SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-Q

                                   (MARK ONE)
              |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934.

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002

                                       OR

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

               FOR THE TRANSITION PERIOD FROM           TO
                           COMMISSION FILE NO. 0-25435

                        CROSS MEDIA MARKETING CORPORATION
             (Exact Name of Registrant as Specified in Its Charter)



                 DELAWARE                                13-4042921
       (State or Other Jurisdiction         (I.R.S. Employer Identification No.)
    of Incorporation or Organization)

461 FIFTH AVENUE, 19TH FLOOR, NEW YORK, NY                 10017
 (Address of Principal Executive Office)                 (Zip Code)


       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 457-1200

Indicate by check |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 August 14, 2002, there were 15,035,171 shares of the registrant's Common
Stock, par value $.001, outstanding.



<PAGE>


                        CROSS MEDIA MARKETING CORPORATION

                                    FORM 10-Q
                                  JUNE 30, 2002

                                 C O N T E N T S

                          PART I. FINANCIAL INFORMATION



                                                                        PAGE
                                                                        ----
Item 1.   Financial Statements
  Condensed Consolidated Balance Sheets as of June 30, 2002
     (unaudited) and December 31, 2001................................  F-1
  Condensed Consolidated Statements of Operations for the three months
     ended June 30, 2002 and June 30, 2001 (unaudited)................  F-2
  Condensed Consolidated Statements of Cash Flows for the six months
     ended June 30, 2002 and June 30, 2001 (unaudited)................  F-3
  Notes to Condensed Consolidated Financial Statements (unaudited)....  F-4
          Management's Discussion and Analysis of Financial Condition
Item 2.   and Results of Operations...................................    1

PART II.  OTHER INFORMATION
Item 1.   Legal Proceedings...........................................   14
Item 2.   Change in Securities........................................   14
Item 3.   Defaults Upon Securities....................................   15
Item 4.   Submission of Matters to Vote of Stockholders...............   15
Item 5.   Other Information...........................................   15
Item 6.   Reports on Form 8-K.........................................   15

SIGNATURE



                                        i


<PAGE>



               CROSS MEDIA MARKETING CORPORATION AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                JUNE 30,     December 31,
                                                                  2002           2001
                                                               -----------   ------------
                                                                      (UNAUDITED)
                                                                     (IN THOUSANDS)
<S>                                                             <C>            <C>
 ASSETS:
 Current assets
   Cash and cash equivalents.................................   $    297       $ 12,490
   Accounts receivable, net of reserves......................     64,520         46,058
   Other receivables.........................................      7,203          6,664
   Inventory.................................................      4,597             --
   Prepaid expenses and other................................      1,434          1,829
   Deferred expenses.........................................      4,110          2,239
                                                                --------       --------
           Total current assets..............................     82,161         69,280
   Property and equipment, net...............................      9,115          4,425
   Deferred taxes............................................      1,546          2,800
   Goodwill..................................................     42,989         12,137
   Intangibles, net..........................................      2,744          5,733
   Other assets..............................................      2,071            856
                                                                --------       --------
                                                                $140,626       $ 95,231
                                                                ========       ========

 LIABILITIES AND STOCKHOLDERS' EQUITY:
 Current liabilities
   Revolving credit facility.................................   $ 23,036       $ 17,329
   Accounts payable and accrued expenses.....................     16,938          6,916
   Amounts due to publishers.................................      4,484          3,768
   Deferred revenue..........................................        603          3,191
   Notes and other acquistion related payables...............      4,215             --
                                                                --------       --------
           Total current liabilities.........................     49,276         31,204
 Long term liabilities
   Amounts due to publishers.................................      4,779          4,984
   Capital lease obligations.................................      1,966            869
   Notes and other acquistion related payables...............      3,858             --

 Series B Convertible Preferred Stock........................      1,900             --


 STOCKHOLDERS' EQUITY:
   Common stock, par value $.001 per share; authorized
      40,000 shares; 15,048 issued and 15,017
      outstanding at June 30, 2002 and 12,712 issued and
      12,614 outstanding at December 31, 2001................         15             13
   Additional paid in capital................................    128,288        106,183
   Note receivable -- common stock...........................       (698)          (698)
   Treasury stock, 31 shares at June 30, 2002 and 98 shares
   at December 31, 2001......................................       (424)          (857)
   Deferred compensation.....................................        (53)           (53)
   Accumulated deficit.......................................    (48,281)       (46,414)
                                                                --------       --------
           Total stockholders' equity........................     78,847         58,174
                                                                --------       --------
                                                                $140,626       $ 95,231
                                                                ========       ========
</TABLE>


The accompanying notes are an integral part of these statements.

                                       F-1

<PAGE>

               CROSS MEDIA MARKETING CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                  FOR THE THREE
                                                                  MONTHS ENDED
                                                                    JUNE 30,
                                                              ---------------------
                                                                2002        2001
                                                              ---------   ---------
                                                                   (UNAUDITED)
                                                              (IN THOUSANDS, EXCEPT
                                                                 PER SHARE DATA)
<S>                                                            <C>         <C>
Revenues, net...............................................   $37,092     $23,601
Direct costs and expenses
  Commission expense........................................    10,482      11,283
  Other direct costs........................................    21,351       6,229
                                                               -------     -------
                                                                31,833      17,512
     Gross profit...........................................     5,259       6,089
General and administrative expenses.........................     9,073       3,213
                                                               -------     -------
Income (loss) from operations...............................    (3,814)      2,876
Other income(expense)
  Interest expense..........................................      (440)       (494)
  Minority interest.........................................       258          --
  Equity in income of affiliates............................        47          --
                                                               -------     -------
Income (loss) before income taxes...........................    (3,949)      2,382
Provision (benefit) for income taxes........................      (987)        476
                                                               -------     -------
Net income (loss)...........................................    (2,962)      1,906
Preferred dividends.........................................        12         127
                                                               -------     -------
Net income (loss) applicable to common stockholders.........   $(2,974)    $ 1,779
                                                               =======     =======
Income (loss) per share applicable to common stockholders:
  Income (loss) per share:
  Basic.....................................................   $(0.20)     $  0.25
                                                               =======     =======
  Diluted...................................................   $(0.20)     $  0.20
                                                               =======     =======

Weighted -- average shares of common stock:
  Basic.....................................................    14,730       7,112
                                                               =======     =======
  Diluted...................................................    14,730       8,743
                                                               =======     =======
</TABLE>

The accompanying notes are an integral part of these statements.

                                       F-2

<PAGE>

               CROSS MEDIA MARKETING CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                  FOR THE SIX
                                                                  MONTHS ENDED
                                                                    JUNE 30,
                                                              ---------------------
                                                                2002        2001
                                                              ---------   ---------
                                                                   (UNAUDITED)
                                                              (IN THOUSANDS, EXCEPT
                                                                 PER SHARE DATA)
<S>                                                            <C>         <C>
Revenues, net...............................................   $81,093     $43,278
Direct costs and expenses
  Commission expense........................................    22,023      20,864
  Other direct costs........................................    43,186      11,433
                                                               -------     -------
                                                                65,209      32,297
     Gross profit...........................................    15,884      10,981
General and administrative expenses.........................    16,892       6,495
                                                               -------     -------
Income (loss) from operations...............................    (1,008)      4,486
Other income(expense)
  Interest expense..........................................      (956)       (951)
  Minority interest.........................................       (74)         --
  Equity in income of affiliates............................       187          --
                                                               -------     -------
Income (loss) before income taxes...........................    (1,851)      3,535
Provision (benefit) for income taxes........................      (463)        709
                                                               -------     -------
Net income before extraordinary item........................    (1,388)      2,826
Extraordinary loss..........................................      (478)         --
                                                               -------     -------
Net income (loss)...........................................    (1,866)      2,826
Preferred dividends.........................................        12       1,258
                                                               -------     -------
Net income (loss) applicable to common stockholders.........   $(1,878)    $ 1,568
                                                               =======     =======
Income (loss) per share applicable to common stockholders:
  Income (loss) per share before extraordinary item:
  Basic.....................................................   $ (0.10)     $ 0.23
                                                               =======     =======
  Diluted...................................................   $ (0.10)     $ 0.22
                                                               =======     =======
Extraordinary loss per share:
  Basic.....................................................   $ (0.04)    $    --
                                                               =======     =======
  Diluted...................................................   $ (0.04)    $    --
                                                               =======     =======
Income (loss) per share applicable to common stockholders:
  Basic.....................................................   $ (0.14)    $  0.23
                                                               =======     =======
  Diluted...................................................   $ (0.14)    $  0.22
                                                               =======     =======
Weighted -- average shares of common stock:
  Basic.....................................................    13,352      6,839
                                                               =======     =======
  Diluted...................................................    13,352      7,296
                                                               =======     =======
</TABLE>

The accompanying notes are an integral part of these statements.

                                       F-2
<PAGE>

               CROSS MEDIA MARKETING CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                           FOR THE
                                                                       SIX MONTHS ENDED
                                                                          JUNE 30,
                                                                     -------------------
                                                                       2002       2001
                                                                     --------   --------
                                                                         (UNAUDITED)
                                                                       (IN THOUSANDS)
<S>                                                                  <C>        <C>
Cash flows from operating activities:
  Net Income (Loss).........................................         $ (1,866)  $  2,826
  Adjustments to reconcile results of operations to net cash
  effect of operating activities:
     Value of common stock and common stock purchase
     warrants issued for services ..........................               23        205
     Depreciation and amortization..........................            1,171        895
     Extraordinary Item -- non cash.........................              278         --
     Minority Interest - non cash...........................             (263)        --
  Net change in asset and liability accounts, net of
     businesses acquired
     Accounts receivable....................................          (14,278)    (6,608)
     Inventories and other current assets...................            1,055       (916)
     Accounts payable and other current liabilities.........             (340)     1,456
                                                                     --------   --------
          Net cash (used in)operating
           activities.......................................          (14,220)    (2,142)
Cash flows from investing activities:
     Net cash paid for NSI acquisition......................           (9,928)        --
     Additional cash paid for prior acquisitions............             (161)        --
     Purchase of equipment..................................           (4,794)    (1,477)
     Investment in joint venture............................               90         --
     Net cash paid for JWE acquisition......................           (1,855)         --
                                                                     --------   --------
          Net cash used in investing activities.............          (16,648)    (1,477)
Cash flows from financing activities:
     Net proceeds from common stock offering................           10,968      2,438
     Net proceeds from exercise of options/warrants.........            2,476         --
     Redemption of preferred stock..........................               --     (2,100)
     Net funds drawn on Revolving Credit Agreement..........                       3,353
     Net repayments of Coast credit agreement...............          (17,952)        --
     Preferred dividends paid...............................                        (206)
     Payment of NSI notes...................................             (618)        --
     Net proceeds from revolving credit facility............           25,158         --
     Payment of bridge loan.................................             (500)        --
     Proceeds from bridge loan..............................            2,000         --
     Payment of NSI notes...................................           (1,500)        --
     Termination fee in connection with retirement of Coast
      credit facility.......................................             (200)        --
     Accrued closing costs..................................                        (250)
     Deferred financing fees................................             (499)      (135)
     Purchase of treasury shares............................             (658)        --
                                                                     --------   --------
          Net cash provided by financing
           activities.......................................           18,675      3,100
                                                                     --------   --------
Net decrease in cash and cash equivalents...................          (12,193)      (519)
  Cash and cash equivalents at beginning of period..........           12,490      2,327
                                                                     --------   --------
  Cash and cash equivalents at end of period................         $    297   $  1,808
                                                                     ========   ========
Supplemental disclosure of cash flow information:
  Interest paid during the period...........................         $    956   $    709
                                                                     ========   ========
  Income taxes paid during the period.......................         $    470   $     --
                                                                     ========   ========
Supplemental disclosure of non-cash financing activities
  Non-cash proceeds from reduction of notes receivable
  ..................................................                 $     --   $  1,800
                                                                     ========   ========
Acquisition of NSI:

Cash paid to former NSI owner ..............................         $  9,000
Total transaction costs paid ...............................              928
                                                                     --------
Total cash paid ............................................            9,928

Non Cash Consideration:
Promissory notes issued ....................................            5,600
Value of common stock issued ...............................            3,200
Continigent Consideration ..................................            1,000
Value of warrants issued ...................................              372
                                                                     --------

Total non cash consideration ...............................           10,172

Total consideration for NSI ................................         $ 20,100
                                                                     ========

Acquisition of JWE:

Cash paid to JWE owner .....................................         $  1,500
Total transaction costs paid ...............................              355
                                                                     --------
Total cash paid ............................................            1,855

Non Cash Consideration:
Preferred Stock issued .....................................            1,900
Value of common stock issued ...............................            5,000
Contingent Consideration ...................................              550
Value of warrants issued ...................................            1,145
                                                                     --------

Total non cash consideration ...............................            8,595

Total consideration for JWE ................................         $ 10,450
                                                                     ========
</TABLE>

The accompanying notes are an integral part of these statements.

                                      F-3

<PAGE>


               CROSS MEDIA MARKETING CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2002
                                   (UNAUDITED)

NOTE A -- NATURE OF BUSINESS

Cross Media is a technology-driven direct marketing company that specializes in
executing targeted, interactive sales campaigns utilizing multiple direct
marketing channels, including direct mail, inbound and outbound telesales, print
ads, web marketing and e-mail. Cross Media sells a variety of products through
these multiple channels, including multi-magazine subscription packages,
discount buying club memberships, collectibles, lifestyle products and telecom
services.

Cross Media emphasizes its cross-channel marketing strategy, which is an
effective integration of online and offline marketing techniques. By utilizing
all available channels to make contact with the consumer, Cross Media seeks to
maximize the synergies of cross-channel marketing. Cross Media frequently
initiates contact with a consumer through one channel and consummates a
transaction through another channel. For example, e-mails or direct mail often
attract the interest of a consumer, who then responds by calling an 800 number.

See Note H for a current discussion of the status of Cross Media's financing.

NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Condensed Consolidated Financial Statements: In the opinion of Cross Media, the
accompanying unaudited condensed consolidated financial statements reflect all
adjustments (consisting of normal and recurring adjustments) necessary to
present fairly the financial position of Cross Media as of June 30, 2002 and
December 31, 2001, the results of operations for the three and six months ended
June 30, 2002 and 2001, and cash flows for the six months ended June 30, 2002
and 2001. All material intercompany profits, transactions and balances have been
eliminated. These financial statements are presented in accordance with the
requirements of Form 10-Q and consequently may not include all disclosures
normally required by generally accepted accounting principles or those normally
made in Cross Media's Annual Report on Form 10-KSB. The accompanying condensed
consolidated financial statements and related notes should be read in
conjunction with Cross Media's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 2001. The consolidated statements of income for the six and
three months ended June 30, 2002 and 2001 are not necessarily indicative of the
results expected for the full year.

Principles of Consolidation: The condensed consolidated financial statements
include the accounts of Cross Media and its wholly-owned subsidiaries and
majority owned joint ventures.

Segment  Reporting:  Cross Media is in the direct marketing  business,  which it
considers its sole business segment.

Magazine Revenue: Revenues derived from originating magazine subscriptions are
recognized by Cross Media when Cross Media receives the first installment
payment for subscriptions purchased. Revenues also include commissions earned
from publishers in connection with originating paid subscriptions for certain
publications. Commissions are also earned from outside parties for securing
memberships in a discount-buying club. Commissions are recognized when the
related subscriptions or memberships are obtained. Magazine revenues are
reflected net of cancellation and collection reserves as well as amounts due to
publishers. Such cancellation and collection reserves are based upon Cross
Media's historical cancellation and collection experience. In the second quarter
ended June 30, 2002, two independent call centers accounted for approximately
38% of Cross Media's magazine subscription revenues. These call centers do not
have any commitment to generate sales for Cross Media and could therefore, at
any time, terminate their relationships with Cross Media without notice, which
could have a material adverse effect on Cross Media's business. Cross Media
continually evaluates actual collection and cancellation experience as it
relates to magazines sales and adjusts collection and cancellation reserves
based on actual experience. Based upon this evaluation, for the three and six
months ended June 30, 2002, Cross Media adjusted net revenues by zero and
approximately $0.9 million, respectively.

Revenue from Print Advertising: Revenue from print advertising relating to
National Syndications Inc. ("NSI") operations are one time purchases made by
customers. Revenue from print advertising is usually generated by inbound
calling in response to advertising space in Sunday magazines and involve the one
time sale of products such as coins and collectibles. Sales are recognized when
the product is shipped. If cash is received before the product is shipped,
recognition of the sale is deferred until inventory has been shipped.

Continuity Revenue: Continuity revenue is generated from the sale of products to
a customer on a monthly basis over a period of time, generally involving the
sale of videos or coins. Revenue is recognized upon each shipment of product,
net of reserves.

Cash and Cash Equivalents: Cross Media considers all highly liquid investments
with maturities of three months or less to be cash equivalents. As of June 30,
2002, Cross Media had approximately $0.3 million in cash on hand to be used to
in its operations.

Property and Equipment: Property and equipment are recorded at cost, less
accumulated depreciation. Depreciation expense is computed using the
straight-line method over the estimated useful lives of the assets, which range
from three to seven years.

Derivatives: Cross Media enters into swap and cap agreements to minimize
interest rate risk. The fair value of the contracts were not material at June
30, 2002.


                                      F-4
<PAGE>

               CROSS MEDIA MARKETING CORPORATION AND SUBSIDIARIES

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Goodwill Amortization: Goodwill represents the excess of the purchase price over
the fair market value of net assets acquired in business combinations. The
carrying value of goodwill is analyzed by Cross Media, based upon the expected
revenue and profitability levels of the acquired enterprise, to determine
whether the value and future benefit may indicate a decline in value. If Cross
Media determines that there has been a decline in value of the acquired
enterprise, Cross Media will write down the value of the goodwill to the revised
fair value. In June 2001, Cross Media adopted Statements of Financial Accounting
Standards ("SFAS") No. 141, "Business Combinations" and beginning January 1,
2002 Cross Media adopted SFAS No. 142, "Goodwill and Other Intangible Assets."
(See Note E for more information)

Joint Ventures: Joint ventures are accounted under the equity method of
accounting and relate to joint ventures entered into by NSI with third parties
prior to the closing of the acquisition of NSI by Cross Media.

Income Taxes: As part of the process of preparing Cross Media's consolidated
financial statements, Cross Media is required to estimate its income taxes in
each of the jurisdictions in which Cross Media operates. This process involves
Cross Media estimating its actual current tax exposure together with assessing
temporary differences resulting from different treatment of items. These
differences result in deferred tax assets and liabilities, which are included
within Cross Media's consolidated balance sheet. Cross Media must then look at
the likelihood that its deferred tax assets will be recovered from future
taxable income and to the extent Cross Media believes that recovery is not
likely, Cross Media must establish a valuation allowance.

Deferred Financing Costs: Deferred financing costs are costs incurred in
connection with obtaining outside financing and are amortized on a straight-line
basis over the term of the related credit facility, which is two years.

Accounting for Stock-Based Compensation: Cross Media has elected to follow
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," (APB No. 25). Under APB No. 25, when the exercise price of an
employee stock option granted by Cross Media is equal to or greater than the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.

Net Income (Loss) Per Share Applicable to Common Stockholders: Net income (loss)
per share applicable to common stockholders is presented under Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS No. 128). In
accordance with SFAS No. 128, basic and diluted net loss per share has been
computed using the weighted-average number of shares of common stock outstanding
during the period plus potentially dilutive securities.

The following table sets forth the computation of basic and diluted earnings per
share:

<TABLE>
<CAPTION>
                                                                FOR THE THREE           FOR THE SIX
                                                                 MONTHS ENDED          MONTHS ENDED
                                                             -------------------   --------------------
                                                             JUNE 30,   JUNE 30,   JUNE 30,    JUNE 30,
                                                               2002       2001       2002        2001
                                                             -------    --------   --------    --------
                                                                       (IN THOUSANDS, EXCEPT
                                                                           PER SHARE DATA)
<S>                                                          <C>        <C>        <C>         <C>
Numerator:
  Net income before extraordinary item and preferred
     dividends ...........................................   $(2,962)   $  1,906   $ (1,388)   $  2,826
  Extraordinary loss .....................................        --          --       (478)         --
                                                             -------    --------   --------    --------
  Net income .............................................    (2,962)      1,906     (1,866)      2,826
  Preferred stock dividends ..............................        12         127         12       1,258
                                                             -------    --------   --------    --------
  Net income (loss) applicable to common stockholders ....   $(2,974)   $  1,779   $ (1,878)   $  1,568
                                                             =======    ========   ========    ========
Denominator:
  Basic -- weighted average shares .......................    14,730       7,112     13,352       6,839
     Preferred stock .....................................        --       1,178         --          35
     Stock options .......................................        --         120         --         335
     Warrants ............................................        --         333         --          87
                                                             -------    --------   --------    --------
  Diluted weighted average shares ........................    14,730       8,743     13,352       7,296
                                                             =======    ========   ========    ========
Income (loss) per share before extraordinary item:
  -- basic ...............................................   $ (0.20)   $   0.25   $  (0.10)   $   0.23
                                                             =======    ========   ========    ========
  -- diluted .............................................   $ (0.20)   $   0.20   $  (0.10)   $   0.22
                                                             =======    ========   ========    ========
Extraordinary loss per share:
  -- basic ...............................................   $    --          --   $  (0.04)         --
                                                             =======    ========   ========    ========
  -- diluted .............................................   $    --          --   $  (0.04)         --
                                                             =======    ========   ========    ========
Income (loss) per share applicable to common stockholders:
  -- basic ...............................................   $ (0.20)   $   0.25   $  (0.14)   $   0.23
                                                             =======    ========   ========    ========
  -- diluted .............................................   $ (0.20)   $   0.20   $  (0.14)   $   0.22
                                                             =======    ========   ========    ========
</TABLE>


                                      F-5
<PAGE>

Stock options which were not included in the calculation, were the equivalent of
4.7 million shares for the three and six months ended June 30, 2002 and 3.4
million shares for the three and six months ended June 30, 2001 because they
were antidilutive. In addition, the effect of the convertible preferred stock
was also antidilutive in 2001.

Commission Expense: Commission expense is recognized when Cross Media receives
the first installment payment for subscriptions purchased.

Inventories: Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method. Inventories consist of
purchased items ready for resale.

Advertising and promotion costs: Costs related to advertising and promotion are
amortized ratably over the estimated lifetime revenue stream generating from the
advertising effort.

Reclassification: Certain amounts in the June 30, 2001 financial statements have
been reclassified to conform to the June 30, 2002 classifications.

Use of Estimates in the Preparation of Financial Statements: The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements as well as the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. These estimates and assumptions relate to
estimates of pay to maturity of accounts receivable used in recording net
revenue, collectibility of accounts receivable, the realizability of goodwill
and other intangible assets, amounts due to publishers and due from partners,
accruals, income taxes and other factors. Management has exercised reasonable
judgment in deriving these estimates, however, actual results could differ from
these estimates. Consequently, change in conditions could affect Cross Media's
estimates.

Fair Value of Financial Instruments: The recorded values of cash, accounts
receivable and accrued liabilities reflected in the financial statements
approximates their fair value due to the short-term nature of the instruments.
Borrowings under the line of credit approximate fair value as such line is
subject to a variable interest rate that reflects adjustments in the market
rates of interest. The recorded value of the stock note receivable approximates
fair value.

Concentration of Credit Risk: Cross Media's financial instruments that are
exposed to concentrations of credit risk consist primarily of cash and cash
equivalents and trade accounts receivable. Cross Media places its cash and cash
equivalents with high quality credit institutions. At times, such investments
may be in excess of the Federal Deposit Insurance Corporation insurance limit.
Cross Media has not experienced any losses in such accounts and believes it is
not exposed to any significant credit risks. Financial instruments which
potentially subject Cross Media to concentrations of credit risk consist
principally of trade accounts receivable as Cross Media does not require
collateral or other securities to support customer receivables. Cross Media
sells primarily to individuals throughout the United States. However, credit
risk concentration is mitigated, due to the significant number of customers with
relatively small balances and the geographical dispersion of Cross Media's
customer base.

Leases: Leases, which meet certain criteria, are capitalized as capital leases.
In such leases, assets and obligations are recorded initially at the fair market
value of the leased assets. The capitalized leases are amortized using the
straight-line method over the assets' estimated economic lives. Interest expense
relating to the liabilities is recorded to effect a constant rate of interest
over the term of the obligations. Leases not meeting capitalization criteria are
classified as operating leases and related rentals are charged to expense as
incurred.


                                      F-6
<PAGE>

NOTE C -- ACQUISITIONS

Acquisitions are accounted for as a purchase and, accordingly, have been
included in Cross Media's consolidated results of operations since the
acquisition date. The purchase price is allocated based on the estimated fair
value of the assets acquired and the liabilities assumed. Purchase price
allocations are subject to refinement until all pertinent information regarding
the acquisition is obtained.

                                   LIFEMINDERS

On October 24, 2001, Cross Media acquired the stock of LifeMinders, Inc.,
("LFMN") an online direct marketer, through the merger of LifeMinders with and
into Cross Media. The total purchase price of the merger was approximately $62
million. Cross Media received in aggregate approximately $18 million in cash
after payments to existing LifeMinders shareholders of $24 million, $3.5 million
for the redemption and inducement to convert Series A preferred stock and $4
million in transaction costs. In addition, Cross Media issued an aggregate of
approximately 4.54 million shares of common stock to the former LifeMinders
shareholders. Cross Media recorded goodwill of $8.9 million as a result of total
consideration over the net assets acquired on the date of the merger. During the
first quarter 2002, Cross Media finalized its valuation of intangibles acquired
from the acquisition of LFMN and subsequently reduced the value recorded at
December 31, 2001 from $6.0 million to $3.3 million based on an outside third
party evaluation. This resulted in a decrease in intangibles and net deferred
tax assets and an increase in goodwill.

                                 NSI Acquisition

On January 11, 2002, Cross Media acquired all of the capital stock of NSI. NSI
develops and markets a wide variety of products through direct response
advertising in Sunday publications. Cross Media recorded the cost of the NSI
acquisition of approximately $20.1 million, as follows: (i) $9 million in cash,
(ii) $3.1 million in negotiable promissory notes, (iii) $2.5 million in
non-negotiable promissory notes, (iv) $3.2 million through the issuance of
279,859 shares of common stock, (v) a $1.3 million liability for the estimated
current portion of the contingent consideration (described below) and (vi)
approximately $1 million in transaction costs. Cross Media may pay up to
approximately $3.1 million in contingent consideration based on three times the
Joint Ventures' 2001 EBITDA and the aggregate Joint Ventures' income from
January 1, 2001 through December 31, 2004. The contingent consideration, if
paid, will be accounted for as additional purchase price. The remaining balance
of the $2.1 million contingent consideration has not been recorded on the
balance sheet as of June 30, 2002, as the outcome of the contingency is not
determinable beyond a reasonable doubt. Goodwill recorded as a result of the
transaction was $16.2 million as of June 30, 2002. The operating results from
NSI have been included in the consolidated results of operations since the date
of the acquisition.

The promissory notes bear interest at the rate of 7% per annum, are payable in
36 consecutive monthly installments on the last business day of each month,
payments commenced on January 31, 2002, and were initially secured by the assets
of NSI. Upon the closing of the NSI transaction, Cross Media obtained a letter
of credit in the amount of $1 million from Fleet National Bank under the NSI
existing credit agreement. On March 19, 2002, Cross Media obtained a letter of
credit in the amount of $5.6 million, representing the full amount of the notes,
under its credit facility (See Note D) and the lien on the NSI assets was
released. As of June 30, 2002, $5.0 million was outstanding as a result of
payments made under the note agreement.

Cross Media has not made payments under the notes issued in the NSI acquisition
aggregating $0.4 million, which were due on June 30 and July 31, 2002 but has
received a waiver for failure to make these payments. Cross Media is required to
make these payments by September 2, 2002.

The following table summarizes the fair values of the assets acquired and
liabilities assumed at the date of acquisition.

                                                               (IN THOUSANDS)
                                                               --------------
Accounts receivable.........................................      $ 4,332
Inventory...................................................        3,701
Other current assets........................................        1,928
Deferred costs..............................................        2,479
Fixed assets................................................        1,102
Other assets................................................        1,551
                                                                  -------
          Total assets acquired.............................      $15,093
Current liabilities.........................................       11,130
                                                                  -------
          Net assets acquired...............................      $ 3,963
                                                                  =======


                                      F-7
<PAGE>


                                 JWE Acquisition

On May 27, 2002, Cross Media completed the acquisition of substantially all of
the assets of JWE Enterprises, Inc., a magazine subscription business, and the
other 50% interest in J Cross Marketing from JWE Holdings, Inc. (collectively
JWE). The non-contingent purchase price for the acquisition was approximately
$9.1 million, consisting of (i) approximately $1.7 million in cash, of which
$1.5 million was borrowed from, and is evidenced by a note payable to, Lancer
Offshore Inc. (the "Lancer Note," See Note D for details) (ii) 416,980 shares of
common stock, with a fair value of $5.0 million, (iii) 2,000 shares of Series B
convertible redeemable preferred stock (the "Preferred Stock") having a
redemption value and fair value on the date of issuance on the date of issuance
of $1.9 million and (iv) $0.5 million of additional consideration, payable in
cash over the next two quarters. As additional consideration Cross Media issued
warrants valued at approximately $1.1 million. In addition, Cross Media may be
required to make additional cash payments of up to $8.9 million over the next
three years if certain performance criteria for the acquired businesses are met.

The fair values of the assets acquired and liabilities assumed at the date of
acquisition was approximately $0.2 million, which consisted mainly of fixed
assets. The allocation of the purchase price to acquired assets and liabilities
in accordance with SFAS No. 141, resulted in the allocation of $10.3 million to
goodwill and $0.2 to fixed assets. The acquisition was accounted for as a
purchase in accordance with SFAS No. 141. Any adjustment to the allocation of
the purchase price for these acquisitions upon finalization of the valuation of
assets acquired and liabilities assumed is not expected to have a significant
effect on Cross Media's financial statements.

The following pro forma information illustrates the estimated effects of the
acquisitions of LifeMinders, NSI and JWE as if such transactions were
consummated on January 1, 2001:

<TABLE>
<CAPTION>
                                                                                     FOR THE THREE              FOR THE SIX
                                                                                     MONTHS ENDED               MONTHS ENDED
                                                                               ------------------------    ------------------------
                                                                                 June 30,      June 30,     June 30,      June 30,
                                                                                  2002          2001          2002          2001
                                                                               ----------    ----------    ----------    ----------
                                                                                               (IN THOUSANDS EXCEPT
                                                                                                 PER SHARE AMOUNTS)
<S>                                                             <C>           <C>           <C>           <C>           <C>
Revenues, net ...............................................   As Reported   $   37,092    $   23,601    $   81,093    $   43,278
                                                                Pro forma         38,745        40,961        86,053        85,554

Net income (loss) before extraordinary item .................   As Reported   $   (2,962)   $    1,906    $   (1,388)   $    2,826
                                                                Pro forma         (2,672)      (35,438)         (519)      (45,093)

Extraordinary loss ..........................................   As Reported   $       --    $       --    $     (478)   $       --
                                                                Pro forma             --            --          (478)           --

Income (loss) applicable to common stockholders .............   As Reported   $   (2,974)   $    1,779    $   (1,878)   $    1,568
                                                                Pro forma         (2,672)      (35,565)         (997)      (46,352)
Income (loss) per share before extraordinary item:
     -- basic ...............................................   As Reported   $    (0.20)   $     0.25    $    (0.10)   $     0.23
                                                                Pro forma          (0.18)        (2.87)        (0.03)        (3.61)

     -- diluted .............................................   As Reported   $    (0.20)   $     0.20    $    (0.10)   $     0.22
                                                                Pro forma          (0.18)        (2.53)        (0.03)        (3.48)
Extraordinary loss:
     -- basic ...............................................   As Reported   $       --    $       --    $    (0.04)   $       --
                                                                Pro forma             --            --         (0.04)           --
     -- diluted .............................................   As Reported   $       --    $       --    $    (0.04)   $       --
                                                                Pro forma             --            --         (0.04)           --
Income (loss) per share applicable to common stockholders:
     -- basic ...............................................   As Reported   $    (0.20)   $     0.25    $    (0.14)   $     0.23
                                                                Pro forma          (0.18)        (2.88)        (0.07)        (3.71)
     -- diluted .............................................   As Reported   $    (0.20)   $     0.20    $    (0.14)   $     0.22
                                                                Pro forma          (0.18)        (2.54)        (0.07)        (3.58)
</TABLE>

NOTE D -- REVOLVING CREDIT FACILITIES

                             LANCER CREDIT FACILITY

On March 1, 2002, Cross Media obtained a $2 million revolving credit facility
from Lancer Offshore, Inc., a principal stockholder of Cross Media. The interest
rate on borrowings under the revolving credit facility was 8% per annum and
Lancer had the right to demand repayment of all borrowings at any time after
March 31, 2002. Cross Media issued to Lancer two-year warrants to purchase
50,000 shares of common stock at an exercise price of $10.00 per share as an
inducement for Lancer to provide Cross Media the revolving credit facility.

On March 19, 2002, Cross Media repaid the $2 million of outstanding borrowings
under the Lancer revolving credit facility plus accrued interest from the
proceeds from the Fleet credit facility, described below, and the Lancer
revolving credit facility was terminated.



                                      F-8
<PAGE>

                              FLEET CREDIT FACILITY

On March 19, 2002, Cross Media entered into a credit agreement with Fleet
National Bank, as agent for the lenders and as issuing lender, and the several
other lenders, to provide Cross Media a $35 million credit facility, subject to
certain availability limitations. Cross Media may borrow funds under the credit
facility as revolving prime rate or LIBOR rate loans and/or obtain letters of
credit. Interest on the credit facility accrues at the prime rate designated
from time to time by the agent, Fleet, plus an applicable margin, for prime rate
loans, or at the LIBOR rate plus an applicable margin for LIBOR loans. The
applicable margin is subject to adjustment based on Cross Media's leverage
ratio. Cross Media also pays a commitment fee during the term of the facility
based on the unused borrowings under the facility, and a letter of credit fee
based on the applicable margin for the LIBOR rate loans during the time that
letters of credit remain outstanding.

All of Cross Media's subsidiaries are joint and several co-borrowers under the
Fleet credit facility. Cross Media has pledged all of its assets and all of the
assets and capital stock of its subsidiaries to secure its obligations under the
facility. The Fleet credit facility imposes certain limitations on Cross Media's
activities, including restrictions on acquisitions, incurring additional
indebtedness, granting liens and declaring and paying dividends. Cross Media is
also required to maintain minimum EBITDA levels and minimum leverage,
consolidated net worth and fixed charge coverage ratios.

Upon entering into the new credit agreement with Fleet, Cross Media terminated
its credit agreement with Coast Business Credit ("Coast"). Cross Media repaid
the remaining borrowings under the Coast Facility of approximately $18 million
as well as an early termination fee of $0.2 million. As a result of the early
termination of the Coast facility, Cross Media recorded an extraordinary charge
of approximately $0.5 million. As of June 30, 2002, Cross Media had $23 million
outstanding under the Fleet credit facility. In August 2002, the Fleet Credit
Facility was amended (See Note H).

                                   LANCER NOTE

To fund the JWE acquisition, Cross Media borrowed $1.5 million from Lancer
Offshore, Inc. ("Lancer Note") The Lancer Note bears interest at an annual rate
of 6% from the date of issuance through November 27, 2002 and at the annual rate
of 10% from November 28, 2002 until the maturity date of May 27, 2003. In the
event that the Lancer Note is not repaid on or prior to November 27, 2002
("trigger date"), Cross Media must issue to Lancer a warrant to purchase a
number of shares of common stock equal to 150,000 multiplied by a fraction, the
numerator being the then outstanding balance of the Lancer Note and the
denominator being $1.5 million. Until the Lancer Note is repaid in full, on each
six month anniversary of the trigger date, Cross Media must issue an additional
warrant to purchase a number of shares equal to 150,000 multiplied by a
fraction, the numerator being the then outstanding balance of the Lancer Note
and the denominator being $1.5 million. Cross Media's obligation to issue these
warrants will terminate upon Cross Media's repayment of the Lancer Note or
issuance of warrants to purchase an aggregate of 2,898,068 shares of common
stock.

NOTE E -- EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board approved the issuance of
SFAS No. 141 "Business Combinations", and SFAS No. 142, "Goodwill and Other
Intangible Assets". The new standards require that all business combinations
initiated after June 30, 2001 must be accounted for under the purchase method.
In addition, all intangible assets acquired that are obtained through
contractual or legal right, or are capable of being separately sold,
transferred, licensed, rented or exchanged shall be recognized as an asset apart
from goodwill. Goodwill and intangibles with indefinite lives will no longer be
subject to amortization, but will be subject to at least an annual assessment
for impairment by applying a fair value based test.

The Company adopted SFAS No. 142 on January 1, 2002. Initial adoption had no
effect on Cross Media's financial statements. As a result of the adoption of
SFAS No. 142, Cross Media did not recognize goodwill amortization for the three
months and six months ended June 30, 2002. If SFAS No. 142 was in effect during
the three and six months ended 2001, Cross Media would not have recognized $0.3
and $0.5 million in goodwill amortization, respectively. Net income applicable
to common stockholders for the three and six months ended June 30, 2002 would
have increased to approximately $2 million and earnings per share applicable to
common stockholder would have increased by $0.02 and $0.05 for the three and six
months ended June 30, 2002, respectively. As of June 30, 2002 Cross Media is
still in the process of assessing the impairment of the goodwill, if any.

In August 2001, the FASB, issued SFAS, No. 143, "Accounting for Obligations
Associated with the Retirement of Long-Lived Assets." SFAS No. 143 addresses
financial accounting and reporting for the retirement obligation of an asset.
This statement provides that companies should recognize the asset retirement
cost at its fair value as part of the cost of the asset and classify the accrued
amount as a liability. The asset retirement liability is then accreted to the
ultimate payout as interest expense. The initial measurement of the liability
would be subsequently updated for revised estimates of the discounted cash
outflows. The Statement will be effective for fiscal years beginning after June
15, 2002. Cross Media has not yet determined the effect that SFAS No. 143 will
have on its consolidated financial position, results of operations or cash
flows.



                                      F-9
<PAGE>

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long Lived Assets." This statement is effective for fiscal years
beginning after December 15, 2001. This supercedes SFAS No. 121, while retaining
many of the requirements of such statement. Cross Media has determined that the
impact of this statement is not material as of June 30, 2002.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
This statement eliminates the requirement under SFAS 4 to aggregate and classify
all gains and losses from extinguishment of debt as an extraordinary item, net
of related income tax effect. This statement also amends SFAS 13 to require that
certain lease modifications with economic effects similar to sale-leaseback
transactions be accounted for in the same manner as sale-leaseback transactions.
In addition, SFAS No. 145 requires reclassification of gains and losses in all
prior periods presented in comparative financial statements related to debt
extinguishment that do not meet the criteria for extraordinary item in
Accounting Principles Board Opinion ("APB") 30. The statement is effective for
fiscal years beginning after May 15, 2002 with early adoption encouraged. The
Company will adopt SFAS No. 145 effective January 1, 2003. Cross Media will
record the extraordinary loss of $0.5 million recorded as of March 31, 2002 as
income from operations in the first quarter of 2003.

On July 30, 2002, The FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." The standard requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. Examples of costs
covered by the standard include lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. SFAS No. 146 is to
be applied prospectively to exit or disposal activities initiated after December
31, 2002. Cross Media is currently evaluating the requirements and impact of
this statement on our consolidated results of operations and financial position.

NOTE F -- COMMITMENTS AND CONTINGENCIES

Cross Media provides accruals for all direct costs associated with the estimated
resolution of contingencies at the earliest date at which it is deemed probable
that a liability has incurred and the amount of such liability can be reasonably
estimated.

In March 2002, a complaint was filed in the United States District Court for the
District of Kansas by J.M. Thies, John Minnick and William Sharp against
LifeMinders, Inc. (which Cross Media acquired by merger on October 24, 2001),
and several former officers and directors of LifeMinders, requesting monetary
damages in an amount not less than $4.2 million and punitive damages in an
amount not less than $5 million against the defendants. In accordance with the
terms of Cross Media's merger agreement with LifeMinders, Cross Media is
obligated to indemnify the other defendants.

The plaintiffs, former stockholders of eCoupons.com, Inc., a company that merged
with and into LifeMinders in December 2000, allege that the defendants made
misrepresentations to the plaintiffs to induce them to merge eCoupons with and
into LifeMinders. Cross Media was aware of the dispute prior to closing the
Lifeminders acquisition and believes that the suit is without merit and that it
has adequate insurance to cover any award of monetary damages in the lawsuit.
Cross Media and the other defendants have moved to dismiss the complaint on
various grounds and are vigorously defending these claims.

On April 9, 2002, the United States Justice Department ("DOJ"), on behalf of the
Federal Trade Commission ("FTC"), filed a complaint in the United States
District Court for the Northern District of Georgia against Cross Media, Media
Outsourcing, Inc., a wholly owned subsidiary, ("MOS"), Ronald Altbach, Dennis
Gougion, an officer of MOS, and Richard Prochnow, a consultant to MOS. The
complaint alleged violations of the Federal Telemarketing Sales Rule and the
Federal Trade Commission Act and non-compliance with a previous FTC order
entered into by Mr. Prochnow, individually and doing business as Direct Sales
International, Inc., and Mr. Gougion, individually. MOS acquired certain assets
of Direct Sales International in January 2000. The complaint seeks monetary
civil penalties, redress, injunctive, and other relief against any such future
violations.

Simultaneous with the filing of the complaint, plaintiffs filed a motion for a
temporary restraining order against the defendants seeking, among other things,
compliance with the Telemarketing Sale Rule, the FTC Act, and the previous FTC
order. At the April 10 hearing for the temporary restraining motion, the parties
agreed to postpone the hearing for a later date to facilitate settlement
discussions. Upon mutual agreement, the parties rescheduled the hearing for
April 29. The April 29 date was subsequently extended to May 3 at the court's
request. On April 29, the parties met to discuss settlement of the FTC's claims.
Following that meeting, the DOJ, on behalf of the FTC, agreed to postpone the
hearing scheduled for May 3 for an indefinite period. The DOJ subsequently
rescheduled the hearing for July 23. On July 12, the parties again met to
discuss settlement. Following that meeting, on July 16, the DOJ, on behalf of
the FTC, again motioned the court to postpone the hearing date. The hearing is
not currently scheduled on the court's calendar. Because this matter is in its
early stages, Cross Media is unable to predict the outcome and the potential
effect, if any, on its financial statements.

In July 2002, Cross Media became aware of three securities class action
complaints seeking monetary damages filed in the United States District Court
for the Southern District of New York against Cross Media and Mr. Altback, on
behalf of classes of persons who purchased shares of Cross Media common stock
from November 5, 2001 through July 11, 2002 (the "Class Period").

The complaints generally allege that Cross Media and Mr. Altbach violated
Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934, and Rule
10b-5, by issuing a series of materially false and misleading statements to the
market during the Class Period, including press releases during the Class Period
that allegedly overstated Cross Media's business prospects and allegedly
mischaracterized the status of the FTC proceedings brought against Cross Media
and others. Cross Media and Mr. Altbach dispute these claims and intend to
vigorously defend this matter. Because these lawsuits are still in the early
stages, Cross Media is unable to predict the outcome or the effect they may have
on Cross Media's operating results, financial condition or stock price.



                                      F-10
<PAGE>

NOTE G -- STOCKHOLDERS' EQUITY

At June 30, 2002, Cross Media was authorized to issue 40,000,000 shares of
common stock, $.001 par value. As of June 30, 2002 there were approximately
15,048,000 shares of common stock outstanding. All prior year share amounts have
been properly restated to reflect the 1:5 reverse stock split effected on
October 24, 2001.

If the holders of all outstanding options and common stock purchase warrants
were exercised as of June 30, 2002, Cross Media would have been required to
issue approximately 4.7 million additional shares of common stock.

In April, 2002 Cross Media cancelled 117,000 treasury shares which resulted in
a decrease of additional paid in capital of approximately $1 million.

During the six months ended June 30, 2002, Cross Media received proceeds of $2.4
million from the exercise of warrants and stock options to purchase
approximately 651,000 shares of common stock.

In March 2002, Cross Media completed a private placement in which it sold
1,105,475 shares of its common stock at a price of $10.50 per share to a limited
number of accredited investors and received gross proceeds of approximately
$11.6 million. Stonegate Securities, Inc. served as placement agent, for which
it received a placement agent fee equal to 6% of the gross proceeds and
five-year warrants to purchase 110,548 shares of Cross Media common stock at an
exercise price of $10.50 per share.

NOTE H -- SUBSEQUENT EVENTS

In August 2002, the Fleet Credit Facility was amended to (i) increase the
interest rate by 0.5%, (ii) adjust certain financial covenants, (iii) require
Cross Media to obtain up to $3.0 million of subordinated debt financing in form
satisfactory to the lenders on or prior to September 2, 2002, the failure of
which shall be a default, (iv) reduce the facility from $35 million to $30.7
million, provided that the remaining approximately $1.5 million of borrowing
availability will only become available if Cross Media obtains the $3.0 million
of subordinated debt financing described above, (v) provide that a default will
occur if the settlement of the FTC complaint (See Note F) is settled on terms
that would require Cross Media to make a payment of damages, penalties, fines or
similar payments in excess of $1 million, (vi) provide that a default will occur
if neither of the following occurs by November 1, 2002: (a) the obligations
under the credit facility are repaid and the lenders obligations to lend to be
terminated or (b) Cross Media enters into a binding commitment with one or more
financial institutions reasonably acceptable to Fleet which enables the credit
facility to be paid in full and the lenders obligations to lend to be terminated
by November 30, 2002; provided, however, that Cross Media may extend these dates
by one month by making a $50,000 cash payment; and (vii) waive certain other
non-financial defaults.

On August 13, 2002, the Fleet credit facility was amended. The amended facility
requires Cross Media, among other things, to raise an additional $3 million of
subordinated debt financing by September 2, 2002. The lenders under the facility
will not permit Cross Media to make any additional borrowings under the facility
unless Cross Media obtains this financing. If Cross Media does, the lenders will
permit them to borrow up to approximately $1.5 million of additional borrowings,
which would increase borrowings under the facility to $30.7 million. While Cross
Media is negotiating with several parties to provide the required financing,
Cross Media may not be able to obtain the financing. Moreover, Cross Media is
required to repay all outstanding borrowings under the Fleet credit facility
before the end of 2002. Cross Media will not be able to repay this amount from
cash from operations and must obtain replacement financing. Cross Media requires
the additional $1.5 million of borrowings under the credit facility and $3
million of subordinated debt financing to satisfy short-term working capital
requirements until replacement financing is obtained. Failure to obtain the $3
million of subordinated debt financing or replacement financing will result in a
default under the credit facility.

Cross Media is evaluating alternate sources of financing to replace the Fleet
credit facility. In July 2002, Cross Media entered into an engagement letter
agreement with Rothschild Inc. pursuant to which Cross Media engaged Rothschild
as their agent to assist in arranging financing through the securitization of
consumer credit card receivables. Cross Media may not be able to complete this
proposed financing or any other replacement financing.


                                      F-11
<PAGE>

                           FORWARD-LOOKING STATEMENTS

The statements contained in this Quarterly Report on Form 10-Q contains
forward-looking statements that involve risks and uncertainties that could
affect Cross Media's ability to achieve the anticipated financial results.
Additionally, certain statements contained herein and in the information posted
on the website of Cross Media that are not based on historical fact are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Cross Media intends that forward-looking
statements contained herein and on its website be subject to the safe harbor
created thereby. Such forward-looking statements are based on current
expectations of management but involve certain risks and uncertainties. Cross
Media's actual results, performance or achievements could differ materially from
the results, performance or achievements projected in, or implied by, such
forward-looking statements as a result of risk factors, including, without
limitation, the following: Cross Media's ability to integrate the recently
acquired National Syndications operations and to make additional strategically
appropriate acquisitions; the adequacy of accounts receivable reserves, changes
in economic conditions or a material decline in the availability of consumer
credit, interest rate fluctuations, Cross Media's limited operating history,
competitive factors, the need to manage growth, volatility in the market price
of the common stock and the securities markets generally, risks relating to
government regulation of telemarketing and Internet marketing activities, Cross
Media's ability to exploit its database and technological innovations and
potential dilution. These factors are described in detail in this Form 10-Q.

                         PART I -- FINANCIAL INFORMATION

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

The following discussion and analysis should be read together with the Condensed
Consolidated Financial Statements of Cross Media Marketing Corporation and the
notes to the Condensed Consolidated Financial Statements included elsewhere in
this Form 10-Q. This discussion summarizes the significant factors affecting the
consolidated operating results, financial condition and liquidity and cash flows
of Cross Media for the three months and six months ended June 30, 2002 and 2001.

CRITICAL ACCOUNTING POLICIES

The Securities and Exchange Commission ("SEC") recently issued disclosure
guidance for "critical accounting policies". The SEC defines "critical
accounting policies" as those that require application of management's most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain and may
change in subsequent periods.

Cross Media's significant accounting policies are described in Note B in the
Notes to the Condensed Consolidated Financial Statements. Not all of these
significant accounting policies require management to make difficult, subjective
or complex judgments or estimates. However, the following policies could be
deemed to be critical within the SEC definition.

REVENUE RECOGNITION

During the quarter ended June 30, 2002, Cross Media derived revenues from the
sale of magazine subscription contracts. As described below, significant
management judgments and estimates must be made and used in connection with the
revenue recognized in any accounting period. Material differences may result in
the amount and timing of Cross Media's revenue for any period if Cross Media's
management made different judgments or utilized different estimates.

Revenues derived from originating magazine subscriptions for others are
recognized by Cross Media when Cross Media receives the first installment
payment for subscriptions purchased. Magazine subscription revenues are recorded
net of cancellations, collection reserves, and payments made to publishers for
fulfillment costs. Cross Media performs an ongoing review of its cancellation
and collection reserve using a static pool analysis pay to maturity of Cross
Media's portfolio of consumer receivables. This evaluation is inherently
judgmental and requires material estimates based on historical experience of
collectibility and economic trends. A one percent change in the estimated
cancellation and collection rate at June 30, 2002 could have resulted in a
change in the cancellation and collection reserve, and a change in net revenue
of $0.2 million.

VALUATION OF INTANGIBLE ASSETS

Cross Media assesses the impairment of goodwill and identifiable intangibles
whenever changes in circumstances, such as recurring losses, indicate that the
fair value is less than the stated value reported on the consolidated financial
statements. Management has utilized an outside valuation specialist to assist in
estimating the value of such intangibles. Cross Media amortizes its finite lived
intangibles over a period of three to five years. The evaluation of the
estimated useful lives of intangible assets requires management to assess the
period over which such intangibles will provide future economic benefit and to
the extent the period decreases, the finite lived intangible assets will be
expensed over the shorter period.

INCOME TAXES

Management must make estimates in recording the Cross Media's provision for
income taxes, including determination of deferred tax assets and deferred tax
liabilities and any valuation allowances that might be required against the
deferred tax assets. Cross Media has recorded a valuation allowance against the
deferred tax asset based upon management's assessment of the realizability of
the asset through future taxable income.

RESULTS OF OPERATIONS

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2002 AND JUNE 30, 2001

Revenues, net: During the three months ended June 30, 2002, net revenues were
$37.1 million, a 57% increase from net revenues of $23.6 million for the three
months ended June 30, 2001. The increase in revenues is attributable to a 10%
increase or $2.3 million relating to the sale of magazine subscriptions,
commission revenues from the sale of memberships to discount third party buying
clubs, publisher fees and other revenues relating to Cross Media's magazine
business. During the three months ended June 30, 2002, the sale of magazine
contracts increased $2.7 million or 15% from $18.2 million during the three
months ended June 30, 2001 to $20.9 million. The increase is primarily
attributable to the increase in magazine contracts sold by our wholly owned call
center operations. Other revenues relating to our magazine business such as the
sale of memberships, publisher fees and other revenues decreased 11% or
approximately $0.5 million during the three months ending June 30, 2002 compared
to the same period in prior year. The decrease is mainly attributable to lower
publisher fees earned during the second quarter due to the downturn in the
advertising market.

The sale of magazine subscriptions during the second quarter of 2002 declined by
25% from the first quarter of 2002 primarily due to the effect of the FTC
complaint on our field sales organization as well as our verification department
all of which resulted in a lower number of orders received and a lower
percentage of orders being verified.

The remaining 47% increase or $11.2 million relates to revenues from the sale of
coins, collectibles and other products sold through our print and telesales
channels, which we acquired through our acquisition of NSI during the first
quarter of 2002. Print advertising sales declined by 24% from the first quarter
of 2002 due to the reduced number of unsold or "remnant" advertising pages
available to us in Sunday magazines. Beginning in July, we have increased the
number of pages that we purchase for Sunday magazine advertising to offset the
anticipated fewer remnant pages that we expect to be made available to us.


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<PAGE>

Commission Expense: Commission expense decreased 7% to $10.5 million in the
three months ended June 30, 2002 from $11.3 million in the same period of 2001
as a result of a decrease in magazine contracts from our independent call
centers. Commission expense decreased as a percentage of net magazine revenues
from 62% for the three months ended June 30, 2001 compared to 50% for the three
months ended June 30, 2002 as a result of the use of Cross Media's company owned
and operated call centers which are generating a greater portion of the sale of
magazine contracts compared to the same period in the prior year.

Other Direct Costs: Other direct costs increased $15.2 million from $6.2 million
for the six months ended June 30, 2001 to $21.4 million for the six months ended
June 30, 2002. This is a result of a $4.1 million increase relating to the
expansion of Cross Media's company owned and operated call centers, a $1.5
million increase in direct recurring payroll, rent and other costs relating to
the expansion of Cross Media's operations and a $9.6 million increase relating
to cost of sales and promotional advertising costs incurred in connection with
the sale of coins, collectibles and other products relating to our print and
outbound telesales channels, which were acquired through our acquisition of NSI
during the first quarter of 2002. For the three months ended June 30, 2002 and
2001, other direct costs as a percentage of net revenues associated with Cross
Media's magazine business were 45% and 26%, respectively. The increase is
related to a greater portion of Cross Media's magazine contracts being generated
from company owned operations and call centers.

General and Administrative Expenses: General and administrative expenses
increased $5.8 million to $9.0 million for the quarter ended June 30, 2002 from
$3.2 million in the quarter ended June 30, 2001. The increase is attributable to
$2.9 million of general and administrative costs relating to acquired operations
and an additional $2.9 million relating to the increased corporate overhead and
expansion of MOS operations in anticipation of increased revenue, which did not
materialize to the extent contemplated.

Other Income (Expense): For the three months ended June 30, 2002, other expense
decreased approximately $0.4 million compared to the same period in the prior
year. A one time reduction in minority interest expense was recorded in the
second quarter due to a change in the estimated cancellation rate of J Cross
Marketing's (a 50% owned joint venture) accounts receivable. This resulted in a
decrease in minority interest expense of $0.3 million. Income from affiliates
increased by approximately $47,000 as a result of NSI's 49% ownership of several
joint ventures. We expect interest expense to increase as a result of the
increased interest rate under the Fleet credit facility.

Provision for Income Taxes: Cross Media recorded a tax benefit of $1 million
relating to operating losses for the three months ended June 30, 2002, compared
to a tax provision of $0.5 million for income taxes for the three months ended
June 30, 2001.

Preferred Dividends: For the three months ended June 30, 2002, Cross Media
recorded $12,000 in preferred dividends as a result of the issuance of the
Series B preferred stock in conjunction with the acquisition of JWE, compared to
$0.1 million of preferred dividends recorded in the second quarter of 2001.

Net Income (Loss) Applicable to Common Stockholders: For the three months ended
June 30, 2002, Cross Media had net loss applicable to common stockholders of
approximately $2.9 million, which resulted in loss per share applicable to
common stockholders of $0.20 compared to a net income applicable to common
stockholders of $0.20 per share for the three months ended June 30, 2001.

 RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND JUNE 30, 2001

Revenues, net: During the six months ended June 30, 2002, net revenues were $81
million, a 87% increase from net revenues of $43.2 million for the six months
ended June 30, 2001. The increase in revenues is attributable to a 32% increase
or $13.9 million relating to the sale of magazine subscriptions, commission
revenues from the sale of memberships to discount third party buying clubs,
publisher fees and other revenues relating to Cross Media's magazine business.
The remaining 55% increase or $23.8 million relates to revenues from the sale of
coins, collectibles and other products sold through our print and telesales
channels which we acquired through our acquisition of NSI during the first
quarter of 2002.

During the six months ended June 30, 2002, the sale of magazine contracts
increased $14.8 million or 44% from $33.9 million during the six months ended
June 30, 2001 to $48.7 million. The increase is primarily attributable to the
increase in magazine contracts sold by our wholly owned call center operations
and independent call centers. Other revenues relating to our magazine business
such as the sale of memberships, publisher fees and other revenues decreased 14%
or approximately $1.2 million during the six months ending June 30, 2002
compared to the same period in prior year. The decrease is mainly attributable
to lower publisher fees earned during the six months ended due to the downturn
in the advertising market.



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<PAGE>

Commission Expense: Commission expense increased 5% to $22 million in the three
months ended June 30, 2002 from $20.9 million in the same period of 2001 as a
result of an increase in magazine contracts from our independent call centers.
Commission expense decreased as a percentage of net magazine revenues from 62%
for the six months ended June 30, 2001 compared to 45% for the six months ended
June 30, 2002 as a result of the use of Cross Media's company owned and operated
call centers which are generating a greater portion of the sale of magazine
contracts compared to the same period in the prior year.

Other Direct Costs: Other direct costs increased $31.8 million from $11.4
million for the six months ended June 30, 2001 to $43.2 million for the six
months ended June 30, 2002. This is a result of a $7.9 million increase relating
to the expansion of Cross Media's company owned and operated call centers, a
$1.9 million increase in direct recurring payroll, rent and other costs relating
to the expansion of Cross Media's operations and a $20.1 million increase
relating to cost of sales and promotional advertising costs incurred in
connection with the sale of coins, collectibles and other products relating to
our print and outbound telesales channels which were acquired through our
acquisition of NSI during the first quarter 2002 and approximately $1.9 million
relating to acquisition and other direct costs relating to our continuity
membership program. For the six months ended June 30, 2002 and 2001, other
direct costs as a percentage of net revenues associated with Cross Media's
magazine business were 40% and 26%, respectively. The increase is related to a
greater portion of Cross Media's magazine contracts being generated from company
owned operations and call centers.

General and Administrative Expenses: General and administrative expenses
increased $10.4 million to $16.9 million for the six months ended June 30, 2002
from $6.5 million in the quarter ended June 30, 2001. The increase is
attributable to $5.7 million of general and administrative costs relating to
acquired operations and an additional $4.6 million relating to the increase in
corporate overhead and the expansion of MOS operations.

Other Income (Expense): For the six months ended June 30, 2002, other expense
increased approximately $100,000 compared to the same period in the prior year.
This increase is due to minority interest expense relating to Cross Media's 50%
ownership in J Cross Marketing LLC of approximately $73,000 offset by
approximately $187,000 of income from NSI's 49% ownership of several joint
ventures and a reduction in interest expense compared to prior year.

Provision for Income Taxes: Cross Media recorded a tax benefit of $0.5 million
relating to operating losses for the six months ended June 30, 2002, compared to
a tax provision of $0.7 million for income taxes for the six months ended June
30, 2001. The tax benefit was computed based on an effective tax rate of 25%.

Preferred Dividends: For the six months ended June 30, 2002, Cross Media
recorded preferred dividends of $12,000 as a result of the issuance of Series B
Preferred Stock in conjunction with the acquisition of JWE, compared to $1.3
million of preferred dividends recorded in the same period of 2001. The $1.3
million of dividends recorded in the same period of 2001 included $0.9 million
of non-cash deemed dividends and approximately $0.4 million of contractual
dividends. On February 15, 2001, Cross Media redeemed 22,992 shares of preferred
stock. An additional 39,463 shares of preferred stock were converted into
789,250 shares of common stock. In consideration of the agreement of the holders
to convert the preferred stock, Cross Media issued to the holders a total of
133,280 additional shares of common stock, pro rata in accordance with the
number of shares each holder converted. The non-cash deemed dividend of $0.9
million represents the fair value of the additional shares issued.

Net Income (Loss) Applicable to Common Stockholders: For the six months ended
June 30, 2002, Cross Media had net loss applicable to common stockholders of
approximately $1.9 million, which resulted in loss per share applicable to
common stockholders of $0.13 compared to a net income applicable to common
stockholders of $0.23 per share for the six months ended June 30, 2001.

                        LIQUIDITY AND FINANCIAL CONDITION

At June 30, 2002, Cross Media had cash on hand of $0.3 million. During the six
months ended June 30, 2002 Cross Media used $14.2 million in operating
activities, used $16.6 million in investing activities, relating to the net cash
paid in connection with the NSI and JWE acquisitions plus purchases of
equipment, and generated $18.7 million from financing activities from the
private placement of Cross Media common stock and new Fleet credit facility.
Cross Media generates cash flow from the sale of magazines and collection of
consumer receivables, commissions earned from publishers in connection with
originating paid subscriptions for certain publications, and commissions earned
on the sale of third-party discount buying club memberships. Cross Media also
generates cash flow through the sale of coins, collectibles and other products
relating the print and outbound sales channels.

At August 14, 2002, Cross Media had cash on hand of approximately $1.3 million.

On August 13, 2002, the Fleet credit facility was amended. The amended facility
requires Cross Media, among other things, to raise an additional $3 million of
subordinated debt financing by September 2, 2002. The lenders under the facility
will not permit us to make any additional borrowings under the facility unless
we obtain this financing. If we do, the lenders will permit us to borrow up to
approximately $1.5 million of additional borrowings, which would increase
borrowings under the facility to $30.7 million. While we are negotiating with
several parties to provide the required financing, we may not be able to obtain
the financing. We are required to repay all outstanding borrowings under the
Fleet credit facility before the end of 2002. We will not be able to repay this
amount from cash from operations and must obtain replacement financing. We
require the additional $1.5 million of borrowings under the credit facility and
$3 million of subordinated debt financing to satisfy our short-term working
capital requirements until replacement financing is obtained. Failure to obtain
the $3 million of subordinated debt financing or replacement financing will
result in a default under the credit facility.

We are evaluating alternate sources of financing to replace the Fleet credit
facility. In July 2002, we entered into an engagement letter agreement with
Rothschild Inc. pursuant to which we engaged Rothschild as our agent to assist
us in arranging financing through the securitization of our consumer credit card
receivables. We may not be able to complete this proposed financing or any other
replacement financing.


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<PAGE>

                                 NSI ACQUISITION

On January 11, 2002, Cross Media acquired all of the capital stock of NSI. Cross
Media recorded the cost of the NSI acquisition of approximately $20.1 million,
as follows: (i) $9 million in cash, (ii) $3.1 million in negotiable promissory
notes, (iii) $2.5 million in non-negotiable promissory notes, (iv) $1.3 million
through the issuance of 279,859 shares of common stock, (v) a $1 million
liability for the estimated current portion of the contingent consideration
(described below) and (vi) approximately $1 million in transaction costs. Cross
Media may pay up to approximately $3.1 million in contingent consideration based
on three times the Joint Ventures' 2001 EBITDA and the aggregate Joint Ventures'
income from January 1, 2001 through December 31, 2004. The contingent
consideration if paid, will be accounted for as additional purchase price. The
remaining balance of the $2.1 million contingent consideration has not been
recorded on the balance sheet as of June 30, 2002, as the outcome of the
contingency is not determinable beyond a reasonable doubt. Goodwill recorded as
a result of the transaction was $16.2 million as of June 30, 2002. The operating
results from NSI have been included in the consolidated results of operations
since the date of the acquisition.

The promissory notes bear interest at the rate of 7% per annum, are payable in
36 consecutive monthly installments on the last business day of each month,
payments commenced on January 31, 2002, and were originally secured by the
assets of NSI. Upon the closing of the NSI transaction, Cross Media obtained a
letter of credit in the amount of $1 million from Fleet National Bank under the
NSI existing credit agreement. On March 19, 2002, Cross Media obtained a letter
of credit in the amount of $5.6 million, representing the full amount of the
notes, under its credit facility and the lien on the NSI assets was released. As
of June 30, 2002, $5.0 million was outstanding as a result of payments made
under the note agreement.

Cross Media has not made payments, which were due on June 30 and July 31, 2002
under the notes issued in the NSI acquisition aggregating $350,000, but has
received a waiver for failure to make these payments. Cross Media is required to
make these payments by September 2, 2002.

                                 JWE ACQUISITION

On May 27, 2002, Cross Media completed the acquisition of substantially all of
the assets of JWE Enterprises, Inc. and the other 50% interest in J Cross
Marketing from JWE Holdings, Inc. (collectively JWE) The non-contingent purchase
price for the acquisition was approximately $9.1 million, consisting of (i)
approximately $1.7 million in cash, of which $1.5 million was borrowed from, and
is evidenced by a note payable to, Lancer Offshore Inc. (the "Lancer Note") (ii)
416,980 shares of common stock, with a fair value at the time of issuance of
$5.0 million, (iii) 2,000 shares of Series B convertible redeemable preferred
stock (the "Preferred Stock") having a redemption value and fair value on the
date of issuance of $1.9 million and (iv) $0.5 million of additional
consideration, payable in cash over the next two quarters. In addition, Cross
Media may be required to make additional cash payments of up to $8.9 million
over the next three years if certain performance criteria for the acquired
businesses are met.

In connection with the acquisition described above, Cross Media issued 2,000
shares of Preferred Stock. The Preferred Stock has a liquidation value of $950
per share, a dividend rate of 8% per annum (payable at the Cross Media's option
in cash or shares of the Cross Media's common stock) and is convertible at any
time after November 27, 2002 into a number of shares of common stock equal to
$950.00 divided by the lesser of (i) $11.991 per share and (ii) the greater of
(a) the fair market value of the Cross Media's common stock at the time of
conversion and (b) $10.1924 per share. Cross Media has the right to redeem the
Preferred Stock at any time at the liquidation value plus accrued and unpaid
dividends (the "Redemption Price"). JWE has the right, exercisable on one
occasion after November 27, 2002, to put the Preferred Stock, in whole or in
part (provided the remaining shares are converted), to the Registrant at the
Redemption Price.

To fund the acquisition, Cross Media borrowed $1.5 million from Lancer Offshore
Inc. The Lancer Note bears interest at an annual rate of 6% from the date of
issuance through November 27, 2002 and at the annual rate of 10% from November
27, 2002 until the maturity date of May 27, 2003. In the event that the Lancer
note is not repaid on or prior to November 28, 2002 ("trigger date"), Cross
Media must issue to Lancer a warrant to purchase a number of shares of common
stock equal to 150,000 multiplied by a fraction, the numerator being the then
outstanding balance of the Lancer Note and denominator being $1.5 million. Until
the Lancer Note is repaid in full, on each six month anniversary of the trigger
date, Cross Media must issue an additional warrant to purchase an additional
number of shares equal to 150,000 multiplied by a fraction, the numerator being
the then outstanding balance of the Lancer Note and the denominator being $1.5
million. Cross Media's obligation to issue these warrants will terminate upon
Cross Media's repayment of the Lancer Note or issuance of warrants to purchase
an aggregate number of 2,898,068 shares of common stock.

CREDIT FACILITIES

On March 1, 2002, Cross Media obtained a $2 million revolving credit facility
from Lancer, a principal stockholder of Cross Media. The interest rate on
borrowings under the revolving credit facility was 8% per annum and Lancer had
the right to demand repayment of all borrowings at any time after March 31,
2002. Cross Media issued to Lancer two-year warrants to purchase 50,000 shares
of common stock at an exercise price of $10.00 per share as an inducement for
Lancer to provide Cross Media the revolving credit facility. On March 19, 2002,
all outstanding amounts owed under the Lancer facility were paid off upon
entering into the Fleet credit facility, and subsequently the Lancer facility
was terminated.


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<PAGE>

On March 19, 2002, Cross Media entered into a credit agreement with Fleet
National Bank, as agent for the lender banks and as issuing lender and the
several other lenders, to provide Cross Media a $35 million credit facility,
subject to certain availability limitations. Cross Media may borrow funds under
the credit facility as revolving prime rate or LIBOR plus rate loans and/or
obtain letters of credit. Interest on the credit facility accrues at the prime
rate designated from time to time by the agent, Fleet, plus an applicable
margin, for prime rate loans, or at the LIBOR rate plus an applicable margin for
LIBOR loans. The applicable margin is subject to adjustment based on Cross
Media's leverage ratio. Cross Media also pays a commitment fee during the term
of the facility based on the unused borrowings under the facility, and a letter
of credit fee based on the applicable margin for the LIBOR rate loans during the
time that letters of credit remain outstanding.

Cross Media's active subsidiaries are joint and several co-borrowers under the
Fleet credit facility. Cross Media has pledged all of its assets and all of the
assets and capital stock of its subsidiaries to secure its obligations under the
facility. The Fleet credit facility imposes certain limitations on Cross Media's
activities, including restrictions on acquisitions, incurring additional
indebtedness, granting liens and declaring and paying dividends. Cross Media is
also required to maintain minimum EBITDA levels and minimum leverage,
consolidated net worth and fixed charge coverage ratios.

Upon entering into the new credit agreement with Fleet, Cross Media terminated
its credit agreement with Coast. Cross Media repaid the remaining borrowings
under the Coast Facility of approximately $18 million as well as an early
termination fee of $0.2 million. As a result of the early termination of the
Coast facility, Cross Media recorded an extraordinary charge of approximately
$0.5 million.

As of June 30, 2002, Cross Media had outstanding debt of $23 million under the
Fleet credit facility and an additional $5.6 million in letters of credit. As of
August 14, 2002, Cross Media had outstanding debt of $24.3 million under the
Fleet credit facility and $4.9 outstanding in letters of credit.

In August 2002, the Fleet Credit Facility was amended to (i) increase the
interest rate by 0.5%, (ii) adjust certain financial covenants, (iii) require
Cross Media to obtain up to $3.0 million of subordinated debt financing in form
satisfactory to the lenders on or prior to September 2, 2002, the failure of
which shall be a default, (iv) reduce the facility from $35 million to $30.7
million, provided that the remaining approximately $1.5 million of borrowing
availability will only become available if Cross Media obtains the $3.0 million
of subordinated debt financing described above, (v) provided that a default will
occur if the settlement of the FTC complaint is settled on terms that would
require Cross Media to make a payment of damages, penalties, fines or similar
payments in excess of $1 million, (vi) provide that a default will occur if
neither of the following occurs by November 1, 2002: (a) the obligations under
the credit facility are repaid and the lenders obligations to lend to be
terminated or (b) Cross Media enters into a binding commitment with one or more
financial institutions reasonably acceptable to Fleet which enables the credit
facility to be paid in full and the lenders obligations to lend to be terminated
by November 30, 2002; provided, however, that Cross Media may extend these dates
by one month by making a $50,000 cash payment; and (vii) waive certain other
non-financial defaults.

As of August 14, 2002, the interest rate on the outstanding loans under the
Fleet credit facility is currently 5.25%, the commitment fee was .375% and the
letter of credit fee was 2.5%.

PRIVATE PLACEMENT

In March 2002, Cross Media completed a private placement in which it sold
1,105,475 shares of its common stock at a price of $10.50 per share to a limited
number of accredited investors and received gross proceeds of approximately
$11.6 million. Stonegate Securities, Inc. served as placement agent, for which
it received a placement agent fee equal to 6% of the gross proceeds and
five-year warrants to purchase 110,548 shares of Cross Media common stock at an
exercise price of $10.50 per share. The proceeds were used to reduce borrowings
under the Fleet credit facility.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board approved the issuance of
SFAS No. 141 "Business Combinations", and SFAS No. 142, "Goodwill and Other
Intangible Assets". The new standards require that all business combinations
initiated after June 30, 2001 must be accounted for under the purchase method.
In addition, all intangible assets acquired that are obtained through
contractual or legal right, or are capable of being separately sold,
transferred, licensed, rented or exchanged shall be recognized as an asset apart
from goodwill. Goodwill and intangibles with indefinite lives will no longer be
subject to amortization, but will be subject to at least an annual assessment
for impairment by applying a fair value based test.

The Company adopted SFAS No. 142 on January 1, 2002. In connection with adopting
this standard, Cross Media completed the test and measurement of transitional
impairment. Initial adoption had no effect on Cross Media's financial
statements. As a result of the adoption of SFAS No. 142, Cross Media did not
recognize goodwill amortization for the three months and six months ended June
30, 2002. If SFAS No. 142 was in effect during the three and six months ended
2001, Cross Media would not have recognized $0.3 million and $0.5 million,
respectively, in goodwill amortization, therefore net income applicable to
common stockholders would have increased to approximately $2 million and
earnings per share applicable to common stockholder would have increased by
$0.07.



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<PAGE>

In August 2001, the FASB, issued SFAS, No. 143, "Accounting for Obligations
Associated with the Retirement of Long-Lived Assets." SFAS No. 143 addresses
financial accounting and reporting for the retirement obligation of an asset.
This statement provides that companies should recognize the asset retirement
cost at its fair value as part of the cost of the asset and classify the accrued
amount as a liability. The asset retirement liability is then accreted to the
ultimate payout as interest expense. The initial measurement of the liability
would be subsequently updated for revised estimates of the discounted cash
outflows. The Statement will be effective for fiscal years beginning after June
15, 2002. Cross Media has not yet determined the effect that SFAS No. 143 will
have on its consolidated financial position, results of operations or cash
flows.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long Lived Assets." This statement is effective for fiscal years
beginning after December 15, 2001. This supercedes SFAS 121, while retaining
many of the requirements of such statement. Cross Media has determined that the
impact of this statement is not material as of June 30, 2002.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
This statement eliminates the requirement under SFAS 4 to aggregate and classify
all gains and losses from extinguishment of debt as an extraordinary item, net
of related income tax effect. This statement also amends SFAS 13 to require that
certain lease modifications with economic effects similar to sale-leaseback
transactions be accounted for in the same manner as sale-leaseback transactions.
In addition, SFAS No. 145 requires reclassification of gains and losses in all
prior periods presented in comparative financial statements related to debt
extinguishment that do not meet the criteria for extraordinary item in
Accounting Principles Board Opinion ("APB") 30. The statement is effective for
fiscal years beginning after May 15, 2002 with early adoption encouraged. The
Company will adopt SFAS No. 145 effective January 1, 2003. Cross Media will
record the extraordinary loss of $0.5 million recorded as of March 31, 2002 as
income from operations in the first quarter of 2003.

On July 30, 2002, The FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." The standard requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. Examples of costs
covered by the standard include lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. SFAS No. 146 is to
be applied prospectively to exit or disposal activities initiated after December
31, 2002. The Company is currently evaluation the requirements and impact of
this statement on our consolidated results of operations and financial position.

                                  RISK FACTORS

CROSS MEDIA HAS A LIMITED OPERATING HISTORY WHICH MAKES IT DIFFICULT TO EVALUATE
ITS PROSPECTS.

Cross Media developed its business strategy in 1999, completed its first
acquisition in January 2000, and opened its first company-owned and operated
call center and undertook its first email campaign in the last quarter of 2000.
Moreover, Cross Media has acquired three businesses during the previous twelve
months. Therefore, Cross Media has a limited history of operations under its
current business strategy upon which the likelihood of its success can be
evaluated.

The implementation of a new business strategy frequently involves risks,
expenses and uncertainties that may adversely affect Cross Media's business,
results of operations, financial condition and prospects, including:

- the ability to compete effectively against other companies;

- the need to hire, retain and motivate qualified personnel;

- the ability to anticipate and adapt to the changing market; and

- the ability to develop and introduce new products and services and continue to
develop and upgrade technology.

CLASS ACTION LAWSUITS HAVE BEEN FILED AGAINST CROSS MEDIA ALLEGING SECURITIES
LAW VIOLATIONS, THE EFFECT OF WHICH CANNOT CURRENTLY BE DETERMINED.

In July 2002, Cross Media became aware of three securities class action
complaints seeking monetary damages filed in the United States District Court
for the Southern District of New York against Cross Media and Mr. Altback on
behalf of classes of persons who purchased shares of Cross Media common stock
from November 5, 2001 through July 11, 2002 (the "Class Period"). These
complaints generally allege that Cross Media and Mr. Altbach violated Sections
10(b) and 20(a) of the Securities and Exchange Act of 1934, and Rule 10b-5, by
issuing a series of materially false and misleading statements to the market
during the Class Period, including press releases during the Class Period that
allegedly overstated Cross Media's business prospects and allegedly
mischaracterized the status of the FTC proceedings brought against Cross Media
and others. Cross Media and Mr. Altbach dispute these claims and intend to
vigorously defend this matter. Because these lawsuits are in the early stages,
Cross Media is unable to predict the outcome or the effect they may have on
Cross Media's operating results, financial condition or stock price.



                                       6
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THE UNITED STATES JUSTICE DEPARTMENT HAS FILED A COMPLAINT AGAINST CROSS MEDIA,
MOS AND TWO OF THEIR OFFICERS, ALLEGING VIOLATIONS OF THE TELEMARKING SALES RULE
AND THE FEDERAL TRADE COMMISSION ACT.

In April 2002, the United States Justice Department, on behalf of the Federal
Trade Commission, filed a complaint in the United States District Court for the
Northern District of Georgia against Cross Media, Media Outsourcing, Inc.,
Ronald Altbach, Dennis Gougion, an officer of Media Outsourcing, and Richard
Prochnow, a consultant to MOS. The complaint alleged violations of the Federal
Telemarketing Sales Rule and the Federal Trade Commission Act and non-compliance
with a previous FTC order entered into by Prochnow, individually and doing
business as Direct Sales International, Inc., and Gougion, individually. MOS
acquired certain assets of Direct Sales International in January 2000. The
complaint seeks monetary civil penalties, redress, injunctive, and other relief
against any such future violations.

Simultaneous with the filing of the complaint, plaintiffs filed a motion for a
temporary restraining order against the defendants seeking, among other things,
compliance with the Telemarketing Sale Rule, the FTC Act, and the previous FTC
order. At the April 10 hearing for the temporary restraining motion, the parties
agreed to postpone the hearing for a later date to facilitate settlement
discussions. Upon mutual agreement, the parties rescheduled the hearing for
April 29, which was subsequently extended to May 3 at the court's request. On
April 29, the parties met to discuss settlement of the FTC's claims. Following
that meeting, the DOJ, on behalf of the FTC, agreed to postpone the May 3
hearing for an indefinite period, which the DOJ subsequently rescheduled for
July 23. On July 12, the parties again met to discuss settlement. Following that
meeting, on July 16, the DOJ, on behalf of the FTC, again motioned the court to
postpone the hearing date. The hearing is not currently scheduled on the court's
calendar.

Cross Media believes that the filing of this complaint may have adversely
affected magazine subscription sales during the second quarter of 2002. Although
Cross Media believes that it has taken steps to prevent any further adverse
effect on magazine subscription sales, there can be no assurance that the FTC
complaint will not adversely affect Cross- Media's magazine subscription
business.

However, because this matter is in the early stages, Cross Media is unable to
predict the outcome. In the event that Cross Media is unable to resolve this
matter amicably, it could be subject to monetary damages and injunctive relief,
which could have a material adverse effect on Cross Media. Even if Cross Media
is able to resolve this matter amicably, it may have to agree to pay the
government a civil penalty, fund a consumer redress account, and modify MOS'
operating practices, which could have a material adverse effect on Cross Media.
Moreover, any adverse developments could affect Cross Media's ability to make
additional borrowings under the Fleet credit facility.

THE ANTICIPATED BENEFITS OF THE ACQUISITIONS OF NSI AND JWE ENTERPRISES MAY NOT
BE REALIZED IN A TIMELY FASHION, OR AT ALL. IN ADDITION, CROSS MEDIA'S
OPERATIONS MAY BE ADVERSELY AFFECTED IF THE OPERATION OF NSI'S OR JWE's
BUSINESSES DIVERTS TOO MUCH ATTENTION AWAY FROM CROSS MEDIA'S BUSINESS.

The success of the acquisitions of NSI and JWE will depend, in part, on Cross
Media's ability to realize the anticipated revenue enhancements, growth
opportunities and synergies of the combined company and effectively utilize
resources Cross Media now has after the acquisition. There are risks related to
the integration and management of the acquired technology and operations and
personnel. The integration of the businesses will be a complex, time-consuming
and potentially expensive process and may disrupt Cross Media's business if not
completed in a timely and efficient manner. Some of the difficulties that may be
encountered include:

- the diversion of management's attention from other ongoing business concerns;
and

- potential conflicts between business cultures.

If management focuses too much time, money and effort to integrate NSI's and
JWE's operations and assets, they may not be able to execute its overall
business strategy.

THE LENDERS UNDER CROSS MEDIA'S EXISTING CREDIT FACILITY ARE REQUIRING CROSS
MEDIA TO OBTAIN DEBT FINANCING OVER THE NEXT SEVERAL DAYS AND TO REPAY ALL
OUTSTANDING BORROWINGS BEFORE THE END OF 2002.

Cross Media is required to obtain $3 million of subordinated debt financing by
September 2, 2002 and at least approximately $30.7 million of additional
financing before the end of 2002 to replace its existing credit facility. This
financing may not be available to Cross Media on favorable terms or at all.
Failure to obtain either financing could result in Cross Media's lenders
declaring a default under the facility. Moreover, even if Cross Media obtains
this financing, the interest rate and financing costs are likely to be greater
than the interest rate under the existing credit facility, which will reduce
profit in future periods.



                                       7
<PAGE>

CROSS MEDIA IS SUBJECT TO RESTRICTIVE CREDIT FACILITY COVENANTS WHICH COULD HARM
ITS FINANCIAL STATUS AND HAVE A NEGATIVE IMPACT ON ITS STOCK PRICE.

Cross Media has pledged all of its assets and the assets and stock of its
subsidiaries to Fleet and all assets to secure its obligations under its
facility.

Under the agreement with Fleet, Cross Media is also required, among other
things, to maintain minimum financial ratios and remain current on certain other
debt and trade payables. If Cross Media cannot satisfy these or other covenants
under the facility, Cross Media will be required to seek a waiver or amendment.
If it should require waivers or amendments to the agreement, there can be no
assurance that the lenders will agree on what the cost to obtain the waiver
would be. If Cross Media defaults in performing its obligations to the lenders,
the lenders would be entitled to accelerate the maturity of outstanding
indebtedness under the credit facility, $29.3 million as of August 14, 2002, and
to enforce its security interest in the pledged assets and stock, which would
materially interrupt our operations and possibly require us to curtail or cease
operations.

IF CROSS MEDIA IS UNABLE TO COLLECT ITS RECEIVABLES IN A TIMELY MANNER ITS CASH
FLOW FROM OPERATIONS WILL BE NEGATIVELY IMPACTED.

Cross Media is subject to the risks associated with selling products on credit,
including delays in collection or uncollectibility of accounts receivable. If
Cross Media experiences significant delays in collection or uncollectibility of
accounts receivable, its liquidity and working capital position could suffer.

IF SUBSCRIPTION CANCELLATION RESERVES ARE NOT ADEQUATE, CROSS MEDIA COULD BE
REQUIRED TO INCREASE ITS RESERVES, WHICH WILL RESULT IN A REDUCTION OF REVENUES
AND INCOME.

Cross Media extends credit to subscribers who purchase multi-magazine
subscription packages. Cross Media has established a reserve to cover
subscription cancellation based upon its past history with magazine subscription
orders. If Cross Media's accounts subscription cancellation reserves are
inadequate, it will be required to increase reserves, which will reduce revenues
and could otherwise materially adversely affect Cross Media's results of
operations.

THE NATURE OF CROSS MEDIA'S BUSINESS SUBJECTS IT TO THE EFFECTS OF ECONOMIC
SLOWDOWNS.

In addition, Cross Media's business may be adversely affected by periods of
economic slowdown, inflation or recession, which may be accompanied by a
decrease in the availability of consumer credit. Any material decline in the
availability of consumer credit may result in a decrease in consumer demand to
make credit card purchases, which could adversely affect the demand for Cross
Media's products and services.

FUTURE GROWTH COULD PLACE SIGNIFICANT STRAIN ON CROSS MEDIA'S RESOURCES AND
CROSS MEDIA MAY BE UNABLE TO MANAGE FUTURE GROWTH.

Growth in Cross Media's operations could place a significant strain on
operational systems and employee resources. As a result, Cross Media may have to
implement new operational and financial systems, procedures and controls. In
order to manage and accommodate Cross Media's planned growth, if it occurs,
Cross Media will need to continue to improve and adapt its financial planning,
accounting systems, information systems and management structures. Cross Media
will also need to expand, train, retain and manage its employee base. If Cross
Media is unable to manage growth effectively, financial condition and results of
operations could be materially adversely affected.

THE LOSS OF CROSS MEDIA'S LARGEST independent CALL CENTERS WOULD LIKELY RESULT
IN A REDUCTION OF REVENUES AND OTHERWISE ADVERSELY AFFECT OPERATING RESULTS.

For the six months ended June 30, 2002 and the year ended December 31, 2001, two
independent call centers accounted for approximately 38% and 39%, respectively
of Cross Media's magazine subscription revenues. These call centers do not have
any commitment to generate sales for Cross Media and could therefore, at any
time, terminate their relationships with Cross Media without notice, which could
have a material adverse effect on Cross Media's business.

IF CROSS MEDIA'S LEAD GENERATION FOR MAGAZINE SALES DECLINES, ITS OPERATING
RESULTS WILL BE ADVERSELY AFFECTED.

Cross Media is substantially dependent upon the quality and quantity of leads
for magazine sales. Cross Media obtains leads from many sources. To the extent
that Cross Media is unable to generate sufficient leads and/or the percentage of
sales generated by its leads decreases, Cross Media's magazine sales will
decline.

NSI'S SUCCESS IS HEAVILY DEPENDENT UPON ITS ABILITY TO OBTAIN ADEQUATE MAGAZINE
ADVERTISING SPACE.



                                       8
<PAGE>

NSI's lifestyles and continuity product sales are heavily dependent upon NSI
obtaining sufficient magazine advertising space. NSI historically acquires
magazine advertising space at favorable rates through agreements to purchase
unsold advertising space from selected magazines. During the second quarter of
2002, the amount of advertising space made available to NSI at favorable rates
decreased, which significantly reduced NSI's revenues and income. While Cross
Media believes that NSI will be able to purchase sufficient advertising space in
the future, the advertising rates are expected to be higher, which will
adversely effect NSI's gross margins. Moreover, NSI may not accurately estimate
the amount of unsold advertising space available to it in time to buy sufficient
additional advertising space. Additionally, because NSI must purchase
advertising space before it will know how much unsold advertising space it will
receive, NSI may have more advertising space available than it needs, which
could adversely effect NSI's operating results.

IF CROSS MEDIA DOES NOT RETAIN LIFEMINDERS ENGAGED MEMBER BASE, CROSS MEDIA MAY
NOT BE ABLE TO COMPETE EFFECTIVELY FOR, OR MAINTAIN, ADVERTISERS AND ITS
BUSINESS COULD BE ADVERSELY AFFECTED.

Although Cross Media intends to continue to produce and distribute emails to
LifeMinders' members, prior to the merger, LifeMinders scaled back its business
operations and reduced the number of emails sent to members. A significant
portion of LifeMinders' revenue was historically derived from performance-based
and revenue sharing arrangements. Under these arrangements, advertisers pay
LifeMinders in part based on member responses to advertisements and promotions
placed in email newsletters. If LifeMinders' members do not respond to
advertisements and promotions placed in email newsletters, revenues from these
operations could be materially and adversely affected.

If Cross Media is unable to maintain LifeMinders engaged member base by keeping
current members active (i.e., opening email newsletters and responding to the
advertisements contained in those newsletters), advertisers could find its
audience less attractive and effective for promoting their products and its
services.

CROSS MEDIA RELIES HEAVILY ON ITS INTELLECTUAL PROPERTY RIGHTS AND OTHER
PROPRIETARY INFORMATION, AND ANY FAILURE TO PROTECT AND MAINTAIN THESE RIGHTS
AND INFORMATION COULD PREVENT CROSS MEDIA FROM COMPETING EFFECTIVELY.

Cross Media seeks to protect through a combination of patent, copyright, trade
secret and trademark law, as well as confidentiality or license agreements with
employees, consultants, and corporate and strategic partners. If Cross Media is
unable to prevent the unauthorized use of its proprietary information or if its
competitors are able to develop similar technologies independently, the
competitive benefits of Cross Media's technologies, intellectual property rights
and proprietary information will be diminished.

THE CONTENT CONTAINED IN LIFEMINDERS' EMAILS MAY SUBJECT IT TO SIGNIFICANT
LIABILITY FOR NEGLIGENCE, COPYRIGHT OR TRADEMARK INFRINGEMENT OR OTHER MATTERS.

If any of the content that Cross Media creates and delivers to LifeMinders'
members or any content that is accessible from LifeMinders' emails through links
to other websites contains errors, third parties could make claims against Cross
Media for losses incurred in reliance on such information. In addition, the
content contained in or accessible from LifeMinders' emails could include
material that is defamatory, violates the copyright or trademark rights of third
parties, or subjects it to liability for other types of claims. Cross Media
general liability insurance may not cover claims of these types or may not be
adequate to indemnify it for all liability that may be imposed. Any imposition
of liability, particularly liability that is not covered by insurance or is in
excess of insurance coverage, could result in significant costs and expenses and
damage Cross Media's reputation. Cross Media has also entered into agreements
with certain e-commerce partners under which Cross Media may be entitled to
receive a share of certain revenue generated from the purchase of goods and
services through direct links to LifeMinders' e-commerce partners from the
emails sent by Cross Media. These agreements may expose Cross Media to
additional legal risks and uncertainties, including potential liabilities to
consumers of those products and services by virtue of Cross Media's involvement
in providing access to those products or services, even if Cross Media does not
provide those products or services. Any indemnification provided to Cross Media
in its agreements with these parties, if available, may not adequately protect
Cross Media.

CONCERNS ABOUT, OR BREACHES OF, THE SECURITY OF CROSS MEDIA'S CUSTOMER DATABASE
COULD RESULT IN SIGNIFICANT EXPENSES TO PREVENT BREACHES, AND SUBJECT CROSS
MEDIA TO LIABILITY FOR FAILING TO PROTECT THE MEMBERS' INFORMATION.

Cross Media maintains a database containing information about Cross Media's
customers. Unauthorized users accessing Cross Media's systems remotely may
access its database or authorized users may make unauthorized copies of all or
part of the database for their own use in violation of specific agreements to
the contrary. As a result of these security and privacy concerns, Cross Media
may incur significant costs to protect against the threat of security breaches
or to alleviate problems caused by security breaches, and may be unable to
effectively target direct marketing offers to members or may be subject to legal
claims of members if unauthorized third parties gain access to Cross Media's
system and alter or destroy information in its database. Also, any public
perception that Cross Media engaged in the unauthorized release of member
information, whether or not correct, would adversely affect Cross Media's
ability to retain members.

PROBLEMS WITH THE PERFORMANCE AND RELIABILITY OF THE INTERNET INFRASTRUCTURE
COULD ADVERSELY AFFECT SALES AND THE QUALITY AND RELIABILITY OF THE PRODUCTS AND
SERVICES OFFERED TO MEMBERS.



                                       9
<PAGE>

Cross Media depends on the Internet infrastructure to market to potential
customers, gather data about prospects and customers and to deliver attractive,
reliable and timely email newsletters to LifeMinders members.] If Internet usage
grows, the Internet infrastructure may not be able to support the demands placed
on it by this growth, and its performance and reliability may decline. Among
other things, continued development of the Internet infrastructure will require
a reliable network backbone with necessary speed, data capacity and security.
Currently, there are regular failures of the Internet network infrastructure,
including outages and delays, and the frequency of these failures may increase
in the future. These failures may reduce the number of potential customers who
respond to marketing campaigns and the benefits of LifeMinders' products and
services to LifeMinders' members. In addition, the Internet could lose its
viability as a commercial medium due to delays in the development or adoption of
new technology required to accommodate increased levels of Internet activity or
due to government regulation.

CROSS MEDIA MAY HAVE TO LITIGATE TO PROTECT ITS INTELLECTUAL PROPERTY AND OTHER
PROPRIETARY RIGHTS OR TO DEFEND CLAIMS OF THIRD PARTIES, AND SUCH LITIGATION MAY
SUBJECT IT TO SIGNIFICANT LIABILITY AND EXPENSE.

There is a substantial risk of litigation regarding intellectual property rights
in Internet-related businesses. Legal standards relating to the validity,
enforceability and scope of protection of certain proprietary rights in
Internet-related businesses are uncertain and still evolving. Cross Media may
have to litigate in the future to enforce its intellectual property rights,
protect its trade secrets or defend itself against claims of violating the
proprietary rights of third parties. This litigation may subject Cross Media to
significant liability for damages and result in invalidation of proprietary
rights. In addition, such litigation could be time-consuming and expensive to
defend, even if not meritorious, and result in the diversion of management time
and attention. Any of these factors could adversely affect Cross Media's
business operations.

GOVERNMENT REGULATION COULD ADD SIGNIFICANT ADDITIONAL COSTS TO CROSS MEDIA'S
BUSINESS AND IMPOSE RESTRICTIONS ON CROSS MEDIA'S MARKETING PRACTICES WHICH
COULD INTERFERE WITH CROSS MEDIA'S OPERATIONS AND HAVE A SIGNIFICANT ADVERSE
EFFECT ON REVENUES.

Laws and regulations applicable to direct marketing, telemarketing, Internet
marketing, consumer protection and membership club services are becoming more
prevalent. Each of the 50 states and the Federal government has laws regulating
telemarketing, sweepstakes promotions, promotional incentives and advertising to
consumers, which vary from state to state. While Cross Media reviews its
telemarketing scripts and advertising copy for compliance with applicable laws,
there is no guarantee that Federal or state authorities will not find that Cross
Media's marketing efforts do not comply with these laws. In addition, it is
likely that additional Federal and/or state regulations regarding telemarketing,
sweepstakes, email marketing and other marketing practices engaged in by Cross
Media will be enacted. If enacted, these regulations could have an adverse
effect on revenues and result in additional expenses to Cross Media and could
require Cross Media to refrain from engaging in specific activities or modify
its business practices.

The Federal Trade Commission is currently reviewing certain of its rules to
determine if any changes are warranted. In January 2002, the Federal Trade
Commission issued a Notice of Proposed Rulemaking in which it proposed
substantial changes to the Telemarketing Sales Rule. In June 2002, the Federal
Trade Commission conducted a workshop to address written comments submitted in
response to the January Notice of Proposed Rulemaking. Until the Federal Trade
Commission concludes this review, Cross Media does not which proposals will be
adopted. Certain of the proposed revisions, if adopted, could have an adverse
effect on Cross Media's business.

EXTENSIVE GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES RELATED TO DOING
BUSINESS ON THE INTERNET COULD LIMIT SALES OR ADD SIGNIFICANT ADDITIONAL COSTS
TO CROSS MEDIA'S BUSINESS.

Laws and regulations directly applicable to Internet communications, commerce,
marketing and data protection are becoming more prevalent. If any of these laws
hinder the growth of Internet use generally or decreases the acceptance of the
Internet as a medium of communications, commerce and marketing Cross Media's
business and prospects may suffer materially. The United States Congress has
enacted Internet laws regarding children's privacy, copyrights and taxation.
Other laws and regulations may be adopted covering issues such as user privacy,
marketing activities, pricing, content, taxation and quality of products and
services. The governments of some states and foreign countries have begun to
regulate online transactions such as those entered into with consumers by Cross
Media, and others may likely do the same. The laws governing the Internet remain
largely unsettled, even in areas where legislation has been enacted. It may take
years to determine whether and how existing laws such as those governing
intellectual property, privacy, libel and taxation apply to the Internet and
Internet advertising and marketing services. In addition, the growth and
development of the market for Internet commerce may prompt calls for more
stringent consumer protection laws, both in the United States and abroad, that
may impose additional burdens on companies conducting business over the
Internet. Laws and regulations governing the transmission of unsolicited email
marketing messages are being considered in many jurisdictions. Legislation of
that type has recently been adopted by numerous states, and similar legislation
is pending in several states and in Congress. These laws could have an adverse
impact on Cross Media Internet marketing activities. The Telecommunications Act
of 1996 prohibits some types of information and content from being transmitted
over the Internet. The prohibition's scope and the liability associated with a
Telecommunications Act violation are currently unsettled. In addition, although
substantial portions of the Communications Decency Act were held to be
unconstitutional, Cross Media cannot be certain that similar legislation will
not be enacted and upheld in the future.

CHANGES IN LAWS RELATING TO DATA COLLECTION AND USE PRACTICES AND THE PRIVACY OF
INTERNET USERS AND CONSUMERS COULD HARM CROSS MEDIA'S BUSINESS.



                                       10
<PAGE>

There have been increasing public debate about the collection, distribution and
use of information about consumers. New limitations on the collection and use of
information relating to Internet users are currently being considered by
legislatures and regulatory agencies in the United States and internationally.
Cross Media is unable to predict whether any particular proposal will pass, or
the nature of the limitations in those proposals that do pass. Since many of the
proposals are in their developmental stages, Cross Media is unable to determine
the impact these may have on Cross Media's business. In addition, it is possible
that changes to existing law, including new interpretations of existing law,
could have a material and adverse impact on Cross Media's business, financial
condition and results of operations.

CROSS MEDIA IS DEFENDING A LAWSUIT WHICH, IF DETERMINED ADVERSELY AGAINST IT AND
IF ITS INSURANCE DOES NOT ADEQUATELY COVER THE DAMAGES, COULD HAVE A MATERIAL
ADVERSE EFFECT ON ITS FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

In March 2002, a complaint was filed in the United States District Court for the
District of Kansas by J.M. Thies, John Minnick and William Sharp, on their
behalf and on behalf of other former stockholders of eCoupons.com, Inc., against
LifeMinders, Inc. (which Cross Media acquired on October 24, 2001), Douglas
Lindgren and Jonathan Bulkeley, directors of Cross Media, and former officers
and directors of LifeMinders, requesting monetary damages in an amount not less
than $4.2 million and punitive damages in an amount not less than $5 million
against the defendants. In accordance with the terms of the merger agreement
with LifeMinders, Cross Media is obligated to indemnify the other defendants.
The plaintiffs, former stockholders of eCoupons.com, Inc., a company that merged
with and into LifeMinders in December 2000, allege that the defendants made
misrepresentations to the plaintiffs to induce them to merge eCoupons with and
into LifeMinders. Cross Media was aware of the dispute prior to closing the
LifeMinders acquisition and believes that it has adequate insurance to cover any
award of monetary damages in the lawsuit.

THE SUBSTANTIAL NUMBER OF OPTIONS AND WARRANTS TO PURCHASE CROSS MEDIA COMMON
STOCK COULD RESULT IN DILUTION TO CROSS MEDIA STOCKHOLDERS.

If the holders of the outstanding Cross Media options and common stock purchase
warrants exercise those options and warrants, including those issued in
connection with the merger and warrants being issued as partial consideration
for conversion of outstanding preferred stock, and the holders of all
outstanding convertible securities converted them into common stock, Cross Media
would be required to issue approximately 4.7 million additional shares of common
stock, based on current exercise and conversion prices, which will result in
dilution to Cross Media stockholders.

BECAUSE OWNERSHIP OF CROSS MEDIA IS CONCENTRATED, A SMALL NUMBER OF STOCKHOLDERS
EXERT SIGNIFICANT INFLUENCE OVER CROSS MEDIA.

If a few of the largest stockholders of Cross Media Cross were to act together,
as a result of their aggregate ownership, they would have the ability to exert
significant influence over Cross Media's business, including the election of
directors and the approval of any other action requiring the approval of
stockholders. This concentration of share ownership may:

- delay or prevent a change of control of Cross Media;

- impede a merger, consolidation, takeover or other business combination
involving Cross Media; and/or

- discourage a potential acquirer from making a tender offer or otherwise
attempting to obtain control of Cross Media.

PROVISIONS OF CROSS MEDIA'S CORPORATE CHARTER DOCUMENTS AND DELAWARE LAW COULD
DELAY OR PREVENT A CHANGE OF CONTROL.

Cross Media's certificate of incorporation authorizes the board of directors to
issue up to 10,000,000 shares of preferred stock. The preferred stock may be
issued in one or more series, the terms of which may be determined at the time
of issuance by Cross Media's board of directors, without further action by
stockholders, and may include, among other things, voting rights (including the
right to vote as a series on particular matters), preferences as to dividends
and liquidation, conversion and redemption rights, and sinking fund provisions.
Specific rights granted to future holders of preferred stock could be used to
restrict Cross Media's ability to merge with, or sell its assets to, a third
party. The ability of Cross Media's board of directors to issue preferred stock
could discourage, delay, or prevent a takeover of Cross Media, thereby
preserving control by the current stockholders.

As a Delaware corporation, Cross Media is subject to the General Corporation Law
of the State of Delaware, including Section 203, an anti-takeover law enacted in
1988. In general, Section 203 restricts the ability of a public Delaware
corporation from engaging in a business combination with an interested
stockholder for a period of three years after the date of the transaction in
which the person became an interested stockholder. Subject to exceptions, an
interested stockholder is a person who, together with affiliates and associates,
owns, or within three years did own, 15% or more of a corporation's voting
stock. As a result of the application of Section 203, potential acquirers may be
discouraged from attempting to acquire Cross Media, thereby possibly depriving
its stockholders of acquisition opportunities to sell or otherwise dispose of
its stock at above-market prices typical of acquisitions.




                                       11
<PAGE>

                           Part II. Other Information

Item 1.  Legal Proceedings

Cross Media provides accruals for all direct costs associated with the estimated
resolution of contingencies at the earliest date at which it is deemed probable
that a liability has incurred and the amount of such liability can be reasonably
estimated.

In March 2002, a complaint was filed in the United States District Court for the
District of Kansas by J.M. Thies, John Minnick and William Sharp against
LifeMinders, Inc. (which Cross Media acquired by merger on October 24, 2001),
and several former officers and directors of LifeMinders, requesting monetary
damages in an amount not less than $4.2 million and punitive damages in an
amount not less than $5 million against the defendants. In accordance with the
terms of Cross Media's merger agreement with LifeMinders, Cross Media is
obligated to indemnify the other defendants.

The plaintiffs, former stockholders of eCoupons.com, Inc., a company that merged
with and into LifeMinders in December 2000, allege that the defendants made
misrepresentations to the plaintiffs to induce them to merge eCoupons with and
into LifeMinders. Cross Media was aware of the dispute prior to closing the
Lifeminders acquisition and believes that the suit is without merit and that it
has adequate insurance to cover any award of monetary damages in the lawsuit.
Cross Media and the other defendants have moved to dismiss the complaint on
various grounds and are vigorously defending these claims.

On April 9, 2002, the United States Justice Department ("DOJ"), on behalf of
the Federal Trade Commission ("FTC"), filed a complaint in the United States
District Court for the Northern District of Georgia against Cross Media, Media
Outsourcing, Inc., a wholly owned subsidiary, ("MOS"), Ronald Altbach, Dennis
Gougion, an officer of MOS, and Richard Prochnow, a consultant to MOS. The
complaint alleged violations of the Federal Telemarketing Sales Rule and the
Federal Trade Commission Act and non-compliance with a previous FTC order
entered into by Mr. Prochnow, individually and doing business as Direct Sales
International, Inc., and Mr. Gougion, individually. MOS acquired certain assets
of Direct Sales International in January 2000. The complaint seeks monetary
civil penalties, redress, injunctive, and other relief against any such future
violations.

Simultaneous with the filing of the complaint, plaintiffs filed a motion for a
temporary restraining order against the defendants seeking, among other things,
compliance with the Telemarketing Sale Rule, the FTC Act, and the previous FTC
order. At the April 10 hearing for the temporary restraining motion, the parties
agreed to postpone the hearing for a later date to facilitate settlement
discussions. Upon mutual agreement, the parties rescheduled the hearing for
April 29, 2002. The April 29, 2002 date was subsequently extended to May 3 at
the court's request. On April 29, the parties met to discuss settlement of the
FTC's claims. Following that meeting, the DOJ, on behalf of the FTC, agreed to
postpone the hearing scheduled for May 3 for an indefinite period. The DOJ
subsequently rescheduled the hearing for July 23. On July 12, the parties again
met to discuss settlement. Following that meeting, on July 16, the DOJ, on
behalf of the FTC, again motioned the court to postpone the hearing date. The
hearing is not currently scheduled on the court's calendar. Because this matter
is in its early stages, Cross Media is unable to predict the outcome and the
potential effect, if any, on its financial statements.

In July 2002, Cross Media became aware of three securities class action
complaints seeking monetary damages filed in the United States District Court
for the Southern District of New York against Cross Media and Mr. Altbach on
behalf of classes of persons who purchased shares of Cross Media common stock
from November 5, 2001 through July 11, 2002 (the "Class Period").

The complaints generally allege that Cross Media and Mr. Altbach violated
Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934, and Rule
10b-5, by issuing a series of materially false and misleading statements to the
market during the Class Period, including press releases during the Class Period
that allegedly overstated Cross Media's business prospects and allegedly
mischaracterized the status of the FTC proceedings brought against Cross Media
and others. Cross Media and Mr. Altbach dispute these claims and intend to
vigorously defend this matter. Because these lawsuits are in the early stages,
Cross Media is unable to predict the outcome or the effect they may have on
Cross Media's operating results, financial condition or stock price.

ITEM 2. CHANGES IN SECURITIES

RECENT ISSUANCES OF UNREGISTERED SECURITIES

On May 28, 2002, Cross Media issued an aggregate of 390,442 shares of common
stock to JWE Enterprises, Inc and JWE Holdings, Inc. in connection with Cross
Media's acquisition of JWE. The issuance of these securities was made in
reliance on Section 4 (2) of the Securities Act as a transaction not involving
any public offering, because: (1) Each seller represented that he was acquiring
the securities for investment purposes; and (2) Cross Media did not engage in
any general advertisement or general solicitation in connection with the
issuance of the securities.

On May 28, 2002, Cross Media issued 2,000 shares of Series B Preferred Stock to
JWE Enterprises, Inc and JWE Holdings, Inc. in connection with Cross Media's
acquisition of JWE. The issuance of these securities was made in reliance on
Section 4 (2) of the Securities Act as a transaction not involving any public
offering, because: (1) Each seller represented that he was acquiring the
securities for investment purposes; and (2) Cross Media did not engage in any
general advertisement or general solicitation in connection with the issuance of
the securities.



                                       12
<PAGE>

On May 28, 2002, Cross Media issued five-year warrants to purchase 15,000 shares
of common stock with an exercise price of $11.93 to Gryphon Master Fund, L.P.
for consulting services rendered to Cross Media in connection with the
acquisition of JWE. The issuance of these securities was made in reliance on
Section 4 (2) of the Securities Act as a transaction not involving any public
offering, because: (1) Gryphon Master Fund, L.P represented that it was
acquiring the securities for investment purposes; and (2) Cross Media did not
engage in any general advertisement or general solicitation in connection with
the issuance of the securities.

On May 28, 2002, Cross Media issued five-year warrants to purchase 200,000
shares of common stock with an exercise price of $11.93 per share to GG
Associates Ltd. for consulting services rendered to Cross Media in connection
with the acquisition of JWE. The issuance of these securities was made in
reliance on Section 4 (2) of the Securities Act as a transaction not involving
any public offering, because: (1) GG Associates Ltd. represented that it was an
accredited investor and was acquiring the securities for investment purposes;
and (2) Cross Media did not engage in any general advertisement or general
solicitation in connection with the issuance of the securities.

On May 28, 2002, Cross Media issued five-year warrants to purchase 15,000 shares
of common stock with an exercise price of 11.93 per share to Langley Partners,
L.P in connection with consulting services rendered to Cross Media in connection
with the acquisition of JWE. The issuance of these securities was made in
reliance on Section 4 (2) of the Securities Act as a transaction not involving
any public offering, because: (1) Langley Partners, L.P. represented that it was
an accredited investor and was acquiring the securities for investment purposes;
and (2) Cross Media did not engage in any general advertisement or general
solicitation in connection with the issuance of the securities. These securities
was made in reliance on Section 4 (2) of the Securities Act as a transaction not
involving any public offering, because: (1) Each represented that he was an
accredited investor and was acquiring the securities for investment purposes;
and (2) Cross Media did not engage in any general advertisement or general
solicitation in connection with the issuance of the securities.

ITEM 3. DEFAULTS UPON SECURITIES

None

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF STOCKHOLDERS

An annual meeting of stockholders was held on May 7, 2002, at which time the
following directors were elected to serve until the next annual meeting of
stockholders of Cross Media to be held in 2003, with the following votes for:

                        Director                            Votes for
                        --------                            ---------
                     Ronald Altbach                        11,184,644
                    Richard Kaufman                        11,184,644
                   Jonathan Bulkeley                       11,898,778
                     Richard Cohen                         11,898,778
                   William Morrissey                       11,898,778
                      Alan Senter                          11,898,778


ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

We filed the following Current Report on Form 8-K during the fiscal quarter
ended June 30, 2002:

         (a)         Exhibits

10.1       Waiver, Consent and Amendment to Credit Agreement dated August 13,
           2002 by and among Cross Media, MOS, NSI, Fleet National Bank as agent
           for the lenders and issuing agent and the other lenders.

     (i)  On June 17, 2002, we filed a Current Report on Form 8-K regarding an
          interview with our Chairman published by the OTC Journal on June 17,
          2002.

     (ii) On June 10, 2002, we filed a Current Report on Form 8-K regarding the
          JWE acquisition.

    (iii) On April 11, 2002, we filed a Current Report on Form 8-K regarding the
          announcement of a non-binding letter of intent relating to a proposed
          acquisition and the completion of a private placement of common stock.

     (iv) On April 10, 2002, we filed a Current Report on Form 8-K regarding an
          interview with our Chairman discussing the FTC matter.



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<PAGE>


                                   Signatures

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


                        CROSS MEDIA MARKETING CORPORATION
                                  (Registrant)





By:       /s/ CHET BORGIDA
  ------------------------------------
  Name: Chet Borgida
    Title:  Senior Vice President
      and Chief Financial Officer
      (principal financial and
         accounting officer)



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