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CoolSavings Posts Widening Loss, Searching for Cash

Online couponer CoolSavings is scrambling to line up some cash, after posting a widening loss for the fourth quarter and full year of 2000.

The Chicago-based firm posted fourth quarter net revenue of $11.5 million, an increase of 72.9 percent over the same period in the prior year, and slightly better than third quarter 2000's $11.3 million.

Quarterly operating expenses grew $700,000 to $19.6 million -- slightly less than indicated in previous guidance -- resulting in an overall fourth quarter loss of $9.4 million, or $0.24 per share, excluding non-cash stock compensation. That's a few cents higher than the company had predicted in November, when it said it would post an estimated loss of $0.21 to $0.22 per share.

Last quarter, the company saw a loss of $8.5 million, or $0.21 per share; a year earlier, CoolSavings posted a loss of $7.1 million, or $0.22 per share, in the fourth quarter of 1999.

For the year, the company posted a loss of $34.7 million, or $0.96 per share, on revenue of $39.9 million. Total annual operating expenses swelled to $72.2 million, from $28.2 million in 1999.

CoolSavings' full-year loss was a penny wider than Chase H&Q analyst Jim Pettit -- the only analyst covering the company -- had predicted, drawing largely on earlier company guidance that it would post a $0.95 per share loss.

In spite of the widening losses and the missed targets, CoolSavings executives said they were pleased with the company's progress in 2000, and "cautiously optimistic" about the coming year.

"Despite the current economic climate which is adversely affecting the entire advertising and direct marketing industry, we continue to receive high acceptance from our advertising clients for our proven solutions that reduce their customer acquisition costs while building strong brand identity and loyalty," said chairman and chief executive Steven Golden. "Our emphasis on sales to traditional offline advertisers throughout the year has resulted in a new high this quarter of 59.2 percent for brick and mortar revenue."

The company delayed its earnings announcement until Tuesday pending an outside audit after it reported a software problem that could have miscalculated earnings. Ultimately, it did not have any effect on the reported results, the company said.

CoolSavings said in a statement that the audit came "in light of recent missed earnings expectations and stock price declines of Internet advertisers and our peers ... we used more stringent standards in our audit to provide greater reliability of our financial reports."

Golden added that the company's management and board of directors have been more conservative in financial reporting to enhance investor confidence.

"For example, in the fourth quarter, we increased our bad debt reserve and deferred recognition of revenue from a handful of our e-commerce customers," he said. "These entries reduced our fourth quarter earnings and were the primary reason why our quarterly and full year results were slightly below analysts' expectations."

While the effort might restore greater faith in CoolSavings in the public markets, the firm is really targeting its efforts at attracting private investors -- since it's running dangerously low on cash.

With $7 million in the bank -- and expectations for a rocky quarter ahead -- CoolSavings said it's working hard to land new private investors and stave off defaulting "covenants" with its banks.

The company said it has accepted subscriptions for "significant" new capital investment, while it's in "active discussions" with its banks to modify or waive these "certain covenants" that are in default. It did not go into further detail.

Of course, because these fund-raising efforts and bank discussions are still ongoing as of the moment, the company will report that it requires additional capital to complete the current year.

"Based on our current revenue projections and planned cost-cutting measures, we believe that our cash position coupled with the anticipated proceeds from our private offering will be sufficient to give us adequate liquidity for the year," said Golden.

However, the outlook for the year -- and more pressingly, first quarter -- is extremely hazy, according to the company.

CoolSavings said that like many retail and advertising-based businesses, it generally records a disproportionate part of its revenues during the last ten days of the quarter, making accurate forecasting of quarterly results "especially difficult, especially while overall advertising expenditures are falling.

The company said it expects net revenues for the quarter to be about $6 million, or half of previously announced analysts' expectations -- and a decrease from the actual sales of $8.1 million for the same period of 2000.

"We made significant investments in our brand and infrastructure during 2000. As we enter 2001, under unusually challenging market conditions, we recognize the importance of maintaining prudent and stringent cost controls. Like most others operating in this environment, we are experiencing lower top-line revenue," Golden said.

However, Golden said that cost-cutting measures the company launched last quarter were "beginning to have positive effects on our cash flow." As a result, the company is predicting 2001 operating expenses to be $40 million to $45 million, down from previous guidance of $57 million to $60 million.

It did not break out anticipated expenses for first quarter. However, Golden did reiterate the company's goal of profitability in the second half of 2001.