UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

|X|   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
          EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED September 30, 2001

                                       OR

|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
          EXCHANGE ACT OF 1934

      FOR THE TRANSACTION PERIOD FROM_____________TO_____________

                        COMMISSION FILE NUMBER: 000-27411

                              PROMOTIONS.COM, INC.
             (Exact name of registrant as specified in its charter)

Delaware                                                    13-3898912
--------                                                    ----------
(State or other jurisdiction                                (I.R.S. Employer
of incorporation or organization)                           Identification No.)

                         268 West 44th Street, 4th Floor
                            New York, New York 10036
               (Address of principal executive offices) (Zip Code)

                                 (212) 971-9800
              (Registrant's telephone number, including area code)

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

As of November 1, 2001, there were 14,453,013 shares of the registrant's common
stock outstanding.


                                       1
<PAGE>

                              PROMOTIONS.COM, INC.
                                    FORM 10-Q

                                TABLE OF CONTENTS

PART I  FINANCIAL INFORMATION                                       PAGE
                                                                    ----
Item 1. Financial Statements

        Condensed Balance Sheets as of September 30, 2001
        (unaudited) and December 31, 2000 ........................   3

        Condensed Statements of Operations for the nine months
        ended September 30, 2001 and 2000 (unaudited) ............   4

        Condensed Statements of Cash Flows for the nine
        months ended September 30, 2001 and 2000 (unaudited) .....   5

        Notes to Financial Statements ............................   6

Item 2. Management's Discussion and Analysis of Financial
        Condition and Results of Operations ......................   8

Item 3. Qualitative and Quantitative Disclosures About Market Risk  13

PART II OTHER INFORMATION

Item 1. Legal Proceedings ........................................  13

Item 2. Changes in Securities and Use of Proceeds ................  13

Item 3. Defaults Upon Senior Securities ..........................  13

Item 4. Submission of Matters to a Vote of Security Holders ......  13

Item 5. Other Information ........................................  13

Item 6. Exhibits and Reports on Form 8-K .........................  13

        SIGNATURES ...............................................  15


                                       2
<PAGE>

Part 1.
Item 1.  FINANCIAL STATEMENTS

                              PROMOTIONS.COM, INC.
                            CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                                    SEPTEMBER 30,   DECEMBER 31,
                                                                                        2001            2000
                                                                                        ----            ----
                                                                                     (UNAUDITED)
                                  ASSETS
<S>                                                                                 <C>             <C>
Current assets:
  Cash and cash equivalents ...............................................         $ 13,635,687    $ 16,094,308
  Accounts receivable, net ................................................              751,935       3,641,869
  Prepaid expenses and other current assets assets ........................            1,227,092       4,609,485
                                                                                    ------------    ------------
    Total current assets ..................................................           15,614,714      24,345,662
                                                                                    ------------    ------------
Fixed assets, net .........................................................            3,798,561       7,497,555
Restricted cash ...........................................................                   --       1,600,000
Other assets ..............................................................              191,878         191,916
                                                                                    ------------    ------------
    Total assets ..........................................................         $ 19,605,153    $ 33,635,133
                                                                                    ============    ============

                   LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable ........................................................         $  3,648,883    $  3,820,472
  Accrued liabilities .....................................................            1,884,652       3,123,617
  Deferred revenues .......................................................              207,554       1,333,751
  Capital lease obligations ...............................................              681,735         790,645
  Notes payable-related party .............................................                   --          29,703
                                                                                    ------------    ------------
    Total current liabilities .............................................            6,422,824       9,098,188
                                                                                    ------------    ------------
  Capital lease obligation, net of current portion ........................              429,405         928,368
  Other liabilities .......................................................                5,442           9,675
                                                                                    ------------    ------------
    Total liabilities .....................................................            6,857,671      10,036,231
                                                                                    ------------    ------------
Stockholders' equity:
  Common stock-par value $.01, 50,000,000 shares authorized,
    and 14,453,013 and 14,344,577 shares issued and outstanding at
    September 30, 2001(unaudited), and December 31, 2000,                                144,530         143,445
  Additional paid-in capital ..............................................           68,095,977      68,073,155
  Accumulated deficit .....................................................          (55,491,742)    (44,615,465)
  Deferred compensation ...................................................               (1,283)         (2,233)
                                                                                    ------------    ------------
    Total stockholders' equity ............................................           12,747,482      23,598,902
                                                                                    ------------    ------------
      Total liabilities and stockholders' equity ..........................         $ 19,605,153    $ 33,635,133
                                                                                    ============    ============
</TABLE>

The accompanying notes are an integral part of these condensed financial
statements.


                                       3
<PAGE>

                              PROMOTIONS.COM, INC.
                       CONDENSED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                       THREE MONTHS ENDED              NINE MONTHS ENDED
                                                                          SEPTEMBER 30,                  SEPTEMBER 30,
                                                                          -------------                  -------------
                                                                      2001            2000            2001            2000
                                                                      ----            ----            ----            ----
<S>                                                               <C>             <C>             <C>             <C>
Product revenues ........................................         $  1,377,465    $  6,707,954    $  8,647,352    $ 21,624,345
Software license revenue ................................               75,000              --       1,225,000              --
                                                                  ------------    ------------    ------------    ------------
    Total Revenue .......................................            1,452,465       6,707,954       9,872,352      21,624,345

Operating expenses:
  Product development ...................................              959,131       1,100,536       3,546,744       3,429,485
  Sales and marketing (inclusive of non-cash Matchlogic
  and  MatchLogic Excite expense of $0,
  $2,165,956, $4,065,287 and $6,427,095, respectively) ..              950,178       7,784,600       9,798,417      26,782,596
  General and administrative ............................            1,971,634       3,864,841       6,938,721      10,032,030
  Loss from termination of lease ........................              995,662              --         995,662              --
                                                                  ------------    ------------    ------------    ------------
    Total operating expenses ............................            4,876,605      12,749,977      21,279,544      40,244,111
                                                                  ------------    ------------    ------------    ------------
  Loss from operations ..................................           (3,424,140)     (6,042,023)    (11,407,192)    (18,619,766)
Interest and other income, net ..........................              117,677         324,943         530,914       1,126,094
                                                                  ------------    ------------    ------------    ------------
Net loss ................................................         $ (3,306,463)   $ (5,717,080)   $(10,876,278)   $(17,493,672)
                                                                  ============    ============    ============    ============
Basic and diluted net loss per share
  attributable to common
  stockholders ..........................................         $      (0.23)   $      (0.40)   $      (0.75)   $      (1.23)
                                                                  ============    ============    ============    ============
Weighted average shares of common stock used in computing
  basic and diluted net loss per share attributable
  to common stockholders ................................           14,453,013      14,261,108      14,436,739      14,256,610
                                                                  ============    ============    ============    ============
</TABLE>

The accompanying notes are an integral part of these condensed financial
statements.


                                       4
<PAGE>

                              PROMOTIONS.COM, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                           NINE MONTHS ENDED
                                                                                              SEPTEMBER 30,
                                                                                              -------------
                                                                                           2001            2000
                                                                                           ----            ----
<S>                                                                                    <C>             <C>
Cash flows from operating activities:
  Net loss ...................................................................         $(10,876,278)   $(17,493,672)
  Adjustments to reconcile net loss to net cash
   Provided by (used) in operating activities:
    Depreciation and amortization of fixed assets and patents ................            2,294,461       1,495,823
    Amortization of deferred compensation expense ............................                 (488)         31,079
    Expense recognized in connection with issuance of warrants ...............                   --          45,117
    Bad debt expense .........................................................              185,921       1,834,197
   Changes in operating assets and liabilities:
    Accounts receivable ......................................................            2,704,013      (3,801,116)
    Prepaid expenses and other current assets ................................            3,382,393       2,949,971
    Other assets .............................................................                   38       3,423,549
    Accounts payable .........................................................             (171,589)        642,390
    Accrued liabilities ......................................................           (1,238,965)       (289,324)
    Other liabilities ........................................................               (4,233)             --
    Deferred revenue .........................................................           (1,126,197)        207,157
                                                                                       ------------    ------------
Net cash used in operating actives ...........................................           (4,850,924)    (10,954,829)
                                                                                       ------------    ------------
Cash flows from investing activity:
  Refund (Payment) of security deposit .......................................            1,600,000      (1,600,000)
  Disposal of fixed assets ...................................................            2,330,616              --
  Purchase of fixed assets ...................................................             (926,083)     (3,353,603)
                                                                                       ------------    ------------
Net cash provided by (used) in investing activity ............................            3,004,533      (4,953,603)
                                                                                       ------------    ------------
Cash flows from financing activities:
  Principal payments on notes payable-related party ..........................              (29,703)        (44,445)
  Principal payments on capital lease obligations ............................             (607,873)       (241,660)
  Exercise of employee stock options .........................................               25,346          31,746
                                                                                       ------------    ------------
Net cash used in financing activities ........................................             (612,230)       (254,359)
                                                                                       ------------    ------------
Net decrease in cash for the period ..........................................           (2,458,621)    (16,162,791)
Cash and cash equivalents, beginning of period ...............................           16,094,308      34,647,630
                                                                                       ------------    ------------
Cash and cash equivalents, end of period .....................................         $ 13,635,687    $ 18,484,839
                                                                                       ============    ============
Cash paid during the period for interest .....................................         $     68,065    $    110,486
                                                                                       ============    ============

Supplemental disclosure of non-cash investing ,financing and other activities:
Barter transactions ..........................................................         $  1,407,000    $  2,078,775
Equipment acquired under capital leases ......................................                   --    $  1,394,571
</TABLE>

The accompanying notes are an integral part of these condensed financial
statements.


                                       5
<PAGE>

                              PROMOTIONS.COM, INC.
            NOTES TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION

Promotions.com, Inc. (the "Company"), was incorporated and commenced operations
in the state of New York on January 8, 1996 as Webstakes, Inc. and was
reincorporated in the State of Delaware on June 5, 1996 as Netstakes, Inc. On
June 11, 1999, the Company changed its name to Webstakes.com, Inc. On January
27, 2000, the Company changed its name to Promotions.com, Inc. Promotions.com,
Inc. is an Internet promotion solutions company. Combining technology, data and
promotions expertise, the Company provides promotion solutions to help companies
achieve their overall marketing and business objectives. The company generates
revenues through WEBSTAKES.COM., a web site dedicated to Internet sweepstakes
and promotions and PROMOTIONS.COM, a full service integrated Internet promotion
services group.

The Company has sustained net losses and negative cash flow from operating
activities since inception. The Company's ability to meet its obligations in the
ordinary course of business is dependent upon its ability to establish
profitable operations or raise additional financing through public or private
equity financing, collaborative or other arrangements with corporate sources, or
other sources of financing to fund operations.

Management believes that the Company's current cash resources coupled with
recent cost reductions will be sufficient to fund the Company's planned
expenditures through March 31, 2002. However, there can be no assurances that
the Company will achieve its planned results. If anticipated results are not
achieved, management has the intent and believes it has the ability to delay or
further reduce its expenditures so as to not require additional financial
resources if such resources are not available on terms acceptable to the
Company.

2. INTERIM FINANCIAL INFORMATION

The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required under generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for the fair presentation of the
results of the interim periods presented in this filing have been made.
Operating results for the nine month period ended September 30, 2001 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2001 or for any other future interim periods.

The balance sheet at December 31, 2000 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. For further information, refer to the financial statements
and footnotes thereto included in the Company's Form 10-K for the year ended
December 31, 2000, as filed with the Securities and Exchange Commission.

Certain prior period balances have been reclassified to conform to the current
period presentation.

3. NET LOSS PER SHARE

Basic loss per share is computed using the weighted-average number of common
shares outstanding during the period. Diluted loss per share is computed using
the weighted-average number of common and common stock equivalent shares
outstanding during the period. Common stock equivalent shares are excluded from
the computation if their effect is antidilutive.

As the Company reported net losses at September 30, 2001 and 2000, all 2,079,307
and 3,081,220 of the options and warrants outstanding at September 30, 2001 and
2000, respectively, were antidilutive and therefore, there were no reconciling
items between basic and diluted loss per share for the three months then ended.

4. SOFTWARE LICENSING AGREEMENT

Promotions.com launched Chakkalina.com, the Japanese equivalent to
Webstakes.com, in June 2000. In March 2001, ITX Corporation licensed
Promotions.com's iDialog direct marketing technology for $1.3 million in cash.
As part of the licensing agreement, ITX Corporation will use Promotions.com's
iDialog platform to run the Japanese sweepstakes portal, Chakkalina.com.
Payments totaling $1.2 million were received from ITX Corporation during the
nine months ended September 30, 2001 and have been recorded as revenue.


                                       6
<PAGE>

                              PROMOTIONS.COM, INC.
        NOTES TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS CONT'D

5. COMMITMENTS

During July, 2001 we subleased a portion of the leased premises at our corporate
office located at 450 West 33rd Street, New York NY. Our landlord alleged that
this was a default under the terms of our lease. In light of our dispute with
the landlord regarding the above and certain other issues related to the failure
of payment by the landlord of approximately $900,000 to us as reimbursement for
our expenses to equip, decorate and furnish the leased premises, we withheld
payment of July and August rent. Our landlord alleged that our non-payment of
rent was also a default under the terms of our lease. On August 9, 2001, we
obtained from the New York Supreme Court a temporary restraining order to extend
the periods to cure and to permit us to cure any defaults ultimately found to
exist, thereby avoiding a lease termination.

In September 2001, we entered into a stipulation of settlement agreement related
to our former corporate office at 450 West 33rd Street, New York, NY. As part of
the settlement agreement, we were required to surrender our office space along
with the leasehold improvements and the furniture and fixtures in return for a
release from our lease commitment, the return of our $1.6 million security
deposit and the payment of the $900,000 owed to us for the reimbursement for our
expenses to equip, decorate and furnish the leased premises. The landlord
off-set the back rent we owed them against the $900,000 reimbursement so the net
amount to the company related to this reimbursement is $622,000. This amount has
been recorded as a receivable and is included as other current assets at
September 30, 2001. We therefore, recorded a $1 million loss related to expenses
associated with the termination of this lease during the third quarter


                                       7
<PAGE>

                              PROMOTIONS.COM, INC.

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

The following discussion of the financial condition and results of operations of
Promotions.com, Inc. contains forward-looking statements relating to the future
events and the future performance of Promotions.com within the meaning of
section 21E of the Securities Exchange Act of 1934, as amended. Words such as
"may", "should", "anticipate", "believe", "plan" "estimate", "expect" and
"intend", and other similar expressions are intended to identify forward-looking
statements. These include, for example, statements regarding barter, future
revenues, general and administrative expenses, product development expenses and
sales and marketing expenses. Stockholders are cautioned that such statements
involve risks and uncertainties. Promotions.com, Inc. actual results and timing
of certain events could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including, but not
limited to, those set forth under " Risk Factors" in Promotions.com, Inc.'s 10-K
and elsewhere in this report and in Promotions.com, Inc.'s. other public filings
on file with the Securities & Exchange Commission. All forward-looking
statements included in this document are based on information available to the
company as of the date of this document, and Promotions.com, Inc. assumes no
obligation to update these cautionary statements or any forward-looking
statements.

OVERVIEW

During the third quarter, product revenue was generated primarily by on-line
promotion and email direct marketing services. Principally all of the company's
historical revenues have been derived from the sale of on-line promotion and
email direct marketing services. We expect to derive substantially all of our
revenues from the sale of on-line promotion and email direct marketing services
for the foreseeable future.

We recognize revenues from WEBSTAKES.COM based on either "cost-per-click" or a
"cost-per-action" pricing model. With respect to revenue generated from
WEBSTAKES.COM, we generally guarantee a minimum number of impressions (i.e.
"cost-per-click"), or times that the customer's name, logo or other identifier
appears in web or email newsletter pages viewed by visitors to WEBSTAKES.COM,
and/or times that our visitors are delivered to our customer's web site. To the
extent that these minimum guarantees are not met, we defer recognition of the
corresponding revenues until the guaranteed levels are achieved. A
cost-per-action pricing model requires the Company to not only deliver the
aforementioned, but also our members must perform a specific action once on the
site such as purchasing a product or registering as a member of the site in
order for us to earn revenue.

PROMOTIONS.COM services provide custom turnkey solutions to create and manage
promotions on a customer's own web site. Revenues are derived principally from
contracts in which the company typically provides services for the creation,
administration and implementation of the promotion. The contracts typically
include cancellation clauses ranging from 30 to 60 days. The Company's revenue
recognition policy related to PROMOTIONS.COM services is to recognize revenues
ratably over the period during which we provide promotion services, provided
that no significant obligations remain and collection of the resulting
receivable is reasonably assured.

Revenues include barter transactions in which we exchange promotion or direct
marketing services for advertising and prizes. Revenues from these barter
transactions are recorded as promotion revenues at the lower of the estimated
fair value of the goods or services received or delivered and are recognized
when we deliver the promotion services. Advertising expenses related to barter
are recognized when our advertisements are run on the reciprocal web site, which
is typically in the same period as the corresponding barter revenues are
recognized. Prize expenses related to barter are recognized when prizes are
awarded.

The period-to-period comparisons of our historical operating results should not
be relied upon as indicative of future performance. Our annual report should be
considered in light of the risks, expenses and difficulties encountered by
companies in the early stages of development, particularly companies in the
extremely volatile Internet industry. We anticipate that we will incur operating
losses for the foreseeable future. Our revenues are highly dependent on revenues
from internet companies and are susceptible to the volatility in the internet
market and the high number of internet companies decreasing their marketing
budgets, therefore we are not able to predict future revenue patterns.


                                       8
<PAGE>

RESULTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000

Revenues. Revenues primarily result from the sale of on-line promotion and email
direct marketing services. However, during the nine months ended September 30,
2001we recognized $1.2 million of revenue from a software license agreement. We
do not expect to see future revenue from software license agreements. Revenues
were approximately $1.5million and $6.7 million for the three months ended
September 30, 2001 and 2000. We recorded barter revenues of approximately
$180,000 and $597,000 for the three months ended September 30, 2001 and 2000.
Revenues were approximately $9.9 million and $21.6 million for the nine months
ended September 30, 2001 and 2000. We recorded barter revenues of approximately
$1.4 million and $2.1 million for the nine months ended September 30, 2001 and
2000. For the nine months ended September 30, 2001 and 2000 barter revenues were
14% and 10% of our total revenues. Barter transactions allow the Company to
acquire members and increase the size of our database without having to expend
cash resources. We currently spend approximately $300,000 per quarter to acquire
members. As part of our efforts to streamline cost and preserve our cash we seek
to utilize our unsold inventory in barter transactions. Acting in this manner
has saved us approximately $200,000 per quarter in member acquisition costs and
has also resulted in an increase in barter transactions as a percentage of
revenue. We expect this will have no adverse impact on our cash revenue as we
only intend to use unsold inventory. We would expect our barter transactions to
be approximately 15%-25% of our revenue in the future.

The period-to-period decrease in revenues was primarily attributable to the
cancellation of certain long-term contracts, customers making smaller purchases
and continued pricing pressure on internet advertising rates from the
WEBSTAKES.COM division of the Company. The Company has been adversely affected
by the decline in marketing related expenses associated with its business to
consumer dot-com customers. In conjunction with this slowdown, the Company
continues to experience increasing competition which is resulting in a reduction
in our standard rates and has shifted our pricing model, from a "cost-per-click"
and "cost-per-thousand" to a "cost-per-action" pricing model. In the past the
Company had a cost-per-click and cost-per-thousand pricing model where we were
only required to deliver a visitor to our customer's web site or to show a
customer's advertisement on a determined amount of our web pages in order for us
to earn revenue. A cost-per-action pricing model requires the Company to not
only deliver the aforementioned, but also our members must perform a specific
action once on the site such as purchasing a product or registering as a member
of the site in order for us to earn revenue. In the fourth quarter of 2000 and
continuing through the third quarter 2001, we began to experience customers
requesting this type of pricing model since it is perceived to have a higher
return on marketing investment. There has been tremendous volatility in the
on-line media market and market prices for web based services have decreased due
to competitive and market factors. In addition, the downturn in the economy has
severely affected our revenues and we have experienced a 47% decrease in
revenues, excluding software license revenue, from last quarter of this year.
There is no sign on-line advertising will return this year. Management believes
that revenues could decline further during the remainder of the year. There can
be no assurances that customers will continue to purchase promotional services,
that customers will not continue to make smaller and shorter term purchases, or
that market prices for Web-based promotional services will not continue to
decrease due to competitive or other market factors.

Promotions.com launched Chakkalina.com, the Japanese equivalent to
Webstakes.com, in June 2000. In March 2001, ITX Corporation licensed
Promotions.com's iDialog direct marketing technology for $1.3 million in cash.
As part of the licensing agreement, ITX Corporation will use Promotions.com's
iDialog platform to run the Japanese sweepstakes portal, Chakkalina.com.
Payments totaling $1.2 million were received from ITX Corporation during the
nine months ended September 30, 2001 and have been recorded as revenue.

Product Development Expenses. Product development expenses include the personnel
costs associated with the design and development of WEBSTAKES.COM and
PROMOTIONS.COM, our promotions infrastructure and technology, as well as
software licensing costs. Product development expenses were approximately
$959,000 or 66% and $1.1 million or 16% of total revenues for the three months
ended September 30, 2001 and 2000. Product development expenses were
approximately $ 3.5 million or 34% and $3.4 million or 16% of total revenues for
the nine months ended September 30, 2001 and 2000. The period-to-period
percentage increase reflects the difference in the company's business operations
for the three and nine months ended September 30, 2001 compared to the three and
nine months ended September 30, 2000. The three and nine months ended September
30, 2001 included expenses related to the enhanced features for Webstakes.com,
PROMOTIONS.COM and the Japanese website, while none of these features were
present during the three and nine months ended September 30, 2000. We do not
plan to introduce many new products or features and we no longer have our
Japanese sweepstakes portal, Chakkalina.com. In addition, certain product
development expenses related to hosting are website are dependent on the volume
of transactions that take place on the site and not the amount of revenue the
company earns. Since there has been a reduction in our standard rates and not in
the volume of transaction, we have not experienced a significant decrease in
product development expenses. We are looking into ways of reducing these fees
and we expect to have a new contract in place with our hosting facility in the
fourth quarter. We also reduced the number of engineers at the end of the first
quarter of 2001. We therefore expect these expenses to continue to decrease in
future quarters.


                                       9
<PAGE>

Sales and Marketing Expenses. Sales and marketing expenses consist primarily of
advertising costs (which includes the amortization of our Matchlogic and Excite
agreements), salaries and commissions of sales and marketing personnel, costs of
trade shows, conventions and marketing materials and other marketing expenses.
Sales and marketing expenses were approximately $950,000 or 65% of total
revenues and $7.8 million or 116% of total revenues for the three months ended
September 30, 2001 and 2000. Sales and marketing expenses were approximately
$9.8 million or 100% of total revenues and $26.7 million or 128% of total
revenues for the nine months ended September 30, 2001 and 2000. The
period-to-period decrease reflects the reorganization plan the Company put into
place in the fourth quarter of 2000. During the fourth quarter reorganization we
reduced the number of sales and marketing employees, cut our marketing
expenditures, eliminated certain consultants, reduced the number of trade shows
and conventions we attend and decreased the purchasing of marketing material. In
addition, we had a further reduction in staff at March 30, 2001. Our Matchlogic
and Excite agreements expired in June 2001 and were not renewed. The non-renewal
of these agreements has not affected our business. These agreements accounted
for approximately $2.2 million in amortization expense each quarter. We expect
these expenses to continue to decrease as we continue our efforts to streamline
costs.

General and Administrative Expenses. General and administrative expenses consist
primarily of services and related costs of general corporate functions,
including finance and accounting. Also included in general and administrative
cost is our Directors and Officers insurance policy along with the rent on our
corporate offices. General and administrative expenses were approximately $2
million or 133% of total revenues and $3.9 million or 58% of total revenues for
the three months ended September 30, 2001 and 2000. General and administrative
expenses were approximately $6.9 million or 70% of total revenues and $10
million or 46% of total revenues for the nine months ended September 30, 2001
and 2000. The absolute dollar decrease in general and administrative expenses
reflects the reorganization plan the Company put into place in the fourth
quarter of 2000. The period-to-period increase as a percentage of revenue is due
to the decline in revenue during the period. While we decreased expenses,
revenue also decreased but at a greater percentage than we were able to decrease
expenses. Our reorganization reduced the number of general and administrative
employees, we closed certain offices and consolidated other offices, and
negotiated better terms with certain vendors. Since our Directors and Officers
insurance and our office rent are fixed costs we are unable to reduce a
significant portion of our general and administrative expenses as revenue
continues to decline. In September, we were released from the lease on our
corporate headquarters. This will save the company approximately $115,000 per
month in rental expense. See ("Recent Events") below. We can expect that our
general and administrative expenses as a percentage of revenue will increase as
revenue declines since certain fixed costs can not be reduced. We therefore
expect, in the near future, these expenses to decrease only in absolute dollars,
and not as a percentage of revenue, as we continue our efforts to streamline
costs.

Loss From Termination Of Lease. During the third quarter, we entered into a
stipulation of settlement agreement related to our corporate office at 450 West
33rd Street, New York, NY. As part of the settlement agreement, we were required
to surrender our office space along with the leasehold improvements and the
furniture and fixtures in return for a release from our lease commitment and
other consideration. See ("Recent Events") below. We therefore, recorded a $1
million loss related to expenses associated with the termination of this lease
during the third quarter.

Interest Income (Expense), Net. Interest income, net of expense, consists
primarily of interest earned on our cash balance and the interest expense on our
outstanding debt. We recognized net interest income of approximately $118,000
and $325,000 for the three months ended September 30, 2001 and 2000. We
recognized net interest income of approximately $531,000 and $1.1 million for
the nine months ended September 30, 2001 and 2000. The decrease was primarily
attributable to a decrease in the average cash balance invested, principally due
to continued losses from operations. Interest income in future periods is likely
to decrease as a result of a reduction in average cash balances invested and
maintained by the Company and changes in the prevailing interest rate of its
investments.

Income Taxes. No income tax benefit is reflected in the financial statements as
a valuation allowance was provided for deferred tax assets relating to net
operating losses. As of December 31, 2000, we had approximately $41.4 million of
federal net operating loss carryforwards for tax reporting purposes to offset
future taxable income. Our federal net operating loss carry forwards expire in
the years 2013 through 2020.

Liquidity and Capital Resources

Since inception, we have financed our operations primarily through the private
and public placement of equity securities and the incurrence of indebtedness. On
September 24, 1999, we completed the initial public offering of 3,575,000 shares
of common stock for gross proceeds of $50.1 million and net proceeds of $44.9
million, after deducting expenses of the offering.

The Company has sustained net losses and negative cash flow from operating
activities since inception. The Company's ability to meet its obligations in the
ordinary course of business is dependent upon its ability to establish
profitable operations or raise additional financing through public or private
equity financing, collaborative or other arrangements with corporate


                                       10
<PAGE>

sources, or other sources of financing to fund operations.

Net cash used in operating activities was approximately $4.9 million for the
nine months ended September 30, 2001 compared to net cash used in operating
activities of approximately $11 million for the nine months ended September 30,
2000. The decrease in cash used in operations was primarily due to a decrease in
accounts receivable combined with decreases in prepaid expenses and other assets
and net loss offset by a decrease in accrued liabilities and deferred revenue.
The decrease in prepaid expenses and other assets is directly related to the
amortization of our prepaid assets with Matchlogic, Inc. and Excite.

Net cash provided by (used) in investing activities was approximately $3 million
and ($5 million) for the nine months ended September 30, 2001 and 2000. The
increase in cash provided by investing activities was primarily due to the
refund of our security deposit combined with the disposal of fixed assets
off-set by the purchase of fixed assets. As of September 30, 2001, our principal
capital commitments consisted of obligations outstanding under capital leases.
We used $926,000 in investing activities for capital expenditures, primarily the
acquisition of equipment and the build out of our corporate office. We estimate
that our capital expenditures will be approximately $1.5 million for 2001. We
currently expect that our principal capital expenditures through 2001 will
relate to improvements to our technical infrastructure.

Net cash used by financing activities was approximately $612,000 and $254,000
for the nine months ended September 30, 2001 and 2000. Net cash used in
financing activities in 2001 was primarily attributable to principal payments on
notes payable and capital lease obligations off-set by the exercise of employee
stock options. Net cash used in financing activities in 2000 was primarily
attributable to principal payments on notes payable and capital lease
obligations.

We have a financing agreement with a leasing company for the leasing of
equipment in an amount up to $1.0 million in operating and/or capital leases,
collateralized by certain accounts receivable and the equipment purchased
pursuant to the agreement. During 2000, the financing agreement was increased to
$2.0 million in exchange for the Company issuing warrants to purchase 13,345
shares of the Company's common stock. As of September 30, 2001 we have
approximately $1.3 million of equipment outstanding under the agreement. The
leases have terms of up to three years and the interest rates under the leases
range from 8 1/2% to 13%. We are required to make monthly payments of interest
and principal under the leases. All payments have been made to date.

We had a two-year sponsorship agreement with Excite under which Excite agreed to
promote WEBSTAKES.COM through ad banner placements and links to WEBSTAKES.COM
and its promotions on Excite.com, WebCrawler.com and Classified2000.com. We
prepaid Excite $5.6 million during 1999 for this two year agreement. At Home
Corporation, the parent company of Excite, is one of our principal stockholders.
Each quarter we recognized approximately $683,000 of expense related to this
agreement through the second quarter of 2001. This agreement expired in June
2001 and was not renewed.

We had a service agreement with MatchLogic, a wholly owned subsidiary of Excite,
pursuant to which MatchLogic provided ad serving and targeting, data processing,
analysis, enhancement and other services to Promotions.com. The term of the
agreement was two years. We prepaid MatchLogic $13.1 million, in 1999 for this
two-year agreement. Each quarter we recognized approximately $1.5 million of
expense related to this agreement through the second quarter of 2001. This
agreement expired in June 2001 and was not renewed.

Management believes that the Company's current cash resources coupled with
recent cost reductions will be sufficient to fund the Company's planned
expenditures through March 31, 2002. Our future liquidity and capital
requirements depend on numerous factors. For example, if our losses from
operations continue and or increase in the near future and we cannot attain
profitability our future capital requirements will be affected, which could
result in requiring us to obtain additional financing to fund operations. The
Company believes it has the ability to delay or further reduce its expenditures
so as to not require additional financial resources. However, there can be no
assurances that the Company will be successful in reducing its expenditures to a
necessary level. If that happens and adequate funds are not available on
acceptable terms, we may be unable to fund our business, successfully promote
our brand name, develop or enhance our services or respond to competitive
pressures. There can be no assurances that any required additional financing
will be available on terms favorable to us, or will be available at all. Any of
these events could have a material adverse effect on our business, results of
operations or financial condition. In addition, we are exploring certain
strategic alternatives including a merger, sale or spin-off of certain assets
and business units.

During the third quarter, the company lost its listing with the Nasdaq National
Market for its inability to maintain a minimum bid price of $1.00 as required by
the Marketplace Rule 4310(c)(8)(B). The Company now trades under the symbol
PRMO.OB on the Over the Counter Bulletin Board.


                                       11
<PAGE>

Recent Events

During July, 2001 we subleased a portion of the leased premises at our corporate
office located at 450 West 33rd Street, New York NY. Our landlord alleged that
this was a default under the terms of our lease. In light of our dispute with
the landlord regarding the above and certain other issues related to the failure
of payment by the landlord of approximately $900,000 to us as reimbursement for
our expenses to equip, decorate and furnish the leased premises, we withheld
payment of July and August rent. Our landlord alleged that our non-payment of
rent was also a default under the terms of our lease. On August 9, 2001, we
obtained from the New York Supreme Court a temporary restraining order to extend
the periods to cure and to permit us to cure any defaults ultimately found to
exist, thereby avoiding a lease termination.

In September 2001, we entered into a stipulation of settlement agreement related
to our former corporate office at 450 West 33rd Street, New York, NY. As part of
the settlement agreement, we were required to surrender our office space along
with the leasehold improvements and the furniture and fixtures in return for a
release from our lease commitment, the return of our $1.6 million security
deposit and the payment of the $900,000 owed to us for the reimbursement for our
expenses to equip, decorate and furnish the leased premises. We then moved our
corporate offices to 268 West 44th Street, New York NY 10036. The landlord
off-set the back rent we owed them against the $900,000 reimbursement so the net
amount to the company related to this reimbursement is $622,000. This amount has
been recorded as a receivable at September 30, 2001. We therefore, recorded a $1
million loss related to expenses associated with the termination of this lease
during the third quarter.


                                       12
<PAGE>

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Currency Rate Fluctuations. Promotions.com's results of operations, financial
position and cash flows are not materially affected by changes in the relative
values of non-U.S. currencies to the U.S. dollar.

Market Risks. Our accounts receivable are subject, in the normal course of
business, to collection risks. We regularly assess these risks and have
established policies and business practices to protect against the adverse
effects of collection risks. As a result, Promotions.com does not anticipate any
material losses in this area.

Interest Rate Risk. Our investments are classified as cash and cash equivalents
with original maturities of three months or less. Therefore, changes in the
market's interest rates do not affect the value of the investments as recorded
by Promotions.com.

                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

NONE.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

(A) Changes in Securities:

NONE.

(B) Use of Proceeds:

NONE.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

NONE.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

NONE.

ITEM 5. OTHER INFORMATION

NONE.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(A) The following is a list of exhibits filed as part of this report on Form
10-Q. Where so indicated by footnote, exhibits that were previously filed are
incorporated by reference. For exhibits incorporated by reference, the location
of the exhibit in the previous is indicated parenthetically except for those
situations where the exhibit number was the same as set forth below.

<TABLE>
<CAPTION>
Exhibit
Number            Description
------            -----------
<S>               <C>
3.1(1)            - Certificate of Incorporation
3.2(1)            - Certificate of Amendment to the Certificate of Incorporation, dated February 23, 1999
3.3(1)            - Certificate of Amendment to the Certificate of Incorporation dated January 17, 1999
3.4(1)            - Certificate of Amendment to the Certificate of Incorporation, dated June 11, 1999
3.5(1)            - Amended and Restated Bylaws
3.6(3)            - Amended and Restated Bylaws dated September 29, 1999
3.7(7)            - Certificate of Ownership and Merger dated January 26, 2000
3.8(8)            - Preferred Stock Purchase Rights Agreement
</TABLE>


                                       13
<PAGE>

<TABLE>
<CAPTION>
<S>               <C>
10.1(1)(2)        - Netstakes, Inc. Stock Option Plan
10.2(1)(2)        - 1999 Equity Compensation Plan
10.3(1)           - Master Lease Agreement No.L6731 with Leasing Technologies International, Inc. dated November
                    19, 1999
10.4(1)           - Master Service Agreement between Registrant and Frontier Global Center dated February 8, 1999
10.5(1)(2)        - Letter Agreement between Registrant and Steven H. Krein, dated June 11, 1999
10.6(1)(2)        - Letter Agreement between Registrant and Daniel Feldman, dated June 11, 1999
10.7(1)           - Stock Purchase Agreement dated June 11, 1999
10.8(4)           - Master Lease Agreement between Registrant and 450 Westside Partners, LLC dated January 12, 2000
10.9(6)           - Warrant Agreement between Registrant and Leasing Technologies International Dated June 29, 2000
10.10(5)          - Employee Stock Purchase Plan
</TABLE>

(1)   Filed as an exhibit to the Registrants Registration Statement on Form S-1
      (Registration No. 333-80593) filed with the Commission on June 14, 1999,
      amended and incorporated herein by reference.

(2)   Compensatory plans and arrangements for executives and others.

(3)   Filed as an exhibit on Form 10-Q filed on November 15, 1999 and
      incorporated herein by reference.

(4)   Filed as an exhibit on Form 10-K filed on March 30, 2000 and incorporated
      herein by reference.

(5)   Filed as an appendix on Form DEFR 14A filed on May 11, 2000 and
      incorporated herein by reference.

(6)   Filed as an exhibit on From 10Q filed on August 14, 2000 and incorporated
      herein by reference.

(7)   Filed as an exhibit on Form 10-K filed on April 2, 2001 and incorporated
      herein by reference.

(8)   Filed as an exhibit on From 8-A on June 28, 2001 and incorporated herein
      by reference.

(a)   Reports on form 8-K

NONE.


                                       14
<PAGE>

SIGNATURES

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

Date: November 14, 2001              Promotions.com, Inc.


                                     By: /s/ Lawrence M. Quartaro
                                        -------------------------
                                             Lawrence M. Quartaro
                                             Chief Financial Officer
                                             (Principal Financial and
                                             Accounting Officer Duly
                                             Authorized Officer)


                                       15