannot assure that the
measures we have taken to obtain loan documents from Lenders will be
sufficient. Failure to produce required documents for examination could result
in fines and forfeitures of the type described above as well as the revocation
of our licenses to operate in key states, resulting in a material adverse
affect on our business, results of operation and financial conditions.

Because Some State Regulations Impose Filing Obligations On Some Of Our
Largest Stockholders And Customers, If Any Of These Parties Fail To Comply With
These Filing Obligations, We May Be Unable To Obtain Or Maintain Necessary
Licenses In These States For Reasons Beyond Our Control.

Regulations promulgated by some states may impose compliance obligations
on any person who acquires 10% or more of our common stock, including requiring
that person to periodically file financial and other personal and business
information with those state regulators. If any person acquires 10% or more of
LendingTrees common stock and refuses or fails to comply with these
requirements, we may not be able to obtain a license and existing licensing
arrangements in particular states may be jeopardized. The inability to obtain,
or the loss of, required licenses could have a material adverse effect on our
operations or financial condition. The parties conducting business with us,
such as Lenders and other website operators, similarly may be subject to
federal and state regulation. These parties act as independent contractors and
not as our agents in their solicitations and transactions with consumers.
Consequently, we cannot ensure that these entities will comply with applicable
laws and regulations at all times. Failure on the part of a lender or other
website operator to comply with these laws or
regulations could result in, among other things, claims of vicarious
liability or a negative impact on our reputation. The occurrence of one or more
of these events could materially adversely affect our business, results of
operation and financial condition.

Regulation Of The Internet Is Unsettled, And Future Regulations Could
Inhibit The Growth Of The Internet, Decrease The Number Of Visitors To
LendingTrees Website Or Otherwise Materially Adversely Affect Our Business.

Existing laws and regulations specifically regulate communications and
commerce on the internet. Additional laws and regulations that address issues
such as user privacy, pricing, online content regulation, online real estate
referral services, taxation, and the characteristics and quality of online
products and services are under consideration by federal, state and local
governments and agencies as well as trade groups and other self regulating
organizations. Several telecommunications companies have petitioned the
Federal Communications Commission to regulate internet service providers and
online service providers in a manner similar to the regulation of long distance
telephone carriers and to impose access fees on such companies. This
regulation, if imposed, could increase the cost of transmitting data over the
internet. Moreover, it may take years to determine the extent to which existing
laws relating to issues such as intellectual property ownership and
infringement and personal privacy are applicable to the internet. Many of these
laws were adopted prior to the advent of the internet and related technologies
and, as a result, do not contemplate or address the unique issues of the
internet and related technologies. The Federal Trade Commission and government
agencies in certain states have been investigating internet companies regarding
their use of personal information. We could incur additional expenses if any
new regulations regarding the use of personal information are introduced or if
these agencies choose to investigate our privacy practices. Any new laws or
regulations relating to the internet, or new application or interpretation of
existing laws, could inhibit the growth of the internet as a medium for
commerce or credit procurement which could, in turn, decrease the demand for
our service or otherwise materially adversely affect our business, results of
operation and financial condition.

We May Be Limited Or Restricted In The Way We Establish And Maintain Our
Online Relationships By Laws Generally Applicable To Our Business.

As a computer loan origination system or mortgage broker conducting
business through the internet, we face an additional level of regulatory risk
given that most of the laws governing lending transactions have not been
substantially revised or updated to fully accommodate electronic commerce.
Until these laws, rules and regulations are revised to clarify their
applicability to transactions conducted through electronic commerce, any
company

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providing loan-related services through the internet or other means of
electronic commerce will face compliance uncertainty. The applicability of
existing or future referral fee prohibitions to the compensation provisions of
fee advertising, marketing, distribution and cyberspace rental arrangements
used by online companies like us may have the effect of reducing the types and
amounts of fees that we may charge or pay in connection with real
estate-secured products.

For example, the Real Estate Settlement Procedures Act, or RESPA, and
related regulations generally prohibit the payment or receipt of fees or any
other item of value for the referral of a real estate-secured loan to a loan
broker or lender. RESPA and the related regulations also prohibit fee shares or
splits or unearned fees in connection with the provision of residential real
estate settlement services, including mortgage brokerage and lending services.
Notwithstanding these prohibitions, RESPA permits payments for goods or
facilities furnished or for services actually performed, so long as those
payments bear a reasonable relationship to the market value of the goods,
facilities or services provided. Failure to comply with RESPA may result in,
among other things, administrative enforcement actions, class action lawsuits,
cease and desist orders and civil and criminal liability. The mortgage and home
equity products offered through LendingTrees exchange are residential real
estate secured loans subject to these provisions of RESPA. Consequently, our
online relationships with Lenders, distribution partners, affiliates and other
companies and websites on which we offer services are subject to RESPAs
prohibitions on payment or receipt of referral fees for referrals and for
unearned fees or fee splits. We believe that we have structured these
relationships to comply with RESPA. The applicability of RESPAs referral fee
and fee
splitting prohibitions to these types of internet-based relationships,
however, is unclear and the appropriate regulatory agency has provided limited
guidance to date on the subject.

Risks Related to Our Stock Price and Corporate Control

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.

Sales of a substantial number of shares of our common stock in the public
market could cause a reduction in the market price of our common stock. A
substantial number of our outstanding shares of common stock are eligible for
resale in the public market. As of January 31, 2002, we had 22,618,293 common
shares issued and outstanding. We also had 5,996,676 shares of Series A
Preferred Stock, convertible into 6,506,548 shares of common stock, outstanding
at January 31, 2002. The holders of the Series A Preferred Stock are entitled
to receive quarterly dividends equal to eight percent (8%) per annum of the
stated value per share payable at our option (i) in cash on each quarterly
dividend date or (ii) by an upward adjustment to the stated value per share on
each dividend payment date. If we were to resume paying the dividends with
adjustments to the stated value per share, the accrued dividends would result
in additional shares of common stock being issued upon conversion of shares of
Series A Preferred Stock. At January 31, 2002, we also had outstanding
6,489,753 stock options to purchase shares of common stock and 184,397 warrants
to purchase shares of common stock. Moreover, we may issue additional shares in
acquisitions and may grant additional stock options to our employees, officers,
directors and consultants under our stock option plan. Any substantial sales of
such shares may cause our stock price to decline.

Holders Of Our Series A Preferred Stock Have Greater Rights And
Preferences Than Our Common Stockholders.

The holders of our Series A Preferred Stock have rights and preferences
that are senior to those of our common stockholders in many significant
respects. The existence of these rights and preferences may, in a given
situation, result in a reduction in the value of our common stock. Among the
preferential rights afforded to the holders of our Series A Preferred Stock are
the following:



| |  | Dividends and Distributions. Dividends must be paid to the holders of
the Series A Preferred Stock prior to and in preference to the common
stock.                                                                                                                                                                                                                                                                                 
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Redemption Premium. We are required to redeem all shares of Series A
Preferred Stock that remain outstanding on March 20, 2006 at a 5%
premium to the then current stated value per share, which equals
$3.50 per share, plus accrued dividends. If a significant portion of
the Series A Preferred Stock remains outstanding on March 20, 2006,
all or substantially all of our assets may be necessary to fund this
redemption.

40



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##### 





| |  | Price Protection. In certain circumstances, the economic value of the
investment in our Series A Preferred Stock is protected against future
sales of common stock by us at prices below $3.50 per share. If we
sell additional securities at a price below $3.50 per share, the price
at which the Series A Preferred Stock converts into common stock may
be adjusted downward, which would automatically entitle these holders
to receive additional shares of common stock upon conversion. No such
protection exists with respect to our common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Protective Provisions. So long as more than 1,377,143 shares of our
Series A Preferred Stock are outstanding, we are restricted from
engaging in a variety of corporate actions without the consent of
68.5% of the shares of Series A Preferred Stock then outstanding.
These provisions may impede managements ability to conclude
transactions that it believes to be in the best interests of all
stockholders.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| 
| |  | Liquidation Preference. In the event LendingTree is liquidated or
dissolves, the holders of our Series A Preferred Stock will be
entitled to receive a liquidation preference equal to 105% of the then
current stated value per share, before any distributions may be made
to holders of our common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| 
| |  | Change in Control. Upon a merger or change in control, holders of our
Series A Preferred Stock may have the right to receive the greater of
the liquidation preference described above or the consideration that
they would have received if they had converted their shares of Series
A Preferred Stock into common stock immediately prior to the
consummation of the merger or change in control event. In a non-cash
transaction, the holders of Series A Preferred Stock may effectively
require that the counterpart to such transaction redeem the
convertible preferred stock for a cash amount equal to the liquidation
preference. Finally, in connection with a merger or a change in
control, the holders of our Series A Preferred Stock may also have the
right to continue to hold the Series A Preferred Stock, in which case
the change of control event may result in or trigger an adjustment of
the conversion price as discussed above. These provisions may inhibit
our ability to consummate a merger or change in control transaction
and will likely reduce the proceeds of any such transaction to our
common stockholders.

Any of the foregoing rights and preferences may, in a given situation,
disadvantage the holders of our common stock and may reduce the market price of
our common stock.

It May Be Difficult For A Third Party To Acquire LendingTree, Which Could
Depress Our Stock Price.

Delaware corporate law and our amended and restated certificate or
incorporation and by-laws contain provisions that could have the effect of
delaying, deferring, or preventing a change in control of LendingTree that our
management and stockholders may consider favorable or beneficial. These
provisions could discourage proxy contests, diminish the opportunities for our
stockholders to participate in tender offers and make it more difficult for
stockholders to elect directors and take other corporate actions. These
provisions could also limit the price that investors might be willing to pay in
the future for shares of our common stock. These provisions include:



| |  | Authorization to issue blank check preferred stock, which is preferred
stock that can be created and issued by the board of directors without
prior stockholder approval, with rights senior to our common
stockholders;                                                               
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | A staggered board of directors, so that it would take three successive
annual meetings to replace all directors;                                                                                                                                                                       
| 
| |  | A requirement that business combinations either be approved by 80% of
our stockholders or a majority of our continuing directors (or by a
majority of our stockholders other than the acquiring person), or
provide consideration to our stockholders in excess of established
amounts;
| 
| |  | Prohibition of stockholder action by written consent;                                                                                                                                                                                                                                  
| 
| |  | Advance notice requirements for the submission by stockholders of
nominations for election to the board of directors and for proposing
matters that can be acted upon by stockholders at a meeting; and                                                                                

41



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##### 





| |  | A stockholder rights agreement that makes it more difficult for a
third party to acquire us without the support of our board of
directors and principal stockholders.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

We are also afforded the protections of Section 203 of the Delaware
General Corporation Law, which could delay or prevent a change in control of
our company or could impede a merger, consolidation, takeover or other business
combination involving our company or discourage a potential acquirer from
making a tender offer or otherwise attempting to gain control of our company.

Our Executive Management Team And Directors And Entities Affiliated With
Them, Whose Interests May Differ From Other Stockholders, Have The Ability To
Exercise Significant Control Over Us.

Our executive management team, directors and entities affiliated with
them, as a group, beneficially own approximately 31% of our voting stock
(common and preferred) considered together as a single class with the preferred
voting on an as-converted basis. These stockholders are able to exercise
significant influence over all matters requiring approval by our stockholders,
including the election of directors and the approval of significant corporate
transactions, including a change of control of LendingTree. The interests of
these stockholders may differ from the interests of our other stockholders.

Recent Accounting Pronouncements

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations, which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. This statement requires that the fair
value of a liability for an asset retirement obligation be recognized in the
period in which it is incurred if a reasonable estimate of fair value can be
made. This statement is effective for financial statements issued for fiscal
years beginning after June 15, 2002. Accordingly, we will adopt SFAS No. 143
on January 1, 2003. Because we do not presently have any asset retirement
obligations, we do not expect the impact of adopting this statement on our
results of operations, financial condition, or cash flows to be significant.

In December 2002 the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure, which amends SFAS No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. These provisions of SFAS No. 148 are effective for financial
statements for fiscal years ending after December 15, 2002. LendingTree has
not and does not anticipate implementing the voluntary change to the fair value
based method of accounting for stock-based compensation. LendingTree has
implemented the disclosure provisions of SFAS No. 148 beginning with the
December 31, 2002 consolidated financial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risks

On July 13, 2001, LendingTree and GE Capital Commercial Services, Inc.
entered into a two-year loan and security agreement and revolving credit note.
Under this arrangement, borrowings will bear interest at the prime rate
determined on the last business day of the preceding calendar month. As of
December 31, 2002 the interest rate in effect for us was 4.25% and we had no
borrowings outstanding under this facility. However, 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. Our Series A Preferred Stock exposes us to market risk to the extent
that dividends are paid in adjustments to stated value and not in cash.

42



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##### 



Dividends on our Series A Preferred Stock that are paid by increasing the
stated value will be recorded based on the fair value of the underlying common
stock into which the additional value is convertible. For the year ended
December 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. This was only for the quarter ended March 31, 2002, as we paid the
quarterly dividends in cash for the remainder of the year. As an example, if
we were to discontinue paying these quarterly dividends in cash and revert to
settling the dividend obligations by increasing the stated
value of the preferred stock and if the market price of our common stock
were to increase $2.00 per quarter over the next twelve months from $12.88 at
December 31, 2002, we would incur additional fair-value dividend charges of
approximately $7.5 million during that twelve-month period. Conversely, if the
market price of our common stock were to decrease $1.00 per quarter from $12.88
over the next twelve months, we would incur additional fair-value dividend
charges of approximately $2.3 million during that twelve-month period.

Item 8. Financial Statements and Supplementary Data

Financial Statements:

The Financial Statements required to be presented under Item 8 are hereby
incorporated by reference to the Financial Statements beginning at page F-1 of
this Form 10-K.

Supplementary Data:

Quarterly Results of Operations

The following table (presented in thousands, except per share amounts)
sets forth a summary of our unaudited quarterly results of operations for each
of the eight quarters in the two-year period ended December 31, 2002. This
information has been derived from unaudited interim financial statements.
Management believes that this unaudited information has been prepared on a
basis consistent with financial statements contained elsewhere in this Form
10-K and includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the information for the
quarters presented. This information should be read in conjunction with our
consolidated financial statements and the accompanying notes included elsewhere
in this Form 10-K. Historical results for any quarter are not necessarily
indicative of the results to be expected for any future period.

|                                                                                       |  |                                                  |        |          |  |         |        |         |  |         |        |          |  |         |        |         |  |   |        |   |  |   |        |   |  |   |         |   |  |   |         |  
|-------------------------------------------------------------------------------------- |  | ------------------------------------------------ | ------ | -------- |  | ------- | ------ | ------- |  | ------- | ------ | -------- |  | ------- | ------ | ------- |  | - | ------ | - |  | - | ------ | - |  | - | ------- | - |  | - | ------- | -
|                                                                                       |  | Quarter Ended                                   
|                                                                                       |  | (amounts in thousands, except per share amounts)
|                                                                                       |  | Dec. 31                                          |        | Sept. 30 |  | Jun. 30 |        | Mar. 31 |  | Dec. 31 |        | Sept. 30 |  | Jun. 30 |        | Mar. 31
|                                                                                       |  | 2002                                             |        | 2002     |  | 2002    |        | 2002    |  | 2001    |        | 2001     |  | 2001    |        | 2001   
|                                                                                       |  |                                                  |        |          |  |         |        |         |  |         |        |          |  |         |        |        
|Revenue                                                                                |  | $                                                | 34,730 |          |  | $       | 30,941 |         |  | $       | 24,467 |          |  | $       | 21,268 |         |  | $ | 18,751 |   |  | $ | 17,203 |   |  | $ | 15,809  |   |  | $ | 12,256  |  
|Gross profit                                                                           |  |                                                  | 29,489 |          |  |         | 26,188 |         |  |         | 20,654 |          |  |         | 18,034 |         |  |   | 15,451 |   |  |   | 13,893 |   |  |   | 12,216  |   |  |   | 8,770   |  
|Net income (loss) attributable to common shareholders                                  |  |                                                  | 5,605  |          |  |         | 3,205  |         |  |         | (1,136 | )        |  |         | (2,841 | )       |  |   | (5,501 | ) |  |   | (3,725 | ) |  |   | (12,361 | ) |  |   | (10,240 | )
|Net income (loss) per share   basic                                                   |  | $                                                | 0.25   |          |  | $       | 0.14   |         |  | $       | (0.05  | )        |  | $       | (0.15  | )       |  | $ | (0.29  | ) |  | $ | (0.20  | ) |  | $ | (0.66   | ) |  | $ | (0.52   | )
|Net income (loss) per share   diluted                                                 |  | $                                                | 0.19   |          |  | $       | 0.12   |         |  | $       | (0.05  | )        |  | $       | (0.15  | )       |  | $ | (0.29  | ) |  | $ | (0.20  | ) |  | $ | (0.66   | ) |  | $ | (0.52   | )
|Weighted average shares used in basic net
income (loss) per common share calculation   |  |                                                  | 22,368 |          |  |         | 22,202 |         |  |         | 20,805 |          |  |         | 19,372 |         |  |   | 19,073 |   |  |   | 18,976 |   |  |   | 18,765  |   |  |   | 19,838  |  
|Weighted average shares used in diluted net
income (loss) per common share calculation |  |                                                  | 32,236 |          |  |         | 32,204 |         |  |         | 20,805 |          |  |         | 19,372 |         |  |   | 19,073 |   |  |   | 18,976 |   |  |   | 18,765  |   |  |   | 19,838  |  

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

43



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PART III

Certain information required by Part III is omitted from this report
because we will file with the Commission a definitive proxy statement relating
to our Annual Meeting of Shareholders scheduled to be held April 23, 2003, no
later than 120 days after the year end of the fiscal year covered by this
report, and certain information to be included therein is incorporated herein
by reference.

Item 10. Directors and Executive Officers of the Registrant

The information under the captions Election of Directors, Security
Ownership of Certain Beneficial Owners and Management, Executive Officers and
Key Employees, and Section 16(a) Beneficial Ownership Reporting Compliance
in the Proxy Statement is incorporated herein by reference.

Item 11. Executive Compensation

The information under the captions Executive Compensation and Other
Matters, Employment Agreements and Compensation Committee Report on
Executive Compensation in the Proxy Statement is incorporated herein by
reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters

The information under the captions Principal Stockholders Election of
Directors, Security Ownership of Certain Beneficial Owners and Management,
and Approval of Amendments to our 2001 Stock Compensation Plan in the Proxy
Statement is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions

The information under the caption Certain Relationships and Related Party
Transactions in the Proxy Statement is incorporated herein by reference.

Item 14. 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.

44



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PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a) Documents filed as part of this report

1. Consolidated Financial Statements

The following consolidated financial statements are included as part of Item 8.



| | Report of Independent Accountants
| | ---------------------------------



| | Consolidated Balance Sheets as of December 31, 2002 and 2001
| | ------------------------------------------------------------



| | Consolidated Statements of Operations for the years ended December 31, 2002, 2001 and 2000
| | ------------------------------------------------------------------------------------------



| | Consolidated Statements of Changes in Shareholders Equity (Deficit) for the years ended December 31, 2002, 2001 and 2000
| | -------------------------------------------------------------------------------------------------------------------------



| | Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000
| | ------------------------------------------------------------------------------------------



| | Notes to Consolidated Financial Statements
| | ------------------------------------------

2. Financial Statement Schedules

All schedules for which provision is made in the applicable regulations of
the Securities and Exchange Commission are not required under the related
instructions, are inapplicable, or the required information is included
elsewhere in the consolidated financial statements.

3. Exhibits

Index to Exhibits

|    |  |                                                                                                                                                                                                                                      
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1 |  | Amended and Restated Certificate of Incorporation (Incorporated by
reference to Exhibit 3.1 to our Registration Statement on Form S-1/A
filed January 11, 2000).                                                                     
|   
|3.2 |  | Amended and Restated Bylaws (Incorporated by reference to Exhibit
3.2 to our Registration Statement on Form S-1/A filed January 11,
2000).                                                                                           
|   
|4.1 |  | Specimen Common Stock certificate (Incorporated by reference to
Exhibit 4.1 to our Registration Statement on Form S-1/A filed
January 27, 2000).                                                                                     
|   
|4.2 |  | Rights Agreement as Amended by Amendment No. 1 (Incorporated by
reference to Exhibit 4.2 to our Registration Statement on Form S-1/A
filed January 11, 2000).                                                                        
|   
|4.3 |  | Certificate of Designation, Preferences and Rights of Series A 8%
Convertible Preferred Stock of LendingTree, Inc. (Incorporated by
reference to Exhibit 4.3 to our Annual Report on Form 10-K for the
year ended December 31, 2000).
|   
|4.4 |  | Certificate of Designation, Preferences and Rights of Series A
Junior                                                                                                                                                                

45



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##### 



|      |  |                                                                                                                                                                                                                                                                                                        
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |  | Participating Preferred Stock of LendingTree, Inc.
(Incorporated by reference to Exhibit 4.2, exhibit A to our
Registration Statement on Form S-1/A filed January 11, 2000).                                                                                                                           
|     
|10.1  |  | Series A 8% Convertible Preferred Stock Purchase Agreement among
LendingTree, Inc. and various investors dated March 7, 2001
(Incorporated by reference to Exhibit 10.1 to our Annual Report on
Form 10-K for the year ended December 31, 2000).                                                       
|     
|10.2  |  | Registration Rights Agreement, dated September 20, 1999
(Incorporated by reference to Exhibit 10.7 to our Registration
Statement on Form S-1/A filed January 11, 2000).                                                                                                                                
|     
|10.3  |  | Registration Rights dated March 7, 2001 by and among LendingTree,
Inc and the signing stockholders listed therein (Incorporated by
reference to Exhibit 4.4 to our Annual Report on Form 10-K for the
year ended December 31, 2000).                                                                   
|     
|10.4  |  | Warrant to acquire 12,500 shares of LendingTree, Inc. common stock
issued to the Federal Home Loan Mortgage Corporation (Incorporated
by reference to Exhibit 10.6 to our Annual Report on Form 10-K for
the year ended December 31, 2000).                                                            
|     
|10.5  |  | Warrant to purchase 40,000 shares of common stock of LendingTree,
Inc. issued to the Union Labor Life Insurance Company, on behalf of
its Separate Account P (Incorporated by reference to Exhibit 10.18
to our Annual Report on Form 10-K for the year ended December 31,
2000).                      
|     
|10.6  |  | Warrant to purchase 40,000 shares of common stock of LendingTree,
Inc. issued to the Union Labor Life Insurance Company, on behalf of
its Separate Account P, dated July 31, 2001 (Incorporated by
reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for
the quarter ended June 30, 2001).
|     
|10.7  |  | 1997 Stock Option Plan of CreditSource USA, Inc. (formerly known as
Lewisburg Ventures, Inc. and a predecessor to LendingTree, Inc.)
dated January 15, 1997* (Incorporated by reference to Exhibit 10.5
to our Registration Statement on Form S-1/A filed January 11, 2000).                           
|     
|10.8  |  | 1998 Stock Option Plan of LendingTree, Inc. dated February 3, 1998*
(Incorporated by reference to Exhibit 10.4 to our Registration
Statement on Form S-1/A filed January 11, 2000).                                                                                                                    
|     
|10.9  |  | Amended and Restated 1999 Stock Option Plan of LendingTree, Inc.*
(Incorporated by reference to Exhibit 10.17 to our Registration
Statement on Form S-1/A filed January 27, 2000).                                                                                                                     
|     
|10.10 |  | LendingTree, Inc. 2001 Stock Incentive Plan dated August 23, 2001*
(Incorporated by reference to Exhibit 10.4 to our Quarterly Report
on Form 10-Q for the quarter ended September 30, 2001).                                                                                                          

46



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##### 



|      |  |                                                                                                                                                                                                           
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.11 |  | Management Incentive Plan* (Incorporated by reference to Exhibit
10.18 to our Registration Statement on Form S-1/A filed January 27,
2000).                                                               
|     
|10.12 |  | LendingTree, Inc. Deferred Compensation Plan for Employees*
(Incorporated by reference to Exhibit 10.19 to our Registration
Statement on Form S-1/A filed January 27, 2000).                              
|     
|10.13 |  | LendingTree, Inc. Non-Employee Director Deferred Compensation Plan*
(Incorporated by reference to Exhibit 10.20 to our Registration
Statement on Form S-1/A filed January 27, 2000).                      
|     
|10.14 |  | LendingTree, Inc. Amended and Restated Stock Purchase Plan dated
July 1, 2001 * (Incorporated by reference to Exhibit 10.4 to our
Quarterly Report on Form 10-Q for the quarter ended September 30,
2001).
|     
|10.15 |  | Adoption Agreement for 401(k) Plan of LendingTree * (Incorporated by
reference to Exhibit 10.20 to our Annual Report on Form 10-K for the
year ended December 31, 2000).                                  
|     
|10.16 |  | Employment Continuity Agreement with Douglas R. Lebda * dated
March 3, 2003 (filed herewith).                                                                                                             
|     
|10.17 |  | Employment Continuity Agreement with Thomas J. Reddin * dated
March 3, 2003 (filed herewith).                                                                                                             
|     
|10.18 |  | Employment Continuity Agreement with Keith Hall * dated March 3,
2003 (filed herewith).                                                                                                                   
|     
|10.19 |  | Employment Continuity Agreement with Stephen J. Campbell * dated
March 3, 2003 (filed herewith).                                                                                                          
|     
|10.20 |  | Employment Continuity Agreement with Eric Cunliffe * dated
March 3, 2003 (filed herewith).                                                                                                                
|     
|10.21 |  | LendingTree, Inc. Stock Retention Policy for Executive Management
Team Members *
(filed herewith).                                                                                                        
|     
|10.22 |  | Employment Continuity Agreement with Matthew A. Packey * dated
March 3, 2003 (filed herewith).                                                                                                            
|     
|10.23 |  | Employment Continuity Agreement with Robert J. Flemma * dated
March 3, 2003 (filed herewith).                                                                                                             
|     
|10.24 |  | Employment Agreement with Douglas Lebda * (Incorporated by reference
to Exhibit 10.1 to our Registration Statement on Form S-1/A filed
January 11, 2000).                                                 

47



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|      |  |                                                                                                                                                                                                                         
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.25 |  | Employment Agreement with Thomas Reddin * (Incorporated by reference
to Exhibit 10.2 to our Registration Statement on Form S-1/A filed
January 11, 2000).                                                               
|     
|10.26 |  | Officer Grant Letter Between LendingTree, Inc. and Douglas R. Lebda
dated September 28, 2001* (Incorporated by reference to Exhibit 10.3
to our Quarterly Report on Form 10-Q for the quarter ended September
30, 2001).
|     
|10.27 |  | Loan and Security Agreement with GE Capital Commercial Services,
Inc. (Incorporated by reference to Exhibit 10.1 to our Current
Report on Form 8-K filed July 26, 2001)                                                 
|     
|10.28 |  | Revolving Credit Note with GE Capital Commercial Services, Inc.
(Incorporated by reference to Exhibit 10.2 to our Current Report on
Form 8-K filed July 26, 2001)                                                       
|     
|21    |  | Subsidiaries (Filed herewith)                                                                                                                                                                                           
|     
|23.1  |  | Consent of PricewaterhouseCoopers LLP (Filed herewith)                                                                                                                                                                  

48



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##### 



|     |  |                                                                                                                                                                                                                                        
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|24.1 |  | Power of Attorney pursuant to which amendments to this Form 10-K may
be filed (included on this signature page contained in Part IV of
this Form 10-K.)                                                                                
|     |  |                                                                                                                                                                                                                                        
|99.1 |  | 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 for the year ended
December 31, 2002 (Filed herewith)



---

|* |  | - Denotes a management contract or a compensatory plan or arrangement.
|- |  | ----------------------------------------------------------------------

(b) Reports on Form 8-K



| |  | 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.                                                                                                                   
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | On November 22, 2002, we filed a report on Form 8-K to report that we had
issued a press release announcing that we were hosting our second annual
investor and analyst day on November 22, 2002 and that we had revised our
financial guidance for the fourth quarter of 2002.

(c) Exhibits

See Item 15(a)(3)

(d) Financial Statement Schedules

See Item 15 (a)(2)

49



---



##### 



SIGNATURES

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

| |  |                                                      
| |  | -----------------------------------------------------
| |  | LENDINGTREE, INC.                                    
|
| |  |                                                      
|
| |  | By:  /s/ Douglas R. Lebda                            
| |  |                                                      
| |  | Name: Douglas R. Lebda
Title: Chief Executive Officer

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby severally constitutes and appoints Douglas R. Lebda and
Keith B. Hall, and each or either of them, his true and lawful
attorneys-in-fact and agents, each with the power of substitution and
resubstitution, for him in any and all capacities, to sign any and all
amendments to this Annual Report on Form 10-K and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each said attorney-in-fact and agent, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.

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

|                  |  |                                        |  |                                                                                           
|----------------- |  | -------------------------------------- |  | ------------------------------------------------------------------------------------------
|DATE              |  | SIGNATURE                              |  | TITLE(S)                                                                                  
|                  |  |                                        |  |                                                                                           
|                  |  |                                        |  |                                                                                           
|February 25, 2003 |  | /s/ Douglas R. Lebda

Douglas R. Lebda |  | Chief Executive Officer and
Director (Principal executive officer)                        
|                  |  |                                        |  |                                                                                           
|February 25, 2003 |  | /s/ Keith B. Hall

Keith B. Hall       |  | Senior Vice President, Chief Financial
Officer and Treasurer (Principal financial officer)
|                  |  |                                        |  |                                                                                           
|February 25, 2003 |  | /s/ Matthew Packey

Matthew Packey     |  | Vice President  Controller
(Principal accounting officer)                                

50



---



##### 



|                  |  |                           |  |         
|----------------- |  | ------------------------- |  | --------
|DATE              |  | SIGNATURE                 |  | TITLE(S)
|                  |  |                           |  |         
|February 25, 2003 |  | /s/ Richard Field         |  | Director
|                  |  |                           |  |         
|                  |  | Richard Field             |  |         
|                  |  |                           |  |         
|February 25, 2003 |  | /s/ Daniel Charles Lieber |  | Director
|                  |  |                           |  |         
|                  |  | Daniel Charles Lieber     |  |         
|                  |  |                           |  |         
|February 25, 2003 |  | /s/ W. James Tozer, Jr.   |  | Director
|                  |  |                           |  |         
|                  |  | W. James Tozer, Jr.       |  |         
|                  |  |                           |  |         
|February 25, 2003 |  | /s/ Robert A. Spass       |  | Director
|                  |  |                           |  |         
|                  |  | Robert A. Spass           |  |         

51



---



##### 



CERTIFICATIONS

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



|1. |  | I have reviewed this annual report on Form 10-K of
LendingTree, Inc.;                                                                                                                                                                                                                                                   
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual 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 annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other
financial information included in this annual 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 annual 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 annual report is being prepared;
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of LendingTree,
Inc.s disclosure controls and procedures as of a date within
90 days prior to the filing date of this annual report
(Evaluation Date); and                                                                                                     
|
| | c) |  | presented in this annual 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
LendingTrees 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 annual report whether 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: February 25, 2003

/s/ Douglas R. Lebda
Douglas R. Lebda
Chief Executive Officer

52



---



##### 



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



|1. |  | I have reviewed this annual report on Form 10-K of
LendingTree, Inc.;                                                                                                                                                                                                                                                   
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual 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 annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other
financial information included in this annual 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 annual 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 annual report is being prepared;
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of LendingTree,
Inc.s disclosure controls and procedures as of a date within
90 days prior to the filing date of this annual report
(Evaluation Date); and                                                                                                     
|
| | c) |  | presented in this annual 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
LendingTrees 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
annual report whether 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: February 25, 2003

/s/ Keith B. Hall
Keith B. Hall
Senior Vice President and Chief Financial Officer

53



---



##### 



CONSOLIDATED FINANCIAL STATEMENTS

As required under Item 8, the consolidated financial statements included
as part of this Annual Report are as follows:

|                                                                                                                          
|--------------------------------------------------------------------------------------------------------------------------
|Report of Independent Accountants                                                                                         
|Consolidated Balance Sheets as of December 31, 2002 and 2001                                                              
|Consolidated Statements of Operations for the years ended December 31,
2002, 2001 and 2000                                
|Consolidated Statements of Changes in Shareholders Equity (Deficit) for
the years ended December 31, 2002, 2001 and 2000.
|Consolidated Statements of Cash Flows for the years ended December 31,
2002, 2001 and 2000                                
|Notes to Consolidated Financial Statements                                                                                

F-1



---



##### 



REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
LendingTree, Inc.

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in shareholders equity
(deficit) and of cash flows present fairly, in all material respects, the
financial position of LendingTree, Inc. and its subsidiary at December 31, 2002
and 2001, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2002 in conformity with
accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the Companys management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

/S/ PRICEWATERHOUSECOOPERS LLP

Charlotte, North Carolina
February 3, 2003

F-2



---



##### 



LendingTree, Inc.
Consolidated Balance Sheets

|                                                     |                                                                                                                                                                                                     |  |                                                      |                           |   |                  |        |              |   |         |        | 
|---------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------- | ------------------------- | - | ---------------- | ------ | ------------ | - | ------- | ------ | 
|                                                     |                                                                                                                                                                                                     |  |                                                      |                           |   | December 31,     |        | December 31,
|                                                     |                                                                                                                                                                                                     |  |                                                      |                           |   | 2002             |        | 2001        
|                                                     |                                                                                                                                                                                                     |  |                                                      |                           |   |                  |        |             
|                                                     |                                                                                                                                                                                                     |  |                                                      |                           |   | ($ in thousands)
|Assets                                               |                                                                                                                                                                                                     |  |                                                      |                           |   |                  |        |             
|Current assets:                                      |                                                                                                                                                                                                     |  |                                                      |                           |   |                  |        |             
|                                                     | Cash and cash equivalents                                                                                                                                                                           |  | $                                                    | 22,708                    |   |                  | $      | 3,400        |  
|                                                     | Restricted cash                                                                                                                                                                                     |  |                                                      | 4,479                     |   |                  |        | 2,764        |  
|                                                     |                                                                                                                                                                                                     |  |                                                      |                           |   |                  |        |             
|                                                     |                                                                                                                                                                                                     |  | Total cash and cash equivalents and restricted cash  |                           |   | 27,187           |        |              |   | 6,164   |       
|                                                     | Accounts receivable, net of allowance for doubtful accounts                                                                                                                                         |  |                                                      | 16,892                    |   |                  |        | 11,438       |  
|                                                     | Prepaid expenses and other current assets                                                                                                                                                           |  |                                                      | 1,055                     |   |                  |        | 1,174        |  
|                                                     |                                                                                                                                                                                                     |  |                                                      |                           |   |                  |        |             
|                                                     |                                                                                                                                                                                                     |  | Total current assets                                 |                           |   | 45,134           |        |              |   | 18,776  |       
|Equipment, furniture and leasehold improvements, net |                                                                                                                                                                                                     |  | 1,717                                                |                           |   |                  | 2,016  |             
|Projects in process                                  |                                                                                                                                                                                                     |  | 1,468                                                |                           |   |                  | 282    |             
|Software, net                                        |                                                                                                                                                                                                     |  | 965                                                  |                           |   |                  | 2,572  |             
|Intangible assets, net                               |                                                                                                                                                                                                     |  | 1,330                                                |                           |   |                  | 3,667  |             
|Other assets                                         |                                                                                                                                                                                                     |  | 73                                                   |                           |   |                  | 618    |             
|                                                     |                                                                                                                                                                                                     |  |                                                      |                           |   |                  |        |             
|                                                     |                                                                                                                                                                                                     |  | Total assets                                         |                           | $ | 50,687           |        |              | $ | 27,931  |       
|                                                     |                                                                                                                                                                                                     |  |                                                      |                           |   |                  |        |             
|Liabilities and Shareholders Equity (Deficit)       |                                                                                                                                                                                                     |  |                                                      |                           |   |                  |        |             
|Current liabilities:                                 |                                                                                                                                                                                                     |  |                                                      |                           |   |                  |        |             
|                                                     | Accounts payable                                                                                                                                                                                    |  | $                                                    | 6,952                     |   |                  | $      | 4,508        |  
|                                                     | Deferred revenue                                                                                                                                                                                    |  |                                                      | 1,289                     |   |                  |        | 2,013        |  
|                                                     | Accrued incentive and other compensation                                                                                                                                                            |  |                                                      | 5,095                     |   |                  |        | 5,627        |  
|                                                     | Accrued professional services and other fees                                                                                                                                                        |  |                                                      | 284                       |   |                  |        | 444          |  
|                                                     | Accrued consumer promotional costs                                                                                                                                                                  |  |                                                      | 1,324                     |   |                  |        | 1,709        |  
|                                                     | Accrued other expenses                                                                                                                                                                              |  |                                                      | 1,422                     |   |                  |        | 1,774        |  
|                                                     | Short term borrowings                                                                                                                                                                               |  |                                                      |                          |   |                  |        |             |  
|                                                     | Current portion capital lease obligations                                                                                                                                                           |  |                                                      | 619                       |   |                  |        | 743          |  
|                                                     |                                                                                                                                                                                                     |  |                                                      |                           |   |                  |        |             
|                                                     |                                                                                                                                                                                                     |  |                                                      | Total current liabilities |   |                  | 16,985 |              |   |         | 16,818 | 
|Deposits by subtenants                               |                                                                                                                                                                                                     |  | 55                                                   |                           |   |                  | 145    |             
|Capital lease obligations                            |                                                                                                                                                                                                     |  | 311                                                  |                           |   |                  | 291    |             
|Commitments and contingencies (Note 9)               |                                                                                                                                                                                                     |  |                                                      |                           |   |                  |        |             
|Mandatorily redeemable securities                    |                                                                                                                                                                                                     |  |                                                      |                           |   |                  |        |             
|                                                     | Series A convertible preferred stock, $.01 par value, 8%
cumulative, 6,885,715 shares authorized, 5,996,676 and 6,885,715 shares
issued and outstanding at December 31, 2002 and 2001, respectively |  |                                                      | 21,691                    |   |                  |        | 23,878       |  
|Shareholders equity (deficit):                      |                                                                                                                                                                                                     |  |                                                      |                           |   |                  |        |             
|                                                     | Common stock, $.01 par value, 100,000,000 shares authorized,
22,823,920 and 19,907,034 shares issued at December 31, 2002
and 2001, respectively                                                    |  |                                                      | 228                       |   |                  |        | 199          |  
|                                                     | Treasury stock (237,673 shares at December 31, 2002 and
661,996 shares at December 31, 2001, at cost)                                                                                               |  |                                                      | (1,518                    | ) |                  |        | (4,170       | )
|                                                     | Additional paid-in-capital                                                                                                                                                                          |  |                                                      | 131,357                   |   |                  |        | 121,675      |  
|                                                     | Accumulated deficit                                                                                                                                                                                 |  |                                                      | (118,163                  | ) |                  |        | (127,064     | )
|                                                     | Deferred compensation                                                                                                                                                                               |  |                                                      | (214                      | ) |                  |        | (1,477       | )
|                                                     | Notes receivable from officers                                                                                                                                                                      |  |                                                      | (45                       | ) |                  |        | (2,364       | )
|                                                     |                                                                                                                                                                                                     |  |                                                      |                           |   |                  |        |             
|                                                     |                                                                                                                                                                                                     |  | Total shareholders equity (deficit)                 |                           |   | 11,645           |        |              |   | (13,201 | )     
|                                                     |                                                                                                                                                                                                     |  |                                                      |                           |   |                  |        |             
|                                                     |                                                                                                                                                                                                     |  | Total liabilities and shareholders equity (deficit) |                           | $ | 50,687           |        |              | $ | 27,931  |       
|                                                     |                                                                                                                                                                                                     |  |                                                      |                           |   |                  |        |             

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

F-3



---



##### 



LendingTree, Inc.
Consolidated Statements of Operations

|                                                                                       |                                   |                          |        |                                       |         |      |         |        |        |   |         |        |        | 
|-------------------------------------------------------------------------------------- | --------------------------------- | ------------------------ | ------ | ------------------------------------- | ------- | ---- | ------- | ------ | ------ | - | ------- | ------ | ------ | 
|                                                                                       |                                   |                          |        | For the Years Ended December 31,     
|                                                                                       |                                   |                          |        |                                      
|                                                                                       |                                   |                          |        | 2002                                  |         | 2001 |         | 2000  
|                                                                                       |                                   |                          |        |                                       |         |      |         |       
|                                                                                       |                                   |                          |        | (in thousands, except per share data)
|Revenue:                                                                               |                                   |                          |        |                                       |         |      |         |        |        |   |         |       
|                                                                                       | Exchange                          |                          | $      | 106,743                               |         |      | $       | 57,478 |        |   | $       | 27,465 |       
|                                                                                       | Lend-X technology                 |                          |        | 4,663                                 |         |      |         | 6,541  |        |   |         | 3,348  |       
|                                                                                       |                                   |                          |        |                                       |         |      |         |        |        |   |         |       
|                                                                                       |                                   | Total revenue            |        |                                       | 111,406 |      |         |        | 64,019 |   |         |        | 30,813 | 
|                                                                                       |                                   |                          |        |                                       |         |      |         |        |        |   |         |       
|Cost of revenue:                                                                       |                                   |                          |        |                                       |         |      |         |        |        |   |         |       
|                                                                                       | Exchange                          |                          |        | 15,877                                |         |      |         | 12,427 |        |   |         | 7,498  |       
|                                                                                       | Lend-X technology                 |                          |        | 1,164                                 |         |      |         | 1,262  |        |   |         | 1,874  |       
|                                                                                       |                                   |                          |        |                                       |         |      |         |        |        |   |         |       
|                                                                                       |                                   | Total cost of revenue    |        |                                       | 17,041  |      |         |        | 13,689 |   |         |        | 9,372  | 
|Gross profit:                                                                          |                                   |                          |        |                                       |         |      |         |        |        |   |         |       
|                                                                                       | Exchange                          |                          |        | 90,866                                |         |      |         | 45,051 |        |   |         | 19,967 |       
|                                                                                       | Lend-X technology                 |                          |        | 3,499                                 |         |      |         | 5,279  |        |   |         | 1,474  |       
|                                                                                       |                                   |                          |        |                                       |         |      |         |        |        |   |         |       
|                                                                                       |                                   | Total gross profit       |        |                                       | 94,365  |      |         |        | 50,330 |   |         |        | 21,441 | 
|Operating expenses:                                                                    |                                   |                          |        |                                       |         |      |         |        |        |   |         |       
|                                                                                       | Product development               |                          |        | 2,870                                 |         |      |         | 4,580  |        |   |         | 2,677  |       
|                                                                                       | Marketing and advertising         |                          |        | 50,245                                |         |      |         | 39,903 |        |   |         | 56,599 |       
|                                                                                       | Sales, general and administrative |                          |        | 32,649                                |         |      |         | 33,637 |        |   |         | 28,268 |       
|                                                                                       |                                   |                          |        |                                       |         |      |         |        |        |   |         |       
|                                                                                       |                                   | Total operating expenses |        |                                       | 85,764  |      |         |        | 78,120 |   |         |        | 87,544 | 
|                                                                                       |                                   |                          |        |                                       |         |      |         |        |        |   |         |       
|Income (loss) from operations                                                          |                                   |                          | 8,601  |                                       |         |      | (27,790 | )      |        |   | (66,103 | )     
|Loss on impaired investment                                                            |                                   |                          |       |                                       |         |      | (600    | )      |        |   | (1,900  | )     
|Interest income                                                                        |                                   |                          | 709    |                                       |         |      | 594     |        |        |   | 2,212   |       
|Interest expense, financing and other charges                                          |                                   |                          | (409   | )                                     |         |      | (1,119  | )      |        |   | (212    | )     
|                                                                                       |                                   |                          |        |                                       |         |      |         |        |        |   |         |       
|Income (loss) from operations before income taxes                                      |                                   |                          | 8,901  |                                       |         |      | (28,915 | )      |        |   | (66,003 | )     
|                                                                                       |                                   |                          |        |                                       |         |      |         |        |        |   |         |       
|Provision (benefit) for income taxes                                                   |                                   |                          |       |                                       |         |      |        |        |        |   |        |       
|                                                                                       |                                   |                          |        |                                       |         |      |         |        |        |   |         |       
|Net income (loss) from operations                                                      |                                   |                          | 8,901  |                                       |         |      | (28,915 | )      |        |   | (66,003 | )     
|                                                                                       |                                   |                          |        |                                       |         |      |         |        |        |   |         |       
|Accretion of mandatorily redeemable preferred stock                                    |                                   |                          | (676   | )                                     |         |      | (527    | )      |        |   |        |       
|Dividends on preferred stock                                                           |                                   |                          | (3,392 | )                                     |         |      | (2,385  | )      |        |   | (2,461  | )     
|                                                                                       |                                   |                          |        |                                       |         |      |         |        |        |   |         |       
|Net income (loss) available to common shareholders                                     |                                   | $                        | 4,833  |                                       |         | $    | (31,827 | )      |        | $ | (68,464 | )     
|                                                                                       |                                   |                          |        |                                       |         |      |         |        |        |   |         |       
|Net income (loss) per common share  basic                                             |                                   | $                        | 0.23   |                                       |         | $    | (1.66   | )      |        | $ | (4.15   | )     
|                                                                                       |                                   |                          |        |                                       |         |      |         |        |        |   |         |       
|Net income (loss) per common share  diluted                                           |                                   | $                        | 0.20   |                                       |         | $    | (1.66   | )      |        | $ | (4.15   | )     
|                                                                                       |                                   |                          |        |                                       |         |      |         |        |        |   |         |       
|Weighted average shares used in basic net
income (loss) per common share calculation   |                                   |                          | 21,137 |                                       |         |      | 19,160  |        |        |   | 16,512  |       
|                                                                                       |                                   |                          |        |                                       |         |      |         |        |        |   |         |       
|Weighted average shares used in diluted net
income (loss) per common share calculation |                                   |                          | 24,389 |                                       |         |      | 19,160  |        |        |   | 16,512  |       
|                                                                                       |                                   |                          |        |                                       |         |      |         |        |        |   |         |       

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

F-4



---



##### 



LendingTree, Inc.
Consolidated Statements of Changes in Shareholders Equity (Deficit)
(in thousands, except share data)

|                                                                            |  |                                                |            |                       |  |              |         |        |  |           |            |            |  |         |     |          |  |                |        |          |  |            |         |           |  |            |         |        |         |              |    |  |     |   |        |   |  |   |        |   |  |   |         |   |  | 
|--------------------------------------------------------------------------- |  | ---------------------------------------------- | ---------- | --------------------- |  | ------------ | ------- | ------ |  | --------- | ---------- | ---------- |  | ------- | --- | -------- |  | -------------- | ------ | -------- |  | ---------- | ------- | --------- |  | ---------- | ------- | ------ | ------- | ------------ | -- |  | --- | - | ------ | - |  | - | ------ | - |  | - | ------- | - |  | 
|                                                                            |  |                                                |            | Convertible Preferred |  |              |         |        |  |           |            |            |  |         |     |          |  |                |        |          |  |            |         |           |  |            |         |        |         |              |    |  |     |   |        |   |  |   |        |  
|                                                                            |  |                                                |            | Stock                 |  | Common Stock |         |        |  |           |            |            |  |         |     |          |  |                |        |          |  |            |         |           |  |            |         | Notes  |         | Total Share-
|                                                                            |  |                                                |            |                       |  |              |         |        |  |           |            | Additional |  | Accum-  |     |          |  |                |        | Deferred |  | Receivable |         | holders' 
|                                                                            |  |                                                |            | Number of             |  |              |         |        |  | Number of |            |            |  |         |     | Treasury |  | Paid-In        |        | ulated   |  | Unrealized |         | Comp-     |  | to Acquire |         | Equity
|                                                                            |  |                                                |            | Shares                |  | Amount       |         | Shares |  | Amount    |            | Stock      |  | Capital |     | Deficit  |  | Gains (losses) |        | ensation |  | Stock      |         | (Deficit)
|                                                                            |  |                                                |            |                       |  |              |         |        |  |           |            |            |  |         |     |          |  |                |        |          |  |            |         |          
|Balance at December 31, 1999                                                |  |                                                | 7,992,656  |                       |  |              | 59,118  |        |  |           | 4,070,655  |            |  | $       | 41  |          |  | $              | (5,978 | )        |  | $          | 9,423   |           |  | $          | (32,146 | )      |         | $            | 46 |  |     | $ | (2,767 | ) |  | $ |       |   |  | $ | 27,737  |  
|Issuance of stock options to employees
below fair market value              |  |                                                |            |                       |  |              |         |        |  |           |            |            |  |         |     |          |  |                |        |          |  |            | 1,320   |           |  |            |         |        |         |              |    |  |     |   | (1,320 | ) |  |   |        |   |  |   |        |  
|Issuance of warrants to business partner for
services provided              |  |                                                |            |                       |  |              |         |        |  |           |            |            |  |         |     |          |  |                |        |          |  |            | 1,279   |           |  |            |         |        |         |              |    |  |     |   | (1,279 | ) |  |   |        |   |  |   |        |  
|Amortization of deferred compensation                                       |  |                                                |            |                       |  |              |         |        |  |           |            |            |  |         |     |          |  |                |        |          |  |            |         |           |  |            |         |        |         |              |    |  |     |   | 2,310  |   |  |   |        |   |  |   | 2,310   |  
|Initial public offering of common stock                                     |  |                                                |            |                       |  |              |         |        |  |           | 4,197,500  |            |  |         | 42  |          |  |                |        |          |  |            | 44,770  |           |  |            |         |        |         |              |    |  |     |   |        |   |  |   |        |   |  |   | 44,812  |  
|In-kind dividends on Series A and D preferred stock                         |  |                                                | 269,996    |                       |  |              | 4,115   |        |  |           |            |            |  |         |     |          |  |                |        |          |  |            | (4,115  | )         |  |            |         |        |         |              |    |  |     |   |        |   |  |   |        |   |  |   |        |  
|Conversion of Series A and D preferred stock to common stock                |  |                                                | (8,262,652 | )                     |  |              | (63,233 | )      |  |           | 10,493,530 |            |  |         | 105 |          |  |                |        |          |  |            | 63,128  |           |  |            |         |        |         |              |    |  |     |   |        |   |  |   |        |   |  |   |        |  
|Exercise of common stock options                                            |  |                                                |            |                       |  |              |         |        |  |           | 253,221    |            |  |         | 3   |          |  |                |        |          |  |            | 1,846   |           |  |            |         |        |         |              |    |  |     |   |        |   |  |   |        |   |  |   | 1,849   |  
|Notes receivable from officers to acquire stock                             |  |                                                |            |                       |  |              |         |        |  |           |            |            |  |         |     |          |  |                |        |          |  |            |         |           |  |            |         |        |         |              |    |  |     |   |        |   |  |   | (1,603 | ) |  |   | (1,603  | )
|Issuance of common stock in connection with business acquisition            |  |                                                |            |                       |  |              |         |        |  |           | 639,077    |            |  |         | 6   |          |  |                |        |          |  |            | 4,733   |           |  |            |         |        |         |              |    |  |     |   |        |   |  |   |        |   |  |   | 4,739   |  
|Issuance of equity rights certificate                                       |  |                                                |            |                       |  |              |         |        |  |           |            |            |  |         |     |          |  |                |        |          |  |            | 9,844   |           |  |            |         |        |         |              |    |  |     |   |        |   |  |   |        |   |  |   | 9,844   |  
|Reissuance of treasury shares for employee stock purchase plan participants |  |                                                |            |                       |  |              |         |        |  |           |            |            |  |         |     |          |  |                | 204    |          |  |            | (148    | )         |  |            |         |        |         |              |    |  |     |   |        |   |  |   |        |   |  |   | 56      |  
|Other comprehensive income:                                                 |  |                                                |            |                       |  |              |         |        |  |           |            |            |  |         |     |          |  |                |        |          |  |            |         |           |  |            |         |        |         |              |    |  |     |   |        |   |  |   |        |   |  |   |        |  
|                                                                            |  | Unrealized gain, available-for-sale securities |            |                       |  |              |         |        |  |           |            |            |  |         |     |          |  |                |        |          |  |            |         |           |  |            |         |        |         |              |    |  | (45 | ) |        |   |  |   |        |   |  |   |         |   |  | 
|                                                                            |  | Net loss                                       |            |                       |  |              |         |        |  |           |            |            |  |         |     |          |  |                |        |          |  |            |         |           |  |            |         |        | (66,003 | )            |    |  |     |   |        |   |  |   |        |   |  |   |         |   |  | 
|Total comprehensive loss                                                    |  |                                                |            |                       |  |              |         |        |  |           |            |            |  |         |     |          |  |                |        |          |  |            |         |           |  |            |         |        |         |              |    |  |     |   |        |   |  |   |        |   |  |   | (66,048 | )
|                                                                            |  |                                                |            |                       |  |              |         |        |  |           |            |            |  |         |     |          |  |                |        |          |  |            |         |           |  |            |         |        |         |              |    |  |     |   |        |   |  |   |        |   |  |   |         |  
|Balance at December 31, 2000                                                |  |                                                |           |                       |  |              |        |        |  |           | 19,653,983 |            |  | $       | 197 |          |  | $              | (5,774 | )        |  | $          | 132,080 |           |  | $          | (98,149 | )      |         | $            | 1  |  |     | $ | (3,056 | ) |  | $ | (1,603 | ) |  | $ | 23,696  |  

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

F-5



---



##### 



LendingTree, Inc.
Consolidated Statements of Changes in Shareholders Equity (Deficit)  continued
(in thousands, except share data)

|                                                                                            |                                                |                             |  |              |  |        |  |           |  |            |  |         |   |          |  |                |   |          |   |            |   |           |   |            |   |          |         |              |   |   |    |   |   |        |   |  |   |        |   |  |   |         |   | 
|------------------------------------------------------------------------------------------- | ---------------------------------------------- | --------------------------- |  | ------------ |  | ------ |  | --------- |  | ---------- |  | ------- | - | -------- |  | -------------- | - | -------- | - | ---------- | - | --------- | - | ---------- | - | -------- | ------- | ------------ | - | - | -- | - | - | ------ | - |  | - | ------ | - |  | - | ------- | - | 
|                                                                                            |                                                | Convertible
Preferred Stock |  | Common Stock |  |        |  |           |  |            |  |         |   |          |  |                |   |          |   |            |   |           |   |            |   | Notes    |         | Total Share-
|                                                                                            |                                                |                             |  |              |  |        |  |           |  | Additional |  | Accum-  |   |          |  |                |   | Deferred |   | Receivable |   | holders' 
|                                                                                            |                                                | Number of                   |  |              |  |        |  | Number of |  |            |  |         |   | Treasury |  | Paid-In        |   | ulated   |   | Unrealized |   | Comp-     |   | to Acquire |   | Equity  
|                                                                                            |                                                | Shares                      |  | Amount       |  | Shares |  | Amount    |  | Stock      |  | Capital |   | Deficit  |  | Gains (losses) |   | ensation |   | Stock      |   | (Deficit)
|                                                                                            |                                                |                             |  |              |  |        |  |           |  |            |  |         |   |          |  |                |   |          |   |            |   |          
|Balance at December 31, 2000                                                                |                                                |                             |  |              |  |        |  |           |  | 19,653,983 |  |         | $ | 197      |  |                | $ | (5,774   | ) |            | $ | 132,080   |   |            | $ | (98,149  | )       |              | $ | 1 |    |   | $ | (3,056 | ) |  | $ | (1,603 | ) |  | $ | 23,696  |  
|Amortization of deferred compensation                                                       |                                                |                             |  |              |  |        |  |           |  |            |  |         |   |          |  |                |   |          |   |            |   |           |   |            |   |          |         |              |   |   |    |   |   | 937    |   |  |   |        |   |  |   | 937     |  
|Accrued dividends on Series A convertible
preferred stock (Note 8)                          |                                                |                             |  |              |  |        |  |           |  |            |  |         |   |          |  |                |   |          |   |            |   | (1,522    | ) |            |   |          |         |              |   |   |    |   |   |        |   |  |   |        |   |  |   | (1,522  | )
|Accretion of Series A convertible preferred
stock (Note 8)                                  |                                                |                             |  |              |  |        |  |           |  |            |  |         |   |          |  |                |   |          |   |            |   | (495      | ) |            |   |          |         |              |   |   |    |   |   |        |   |  |   |        |   |  |   | (495    | )
|Note receivable from officer in exchange for
Series A convertible preferred stock (Note 11) |                                                |                             |  |              |  |        |  |           |  |            |  |         |   |          |  |                |   |          |   |            |   |           |   |            |   |          |         |              |   |   |    |   |   |        |   |  |   | (829   | ) |  |   | (829    | )
|Compensation charge related to officer note
receivable                                      |                                                |                             |  |              |  |        |  |           |  |            |  |         |   |          |  |                |   |          |   |            |   | 1,365     |   |            |   |          |         |              |   |   |    |   |   |        |   |  |   |        |   |  |   | 1,365   |  
|Repayment of an officer note received for option
exercise                                   |                                                |                             |  |              |  |        |  |           |  |            |  |         |   |          |  |                |   |          |   |            |   |           |   |            |   |          |         |              |   |   |    |   |   |        |   |  |   | 68     |   |  |   | 68      |  
|Issuance of warrants in conjunction with revolving
credit facilities (Note 7)               |                                                |                             |  |              |  |        |  |           |  |            |  |         |   |          |  |                |   |          |   |            |   | 381       |   |            |   |          |         |              |   |   |    |   |   |        |   |  |   |        |   |  |   | 381     |  
|Issuance of warrants to financial advisor for services
provided                             |                                                |                             |  |              |  |        |  |           |  |            |  |         |   |          |  |                |   |          |   |            |   | 431       |   |            |   |          |         |              |   |   |    |   |   |        |   |  |   |        |   |  |   | 431     |  
|Cashless exercise of common stock warrants                                                  |                                                |                             |  |              |  |        |  |           |  | 112,290    |  |         |   | 1        |  |                |   |          |   |            |   | (1        | ) |            |   |          |         |              |   |   |    |   |   |        |   |  |   |        |   |  |   | 0       |  
|Conversion of equity share rights to Series A
convertible preferred stock (Note 8)          |                                                |                             |  |              |  |        |  |           |  |            |  |         |   |          |  |                |   |          |   |            |   | (9,367    | ) |            |   |          |         |              |   |   |    |   |   |        |   |  |   |        |   |  |   | (9,367  | )
|Deferred compensation adjustment for forfeited and
amended options                          |                                                |                             |  |              |  |        |  |           |  |            |  |         |   |          |  |                |   |          |   |            |   | (591      | ) |            |   |          |         |              |   |   |    |   |   | 642    |   |  |   |        |   |  |   | 51      |  
|Reissuance of treasury shares for employee stock purchase
plan participants                 |                                                |                             |  |              |  |        |  |           |  |            |  |         |   |          |  |                |   | 1,604    |   |            |   | (1,066    | ) |            |   |          |         |              |   |   |    |   |   |        |   |  |   |        |   |  |   | 538     |  
|Stock based compensation                                                                    |                                                |                             |  |              |  |        |  |           |  | 35,405     |  |         |   |          |  |                |   |          |   |            |   | 137       |   |            |   |          |         |              |   |   |    |   |   |        |   |  |   |        |   |  |   | 137     |  
|Exercise of common stock options                                                            |                                                |                             |  |              |  |        |  |           |  | 105,356    |  |         |   | 1        |  |                |   |          |   |            |   | 323       |   |            |   |          |         |              |   |   |    |   |   |        |   |  |   |        |   |  |   | 324     |  
|Other comprehensive loss:                                                                   |                                                |                             |  |              |  |        |  |           |  |            |  |         |   |          |  |                |   |          |   |            |   |           |   |            |   |          |         |              |   |   |    |   |   |        |   |  |   |        |   |  |   |         |  
|                                                                                            | Unrealized gain, available-for-sale securities |                             |  |              |  |        |  |           |  |            |  |         |   |          |  |                |   |          |   |            |   |           |   |            |   |          |         |              |   |   | (1 | ) |   |        |   |  |   |        |   |  |   |         |   | 
|                                                                                            | Net loss                                       |                             |  |              |  |        |  |           |  |            |  |         |   |          |  |                |   |          |   |            |   |           |   |            |   |          | (28,915 | )            |   |   |    |   |   |        |   |  |   |        |   |  |   |         |   | 
|Total comprehensive loss                                                                    |                                                |                             |  |              |  |        |  |           |  |            |  |         |   |          |  |                |   |          |   |            |   |           |   |            |   |          |         |              |   |   |    |   |   |        |   |  |   |        |   |  |   | (28,916 | )
|                                                                                            |                                                |                             |  |              |  |        |  |           |  |            |  |         |   |          |  |                |   |          |   |            |   |           |   |            |   |          |         |              |   |   |    |   |   |        |   |  |   |        |   |  |   |         |   | 
|Balance at December 31, 2001                                                                |                                                |                             |  |              |  |        |  |           |  | 19,907,034 |  |         | $ | 199      |  |                | $ | (4,170   | ) |            | $ | 121,675   |   |            | $ | (127,064 | )       |              | $ |  |    |   | $ | (1,477 | ) |  | $ | (2,364 | ) |  | $ | (13,201 | )

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

F-6



---



##### 



LendingTree, Inc.
Consolidated Statements of Changes in Shareholders Equity (Deficit)  continued
(in thousands, except share data)

|                                                                            |            |  |              |  |        |   |       |  |            |   |         |   |                |   |            |   |          |   |            |       |          |   |   |  |       |   |              |   |  |   |        |   |  |   |         |   | 
|--------------------------------------------------------------------------- | ---------- |  | ------------ |  | ------ | - | ----- |  | ---------- | - | ------- | - | -------------- | - | ---------- | - | -------- | - | ---------- | ----- | -------- | - | - |  | ----- | - | ------------ | - |  | - | ------ | - |  | - | ------- | - | 
|                                                                            |            |  | Common Stock |  |        |   |       |  |            |   |         |   |                |   |            |   |          |   |            |       |          |   |   |  | Notes |   | Total Share-
|                                                                            |            |  |              |  |        |   |       |  | Additional |   | Accum-  |   |                |   |            |   | Deferred |   | Receivable |       | holders'
|                                                                            |            |  | Number of    |  |        |   |       |  | Treasury   |   | Paid-In |   | ulated         |   | Unrealized |   | Comp-    |   | to Acquire |       | Equity  
|                                                                            |            |  | Shares       |  | Amount |   | Stock |  | Capital    |   | Deficit |   | Gains (losses) |   | ensation   |   | Stock    |   | (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                                       |            |  |              |  |        |   |       |  |            |   |         |   |                |   |            |   |          |   |            |       |          |   |   |  |       |   | 784          |   |  |   |        |   |  |   | 784     |  
|Accelerated vesting of stock options                                        |            |  |              |  |        |   |       |  |            |   |         |   |                |   | 83         |   |          |   |            |       |          |   |   |  |       |   | 494          |   |  |   |        |   |  |   | 577     |  
|Accrued dividends on Series A convertible preferred stock (Note 8)          |            |  |              |  |        |   |       |  |            |   |         |   |                |   | (1,945     | ) |          |   |            |       |          |   |   |  |       |   |              |   |  |   |        |   |  |   | (1,945  | )
|Accretion of Series A convertible preferred stock (Note 8)                  |            |  |              |  |        |   |       |  |            |   |         |   |                |   | (677       | ) |          |   |            |       |          |   |   |  |       |   |              |   |  |   |        |   |  |   | (677    | )
|Repayment of an officer note                                                |            |  |              |  |        |   |       |  |            |   |         |   |                |   |            |   |          |   |            |       |          |   |   |  |       |   |              |   |  |   | 2,319  |   |  |   | 2,319   |  
|Exercise of common stock warrants                                           |            |  | 443,590      |  |        |   | 4     |  |            |   |         |   |                |   | 41         |   |          |   |            |       |          |   |   |  |       |   |              |   |  |   |        |   |  |   | 45      |  
|Conversion of preferred stock to common stock (Note 8)                      |            |  | 965,750      |  |        |   | 10    |  |            |   |         |   |                |   | 3,371      |   |          |   |            |       |          |   |   |  |       |   |              |   |  |   |        |   |  |   | 3,381   |  
|Proceeds from private sale of common stock                                  |            |  | 500,000      |  |        |   | 5     |  |            |   |         |   |                |   | 5,637      |   |          |   |            |       |          |   |   |  |       |   |              |   |  |   |        |   |  |   | 5,642   |  
|Deferred compensation adjustment for forfeited and
amended stock options    |            |  |              |  |        |   |       |  |            |   |         |   |                |   | (69        | ) |          |   |            |       |          |   |   |  |       |   | 69           |   |  |   |        |   |  |   |        |  
|Reissuance of treasury shares for employee stock purchase
plan participants |            |  |              |  |        |   |       |  |            |   | 2,694   |   |                |   | (1,598     | ) |          |   |            |       |          |   |   |  |       |   |              |   |  |   |        |   |  |   | 1,096   |  
|Equity based compensation                                                   |            |  | 49,422       |  |        |   | 1     |  |            |   |         |   |                |   | 644        |   |          |   |            |       |          |   |   |  |       |   | (84          | ) |  |   |        |   |  |   | 561     |  
|Exercise of common stock options                                            |            |  | 958,124      |  |        |   | 9     |  |            |   |         |   |                |   | 4,153      |   |          |   |            |       |          |   |   |  |       |   |              |   |  |   |        |   |  |   | 4,162   |  
|Acquired shares for stock option exercise                                   |            |  |              |  |        |   |       |  |            |   | (42     | ) |                |   | 42         |   |          |   |            |       |          |   |   |  |       |   |              |   |  |   |        |   |  |   |        |  
|Other comprehensive income:                                                 |            |  |              |  |        |   |       |  |            |   |         |   |                |   |            |   |          |   |            |       |          |   |   |  |       |   |              |   |  |   |        |   |  |   |         |  
|                                                                            | Net Income |  |              |  |        |   |       |  |            |   |         |   |                |   |            |   |          |   |            | 8,901 |          |   |   |  |       |   |              |   |  |   |        |   |  |   |         |   | 
|Total comprehensive income                                                  |            |  |              |  |        |   |       |  |            |   |         |   |                |   |            |   |          |   |            |       |          |   |   |  |       |   |              |   |  |   |        |   |  |   | 8,901   |  
|                                                                            |            |  |              |  |        |   |       |  |            |   |         |   |                |   |            |   |          |   |            |       |          |   |   |  |       |   |              |   |  |   |        |   |  |   |         |  
|Balance at December 31, 2002                                                |            |  | 22,823,920   |  |        | $ | 228   |  |            | $ | (1,518  | ) |                | $ | 131,357    |   |          | $ | (118,163   | )     |          | $ |  |  |       | $ | (214         | ) |  | $ | (45    | ) |  | $ | 11,645  |  
|                                                                            |            |  |              |  |        |   |       |  |            |   |         |   |                |   |            |   |          |   |            |       |          |   |   |  |       |   |              |   |  |   |        |   |  |   |         |  

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

F-7



---



##### 



LendingTree, Inc.
Consolidated Statements of Cash Flows

|                                                       |                                                                                                                       |                                                            |                                                     |                                                     |         |                                  |        |         |         |                  |         |          |         |        |         |  
|------------------------------------------------------ | --------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------- | --------------------------------------------------- | --------------------------------------------------- | ------- | -------------------------------- | ------ | ------- | ------- | ---------------- | ------- | -------- | ------- | ------ | ------- | -
|                                                       |                                                                                                                       |                                                            |                                                     |                                                     |         | For the Years Ended December 31,
|                                                       |                                                                                                                       |                                                            |                                                     |                                                     |         |                                 
|                                                       |                                                                                                                       |                                                            |                                                     |                                                     |         | 2002                             |        | 2001    |         | 2000            
|                                                       |                                                                                                                       |                                                            |                                                     |                                                     |         |                                  |        |         |         |                 
|                                                       |                                                                                                                       |                                                            |                                                     |                                                     |         |                                  |        |         |         | ($ in thousands) |         |          |         |       
|Cash flows provided by (used in) operating activities: |                                                                                                                       |                                                            |                                                     |                                                     |         |                                  |        |         |         |                  |         |         
|                                                       | Net income (loss)                                                                                                     |                                                            | $                                                   | 8,901                                               |         |                                  | $      | (28,915 | )       |                  | $       | (66,003  | )      
|                                                       | Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:                             |                                                            |                                                     |                                                     |         |                                  |        |         |         |                  |         |          |        
|                                                       |                                                                                                                       | Deposits to advertising escrow                             |                                                     |                                                     | (33,849 | )                                |        |         | (29,229 | )                |         |          | (62,280 | )     
|                                                       |                                                                                                                       | Releases from advertising escrow                           |                                                     |                                                     | 33,776  |                                  |        |         | 31,561  |                  |         |          | 57,358  |       
|                                                       |                                                                                                                       | Depreciation and amortization                              |                                                     |                                                     | 6,351   |                                  |        |         | 7,857   |                  |         |          | 3,232   |       
|                                                       |                                                                                                                       | Loss on the impairment of investment and other assets      |                                                     |                                                     |        |                                  |        |         | 944     |                  |         |          | 1,900   |       
|                                                       |                                                                                                                       | (Gain) loss on the disposal of fixed assets                |                                                     |                                                     | 40      |                                  |        |         | (18     | )                |         |          | 148     |       
|                                                       |                                                                                                                       | Provision for doubtful accounts                            |                                                     |                                                     | 382     |                                  |        |         | (13     | )                |         |          | 945     |       
|                                                       |                                                                                                                       | Compensation
charge related to officer note                |                                                     |                                                     |        |                                  |        |         | 1,365   |                  |         |          |        |       
|                                                       |                                                                                                                       | Non-cash equity based compensation charges                 |                                                     |                                                     | 300     |                                  |        |         | 475     |                  |         |          |        |       
|                                                       |                                                                                                                       | Issuance of warrants in conjunction with credit facilities |                                                     |                                                     |        |                                  |        |         | 481     |                  |         |          |        |       
|                                                       |                                                                                                                       | Amortization
of deferred compensation                      |                                                     |                                                     | 784     |                                  |        |         | 937     |                  |         |          | 2,310   |       
|                                                       |                                                                                                                       | Accelerated
vesting of stock options                       |                                                     |                                                     | 577     |                                  |        |         |         |                  |         |          |         |       
|                                                       |                                                                                                                       | Changes in assets and liabilities:                         |                                                     |                                                     |         |                                  |        |         |         |                  |         |          |         |       
|                                                       |                                                                                                                       |                                                            | Accounts receivable                                 |                                                     |         | (5,836                           | )      |         |         | (3,915           | )       |          |         | (6,402 | )      
|                                                       |                                                                                                                       |                                                            | Prepaid expenses and other current assets           |                                                     |         | 83                               |        |         |         | (162             | )       |          |         | (15    | )      
|                                                       |                                                                                                                       |                                                            | Other assets                                        |                                                     |         | 466                              |        |         |         | (84              | )       |          |         | (398   | )      
|                                                       |                                                                                                                       |                                                            | Accounts payable                                    |                                                     |         | 2,444                            |        |         |         | (169             | )       |          |         | 1,126  |        
|                                                       |                                                                                                                       |                                                            | Accrued promotional costs                           |                                                     |         | (385                             | )      |         |         | 417              |         |          |         | 1,209  |        
|                                                       |                                                                                                                       |                                                            | Deferred revenue                                    |                                                     |         | (724                             | )      |         |         | 412              |         |          |         | 1,392  |        
|                                                       |                                                                                                                       |                                                            | Accrued expenses and other liabilities              |                                                     |         | (758                             | )      |         |         | 3,175            |         |          |         | 1,306  |        
|                                                       |                                                                                                                       |                                                            |                                                     |                                                     |         |                                  |        |         |         |                  |         |         
|                                                       |                                                                                                                       |                                                            |                                                     | Net cash provided by (used in) operating activities |         |                                  | 12,552 |         |         |                  | (14,881 | )        |         |        | (64,172 | )
|                                                       |                                                                                                                       |                                                            |                                                     |                                                     |         |                                  |        |         |         |                  |         |         
|Cash flows provided by (used in) investing activities: |                                                                                                                       |                                                            |                                                     |                                                     |         |                                  |        |         |         |                  |         |         
|                                                       | Purchase of short-term investments                                                                                    |                                                            |                                                     |                                                    |         |                                  |        | (16,964 | )       |                  |         | (134,207 | )      
|                                                       | Sales of short-term investments                                                                                       |                                                            |                                                     |                                                    |         |                                  |        | 21,954  |         |                  |         | 156,221  |        
|                                                       | Purchase
of restricted investments                                                                                    |                                                            |                                                     | (2,460                                              | )       |                                  |        | (37     | )       |                  |         | (135     | )      
|                                                       | Sales
of restricted investments                                                                                       |                                                            |                                                     | 818                                                 |         |                                  |        |        |         |                  |         |         |        
|                                                       | Acquisition of certain assets of another business                                                                     |                                                            |                                                     |                                                    |         |                                  |        | 61      |         |                  |         | (6,200   | )      
|                                                       | Investment in another business                                                                                        |                                                            |                                                     |                                                    |         |                                  |        |        |         |                  |         | (2,500   | )      
|                                                       | Investments in software                                                                                               |                                                            |                                                     | (1,236                                              | )       |                                  |        | (781    | )       |                  |         | (2,326   | )      
|                                                       | Purchases of equipment, furniture, leasehold improvements                                                             |                                                            |                                                     | (1,404                                              | )       |                                  |        | (206    | )       |                  |         | (1,105   | )      
|                                                       |                                                                                                                       |                                                            |                                                     |                                                     |         |                                  |        |         |         |                  |         |         
|                                                       |                                                                                                                       |                                                            | Net cash provided by (used in) investing activities |                                                     |         | (4,282                           | )      |         |         | 4,027            |         |          |         | 9,748  |        
|                                                       |                                                                                                                       |                                                            |                                                     |                                                     |         |                                  |        |         |         |                  |         |         
|Cash flows provided by financing activities:           |                                                                                                                       |                                                            |                                                     |                                                     |         |                                  |        |         |         |                  |         |         
|                                                       | Proceeds
from sales of common stock and warrants and exercise of stock options                                        |                                                            |                                                     | 4,208                                               |         |                                  |        | 206     |         |                  |         | 246      |        
|                                                       | Sale of treasury stock for employee stock purchase plan                                                               |                                                            |                                                     | 1,096                                               |         |                                  |        | 538     |         |                  |         | 56       |        
|                                                       | Payment of capital lease obligations                                                                                  |                                                            |                                                     | (798                                                | )       |                                  |        | (757    | )       |                  |         | (287     | )      
|                                                       | Proceeds from sale of mandatorily redeemable
Series A Convertible Preferred stock and warrants,
net of offering costs |                                                            |                                                     |                                                    |         |                                  |        | 12,178  |         |                  |         |         |        
|                                                       | Payment of dividends  Series A Preferred stock                                                                       |                                                            |                                                     | (1,429                                              | )       |                                  |        |         |         |                  |         |          |        
|                                                       | Fees paid related to debt and equity financing                                                                        |                                                            |                                                     |                                                    |         |                                  |        | (645    | )       |                  |         |         |        
|                                                       | Proceeds from initial public offering, net of offering costs                                                          |                                                            |                                                     |                                                    |         |                                  |        |        |         |                  |         | 44,812   |        
|                                                       | Proceeds from the sale of an equity rights certificate,
net of offering costs                                         |                                                            |                                                     |                                                    |         |                                  |        |        |         |                  |         | 9,844    |        
|                                                       | Proceeds
from repayment of officer note                                                                               |                                                            |                                                     | 2,319                                               |         |                                  |        | 68      |         |                  |         |         |        
|                                                       | Proceeds
from private placement of common stock                                                                       |                                                            |                                                     | 5,642                                               |         |                                  |        |        |         |                  |         |         |        
|                                                       |                                                                                                                       |                                                            |                                                     |                                                     |         |                                  |        |         |         |                  |         |         
|                                                       |                                                                                                                       |                                                            | Net cash provided by financing activities           |                                                     |         | 11,038                           |        |         |         | 11,588           |         |          |         | 54,671 |        
|                                                       |                                                                                                                       |                                                            |                                                     |                                                     |         |                                  |        |         |         |                  |         |         
|Net increase in cash and cash equivalents              |                                                                                                                       |                                                            | 19,308                                              |                                                     |         |                                  | 734    |         |         |                  | 247     |         
|Cash and cash equivalents, beginning of period         |                                                                                                                       |                                                            | 3,400                                               |                                                     |         |                                  | 2,666  |         |         |                  | 2,419   |         
|                                                       |                                                                                                                       |                                                            |                                                     |                                                     |         |                                  |        |         |         |                  |         |         
|Cash and cash equivalents, end of period               |                                                                                                                       | $                                                          | 22,708                                              |                                                     |         | $                                | 3,400  |         |         | $                | 2,666   |         
|                                                       |                                                                                                                       |                                                            |                                                     |                                                     |         |                                  |        |         |         |                  |         |         

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

F-8



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LENDINGTREE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ presented in tables herein are in thousands;
all other amounts are as shown)

1. The Company

LendingTree, Inc. was incorporated in the state of Delaware on June 7,
1996 and commenced nationwide operations on July 1, 1998.

We are an online exchange empowering consumers, Lenders, REALTORS® and
related service providers with convenience, choice and value. Through our
exchange, which can be accessed online at www.lendingtree.com or by calling us
directly at 1-800-555-TREE, consumers can access a nationwide network of nearly
200 banks, lenders and loan brokers (Lenders) and approximately 650 real
estate brokerages to obtain loan offers or the services of a real estate agent.
We attract consumers to our exchange through various forms of advertising and
through arrangements with both online and offline partners.

Consumers seeking loan products begin the LendingTree process by
completing a simple online credit request (which we refer to as a
qualification form). Consumers can also call us directly at 1-800-555-TREE
and we will complete the form based on their instructions and answers to
questions. After the qualification form is complete, our Lend-X technology
automatically retrieves the credit score for the particular consumer. The
consumers data and credit scores are then automatically compared to the
underwriting criteria of the Lenders participating on our exchange. Qualified
consumers can receive multiple loan offers in response to a single credit
request and then compare, review, and accept the offer that best suits their
needs.

Lenders on our exchange can generate new business that meets their
specific underwriting criteria at a lower cost of acquisition than traditional
marketing channels. Our lending exchange encompasses most consumer credit
categories, including mortgages, home equity loans, automobile loans, credit
cards, and personal loans. We earn revenue from the Lenders on our exchange
that pay us fees for qualification forms that meet their underwriting criteria
and are transmitted to them (transmission fees). Since a qualification form
can be transmitted to more than one lender, we may generate multiple
transmission fees for the same form. We also earn revenue for loans that the
Lenders on our exchange close with consumers that we transmitted to them
(closed-loan fees).

Consumers interested in working with a real estate agent to buy or sell a
home can access an online form through our exchange at www.lendingtree.com or
through one of the websites of participating membership programs, such as
Costco, Delta Skymiles, Continental, United Airlines, USAirways, Northwest
Airlines and American Express. Based on the information entered by the
consumer, our system automatically provides the consumer with a choice of
references to REALTORS® from our nationwide network and also forwards the
consumers information to the chosen real estate agents desktop via our
proprietary web-based technology. If the two parties agree to work together,
the remainder of the transaction is completed locally. Consumers closing a
transaction with a REALTOR® on our exchange are eligible for rebates and
promotional incentives. REALTORS® are able to efficiently access new,
highly-qualified potential customers.

We earn fees from real estate brokers that pay us when consumers requests
that we transmit to them result in a purchase or sale of a home (realty
services fees).

Our technology
platform, Lend-XSM, is the technology that powers our
internet-based exchange. In the past, we have also licensed the use of our
Lend-X technology to other businesses and have enabled them to create either
private-labeled or co-branded exchanges on their websites. However, in 2002,
we have shifted the primary
strategy for Lend-X to support the growth of our Exchange by using our
technology in arrangements with our Lenders and other online businesses that
transmit consumers to our Exchange.

F-9



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##### 



2. Business Conditions and Liquidity Considerations

At December 31, 2002 we had approximately $27.2 million in cash and
restricted cash. For the year ended December 31, 2002 we had $12.6 million of
cash flow from operating activities. We also used $4.3 million in cash for
investing activities, primarily deposits to restricted cash accounts and
investments in computer equipment and software. Our financing activities for
2002 generated $11.0 million in cash, primarily from common stock sales and
exercises of stock options. As of December 31, 2002 we had an increase in cash
from December 31, 2001 of $19.3 million.

We believe that the existing cash and cash equivalents, restricted cash
and cash generated from operations will be sufficient to fund our operating and
capital needs and payment of cash dividends to the holders of our Series A
Preferred Stock through 2003. We believe cash from operations will be
generated from revenue growth resulting from the continued growth in
online-lending, expansion of our network of Lenders and real estate brokers 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 and
utilizing our new, product-focused advertisements and by developing business
relationships with significant web-portals and finance-oriented online
businesses.

Although we have historically experienced significant revenue growth and
have achieved positive cash flows from operations in 2002, the operating
results for future periods are subject to numerous uncertainties. While there
are many factors that can influence consumer loan demand, such as increased
brand awareness, advertising spending and other company initiatives, we believe
the continued historical low levels of mortgage interest rates have generally
influenced consumers to seek and close purchase mortgages or to refinance their
existing mortgages. Significant increases in interest rates may deter
consumers from seeking loan products such as mortgage and auto loans which may
result in lower consumer volume on our site.

Further, 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. However, if revenue does not
grow as anticipated or if we are unable to successfully raise sufficient
additional funds debt or equity capital, management would reduce discretionary
operating expenditures, including advertising and marketing and certain
administrative and overhead costs. Failure to generate sufficient revenue or
to reduce costs as necessary could have a material adverse effect on our
ability to continue as a going concern and achieve our business objectives.

If needed, additional financing may not be available or, if available,
such financing may not be on terms favorable to us. If additional funds are
raised through the issuance of equity securities, our shareholders may
experience significant dilution.

As more fully described in Note 7, as of December 31, 2002 we have a $15.0
million revolving credit facility in place with GE Capital Commercial Services.
However, we have no current borrowings under this facility, and it terminates
in July 2003. Currently, we do not intend to replace this facility.

F-10



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##### 



3. Summary Of Significant Accounting Policies

Consolidation

The consolidated financial statements include the accounts of LendingTree,
Inc. and our wholly owned subsidiary (Homespace Acquisition Company). All
intercompany balances and transactions have been eliminated in consolidation.

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 incentive compensation
accruals, the value and lives of acquired intangible assets, the term of
arrangements for recognition of Lender set-up fees and costs, the valuation
allowance on our deferred tax asset (see Income Taxes below and Note 9) and
liabilities for consumer promotional costs. Significant estimates affecting
our disclosures include the valuation of our common stock options and warrants
used in computing proforma stock compensation charges. Actual results could
differ from those estimates. The following significant accounting policies
affect our estimates and judgments in preparing the consolidated financial
statements.

Cash and Cash Equivalents

We consider all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.

Restricted Cash

As of December 31, 2002 and 2001, we had $4.5 million and $2.8 million,
respectively, of cash classified as restricted investments. Of these balances
at December 31, 2002 and 2001, $2.4 million and $2.3 million, respectively,
relate to funds deposited into an escrow account that was established by us and
our advertising agency to maintain funds set aside by us for approved future
expenditures and services of the advertising agency. Disbursements from the
escrow account can only be made with signatures from both parties. The fund is
used only for advertising costs we have approved in advance. 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
escrow account.

In addition, at December 31, 2002, $1.6 million of the restricted cash
balance represents funds set aside as collateral for a letter of credit issued
by our 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.

Fair Value of Financial Instruments

F-11



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##### 



The carrying value of cash and cash equivalents, accounts payable and
accounts receivable at December 31, 2002 and 2001 approximated their fair value
due to the short-term nature of these items. The carrying value of our
short-term investments at December 31, 2002 and 2001 approximated their fair
values.

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.

Equipment, Furniture, Leasehold Improvements and Intangible Assets

Our equipment and furniture are stated at cost less accumulated
depreciation and are being depreciated using the straight-line method over
their estimated useful lives, which range from one to five years. Leasehold
improvements are stated at cost and are depreciated over the shorter of the
lease period or the estimated useful life of the improvement. Ordinary
maintenance and repair costs are expensed as incurred.

Intangible assets consist of purchased intangible assets and are amortized
on a straight-line basis over their estimated useful lives ranging from 2 years
to 3.75 years. See Note 5.

Impairment of Long-Lived Assets

We evaluate the recoverability of our property and equipment and
intangible assets in accordance with Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS No. 144). SFAS No. 144 requires recognition of impairment of
long-lived assets in the event the net book value of such assets exceeds the
future undiscounted cash flows attributable to such assets or the business to
which such assets relate. No such impairments of long-lived assets were
required to be recognized during the years ended December 31, 2002, 2001 and
2000.

Incentive Compensation

Under our incentive compensation plan, employees can earn awards based on
achievement of various financial and operational performance factors or other
specific goals. The actual award formula may vary by individual and the goals
are not the same from year to year. During the year, management makes monthly
estimates of the amount of an award each employee has earned based on levels of
achievement relative to the goals and performance factors. 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.

Income Taxes

We account for income taxes using the liability method whereby deferred
tax assets or liabilities are recognized for the temporary differences between
financial reporting and tax bases of our assets and liabilities and for tax
carryforwards. In estimating future tax consequences, we generally consider all
expected future events other than enactment of changes in tax law or rates. If
it is more likely than not that some portion or all of a deferred tax asset
will not be realized, a valuation allowance is recorded. The valuation
allowance is based on our judgment as to future taxable income in light of
historical results, the current environment, forecasted performance and other

F-12



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##### 



factors. In making these judgments we consider the evidence, giving greater
weight to historical results than forecasted improvements.

Revenue Recognition

Exchange:

Our 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. Additionally, we earn revenue
through a network of real estate brokers who compensate us for real estate
transactions that generally originate from a consumer on our or a 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.

Additional exchange revenue is derived from loan requests that are
received through private-label or co-branded websites of other businesses that
are enabled by our Lend-X technology. If these qualification forms are
successfully transmitted to or closed by one of the Lenders on our exchange, we
earn transmission fees and/or closed-loan fees, if applicable, from that
lender, which are recognized 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 do not permit customers to take possession of our software.

Revenue from arrangements involving only consulting or other services
(that is 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 services revenue are recognized as work progresses.

Losses, if any, are recognized when identified.

Cost of Revenue

Exchange:

Our exchange cost of revenue includes salary and benefit costs of the
customer care center, real estate network support staff and lender
implementation group, credit scoring fees, consumer incentive costs, and the
website network hosting and server fees.

Technology:

F-13



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##### 



Cost of revenue related to Lend-X technology includes direct costs of
modifying our proprietary software for licensing to lenders and the cost of
servers related to hosting the systems for these licensees. When revenue has
been deferred for hosting contracts, we defer the related direct costs incurred
and recognize these costs pro rata with the related revenue.

Marketing and Advertising Expenses

Marketing and advertising expenses consist primarily of costs of
advertising, trade shows, fees paid to affiliates, personnel costs and
marketing materials. All costs of advertising our services and products are
expensed as incurred. Advertising expense totaled approximately $44.6 million,
$35.1 million and $50.7 million in the years ended December 31, 2002, 2001 and
2000, respectively.

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 both 2002 and 2001, we capitalized internal use software
development costs of approximately $1.4 million (including compensation costs,
purchased software and consulting costs related to internal use software
projects).

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

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 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. 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 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 our stock-based compensation for
non-employees under SFAS No. 123, using the fair value approach.

F-14



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##### 



Had compensation expense for all of our stock options been recorded based
on the fair value method, our net loss and net loss per common share basic and
diluted would have been as follows:

|                                                                |  |      |        |      |  |      |         |   |  |   |         |  
|--------------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                |  | 2002 |        | 2001 |  | 2000
|                                                                |  |      |        |      |  |     
|Net income (loss) attributable to common shareholders           |  | $    | 4,833  |      |  | $    | (31,827 | ) |  | $ | (68,464 | )
|Pro forma adjustment for stock compensation expense             |  |      | (7,463 | )    |  |      | (5,679  | ) |  |   | (4,182  | )
|                                                                |  |      |        |      |  |      |         |   |  |   |         |  
|Pro forma net loss attributable to common shareholders          |  | $    | (2,630 | )    |  | $    | (37,506 | ) |  | $ | (72,646 | )
|                                                                |  |      |        |      |  |      |         |   |  |   |         |  
|Net income (loss) per common share  basic                      |  | $    | 0.23   |      |  | $    | (1.66   | ) |  | $ | (4.15   | )
|Pro forma adjustment for stock compensation expense  per share |  |      | (0.35  | )    |  |      | (0.30   | ) |  |   | (0.25   | )
|                                                                |  |      |        |      |  |      |         |   |  |   |         |  
|Pro forma net loss per common share  basic                     |  | $    | (0.12  | )    |  | $    | (1.96   | ) |  | $ | (4.40   | )
|                                                                |  |      |        |      |  |      |         |   |  |   |         |  
|Net income (loss) per common share  diluted                    |  | $    | 0.20   |      |  | $    | (1.66   | ) |  | $ | (4.15   | )
|Pro forma adjustment for stock compensation expense  per share |  |      | (0.32  | )    |  |      | (0.30   | ) |  |   | (0.25   | )
|                                                                |  |      |        |      |  |      |         |   |  |   |         |  
|Pro forma net loss per common share  diluted                   |  | $    | (0.12  | )    |  | $    | (1.96   | ) |  | $ | (4.40   | )
|                                                                |  |      |        |      |  |      |         |   |  |   |         |  

Because options vest over several years and additional options are
expected to be granted in subsequent years, the pro forma impact on periods
presented may not be representative of the pro forma effects on reported net
income or loss in future years.

The fair value of each option grant prior to our initial public offering
of common stock in February 2000 was estimated on the date of grant using the
minimum value method based upon the assumptions in the table below. Following
our initial public offering of common stock in February 2000 and for 2001 and
2002, the fair value of each option grant was estimated on the date of the
grant using the Black-Scholes method based on the assumptions in the table
below:

|                        |  |      |         |      |  |                  |         |                |  |  |         |  |  |               
|----------------------- |  | ---- | ------- | ---- |  | ---------------- | ------- | -------------- |  |  | ------- |  |  | --------------
|                        |  | 2002 |         | 2001 |  | 2000 (after IPO) |         | 2000 (pre IPO)
|                        |  |      |         |      |  |                  |         |               
|Volatility              |  |      | 93%     |      |  |                  | 96%     |                |  |  | 117%    |  |  | Not applicable
|Risk-free interest rate |  |      | 3.8%    |      |  |                  | 4.45%   |                |  |  | 5.97%   |  |  | 5.5%          
|Expected option term    |  |      | 5 years |      |  |                  | 5 years |                |  |  | 5 years |  |  | 5 years       
|Dividend yield          |  |      | 0%      |      |  |                  | 0%      |                |  |  | 0%      |  |  | 0%            

Significant Customers and Concentrations

Financial instruments that potentially subject us to a concentration of
credit risk are our accounts receivable.

For the years ended December 31, 2002, 2001 and 2000, no lender or other
customer exceeded 10% of our revenue. All of our revenues are from
transactions originating in the United States.

For 2002, two customers accounted for 39% and 20%, respectively, of our
total Lend-X technology revenue. For 2001, two customers accounted for 35% and
32%, respectively, of our total Lend-X technology revenue. For 2000 one
customer accounted for 71% of our total Lend-X technology revenue.

F-15



---



##### 



As of December 31, 2002 and December 31, 2001, no customer exceeded 10% of
our accounts receivable balance. As of December 31, 2000 one customer
accounted for approximately 22% of the accounts receivable balance.
Concentrations of credit risk with respect to accounts receivable are limited
due to the large number of Lenders comprising our customer base.

If a significant number of potential consumers are able to obtain loans
from our participating Lenders without utilizing our service, our ability to
generate revenue may be limited. Because we do not have exclusive
relationships with the Lenders whose loan products are offered on our online
marketplace, consumers may obtain offers and loans from these Lenders without
using our service. Our Lenders can offer their products directly to consumers
through brokers, mass marketing campaigns, or through other traditional methods
of credit distribution. These Lenders can also offer their products over the
internet, either directly to prospective borrowers, through one or more of our
online competitors, or both.

Net 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 December 31, 2002 we had outstanding stock options to acquire
6,159,057 shares of common stock and warrants to acquire 189,019 shares of
common stock. Additionally there were 5,996,676 shares of Series A Preferred
Stock that were convertible into 6,506,548 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 not 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.

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.

F-16



---



##### 



|                                           |                                                    |          |      |                         |       |      |       |                |   |   |       |         |   | 
|------------------------------------------ | -------------------------------------------------- | -------- | ---- | ----------------------- | ----- | ---- | ----- | -------------- | - | - | ----- | ------- | - | 
|                                           |                                                    |          |      | Year Ended December 31,
|                                           |                                                    |          |      |                        
|                                           |                                                    |          |      | 2002                    |       | 2001 |       | 2000          
|                                           |                                                    |          |      |                         |       |      |       |               
|                                           |                                                    |          |      |                         |       |      |       | (in thousands) |   |   |       |        
|Numerator  Earnings Per Share  Basic:    |                                                    |          |      |                         |       |      |       |                |   |   |       |        
|                                           | Net income (loss) available to common shareholders |          | $    | 4,833                   |       |      | $     | (31,827        | ) |   | $     | (68,464 | )
|Denominator  Earnings Per Share  Basic:  |                                                    |          |      |                         |       |      |       |                |   |   |       |        
|                                           | Weighted average common shares outstanding         |          |      | 21,137                  |       |      |       | 19,160         |   |   |       | 16,512  |  
|                                           |                                                    |          |      |                         |       |      |       |                |   |   |       |        
|Earnings (loss) per share  Basic          |                                                    | $        | 0.23 |                         |       | $    | (1.66 | )              |   | $ | (4.15 | )      
|                                           |                                                    |          |      |                         |       |      |       |                |   |   |       |        
|Numerator  Earnings Per Share  Diluted   |                                                    |          |      |                         |       |      |       |                |   |   |       |        
|                                           | Net income (loss) available to common shareholders |          | $    | 4,833                   |       |      | $     | (31,827        | ) |   | $     | (68,464 | )
|Denominator  Earnings Per Share  Diluted |                                                    |          |      |                         |       |      |       |                |   |   |       |        
|                                           | Weighted average shares common shares outstanding  |          |      | 21,137                  |       |      |       | 19,160         |   |   |       | 16,512  |  
|                                           | Effect of dilutive securities:                     |          |      |                         |       |      |       |                |   |   |       |         |  
|                                           |                                                    | Options  |      |                         | 3,164 |      |       |                |  |   |       |         |  | 
|                                           |                                                    | Warrants |      |                         | 88    |      |       |                |  |   |       |         |  | 
|                                           |                                                    |          |      |                         |       |      |       |                |   |   |       |        
|                                           | Adjusted weighted average shares                   |          |      | 24,389                  |       |      |       | 19,160         |   |   |       | 16,512  |  
|                                           |                                                    |          |      |                         |       |      |       |                |   |   |       |        
|Earnings (loss) per share  Diluted        |                                                    | $        | 0.20 |                         |       | $    | (1.66 | )              |   | $ | (4.15 | )      
|                                           |                                                    |          |      |                         |       |      |       |                |   |   |       |        

For the periods presented in the following table, the options and warrants
listed are excluded from the calculations of diluted earnings per share because
the exercise price of such options and warrants exceeded the average market
price of our common stock for the related period.

|                               |  |                         |     |      |  |      |       |  |  |  |     | 
|------------------------------ |  | ----------------------- | --- | ---- |  | ---- | ----- |  |  |  | --- | 
|                               |  | Year Ended December 31,
|                               |  |                        
|                               |  | 2002                    |     | 2001 |  | 2001
|                               |  |                         |     |      |  |     
|                               |  | (in thousands)         
|Out-of-the-money stock options |  |                         | 121 |      |  |      | 2,855 |  |  |  | 850 | 
|Out-of-the-money warrants      |  |                         | 31  |      |  |      | 858   |  |  |  | 404 | 

For the periods presented in the following table, the antidilutive
potential common shares listed are excluded from the calculations of diluted
earnings per share because their inclusion would be antidilutive.

|                                                                 |  |                         |       |      |  |                |       |  |  |  |       | 
|---------------------------------------------------------------- |  | ----------------------- | ----- | ---- |  | -------------- | ----- |  |  |  | ----- | 
|                                                                 |  | Year Ended December 31,
|                                                                 |  |                        
|                                                                 |  | 2002                    |       | 2001 |  | 2000          
|                                                                 |  |                         |       |      |  |               
|Antidilutive potential common shares                             |  |                         |       |      |  | (in thousands) |       |  |  | 
|                                                                 |  |                        
|Options, treasury stock method                                   |  |                         |      |      |  |                | 1,080 |  |  |  | 1,336 | 
|Warrants, treasury stock method                                  |  |                         |      |      |  |                | 117   |  |  |  | 220   | 
|Mandatorily redeemable convertible preferred stock, if converted |  |                         | 6,379 |      |  |                |      |  |  |  |      | 
|                                                                 |  |                         |       |      |  |                |       |  |  |  |       | 
|                                                                 |  |                         | 6,379 |      |  |                | 1,197 |  |  |  | 1,556 | 
|                                                                 |  |                         |       |      |  |                |       |  |  |  |       | 

F-17



---



##### 



Segment Reporting

Based on the nature of our products and services, the types of customers
and the regulatory environment, management has organized our business into
three operating segments: our lending exchange, real estate services and Lend-X
Technology.

Lending exchange: primarily focused on enabling consumers to receive
multiple loan offers in response to a single, credit request and then compare,
review and accept the offer that best suits their needs. The exchange is also
focused on providing Lenders the ability to generate new business that meets
their specific underwriting criteria. Consumers can reach the exchange
through our website, www.lendingtree.com, by calling 1-800-555-TREE or through
a variety of private-label or co-branded websites enabled by Lend-X. Once the
consumer contacts us, they can request a variety of loan products.

Real Estate Services: through our real estate services we provide access
to a network of real estate professionals that can assist a consumer in buying
or selling a home. In most states, real estate brokers 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.

Lend-X Technology:our technology platform, Lend-XSM, is the technology
that powers our internet-based exchange. In the past, we had focused on
licensing the use of our Lend-X technology to other businesses, enabling them
to create either private-labeled or co-branded exchanges on their websites.
However, in 2002, we have shifted the primary strategy for Lend-X to support
the growth of our Exchange by using our technology in arrangements with other
online businesses that transmit consumers to our Exchange.

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.

F-18



---



##### 



The following tables present the revenue and gross profits for each of our
three segments for 2002, 2001 and 2000 as well as a reconciliation to
consolidated net income (loss) for each period.

|                        |                        |   |                                      |  |          |   |           |  |            |   |              |  |  |   |       |  |  |   |         |        |  
|----------------------- | ---------------------- | - | ------------------------------------ |  | -------- | - | --------- |  | ---------- | - | ------------ |  |  | - | ----- |  |  | - | ------- | ------ | -
|                        |                        |   | For the Year Ended December 31, 2002
|                        |                        |   |                                     
|                        |                        |   | Exchanges                            |  |          |   |           |  |            |   |              |  |  |   |      
|                        |                        |   |                                      |  |          |   |           |  |            |   |              |  |  |   |      
|                        |                        |   | Lending                              |  | Realty   |   | Total     |  | Lend-X     |   |              |  | 
|                        |                        |   | Exchange                             |  | Services |   | Exchanges |  | Technology |   | Consolidated
|                        |                        |   |                                      |  |          |   |           |  |            |   |             
|Revenue                 |                        | $ | 97,392                               |  |          | $ | 9,351     |  |            | $ | 106,743      |  |  | $ | 4,663 |  |  | $ | 111,406 |       
|Cost of revenue         |                        |   | 10,610                               |  |          |   | 5,267     |  |            |   | 15,877       |  |  |   | 1,164 |  |  |   | 17,041  |       
|                        |                        |   |                                      |  |          |   |           |  |            |   |              |  |  |   |       |  |  |   |         |       
|Gross margin            |                        | $ | 86,782                               |  |          | $ | 4,084     |  |            | $ | 90,866       |  |  | $ | 3,499 |  |  | $ | 94,365  |       
|                        |                        |   |                                      |  |          |   |           |  |            |   |              |  |  |   |       |  |  |   |         |       
|Reconciling items:      |                        |   |                                      |  |          |   |           |  |            |   |              |  |  |   |       |  |  |   |         |       
|                        | Operating expenses     |   |                                      |  |          |   |           |  |            |   |              |  |  |   |       |  |  |   | $       | 85,764 |  
|                        |                        |   |                                      |  |          |   |           |  |            |   |              |  |  |   |       |  |  |   |         |       
|                        | Income from operations |   |                                      |  |          |   |           |  |            |   |              |  |  |   |       |  |  |   |         | 8,601  |  
|                        |                        |   |                                      |  |          |   |           |  |            |   |              |  |  |   |       |  |  |   |         |       
|                        | Non-operating income   |   |                                      |  |          |   |           |  |            |   |              |  |  |   |       |  |  |   |         | 709    |  
|                        | Non-operating expense  |   |                                      |  |          |   |           |  |            |   |              |  |  |   |       |  |  |   |         | (409   | )
|                        |                        |   |                                      |  |          |   |           |  |            |   |              |  |  |   |       |  |  |   |         |       
|Consolidated net income |                        |   |                                      |  |          |   |           |  |            |   |              |  |  |   |       |  |  | $ | 8,901   |       
|                        |                        |   |                                      |  |          |   |           |  |            |   |              |  |  |   |       |  |  |   |         |       

|                      |                             |   |                                      |  |          |   |           |  |            |   |              |  |  |   |       |  |  |   |         |         |  
|--------------------- | --------------------------- | - | ------------------------------------ |  | -------- | - | --------- |  | ---------- | - | ------------ |  |  | - | ----- |  |  | - | ------- | ------- | -
|                      |                             |   | For the Year Ended December 31, 2001
|                      |                             |   |                                     
|                      |                             |   | Exchanges                            |  |          |   |           |  |            |   |              |  |  |   |      
|                      |                             |   |                                      |  |          |   |           |  |            |   |              |  |  |   |      
|                      |                             |   | Lending                              |  | Realty   |   | Total     |  | Lend-X     |   |              |  | 
|                      |                             |   | Exchange                             |  | Services |   | Exchanges |  | Technology |   | Consolidated
|                      |                             |   |                                      |  |          |   |           |  |            |   |             
|Revenue               |                             | $ | 52,925                               |  |          | $ | 4,553     |  |            | $ | 57,478       |  |  | $ | 6,541 |  |  | $ | 64,019  |        
|Cost of Revenue       |                             |   | 9,180                                |  |          |   | 3,247     |  |            |   | 12,427       |  |  |   | 1,262 |  |  |   | 13,689  |        
|                      |                             |   |                                      |  |          |   |           |  |            |   |              |  |  |   |       |  |  |   |         |        
|Gross margin          |                             | $ | 43,745                               |  |          | $ | 1,306     |  |            | $ | 45,051       |  |  | $ | 5,279 |  |  | $ | 50,330  |        
|                      |                             |   |                                      |  |          |   |           |  |            |   |              |  |  |   |       |  |  |   |         |        
|Reconciling items:    |                             |   |                                      |  |          |   |           |  |            |   |              |  |  |   |       |  |  |   |         |        
|                      | Operating expenses          |   |                                      |  |          |   |           |  |            |   |              |  |  |   |       |  |  |   |         | 78,120  |  
|                      |                             |   |                                      |  |          |   |           |  |            |   |              |  |  |   |       |  |  |   |         |        
|                      | Loss from operations        |   |                                      |  |          |   |           |  |            |   |              |  |  |   |       |  |  |   | $       | (27,790 | )
|                      |                             |   |                                      |  |          |   |           |  |            |   |              |  |  |   |       |  |  |   |         |        
|                      | Loss on impaired investment |   |                                      |  |          |   |           |  |            |   |              |  |  |   |       |  |  |   |         | (600    | )
|                      | Non-operating income        |   |                                      |  |          |   |           |  |            |   |              |  |  |   |       |  |  |   |         | 594     |  
|                      | Non-operating expense       |   |                                      |  |          |   |           |  |            |   |              |  |  |   |       |  |  |   |         | (1,119  | )
|                      |                             |   |                                      |  |          |   |           |  |            |   |              |  |  |   |       |  |  |   |         |        
|Consolidated net loss |                             |   |                                      |  |          |   |           |  |            |   |              |  |  |   |       |  |  | $ | (28,915 | )      
|                      |                             |   |                                      |  |          |   |           |  |            |   |              |  |  |   |       |  |  |   |         |        

|                      |                             |   |                                      |  |          |   |           |   |            |   |              |  |  |   |       |  |  |   |         |         |  
|--------------------- | --------------------------- | - | ------------------------------------ |  | -------- | - | --------- | - | ---------- | - | ------------ |  |  | - | ----- |  |  | - | ------- | ------- | -
|                      |                             |   | For the Year Ended December 31, 2000
|                      |                             |   |                                     
|                      |                             |   | Exchanges                            |  |          |   |           |   |            |   |              |  |  |   |      
|                      |                             |   |                                      |  |          |   |           |   |            |   |              |  |  |   |      
|                      |                             |   | Lending                              |  | Realty   |   | Total     |   | Lend-X     |   |              |  | 
|                      |                             |   | Exchange                             |  | Services |   | Exchanges |   | Technology |   | Consolidated
|                      |                             |   |                                      |  |          |   |           |   |            |   |             
|Revenue               |                             | $ | 26,773                               |  |          | $ | 692       |   |            | $ | 27,465       |  |  | $ | 3,348 |  |  | $ | 30,813  |        
|Cost of Revenue       |                             |   | 6,750                                |  |          |   | 748       |   |            |   | 7,498        |  |  |   | 1,874 |  |  |   | 9,372   |        
|                      |                             |   |                                      |  |          |   |           |   |            |   |              |  |  |   |       |  |  |   |         |        
|Gross margin          |                             | $ | 20,023                               |  |          | $ | (56       | ) |            | $ | 19,967       |  |  | $ | 1,474 |  |  | $ | 21,441  |        
|                      |                             |   |                                      |  |          |   |           |   |            |   |              |  |  |   |       |  |  |   |         |        
|Reconciling items:    |                             |   |                                      |  |          |   |           |   |            |   |              |  |  |   |       |  |  |   |         |        
|                      | Operating expenses          |   |                                      |  |          |   |           |   |            |   |              |  |  |   |       |  |  |   |         | 87,544  |  
|                      |                             |   |                                      |  |          |   |           |   |            |   |              |  |  |   |       |  |  |   |         |        
|                      | Loss from operations        |   |                                      |  |          |   |           |   |            |   |              |  |  |   |       |  |  |   | $       | (66,103 | )
|                      |                             |   |                                      |  |          |   |           |   |            |   |              |  |  |   |       |  |  |   |         |        
|                      | Loss on impaired investment |   |                                      |  |          |   |           |   |            |   |              |  |  |   |       |  |  |   |         | (1,900  | )
|                      | Non-operating income        |   |                                      |  |          |   |           |   |            |   |              |  |  |   |       |  |  |   |         | 2,212   |  
|                      | Non-operating expense       |   |                                      |  |          |   |           |   |            |   |              |  |  |   |       |  |  |   |         | (212    | )
|                      |                             |   |                                      |  |          |   |           |   |            |   |              |  |  |   |       |  |  |   |         |        
|Consolidated net loss |                             |   |                                      |  |          |   |           |   |            |   |              |  |  |   |       |  |  | $ | (66,003 | )      
|                      |                             |   |                                      |  |          |   |           |   |            |   |              |  |  |   |       |  |  |   |         |        

F-19



---



##### 



Cash Flow Information

For the years ended December 31, 2002, 2001 and 2000, we paid interest of
approximately $0.3 million, approximately $0.2 million and less than $0.1
million, respectively. We paid no income taxes during such periods.

A supplemental schedule of non-cash investing and financing activities follows:

|                                                                                                    |  |              |       |      |  |      |       |  |  |   |        | 
|--------------------------------------------------------------------------------------------------- |  | ------------ | ----- | ---- |  | ---- | ----- |  |  | - | ------ | 
|                                                                                                    |  | Year Ended  
|                                                                                                    |  | December 31,
|                                                                                                    |  |             
|                                                                                                    |  | 2002         |       | 2001 |  | 2000
|                                                                                                    |  |              |       |      |  |     
|Conversion of preferred stock and accumulated
dividends into common stock                           |  | $            | 3,381 |      |  | $    |      |  |  | $ | 63,233 | 
|Notes receivable issued to officers to acquire
stock in the company                                 |  |              |       |      |  |      | 829   |  |  |   | 1,603  | 
|Acquisition of assets through capital leases                                                        |  |              | 695   |      |  |      | 211   |  |  |   | 1,867  | 
|Accretion of mandatorily
redeemable preferred stock                                                 |  |              | 676   |      |  |      | 527   |  |  |   |       | 
|Dividends on convertible preferred
stock                                                            |  |              | 516   |      |  |      | 2,385 |  |  |   | 2,461  | 
|Issuance of warrants and other costs in
conjunction with revolving credit facilities                |  |              |      |      |  |      | 481   |  |  |   |       | 
|Issuance of warrants in conjunction
with preferred stock financing and
convertible promissory notes |  |              |      |      |  |      | 431   |  |  |   |       | 
|Issuance of common stock in connection with
acquisition of key assets for another business          |  |              |      |      |  |      |      |  |  |   | 4,739  | 
|Accrued liabilities established in connection
with a business acquisition                           |  |              |      |      |  |      |      |  |  |   | 1,496  | 
|Cashless exercise of warrants                                                                       |  |              | 3     |      |  |      |      |  |  |   |       | 

Reclassifications

Certain reclassifications were made to the prior year consolidated
financial statements to conform them to the current presentation.

Recent Accounting Pronouncements

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations, which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. This statement requires that the fair
value of a liability for an asset retirement obligation be recognized in the
period in which it is incurred if a reasonable estimate of fair value can be
made. This statement is effective for financial statements issued for fiscal
years beginning after June 15, 2002. Accordingly, we will adopt SFAS No. 143
on January 1, 2003. Because we do not presently have any asset retirement
obligations, we do not expect the impact of adopting this statement on our
results of operations, financial condition, or cash flows to be significant.

In December 2002 the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure, which amends SFAS No. 123,
Accounting for Stock-Based Compensation, to provide

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alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. These provisions of SFAS No. 148 are effective for financial
statements for fiscal years ending after December 15, 2002. LendingTree has
not and does not anticipate implementing the voluntary change to the fair value
based method of accounting for stock-based compensation. LendingTree has
implemented the disclosure provisions of SFAS No. 148 beginning with the
December 31, 2002 consolidated financial statements.

In November 2002, the FASB approved FASB Interpretation No. (FIN) 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness to Others. FIN 45 elaborates on the
existing disclosure requirements for most guarantees. It also clarifies that
at the time a company issues a guarantee, the company must recognize an initial
liability for the fair value, or market value, of the obligations it assumes
under that guarantee and must disclose that information in its interim and
annual financial statements. The disclosure requirements of FIN 45 are
effective for financial statements of interim or annual periods ending after
December 15, 2002. The Company has adopted the disclosure provisions of this
interpretation as of December 31, 2002. The Company does not expect the
initial recognition and measurement provisions for guarantees issued or
modified after December 31, 2002 to have a material impact on the consolidated
financial statements.

4. Accounts Receivable

Trade accounts receivable consists of the following at December 31:

|                                      |  |              |        |              |  |  |        |  
|------------------------------------- |  | ------------ | ------ | ------------ |  |  | ------ | -
|                                      |  | December 31, |        | December 31,
|                                      |  | 2002         |        | 2001        
|                                      |  |              |        |             
|Accounts receivable                   |  |              | 17,261 |              |  |  | 11,750 |  
|Less: allowance for doubtful accounts |  |              | (369   | )            |  |  | (312   | )
|                                      |  |              |        |              |  |  |        |  
|                                      |  |              | 16,892 |              |  |  | 11,438 |  
|                                      |  |              |        |              |  |  |        |  

The provision for doubtful accounts, in dollars and as a percentage of
sales, was $0.4 million (0.3%); $0.3 million (0.5%) and $0.6 million (9.3%) for
the years ended December 31, 2002, 2001 and 2000, respectively. Write-offs of
accounts receivable, in dollars and as a percentage of sales, were $0.3 million
(0.5%), $0.3 million (0.5%) and $0.4 million (1.3%) for the years ended
December 31, 2002, 2001 and 2000, respectively.

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5. Non-current Assets

Our non-current assets consist principally of the following:

|                                                |                                |                                    |               |               |   |       |       |              |        |       |       |        |        |  
|----------------------------------------------- | ------------------------------ | ---------------------------------- | ------------- | ------------- | - | ----- | ----- | ------------ | ------ | ----- | ----- | ------ | ------ | -
|                                                |                                |                                    |               |               |   |       |       | December 31,
|                                                |                                |                                    |               | Expected Life |   |      
|                                                |                                |                                    |               | (Years)       |   | 2002  |       | 2001        
|                                                |                                |                                    |               |               |   |       |       |             
|Equipment, furniture and
leasehold improvements |                                |                                    |               |               |   |       |       |              |        |       |       |       
|                                                | Computer hardware              |                                    | 2 to 3        |               | $ | 2,662 |       |              | $      | 2,020 |      
|                                                | Office furniture and equipment |                                    | 3 to 5        |               |   | 2,070 |       |              |        | 1,888 |      
|                                                | Leasehold improvements         |                                    | Life of lease |               |   | 78    |       |              |        | 78    |      
|                                                |                                |                                    |               |               |   |       |       |              |        |       |       |       
|                                                |                                |                                    |               |               |   |       | 4,810 |              |        |       | 3,986 |       
|                                                | Accumulated depreciation       |                                    |               |               |   |       |       | (3,093       | )      |       |       | (1,970 | )     
|                                                |                                |                                    |               |               |   |       |       |              |        |       |       |       
|                                                | Net                            |                                    |               |               |   |       | $     | 1,717        |        |       | $     | 2,016  |       
|                                                |                                |                                    |               |               |   |       |       |              |        |       |       |       
|Software                                        |                                |                                    |               |               |   |       |       |              |        |       |       |       
|                                                | Computer systems software      |                                    | 1 to 3        |               | $ | 9,624 |       |              | $      | 8,374 |      
|                                                | Accumulated amortization       |                                    |               |               |   |       |       | (8,659       | )      |       |       | (5,802 | )     
|                                                |                                |                                    |               |               |   |       |       |              |        |       |       |       
|                                                | Net                            |                                    |               |               |   |       | $     | 965          |        |       | $     | 2,572  |       
|                                                |                                |                                    |               |               |   |       |       |              |        |       |       |       
|Projects In Process                             |                                |                                    |               |               |   | $     | 1,468 |              |        | $     | 282   |       
|                                                |                                |                                    |               |               |   |       |       |              |        |       |       |       
|Intangible Assets                               |                                |                                    |               |               |   |       |       |              |        |       |       |       
|                                                |                                | Realtor network                    |               |               | 3 |       |       | $            | 6,473  |       |       | $      | 6,472  |  
|                                                |                                | Affinity program partner contracts |               | 2 to 3.75     |   |       | 544   |              |        |       | 544   |       
|                                                |                                |                                    |               |               |   |       |       |              |        |       |       |       
|                                                |                                |                                    |               |               |   |       | 7,017 |              |        |       | 7,016 |       
|                                                |                                | Accumulated amortization           |               |               |   |       |       |              | (5,687 | )     |       |        | (3,349 | )
|                                                |                                |                                    |               |               |   |       |       |              |        |       |       |       
|                                                |                                | Net                                |               |               |   |       |       | $            | 1,330  |       |       | $      | 3,667  |  
|                                                |                                |                                    |               |               |   |       |       |              |        |       |       |       

Depreciation expense for equipment, furniture and leasehold improvements
for the years ended December 31, 2002, 2001 and 2000 was approximately $1.1
million, $1.2 million and $0.7 million, respectively.

Amortization expense for software for the years ended December 31, 2002,
2001 and 2000 was $2.9 million, $4.3 million and $1.5 million, respectively.

Amortization expense for intangible assets for the years ended December
31, 2002, 2001 and 2000 was $2.3 million, $2.4 million and $1.0 million,
respectively. These intangible assets will be substantially fully amortized in
2003 and approximately $1.3 million of intangible related amortization will be
charged to expense in the period ending December 31, 2003.

We lease certain equipment and furniture under capital lease arrangements.
The cost of the equipment and furniture under capital leases at December 31,
2002 and 2001 was $ 2.8 million and $2.1 million, respectively. The
accumulated amortization for equipment and furniture under capital lease
arrangements was $1.5 million and $1.0 million, respectively.

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6. Accrued Other Expenses

Accrued other expenses are comprised of the following:

|                       |                        |  |              |       |      |  |       |       | 
|---------------------- | ---------------------- |  | ------------ | ----- | ---- |  | ----- | ----- | 
|                       |                        |  | December 31,
|                       |                        |  |             
|                       |                        |  | 2002         |       | 2001
|                       |                        |  |              |       |     
|Advertising            |                        |  | 791          |       |      |  | 1,080 |      
|Miscellaneous accruals |                        |  | 631          |       |      |  | 694   |      
|                       |                        |  |              |       |      |  |       |      
|                       | Total Accrued Expenses |  | $            | 1,422 |      |  | $     | 1,774 | 
|                       |                        |  |              |       |      |  |       |      

7. Financing Sources

Revolving Lines of Credit

On July 13, 2001, LendingTree and GE Capital Commercial Services, Inc.
(GE) entered into a loan and security agreement and revolving credit note.
Under these arrangements, GE agreed to provide a two-year senior revolving
credit facility providing for borrowings of up to $15 million. The facility
has a two-year term under which we have pledged our accounts receivable and is
subject to certain covenants and restrictions. Borrowings are limited to 85%
of the eligible accounts receivable and bear interest at the prime rate. As of
December 31, 2002 we had eligible receivables of $6.6 million. Eligible
accounts receivable are subject to significant fluctuation period to period.
We pay GE a fee equal to 0.115% of the eligible accounts receivable arising
during the term of the facility.

As of December 31, 2002, we had no borrowings outstanding under the GE
credit facility and we were in compliance with the covenants of the facility.
Also as of December 31, 2002 we had a approximately $0.9 million receivable due
from GE representing funds collected on our accounts receivable through a
lockbox service managed by GE and not yet available for our use.

In March 2001, we had entered into a two-year, $5 million revolving line
of credit agreement with the Union Labor Life Insurance Company, on behalf of
its separate account P (ULLICO), and issued ULLICO a commitment fee warrant
to purchase 40,000 shares of common stock at an exercise price of $.01 per
share. Concurrent with the closing of the credit facility with GE, LendingTree
terminated the ULLICO agreement and we issued ULLICO a termination warrant to
purchase 40,000 shares of common stock at an exercise price of $.01 per share.
Both warrants expire in March 2006. In connection with the termination of the
ULLICO credit facility, we recorded an expense of approximately $0.4 million
for the estimated fair value of these warrants and remaining deferred offering
costs related to this transaction.

Revolving Loan

In March 2001, LendingTree and the Federal Home Loan Mortgage Corporation
(Freddie Mac) (a customer) entered into a two-year revolving loan agreement
whereby Freddie Mac agreed to provide us a two-year credit facility under which
we were able borrow up to $2.5 million on a revolving basis through February
2003, subject to certain covenants and restrictions. As a commitment fee,
Freddie Mac received warrants to purchase 12,500 shares of our common stock
with an exercise price of $.01 per share. The $35,000 estimated fair value of
these warrants, calculated using a valuation model, was recorded as a long-term
asset and was being amortized to interest expense over the life of the
revolving loan.

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.

Equity Line

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In March 2001, we entered into a common stock purchase agreement with Paul
Revere Capital Partners, Ltd. (Paul Revere) for the potential future issuance
and sale of up to $24 million of our common stock. Under this arrangement, we,
at our sole discretion and during the term ending March 2003, could exercise up
to twenty-four monthly draw downs under which Paul Revere would be obligated to
purchase a certain number of shares of our common stock. As of December 31,
2002 there have been no draw downs under this equity line and we do not intend
to make any drawdown requests before the equity line terminates March 6, 2003.

8. Convertible Preferred Stock and Shareholders Equity

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 (including Capital Z, our largest shareholder, and certain officers
and directors) for $12.95 million or $3.50 per share. We issued an additional
129,000 shares of Series A Preferred Stock to our Chief Financial Officer and a
director on April 30, 2001 at $3.50 per share plus accumulated dividends.
After deducting fees related to both transactions, this resulted in net
proceeds to us totaling approximately $12.2 million. In addition, we issued
and sold 200,000 shares of Series A Preferred Stock to our Chief Executive
Officer, funded by a promissory note to us, for $0.7 million.

Also, as further discussed below (see Equity Rights Certificate), in
conjunction with the March 2001 closing of the Series A Preferred Stock
financing transaction, an Equity Rights Certificate held by Capital Z was
converted into approximately 2,857,143 shares of Series A Preferred Stock at an
effective rate of $3.50 per share.

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 889,039 preferred shares and accrued
dividends into 965,750 shares of our common stock.

As of December 31, 2002, there were a total of 5,996,676 shares of Series
A Preferred Stock outstanding convertible into 6,506,548 shares of common
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
non-cash dividends.

Through March 31, 2002 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 dividends, for the quarter ending March 31, 2002 and for the
year ending December 31, 2001, we increased the carrying value of the Series A
Preferred Stock on our balance sheet and recorded a charge on our consolidated
statement of operations of approximately $0.6 million and $1.5 million,
respectively. For the quarter ending March 31, 2002 and for the year ending
December 31, 2001, we
recognized an additional $1.4 million and $0.9 million, respectively, 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 (or fair
value dividend charges). For the remaining three quarters of 2002, we elected
to pay the quarterly dividends in cash. This resulted in dividend charges of
$1.4 million while incurring no additional fair value dividend charges for
those periods.

In the aggregate, for the years ended December 31, 2002 and 2001, we
recorded a total of approximately $3.4 million and $2.4 million, respectively,
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

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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 with such redemption price
declining to $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 the fifth anniversary of the issue date of such shares 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
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
year ending December 31, 2002 and 2001, we recorded approximately $0.7 million
and $0.5 million, respectively, of accretion charges.

In certain circumstances, the economic value of the investment in our
Series A Preferred Stock is protected against future sales of stock by us at
prices below $3.50 per share. If we sell additional common or preferred stock
at a price below $3.50 per share, the price at which the Series A Preferred
Stock converts into common stock may be adjusted downward, which would
automatically entitle these holders to receive additional shares of common
stock upon conversion

In connection with the Series A Preferred Stock financing transaction, we
agreed to grant warrants to acquire a total of 112,500 shares of common stock
at a price of $.01 per share to our financial advisor in this transaction. The
warrants were granted in four equal installments on April 30, 2001, June 20,
2001, September 20, 2001 and December 20, 2001 and immediately exercised, using
the cashless exercise method, resulting in the issuance of a total of 112,290
shares of common stock.

Under Delaware law, every corporation may create and issue rights
entitling the holders of such rights to purchase from the corporation shares of
its capital stock of any class or classes, subject to any provisions in its
certificate of incorporation. The price and terms of such shares must be
stated in the certificate of incorporation or in a resolution adopted by the
board of directors for the creation or issuance of such rights.

We have entered into a stockholder rights agreement. As with most
stockholder rights agreement, the terms of our rights agreement are complex and
not easily summarized, particularly as they relate to the acquisition of our
common stock and to exercisability. This summary may not contain all of the
information that is important to you. Accordingly, you should carefully read
our rights agreement, which has been incorporated by reference as an exhibit to
this Form 10-K.

Our rights agreement provides that each share of our common stock
outstanding has one right to purchase one-hundredth of a preferred share
attached to it. The purchase price per one one-hundredth of a preferred share
under the stockholder rights agreement is four times the average closing price
of our common stock for the first five days of trading after the consummation
of this offering.

Initially, the rights under our rights agreement are attached to
outstanding certificates representing our common stock and no separate
certificates representing the rights will be distributed. The rights will
separate from our common stock and be represented by separate certificates
approximately 10 days after someone acquires or commences a tender offer for
15% of our outstanding common stock.

After the rights separate from our common stock, certificates representing
the rights will be mailed to record holders of our common stock. Once
distributed, the rights certificates alone will represent the rights.

All shares of our common stock issued prior to the date the rights
separate from the common stock will be issued with the rights attached. The
rights are not exercisable until the date the rights separate from the common
stock. The rights will expire on February 22, 2010 unless earlier redeemed or
exchanged by us.

If an acquiror obtains or has the rights to obtain 15% or more of our
common stock, then each right will entitle the holder to purchase a number of
shares of our common stock equal to two times the purchase price of each right.

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Each right will entitle the holder to purchase a number of shares of
common stock of the acquiror having a then current market value of twice the
purchase price if an acquiror obtains 15% or more of our common stock and any
of the following occurs:



| |  |  | we merge into another entity;                        
| | - |  | -----------------------------------------------------
|
| |  |  | an acquiring entity merges into us; or               
|
| |  |  | we sell more than 50% of our assets or earning power.

Under our rights agreement, any rights that are or were owned by an
acquiror of more than 15% of our outstanding common stock will be null and
void. Our rights agreement contains exchange provisions which provide that
after an acquiror obtains 15% or more, but less than 50% of our outstanding
common stock, our board of directors may, at its option, exchange all or part
of the then outstanding and exercisable rights for shares of our common stock.
In such an event, the exchange ratio is one common share per right, adjusted to
reflect any stock split, stock dividend or similar transaction.

Our board of directors may redeem all of the outstanding rights under our
rights agreement prior to the earlier of (1) the time that an acquiror obtains
15% or more of our outstanding common stock or (2) the final expiration date of
the rights agreement. The redemption price under our rights agreement is $0.01
per right, subject to adjustment. The right to exercise the rights will
terminate upon the action of our board ordering the redemption of the rights
and the only right of the holders of the rights will be to receive the
redemption price.

Holders of rights will have no rights as our stockholders, including the
right to vote or receive dividends, simply by virtue of holding the rights.

Our rights agreement provides that the provisions of the rights agreement
may be amended by the board of directors prior to 10 days after someone
acquires or commences a tender offer for 15% of our outstanding common stock
without the approval of the holders of the rights. However, after that date,
the rights agreement may not be amended in any manner which would adversely
effect the interests of the holders of the rights, excluding the interests of
any acquiror. In addition, our rights agreement provides that no amendment may
be made to adjust the time period governing redemption at a time when the
rights are not redeemable.

Our rights agreement contains rights that have anti-takeover effects. The
rights may cause substantial dilution to a person or group that attempts to
acquire us without conditioning the offer on a substantial number of rights
being acquired. Accordingly, the existence of the rights may deter acquirors
from making takeover proposals or tender offers. However, the rights are not
intended to prevent a takeover, but rather are designed to enhance the ability
of our board to negotiate with an acquiror on behalf of all the stockholders.
In addition, the rights should not interfere with a proxy contest.

Equity Rights Certificate

On September 29, 2000, Capital Z Partners (Capital Z), our largest
shareholder, purchased an Equity Rights Certificate from us for $10 million.
The Equity Rights Certificate was initially exercisable for 1,253,918 shares of
our common stock and warrants to purchase 225,000 shares of our common stock
with an exercise price of $7.975. The Equity Rights Certificate contained
anti-dilution provisions that allowed Capital Z to receive additional shares of
our common stock if a financing transaction occurred prior to the expiration of
the Equity Rights Certificate. As a part of the transaction, Capital Z also
received a commitment fee warrant to purchase 135,000 shares of our common
stock.

In conjunction with the March 2001 Series A Preferred Stock financing
transaction, the Equity Rights Certificate was converted into 2,857,143 shares
of Series A Preferred Stock at an effective rate of $3.50 per share. We
recorded the conversion of the Equity Rights Certificate through a credit to
mandatorily redeemable preferred

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stock of approximately $9.4 million (net of
offering and related costs) with a corresponding charge to additional paid in
capital. This amount was determined as the gross proceeds received net of
offering costs (of approximately $0.2 million) and the estimated fair value of
the warrants (approximately $0.5 million determined using a valuation model).
Additionally, concurrent with the sale of the Series A Preferred Stock, the
exercise price of the commitment fee warrant to purchase 135,000 shares of
common stock was calculated and set at $3.762 per share. The warrant is
exercisable at any time until September 29, 2005.

Common Stock

On February 15, 2000, we completed the sale of 4,197,500 shares of our
common stock at an initial public offering (IPO) price of $12.00 per share,
raising approximately $44.8 million, net of offering expenses, underwriting
discounts and commissions. Simultaneous with the closing of the initial public
offering, all previously outstanding shares of Series D convertible preferred
stock including accumulated, unpaid in-kind dividends through that date were
automatically converted into an aggregate of 10,493,530 shares of common stock.

Stock Split

In January 2000, the Board of Directors approved a 1.27-for-1 common stock
split that was effective February 22, 2000 upon the closing of our initial
public offering. The consolidated financial statements for all periods
presented have been restated to reflect the effect of this stock split. In
addition, the Board approved an amendment to our certificate of incorporation,
effective in conjunction with our Form S-1 Registration Statement, increasing
the authorized capital stock to 100,000,000 shares of common stock and
10,000,000 shares of preferred stock, each with a par value of $0.01 per share.

1999 Convertible Preferred Stock Sale

On September 20, 1999, we entered into a Series D Convertible Preferred
Stock Purchase Agreement (the Series D Agreement) under which we sold
6,024,096 shares of Series D Convertible Preferred stock at $8.30 per share for
total gross proceeds of approximately $50 million. We also incurred
approximately $2.5 million in offering costs, which have been netted against
the proceeds. Preferred shareholders were entitled to cumulative dividends
that accrued on a daily basis at a rate of 8% per annum.

During May 1999, we sold 333,000 shares of Series A Convertible Preferred
stock at $6.00 per share for gross proceeds of $2.0 million. We also granted a
warrant to the investors in this round to purchase 33,020 shares of common
stock at approximately $7.87 per share. The fair value of these warrants was
approximately $12,000 and was calculated using an option valuation model.

During March 1999, we sold 500,000 shares of Series A Convertible
Preferred stock at a price of $6.00 per share and a warrant to purchase 40,000
shares of Preferred stock at $9.00 per share for gross proceeds of $3.0
million.

In conjunction with the sale of Series D Convertible Preferred stock,
warrants to acquire 381,000 shares of Preferred stock were exchanged for
warrants to purchase 381,000 shares of common stock at approximately $4.72 per
share. The warrants expire September 2005. The exchange has been reflected in
the consolidated financial statements as a $0.5 million distribution to the
preferred shareholders equivalent to the excess of the current fair value of
the new warrants over the carrying value of the existing warrants, and has been
included in the calculation of net loss attributable to common shareholders for
the year ended December 31, 1999. The new warrants issued were valued at
approximately $0.8 million utilizing an option valuation model.

In connection with the Series D Agreement we granted a warrant to purchase
127,000 shares of common stock at approximately $7.52 per share to a broker in
the transaction, the fair value of which (approximately $0.5 million,
calculated using an option valuation model) was included in offering costs of
the Series D sale. In January 2000, this broker became an underwriter our
initial public offering and agreed to exchange its existing warrant for a new
warrant to purchase 127,000 shares of common stock at an exercise price equal
to the initial public offering price of common stock ($12.00). The new warrant
is exercisable for a five-year period from the date of the first warrant or
through September 21, 2004. Upon the exchange of these warrants, we recorded
an offset to the IPO

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proceeds of approximately $0.1 million based upon the fair
value of the new warrant issued in excess of the existing warrant based upon an
option valuation model.

Common Stock Warrants

In addition to the warrants issued in connection with the credit
facilities (see Note 7) and the Preferred stock sales and issuance of
convertible notes (see Note 8) we have also issued the following warrants:

In February 2000, we issued two warrants to a Lend-X client in connection
with an agreement to co-brand a website. Each warrant is for the purchase of
95,250 shares of our common stock at $7.87 per share. The first warrant,
issued February 2, 2000, with an underlying fair value of $11.00, was
immediately vested and exercisable at the date of grant. The second warrant was
granted February 15, 2000 with an underlying fair value of $12.00 and was also
immediately vested and exercisable. An expense of approximately $1.3 million,
calculated using an option valuation model, was recognized ratably for services
provided over the initial one-year period of the agreement. For the years
ended December 31, 2002 and 2000, we recognized charges for these warrants of
approximately $0.1 million and $1.2 million, respectively. Both warrants
expired unexercised in February 2002.

In December 1998, we issued a warrant to purchase 63,500 shares of common
stock at $4.72 per share to a broker in connection with the closing of a
Preferred stock sale. The warrant is exercisable and expires in December 2004.
The value of the warrant (approximately $50,000 determined utilizing a option
valuation model) was recorded as an offset to the proceeds of the Preferred
stock sale.

In November 1998, we also issued a warrant to purchase 9,525 shares of
common stock at $4.72 per share in connection with a line of credit provided
by a shareholder. The fair value of this warrant (approximately $7,000) was
recognized in expense during the year ended December 31, 1998. This warrant was
valued using an option valuation model. The warrant expires in November 2003.
The line of credit is no longer available.

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The following tables summarize the annual activity for common stock
warrants and common stock warrants outstanding at December 31, 2002:

|                                    |  |           |       |          |  |          |      | 
|----------------------------------- |  | --------- | ----- | -------- |  | -------- | ---- | 
|                                    |  |           |       |          |  | Weighted
|                                    |  |           |       |          |  | Average 
|                                    |  | Number of |       | Exercise
|Common Stock Warrants               |  | Warrants  |       | Price   
|                                    |  |           |       |         
|Outstanding as of December 31, 1999 |  |           | 667   |          |  | $        | 6.52 | 
|Granted                             |  |           | 342   |          |  |          | 6.25 | 
|Cancelled/Forfeited                 |  |           | (17   | )        |  |          | 7.87 | 
|                                    |  |           |       |          |  |          |      | 
|Outstanding as of December 31, 2000 |  |           | 992   |          |  |          | 6.40 | 
|Granted                             |  |           | 205   |          |  |          | 0.01 | 
|Exercised                           |  |           | (112  | )        |  |          | 0.01 | 
|Cancelled/Forfeited                 |  |           |      |          |  |          |     | 
|                                    |  |           |       |          |  |          |      | 
|Outstanding as of December 31, 2001 |  |           | 1,085 |          |  | $        | 5.86 | 
|Granted                             |  |           |      |          |  |          |     | 
|Exercised                           |  |           | (706  | )        |  |          | 5.20 | 
|Cancelled/Forfeited                 |  |           | (190  | )        |  |          | 7.87 | 
|                                    |  |           |       |          |  |          |      | 
|Outstanding as of December 31, 2002 |  |           | 189   |          |  | $        | 6.28 | 
|Exercisable as of December 31, 2002 |  |           | 189   |          |  | $        | 6.28 | 
|                                    |  |           |       |          |  |          |      | 

The following table represents the common stock warrants outstanding at
December 31, 2002:

|         |  |             |                                  |            |  |                |  |  | 
|-------- |  | ----------- | -------------------------------- | ---------- |  | -------------- |  |  | 
|         |  |             | Common Stock Warrants           
|         |  |             | Outstanding at December 31, 2002
|         |  |             |                                 
|Exercise |  | Number      |                                  | Expiration
|Price    |  | Outstanding |                                  | Date      
|         |  |             |                                  |           
|$0.01    |  |             | 13                               |            |  | March 2006    
|3.76     |  |             | 80                               |            |  | September 2005
|7.87     |  |             | 27                               |            |  | May 2004      
|7.87     |  |             | 23                               |            |  | June 2004     
|7.87     |  |             | 15                               |            |  | July 2004     
|12.00    |  |             | 31                               |            |  | September 2004
|         |  |             |                                  |            |  |                |  | 
|         |  |             | 189                              |            |  |                |  | 
|         |  |             |                                  |            |  |                |  | 

F-29



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##### 



Treasury Stock

We utilized approximately $6.0 million of the proceeds from the 1999 sale
of Convertible Preferred Stock to repurchase 948,971 shares of common stock (of
which 666,750 shares were purchased from Board members for approximately $4.2
million in connection with their departure from the Board) which has been
reflected as treasury stock, at cost, in the accompanying consolidated
financial statements.

As of December 31, 2002 there are 237,673 shares of common stock issued
and classified as treasury stock. From December 31, 2000 we have sold and
reissued 714,498 shares of treasury stock to participants in our Employee Stock
Purchase Plan (see below). Additionally, 3,200 treasury stock shares were
acquired in March 2002 in a transaction with an employee for a stock option
exercise.

Employee Stock Options and Other Benefit Plans

|                                                       |                              |                     |                                               |                     |                   |                    |                    
|------------------------------------------------------ | ---------------------------- | ------------------- | --------------------------------------------- | ------------------- | ----------------- | ------------------ | -------------------
|                                                       |                              |                     |                                               |                     |                   |                    | Number of          
|                                                       |                              |                     | Number of                                     |                     |                   |                    | Securities         
|                                                       |                              |                     | Securities to be                              |                     |                   |                    | Remaining Available
|                                                       |                              |                     | Issued Upon                                   |                     | Weighted Average  |                    | for Future Issuance
|                                                       |                              |                     | Exercise of                                   |                     | Exercise Price of |                    | Under Equity       
|Plan Category                                          |                              | Outstanding Options |                                               | Outstanding Options |                   | Compensation Plans
|                                                       |                              |                     |                                               |                     |                   |                   
|Equity Compensation Plans Approved By Shareholders:    |                              |                     |                                               |                     |                   |                   
|                                                      | Stock Option Plans           |                     | 6,159,057                                     |                     | $6.19             |                    | 529,787            
|                                                      | Employee Stock Purchase Plan |                     | None  See below, securities
have been issued |                     | Not Applicable    |                    | 336,968            
|                                                      
|Equity Compensation Plan Not Approved By Shareholders: |                              |                     |                                               |                     |                   |                   
|None                                                   |                              |                     |                                               |                     |                   |                   

Stock Option Plans

We have established and our shareholders have approved the 1997, 1998,
1999 and 2001 Stock Option Plans (the Plans). The Plans, as amended, provide
for the granting of both incentive stock options and non-qualified stock
options to our employees, officers, directors and consultants.

Under all of our stock option plans, the exercise price of any incentive
stock option shall not be less than the fair value of the stock on the date of
grant or less than 110% of the fair value in the case of optionees holding more
than 10% of the total combined voting power of all our classes of stock.
Options under our stock option plans are exercisable for ten years from the
date of grant, except for incentive stock options granted to optionees holding
more than 10% of the total combined voting power of all classes of stock, which
must be exercised within five years.

Our current stock option plans generally provide for a four-year vesting
requirement with one-quarter of such shares vesting at the end of one full year
and on an annual basis thereafter. Upon a change of control, as defined, 50% of
all unvested stock options shall vest. If a change of control occurs, the
compensation committee to our Board of Directors has authority to vest the
remaining 50% of unvested options that are otherwise not automatically vested.

F-30



---



##### 



A summary of stock options awarded to employees during the years ended
December 31, 2002, 2001 and 2000 follows (in thousands, except exercise prices
expressed in actual dollars):

|                                    |  |           |        |          |  |          |      |          |  |   |               | 
|----------------------------------- |  | --------- | ------ | -------- |  | -------- | ---- | -------- |  | - | ------------- | 
|                                    |  |           |        |          |  | Weighted |      |          |  |  
|                                    |  |           |        |          |  | Average  |      | Exercise
|                                    |  | Number of |        | Exercise |  | Price   
|                                    |  | Options   |        | Price    |  | Range   
|                                    |  |           |        |          |  |         
|Outstanding as of December 31, 1999 |  |           | 2,971  |          |  | $        | 4.93 |          |  | $ | 1.43 - $6.53  | 
|Granted at fair value               |  |           | 2,218  |          |  |          | 5.32 |          |  |   | 2.38 - 16.31  | 
|Granted below fair value            |  |           | 768    |          |  |          | 9.30 |          |  |   | 9.25 - 10.43  | 
|Exercised                           |  |           | (253   | )        |  |          | 4.22 |          |  |   | 3.54 -  5.51  | 
|Cancelled/Forfeited                 |  |           | (508   | )        |  |          | 6.71 |          |  |   | 3.54 - 16.31  | 
|                                    |  |           |        |          |  |          |      |          |  |   |               | 
|Outstanding as of December 31, 2000 |  |           | 5,196  |          |  |          | 5.65 |          |  |   | 1.43 - 16.13  | 
|Granted at fair value               |  |           | 764    |          |  |          | 3.91 |          |  |   | 3.06 - 6.76   | 
|Granted below fair value            |  |           | 25     |          |  |          | 0.01 |          |  |   | 0.01 - 0.01   | 
|Exercised                           |  |           | (105   | )        |  |          | 4.00 |          |  |   | 3.54 - 4.72   | 
|Cancelled/Forfeited                 |  |           | (424   | )        |  |          | 5.53 |          |  |   | 2.80 - 14.00  | 
|                                    |  |           |        |          |  |          |      |          |  |   |               | 
|Outstanding as of December 31, 2001 |  |           | 5,456  |          |  |          | 5.49 |          |  |   | 1.43 - 16.13  | 
|Granted at fair value               |  |           | 1,846  |          |  |          | 9.40 |          |  |   | 5.81 - 15.75  | 
|Granted below fair value            |  |           | 108    |          |  |          | 4.36 |          |  |   | 0.00 -   9.25 | 
|Exercised                           |  |           | (1,033 | )        |  |          | 4.45 |          |  |   | 0.00 - 12.63  | 
|Cancelled/Forfeited                 |  |           | (218   | )        |  |          | 6.82 |          |  |   | 2.80 - 11.00  | 
|                                    |  |           |        |          |  |          |      |          |  |   |               | 
|Outstanding as of December 31, 2002 |  |           | 6,159  |          |  |          | 6.19 |          |  | $ | 0.00-$16.13   | 
|                                    |  |           |        |          |  |          |      |          |  |   |               | 
|Exercisable as of December 31, 2002 |  |           | 2,697  |          |  | $        | 4.94 |          |  | $ | 0.0-$16.13    | 
|                                    |  |           |        |          |  |          |      |          |  |   |               | 

The following table summarizes information about our stock options
outstanding at December 31, 2002 (in thousands, except exercise prices are
actual dollars):

|                                         |  |             |       |                  |  |             |  |  |       | 
|---------------------------------------- |  | ----------- | ----- | ---------------- |  | ----------- |  |  | ----- | 
|Options Outstanding at December 31, 2002
|                                        
|Exercise                                 |  | Number      |       | Remaining        |  | Options    
|Price                                    |  | Outstanding |       | Contractual Life |  | Exercisable
|                                         |  |             |       |                  |  |            
|$0 -$1.63                                |  |             | 611   |                  |  | 4.8 years   |  |  | 610   | 
|1.63-3.26                                |  |             | 898   |                  |  | 7.9 years   |  |  | 385   | 
|3.26-4.89                                |  |             | 996   |                  |  | 7.6 years   |  |  | 434   | 
|4.89-6.53                                |  |             | 853   |                  |  | 6.9 years   |  |  | 614   | 
|6.53-8.16                                |  |             | 1,569 |                  |  | 8.9 years   |  |  | 146   | 
|8.16-9.79                                |  |             | 572   |                  |  | 7.0 years   |  |  | 421   | 
|9.79-11.42                               |  |             | 66    |                  |  | 7.1 years   |  |  | 32    | 
|11.42-13.05                              |  |             | 62    |                  |  | 7.8 years   |  |  | 30    | 
|13.05-14.68                              |  |             | 495   |                  |  | 9.9 years   |  |  | 9     | 
|14.68-16.31                              |  |             | 37    |                  |  | 8.7 years   |  |  | 16    | 
|                                         |  |             |       |                  |  |             |  |  |       | 
|                                         |  |             | 6,159 |                  |  | 7.7 years   |  |  | 2,697 | 
|                                         |  |             |       |                  |  |             |  |  |       | 

F-31



---



##### 



At December 31, 2002 we have approximately $0.2 million of deferred
compensation remaining on our consolidated balance sheet related to 1999 and
January 2000 stock options granted below fair market value. For the years
ended December 31, 2002, 2000 and 1999 the amortization of these deferred
compensation charges resulted in $1.5 million, $0.8 million and $1.0 million of
non-cash compensation expense, respectively.

In January 2000, we granted stock options to purchase approximately
770,000 shares of common stock to employees at an exercise price of $9.25 per
share. Based on the difference between the exercise price of these options and
the fair market value at the date of grant ($11.00), we recorded a deferred
compensation charge of approximately $1.3 million and we are amortizing it to
expense over the options four-year vesting period. During the third and
fourth quarter of 1999, we granted stock options to purchase approximately
740,000 shares of our common stock to employees at exercise prices ranging from
$5.51 to $6.54 per share. Based on the difference between the strike price of
these options and the fair market value at the date of grant (ranging from
$6.54 to $9.70 per share), we recorded a deferred compensation charge of
approximately $2.6 million and we are amortizing it to expense over the
options four year vesting period. In December 2002, the Board of Directors
authorized an acceleration of vesting for certain of these stock options,
resulting in a $0.5 million acceleration of deferred compensation and a $0.1
million current compensation charge.

In September 1999, we entered into a consulting agreement with a former
member of the Board of Directors and a severance agreement with a former
executive. Both individuals had their existing incentive stock options
cancelled, and new non-qualified stock options were issued at the then current
fair value. These individuals received 76,200 and 114,300 options,
respectively, to purchase common stock at $5.20 and $4.72 per share,
respectively. The fair value of these options, as determined using an option
valuation model range from $2.39 to $4.40 per share. Compensation expense
related to the consulting agreement was being recognized over the three-year
term ending October 12, 2002. For the years ended December 31, 2002, 2000 and
1999, we recorded expense of approximately $0.1 million, $0.1 million and less
than $0.1 million, respectively. Compensation expense of $0.3 million related
to the severance agreement was recognized immediately in September 1999.

Employee Stock Purchase Plan

In January 2000, we adopted the LendingTree, Inc. Employee Stock Purchase
Plan (ESPP). The ESPP is intended to comply with the requirements of Section
423 of the Internal Revenue Code and to assure the participants of the tax
advantages thereby. The ESPP is administered by a committee established by the
board of directors. The committee has authorized for issuance under the plan a
total of 1,044,500 shares of common stock. On January 1 of each year, the ESPP
automatically adds an additional 400,000 shares to the total authorized for
issuance, unless the Board of Directors designates a lesser amount to be added.
All full-time employees who have worked full-time for us for at least six
months are eligible to participate in the ESPP, except employees who own five
percent or more of our common stock. Participants in the ESPP may not purchase
more than 25,000 shares or $25,000 worth of shares in one calendar year under
this plan.

For 2001 and 2000, the ESPP provides for a series of consecutive,
overlapping offering periods that were 24 months long. Beginning on January 1,
2002, the overlapping offering periods are 18 months long. Successive six-month
purchase periods will run during each offering period. During each offering
period, participating employees will be able to purchase shares, subject to
limitations, of common stock at a purchase price equal to 85% of the fair
market value of the common stock at either the beginning of each offering
period or the end of each purchase period within the offering period, whichever
price is lower.

F-32



---



##### 



Since the beginning of the ESPP, there have been three purchase dates
under which we sold and participants in the ESPP acquired shares of our common
stock from treasury stock at the following prices:

|                               |  |                   |  |        |           |       |  |         
|------------------------------ |  | ----------------- |  | ------ | --------- | ----- |  | --------
|                               |  |                   |  |        |           |       |  | Average 
|                               |  |                   |  |        |           |       |  | Purchase
|Activity                       |  | Transaction Date  |  | Shares |           | Price
|                               |  |                   |  |        |           |      
|Initial ESPP shares authorized |  | January 1, 2000   |  |        | 444,500   |       |  |         
|Participant share purchases    |  | December 29, 2000 |  |        | (32,456)  |       |  | $1.75   
|Shares added to ESPP           |  | January 1, 2001   |  |        | 400,000   |       |  |         
|Participant share purchases    |  | June 30, 2001     |  |        | (104,833) |       |  | $1.70   
|Participant share purchases    |  | December 31, 2001 |  |        | (150,561) |       |  | $2.41   
|Shares added to ESPP           |  | January 1, 2002   |  |        | 200,000   |       |  |         
|Participant share purchases    |  | June 28, 2002     |  |        | (271,731) |       |  | $2.33   
|Participant share purchases    |  | December 31, 2002 |  |        | (154,917) |       |  | $3.07   
|                               |  |                   |  |        |           |       |  |         
|Ending shares available        |  | December 31, 2002 |  |        | 330,002   |       |  |         

401(k) Retirement Plan

Beginning in 2000, we provided a 401(k) Retirement Savings Plan (the
Plan) to our employees. We may make a matching contribution equal to a
uniform percentage of participants salary deferrals. These contributions vest
ratably over a two-year period. Our matching contributions for the years
ending December 31, 2002, 2001 and 2000 were approximately $0.1 million in each
year. Effective January 1, 2002, the Company amended the Plan to add an
employer stock fund, thereby allowing participants in the Plan an option of
directing a portion of their investment to a fund holding shares of our common
stock. A total of 500,000 shares of our common stock were reserved for
issuance under the Plan. As of December 31, 2002, participants in the Plan had
acquired 645 shares of our common stock.

9. Income Taxes

There is no current income tax provision for the year ended December 31,
2002 as we have utilized a portion of our net operating loss carryforwards to
offset the current year taxable income.

There is no current income tax provision for the years ended December 31,
2001 or 2000 as we have generated net operating losses for income tax purposes
since inception through December 31, 2001.

There is no deferred provision or benefit for income taxes recorded. We
are in a net deferred tax asset position, however due to the significance of
our historical net operating losses it is managements judgment that the
realization of the benefits from our deferred tax assets is not reasonably
assured. Accordingly, we have provided a full valuation allowance against the
net deferred tax assets.

F-33



---



##### 



Significant components of our deferred tax assets and liabilities at
December 31, 2002 and 2001 consist of the following:

|                          |                                |                                    |  |        |         |              |  |        |         |   |  | 
|------------------------- | ------------------------------ | ---------------------------------- |  | ------ | ------- | ------------ |  | ------ | ------- | - |  | 
|                          |                                |                                    |  |        |         | December 31,
|                          |                                |                                    |  |        |         |             
|                          |                                |                                    |  |        |         | 2002         |  | 2001  
|                          |                                |                                    |  |        |         |              |  |       
|Deferred tax assets:      |                                |                                    |  |        |         |              |  |       
|                          | Current                        |                                    |  |        |         |              |  |        |        
|                          |                                | Accounts receivable                |  | $      | 144     |              |  | $      | 121     |  
|                          |                                | Compensation accruals              |  |        | 133     |              |  |        | 946     |  
|                          | Noncurrent                     |                                    |  |        |         |              |  |        |        
|                          |                                | Net operating loss carryforwards   |  |        | 43,815  |              |  |        | 46,240  |  
|                          |                                | Capital loss carryforward          |  |        | 974     |              |  |        |        |  
|                          |                                | Stock compensation                 |  |        |        |              |  |        | 453     |  
|                          |                                | Intangible amortization            |  |        | 2,164   |              |  |        | 1,651   |  
|                          |                                | Depreciation                       |  |        | 563     |              |  |        | 279     |  
|                          |                                | Other                              |  |        | 240     |              |  |        | 181     |  
|                          |                                |                                    |  |        |         |              |  |       
|                          | Gross deferred tax assets      |                                    |  | 48,033 |         |              |  | 49,871 |        
|                          |                                | Less: Valuation allowance          |  |        | (46,002 | )            |  |        | (49,871 | )
|                          |                                |                                    |  |        |         |              |  |       
|                          |                                | Net deferred tax assets            |  | $      | 2,031   |              |  | $      |        |  
|                          |                                |                                    |  |        |         |              |  |       
|Deferred tax liabilities: |                                |                                    |  |        |         |              |  |       
|                          |                                | Stock based compensation           |  |        | 2,031   |              |  |        |        |  
|                          |                                |                                    |  |        |         |              |  |       
|                          | Gross deferred tax liabilities |                                    |  | 2,031  |         |              |  |       |        
|                          |                                |                                    |  |        |         |              |  |       
|                          |                                | Net deferred tax asset (liability) |  | $      |        |              |  | $      |        |  
|                          |                                |                                    |  |        |         |              |  |       

The decrease in the valuation allowance resulted primarily from the
utilization of net operating loss carryforwards.

We have net operating loss carryforwards for income tax purposes of
approximately $112 million available at December 31, 2002 to offset future
federal and state taxable income. These net operating loss
carryforwards expire between 2012 and 2021. Should we undergo an ownership change as defined in
Section 382 of the Internal Revenue Code, our tax net operating loss carryforwards
generated prior to the ownership change may be subject to annual limitation
that could reduce or defer the utilization of these losses. As of December 31,
2002, we have research and development credit carryforwards of less than $0.1
million. The credits begin to expire in 2019.

Taxes computed at the statutory Federal income tax rate of 34% are
reconciled to the provision for income taxes as follows:

|                                           |  |                                  |        |        |  |             |      |      |  |      |        |             |  |   |      |   |  |             |         |   |  |   |      |  
|------------------------------------------ |  | -------------------------------- | ------ | ------ |  | ----------- | ---- | ---- |  | ---- | ------ | ----------- |  | - | ---- | - |  | ----------- | ------- | - |  | - | ---- | -
|                                           |  | For the years ended December, 31
|                                           |  |                                 
|                                           |  |                                  |        |        |  | % of Pretax |      |      |  |      |        | % of Pretax |  |   |      |   |  | % of Pretax
|                                           |  | 2002                             |        | Income |  | 2001        |      | Loss |  | 2000 |        | Loss       
|                                           |  |                                  |        |        |  |             |      |      |  |      |        |            
|U.S. Federal tax benefit at statutory rate |  | $                                | 3,026  |        |  |             | 34.0 | %    |  | $    | (9,831 | )           |  | - | 34.0 | % |  | $           | (22,441 | ) |  | - | 34.0 | %
|State taxes (net of federal benefit)       |  |                                  | 492    |        |  |             | 5.5  | %    |  |      | (1,431 | )           |  |   | -5.0 | % |  |             | (3,260  | ) |  |   | -4.9 | %
|Change in valuation allowance              |  |                                  | (3,869 | )      |  | -           | 43.5 | %    |  |      | 11,234 |             |  | - | 38.9 | % |  |             | 25,653  |   |  |   | 38.9 | %
|Other nondeductible expenses               |  |                                  | 351    |        |  |             | 4.0  | %    |  |      | 28     |             |  |   | -0.1 | % |  |             | 48      |   |  |   |     | %
|                                           |  |                                  |        |        |  |             |      |      |  |      |        |             |  |   |      |   |  |             |         |   |  |   |      |  
|Provision for income taxes                 |  | $                                |       |        |  |             |     | %    |  | $    |       |             |  |   |     | % |  | $           |        |   |  |   |     | %
|                                           |  |                                  |        |        |  |             |      |      |  |      |        |             |  |   |      |   |  |             |         |   |  |   |      |  

F-34



---



##### 



10. Commitments and Contingencies

We lease our office facilities and certain equipment under operating
leases. These leases are generally renewable. We also lease certain furniture
and computer equipment under capital leases with terms of approximately 2 to 3
years.

The following is a schedule of future minimum rental payments required
under the leases as of December 31, 2002:

|                                            |  |  |  |  |     |         |      |           |  |   |       | 
|------------------------------------------- |  |  |  |  | --- | ------- | ---- | --------- |  | - | ----- | 
|                                            |  |  |  |  |     | Capital |      | Operating
|                                            |  |  |  |  |     | Leases  |      | Leases   
|                                            |  |  |  |  |     |         |      |          
|2003                                        |  |  |  |  |     | $       | 666  |           |  | $ | 1,444 | 
|2004                                        |  |  |  |  |     |         | 323  |           |  |   | 1,351 | 
|2005                                        |  |  |  |  |     |         |     |           |  |   | 1,065 | 
|2006                                        |  |  |  |  |     |         |     |           |  |   | 1,094 | 
|2007                                        |  |  |  |  |     |         |     |           |  |   | 1,131 | 
|Thereafter                                  |  |  |  |  |     |         |     |           |  |   | 3,189 | 
|                                            |  |  |  |  |     |         |      |           |  |   |       | 
|Total minimum lease payments                |  |  |  |  |     |         | 989  |           |  | $ | 9,274 | 
|                                            |  |  |  |  |     |         |      |           |  |   |       | 
|Less: amount representing interest          |  |  |  |  |     |         | (59  | )         |  |   |       | 
|                                            |  |  |  |  |     |         |      |           |  |   |       | 
|Present value of net minimum lease payments |  |  |  |  | 930 |         |      |           |  |  
|Less: current portion                       |  |  |  |  |     |         | (619 | )         |  |   |       | 
|                                            |  |  |  |  |     |         |      |           |  |   |       | 
|Long-term portion capital leases            |  |  |  |  |     | $       | 311  |           |  |   |       | 
|                                            |  |  |  |  |     |         |      |           |  |   |       | 

Rent expense totaled $1 million, $1.3 million and $1.4 million for the
years ended December 31, 2002, 2001 and 2000.

A covenant in one of our capital lease agreements requires that we
maintain a cash balance of not less than $3.0 million throughout the term of
the lease. If our 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
December 31, 2002, the balance of this lease was approximately $0.2 million.

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. Contemporaneous
with that filing, we filed a motion for a stay of all proceedings in the United
States District Court for the Western District of Missouri pending the
reexamination of the Block patent by the USPTO. On August 23, 2002, the USPTO
issued an Order granting our request for reexamination of the Block patent,
finding that a substantial new question of patentability affecting the claims
of the Block patent has been raised by the request. Additionally, pursuant to
an order from the District Court, the action against us is stayed until the
reexamination proceeding is complete. 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.

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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 its
financial condition, cash flows or results of operations.

11. Officer Loans

In March 2001, in connection with the sale of the Series A Preferred
Stock, we entered into a promissory note and pledge agreement with our Chief
Executive Officer to provide him with a $0.7 million loan to acquire 200,000
shares of the Series A Preferred Stock. This note and pledge agreement also
amended and restated existing notes and pledge agreements with respect to $1.7
million in loans for option exercises from February 2000. In August 2001, we
entered into an amended and restated note and pledge agreement (Pledge
Agreement) with our Chief Executive Officer relating to all the outstanding
loans and interest accrued thereon totaling approximately $2.5 million. This
amended and restated note had an interest rate of 8% per annum on the unpaid
balance of the loan.

In February 2000, we entered into full recourse promissory note and pledge
agreements with our Chief Financial Officer in the aggregate amount of $0.1
million for the purpose of exercising non-qualified stock options and for
paying the related withholding taxes on such exercises.

On December 31, 2002, the Board of Directors determined that it was in the
best interest of the Company and its shareholders that the loans be repaid.
Accordingly, the Board waived the no prepayment clause in Mr. Lebdas note and
requested the outstanding loans be repaid.

On December 31, 2002, the Chief Executive Officer repaid principal and
accrued interest on the loan, totaling $2.6 million.

In February 2003, the Chief Financial Officer repaid outstanding principal
and accrued interest totaling $0.07 million.

As of February 28, 2003 all
executive loans have been repaid.

12. Investment

In February 2000, we made a $2.5 million equity investment in a company
providing wholesale mortgage marketplace services for brokers and lenders over
the internet. Capital Z, our largest shareholder and represented on our Board
of Directors by two members, also invested in this company. In December 2000,
we determined that the carrying value of this investment was impaired and we
wrote the investment down to its estimated fair value of $0.6 million,
recording $1.9 million as a non-operating loss on impaired investment. In
2001, we wrote off the remaining $0.6 million investment following the
companys deteriorating financial condition, and ultimate sale of the companys
assets to a third party in a transaction in which we received no proceeds.

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