UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K
       [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
                     For the fiscal year 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 number 0-16730

                               MKTG SERVICES, INC.
             (Exact Name of Registrant as Specified in Its Charter)

                                     Nevada
                                     ------
         (State or other jurisdiction of incorporation or organization)
                                   88-0085608
                                   ----------
                      (I.R.S. Employer Identification No.)


         333 Seventh Avenue, 20th Floor
         New York, New York                                             10001
--------------------------------------------                      --------------
    (Address of principal executive offices)                         (Zip Code)

Issuer's telephone number, including area code:                   (917) 339-7100

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

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

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

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

As of October 11, 2002,  the aggregate  market value of the voting stock held by
non-affiliates of the Registrant was approximately $1,183,469.

As of October 11, 2002, there were 7,159,210 shares of the Registrant's common
stock outstanding.

Documents incorporated by reference:  Portions of the Company's definitive proxy
statement  expected to be filed  pursuant to  Regulation  14A of the  Securities
Exchange Act of 1934 have been  incorporated  by reference into Part III of this
report.




                                       1
<PAGE>



                                     PART I

Special Note Regarding Forward-Looking Statements
-------------------------------------------------

Some of the statements  contained in this Annual Report on Form 10-K discuss our
plans and strategies for our business or state other forward-looking statements,
as this term is defined in the Private Securities Litigation Reform Act of 1995.
Such forward-looking  statements involve known and unknown risks,  uncertainties
and  other  factors  which  may  cause  the  actual   results,   performance  or
achievements of the Company, or industry results to be materially different from
any future  results,  performance or  achievements  expressed or implied by such
forward-looking  statements.  Such factors include, among others, the following:
general economic and business  conditions;  industry capacity;  direct marketing
and other industry trends;  demographic  changes;  competition;  the loss of any
significant  customers;  changes in  business  strategy  or  development  plans;
availability and successful integration of acquisition candidates; availability,
terms and deployment of capital;  advances in  technology;  retention of clients
not under  long-term  contract;  quality of management;  business  abilities and
judgment of personnel;  availability of qualified personnel;  changes in, or the
failure   to   comply   with,    government    regulations;    and   technology,
telecommunication and postal costs.

Item 1 - Business
-----------------

General
-------

MKTG  Services,  Inc.  (the  "Company"  or  "MKTG")  is a  leading  relationship
marketing company focused on assisting  corporations  with customer  acquisition
and retention strategies and solutions.  Its customized  marketing  capabilities
combine   comprehensive   traditional   marketing  tactics  with  an  aggressive
integration  of  sophisticated  new  media  applications   encompassing   direct
marketing,  database  management,  analytics,  interactive  marketing  services,
telemarketing  and media  buying.  Operating  in four major cities in the United
States,  the  Company  provides  strategic  services  to Fortune  1000 and other
prominent organizations in key industries including: Entertainment,  Publishing,
Fundraising, Business-to-Business, Education and Financial Services.

MKTG provides marketing  solutions to approximately 2,000 clients worldwide with
revenues for the fiscal year ended June 30, 2002 of $39.0  million.  The Company
currently has over 290 full-time  employees with significant  offices in the New
York, Boston, Philadelphia and Los Angeles areas.

The Company's Strategy
----------------------

MKTG's  strategy to enhance its position as a  value-added  premium  provider of
integrated marketing services is to:

o Focus on our integrated marketing services business which includes
comprehensive direct marketing services, including Internet related
services;

o Deepen market  penetration in new  industries  and market  segments as well as
those currently served by the Company;

o Develop existing and create new proprietary  databases,  proprietary  database
software and database management applications; and

o Pursue  strategic  acquisitions,  joint  ventures and  marketing  alliances to
expand the services offered and industries served.



Background
----------

The Company was originally  incorporated in Nevada in 1919. The current business
of MKTG, most recently known as Marketing Services Group, Inc., began operations
in 1995.

Through  the  years,  the  Company  has  acquired  and formed  direct  marketing
companies.  The  Company's  acquisitions  and  dispositions  are  summarized  as
follows:

                                       2
<PAGE>
<TABLE>
<CAPTION>

Date            Name of Company Acquired           Service Performed
----            ------------------------           -----------------

<S>             <C>                                <C>
May 1995        Stephen Dunn & Associates, Inc.    Provides telemarketing and
                                                   telefundraising, specializing in
                                                   the arts, educational and other
                                                   institutional tax exempt
                                                   organizations.

October 1996    Metro Direct, Inc.                 Develops and markets a variety
                                                   of database marketing and direct
                                                   marketing products.

July 1997       Pegasus Internet, Inc.             Provides a full suite of Internet
                                                   services including content
                                                   development and planning,
                                                   marketing strategy, on-line
                                                   ticketing system, development,
                                                   technical site hosting, graphic
                                                   design, multimedia production
                                                   and electronic commerce.

December 1997   Media Marketplace, Inc.            Specializes in providing list
                Media Marketplace                  management, list brokerage
                Media Division, Inc.               and media planning and buying
                                                   services.

May 1998        Formed Metro Fulfillment, Inc.     Performed services such as
                                                   on-line commerce, real-time
                                                   database management inbound/
                                                   outbound customer service, custom
                                                   packaging, assembling, product
                                                   warehousing, shipping, payment
                                                   processing and retail
                                                   distribution.

January 1999    Stevens-Knox &                     Specializes in providing list
                Associates, Inc.                   management, list brokerage and
                Stevens-Knox List                  database management services.
                Brokerage, Inc.
                Stevens-Knox International, Inc.

March 1999      Sold 85% of Metro Fulfillment, Inc.

May 1999        CMG Direct Corporation             Specializes in database services.

September 1999  Sold remaining 15% of
                Metro Fulfillment, Inc.

October 1999    Acquired 87% of Cambridge          A licensor of email marketing
                Intelligence Agency                and tools.
                formed WiredEmpire, Inc.


March 2000      Grizzard Advertising, Inc.         Specialized in strategic planning,
                                                   creative services, database
                                                   management, print-production,
                                                   mailing and Internet marketing.

March 2000      The Coolidge Company               Specializes in list management
                                                   and list brokerage services.

September 2000  Board of Directors approve plan to

</TABLE>

                                       3
<PAGE>

                discontinue the operation of
                WiredEmpire, Inc.

January 2001    Shut down of operations for
                WiredEmpire, Inc. completed

July 2001       Sold Grizzard Communications Group, Inc.


Capital Stock and Certain Financing Transactions
------------------------------------------------

On October 9, 2001, the Board of Directors approved a six-for-one  reverse split
of the common  stock.  Par value of the common stock  remains $.01 per share and
the number of authorized shares of common stock remains at 75,000,000. The stock
split was  effective  October 15, 2001.  All stock  prices,  per share and share
amounts have been  retroactively  restated to reflect the reverse  split and are
reflected in this document.

The Company did not meet certain  financial goals for the fiscal year ended June
30, 2001 as set forth in the warrant  issued in  connection  with a 1997 sale of
Series D preferred  stock.  Accordingly,  the warrant in the amount of 1,778,334
shares with an exercise price of $.06 per share was issued in October 2001. As a
result of the issuance of the warrant,  certain antidilultive  provisions of the
Company's Series E preferred stock were triggered.  The conversion price of such
shares  was  reset to a fixed  price of $2.346  based on an amount  equal to the
average  closing bid price of the  Company's  common  stock for ten  consecutive
trading days  beginning on the first  trading day of the exercise  period of the
aforementioned  warrant.  No further  adjustments will be made to the conversion
price other than for stock splits, stock dividends or other organic changes. The
preferred  shareholders  converted  1,799 shares of  preferred  stock to 903,866
shares of common  stock  during  the year  ended June 30,  2002.  The  preferred
shareholders are precluded from converting any additional  shares into shares of
common stock pursuant to the current conditions of the agreement of February 24,
2000.

On February  19,  2002,  the Company  entered  into  standstill  agreements,  as
amended,  with the Series E preferred  shareholders  in order for the Company to
continue to discuss with multiple  parties  regarding the  possibility of either
restructuring  or refinancing the remainder of the preferred  stock. The Company
is also reviewing  other  options,  including  replacing the existing  Preferred
Stockholders with an alternative strategic investor or selling certain assets to
gain funds to attempt to repurchase the Series E preferred  stock at a discount.
Under the terms of the  standstill  agreements,  and  subject to the  conditions
specified  therein,  each  preferred  shareholder  had agreed  that it would not
acquire,  hedge (short),  proxy,  tender, sell, transfer or take any action with
regard to its holdings  during the standstill  period,  which was extended until
August 15, 2002. Since the Company did not obtain  refinancing or an alternative
investor by August 15, 2002,  the Company was obligated  under such agreement to
seek  stockholder  approval to convert the preferred  stock to common stock,  by
October 2, 2002, based upon the 19.99% NASDAQ stock issuance limitations and the
terms of the preferred  stock itself due to the change in  conversion  price and
increase in the number of  exercisable  shares.  The Company's  commitments as a
result of the standstill  agreements  included a partial  redemption of 5,000 of
the Series E preferred  shares for  $5,000,000,  thereby  reducing the number of
Series E preferred shares to 23,201 at June 30, 2002. The value of the preferred
stock was initially recorded at a discount  allocating a portion of the proceeds
to a warrant.  The redemption of such preferred shares for $5,000,000,  less the
carrying  value of the  preferred  shares  including the  beneficial  conversion
feature previously  recorded in equity on the balance sheet resulted in a deemed
dividend  of  $412,634  which was  recorded to  additional  paid-in  capital and
included in the calculation of net loss attributable to common  stockholders for
the year ended June 30, 2002.

On October 2, 2002, the common  stockholders  approved the right of the Series E
preferred  shareholders  to  convert  their  preferred  stock to  common  stock.
Subsequently,  the preferred  shareholders  converted 951.44 shares of preferred
stock to 508,829  shares of common  stock.  The  redemption  value of  preferred
stock, including interest and penalties, at October 15, 2002 is $35,308,982.

In June 2002,  the Company  received  notification  from The Nasdaq Stock Market
("Nasdaq")  that the  Company's  common stock has closed below the minimum $1.00
per share requirement for continued inclusion under Marketplace Rule 4310(c)(4).
If the Company  cannot meet  compliance  under the Nasdaq  rules by December 24,
2002,  Nasdaq  will  determine  whether the  Company  meets the initial  listing
criteria for The Nasdaq SmallCap Market under Marketplace Rule 4310(c)(2)(a). If
the Company meets the initial listing  criteria,  the Company will be granted an
additional  180 calendar day grace period to demonstrate  compliance.  Otherwise
the securities may be delisted. An event of default under the Series E

                                       4
<PAGE>
preferred stock includes failing to maintain the listing of the Company's common
stock on Nasdaq or other such similar  exchange.  Such default  would  trigger a
mandatory  redemption  in cash under the terms of the Series E  preferred  stock
agreement. The Company does not have sufficient cash to satisfy such redemption.
The Company has explored and is  continuing  to explore  alternatives  to remain
listed on Nasdaq.  The Company believes it has sufficient  alternatives and will
execute on any one or more of these  alternatives to remain listed.  The Company
believes a potential delisting is not probable.

In 1999, a lawsuit under Section  16(b) of the  Securities  Exchange Act of 1934
was commenced  against General  Electric  Capital  Corporation  ("GECC") by Mark
Levy,  derivatively  on behalf of the Company,  to recover  short swing  profits
allegedly  obtained by GECC in  connection  with the  purchase  and sale of MKTG
securities.  The case was  filed in the name of Mark  Levy v.  General  Electric
Capital  Corporation,  in the  United  States  District  Court for the  Southern
District of New York, Civil Action Number 99 Civ. 10560(AKH).  In February 2002,
a  settlement  was reached  among the  parties.  The  settlement  provided for a
$1,250,000 payment to be made to MKTG by GECC and for GECC to reimburse MKTG for
the reasonable cost of mailing a notice to stockholders up to $30,000.  On April
29, 2002, the court approved the settlement for $1,250,000, net of attorney fees
plus reimbursement of mailing costs. In July 2002, the court ruling became final
and the Company  received and recorded  the net  settlement  payment of $965,486
plus reimbursement of mailing costs (see Item 3 - Legal Proceedings).

On October 4, 2002, the Company repaid  approximately $.8 million balance of one
credit  facility  and agreed  with the lender to cease  future  advances of this
facility.

The Company has limited capital resources and has incurred significant recurring
losses and negative cash flows from operations. In addition,  certain contingent
liabilities may require  significant  resources.  The Company may be required to
redeem the Series E preferred  stock and repay its  outstanding  lines of credit
depending on future events.  The Company does not believe its cash on hand along
with  existing  sources of cash are  sufficient  to fund its cash needs over the
next twelve months under the current capital structure. In order to address this
situation,  the Company has had and continues to have  discussions with multiple
parties  regarding the  possibility of either  restructuring  or refinancing the
remainder  of the  Series E  preferred  stock.  The  Company  is also  reviewing
options,  which include  replacing the existing  Preferred  Stockholders with an
alternative  strategic  investor  or  selling  certain  assets to gain  funds to
attempt to repurchase  the Series E preferred  stock at a discount.  The Company
will also need to raise  additional  equity financing or obtain other sources of
liquidity  (including debt or other resources).  The Company has instituted cost
reduction  measures,  including  the reduction of  workforce.  In addition,  the
Company is  reviewing  its  present  operations  with the view  towards  further
reducing its cost  structure  and  workforce  and to find  alternative  means of
increasing  revenue.  There  can  be no  assurance  that  the  Company  will  be
successful  in  restructuring  its  preferred  stock  or  obtaining   additional
financing.  Additionally,  there can be no assurances  that the  Company's  cost
reduction efforts will be successful or that the Company will achieve a level of
revenue that will allow it to return to profitability.  In the event the Company
is unable to raise needed financing and achieve  profitability,  operations will
need to be scaled back or discontinued.  These  circumstances  raise substantial
doubt  about  the  Company's  ability  to  continue  as  a  going  concern.  The
accompanying financial statements do not include any adjustments relating to the
recoverability  of the  carrying  amount of  recorded  assets  or the  amount of
liabilities  that might  result  should the  Company be unable to  continue as a
going concern.


The Direct Marketing Industry
-----------------------------

Overview.  Direct  marketing  is  used  for  a  variety  of  purposes  including
lead-generation  and prospecting for new customers,  enhancing existing customer
relationships,  exploring  the  potential  for new  products  and  services  and
establishing  new products.  Unlike  traditional mass marketing aimed at a broad
audience and focused on creating  image and general brand or product  awareness,
successful  direct  marketing   requires  the  identification  and  analysis  of
customers  and  purchasing  patterns.  Such patterns  enable  businesses to more
easily  identify  and  create a  customized  message  aimed at a highly  defined
audience.  Previous direct marketing  activity  consisted  principally of direct
mail,  but  now  has  expanded  into  the  use  of  multiple  mediums  including
telemarketing,  print,  television,  radio, video, CD-ROM, on-line services, the
Internet and a variety of other interactive marketing formats.

The  success of a direct  marketing  program is the  result of the  analysis  of
customer   information   and  related   marketing  data.   Database   management
capabilities   allow  for  the  creation  of  customer   lists  with   specific,
identifiable attributes.  Direct marketers

                                       5
<PAGE>

use these lists to  customize  messages and  marketing  programs to generate new
customers whose purchasing patterns can be statistically analyzed to isolate key
determinants. In turn, this enables direct marketers to continually evaluate and
adjust their marketing programs,  to measure customer response rates in order to
assess returns on marketing  expenditures,  and to increase the effectiveness of
such marketing programs.

Database  management  covers a range of services,  including  general  marketing
consultation,  execution of marketing  programs and the creation and development
of customer  databases  and sales  tracking  and data  analysis  software.  Data
analysis software consolidates and analyzes customer profile information to find
common  characteristics  among buyers of certain  products.  The results of such
tracking  and  analysis  are used to  define  and  match  customer  and  product
attributes from millions of available database files for future direct marketing
applications.  The  process  is one of  continual  refinement,  as the number of
points of contact with customers  increases,  together with the proliferation of
mediums available to reach customers.

Telemarketing/telefundraising  projects generally require significant amounts of
customer  information  supplied  by the client or third  party  sources.  Custom
telemarketing/telefundraising  programs  seek  to  maximize  a  client's  direct
marketing  results by  utilizing  appropriate  databases to  communicate  with a
specific audience.  This  customization is often achieved through  sophisticated
and comprehensive  data analysis which identifies  psycho graphic,  cultural and
behavioral patterns in specific geographic markets.

Industry Growth.  According to industry sources,  the direct marketing  industry
has experienced significant downturns due to the economic recession,  the events
of September 11th and the subsequent  anthrax scare.  Many companies  within the
direct  marketing  industry  have felt the impact of these  events as growth for
both sales and ad spending has slowed down industry-wide.  According to research
from the Direct Marketing Association, the industry's largest trade association,
in spite of the poor  economy,  Americans  spent nearly $197 billion  dollars on
direct response  advertising last year - a 3.6 percent increase over spending in
2000.  This modest  growth is only about half of the 6.8 percent  annual  growth
that was experienced over the preceding  five-year  period.  Projections for the
next four years state  that,  from  2001-2006  direct  marketing  is forecast to
bounce  back with ad  spending  and return to a more  normal  annual rate of 6.5
percent per year.  In general,  the U.S.  economy is expected to recover  slowly
throughout  this year - direct  marketing is also  expecting a slow recovery and
then a return to accelerated growth in subsequent years.

According to the most recently  available  information from the Direct Marketing
Association,  total U.S. direct marketing advertising expenditures are projected
to reach  $206.1  billion  during 2002, a 4.7%  increase  over 2001.  The direct
marketing  advertising  expenditure  figure is inclusive of all direct marketing
through various mediums including direct mail, telephone  marketing,  newspaper,
magazine,  TV,  radio  and  internet  marketing.  Direct  marketing  advertising
expenditures  at the end of  2001  represented  55.2%  of all  U.S.  advertising
expenditures  which were $356.7 billion.  Direct mail accounts for approximately
24% of total direct marketing expenditures  nationwide.  Annual growth rates for
direct marketing  expenditures from 2001-2006 will be highest for "other" media,
which includes interactive marketing and radio, telephone, and television. Three
years ago the "other" media category was forecast to have the slowest  five-year
growth.  Additionally,  consumer direct marketing  advertising  expenditures via
telephone  marketing  are  expected  to grow to $80.3  billion  in 2002 and will
comprise close to 39% of all direct marketing expenditures.

In addition,  annual direct marketing  employment growth rates are also slowing.
From 1996-2001  direct  marketing  employment  grew at a rate of 5.7 percent per
year. For the next four years,  employment growth is forecast at 4.3 percent per
year.  These trends  should lead to higher gross profit  margins for most direct
marketers.  Moreover,  direct  marketing growth is expected to outpace total U.S
economic growth.

Industry  Consolidation.  The direct marketing industry is extremely fragmented.
According to industry sources, there are almost 11,000 direct marketing services
and database services firms in the United States. The Company believes that most
of  such  businesses  are  small,  specialized  companies  which  offer  limited
services.  However,  industry  consolidation has increased in the last few years
resulting in a greater number of large companies  providing  services similar to
those provided by the Company. See "Competition." The Company believes that much
of this  consolidation  is due to: (i) economies of scale in hardware,  software
and  other  marketing  resources;  (ii)  cross-selling  of  services;  and (iii)
coordinating  various components of direct marketing and media programs within a
single,  reliable  environment.  The Company believes these trends are likely to
continue due in part to client demand for more cost-effective service to perform
increasingly complex functions.
                                       6
<PAGE>

Services
--------

The Company's operating  businesses provide  comprehensive  database management,
Internet  marketing,  custom   telemarketing/telefundraising  and  other  direct
marketing services. The principal advantages of customized services include: (i)
the ability to expand and adapt a database  to the  client's  changing  business
needs;  (ii) the ability to have services operate on a flexible basis consistent
with the client's goals; and (iii) the integration with other direct  marketing,
Internet, database management and list processing functions, which are necessary
to keep a given  database  current.  Some  services  offered by the  Company are
described below.

                               Database Marketing

Database Management  Services.  The Company's database management services begin
with database  creation and  development,  which include the planning stages and
analytical  processes  to review all of the client's  customer  and  operational
files.   Utilizing  both  proprietary  and  commercial  software,   the  Company
consolidates all of the separate  information and relationships  across multiple
files and converts the client's raw information into a consolidated format. Once
the client's customer data is consolidated and the database created, the data is
enhanced using a wide selection of demographic, geographic, census and lifestyle
information for 114 million  households and 200 million  individuals to identify
patterns and  probabilities  of behavior.  The Company licenses this information
from a variety of leading data compilers.

The combination of each client's  proprietary customer information with external
data files provides a customized  profile of a client's customer base,  enabling
the client,  through the use of the  Company's  behavior  modeling  and analysis
services,  to design a direct marketing  program for its customers.  Through the
development  of a scoring  model,  the  client  can  segment  its  database  and
determine  its best  customers  and  prospects in each  marketplace.  The entire
process results in a customized direct marketing program that can be targeted to
distinct  audiences  with a high  propensity  to buy the  client's  products  or
services.  Because of the  dynamic  nature and  complexity  of these  databases,
clients  frequently  request  that the Company  update such  databases  with the
results of recent marketing  programs and  periodically  perform list processing
services as part of the client's ongoing direct marketing efforts.

Data Processing. The Company's primary data processing service is to manage from
the Company's data centers, all or a portion of a client's marketing information
processing  needs.  After  migrating a client's raw data to one of the Company's
data centers,  the Company's technology allows the client to continue to request
and access all available information from remote sites. The database can also be
verified  for  accuracy  and overlaid  with  external  data  elements to further
identify specific consumer behavior.

Other  data  processing   services  provided  include  migration  (takeover  and
turnover)  support for  database  maintenance  or  creation,  merge/purge,  data
overlay  and postal  qualification.  The Company  also offers  on-line and batch
processing capacity, technical support, and data back up and recovery.

Database Product  Development.  To further leverage its database  management and
list processing  services,  the Company has participated in the development of a
new  product  using  client/server  technology.  The  product  is  a  scaleable,
three-tiered   client/server   data  warehouse  system  that  provides  desktop,
real-time decision support and marketing analysis to a non-technical  user. This
application  is an intuitive,  graphical  user  interface  tool that offers both
flexibility and the ability to access and analyze large customer files exceeding
100 million records. The incorporation of third-party  software,  relational and
multidimensional  database  technology in an open system environment is intended
to allow the Company's  clients to take advantage of the latest  developments in
high-speed computing, utilizing both single and multi-processor hardware.

Response Analysis,  Predictive Modeling and Testing Services.  Response analysis
of direct mail respondents, including age, demographic and lifestyle attributes,
to determine  which  particular  attributes of the responding  universe played a
part in increasing  the  recipients'  propensity  to respond to the offer.  This
service is provided to improve direct marketing response rates.

Market  Analysis.   The  Company's  market  research  services  include  problem
conceptualization,  program design,  data gathering and results analysis.  These
services are conducted through telephone, mail and focus groups. Through the use
of data  capture  technology;  the  Company  is also able to obtain  data from a
statistically  predictable  sample of market survey  contacts.  The Company then
tabulates and analyzes fielded data using multi-variate  statistical techniques,
and produces detailed reports to answer clients' marketing questions and suggest
further marketing opportunities.
                                       7
<PAGE>

                             List Sales and Services

List  Services.  List  processing  includes the  preparation  and  generation of
comprehensive  name  and  address  lists  which  are  used in  direct  marketing
promotions.  The  Company's  state-of-the-art  data  centers  and  large  volume
processing  capabilities  allow the Company to meet the list processing needs of
its clients through its advanced list  processing  software  applications,  list
brokerage and list management operations. The Company customizes list processing
solutions by  utilizing a variety of licensed  software  products and  services,
such as Address Conversion and Reformat,  Address  Standardization  and Enhanced
Merge/Purge,  in  addition to services  provided  by third  parties,  including;
National Change of Address (NCOA),  Delivery Sequence File and Locatable Address
Conversion   System.   Other  licensed   products  include  databases  used  for
suppressions such as the DMA Mail

Preference File and the American Correctional Association Prison Suppress File.

The Company also offers an array of list acquisition  techniques.  The Company's
account managers, many of whom are recruited from existing Company accounts, use
their  industry  experience  as  well  as  sophisticated  computer  profiles  to
recommend  particular  lists for  customer  acquisition  campaigns.  The Company
acquires  hundreds of  millions of records  annually  for  customer  acquisition
campaigns. The Company also manages several hundred lists for rental purposes on
behalf of list owners.

Media Planning and Buying. The Company's Media Division is a multifaceted direct
response media broker  specializing in direct  advertising such as:  traditional
print advertising;  cooperative direct mail programs;  Sunday supplements;  card
decks, publisher's representation and more.

                              Interactive Marketing

Website  Development and Design.  The Company  provides a full suite of Internet
services  such as content  planning  to market  strategy,  from  technical  site
hosting to graphic design and multimedia  production.  The Company has developed
Web sites from the perspective of both client and presence  provider,  resulting
in an intimate  knowledge of the issues  encountered  by both  entities in a Web
development project. From the initial planning sessions and identification of an
organization's  promotional objectives to the live cutover of the finished site,
the Company takes a proactive  role in ensuring the most  efficient  development
process  for the  client  and the most  rewarding  experience  for their  online
clientele.  Once the site is up and  running,  the  Company  provides  technical
maintenance and ongoing consulting to keep Web resource current, technologically
up-to-date  and  graphically  ahead of the curve.  The Company  generates  usage
reports, complete with optional analysis and feedback features.

Online Community  Marketing.  Through online  community  marketing we enable the
client to build long-term relationships with enthusiastic audiences,  facilitate
a  lifestyle  dialog,   provide  useful  information  without  interrupting  the
integrity   of   consumers'   online   activity,    develop   direct-to-customer
relationships  and  implement  a broad range of  consumer  calls-to-action.  The
grassroots community marketing team monitors a detailed set of relevant Internet
locations,  including affinity consumer homepages,  message boards,  newsgroups,
chat rooms,  clubs,  and lists.  Within these  communities,  MKTG seeks to forge
relationships  between our clients and those  consumers  who, by virtue of their
online activity, seem particularly  influential and active; who grant permission
for extended  communication;  and who agree to "spread the word" in exchange for
the advance and/or  exclusive  information and offers included in the grassroots
vehicles  above.  This form of  targeting  is  designed  to  produce a subset of
dynamic consumers who lead opinion,  and who will be particularly excited by the
prospect of intimacy with, and support of, our clients.  The result is a wave of
credible  advocacy  across the  Internet,  which will result in critical  "buzz"
while it bolsters the success of "awareness" of initiatives taking place on- and
offline.

E-mail  Deployment.  E-mail  campaigns  provide  the avenue to reach a qualified
audience and deliver a very targeted  message.  We create and maximize the three
elements of an email campaign:  the desired audience,  the design of the message
and  delivery.  We have the  capability  to send out mass  quantities  of e-mail
through HTML, text or FastStream e-mail  promotions  FastStream is a proprietary
MKTG  technology that  automatically  plays full motion video and audio directly
within an email, to provide for high user  interactivity.  There are no links to
click on, no special plug-ins (FastStream runs with Flash, a technology which is
virtually  ubiquitous  today with 97% market  penetration),  and no time  wasted
waiting for a download.

                                       8
<PAGE>

                         Telemarketing / Telefundraising

Custom          Telemarketing/Telefundraising          Services.          Custom
telemarketing/telefundraising  services are  designed  according to the client's
existing  database and any other databases,  which may be purchased or rented on
behalf  of the  client  to  create a direct  marketing  program  or  fundraising
campaign to achieve specific  objectives.  After designing the program according
to  the  marketing  information  derived  from  the  database  analysis,  it  is
conceptualized in terms of the message content of the offer or solicitation, and
an assessment is made of other supporting elements,  such as the use of a direct
mail letter campaign.

Typically,  a campaign is designed in  collaboration  with a client,  tested for
accuracy  and  responsiveness  and  adjusted  accordingly,  after which the full
campaign is  commenced.  The full campaign  runs for a mutually  agreed  period,
which can be

shortened or extended depending on the results achieved.

The Company maintains a state-of-the-art outbound  telemarketing/telefundraising
calling  center  in El  Segundo,  California.  The  El  Segundo  calling  center
increases  the  efficiency  of its  outbound  calling  by  using a  computerized
predictive  dialing  system  supported  by a UNIX based call  processing  server
system and networked computers.  The predictive dialing system, using relational
database  software,  supports 64 outbound  telemarketers  and maximizes  calling
efficiency  by reducing  the time  between  calls for each  calling  station and
reducing the number of calls connected to wrong numbers,  answering machines and
electronic  devices.  The system provides  on-line real time reporting of caller
efficiency and client program  efficiency as well as flexible and  sophisticated
reports  analyzing  caller  sales  results and client  program  results  against
Company and client  selected  parameters.  The El Segundo calling center has the
capacity to serve up to 20 separate clients or projects  simultaneously  and can
produce 36,864 or more valid  contacts per week,  depending on the nature of the
lead base or 3,072  calling  hours per week (159,744 per year) on a single shift
basis.  A valid contact  occurs when the caller speaks with the intended  person
and receives a "yes," "no" or "will consider"  response.  The existing  platform
can be expanded to accommodate 100 predictive dialing stations.



Marketing and Sales
-------------------

The Company's  marketing  strategy is to offer customized  solutions to clients'
database management,  Internet,  telemarketing/telefundraising,  fulfillment and
other direct  marketing  requirements.  Historically,  the  Company's  operating
businesses  have acquired new clients and marketed  their  services by attending
trade shows,  advertising in industry  publications,  responding to requests for
proposals,  pursuing client referrals and cross-selling to existing clients. The
Company  targets  those  companies  that have a high  probability  of generating
recurring  revenues  because of their ongoing direct marketing needs, as well as
companies  which have large customer bases that can benefit from targeted direct
marketing     database    and     fulfillment     services    and     customized
telemarketing/telefundraising services.

The Company markets its marketing  services  through a sales force consisting of
both  salaried  and  commissioned  sales  persons.  In some  instances,  account
representatives will coordinate a client's database management, Internet, custom
telemarketing/telefundraising,  fulfillment  and/or other direct marketing needs
to identify cross-selling opportunities.

Account  representatives  are  responsible  for keeping  existing and  potential
clients informed of the results of recent marketing  campaigns,  industry trends
and new developments in the Company's technical database  resources.  Often, the
Company  develops  an initial  pilot  program  for new or  potential  clients to
demonstrate the  effectiveness  of its services.  Access to data captured during
such pilot  programs  allows the Company and its clients to identify  previously
unrecognized  target market  opportunities and to modify or enhance the client's
marketing effort on the basis of such information.  Additionally, the Company is
able to provide  its clients  with  current  updates on the  progress of ongoing
direct marketing programs.

Pricing for direct  marketing  services is dependent  upon the complexity of the
services required.  In general,  the Company  establishes pricing for clients by
detailing a broad range of service options and quotation  proposals for specific
components of a direct marketing program.  These quotes are based in part on the
volume of records to be  processed,  complexity  of  assembly,  and the level of
customization  required.  Pricing for data processing services is dependent upon
the anticipated range of computer resource consumption.  Typically,  clients are
charged a flat or stepped-up  rate for data processing  services  provided under
multi-year   contracts.   If  the  processing  time,  data  storage,   retrieval
requirements  and output volume exceed the budgeted  amounts,  the client may be
subject to an additional charge.  Minimum charges and early termination  charges
are typically  included in contracts or other  arrangements  between the Company
and the client.
                                       9
<PAGE>

On-site  telemarketing  and  telefundraising  fees are generally based on hourly
billing  rates and a  mutually  agreed  percentage  of amounts  received  by the
Company's  clients  from a  campaign.  Off-site  fees are  typically  based on a
mutually  agreed  amount per  telephone  contact with a potential  donor without
regard to amounts raised for the client.

Client Base
-----------

The Company  believes  that its large and  diversified  client base is a primary
asset,  which  contributes  to  stability  and the  opportunity  for  growth  in
revenues.  The Company has  approximately  2,000 clients who utilize its various
marketing

services.   Its  customized   marketing   capabilities   combine   comprehensive
traditional  marketing  tactics with an aggressive  integration of sophisticated
new media  applications  encompassing  direct  marketing,  database  management,
analytics,  interactive  marketing  services,  telemarketing  and media  buying.
Operating  in four  major  cities in the United  States,  the  Company  provides
strategic  services to Fortune  1000 and other  prominent  organizations  in key
industries     including:      Entertainment,      Publishing,      Fundraising,
Business-to-Business,   Education  and  Financial  Services.  No  single  client
accounted  for more than 5% of total revenue for the fiscal years ended June 30,
2002, 2001 and 2000.

Competition
-----------

The direct  marketing  services  industry is highly  competitive and fragmented,
with no single  dominant  competitor.  The Company  competes with companies that
have more extensive  financial,  marketing and other resources and substantially
greater assets than those of the Company,  thereby  enabling such competitors to
have an advantage in obtaining client contracts where sizable asset purchases or
investments  are required.  The Company also  competes  with  in-house  database
management,  telemarketing/telefundraising and direct mail operations of certain
of its clients or potential clients.

Competition  is based on quality  and  reliability  of  products  and  services,
technological  expertise,  historical experience,  ability to develop customized
solutions  for  clients,  technological  capabilities  and  price.  The  Company
believes that it competes favorably,  especially in the media and entertainment,
publishing, fundraising, business-to-business,  education and financial services
sectors.  The  Company's  principal  competitors  include:  Acxiom  Corporation,
Harte-Hanks Communications, Experian North America, InfoUSA, Fair-Isaac, Epsilon
and  Triplex.   The  current  market  is  highly  competitive  and  the  Company
anticipates  that new  competitors  will  continue  to enter the  market.  These
competitors tend to have greater  financial,  technical and marketing  resources
than the Company.

Facilities
----------

The Company leases all of its real property. Facilities for its headquarters are
in New York City;  its sales and  service  offices are located in New York City,
New  York;  Newtown,  Pennsylvania;  El  Segundo,  California;  and  Wilmington,
Massachusetts;  its data centers are located in New York City and Massachusetts;
its  telemarketing  calling  center is located in El  Segundo,  California.  The
Company  believes that its remaining  facilities  are in good  condition and are
adequate for its current needs through  fiscal 2003.  The Company  believes such
space is readily  available  at  commercially  reasonable  rates and terms.  The
Company also believes that its technological resources,  including the mainframe
computer and other data  processing  and data storage  computers and  electronic
machinery at its data centers in New York City and Massachusetts, as well as its
related operating,  processing and database  software,  are all adequate for its
needs through fiscal 2003.

Intellectual Property Rights
----------------------------

The Company relies upon its trade secret protection  program and  non-disclosure
safeguards  to  protect  its   proprietary   computer   technologies,   software
applications  and systems  know-how.  In the ordinary  course of  business,  the
Company  enters into license  agreements  and contracts  which specify terms and
conditions  prohibiting  unauthorized  reproduction  or usage  of the  Company's
proprietary  technologies and software  applications.  In addition,  the Company
generally enters into  confidentiality  agreements with its employees,  clients,
potential clients and suppliers with access to sensitive  information and limits
the  access  to  and  distribution  of  its  software  documentation  and  other
proprietary  information.  No  assurance  can be given that  steps  taken by the
Company will be adequate to deter misuse or  misappropriation of its proprietary
rights or trade  secret  know-how.  The  Company  believes  that  there is rapid
technological  change  in its  business  and,  as a  result,  legal  protections
generally   afforded  through  patent  protection  for  its  products  are  less
significant  than the knowledge,  experience and know-how of its employees,  the
frequency of product  enhancements  and the  timeliness  and quality of customer
support in the usage of such products.

                                       10
<PAGE>

Government Regulation and Privacy Issues
----------------------------------------

The telemarketing industry has become subject to an increasing amount of federal
and state regulation.  Violation of these rules may result in injunctive relief,
monetary  penalties  or  disgorgement  of  profits  and can give rise to private
actions for damages.  While the Federal  Trade  Commission's  new rules have not
required or caused the  Company to alter its  operating  procedures,  additional
federal or state  consumer-oriented  legislation  could limit the  telemarketing
activities of the Company or its clients or significantly increase the Company's
costs of  regulatory  compliance.  Several of the  industries  which the Company
intends to

serve, including the financial services, and healthcare industries,  are subject
to varying  degrees of government  regulation.  Although  compliance  with these
regulations  is generally  the  responsibility  of the  Company's  clients,  the
Company could be subject to a variety of enforcement or private  actions for its
failure or the failure of its clients to comply with such regulations.

In  addition,  the  growth of  information  and  communications  technology  has
produced a proliferation of information of various types and has raised many new
issues  concerning the privacy of such  information.  Congress and various state
legislatures have considered legislation which would restrict access to, and the
use of, credit and other personal information for direct marketing purposes. The
direct marketing services industry,  including the Company,  could be negatively
impacted in the event any of these or similar types of legislation are enacted.

With the  exception of  regulations  generally  applicable to  businesses,  with
respect to the  Company's  Internet  products and  services,  the Company is not
currently  subject  to  direct  regulation  by  any  government  agency.  Due to
increasing  popularity and use of the Internet,  however,  it is possible that a
number of laws may be  adopted  with  respect  to the  Internet  in the  future,
covering  such issues as: user privacy;  pricing of goods and services  offered;
and types of products and service offered.

If the government adopts any additional laws or regulations  covering use of the
Internet,  such  actions  could  decrease the growth of the  Internet.  Any such
reduction  in the growth of the  Internet  may reduce  demand for the  Company's
goods and services and raise the cost to the Company of producing such goods and
services. Finally, the sales of services may be reduced and the costs to produce
such  services  may be  increased  if existing  U.S.  federal and state laws and
foreign laws governing issues such as commerce,  taxation,  property  ownership,
defamation and personal privacy are increasingly applied to the Internet.

Employees
---------

At June 30, 2002, the Company employed  approximately 1,300 persons, of whom 290
were  employed on a  full-time  basis.  As of June 30,  2002,  approximately  70
employees of the El Segundo  calling  center were covered under union  contracts
with the International Longshore and Warehouse Union.


Item 2 - Properties
-------------------

The Company had owned land and  buildings  in Houston  and  Atlanta,  which were
included  in the sale of  Grizzard  (see Note 19 to the  Company's  consolidated
financial  statements included in this Form 10-K). In addition,  the Company and
certain subsidiaries lease facilities for office space summarized as follows and
in Note 11 of Notes to the Company's  consolidated financial statements included
in this Form 10-K.

              Location                              Square Feet
              --------                              -----------
              New York, New York                       36,500
              Wilmington, Massachusetts                20,058
              El Segundo, California                   12,800
              Newtown, Pennsylvania                    10,268

 In addition,  the Company is currently leasing approximately 40,000 square feet
 in New York,  California,  Pennsylvania  and  Massachusetts  which is not being
 currently  utilized.  Accordingly,  the  Company  has  provided  for the future
 estimated cost of these leases.

                                       11
<PAGE>

 Item 3 - Legal Proceedings
----------------------------

In December 2000, an action was filed by Red Mountain,  LLP in the United States
Court for the Northern District of Alabama,  Southern Division against J. Jeremy
Barbera,  Chairman of the Board and Chief  Executive  Officer of MKTG,  MKTG and
WiredEmpire,   Inc.  Red  Mountains'  complaint  alleges,  among  other  things,
violations of Section 12(2) of the Securities Act of 1933,  Section 10(b) of the
Securities Act of 1934 and Rule 10(b)(5)  promulgated  there under,  and various
provisions  of Alabama  state law and common law,  arising  from Red  Mountain's
acquisition of WiredEmpire Preferred Series

A stock in a private placement. Red Mountain invested $225,000 in WiredEmpire's
preferred stock and it seeks that amount, attorney's fees and punitive damages.
The Company believes that the allegations in the complaint are without merit.
The Company intends to vigorously defend against the lawsuit.

In December  2001,  an action was filed by a number of  purchasers  of preferred
stock of  WiredEmpire,  Inc., a  discontinued  subsidiary,  in the Alabama State
Court  (Circuit  Court of  Jefferson  County,  Alabama,  10 Judicial  Circuit of
Alabama, Birmingham Division),  against J. Jeremy Barbera, Chairman of the Board
and Chief Executive Officer of MKTG, MKTG and WiredEmpire,  Inc. The plaintiff's
complaint alleges,  among other things,  violation of sections  8-6-19(a)(2) and
8-6-19(c) of the Alabama  Securities Act and various other provisions of Alabama
state law and common law, arising for the plaintiffs' acquisition of WiredEmpire
Preferred  Series  A stock  in a  private  placement.  The  plaintiffs  invested
approximately  $1,650,000  in  WiredEmpire's  preferred  stock and it seeks that
amount,  attorney's  fees  and  punitive  damages.  On  February  8,  2002,  the
defendants filed a petition to remove the action to federal court on the grounds
of diversity of  citizenship.  The Company  believes that the allegations in the
complaint are without merit.  The Company  intends to vigorously  defend against
the lawsuit.

In June  2002,  the  Company  entered  into a  tolling  agreement  with  various
claimants  who  acquired  WiredEmpire  Preferred  Series  A stock  in a  private
placement.  The  agreement  states  that the  passage of time from June 15, 2002
through  August 31, 2002 shall not be counted toward the limit as set out by any
applicable statute of limitations. In addition, the claimants agree that none of
them  shall  initiate  or file a  legal  action  against  Mr.  Barbera,  MKTG or
WiredEmpire  prior to the termination of the agreement.  The claimants  invested
approximately $1,200,000 in WiredEmpire's preferred stock.

In 1999, a lawsuit under Section  16(b) of the  Securities  Exchange Act of 1934
was commenced  against General  Electric  Capital  Corporation  ("GECC") by Mark
Levy,  derivatively  on behalf of the Company,  to recover  short swing  profits
allegedly  obtained by GECC in  connection  with the  purchase  and sale of MKTG
securities.  The case was  filed in the name of Mark  Levy v.  General  Electric
Capital  Corporation,  in the  United  States  District  Court for the  Southern
District of New York, Civil Action Number 99 Civ. 10560(AKH).  In February 2002,
a  settlement  was reached  among the  parties.  The  settlement  provided for a
$1,250,000 payment to be made to MKTG by GECC and for GECC to reimburse MKTG for
the reasonable cost of mailing a notice to stockholders up to $30,000.  On April
29, 2002, the court approved the settlement for $1,250,000, net of attorney fees
plus reimbursement of mailing costs. In July 2002, the court ruling became final
and the Company  received and recorded  the net  settlement  payment of $965,486
plus reimbursement of mailing costs.

Item 4 - Control Procedures
---------------------------

Not applicable.


                                     PART II

Item 5 - Market for Registrant's Common Equity and Related Stockholder Matters
------------------------------------------------------------------------------

The common stock of the Company trades on the NASDAQ  National  Market under the
symbol  "MKTG."  Prior to July 30,  2001,  the Company  traded  under the symbol
"MSGI."  The  following  table  reflects  the high and low sales  prices for the
Company's  common stock for the fiscal quarters  indicated,  as furnished by the
NASDAQ:

                                       12
<PAGE>

                                           Low                  High
                                           ---                  ----
          Fiscal 2002
             Fourth Quarter              $0.25                 $2.34
             Third Quarter                 .90                  3.25
             Second Quarter               2.04                  5.05
             First Quarter                2.10                  7.50

          Fiscal 2001
             Fourth Quarter              $4.26               $ 10.02
             Third Quarter                6.18                 16.86
             Second Quarter               6.18                 16.86
             First Quarter               14.28                 39.00



On October 9, 2001, the Board of Directors approved a six-for-one  reverse split
of the common  stock.  Par value of the common stock  remains $.01 per share and
the number of authorized shares of common stock remains at 75,000,000. The stock
split was  effective  October 15, 2001.  All stock  prices,  per share and share
amounts have been retroactively restated to reflect the reverse split.

As of June 30, 2002, there were  approximately 990 registered  holders of record
of the Company's common stock. (This number does not include approximately 7,300
investors whose accounts are maintained by securities firms in "street name".)

The Company received  notification  from The Nasdaq Stock Market ("Nasdaq") that
the  Company's  common  stock  has  closed  below  the  minimum  $1.00 per share
requirement for continued  inclusion under  Marketplace Rule 4310(c)(4).  If the
Company  cannot meet  compliance  under the Nasdaq  rules by December  24, 2002,
Nasdaq will determine whether the Company meets the initial listing criteria for
The Nasdaq SmallCap Market under Marketplace Rule 4310(c)(2)(a).  If the Company
meets the initial  listing  criteria,  the Company will be granted an additional
180  calendar  day  grace  period  to  demonstrate  compliance.   Otherwise  the
securities  may be  delisted.  The Company has  explored  and is  continuing  to
explore  alternatives  to remain listed on Nasdaq.  The Company  believes it has
sufficient  alternatives and will execute on any one or more these  alternatives
to remain listed. The Company believes a potential delisting is not probable.


The Company has not paid any cash  dividends  on any of its capital  stock in at
least the last five years.  The Company  intends to retain future  earnings,  if
any, to finance the growth and development of its business and, therefore,  does
not anticipate paying any cash dividends in the foreseeable future.




























                                       13
<PAGE>


Item 6 - Selected Financial Data
--------------------------------

The selected  historical  consolidated  financial data for the Company presented
below as of and for the five fiscal  years ended June 30, 2002 have been derived
from the Company's audited  consolidated  financial  statements.  This financial
information  should be read in  conjunction  with  management's  discussion  and
analysis  (Item  7) and  the  notes  to  the  Company's  consolidated  financial
statements (Item 14).
<TABLE>
<CAPTION>

                                                                               Historical
                                                                           Years ended June 30,
                                                                           --------------------
                                                                  (In thousands, except per share data)
                                                      1998 (1)    1999 (2)      2000 (3)      2001             2002 (17)
                                                      --------    --------      --------      --------         ---------
<S>                                                  <C>          <C>            <C>          <C>              <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues (13)                                        $26,792     $ 33,489       $ 62,488      $127,723         $ 38,972
Amortization and depreciation                        $ 1,486     $  2,282       $  6,028      $ 11,730         $  3,324
Loss from operations                                 $  (580)    $ (7,072)      $(11,292)     $(50,645)        $(59,622)  (14)
Loss from continuing operations                      $  (780)    $ (7,646)(5)   $(41,130)(8)  $(67,091)(10)    $(60,824)

(Loss) gain from discontinued operations                   -            -       $(34,543)(9)  $  1,252 (11)           -

Net loss                                             $  (780)    $ (7,646)      $(75,673)     $(65,839)        $(65,683)  (15)
Net loss available to common stockholders            $(4,724)(4) $(20,181)(6)   $(75,673)     $(66,492) (12)   $(66,096)  (16)

Loss per common share (18):
    Continuing operations                            $ (2.20)    $ (8.32)       $  (9.28)     $ (12.61)        $ (10.02)
    Discontinued operations                                -           -        $  (7.80)     $   2.76                -
    Extraordinary item                                     -           -               -             -             (.79)
    Cumulative efffect of change in accounting             -           -               -      $  (2.64)               -
                                                       -------    -------       --------      --------          --------
                                                      $(2.20)    $ (8.32)       $ (17.08)     $ (12.49)        $ (10.81)
     Weighted average common shares
           Outstanding                                 2,149        2,426          4,430         5,320            6,115

OTHER DATA:
EBITDA (7)                                           $   906     $(4,346)       $ (4,844)     $  1,499        $ (14,388)
Net cash used in operating activities:               $(1,886)    $   (45)       $(11,357)     $ (5,663)       $ (15,254)
Net cash (used in) provided by investing
activities:                                          $(7,281)    $(18,939)      $(60,116)     $ (3,365)       $  70,555
Net cash provided by (used in) financing
activities:                                          $12,474     $ 16,035       $ 78,904      $ (3,407)       $ (51,929)
Net cash (used in) provided by discontinued
operations                                                 -            -       $   (812)     $  4,256        $    (682)
</TABLE>

<TABLE>
<CAPTION>
                                                                              Historical
                                                                             As of June 30,
                                                                            (In thousands)
CONSOLIDATED BALANCE SHEETS DATA:                     1998        1999          2000          2001             2002
                                                      ----        ----          ----          ----             ----
<S>                                                   <C>         <C>           <C>           <C>              <C>
Cash and cash equivalents                             $ 6,235     $ 3,285       $  9,904      $  1,725         $  4,416
Working capital (deficit)                             $ 5,013     $(9,647)      $    813      $ 29,146         $(2,583)
Total intangible assets                               $24,771     $56,978       $154,016      $ 54,363         $ 16,075
Total assets                                          $49,781     $97,627       $245,567      $170,390         $ 50,545
Total long term debt, net of current portion          $   204     $ 5,937       $ 36,157      $  4,429         $    176
Total stockholders' equity                            $17,325     $48,928       $113,957      $ 68,778         $  1,390
</TABLE>

(1) Effective July 1, 1997, the Company  acquired all of the outstanding  common
shares of Pegasus  Internet,  Inc.  The  results of  operations  for Pegasus are
included in the  consolidated  statements of operations  beginning July 1, 1997.
Effective  December 1, 1997, the Company acquired all of the outstanding  common
shares of Media Marketplace, Inc. and Media Marketplace Media Division, Inc. The
results of operations are included in the consolidated  statements of operations
beginning December 1, 1997. In May 1998, MKTG formed Metro Fulfillment,  Inc., a
new operating subsidiary.

(2)  Effective  January 1, 1999,  the Company  acquired  all of the  outstanding
common  shares  of  Stevens-Knox   List  Brokerage,   Inc.,   Stevens-Knox  List
Management, Inc. and Stevens-Knox International, Inc. (collectively, "SKA"). The
results of operations  for SK&A are included in the  consolidated

                                       14
<PAGE>

statements of operations  beginning January 1, 1999. Effective March 1, 1999 the
Company sold 85% of its subsidiary  Metro  Fulfillment.  Accordingly,  effective
March 1, 1999 the results of operations of MFI are no longer consolidated in the
Company's statement of operations.  On May 13, 1999, the Company acquired all of
the outstanding common shares of CMG Direct,  Inc. The results of operations are
included in the consolidated statements of operations beginning May 14, 1999.

(3) On March 31, 2000, the Company acquired all of the outstanding common shares
of The  Coolidge  Company.  On March 22,  2000 the Company  acquired  all of the
outstanding  common shares of Grizzard  Advertising,  Inc.  Effective October 1,
1999, the Company acquired 87% of the outstanding common shares of The Cambridge
Intelligence  Agency.  The  results of  operations  for these  acquisitions  are
included  in the  consolidated  statements  of  operations  from the date of the
respective acquisition.

(4) Net loss available to common shareholders includes the impact of dividends
on preferred stock for a non-cash beneficial conversion feature of $3,214.

(5) Loss from continuing  operations includes a severance charge of $1,125 and a
compensation  expense on option  grants of $444 which were  granted at  exercise
prices below market value.

(6) Net loss available to common  shareholders  includes the impact of dividends
on preferred  stock for (a)  adjustment of the  conversion  ratio of $11,366 for
exercises  of stock  options and  warrants;  (b) $949 in  cumulative  undeclared
preferred  stock  dividends;  and (c) $220 of periodic  non-cash  accretions  of
preferred stock.

(7) EBITDA is defined as earnings from continuing  operations  before  interest,
income tax,  depreciation,  amortization and other  non-recurring  and non- cash
items.  EBITDA should not be construed as an alternative to operating  income or
net income (as  determined  in accordance  with  generally  accepted  accounting
principles),  as an indicator of MKTG's operating performance, as an alternative
to cash flows provided by operating activities (as determined in accordance with
generally accepted accounting principles),  or as a measure of liquidity. EBITDA
is presented solely as a supplemental  disclosure  because  management  believes
that it enhances the  understanding  of the financial  performance  of a company
with substantial  amortization and depreciation  expense.  MKTG's  definition of
EBITDA may not be the same as that of similarly captioned measures used by other
companies.
<TABLE>
<CAPTION>

EBITDA Reconciliation:                                 1998          1999         2000         2001          2002
                                                       ----          ----         ----         ----          ----
<S>                                                  <C>         <C>          <C>          <C>            <C>
     Loss from operations                            $  (580)     $ (7,072)    $(11,292)    $(50,645)     $(59,622)
     Depreciation and amortization                   $ 1,486        $2,282     $  6,027     $ 11,730      $  3,324
     Goodwill write-down                                   -             -            -           -       $ 35,900
     Loss (gain) on sale of subsidiary                     -             -            -     $ 36,697      $ (1,748)
     Compensation expense on option grants and
        severance                                          -       $   444     $    106     $  2,001      $    480
     Abandoned lease reserve                               -             -            -           -       $  7,032
     Legal settlements and legal fees                                          $    315     $  1,716      $    246
                                                    --------       --------      ------      ------        -------
     EBITDA                                            $ 906     $  (4,346)    $ (4,844)    $  1,499      $(14,388)
                                                      ======       ========      =======    ========      ========
</TABLE>

(8)  Loss  from  continuing   operations  includes  a  charge  for  $27,216  for
write-downs of certain Internet investments.

(9) On September 21, 2000, the Company's  Board of Directors  approved a plan to
discontinue  the  operation  of its  WiredEmpire  subsidiary,  which at the time
included the assets of Pegasus Internet,  Inc. The Company shut down operations,
which was completed by the end of January 2001. The estimated losses  associated
with  WiredEmpire are $34,543 and are reported as discontinued  operations.  All
prior period results have been classified as discontinued operations.

(10) Loss from  operations  includes a loss on Grizzard  assets held for sale of
$36,697, severance costs of $2,001, write-down of Internet investments of $7,578
and expenses associated with settlement of litigation of $1,298.

(11) In January 2001, the company sold certain assets of WiredEmpire for a gain
of $1,252.

(12) Net loss available to common stockholders includes a cumulative effect of a
change in accounting of $14,064 in connection with the adoption of EITF 00-27.

(13)  Pursuant to the  Securities  and Exchange  Commission's  Staff  Accounting
Bulletin (SAB) No. 101,  "Revenue  Recognition in Financial  Statements,"  ("SAB
101") the Company has reviewed its  accounting  policies for the  recognition of
revenue.  SAB 101 was required to be implemented in fourth quarter 2001. SAB 101
provides  guidance on  applying  generally  accepted  accounting  principles  to
revenue recognition in financial statements.  The Company's policies for revenue
recognition are consistent with the views expressed  within SAB 101. See Note 2,
"Significant  Accounting  Policies," for a description of the Company's policies
for revenue recognition.  The adoption of SAB 101 did not have a material effect
on the Company's  consolidated  financial  position,  cash flows,  or results of
operations.  Although net income was not materially  affected,  the adoption did
have an impact on the amount of revenue recorded as the revenue  associated with
the Company's list sales and services  product line are now required to be shown
net of certain costs. The Company believes this  presentation is consistent with
the guidance in Emerging  Issues Task Force ("EITF") 99-19,  "Reporting  Revenue
Gross as a Principal  Versus Net as an Agent." All prior periods  presented have
been restated.

(14) Loss from operations includes an impairment write-down of goodwill of
$35,900, a write-down of abandoned leased property of $7,000 and


                                       15
<PAGE>

severance costs of $480, net of $1,748 gain on sale of Grizzard.

(15) Net loss  includes  an  extraordinary  item of  $4,859  for a loss on early
extinguishments of debt.

(16) Net loss available to common stockholders includes a deemed dividend in the
amount of $413 in connection with the redemption of preferred stock.

(17) Effective July 31, 2001,  the Company sold Grizzard  Communications  Group,
Inc.  The  results of  operations  for  Grizzard  are no longer  included in the
Company's results from the date of sale.

(18) On October 9, 2001, the Board of Directors  approved a six-for-one  reverse
split of the common stock.  Par value of the common stock remains $.01 per share
and the number of authorized  shares of common stock remains at 75,000,000.  The
stock split was  effective  October  15,  2001.  All stock  prices and per share
amounts have been retroactively restated to reflect the reverse split.

The following is a summary of the quarterly  operations for the years ended June
30, 2001 and 2002.
<TABLE>
<CAPTION>
                                                                             Historical
                                                                      Quarter ended June 30,
                                                               (In thousands, except per share data)
                                                                             (unaudited)

                                                     9/30/2000      12/31/2000       3/31/2001     6/30/2001
                                                     ---------      ----------       ---------     ---------

<S>                                                    <C>          <C>              <C>            <C>
Revenues  (1)                                          $29,182        $ 40,588        $ 31,115      $ 26,838
(Loss) income from operations                          $(2,964)       $    537        $ (4,957)     $(43,261) (2)
Loss from continuing operations                        $(5,072)       $ (1,434)       $(14,239) (3) $(46,346)
Income from discontinued operation                           -               -        $  1,252  (4)        -
Net loss                                               $(5,072)       $ (1,434)       $(12,987)     $(46,346)
Net income (loss) attributable to common stockholders
  before cumulative effect of change in accounting     $ 3,522        $  3,383        $(12,987)     $(46,346)
Net income (loss) available to common stockholders     $ 3,522        $(10,681) (5)   $(12,987)     $(46,346)
Basic and diluted earnings (loss) per share (11):
     Continuing operations                             $ (1.01)       $  (0.27)       $  (2.66)     $  (8.25)
     Discontinued operations                              1.71        $   0.91        $    .23             -
     Cumulative effect of change in accounting               -        $  (2.66)             -              -
                                                     ---------------------------------------------------------
Basic and diluted earnings (loss) per share            $  0.70       $   (2.02)       $  (2.43)     $  (8.25)
                                                     =========================================================

</TABLE>



<TABLE>
<CAPTION>

                                                                             Historical
                                                                      Quarter ended June 30,
                                                               (In thousands, except per share data)
                                                                             (unaudited)

                                                     9/30/2001      12/31/2001       3/31/2002     6/30/2002
                                                     ---------      ----------       ---------     ---------

<S>                                                 <C>               <C>           <C>           <C>
Revenues (1)                                          $ 11,682        $  8,179        $  8,696      $ 10,415
Loss from operations                                  $ (4,907) (6)   $ (4,266)       $(39,287) (7) $(11,162) (8)
Net loss                                              $(10,314) (9)   $ (4,177)       $(39,439)     $(11,753)
Net loss available to common stockholders             $(10,314)       $ (4,177)       $(42,202)(10) $ (9,403) (10)
Basic and diluted loss per share (11):
     Continuing operations before extraordinary item  $  (0.96)       $  (0.74)       $  (6.47)     $  (1.41)
     Extraordinary item                               $  (0.87)              -               -             -
                                                    ---------------------------------------------------------
Basic and diluted loss per share                      $  (1.83)       $  (0.74)       $  (6.47)     $  (1.41)
                                                    =========================================================
</TABLE>



(1)  Prior periods presented have been restated in accordance with SAB
     101.  See  Note  2,  "Significant  Accounting  Policies,"  of the Company's
     consolidated financial statements included in this Form 10-K.
(2)  Includes loss on assets held for sale of  $36,697.
(3)  Includes  severance  costs of $2,001,  write-down of Internet investments
     of $7,578 and expenses  associated  with settlement of litigation of
     $1,298.
(4)  In January 2001, the Company sold certain assets of WiredEmpire for a gain
     of $1,252.
(5)  Includes a cumulative effect of a change in accounting of $14,064 in
     connection with the adoption of EITF 00-27.
(6)  Includes gain on sale of Grizzard of $1,723.



                                       16
<PAGE>

(7)  Includes a write-off due to goodwill impairment of $35,900.
(8)  Includes a write-down of abandoned leased property of $7,000 and severance
     costs of $480.
(9)  Includes extraordinary loss on early extinguishments not for the quarters
     ended March 31, 2002 and June 30, 2002, of debt of $4,859.
(10) Includes a deemed dividend in the amount of $413 net, for the quarters
     ended March 31,2002 and June 30, 2002, in connection with the redemption of
     preferred stock.
(11) On October 9, 2001, the Board of Directors approved a six-for-one reverse
     split of the common stock.  Par value of the common stock remains  $.01 per
     share and the  number of  authorized  shares of common stock remains at
     75,000,000. The stock split was effective October 15,  2001.  All stock
     prices and per share  amounts have been retroactively restated to reflect
     the reverse split.

Item 7 - Management's Discussion and Analysis
---------------------------------------------

Overview
--------

This discussion  summarizes the significant  factors  affecting the consolidated
operating results,  financial condition and liquidity/cash  flows of the Company
for the  twelve-month  period  ended  June  30,  2002.  This  should  be read in
conjunction with the financial statements,  and notes thereto,  included in this
Form 10-K.

Financial  Reporting  Release  No.  60  requires  all  companies  to  include  a
discussion of critical accounting policies or methods used in the preparation of
financial  statements.  The  following  is  a  brief  description  of  the  more
significant accounting policies and methods used by the Company.

Revenue Recognition:

Pursuant to the Securities and Exchange  Commission's Staff Accounting  Bulletin
(SAB) No. 101, "Revenue  Recognition in Financial  Statements,"  ("SAB 101") the
Company has reviewed its accounting policies for the recognition of revenue. SAB
101 was  implemented  in fourth  quarter  2001.  SAB 101  provides  guidance  on
applying  generally  accepted  accounting  principles to revenue  recognition in
financial  statements.  The  Company's  policies  for  revenue  recognition  are
consistent with the views expressed within SAB 101. The adoption of SAB 101, did
not have a material  effect on the Company's  consolidated  financial  position,
cash flows,  or results of  operations.  Although net income was not  materially
affected,  the adoption did have an impact on the amount of revenue  recorded as
the revenue  associated with the Company's list sales and services  product line
are now required to be shown net of certain  costs.  The Company  believes  this
presentation  is  consistent  with the  guidance in  Emerging  Issues Task Force
("EITF") 99-19, "Reporting Revenue Gross as a Principal Versus Net as an Agent."
All prior periods presented have been restated.

Revenues  derived  from list  sales and  services  and  database  marketing  are
recognized  when the lists are shipped or the services  have been  performed and
completed. For all list sales and services, the Company serves as broker between
unrelated  parties who wish to purchase a certain list and unrelated parties who
have the  desired  list for sale.  Accordingly,  the  Company  recognizes  trade
accounts  receivable and trade accounts payable,  reflecting a "gross-up" of the
two concurrent  transactions.  The transactions are not structured providing for
the right of offset.  List sales and services are  reflected net of costs on the
accompanying statement of operations.

Revenues derived from on-site  telemarketing and  telefundraising  are generally
based on hourly  billing  rates and a  mutually  agreed  percentage  of  amounts
received by the Company's  client from a campaign.  These services are performed
on-site at the clients' location.  These revenues are earned and recognized when
the cash is received by the respective  client.  Revenues  derived from off-site
telemarketing  and  telefundraising  are  generally  based on a mutually  agreed
amount per telephone  contact with a potential  donor without  regard to amounts
raised for the client.  These  services are performed at the  Company's  calling
center.  These  revenues  are  earned  and  recognized  when  the  services  are
performed.

Revenues derived from marketing  communications are recognized when the campaign
is mailed  provided  that the Company has no remaining  performance  commitments
under  marketing  communications  arrangements.  The  Company's  revenue  is not
dependent on the number of respondents to the direct mailing. Due to the sale of
Grizzard in July 2002, the Company no longer provides  marketing  communications
services.

Prior to January  2001,  revenues and costs derived from  interactive  marketing
were deferred until services were completed and recognized using a straight-line
method over the  remaining  life of the contract.  In January  2001,  due to the
installation  of



                                       17
<PAGE>

a time  management  system,  which allows for the gathering of hours by project,
all new  contracts  utilize the  percentage of  completion  method  preferred by
Statement of Position 81-1, "Accounting for Performance of Construction-Type and
Certain  Production-Type  Contracts."  The contract  lives are  generally  three
months to one year. The impact of changing revenue  recognition  methods did not
have a material impact on the Company's financial results.

Intangible Assets:

Intangible assets consist of covenants not to compete, capitalized software,
customer base, list databases, assembled work force, present value of favorable
leases and the remaining excess purchase price paid over identified intangible
and tangible net assets of acquired companies. Intangible assets are amortized
under the straight-line method over the period of expected benefit of 3 to 40
years.

The  development  costs of software are capitalized in accordance with Statement
of Position  98-1,  "Accounting  for Costs of  Computer  Software  Developed  or
Obtained  for  Internal  Use"  and  once  completed,  are  amortized  using  the
straight-line method over three to five years. The Company capitalizes labor and
related  costs  incurred  for  the  development  of  software  after  management
authorizes  the funding of the project and it is probable  that the project will
be completed and the software will be used to perform the function intended.

At each balance sheet date, the Company reviews the  recoverability of goodwill,
not identified with long-lived assets,  based on estimated  undiscounted  future
cash  flows  from  operating  activities  compared  with the  carrying  value of
goodwill,  and recognizes any impairment on the basis of discounted  cash flows.
Due to the weakened  economy and lower than expected  results,  based on current
information,  the Company has determined  that there will not be sufficient cash
flows to recover all of the remaining book value of goodwill.  As a result,  the
Company has  recognized an impairment  charge of  approximately  $35.9  million,
which is included in the loss from operations for the year ended June 30, 2002.

Long-Lived Assets:

In accordance  with SFAS No. 121,  "Accounting  for the Impairment of Long-Lived
Assets and for  Long-Lived  Assets to be Disposed  Of," the Company  reviews for
impairment of long-lived assets and certain  identifiable  intangibles  whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable.  In general,  the Company will recognize impairment when
the sum of  undiscounted  future cash flows (without  interest  charges) is less
than the carrying  amount of such assets.  The  measurement  for such impairment
loss is based on the fair value of the asset.

Use of Estimates:

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  at the date of the
financial  statements and the reported  amounts of revenues and expenses  during
the reporting period. The most significant estimates and assumptions made in the
preparation  of the  consolidated  financial  statements  relate to the carrying
amount and amortization of intangible assets,  deferred tax valuation allowance,
abandoned lease reserves and the allowance for doubtful accounts. Actual results
could differ from those estimates.

To facilitate an analysis of MKTG operating results, certain significant events
should be considered.

On October 1, 1999, the Company completed an acquisition of approximately 87% of
the  outstanding  common  stock of  Cambridge  Intelligence  Agency  for a total
purchase  price of $2.4 million which  consisted of $1.6 million in common stock
of the Company and an interest in the  Company's  Permission  Plus  software and
related  operations  valued at $.8  million,  subject  to  certain  adjustments.
Concurrently with this acquisition,  the Company formed WiredEmpire,  a licensor
of email marketing tools. Effective with the acquisition, Cambridge Intelligence
Agency and the Permission Plus asset was merged into WiredEmpire.

In March 2000, the Company  completed a private placement of 3,200,000 shares of
Convertible  Preferred  Stock of its  WiredEmpire  subsidiary  for  proceeds  of
approximately $18.7 million, net of placement fees and expenses of $1.3 million.

On  September  21, 2000,  the  Company's  Board of Directors  approved a plan to
discontinue the operation of its WiredEmpire  subsidiary.  The Company shut down
the  operations  by the end of January  2001.  In the fiscal year ended June 30,
2000, the



                                       18
<PAGE>

Company  recorded losses  associated  with  WiredEmpire of  approximately  $34.5
million.  These  losses  included  approximately  $19.5  million in losses  from
operations through the measurement date and approximately  $15.0 million of loss
on disposal which included  approximately $2.0 million in losses from operations
from the  measurement  date  through the  estimated  date of  disposal.  It also
included provisions for vested compensation expense of $2.0 million,  write down
of assets to net realizable value of $8.8 million,  lease  termination  costs of
$1.9  million,  employee  severance  and  benefits  of $1.8  million  and  other
contractual commitments of $.5 million. As of June 30, 2002,  approximately $1.7
million remains  accrued  representing  payments  expected to be made related to
legal and lease obligations.

The assets and liabilities of WiredEmpire have been separately classified on the
consolidated   balance  sheets  as  "Net  current  liabilities  of  discontinued
operations."  Results of these  operations  have been classified as discontinued
operations and all prior period results have been restated.

On March 22, 2000, the Company acquired all of the outstanding  common shares of
Grizzard Advertising,  Inc. ("Grizzard").  The results of operations of Grizzard
are reflected in the consolidated financial statements using the purchase method
of accounting from the date of acquisition.

On March 31, 2000, the Company acquired all of the outstanding  common shares of
The Coolidge  Company  ("Coolidge").  The results of  operations of Coolidge are
reflected in the consolidated  financial statements using the purchase method of
accounting from the date of acquisition.

On June 13, 2001, the board of directors and management of the Company  approved
a formal plan to sell Grizzard.  In July 2001, the Company completed its sale of
all the outstanding  capital stock of its Grizzard  subsidiary to Omnicom Group,
Inc. The purchase price of the  transaction  was $89.8 million  payable in cash,
net of a working  capital  adjustment.  As a result of the sale  agreement,  the
Company  fully paid the term loan of $35.5  million  and $12.0  million  line of
credit. The Company recorded an extraordinary loss of approximately $4.9 million
in the year ended June 30, 2002 as a result of the early extinguishment of debt.

At June 30, 2001, the assets and  liabilities of Grizzard were classified as net
assets held for sale in the amount of $80.9 million.  In the year ended June 30,
2001,  the  Company  recognized  a loss on assets held for sale in the amount of
$36.7 million representing a write-down of the amount of assets held for sale to
net realizable value. Grizzard's revenues included in the Company's statement of
operations  for the fiscal  years ended June 30,  2002,  2001 and 2000 were $2.8
million,  $82.8 million and $19.6  million,  respectively.  Grizzard's  net loss
included in the  Company's  statement of  operations  for the fiscal years ended
June 30, 2002, 2001 and 2000 were $8.5 million,  $41.0 million and $3.8 million,
respectively.

Pursuant to the Securities and Exchange  Commission's Staff Accounting  Bulletin
(SAB) No. 101, "Revenue  Recognition in Financial  Statements,"  ("SAB 101") the
Company has reviewed its accounting policies for the recognition of revenue. SAB
101 was  implemented  in fourth  quarter  2001.  SAB 101  provides  guidance  on
applying  generally  accepted  accounting  principles to revenue  recognition in
financial  statements.  The  Company's  policies  for  revenue  recognition  are
consistent  with the views  expressed  within SAB 101. See Note 2,  "Significant
Accounting  Policies," for a description  of the Company's  policies for revenue
recognition.  The  adoption  of SAB 101 did not have a  material  effect  on the
Company's consolidated financial position, cash flows, or results of operations.
Although net income was not materially affected, the adoption did have an impact
on the amount of revenue  recorded as the revenue  associated with the Company's
list sales and services product line are now required to be shown net of certain
costs. The Company believes this presentation is consistent with the guidance in
Emerging  Issues  Task  Force  ("EITF")  99-19,  "Reporting  Revenue  Gross as a
Principal  Versus  Net as an  Agent."  All  prior  periods  presented  have been
restated.

The Company's  business tends to be seasonal.  Certain  marketing  services have
higher revenues and profits occurring in the second fiscal quarter,  followed by
the first fiscal quarter based on the  seasonality of its clients' mail dates to
coordinate with the Thanksgiving and Holiday season. Telemarketing services have
higher revenues and profits occurring in the fourth fiscal quarter,  followed by
the first fiscal quarter.  This is due to subscription renewal campaigns for its
performing  arts clients,  which  generally begin in the springtime and continue
during the summer months.


                                       19
<PAGE>


Results of Operations Fiscal 2002 Compared to Fiscal 2001
---------------------------------------------------------
Revenues of  approximately  $39.0  million for the year ended June 30, 2002 (the
"Current  Period")  decreased  by $88.7  million or 69% over  revenues of $127.7
million  during  the year  ended  June 30,  2001 (the  "Prior  Period").  Of the
decrease, approximately $80.0 million is attributable to the sale of Grizzard in
July  2001.  Revenue  excluding  the  effects  of the  disposition  of  Grizzard
decreased by  approximately  $8.7  million,  due  primarily  to  decreased  list
services and database  marketing billing and the move of the telemarketing  call
center.  The  decrease  in such  billing  is a direct  result of the impact of a
weaker economy resulting in a reduction in our clients' marketing campaigns.  In
addition,   since  September  11  unexpected  client  cancellations,   postponed
fundraising campaigns and lost clients contributed to the decrease. Furthermore,
for a period of time following  September 11 our  telemarketing  call center was
closed and all campaigns for such period were cancelled.

Salaries  and  benefits of  approximately  $35.9  million in the Current  Period
decreased by  approximately  $34.4  million or 49% over salaries and benefits of
approximately $70.3 million in the Prior Period. Of the decrease,  approximately
$31.0 million is attributable to the sale of Grizzard in July 2001. Salaries and
benefits,  excluding the effects of the  disposition  of Grizzard,  decreased by
approximately $3.4 million or 9% due to decreased  headcount in several areas of
the Company in the Current Period.

Severance of  approximately  $.5 million in the Current Period is due to amounts
paid and accrued in connection  with  reductions in the work force  completed in
both the December and June quarters.  Severance of approximately $2.0 million in
the  Prior  Period  is  due  to  the  severance  of  an  executive  officer  and
restructuring of certain businesses in the Northeast.

Direct costs of  approximately  $5.8 million in the Current Period  decreased by
$30.2 million or 84% over direct costs of $36.0 million in the Prior Period.  Of
the  decrease,  approximately  $29.9  million  is  attributable  to the  sale of
Grizzard in July 2001.  Direct costs excluding the effects of the disposition of
Grizzard  decreased by $.3 million or 6% due to the lower costs  associated with
the Database marketing business.

Selling,  general and administrative  expenses of approximately $18.7 million in
the Current Period decreased by approximately $1.7 million or 8% over comparable
expenses of $20.4  million in the Prior Period.  Of the decrease,  approximately
$4.5  million is  attributable  to the sale of Grizzard  in July 2001.  Selling,
general and administrative expenses, excluding the effects of the disposition of
Grizzard, increased by $2.8 million, principally due to abandoned lease reserves
of $7.0 million,  offset by $4.2 million decrease in professional  fees,  travel
and other  expenses  due to  consolidation  of  certain  office  spaces  and the
reduction of headcount in the Current Period.

Gain on sale of subsidiary of  approximately  $1.7 million in the Current Period
represents an adjustment to the previous estimate based on the actual sale price
of  Grizzard as  compared  to its actual  book value at the  closing  date.  The
difference  predominantly  occurred due to the  operational  losses  incurred by
Grizzard  since the end of the Prior  Period.  The loss on sale of subsidiary of
approximately  $36.7  million in the Prior Period is  attributable  to the write
down of assets held for sale in connection with the sale of Grizzard.

Settlement of litigation  of  approximately  $.3 million and $1.3 million in the
Current and Prior Periods,  respectively,  was due to the settlement of lawsuits
with a previously owned subsidiary and one of their employees.

Goodwill  impairment  of $35.9  million  in the  Current  Period  represents  an
impairment  charge for the write down of goodwill.  Due to the weakened  economy
and lower than expected results,  based on current information,  the Company has
determined  that there will not be  sufficient  cash flows to recover all of the
remaining book value of goodwill.

Depreciation  and  amortization  expense of  approximately  $3.3  million in the
Current  Period  decreased by  approximately  $8.4 million over expense of $11.7
million in the Prior  Period.  Of the  decrease,  approximately  $8.0 million is
attributable to the sale of Grizzard in July 2001. Depreciation and amortization
expense  excluding the effects of the  disposition of Grizzard  decreased by $.4
million due to lower amortization  expense on goodwill in the Current Period due
to the aforementioned write down.

Unrealized loss on investments of approximately $7.6 million in the Prior Period
is attributable to the write-off of internet

                                       20
<PAGE>

investments whose decline in value was deemed to be other than temporary.

Interest  expense  and other,  net of  approximately  $.7 million in the Current
Period decreased by approximately  $8.1 million over interest expense and other,
net  of  approximately  $8.8  million  in the  Prior  Period.  Of the  decrease,
approximately  $7.3 million is attributable to the sale of Grizzard in July 2001
and the repayment of the related debt. Interest expense and other net, excluding
the  effects of the  disposition  of  Grizzard  decreased  by $.8 million due to
interest income on excess cash.

The net provision for income taxes of  approximately  $.5 million in the Current
Period  increased by  approximately  $.4 million over net  provision  for income
taxes of approximately  $.1 million from the Prior Period.  The increase relates
to state  taxes on the gain on sale of  Grizzard  which  could  not be offset by
losses incurred at the parent company level or other operating subsidiaries.  In
addition,  the Company records  provisions for state and local taxes incurred on
taxable  income or equity at the  operating  subsidiary  level,  which cannot be
offset  by  losses  incurred  at the  parent  company  level or other  operating
subsidiaries.  The Company has recognized a full valuation allowance against the
deferred tax assets because it is more likely than not that  sufficient  taxable
income  will not be  generated  during the carry  forward  period to utilize the
deferred tax assets.

As a result of the above, loss before extraordinary item of $60.8 million in the
Current  Period  decreased by $5.0 million over  comparable net loss of $65.8 in
the Prior Period.  The Company's  results include  Grizzard's net losses of $8.5
million in the Current Period and $41.0 million in the Prior Period.

In the Prior Period,  the Company sold certain assets of WiredEmpire  for a gain
of $1.3 million, which is included in income from discontinued operations.

In connection with the sale of Grizzard, the Company fully paid the term loan of
$35.5  million  and $12.0  million  line of  credit.  As a result,  the  Company
recorded an  extraordinary  loss of  approximately  $4.9  million in the Current
Period as a result of the early extinguishments of debt.

In the  Current  Period,  the  redemption  of 5,000  preferred  shares  for $5.0
million,  less  the  carrying  value  of the  preferred  shares,  including  the
beneficial  conversion  feature  previously  recorded  in equity on the  balance
sheet,  resulted  in a  deemed  dividend  of  $412,634  which  was  recorded  to
additional  paid-in  capital  and  included  in  the  calculation  of  net  loss
attributable to common stockholders.

In the Prior Period,  the Company  exchanged 328,334 shares of unregistered MKTG
common stock for WiredEmpire preferred stock. The exchange resulted in a gain of
$13.4  million  for the year ended June 30,  2001,  which was  recorded  through
equity  and is  included  in net loss attributable  to common  stockholders  and
earnings per share - discontinued operations.

In  September  2000,  the EITF  issued EITF 00-27  "Application  of EITF 98-5 to
Certain  Convertible  Instruments."  EITF 00-27  addresses  the  accounting  for
convertible  preferred  stock issued  since May 1999 that contain  nondetachable
conversion  options  that are in the money at the  commitment  date.  EITF 00-27
changed the approach of calculating the conversion price used in determining the
value of the  beneficial  conversion  feature  from using the  conversion  price
stated in the preferred  stock  certificate to using the  accounting  conversion
price.  The adoption of this EITF increased the original value of the beneficial
conversion  feature  from zero to $14.1  million.  MKTG  adopted  EITF  00-27 in
December  2000 and as a result has recorded a  cumulative  effect of a change in
accounting  of  approximately  $14.1  million in the year  ended  June 30,  2001
related to the March 2000  issuance of MKTG  convertible  preferred  stock.  The
cumulative  effect was recorded to additional  paid-in  capital and treated as a
deemed  dividend  in  the  calculation  of  net  loss   attributable  to  common
stockholders.


Results of Operations Fiscal 2001 Compared to Fiscal 2000
---------------------------------------------------------

Revenues of  approximately  $127.7 million for the year ended June 30, 2001 (the
"Current  Period")  increased  by $65.2  million or 104% over  revenues of $62.5
million  during  the year  ended  June 30,  2000 (the  "Prior  Period").  Of the
increase,  approximately $64.0 million is attributable to acquisitions completed
at the end of the third  quarter  in the Prior  Period.  Revenue  excluding  the
effects of acquisitions  increased by approximately $1.2 million,  due primarily
to increased  telemarketing and website  development revenue volume. The revenue
increases for database marketing were partially offset by elimination of certain
lower margin list service contracts.



                                       21
<PAGE>

Direct costs of  approximately  $36.0 million in the Current Period increased by
$24.2 million or 205% over direct costs of $11.8 million in the Prior Period. Of
the  increase,  approximately  $23.7  million is  attributable  to  acquisitions
completed  at the end of the third  quarter in the Prior  Period.  Direct  costs
excluding the effects of  acquisitions  increased by $.5 million or 4% resulting
from the  increased  operating  cost of the  database  marketing  centers  which
generated  increased  revenue  volume.  Direct costs as a percentage  of revenue
increased  from  19% in the  Prior  Period  to 28% in the  Current  Period.  The
increase  in the direct  costs as a  percentage  of  revenues  results  from the
acquisition in March 2000 of Grizzard, which has a higher direct cost percentage
of revenues.

Salaries  and  benefits of  approximately  $70.3  million in the Current  Period
increased by  approximately  $27.6  million or 65% over salaries and benefits of
approximately $42.7 million in the Prior Period. Of the increase,  approximately
$24.6 million is attributable to acquisitions  completed at the end of the third
quarter in the Prior  Period.  Salaries and  benefits,  excluding  acquisitions,
increased  by  approximately  $3.0 million or 7% due to an increase in corporate
headcount and salary increases.

Severance  of  approximately  $2.0  million in the Current  Period is due to the
severance of an executive officer and restructuring of certain businesses in the
Northeast. There are no further amounts to be incurred under these contracts.

Selling,  general and administrative  expenses of approximately $20.4 million in
the  Current  Period  increased  by  approximately  $7.4  million  or  57%  over
comparable  expenses  of $13.0  million in the Prior  Period.  Of the  increase,
approximately $5.6 million is attributable to acquisitions  completed at the end
of the third quarter in the Prior Period.  Selling,  general and  administrative
expenses,  excluding  the effects of  acquisitions,  increased by $1.8  million,
principally due to legal fees  associated  with a terminated  acquisition of $.4
million,  increased  rent expense due to  expansion of certain  office space and
increased corporate expenses due to merger and acquisition activity.

Loss on assets  held for sale of  approximately  $36.7  million  in the  Current
Period represents a write-down of the amount of Grizzard assets held for sale to
net realizable value.

Settlement  of litigation of  approximately  $1.3 million in the Current  Period
increased by  approximately  $1.0 million over $.3 million in the Prior  Period.
The  increase is due to the  settlement  of a lawsuit  with a  previously  owned
subsidiary and one of their employees of $1.3 million in the Current Period.  In
the Prior Period, an unrelated lawsuit was settled at $.3 million.

Depreciation  and  amortization  expense of  approximately  $11.7 million in the
Current  Period  increased  by  approximately  $5.7 million over expense of $6.0
million in the Prior Period.  This is primarily  attributable  to an increase in
depreciation and amortization expense resulting from acquisitions.

Unrealized  loss on  investments  of  approximately  $7.6 million in the Current
Period and $27.2 million in the Prior Period is attributable to the write-off of
internet  investments  whose  decline  in value  was  deemed  to be  other  than
temporary.

Interest  expense and other,  net of  approximately  $8.8 million in the Current
Period increased by approximately  $6.4 million over interest expense and other,
net of  approximately  $2.4  million  in the Prior  Period,  principally  due to
interest  expense on  outstanding  borrowings  relating  to the  acquisition  of
Grizzard, less interest expense in the Prior Period on related party debt, which
was fully paid in July 2000.  Approximately  $1.6 million of interest expense in
the  current  period  resulted  from the  amortization  of a discount on debt in
connection with the financing for the Grizzard acquisition.

The net provision for income taxes of  approximately  $.1 million in the Current
Period   decreased  by   approximately   $.2  million  over  the   provision  of
approximately  $.3 million in the Prior Period.  The Company records  provisions
for state and local taxes  incurred on taxable income or equity at the operating
subsidiary  level,  which  cannot be offset by  losses  incurred  at the  parent
company level or other operating subsidiaries. The Company has recognized a full
valuation  allowance  against the deferred tax assets  because it is more likely
than not that sufficient  taxable income will not be generated  during the carry
forward period to utilize the deferred tax assets.

As a result of the above,  loss from  continuing  operations of $67.1 million in
the Current Period  increased by $26.0 million over comparable net loss of $41.1
million in the Prior Period.

                                       22
<PAGE>

In the Current Period, the Company sold certain assets of WiredEmpire for a gain
of $1.3 million, which is included in income from discontinued operations.

In the year  ended  June 30,  2001,  the  Company  exchanged  328,334  shares of
unregistered  MKTG common stock for WiredEmpire  preferred  stock.  The exchange
resulted in a gain of $13.4 million for the year ended June 30, 2001,  which was
recorded  through  equity  and is  included  in net loss attributable  to common
stockholders and earnings per share - discontinued operations.

In  September  2000,  the EITF  issued EITF 00-27  "Application  of EITF 98-5 to
Certain  Convertible  Instruments."  EITF 00-27  addresses  the  accounting  for
convertible  preferred  stock issued  since May 1999 that contain  nondetachable
conversion  options  that are in the money at the  commitment  date.  EITF 00-27
changed the approach of calculating the conversion price used in determining the
value of the  beneficial  conversion  feature  from using the  conversion  price
stated in the preferred  stock  certificate to using the  accounting  conversion
price.  The adoption of this EITF increased the original value of the beneficial
conversion  feature  from zero to $14.1  million.  MKTG  adopted  EITF  00-27 in
December  2000 and as a result has recorded a  cumulative  effect of a change in
accounting  of  approximately  $14.1  million in the year  ended  June 30,  2001
related to the March 2000  issuance of MKTG  convertible  preferred  stock.  The
cumulative  effect was recorded to additional  paid-in  capital and treated as a
deemed  dividend  in  the  calculation  of  net  loss   attributable  to  common
stockholders.


Capital Resources and Liquidity
-------------------------------

Financial  Reporting  Release No. 61,  which was  recently  released by the SEC,
requires all companies to include a discussion  to address,  among other things,
liquidity,   off-balance  sheet   arrangements,   contractual   obligations  and
commercial commitments.  The Company currently does not maintain any off-balance
sheet arrangements.

Leases:
The Company  leases  various  office space and  equipment  under  non-cancelable
long-term  leases.  The Company incurs all costs of insurance,  maintenance  and
utilities.

Future minimum rental  commitments under all  non-cancelable  leases, as of June
30, 2002 are as follows:
                         Operating Leases       Capital Leases
                         ----------------       --------------
         2003              $ 2,893,259           $  88,535
         2004                2,776,100              33,050
         2005                2,391,773                   -
         2006                1,890,870                   -
         2007                1,743,862                   -
         Thereafter          4,973,110                   -
                           -----------             -------

                           $16,668,974             121,585
Less interest                                       (7,008)
                                                   -------
Present value of
    capital lease obligations                     $114,577
                                                  ========


Debt: In August 2001, the Company  entered into a stand-by letter of credit with
a bank in the amount of $4,945,874 to support the remaining  obligations under a
certain   holdback   agreement   with  the  former   shareholders   of  Grizzard
Communications Group, Inc. ("Grizzard").  The letter of credit is collateralized
by cash,  which has been  classified  as  restricted  cash in the current  asset
section of the balance  sheet as of June 30,  2002.  The Company has a remaining
obligation of $4,548,061 under the holdback agreement.  The remaining obligation
is included in current portion of long-term  obligations and is payable in March
2003. In connection with an acquisition,  the Company incurred  promissory notes
payable  to former  shareholders,  payable  monthly  at 5.59%  interest  through
January 2004.  The remaining  obligation is $465,594 in aggregate  with $176,336
included in long-term obligations, net of current portion.

                                       23
<PAGE>

Preferred Stock: The Company did not meet certain financial goals for the fiscal
year ended June 30, 2001 as set forth in the warrant issued in connection with a
1997 sale of Series D preferred stock. Accordingly, the warrant in the amount of
1,778,334  shares with an exercise price of $.06 per share was issued in October
2001.  As a  result  of the  issuance  of  the  warrant,  certain  antidilultive
provisions  of the  Company's  Series E  preferred  stock  were  triggered.  The
conversion price of such shares was reset to a fixed price of $2.346 based on an
amount equal to the average closing bid price of the Company's  common stock for
ten consecutive  trading days beginning on the first trading day of the exercise
period of the aforementioned warrant. No further adjustments will be made to the
conversion  price other than for stock splits,  stock dividends or other organic
changes. The preferred shareholders converted 1,799 shares of preferred stock to
903,866  shares of  common  stock  during  the year  ended  June 30,  2002.  The
preferred  shareholders are precluded from converting any additional shares into
common stock pursuant to the current conditions of the agreement of February 24,
2000.

On February  19,  2002,  the Company  entered  into  standstill  agreements,  as
amended,  with the Series E preferred  shareholders  in order for the Company to
continue to discuss with multiple  parties  regarding the  possibility of either
restructuring  or refinancing the remainder of the preferred  stock. The Company
is also reviewing  other  options,  including  replacing the existing  Preferred
Stockholders with an alternative strategic investor or selling certain assets to
obtain  funds  to  attempt  to  repurchase  the  Series E  preferred  stock at a
discount.  Under the terms of the  standstill  agreements,  and  subject  to the
conditions  specified  therein,  each preferred  shareholder  had agreed that it
would not acquire,  hedge (short),  proxy,  tender,  sell,  transfer or take any
action with  regard to its  holdings  during the  standstill  period,  which was
extended until August 15, 2002. Since the Company did not obtain  refinancing or
an alternative investor by August 15, 2002, the Company was obligated under such
agreement to seek stockholder  approval to convert the preferred stock to common
stock,  by  October  2,  2002,  based  upon the  19.99%  NASDAQ  stock  issuance
limitations  and the terms of the  preferred  stock  itself due to the change in
conversion price and increase in the number of exercisable shares. The Company's
commitments  as a  result  of  the  standstill  agreements  included  a  partial
redemption  of 5,000 of the Series E preferred  shares for  $5,000,000,  thereby
reducing the number of Series E preferred shares to 23,201 at June 30, 2002. The
value of the preferred stock was initially  recorded at a discount  allocating a
portion of the proceeds to a warrant.  The redemption of such  preferred  shares
for $5,000,000,  less the carrying value of the preferred shares,  including the
beneficial  conversion  feature  previously  recorded  in equity on the  balance
sheet,  resulted  in a  deemed  dividend  of  $412,634  which  was  recorded  to
additional  paid-in  capital  and  included  in  the  calculation  of  net  loss
attributable to common stockholders for the year ended June 30, 2002.

On October 2, 2002, the common  stockholders  approved the right of the Series E
preferred  shareholders  to  convert  their  preferred  stock to  common  stock.
Subsequently,  the preferred  shareholders  converted 951.44 shares of preferred
stock to 508,829  shares of common  stock.  The  redemption  value of  preferred
stock, including interest and penalties, at October 15, 2002 is $35,308,982.

In June 2002,  the Company  received  notification  from The Nasdaq Stock Market
("Nasdaq")  that the  Company's  common stock has closed below the minimum $1.00
per share requirement for continued inclusion under Marketplace Rule 4310(c)(4).
If the Company  cannot meet  compliance  under the Nasdaq  rules by December 24,
2002,  Nasdaq  will  determine  whether the  Company  meets the initial  listing
criteria for The Nasdaq SmallCap Market under Marketplace Rule 4310(c)(2)(a). If
the Company meets the initial listing  criteria,  the Company will be granted an
additional  180 calendar day grace period to demonstrate  compliance.  Otherwise
the securities may be delisted. An event of default under the Series E preferred
stock includes  failing to maintain the listing of the Company's common stock on
Nasdaq or other such similar  exchange.  Such default  would trigger a mandatory
redemption  in cash under the terms of the Series E preferred  stock  agreement.
The  Company  does not have  sufficient  cash to satisfy  such  redemption.  The
Company has explored and is continuing to explore  alternatives to remain listed
on Nasdaq. The Company believes it has sufficient  alternatives and will execute
on any one or more these  alternatives to remain listed.  The Company believes a
potential delisting is not probable.


Historically,  the Company has funded its operations,  capital  expenditures and
acquisitions primarily through cash flows from operations, private placements of
equity  transactions,  and its credit facilities.  At June 30, 2002, the Company
had cash and cash  equivalents  of $4.4 million and accounts  receivable  net of
allowances of $18.9 million.

The Company incurred losses from continuing operations of $60.8 million in the
Current Period. Cash used in operating activities from continuing operations was
approximately $15.3 million. Net cash used in operating activities principally
resulted from the loss from continuing operations offset by goodwill impairment,
early extinguishments of debt and other non-cash items in the Current Period.
The Company incurred losses from continuing operations of $67.1 million in the
Prior


                                       24
<PAGE>

Period.  Cash  used in  operating  activities  from  continuing  operations  was
approximately $5.7 million.  Net cash used in operating  activities  principally
resulted  from the loss from  continuing  operations  offset by an  increase  in
accrued expenses and other liabilities,  unrealized loss on investments, loss on
assets held for sale and other non-cash items in the Prior Period.

In the  Current  Period,  net cash of $70.6  million was  provided by  investing
activities  consisting  of net  proceeds  from  the  sale of  Grizzard  of $78.6
million, offset by the increase in restricted cash of $4.9 million,  issuance of
related  party note of $1.0 million and  purchases of property and  equipment of
$2.1  million.  In the  Prior  Period,  net  cash of $3.4  million  was  used in
investing  activities  consisting  of $1.8  million  purchases  of property  and
equipment and $1.6 million of capitalized software.

In the  Current  Period,  net  cash of  $51.9  million  was  used  in  financing
activities.  Net cash used in financing  activities  consisted of $46.6  million
repayments  of debt and capital  leases,  redemption  of a portion of  preferred
stock of $5.0  million  and  repayment  of related  party  notes  payable of $.3
million.  In the Prior  Period,  net cash of $3.4  million was used in financing
activities.  Net cash used in financing  activities consisted primarily of $11.3
million  in  repayments  of debt and  capital  leases,  net of $1.8  million  in
proceeds,  net of fees from private placement of common stock, $2.0 million cash
overdrafts  and $4.1 million  increase in lines of credit and related party note
payable.

In the  Current  Period  net  cash  of $.7  million  was  used  in  discontinued
operations.  In the prior  period,  net cash of $4.3  million  was  provided  by
discontinued operations.

At June 30,  2002,  the Company had amounts  outstanding  of $2.3 million on its
three lines of credit.  The Company had $1.2  million  available on its lines of
credit at June 30, 2002. On October 4, 2002,  the Company  repaid  approximately
$.8 million of one credit  facility  and agreed with the lender to cease  future
advances  of this  facility.  Currently,  availability  under the two  remaining
facilities  is  approximately  $.9  million.   As  of  June  30,  2002,  certain
subsidiaries  of the Company are in violation of certain working capital and net
worth  covenants of their credit  agreements  for which the Company has received
waivers from the lender. The Company may be out of compliance in a future period
and unable to obtain waivers from the lender, who may call the debt, which could
have a  material  adverse  effect on the  Company's  liquidity  and  ability  to
continue as a going concern.

On June 13, 2001, the board of directors and management of the Company  approved
a formal plan to sell Grizzard.  In July 2001, the Company completed its sale of
all the outstanding  capital stock of its Grizzard  subsidiary to Omnicom Group,
Inc. The purchase price of the  transaction  was $89.8 million  payable in cash,
net of a working  capital  adjustment.  As a result of the sale  agreement,  the
Company  fully paid the term loan of $35.5  million  and $12.0  million  line of
credit. The Company recorded an extraordinary loss of approximately $4.9 million
in the September 2001 quarter as a result of the early extinguishment of debt.

In February 2001,  the Company  entered into a strategic  partnership  agreement
(the  "Agreement")  with Paris based Firstream.  Firstream paid the Company $3.0
million  and in April 2001  received  1.5  million  restricted  shares of common
stock, plus a two-year warrant for 400,000 shares priced at $3.00 per share. The
warrant is  exercisable  over a two year  period.  The  warrant is valued at $.9
million as determined by the Black-Scholes option pricing model and was recorded
to equity.  In accordance with the Agreement,  the Company recorded  proceeds of
$1.8  million;  net of fees  and  expenses,  as  equity  and  $1.0  million  was
designated as deferred  revenue to provide for new  initiatives.  As part of the
strategic  partnership,  MKTG will launch  several new  Firstream  products  and
services  in the areas of wireless  communications,  online  music and  consumer
marketing programs for early adopters of new products.  The remaining balance is
$.8 million at June 30, 2002. In July 2002,  the Company  received a letter from
Firstream canceling the strategic  partnership  agreement and requesting payment
of the remaining $.8 million,  which has been categorized as a liability at June
30,  2002.  The  Company is having  discussions  with  Firstream  regarding  the
remaining liability.

The Company has limited capital resources and has incurred significant recurring
losses and negative cash flows from operations. In addition,  certain contingent
liabilities may require  significant  resources.  The Company may be required to
redeem the Series E preferred  stock and repay its  outstanding  lines of credit
depending on future events.  The Company does not believe its cash on hand along
with  existing  sources of cash are  sufficient  to fund its cash needs over the
next twelve months under the current capital structure. In order to address this
situation,  the Company has had and continues to have  discussions with multiple
parties  regarding the  possibility of either  restructuring  or refinancing the
remainder  of the  Series E  preferred  stock.  The  Company  is also  reviewing
options, which include replacing the existing Preferred Stockholders with an


                                       25
<PAGE>

alternative  strategic  investor or selling  certain  assets to obtain  funds to
attempt to repurchase  the Series E preferred  stock at a discount.  The Company
will also need to raise  additional  equity financing or obtain other sources of
liquidity  (including debt or other resources).  The Company has instituted cost
reduction  measures,  including  the reduction of  workforce.  In addition,  the
Company is  reviewing  its  present  operations  with the view  towards  further
reducing its cost  structure  and  workforce  and to find  alternative  means of
increasing  revenue.  There  can  be no  assurance  that  the  Company  will  be
successful  in  restructuring  its  preferred  stock  or  obtaining   additional
financing.  Additionally,  there can be no assurances  that the  Company's  cost
reduction efforts will be successful or that the Company will achieve a level of
revenue that will allow it to return to profitability.  In the event the Company
is unable to raise needed financing and achieve  profitability,  operations will
need to be scaled back or discontinued.  These  circumstances  raise substantial
doubt  about  the  Company's  ability  to  continue  as  a  going  concern.  The
accompanying financial statements do not include any adjustments relating to the
recoverability  of the  carrying  amount of  recorded  assets  or the  amount of
liabilities  that might  result  should the  Company be unable to  continue as a
going concern.



Summary of Recent Accounting Pronouncements
-------------------------------------------

In June 2001, the FASB approved two new pronouncements:  SFAS No. 141, "Business
Combinations,"  and SFAS No. 142,  "Goodwill and Other Intangible  Assets." SFAS
No. 141 applies to all business  combinations with a closing date after June 30,
2001. This Statement  eliminates the  pooling-of-interests  method of accounting
and  further  clarifies  the  criteria  for  recognition  of  intangible  assets
separately from goodwill.  SFAS No. 142 eliminates the  amortization of goodwill
and  indefinite-lived  intangible  assets  and  initiates  an annual  review for
impairment.  Identifiable intangible assets with a determinable useful life will
continue to be  amortized.  The  amortization  provisions  apply to goodwill and
other  intangible  assets  acquired  after  June 30,  2001.  Goodwill  and other
intangible  assets  acquired  prior  to June  30,  2001  will be  affected  upon
adoption.  The adoption  will require the Company to cease  amortization  of its
remaining net goodwill balance and to perform an impairment test of its existing
goodwill based on a fair value  concept.  The provisions of SFAS No. 142 will be
effective  as of  July  1,  2002.  The  Company  is  still  in  the  process  of
reallocating previously  identifiable  intangibles that do not meet the criteria
of SFAS No. 141 into goodwill and  evaluating  the useful lives of our remaining
identifiable  intangibles.  The Company is in the process of completing the step
one  transitional  assessment of goodwill.  As of June 30, 2002, the Company has
net unamortized  goodwill and other  intangibles  and of $16,075,132,  after the
goodwill  impairment of $35,900,000 and  amortization  expense of $2,400,450 and
$7,590,848  for the years ended June 30, 2002 and 2001,  respectively.  Net loss
from continuing  operations and the respective  basic and fully diluted loss per
share  from  continuing  operations  would  have  been  $58,423,848  and  $9.55,
respectively,  if the new  pronouncements  were effective as of the beginning of
the fiscal year.

In October 2001, the FASB issued SFAS No. 144  "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 addresses financial  accounting and
reporting for the disposal of long-lived assets.  SFAS No. 144 becomes effective
for financial  statements  issued for fiscal years  beginning after December 15,
2001 and interim periods within those fiscal years.  The Company does not expect
the  adoption  of this  statement  to have a  material  impact on the  Company's
results of operations or financial position.


In April 2002, the FASB issued SFAS No. 145  "Rescission of SFAS Nos. 4, 44, and
64,  Amendment of FAS 13, and Technical  Corrections as of April 2002." SFAS No.
145 becomes effective for financial statements issued for fiscal years beginning
after  May 15,  2002.  The  adoption  will not  have a  material  impact  on the
Company's  financial  position and results of operations.  However,  the loss on
extinguishment  of debt that was  classified as an  extraordinary  item in prior
periods will be reclassified to operating  expense as the loss does not meet the
criteria in APB Opinion No. 30 "Reporting  the Results of  Operations  Reporting
the Effects of Disposal of a Segment of a Business,"  for  classification  as an
extraordinary item.

In June 2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with Exit or Disposal  Activities." SFAS No. 146 addresses financial  accounting
and  reporting  for  costs  associated  with  exit or  disposal  activities  and
nullifies  Emerging  Issues  Task  Force  (EITF)  Issue  No.  94-3,   "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a restructuring)." Under Issue No.
94-3, a liability  for an exit cost as defined in Issue 94-3 was  recognized  at
the date of an entity's commitment to an exit plan. SFAS No. 146 requires that a
liability for a cost associated with an exit or disposal  activity be recognized
and measured  initially at fair market value only when the liability is incurred
and not when management has completed the plan. The provisions of this Statement
are effective for exit or disposal  activities that are initiated after December
31, 2002. The Company is currently reviewing the provisions of SFAS No. 146.


                                       26
<PAGE>

Item 8 - Financial Statements and Supplementary Data
----------------------------------------------------

The Consolidated  Financial  Statements required by this Item 8 are set forth as
indicated in the index following Item 14(a)(1).

Item 9 - Changes in and Disagreements with Accountants on Accounting and
-------------------------------------------------------------------------
Financial Disclosure
--------------------
None.



                                       27
<PAGE>


                                    PART III

The  information  required by this Part III (items 10, 11, 12, and 13) is hereby
incorporated by reference from the Company's definitive proxy statement which is
expected to be filed pursuant to Regulation  14A of the Securities  Exchange Act
of 1934 not later than 120 days after the end of the fiscal year covered by this
report.

Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K
--------------------------------------------------------------------------

(a)(1) Financial statements - see "Index to Financial Statements" on page 28.
   (2) Financial statement schedules - see "Index to Financial Statements"
       on page 28.
   (3) Exhibits:
2.1    Agreement and Plan of Merger By and Among MKTG Services, Inc., GCG Merger
       Corp., and Grizzard Advertising, Inc. (m)
2.2    Stock Purchase Agreement by and between Omnicom Group Inc. and
       MKTG Services, Inc.
3.1    Amended and Restated Articles of Incorporation (c)
3.2    Certificate of Amendment to the Amended and Restated  Articles of
       Incorporation  of the Company (b)
3.3    Certificate of Amendment to the Articles  of  Incorporation  for  change
       of name to  All-Comm  Media Corporation  (f)
3.4    By-Laws (c)
3.5    Certificate  of  Amendment  of Articles of Incorporation for increase
       in number of authorized shares to 36,300,000 total (i)
3.6    Certificate of Amendment of Articles of Incorporation for change of name
       to Marketing Services Group, Inc. (k)
3.7    Certificate  of Amendment of Articles of  Incorporation  for increase in
       number of authorized  shares to 75,150,000 total (n)
3.8    The Amended  Certificate of  Designation,  Preferences and Relative,
       Participating  and Optional and Other Special Rights of Preferred Stock
       and Qualifications,  Limitations and  Restrictions  Thereof for the
       Series D Convertible Preferred Stock (l)
3.9    Certificate of Designation, Preferences, and Rights of Series E
       Convertible Preferred Stock of Marketing Services Group, Inc. (q)
3.10   Certificate  of Amendment to  Certificate  of  Designation,  Preferences,
       and Rights of Series E  Convertible  Preferred  Stock of
       Marketing Services Group, Inc. (r)
3.11   Certificate of Amendment of Articles of Incorporation for change of name
       to MKTG Services, Inc. (a)
10.1   1991 Stock Option Plan (d)
10.2   Security Agreement between Milberg Factors, Inc. and Metro Services
       Group, Inc. (j)
10.3   Security Agreement between Milberg Factors, Inc. and Stephen Dunn &
       Associates, Inc. (k)
10.4   J. Jeremy Barbera Employment Agreement (t)
10.5   Rudy Howard Employment Agreement (t)
10.6   Stephen Killeen Employment Agreement (t)
10.7   Form of Private Placement Agreement (j)
10.8   Purchase agreement dated as of December 24, 1997, by and between the
       Company and GE Capital (l)
10.9   Stockholders Agreement by and among the Company, GE Capital and certain
       existing stockholders of the Company,  dated as of December 24, 1997 (l)
10.10  Registration  Rights  Agreement  by and among the Company and GE Capital,
       dated as of December 24, 1997 (l)
10.11  Warrant, dated as of December 24, 1997,
       to purchase  shares of Common Stock of the Company (l)
10.12  First  Amendment to
       Preferred Stock Purchase Agreement Between General Electric Capital
       Corporation and Marketing Services Group, Inc. (o)
10.13  Promissory note (o)
10.14  Warrant Agreement (o)
10.15  Second Amendment (p)
10.16  Warrant Agreement between Marketing Services Group, Inc. and Marshall
       Capital Management, Inc. (q)
10.17  Warrant Agreement between Marketing Services Group, Inc. and RCG
       International Investors, LDC. (q)

                                       28
<PAGE>

10.18  Registration Rights Agreement by and Among The Company, RCG International
       Investors, LDC and Marshall Capital Management, Inc. (q)
10.19  Securities Purchase Agreement by and Among The Company, RCG International
       Investors, LDC and Marshall Capital Management, Inc. (q)
10.20  Credit Agreement Among Grizzard Communications, Inc. and Paribas (s)
10.21  Firstream Letter Agreement (b)
10.22  Steven Killeen Termination Agreement (b)
10.23  Standstill Agreement between MKTG Services, Inc. and Castle Creek
       Technology Partners LLC (u)
10.24  Standstill Agreement between MKTG Services, Inc. and RCG International
       Investors, LDS (u)
10.25  Letter Amendment to Standstill Agreement between MKTG Services, Inc. and
       Castle Creek Technology Partners LLC(v)
10.26  Letter Amendment Standstill Agreement between MKTG Services, Inc. and RCG
       International Investors, LDS(v)
21     List of Company's subsidiaries (a)
23     Consent of PricewaterhouseCoopers LLP (a)
24     Certification pursuant to section 906 of the Sarbanes-Oxley Act of
       2002(a)

(a)    Included herein in the Company's Report on Form 10K- for the fiscal year
       ended June 30, 2002

(b)    Incorporated by reference to the Company's Report on Form 10K- for the
       fiscal year ended June 30, 2001

(c)    Incorporated by reference from the Company's Registration Statement on
       Form S-4, Registration Statement No. 33-45192

(d)    Incorporated by reference to the Company's Registration Statement on
       Form S-8, Registration Statement 333-30839

(e)    Incorporated herein by reference to the Company's Report on Form 8-K
       dated April 25, 1995

(f)    Incorporated by reference to the Company's Report on Form 10-K for the
       fiscal year ended June 30, 1995

(g)    Incorporated by reference to the Company's Report on Form 10-Q for the
       quarter ended March 31, 1996

(h)    Incorporated by reference to the Company's Report on Form 8-K dated
       June 7, 1996

(i)    Incorporated by reference to the Company's Report on Form 10-K dated June
       30, 1996

(j)    Incorporated by reference to the Company's Report on Form 10-Q for the
       quarter ended March 31, 1997

(k)    Incorporated by reference to the Company's Report on Form 10-KSB for the
       fiscal year ended June 30, 1997

(l)    Incorporated by reference to the Company's Report on Form 8-K dated
       January 13, 1998

(m)    Incorporated by reference from the Company's Registration Statement on
       Form S-4, Registration Statement No. 33-85233.

(n)    Incorporated by reference to the Company's Report on Form 10-KSB dated
       June 30, 1998

(o)    Incorporated by reference to the Company's Report on Form 8-K dated
       May 13, 1999

(p)    Incorporated by reference to the Company's Report on Form 8-K dated
       August 30, 1999

(q)    Incorporated  by reference to the  Company's  Report on Form 8-K dated
       February 29, 2000

(r)    Incorporated by reference to the Company's Report on Form 8-K/A dated
       March 23, 2000

(s)    Incorporated by reference to the Company's Report on Form 10-Q dated
       May 16, 2000

(t)    Incorporated  by reference to the Company's Report on Form 10-K for the
       fiscal year ended June 30, 2000

(u)    Incorporated by reference  to the  Company's  Report on Form 8-K  dated
       February  19,  2002

(v)    Incorporated  by  reference to the  Company's  Report on Form 8-K dated
       July 30, 2002

(b)    Reports on Form 8-K.
       None


                                       29
<PAGE>



                                   SIGNATURES

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

                          MKTG SERVICES, INC.
                         -------------------
                             (Registrant)


                       By: /s/ J. Jeremy Barbera
                           ---------------------
                           J. Jeremy Barbera
                           Chairman of the Board and Chief Executive Officer
Date:  October 15, 2002
-----------------------

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>

Signature                              Title                                              Date
------------------------------         -------------------------------------------        --------------------

<S>                                    <c>                                                <C>
/s/ J. Jeremy Barbera                  Chairman of the Board and Chief Executive          October 15, 2002
-------------------------------
J. Jeremy Barbera                      Officer (Principal Executive Officer)

/s/ Cindy H. Hill                      Chief Accounting Officer                           October 15, 2002
------------------------------------
Cindy H. Hill                          (Principal Accounting Officer)

/s/ Alan I. Annex                      Director and Secretary                             October 15, 2002
-------------------------------
Alan I. Annex

/s/ John T. Gerlach                    Director                                           October 15, 2002
-------------------------------
John T. Gerlach

/s/ Seymour Jones                      Director                                           October 15, 2002
-------------------------------
Seymour Jones

/s/ C. Anthony Wainwright              Director                                           October 15, 2002
-------------------------------
C. Anthony Wainwright
</TABLE>




                                       30
<PAGE>


CERTIFICATIONS

I, Cindy H. Hill, certify that:

1.  I have reviewed the annual report on this Form 10-K of MKTG Services, Inc.;

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered in this annual
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report.


                /s/ Cindy H. Hill
                -----------------
                Cindy H. Hill
                Chief Accounting Officer

EXPLANATORY  NOTE  REGARDING  CERTIFICATION:  Representations  4, 5 and 6 of the
Certification  as set forth in Form 10-K have been omitted,  consistent with the
Transition  Provisions  of SEC Exchange Act Release No.  34-46427,  because this
Annual Report on Form 10-K covers a period  ending before the Effective  Date of
Rules 13a-14 and 15d-14.



I, J. Jeremy Barbera, certify that:

1.  I have reviewed the annual report on this Form 10-K of MKTG Services, Inc.;

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered in this annual
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report.


                 /s/ J. Jeremy Barbera
                 ---------------------
                 J. Jeremy Barbera
                 Chairman of the Board and Chief Executive Officer

EXPLANATORY  NOTE  REGARDING  CERTIFICATION:  Representations  4, 5 and 6 of the
Certification  as set forth in Form 10-K have been omitted,  consistent with the
Transition  Provisions  of SEC Exchange Act Release No.  34-46427,  because this
Annual Report on Form 10-K covers a period  ending before the Effective  Date of
Rules 13a-14 and 15d-14.

                                       31
<PAGE>









                      MKTG SERVICES, INC. AND SUBSIDIARIES

                          INDEX TO FINANCIAL STATEMENTS
                                   [Items 14]





 (1)   FINANCIAL STATEMENTS:                                               Page
       ---------------------                                               ----
       Report of Independent Accountants                                    33

       Consolidated Balance Sheets as of June 30, 2002 and
           June 30, 2001                                                    34

       Consolidated Statements of Operations
           Years Ended June 30, 2002, 2001, and 2000                        35

       Consolidated Statement of Stockholders' Equity
           Years Ended June 30, 2002, 2001, and 2000                       36-37

       Consolidated Statements of Cash Flows
           Years Ended June 30, 2002, 2001, and 2000                        38

       Notes to Consolidated Financial Statements                          39-62


 (2)   FINANCIAL STATEMENT SCHEDULES:
       ------------------------------

       Schedule II - Valuation and Qualifying Accounts                      63


       Schedules other than those listed above are omitted because they
       are not required or are not  applicable  or the  information  is
       shown in the audited financial statements or related notes.







                                       32
<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Stockholders of MKTG Services, Inc.:

In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material  respects,  the financial position of MKTG
Services,  Inc. and Subsidiaries at June 30, 2002 and 2001, and the consolidated
results of their  operations and their cash flows for each of the three years in
the  period  ended June 30,  2002,  in  conformity  with  accounting  principles
generally accepted in the United States of America. In addition, in our opinion,
the financial  statement  schedule  listed in the  accompanying  index  presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.  These financial
statements  and  financial  statement  schedule  are the  responsibility  of the
Company's  management;  our  responsibility  is to  express  an opinion on these
financial  statements and financial  statement  schedule based on our audits. We
conducted our audits of these  statements in accordance with auditing  standards
generally  accepted in the United States of America,  which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements,  assessing the accounting  principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 2 to the
financial statements, the Company has limited capital resources and has incurred
significant  recurring  losses  and  negative  cash flows  from  operations,  in
addition to certain contingencies that may require significant resources, all of
which raise  substantial doubt about its ability to continue as a going concern.
The financial  statements do not include any adjustments  that might result from
the outcome of this  uncertainty.  Management's plan with respect to this matter
is set forth as discussed in Note 2.

As discussed in Note 2 to the consolidated financial statements, during the year
ended June 30, 2001, the Company changed its method of accounting for securities
with  beneficial  conversion  features  as a result of the  issuance of Emerging
Issues Task Force  Issue No.  00-27,  "Application  of Issue No. 98-5 to Certain
Convertible Instruments."


                                                 /s/ PRICEWATERHOUSECOOPERS LLP





September 26, 2002
Except for Note 20 as to which the date is October 15, 2002
New York, New York




                                       33
<PAGE>

<TABLE>
<CAPTION>

                      MKTG SERVICES, INC. AND SUBSIDIARIES
            CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2002 AND 2001



ASSETS                                                                                2002                         2001
------                                                                                ----                         ----
<S>                                                                               <C>                           <C>
Current assets:
    Cash and cash equivalents                                                  $   4,416,289                 $   1,725,412
    Accounts receivable, net of allowance for doubtful
       accounts of $4,408,985 and $2,423,610, respectively                        18,900,889                    27,507,629
    Restricted cash                                                                4,945,874                             -
    Net assets held for sale                                                               -                    80,882,272
    Other current assets                                                           1,292,167                       990,741
                                                                                ------------                --------------
        Total current assets                                                      29,555,219                   111,106,054

Property and equipment, net                                                        3,259,545                     2,346,152
Intangible assets, net                                                            16,075,132                    54,362,534
Related party note receivable                                                        978,534                             -
Other assets                                                                         676,348                     2,574,762
                                                                              --------------                --------------

        Total assets                                                           $  50,544,778                 $ 170,389,502
                                                                               =============                  ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Short-term borrowing                                                       $   2,280,384                 $  13,021,966
    Accounts payable-trade                                                        17,360,764                    27,119,339
    Related party payable                                                                  -                       400,000
    Accrued expenses and other current liabilities                                 5,860,112                     6,074,222
    Net current liabilities of discontinued operations                             1,714,406                     2,396,171
    Current portion of capital lease obligations                                      85,315                       115,598
    Current portion of long-term obligations                                       4,837,321                    32,833,101
                                                                                   ---------                    ----------
        Total current liabilities                                                 32,138,302                    81,960,397

Capital lease obligations, net of current portion                                     29,262                        89,913
Long-term obligations, net of current portion                                        176,336                     4,339,078
Other liabilities                                                                  6,145,848                     1,516,976
                                                                                 -----------                     ---------
        Total liabilities                                                         38,489,748                    87,906,364
                                                                                  ----------                    ----------

Minority interest in preferred stock of discontinued subsidiary                      280,946                       280,946

Convertible preferred stock - $.01 par value; 150,000 shares authorized;          10,384,064                    13,424,198
  23,201 and 30,000 shares of Series E issued and outstanding
  as of June 30, 2002 and 2001, respectively

Commitments and contingencies (Note 11)

Stockholders' equity:
    Common stock - $.01 par value; 75,000,000 authorized; 6,721,030 and
        5,691,250 shares issued as of June 30, 2002 and 2001, respectively            67,210                        56,912
    Additional paid-in capital                                                   229,840,379                   231,555,514
    Accumulated deficit                                                         (227,123,859)                 (161,440,722)
    Less:  70,649 shares of common stock in treasury, at cost                     (1,393,710)                   (1,393,710)
                                                                               --------------                   -----------

        Total stockholders' equity                                                 1,390,020                    68,777,994
                                                                              --------------                    ----------
        Total liabilities and stockholders' equity                             $  50,544,778                 $ 170,389,502
                                                                               =============                  ============
</TABLE>



The  accompanying  notes are an integral  part of these  Consolidated  Financial
Statements.



                                       34
<PAGE>
<TABLE>
<CAPTION>


                      MKTG SERVICES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                FOR THE YEARS ENDED JUNE 30, 2002, 2001, AND 2000

                                                                2002                 2001               2000
                                                                ----                 ----               ----

<S>                                                          <C>                  <C>                <C>
Revenues                                                     $ 38,972,109         $127,722,689       $62,487,934
                                                             ------------         ------------       -----------

Operating costs and expenses:
    Salaries and benefits                                      35,881,241           70,295,543        42,657,063
    Severance                                                     479,922            2,000,545                 -
    Direct costs                                                5,832,214           35,970,726        11,787,810
    Selling, general and administrative                        18,678,722           20,375,812        12,992,682
    (Gain) loss on sale of subsidiary                          (1,747,830)          36,696,523                 -
    Settlement of litigation                                      246,000            1,297,970           315,000
    Goodwill impairment                                        35,900,000                    -                 -
    Depreciation and amortization                               3,323,748           11,730,313         6,027,871
                                                             ------------         ------------         ---------
       Total operating costs and expenses                      98,594,017          178,367,432        73,780,426
                                                             ------------          -----------        ----------
Loss from operations                                          (59,621,908)        (50,644,743)       (11,292,492)
                                                             ------------         ------------      ------------
    Unrealized loss on investments                                    -             (7,577,560)      (27,216,200)
    Interest expense and other, net                              (686,454)          (8,786,334)       (2,355,848)
                                                             ------------         -------------       ----------
       Loss from continuing operations
         before provision for income taxes                    (60,308,362)         (67,008,637)      (40,864,540)
    Provision for income taxes                                    515,936               81,930           265,683
                                                              -----------        --------------     ------------
    Loss from continuing operations                           (60,824,298)         (67,090,567)      (41,130,223)
    Discontinued operations (Note 16):
       Loss from discontinued operations                                -                    -       (19,488,943)
       Gain (loss) from disposal of discontinued operations             -            1,251,725       (15,054,037)
                                                             ------------          -----------       -----------
       Income (loss) from discontinued operations                       -            1,251,725       (34,542,980)
                                                             ------------          -----------       -----------
Loss before extraordinary item                                (60,824,298)         (65,838,842)      (75,673,203)
    Extraordinary item:
       Loss on early extinguishments of debt                   (4,858,839)                   -                 -
                                                             ------------          -----------       -----------
Net loss                                                      (65,683,137)         (65,838,842)      (75,673,203)

Gain on redemption of preferred stock of discontinued
    subsidiary  (Note 16)                                               -           13,410,273                 -

Deemed dividend - preferred redemption (Note 12)                 (412,634)                   -                 -
                                                             ------------         ------------       -----------
Net loss attributable to common stockholders before
    cumulative effect of change in accounting                 (66,095,771)         (52,428,569)      (75,673,203)

Cumulative effect of change in accounting (Note 2)                      -          (14,063,897)                -
                                                             ------------         ------------       -----------
Net loss attributable to common stockholders                 $(66,095,771)        $(66,492,466)     $(75,673,203)
                                                             ============         ============       ===========
Basic and diluted earnings (loss) share:
    Continuing operations                                         $(10.02)             $(12.61)           $(9.28)
    Discontinued operations                                             -                 2.76             (7.80)
    Extraordinary item                                               (.79)                   -                -
    Deemed dividend and change in accounting                            -                (2.64)               -
                                                             -------------             --------     ------------
Basic and diluted loss per share                                  $(10.81)             $(12.49)          $(17.08)
                                                             ============         ============       ===========

Weighted average common shares outstanding                      6,114,877            5,319,597         4,430,370
                                                             ============         ============       ===========
</TABLE>



The  accompanying  notes are an integral  part of these  Consolidated  Financial
Statements.



                                       35
<PAGE>
<TABLE>
<CAPTION>


                                                  MKTG SERVICES, INC. AND SUBSIDIARIES
                                                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                               FOR THE YEARS ENDED JUNE 30, 2002, 2001, AND 2000


                                              Common Stock      Additional                            Treasury Stock
                                           ------------------    Paid-in    Deferred   Accumulated   ----------------
                                            Shares    Amount     Capital  Compensation   Deficit     Shares    Amount       Totals
                                           ----------------------------------------------------------------------------------------

<S>                                       <C>        <C>       <C>         <C>        <C>           <C>     <C>          <C>
Balance July 1, 1999                      3,752,294  $37,523  $71,000,588 $(788,095) $(19,928,677) (70,649) $(1,393,710) $48,927,629

Shares issued upon exercise of
   stock options                             79,214      792    1,952,428                                                  1,953,220
Shares issued upon exercise of warrants      21,536      215      386,772                                                    386,987
Issuance of common stock for
   acquisition of Grizzard
   Communications, Inc.                     424,300    4,243   48,467,770                                                 48,472,013
Issuance of common stock for
  acquisition of The Coolidge Company         3,709       37      365,324                                                    365,361
Issuance of common stock for
   acquisition of Cambridge
   Intelligence Agency, Inc.                 20,245      202    1,557,490                                                  1,557,692
Issuance of common stock for
   investment in Latin Fusion, Inc.         250,000    2,500   27,503,900                                                 27,506,400
Shares issued in connection with
   private placement of common
   stock, net of stock issuance costs       521,764    5,218   30,526,611                                                 30,531,829
Issuance of shares for executive bonus          685        7       64,993                                                     65,000
Purchase of warrants by Directors                                   2,500                                                      2,500
Warrants issued in connection with the
   settlement of a lawsuit                                        315,000                                                    315,000
Warrants issued in connection
   with bank financing                                          5,023,500                                           `      5,023,500
Recognition of stock based
   compensation expense                                         7,798,897   788,095                                        8,586,992
Warrants issued in connection with
   Series E Preferred Stock                                    15,936,103                                                 15,936,103
Net and comprehensive loss                                                            (75,673,203)                      (75,673,203)
                                          ------------------------------------------------------------------------------------------

Balance June 30, 2000                     5,073,747  $50,737 $210,901,876        -   $(95,601,880) (70,649) $(1,393,710)$113,957,023

Shares issued upon exercise of
   stock options                                456        5        8,138                                                      8,143
Issuance of common stock for
   exchange of preferred stock
   of discontinued subsidiary               328,334    3,283    5,035,197                                                  5,038,480
Gain on redemption of
    WiredEmpire preferred stock                                13,410,273                                                 13,410,273
Issuance of common stock for
   settlement of earn-out provision          22,046      220      249,876                                                    250,096
Issuance of common stock in
   connection with settlement
   of lawsuit                                16,667      167      141,016                                                    141,183
Issuance of common stock for
   Firstream strategic partnership          250,000    2,500      863,601                                                    866,101

Issuance of warrants in connection
   with Firstream stock issuance                                  945,537                                                    945,537

Beneficial conversion feature
   associated with Series E
   Preferred Stock                                             14,063,897                                                 14,063,897
Accretion of beneficial
   conversion feature - Series E
   Preferred Stock                                            (14,063,897)                                              (14,063,897)
Net and comprehensive loss                                                            (65,838,842)                      (65,838,842)
                                          ------------------------------------------------------------------------------------------

 Balance June 30, 2001                    5,691,250  $56,912 $231,555,514        - $ (161,440,722) (70,649) $(1,393,710) $68,777,994
                                          ==========================================================================================

</TABLE>

The  accompanying  notes are an integral  part of these  Consolidated  Financial
Statements.



                                       36
<PAGE>

<TABLE>
<CAPTION>

                                                  MKTG SERVICES, INC. AND SUBSIDIARIES
                                                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                               FOR THE YEARS ENDED JUNE 30, 2002, 2001, AND 2000


                                          Common Stock     Additional                                Treasury Stock
                                        ----------------     Paid-in      Deferred    Accumulated   ----------------
                                        Shares    Amount     Capital    Compensation    Deficit     Shares    Amount    Totals
                                        --------------------------------------------------------------------------------------

<S>          <C>                      <C>        <C>       <C>                 <C>  <C>            <C>      <C>          <C>
Balance July 1, 2001                  5,691,250  $56,912   $231,555,514        -   $(161,440,722) (70,649) $(1,393,710) $68,777,994

Shares issued upon conversion of
    Series E Preferred Stock            903,866    9,039        748,758                                                      757,797
Issuance of common stock for
    settlement of earn-out provision    125,914    1,259        298,741                                                      300,000
Redemption of Series E Preferred
    Stock redemption                                         (2,762,634)                                                 (2,762,634)

 Net and comprehensive loss                                                          (65,683,137)                       (65,683,137)
                                     ----------------------------------------------------------------------------------------------

Balance June 30, 2002                 6,721,030  $67,210   $229,840,379        -  $ (227,123,859) (70,649) $(1,393,710)  $1,390,020
                                    ================================================================================================

</TABLE>















































The  accompanying  notes are an integral  part of these  Consolidated  Financial
Statements.


                                       37
<PAGE>


<TABLE>
<CAPTION>
                                             MKTG SERVICES, INC. AND SUBSIDIARIES
                                            CONSOLIDATED STATEMENTS OF CASH FLOWS
                                      FOR THE YEARS ENDED JUNE 30, 2002, 2001, AND 2000

                                                                     2002               2001            2000
                                                                     ----               ----            ----
OPERATING ACTIVITIES:
<S>                                                             <C>               <C>              <C>
    Net loss                                                    $(65,683,137)     $(65,838,842)    $(75,673,203)
    (Income) loss from discontinued operations                             -        (1,251,725)      34,542,980
                                                                 -----------        -----------      ----------
    Loss from continuing operations                              (65,683,137)      (67,090,567)     (41,130,223)
    Adjustments to reconcile net loss to net cash  used in  operating
       activities:
        Goodwill impairment                                       35,900,000                 -                -
        Extraordinary loss on early extinguishments of debt        4,858,839                 -                -
        Gain on sale of minority interest                                  -                 -          (45,163)
        Depreciation                                                 923,298         4,139,465        1,826,792
        Amortization                                               2,400,450         7,590,848        4,210,487
        Unrealized loss on investments                                     -         7,522,846       27,216,200
        Compensation expense on option and stock grants                    -                 -          105,800
        Amortization of debt issuance costs                          266,900         2,215,014          830,185
        Loss on disposal of assets                                         -            41,941           87,813
        (Gain) loss on sale of subsidiary                         (1,747,830)       36,696,523                -
        Settlement of litigation                                           -         1,072,970          315,000
        Bad debt expense                                           1,268,692         1,802,727          427,578
        Net cash included in assets held for sale                          -          (206,139)               -
    Changes in assets and liabilities  (including assets
     held for sale), net of effects from acquisitions:
        Accounts receivable                                       10,060,349          (991,275)         990,092
        Inventory                                                   (697,908)          633,035       (2,701,359)
        Other current assets                                        (290,366)          679,371        1,231,867
        Other assets                                                (215,401)         (496,954)        (614,971)
        Trade accounts payable                                    (8,785,114)       (1,986,682)         299,605
        Accrued expenses and other liabilities                     6,487,700         2,713,964       (4,406,582)
                                                                ------------         ---------       -----------
Net cash used in operating activities                            (15,253,528)       (5,662,913)     (11,356,879)

INVESTING ACTIVITIES:
    Acquisitions, net of cash acquired of $580,468                         -                 -      (50,187,882)
    Purchases of capitalized software                                      -        (1,549,558)      (1,612,776)
    Purchases of property and equipment                           (2,108,278)       (1,815,023)      (1,942,312)
    Increase in restricted cash                                   (4,945,874)                -                -
    Issuance of related party note receivable                     (1,000,000)                -                -
    Proceeds from sale of Grizzard                                78,609,258                 -                -
    Proceeds from sale of MFI                                              -                 -          556,984
    Investment in internet companies                                       -                 -       (6,930,300)
                                                                 -----------       ------------     ------------

    Net cash provided by (used in) investing activities           70,555,106        (3,364,581)     (60,116,286)

FINANCING ACTIVITIES:
    Redemption of preferred stock                                 (5,044,971)                -                -
    Cash overdrafts                                                        -         1,952,136                -
    Proceeds from issuance of common stock, net                            -         1,811,638       30,531,829
    Proceeds from sale of Series E convertible preferred stock, net        -           (56,978)      29,417,279
    Proceeds from exercise of stock options and warrants                   -             8,143        2,342,706
    Net (repayments on) proceeds from credit facilities          (10,741,582)        3,276,913         (571,722)
    Proceeds from bank financing, net of closing costs                     -                 -       45,672,644
    Proceeds from related party notes payable                              -           900,000                -
    Principal payments under capital lease obligations               (96,847)         (347,359)         (58,176)
    Repayment of related party notes payable                        (250,000)       (5,650,000)      (5,000,000)
    Repayments of long-term debt                                 (35,795,534)       (5,301,260)     (23,430,506)
                                                                 ------------       -----------     ------------

    Net cash (used in) provided by financing activities          (51,928,934)       (3,406,767)      78,904,054

Net cash (used in) provided by discontinued operations              (681,767)        4,255,874         (812,307)
                                                                 ------------        ---------         ---------
Net increase (decrease) in cash and cash equivalents               2,690,877        (8,178,387)       6,618,582
    Cash and cash equivalents at beginning of year                 1,725,412         9,903,799        3,285,217
                                                                   ---------        -----------      -----------
Cash and cash equivalents at end of year                          $4,416,289        $1,725,412       $9,903,799
                                                                  ==========        ==========        =========
</TABLE>


The  accompanying  notes are an integral  part of these  Consolidated  Financial
Statements.



                                       38
<PAGE>


                      MKTG SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. COMPANY OVERVIEW AND PRINCIPLES OF CONSOLIDATION:

MKTG  Services,  Inc.  ("MKTG"  or the  "Company")  provides  direct  marketing,
database  marketing,  database  management,   analytics,  interactive  marketing
services,  telemarketing  and  telefundraising,  and media  planning and buying.
Substantially all of the Company's business activity is conducted with customers
located within the United States.

The  consolidated  financial  statements  include  the  accounts of MKTG and its
wholly owned and majority owned subsidiaries. All material intercompany accounts
and transactions  have been eliminated in consolidation.  Subsidiaries  acquired
during the year are recorded  from the date of the  respective  acquisition.  As
more fully  described in Note 16,  WiredEmpire  is  presented as a  discontinued
operation.

On June 13, 2001, the board of directors and management of the Company  approved
a formal plan to sell Grizzard.  At June 30, 2001, the assets and liabilities of
Grizzard have been classified as net assets held for sale in the amount of $80.9
million.  On July 18, 2001, the Company  entered into a definitive  agreement to
sell  Grizzard.  On July 31,  2001,  the Company  completed  its sale of all the
outstanding capital stock of its Grizzard subsidiary to Omnicom Group, Inc. (see
Note 19).

Effective  April 1, 2002,  the  Company  changed  its legal name from  Marketing
Services Group, Inc. to MKTG Services, Inc.


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Liquidity:

The Company has limited capital resources and has incurred significant recurring
losses  and  negative  cash  flows  from   operations.   In  addition,   certain
contingencies may require significant resources.  The Company may be required to
redeem  the  Series E  preferred  stock  (see Note 12 and Note 20) and repay its
outstanding lines of credit depending on future events (see Note 7 and Note 20).
The Company  does not believe  its cash on hand along with  existing  sources of
cash are sufficient to fund its cash needs over the next twelve months under the
current capital structure.  In order to address this situation,  the Company has
had and  continues to have  discussions  with  multiple  parties  regarding  the
possibility of either restructuring or refinancing the remainder of the Series E
preferred stock. The Company is also reviewing options,  which include replacing
the existing  Preferred  Stockholders with an alternative  strategic investor or
selling  certain  assets to gain  funds to attempt  to  repurchase  the Series E
preferred  stock at a discount.  The Company will also need to raise  additional
equity  financing or obtain other sources of liquidity  (including debt or other
resources).  The Company has instituted cost reduction  measures,  including the
reduction  of  workforce.  In  addition,  the Company is  reviewing  its present
operations  with the view  towards  further  reducing  its  cost  structure  and
workforce and to find alternative means of increasing  revenue.  There can be no
assurance  that the Company will be  successful in  restructuring  its preferred
stock  or  obtaining  additional  financing.   Additionally,  there  can  be  no
assurances that the Company's cost reduction  efforts will be successful or that
the  Company  will  achieve a level of  revenue  that will allow it to return to
profitability.  In the event the Company is unable to raise needed financing and
achieve  profitability,  operations will need to be scaled back or discontinued.
These  circumstances  raise  substantial  doubt about the  Company's  ability to
continue  as a going  concern.  The  accompanying  financial  statements  do not
include any adjustments relating to the recoverability of the carrying amount of
recorded  assets or the  amount of  liabilities  that  might  result  should the
Company be unable to continue as a going concern.

                                       39
<PAGE>

Cash and Cash Equivalents:

The Company  considers  investments with an original maturity of three months or
less to be cash equivalents.

Property, Plant and Equipment:

Property,  plant and equipment are stated at cost. Depreciation and amortization
are computed using the  straight-line  method over the estimated useful lives of
the respective assets. Estimated useful lives are as follows:

         Buildings ...............................................    20 years
         Furniture and fixtures...................................2 to 7 years
         Computer equipment and software..........................3 to 5 years

Leasehold improvements are amortized, using the straight-line method, over the
shorter of the estimated useful life of the asset or the term of the lease.

The  cost  of  additions  and  betterments  are  capitalized,  and  repairs  and
maintenance  are  expensed  as  incurred.   The  cost  and  related  accumulated
depreciation  and  amortization  of property and  equipment  sold or retired are
removed  from the  accounts  and  resulting  gains or losses are  recognized  in
current operations.

Intangible Assets:

Intangible  assets  consist of covenants not to compete,  capitalized  software,
customer base, list databases,  assembled work force, present value of favorable
leases and the remaining  excess purchase price paid over identified  intangible
and tangible net assets of acquired  companies.  Intangible assets are amortized
under the  straight-line  method over the period of expected  benefit of 3 to 40
years.

The  development  costs of software are capitalized in accordance with Statement
of Position  98-1,  "Accounting  for Costs of  Computer  Software  Developed  or
Obtained  for  Internal  Use"  and  once  completed,  are  amortized  using  the
straight-line method over three to five years. The Company capitalizes labor and
related  costs  incurred  for  the  development  of  software  after  management
authorizes  the funding of the project and it is probable  that the project will
be completed and the software will be used to perform the function intended.

At each balance sheet date, the Company reviews the  recoverability of goodwill,
not identified with long-lived assets,  based on estimated  undiscounted  future
cash  flows  from  operating  activities  compared  with the  carrying  value of
goodwill,  and recognizes any impairment on the basis of discounted  cash flows.
Due to the weakened  economy and lower than expected results based, on available
information,  the Company has determined  that there will not be sufficient cash
flows to recover all of the remaining book value of goodwill.  As a result,  the
Company has  recognized an impairment  charge of  approximately  $35.9  million,
which is included in the loss from operations for the year ended June 30, 2002.

Long-Lived Assets:

In accordance  with SFAS No. 121,  "Accounting  for the Impairment of Long-Lived
Assets and for  Long-Lived  Assets to be Disposed  Of", the Company  reviews for
impairment of long-lived assets and certain  identifiable  intangibles  whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be  recoverable.  In general,  the Company will  recognize an impairment
when the sum of  undiscounted  future cash flows (without  interest  charges) is
less  than  the  carrying  amount  of such  assets.  The  measurement  for  such
impairment loss is based on the fair value of the asset.

Investments:

The Company  makes  investments  for the  promotion  of business  and  strategic
purposes.   Management   determines  the  appropriate   classification   of  its
investments in marketable  securities at the time of purchase and evaluates

                                       40
<PAGE>

such investments at each balance sheet date.

The Company's  marketable  security  investments are carried at fair value, with
the unrealized gains and losses, net of tax, reported as a separate component of
stockholders' equity until realized,  unless the unrealized loss is deemed to be
other  than  temporary  whereby  the  loss is  recognized  in the  statement  of
operations. An investment's unrealized loss is deemed to be other than temporary
when the marketable  value has  deteriorated  and economic or other estimates of
fair value have deemed the recovery unlikely.

Non-marketable security investments are recorded at cost.

Revenue Recognition:

Pursuant to the Securities and Exchange  Commission's Staff Accounting  Bulletin
(SAB) No. 101, "Revenue  Recognition in Financial  Statements,"  ("SAB 101") the
Company has reviewed its accounting policies for the recognition of revenue. SAB
101 was  implemented  in fourth  quarter  2001.  SAB 101  provides  guidance  on
applying  generally  accepted  accounting  principles to revenue  recognition in
financial  statements.  The  Company's  policies  for  revenue  recognition  are
consistent with the views expressed  within SAB 101. The adoption of SAB 101 did
not have a material  effect on the Company's  consolidated  financial  position,
cash flows,  or results of  operations.  Although net income was not  materially
affected,  the adoption did have an impact on the amount of revenue  recorded as
the revenue  associated with the Company's list sales and services  product line
are now required to be shown net of certain  costs.  The Company  believes  this
presentation  is  consistent  with the  guidance in  Emerging  Issues Task Force
("EITF") 99-19, "Reporting Revenue Gross as a Principal Versus Net as an Agent."
All prior periods presented have been restated.

Revenues  derived  from list  sales and  services  and  database  marketing  are
recognized  when the lists are shipped or the services  have been  performed and
completed. For all list sales and services, the Company serves as broker between
unrelated  parties who wish to purchase a certain list and unrelated parties who
have the  desired  list for sale.  Accordingly,  the  Company  recognizes  trade
accounts  receivable and trade accounts payable,  reflecting a "gross-up" of the
two concurrent  transactions.  The transactions are not structured providing for
the right of offset.  List sales and services are  reflected net of costs on the
accompanying statement of operations.

Revenues derived from on-site  telemarketing and  telefundraising  are generally
based on hourly  billing  rates and a  mutually  agreed  percentage  of  amounts
received by the Company's  client from a campaign.  These services are performed
on-site at the clients' location.  These revenues are earned and recognized when
the cash is received by the respective  client.  Revenues  derived from off-site
telemarketing  and  telefundraising  are  generally  based on a mutually  agreed
amount per telephone  contact with a potential  donor without  regard to amounts
raised for the client.  These  services are performed at the  Company's  calling
center.  These  revenues  are  earned  and  recognized  when  the  services  are
performed.

Revenues derived from marketing  communications are recognized when the campaign
is mailed  provided  that the Company has no remaining  performance  commitments
under  marketing  communications  arrangements.  The  Company's  revenue  is not
dependent on the number of respondents to the direct mailing. Due to the sale of
Grizzard in July 2001, the Company no longer provides  marketing  communications
services.

Prior to January  2001,  revenues and costs derived from  interactive  marketing
were deferred until services were completed and recognized using a straight-line
method over the  remaining  life of the contract.  In January  2001,  due to the
installation  of a time  management  system,  which allows for the  gathering of
hours by project,  all new contracts utilize the percentage of completion method
preferred  by  Statement  of  Position  81-1,  "Accounting  for  Performance  of
Construction-Type and Certain Production-Type Contracts". The contract lives are
generally three months to one year. The impact of changing  revenue  recognition
methods did not have a material impact on the Company's financial results.

                                       41
<PAGE>

Income Taxes:

The Company  recognizes  deferred  taxes for  differences  between the financial
statement and tax bases of assets and liabilities at currently enacted statutory
tax  rates  and laws for the  years in which the  differences  are  expected  to
reverse.  The effect on deferred taxes of a change in tax rates is recognized in
income in the period that includes the enactment date.  Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized.

Use of Estimates:

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities at the date of the financial  statements and the reported amounts of
revenues  and  expenses  during  the  reporting  period.  The  most  significant
estimates and assumptions made in the preparation of the consolidated  financial
statements relate to the carrying amount and amortization of intangible  assets,
deferred tax valuation allowance, abandoned lease reserves and the allowance for
doubtful accounts. Actual results could differ from those estimates.

Concentration of Credit Risk:

Financial  instruments that potentially  subject the Company to concentration of
credit  risk  consist   primarily  of  temporary  cash   investments  and  trade
receivables.  A  significant  portion of cash  balances is  maintained  with one
financial  institution and may, at time,  exceed  federally  insurable  amounts.
Collateral is generally not required on trade accounts  receivable.  Credit risk
on trade receivables is minimized as a result of the large and diverse nature of
the Company's customer base.

Earnings (Loss) Per Share:

On October 9, 2001, the Board of Directors approved a six-for-one  reverse split
of the common stock.  Par value of the common stock  remained $.01 per share and
the number of  authorized  shares of common stock  remained at  75,000,000.  The
stock split was  effective  October 15, 2001.  The effect of the stock split has
been  reflected in the balance sheets and in all share and per share data in the
accompanying   consolidated   financial   statements   and  Notes  to  Financial
Statements.  Stockholders'  equity accounts have been retroactively  restated to
reflect the reclassification of an amount equal to the par value of the decrease
in issued  common  shares from the common  stock  account to the paid in capital
account.

In accordance with SFAS No. 128,  "Earnings Per Share," basic earnings per share
is  calculated  based on the weighted  average  number of shares of common stock
outstanding during the reporting period. Diluted earnings per share gives effect
to all  potentially  dilutive  common  shares that were  outstanding  during the
reporting period.  Stock options and warrants with exercise prices below average
market price in the amount of 1,778,334,  80,635,  and 1,199,427  shares for the
years ended June 30, 2002, 2001 and 2000, respectively, were not included in the
computation of diluted  earnings per share as they are  antidilutive as a result
of net losses during the periods presented.

Convertible  preferred  stock in the  amount of  12,677,284  shares for the year
ended June 30, 2002 were not included in the computation of diluted earnings per
share as they were  antidilutive  as a result of net losses  during the  periods
presented.  Contingent  warrants in the amount of 1,778,334  shares, as well as,
convertible  preferred  stock in the  amount of  2,450,980  shares for the years
ended June 30, 2001 and 2000,  were not included in the  computation  of diluted
earnings per share as they were  antidilutive  as a result of net losses  during
the periods presented.


Change in Accounting:

                                       42
<PAGE>

In  September  2000,  the FASB  Emerging  Issues  Task Force  issued  EITF 00-27
"Application  of EITF  98-5 to  Certain  Convertible  Instruments."  EITF  00-27
addresses the accounting for  convertible  preferred stock issued since May 1999
that  contain  non-detachable  conversion  options  that are in the money at the
commitment  date.  EITF 00-27 changed the approach of calculating the conversion
price used in determining  the value of the beneficial  conversion  feature from
using the conversion  price stated in the preferred  stock  certificate to using
the  accounting  conversion  price.  The  adoption  of this EITF  increased  the
original value of the beneficial  conversion feature from zero to $14.1 million.
MKTG  adopted  EITF  00-27  in  December  2000 and as a result  has  recorded  a
cumulative  effect of a change in accounting of  approximately  $14.1 million in
the year ended June 30, 2001 related to the March 2000  issuance of the Series E
Convertible  Preferred  Stock.  The  cumulative  effect  has  been  recorded  to
additional  paid-in  capital and treated as a deemed dividend in the calculation
of net loss attributable to common stockholders.

Employee Stock-Based Compensation:

The  accompanying  financial  position and results of operations for the Company
have been prepared in accordance with APB Opinion No. 25,  "Accounting for Stock
Issued  to  Employees"  ("APB  No.  25").  Under  APB  No.  25,  generally,   no
compensation  expense is recognized  in the  financial  statements in connection
with the awarding of stock option grants to employees  provided  that, as of the
grant date,  the number of shares and the exercise  price of the award are fixed
and the fair value of the Company's  stock, as of the grant date, is equal to or
less than the amount an employee must pay to acquire the stock.

The  Company  has  elected  the  disclosure  only  provisions  of SFAS No.  123,
"Accounting for Stock-Based  Compensation"  ("SFAS 123").  Stock based awards to
non-employees are accounted for under the provisions of SFAS 123.

Comprehensive Income:

SFAS  No.  130,  "Reporting   Comprehensive  Income"  ("SFAS  130")  establishes
standards  for  the  reporting  and  display  of  comprehensive  income  and its
components. The Company has no items of other comprehensive income in any period
presented.

Summary of Recent Accounting Pronouncements:

In June 2001, the FASB approved two new pronouncements:  SFAS No. 141, "Business
Combinations,"  and SFAS No. 142,  "Goodwill and Other Intangible  Assets." SFAS
No. 141 applies to all business  combinations with a closing date after June 30,
2001. This Statement  eliminates the  pooling-of-interests  method of accounting
and  further  clarifies  the  criteria  for  recognition  of  intangible  assets
separately from goodwill.  SFAS No. 142 eliminates the  amortization of goodwill
and  indefinite-lived  intangible  assets  and  initiates  an annual  review for
impairment.  Identifiable intangible assets with a determinable useful life will
continue to be  amortized.  The  amortization  provisions  apply to goodwill and
other  intangible  assets  acquired  after  June 30,  2001.  Goodwill  and other
intangible  assets  acquired  prior  to June  30,  2001  will be  affected  upon
adoption.  The adoption  will require the Company to cease  amortization  of its
remaining net goodwill balance and to perform an impairment test of its existing
goodwill based on a fair value  concept.  The provisions of SFAS No. 142 will be
effective  as of  July  1,  2002.  The  Company  is  still  in  the  process  of
reallocating previously  identifiable  intangibles that do not meet the criteria
of SFAS No. 141 into goodwill and  evaluating  the useful lives of our remaining
identifiable  intangibles.  The Company is in the process of completing the step
one  transitional  assessment of goodwill.  As of June 30, 2002, the Company has
net unamortized  goodwill and other  intangibles  and of $16,075,132,  after the
goodwill  impairment of $35,900,000 and  amortization  expense of $2,400,450 and
$7,590,848  for the years ended June 30, 2002 and 2001,  respectively.  Net loss
from continuing  operations and the respective  basic and fully diluted loss per
share  from  continuing  operations  would  have  been  $58,423,848  and  $9.95,
respectively, if the new pronouncements

                                       43
<PAGE>

were effective as of the beginning of the fiscal year.

In October 2001, the FASB issued SFAS No. 144  "Accounting for the Impairment or
Disposal of Long-Lived Assets".  SFAS No. 144 addresses financial accounting and
reporting for the disposal of long-lived assets.  SFAS No. 144 becomes effective
for financial  statements  issued for fiscal years  beginning after December 15,
2001 and interim periods within those fiscal years.  The Company does not expect
the  adoption  of this  statement  to have a  material  impact on the  Company's
results of operations or financial position.


In April 2002, the FASB issued SFAS No. 145  "Rescission of SFAS Nos. 4, 44, and
64,  Amendment of FAS 13, and Technical  Corrections as of April 2002." SFAS No.
145 becomes effective for financial statements issued for fiscal years beginning
after  May 15,  2002.  The  adoption  will not  have a  material  impact  on the
Company's  financial  position and results of operations.  However,  the loss on
extinguishment  of debt that was  classified as an  extraordinary  item in prior
periods will be reclassified to operating  expense as the loss does not meet the
criteria in APB Opinion No. 30 "Reporting  the Results of  Operations  Reporting
the Effects of Disposal of a Segment of a Business",  for  classification  as an
extraordinary item.

In June 2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with Exit or Disposal  Activities." SFAS No. 146 addresses financial  accounting
and  reporting  for  costs  associated  with  exit or  disposal  activities  and
nullifies  Emerging  Issues  Task  Force  (EITF)  Issue  No.  94-3,   "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a restructuring)." Under Issue No.
94-3, a liability  for an exit cost as defined in Issue 94-3 was  recognized  at
the date of an entity's commitment to an exit plan. SFAS No. 146 requires that a
liability for a cost associated with an exit or disposal  activity be recognized
and measured  initially at fair market value only when the liability is incurred
and not when management has completed the plan. The provisions of this Statement
are effective for exit or disposal  activities that are initiated after December
31, 2002. The Company is currently reviewing the provisions of SFAS No. 146.

Fair Value of Financial Instruments:

The carrying  amounts of the Company's  financial  instruments,  including cash,
accounts receivable, accounts payable and accrued liabilities,  approximate fair
value because of their short  maturities.  The carrying  amount of the Company's
lines  of  credit  and  long-term  debt  approximates  the  fair  value  of such
instruments  based upon  management's best estimate of interest rates that would
be available to the Company for similar debt  obligations at June 30, 2002, 2001
and 2000.

Reclassifications:

Certain   reclassifications  have  been  made  to  the  prior  years'  financial
statements to conform to the current year's presentation.


3. ACQUISITIONS

Grizzard Communications Group, Inc:

On March 22, 2000, the Company acquired all of the outstanding  capital stock of
Grizzard Advertising, Inc. and its subsidiaries, ("Grizzard"). Grizzard operates
a vertically  integrated network of marketing  communications  companies.  Total
cost of the  acquisition  was  $104,032,415,  consisting of $47,819,755  cash, a
$5,000,000  payable for certain hold back provisions,  an aggregate of 2,545,799
shares of common stock of MKTG, valued at $19.04 per share and acquisition costs
in the amount of $2,739,535.

In accordance with the Grizzard purchase  agreement,  the $5,000,000 payable was
to be held for a period of three

                                       44
<PAGE>

years pending claims and other  pre-acquisition  matters which may arise. In the
year ended June 30, 2001, $1,126,516 of claims and other matters were identified
and  recorded as a purchase  price  adjustment.  Accordingly,  goodwill  and the
payable were reduced.

A portion of the cash purchase price was financed  through a $58,000,000  senior
secured credit facility (see Note 10).

The purchase  price has been  allocated to the assets  acquired and  liabilities
assumed based on their estimated fair value as follows:

       Working deficit                          $   (9,902,262)
       Property and equipment                       16,631,724
       Intangible assets                            97,302,953
                                                 -------------
                                                  $104,032,415
                                                 =============
In July 2001, the Company completed its sale of Grizzard (see Note 19).

Coolidge:

On March 31, 2000, the Company acquired all of the outstanding  common shares of
The  Coolidge  Company  ("Coolidge").  The  total  cost of the  acquisition  was
$1,632,379,  consisting of $207,946 of cash and a $538,715 note payable,  22,251
shares of common  stock  valued at $16.42  per share and  transaction  and other
costs of $51,356.  The purchase price has been allocated to the assets  acquired
and liabilities assumed based on their estimated fair value as follows:

       Working capital                             $295,843
       Property and equipment                        19,095
       Intangible assets                          1,317,441
                                                 ----------
                                                 $1,632,379
                                                 ==========
These  acquisitions  have  been  accounted  for  using  the  purchase  method of
accounting.  Accordingly,  the  operating  results  of  these  acquisitions  are
included  in the  results  of  operations  from  the  date of  acquisition.  The
following  summary pro forma  information  presents the consolidated  results of
operations of MKTG as if, Grizzard, and Coolidge,  after including the impact of
certain  adjustments,  such  as  amortization  of  intangibles,  adjustments  in
salaries and increased interest on acquisition debt, had been acquired as of the
beginning of fiscal year 2000.

                                  Supplemental
                              Pro forma information
                           For the year ended June 30,
                                    Unaudited
                                    ---------

                                                                  2000
                                                                  ----
          Revenues                                            $117,016,000
          Loss from continuing operations                     $(39,602,000)
          Net loss per common share
             continuing operations,
             basic and diluted                                   $(1.39)
                                                                 =======


                                       45
<PAGE>

The unaudited pro forma information is provided for informational purposes only.
It is based on  historical  information  and is not  necessarily  indicative  of
future results of operations of the consolidated entities.


4.   INTERNET INVESTMENTS

During the fiscal  years  ended June 30,  2001 and 2000,  the  Company  acquired
investments of approximately  $34.8 million in certain internet  companies.  The
Company has taken  charges of  approximately  $7.6 million and $27.2 million for
unrealized  losses on Internet  investments  made during the fiscal  years ended
June  30,  2001  and  June  30,  2000,  respectively,  based  on  all  available
information.  The  Company  believes  such  losses  are a result of  significant
changes in valuations of Internet stocks and the performance of those companies.
The Company has  suspended its Internet  investment  strategy and will focus all
efforts on the profitability of its core direct marketing operations.  There are
no remaining internet  investments recorded on the balance sheets as of June 30,
2002 and 2001.


5.   PROPERTY, PLANT AND EQUIPMENT:

Property,  plant  and  equipment  at June  30,  2002  and  2001  consist  of the
following:
                                                 2002               2001
                                                 ----               ----

   Office furniture and equipment            $ 4,898,171         $ 3,726,368
   Assets under capital leases                   658,579             658,579
   Leasehold improvements                      1,462,571             797,684
                                              ----------         -----------
                                               7,019,321           5,182,631
   Less accumulated depreciation and
      amortization                            (3,759,777)         (2,836,479)
                                              -----------         -----------
                                             $ 3,259,545         $ 2,346,152
                                              ===========         ===========

Assets under  capital  leases as of June 30, 2002 and 2001 consist  primarily of
computer  and  related  equipment.  Accumulated  amortization  for  such  assets
amounted to $658,579 and $605,394 as of June 30, 2002 and 2001, respectively.


6.   INTANGIBLE ASSETS:

Intangible assets at June 30, 2002 and 2001 consist of the following:
                                    Lives               2002          2001
                                    -----               ----          ----
Covenants not to compete            5 years         $   64,306    $ 1,650,000
Capitalized software                3-7 years          324,917        462,092
Customer base                       15-20 years        850,388      3,461,573
List databases                      3-10 years         451,978        966,748
Assembled workforce                 5 years             58,096        472,184
Present value of favorable lease    53 months           28,287        347,920
Goodwill                            10-40 years     14,789,374     57,576,600
                                    ----------      ----------     ----------
                                                    16,567,345     64,937,117
Less accumulated amortization                         (492,213)   (10,574,583)
                                                   ------------   ------------
                                                   $16,075,132    $54,362,534
                                                   ===========    ===========

                                       46
<PAGE>

The decrease in intangible assets during 2002 was primarily due to an impairment
charge  of  approximately  $35.9  million  which is  included  in the loss  from
operations for the year ended June 30, 2002.

As of June 30, 2002 and 2001 the unamortized balance of capitalized software was
$135,666  and  $126,859,  respectively.  Amortization  expense for  software was
$46,550,  $225,128  and  $122,506  the years end June 30,  2002,  2001 and 2000,
respectively.


7.   SHORT TERM BORROWINGS:

The Company has three  renewable  two-year  credit  facilities with a lender for
lines of credit  aggregating  $4,500,000,  collateralized  by  certain  tangible
assets of the  Company.  Borrowings  are  limited to the  lesser of the  maximum
availability  or a  percentage  of  eligible  receivables.  Interest  is payable
monthly at the Chase Manhattan  reference rate (4.75% and 9.5 % at June 30, 2002
and June 30,  2001,  respectively)  plus 1 1/2% with a minimum  annual  interest
requirement  of  $150,000.  The  facility  requires  an annual  fee of 1% of the
maximum available line and has tangible net worth and working capital covenants.
As of June 30,  2002,  there was an  aggregate  of  approximately  $1.2  million
available under these lines of credit (see Note 20).

As of June 30,  2002,  certain  subsidiaries  of the Company are in violation of
certain working capital and net worth covenants of their credit agreements.  The
Company may be unable to obtain waivers from the lender,  who may call the debt,
which  could have a  material  adverse  effect on the  Company's  liquidity  and
ability to continue as a going concern (see Note 2 and Note 20).

The Company had a revolving  credit  facility with a bank for up to  $13,000,000
which  expired  in March  2005.  Borrowings  were  limited  to the lesser of the
maximum  availability  or a  percentage  of eligible  receivables.  Interest was
payable  quarterly  at either  prime  rate or LIBOR  plus an  applicable  margin
ranging  from 1.5% to 2.5%,  for  prime  and 2.5% to 3.5% for  LIBOR  based on a
financial  ratio (See Note 10).  The  Company was  required to maintain  certain
financial  covenants  related to consolidated  EBITDA and  consolidated  debt to
capital, among others. In July 2001, the Company fully paid the amounts due (see
Note 19).


8.   ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:

Accrued expenses as of June 30, 2002 and 2001 consist of the following:

                                            2002            2001
                                            ----            ----

Salaries and benefits                   $1,692,377       $1,621,988
Severance cost                             628,477        1,830,000
Due to Firstream (see Note 13)             893,459        1,094,478
Abandoned lease reserves (see Note 11)     960,000                -
Other                                    1,685,799        1,527,756
                                          ---------        ---------
Total                                   $5,860,112       $6,074,222
                                         ==========       ==========


9.   RELATED PARTY TRANSACTIONS:

On December 31, 2001, the Company advanced  $1,000,000  pursuant to a promissory
note  receivable  agreement  with an officer  due and  payable to the Company at
maturity,  October 15,  2006.  The Company  recorded  the note  receivable  at a
discount of approximately  $57,955 to reflect the incremental  borrowing rate of
the officer and is


                                       47
<PAGE>

being  amortized  as  interest  income  over  the  term of the  note  using  the
straight-line  method.  The note  receivable  is  collateralized  by current and
future  holdings of MKTG common stock owned by the officer and bears interest at
prime.  Interest  is due  and  payable  yearly  on  October  15th.  The  Company
recognized interest income of $36,488 for the year ended June 30, 2002. The note
will be forgiven in the event of a change in control.

During the year-ended  June 30, 2001, the Company entered into a promissory note
payable  agreement  with an officer  for up to  $1,000,000,  due and  payable at
maturity,  January 1, 2002. The  promissory  note bore interest at 15% per annum
and included certain prepayment penalties.  During the year ended June 30, 2001,
the Company received advances of $900,000 and made repayments of $650,000. As of
June 30, 2001,  there was  approximately  $250,000 of principal  outstanding and
$150,000 of accrued interest and penalties,  which was included in related party
payable. The remaining $250,000 was paid in the year ended June 30, 2002.

During  July and  August  1999,  the  Company  entered  into a  promissory  note
agreement with a venture fund in the amount of $4,500,000. The principal and all
accrued  interest was payable in full on December 10, 1999 and bore  interest at
the  greater of 10% or prime plus 2%. An officer of the  Company is a partner in
the venture fund. The principal  amount and all accrued interest were prepaid in
September 1999 with proceeds from a private placement (see Note 13).

In connection  with an  acquisition,  the Company entered into a promissory note
agreement with GE Capital in the amount of $10,000,000.  The note was payable in
full on November  17, 1999 and accrued  interest at 12% per annum.  Interest was
payable in arrears on August 17, 1999 and on the maturity date.  Concurrent with
issuance of the  promissory  note,  the original  outstanding  warrant which was
issued in  connection  with GE  Capital's  purchase  of  redeemable  convertible
preferred stock, was amended (see Note 12).

The Company recorded the GE Capital promissory note at a discount of $342,000 to
reflect an  allocation  of the  proceeds to the  estimated  value of the amended
warrant.  The discount was amortized  into  interest  expense using the interest
method  over the term of the debt.  Approximately  $256,500  and $85,500 of such
discount was included as interest  expense for the years ended June 30, 2000 and
1999, respectively.

In August 1999,  the GE Capital note was amended to extend the maturity  date to
October 15, 2000 with  interest to be paid  quarterly  and  provided for certain
increases  in the  interest  rate  based  on the  time  the  principal  remained
outstanding. In addition, in the event the Company completed a private placement
as defined on or before  December  20,  1999 the  maturity  date was  subject to
acceleration.  During September 1999, the Company  completed a private placement
of common stock for net proceeds of  approximately  $30.8 million (See Note 13).
In accordance  with the  amendment,  $5,000,000,  was  immediately  paid and the
remaining balance, included in current liabilities,  was due and paid on July 1,
2000. As of June 30, 2002, GE Capital  beneficially  owned  approximately 30% of
the outstanding common stock of the Company (see Note 12).

A member of the Board of  Directors  is a partner in a law firm  which  provides
legal services for which the Company incurred expenses aggregating approximately
$921,901,  $1,014,524 and $1,272,000 for the years ended June 30, 2002, 2001 and
2000, respectively.




                                       48
<PAGE>

10.   LONG TERM OBLIGATIONS:

Long-term obligations as of June 30, 2002 and 2001 consist of the following:
                                                         2002           2001
                                                        ------         ------

Promissory notes payable - maturity
    January 2004 (a)                                 $  465,596        $739,163

Term loan payable - maturity
     March 2005 (b)                                           -      35,500,000

Hold back provision for
    Grizzard acquisition (c)                          4,548,061       3,873,483
                                                      ---------        ---------

Total long-term obligations                           5,013,657      40,112,646
Less:  Current portion of long-term obligations      (4,837,321)    (32,833,101)
Discount on notes payable to bank                             -      (2,940,467)
                                                     ----------     ------------

Long-term obligations, net of current portion     $     176,336    $  4,339,078
                                                  =============     ============


              (a) In  connection  with  an  acquisition,  the  Company  incurred
                  promissory  notes  payable  to  former  shareholders,  payable
                  monthly at 5.59% interest per year through January 2004.

              (b) In March 2000, the Company entered into a $58,000,000 senior
                  secured credit agreement (the "Credit Agreement").

                  In  connection  with the sale of Grizzard,  the Company  fully
                  paid its term loan and line of credit.  In connection with the
                  pay down,  the  Company  recorded an  extraordinary  loss from
                  early extinguishments of debt of $4,858,839 due to a write-off
                  of unamortized debt discount and prepaid finance costs.

                  The Credit Agreement was comprised of a $13,000,000  revolving
                  line of credit,  $40,000,000 term loan and $5,000,000  standby
                  letter of credit.  The Credit Agreement was to expire on March
                  31, 2005 and bore  interest at either prime rate or LIBOR plus
                  an applicable  margin  ranging from 1.5% to 2.5% for prime and
                  2.5% to 3.5% for LIBOR  based on a financial  ratio.  The term
                  loan plus  interest  was  payable  in  quarterly  installments
                  through  March  2005.   The  loans  were   collateralized   by
                  substantially  all  of the  assets  of the  Company  and  were
                  guaranteed by all of the Company's non-internet  subsidiaries.
                  As of  June  30,  2001,  the  interest  rates  were  9.5%  for
                  borrowings  under the prime rate and 7.6% for borrowings under
                  LIBOR.  In  October  2000,  the stand by letter of credit  was
                  cancelled.

                  In connection with the Credit Agreement,  the Company issued a
                  warrant to purchase  298,541  shares of the  Company's  common
                  stock at an exercise price of $.01 per share.  The warrant was
                  immediately  exercisable  for  a  period  of  ten  years.  The
                  $40,000,000   term  loan  was   recorded   at  a  discount  of
                  approximately  $5,000,000  to  reflect  an  allocation  of the
                  proceeds to the  estimated  value of the warrant as determined
                  by  the  Black-Scholes  option  pricing  model  and  has  been
                  amortized as interest  expense over the life of the loan using
                  the interest  method of  accounting.  Approximately  $133,850,
                  $1,630,200 and $453,000 were recorded as interest  expense for
                  the  years  ended  June 30,  2002,  2001  and  June 30,  2000,
                  respectively.

                                       49
<PAGE>

                  Under the  terms of the  Credit  Agreement,  the  Company  was
                  required to maintain certain  financial  covenants  related to
                  consolidated  EBITDA and consolidated  debt to capital,  among
                  others.  The Company was in violation of certain covenants and
                  accordingly, the debt was classified as a current liability as
                  of June 30, 2001; however, in July 2001 the Company fully paid
                  the amounts due under the Credit Agreement (see Note 19).

              (c) In August 2001, the Company  entered into a stand-by letter of
                  credit with a bank in the amount of  $4,945,874 to support the
                  remaining  obligations under a certain holdback agreement with
                  the former shareholders of Grizzard Communications Group, Inc.
                  ("Grizzard").  The letter of credit is collateralized by cash,
                  which has been  classified as  restricted  cash in the current
                  asset  section of the balance  sheet as of June 30, 2002.  The
                  Company has a remaining  obligation  of  $4,548,061  under the
                  holdback   agreement  as  of  June  30,  2002.  The  remaining
                  obligation is payable in March 2003.


11.   COMMITMENTS AND CONTINGENCIES:

Leases:   The  Company  leases   various   office  space  and  equipment   under
non-cancelable  long-term  leases.  The Company  incurs all costs of  insurance,
maintenance and utilities.

Future minimum rental  commitments under all  non-cancelable  leases, as of June
30, 2002 are as follows:
                             Operating Leases   Capital Leases
                             ----------------   --------------

         2003               $    2,893,259       $  88,535
         2004                    2,776,100          33,050
         2005                    2,391,773               -
         2006                    1,890,870               -
         2007                    1,743,862               -
         Thereafter              4,973,110               -
                              ------------        --------
                               $16,668,974         121,585
Less: Interest                                      (7,008)
                                                  --------
Present value of
    capital lease obligations                     $114,577
                                                  ========

Rent expense was approximately $2,692,084,  $3,853,006 and $2,921,739 for fiscal
years ended June 30, 2002, 2001 and 2000, respectively.

In fiscal year 2002, the Company  incurred an estimated loss in connection  with
the  abandonment of certain leased office space of $7,031,630  which is recorded
in accrued expenses and other current  liabilities and other  liabilities.  (see
Note 8).

Contingencies and Litigation:  In June 1999,  certain employees of the Company's
wholly owned subsidiary, MKTG TeleServices, Inc. voted against representation by
the  International  Longshore and Warehouse Union  ("ILWU").  The ILWU has filed
unfair labor practice  charges with the National Labor  Relations Board ("NLRB")
alleging that the Company  engaged in unlawful  conduct  prior to the vote.  The
NLRB has issued a complaint  seeking a bargaining  order and  injunctive  relief
compelling  the Company to recognize and bargain with the ILWU. A hearing on the
complaint was conducted  before an NLRB  Administrative  Law Judge ("Judge") and
the  record was closed in  September  2000.  In April  2001,  the United  States
District Court for the Northern District of California ("District Court") issued
an interim  bargaining order pending the final ruling from the NLRB. The Company
thereafter  began  bargaining with the ILWU. On May 31, 2001, the Judge issued a
decision finding that the Company had engaged in certain unfair labor practices,
but dismissed other charges.


                                       50
<PAGE>

The Judge recommended among other things, that the Company recognize and bargain
with the union.  The Company  chose not to appeal this  decision and on July 27,
2001,  the NLRB  adopted the Judge's  findings and  conclusions  and ordered the
Company to take action  recommended by the Judge.  The Company is complying with
the order.

An employee of Metro Fulfillment,  Inc. ("MFI"),  which, until March 1999, was a
subsidiary of the Company,  filed a complaint in the Superior Court of the State
of California for the County of Los Angeles, Central District,  against MKTG and
current and former  officers of MKTG.  The  complaint  sought  compensatory  and
punitive damages of $10,000,000 in connection with the  individual's  employment
at MFI. In March 2001, although admitting no liability, the Company entered into
a settlement agreement.  The total cost of the settlement,  recorded as of March
31, 2001, was  $1,297,970  which  included cash payments  aggregating  $225,000,
forgiveness  of a note  receivable  over eight  years and  related  interest  of
$931,787 and the issuance of 100,000 shares of the Company's unregistered common
stock valued at $141,183.

In December  2001,  an action was filed by a number of  purchasers  of preferred
stock of  WiredEmpire,  Inc., a  discontinued  subsidiary,  in the Alabama State
Court  (Circuit  Court of  Jefferson  County,  Alabama,  10 Judicial  Circuit of
Alabama, Birmingham Division),  against J. Jeremy Barbera, Chairman of the Board
and Chief Executive Officer of MKTG, MKTG and WiredEmpire,  Inc. The plaintiffs'
complaint alleges,  among other things,  violation of sections  8-6-19(a)(2) and
8-6-19(c) of the Alabama  Securities Act and various other provisions of Alabama
state law and common law, arising for the plaintiffs' acquisition of WiredEmpire
Preferred  Series  A stock  in a  private  placement.  The  plaintiffs  invested
approximately  $1,650,000  in  WiredEmpire's  preferred  stock and it seeks that
amount,  attorney's  fees  and  punitive  damages.  On  February  8,  2002,  the
defendants filed a petition to remove the action to federal court on the grounds
of diversity of  citizenship.  The Company  believes that the allegations in the
complaint are without merit.  The Company  intends to vigorously  defend against
the lawsuit.

In December 2000, an action was filed by Red Mountain,  LLP in the United States
Court for the Northern District of Alabama,  Southern Division against J. Jeremy
Barbera, Chairman of the Board and Chief Executive Officer of Marketing Services
Group, Inc., and WiredEmpire, Inc. Red Mountains' complaint alleges, among other
things, violations of Section 12(2) of the Securities Act of 1933, Section 10(b)
of the Securities  Act of 1934 and Rule 10(b)(5)  promulgated  there under,  and
various  provisions  of  Alabama  state law and  common  law,  arising  from Red
Mountain's  acquisition  of  WiredEmpire  Preferred  Series A stock in a private
placement.  Red Mountain invested $225,000 in WiredEmpire's  preferred stock and
it seeks that amount, attorney's fees and punitive damages. The Company believes
that the allegations in the complaint are without merit.  The Company intends to
vigorously defend against the lawsuit.

In June  2002,  the  Company  entered  into a  tolling  agreement  with  various
claimants  who  acquired  WiredEmpire  Preferred  Series  A stock  in a  private
placement.  The  agreement  states  that the  passage of time from June 15, 2002
through  August 31, 2002 shall not be counted toward the limit as set out by any
applicable statute of limitations. In addition, the claimants agree that none of
them  shall  initiate  or file a  legal  action  against  Mr.  Barbera,  MKTG or
WiredEmpire  prior to the termination of the agreement.  The claimants  invested
approximately $1,200,000 in WiredEmpire's preferred stock.

A demand letter was received  from counsel for Pennstone LLC seeking  rescission
of its purchase of 64,000 shares of WiredEmpire  Series A Preferred Stock.  That
demand was rejected in January 2001. To date, no action has commenced.

In 1999 a lawsuit under Section 16(b) of the Securities Exchange Act of 1934 was
commenced  against General Electric Capital  Corporation  ("GECC") by Mark Levy,
derivatively on behalf of the Company,  to recover short swing profits allegedly
obtained by GECC in  connection  with the purchase and sale of MKTG  securities.
The  case  was  filed  in the  name of Mark  Levy v.  General  Electric  Capital
Corporation,  in the United States  District

                                       51
<PAGE>

Court  for the  Southern  District  of New  York,  Civil  Action  Number 99 Civ.
10560(AKH).  In February 2002, a settlement  was reached among the parties.  The
settlement  provided for a $1,250,000 payment to be made to MKTG by GECC and for
GECC to  reimburse  MKTG  for  the  reasonable  cost  of  mailing  a  notice  to
stockholders up to $30,000. On April 29, 2002, the court approved the settlement
for  $1,250,000,  net of attorney fees plus  reimbursement  of mailing costs. In
July 2002,  the court ruling became final and the Company  received and recorded
the net settlement payment of $965,486 plus reimbursement of mailing costs.

In addition to the above,  certain  other legal  actions in the normal course of
business  are  pending to which the  Company is a party.  The  Company  does not
expect that the ultimate resolution of the above matters and other pending legal
matters  will have a  material  effect on the  financial  condition,  results of
operations or cash flows of the Company.


12.   PREFERRED STOCK:

On February  24,  2000 the Company  entered  into a private  placement  with RGC
International Investors LDC and Marshall Capital Management,  Inc., an affiliate
of Credit Suisse First Boston,  in which the Company sold an aggregate of 30,000
shares of Series E  Convertible  Preferred  Stock,  par value  $.01  ("Series  E
Preferred  Stock"),  and warrants to acquire  245,180 shares of common stock for
proceeds  of  approximately  $29.5  million,  net of  approximately  $520,000 of
placement fees and expenses.  The preferred  stock is  convertible  into cash or
shares of common stock on February  18, 2004 at the option of the  Company.  The
preferred stock provides for liquidation  preference under certain circumstances
and  accordingly  has been  classified in the  mezzanine  section of the balance
sheet. The preferred stock has no dividend requirements.

The Series E Preferred  Stock was convertible at any time at $146.838 per share,
subject to reset on August 18, 2000 if the market price of the Company's  common
stock was lower and subject to certain anti-dilution adjustments.  On August 18,
2000,  the conversion  price was reset to $73.44 per share,  the market price on
that  date.  As  a  result  of  the  issuance  of  a  certain  warrant,  certain
antidilultive  provisions  of  the  Company's  Series  E  preferred  stock  were
triggered.  The  conversion  price of such  shares was reset to a fixed price of
$2.346  based  on an  amount  equal  to the  average  closing  bid  price of the
Company's  common stock for ten consecutive  trading days beginning on the first
trading day of the exercise  period of the  aforementioned  warrant.  No further
adjustments  will be made to the  conversion  price other than for stock splits,
stock  dividends or other organic  changes.  The warrant was  exercisable  for a
period  of two  years at an  exercise  price of  $171.306,  subject  to  certain
anti-dilution adjustments.  The warrant expired in February 2002. The fair value
of the warrant of $15,936,103, as determined by the Black Scholes option pricing
model,  was recorded as additional paid in capital and a corresponding  decrease
to preferred  stock (see Note 2). The  preferred  shareholders  converted  1,799
shares of  preferred  stock to 903,866  shares of common  stock  during the year
ended June 30, 2002. The preferred  shareholders  are precluded from  converting
any additional  shares into common stock  pursuant to the current  conditions of
the agreement of February 24, 2000 (see Note 20).

On February  19,  2002,  the Company  entered  into  standstill  agreements,  as
amended,  with the Series E preferred  shareholders  in order for the Company to
continue to discuss with multiple  parties  regarding the  possibility of either
restructuring  or refinancing the remainder of the preferred  stock. The Company
is also reviewing  other  options,  including  replacing the existing  Preferred
Stockholders with an alternative strategic investor or selling certain assets to
obtain  funds  to  attempt  to  repurchase  the  Series E  preferred  stock at a
discount.  Under the terms of the  standstill  agreements,  and  subject  to the
conditions  specified  therein,  each preferred  shareholder  had agreed that it
would not acquire,  hedge (short),  proxy,  tender,  sell,  transfer or take any
action with  regard to its  holdings  during the  standstill  period,  which was
extended until August 15, 2002. Since the Company did not obtain  refinancing or
an alternative investor by August 15, 2002, the Company was obligated under such
agreement to seek stockholder  approval to convert the preferred stock to common
stock,  by  October  2,  2002,  based  upon the  19.99%  NASDAQ  stock  issuance
limitations  and the terms of the  preferred  stock  itself due to the change in
conversion price and increase in the number of exercisable  shares. In the event
the  stockholders of the
                                       52
<PAGE>

Company do not approve the  conversion  of the  additional  shares by October 2,
2002,  the Company  may be required to redeem the Series E preferred  stock (see
Note 20). The Company's  commitments  as a result of the  standstill  agreements
included  a partial  redemption  of 5,000 of the Series E  preferred  shares for
$5,000,000,  thereby  reducing the number of Series E preferred shares to 23,201
at June 30, 2002. The value of the preferred  stock was initially  recorded at a
discount  allocating a portion of the proceeds to a warrant.  The  redemption of
such preferred  shares for $5,000,000,  less the carrying value of the preferred
shares,  including the  beneficial  conversion  feature  previously  recorded to
equity on the balance sheet, resulted in a deemed dividend of $412,634 which was
recorded to additional  paid-in  capital and included in the  calculation of net
loss attributable to common stockholders for the year ended June 30, 2002.

In June 2002,  the Company  received  notification  from The Nasdaq Stock Market
("Nasdaq")  that the  Company's  common stock has closed below the minimum $1.00
per share requirement for continued inclusion under Marketplace Rule 4310(c)(4).
If the Company  cannot meet  compliance  under the Nasdaq  rules by December 24,
2002,  Nasdaq  will  determine  whether the  Company  meets the initial  listing
criteria for The Nasdaq SmallCap Market under Marketplace Rule 4310(c)(2)(a). If
the Company meets the initial listing  criteria,  the Company will be granted an
additional  180 calendar day grace period to demonstrate  compliance.  Otherwise
the  securities  may be  delisted(see  Note 20).  An event of default  under the
Series E  preferred  stock  includes  failing  to  maintain  the  listing of the
Company's  common stock on Nasdaq or other such similar  exchange.  Such default
would  trigger a  mandatory  redemption  in cash under the terms of the Series E
preferred stock agreement.  The Company does not have sufficient cash to satisfy
such redemption.

On December 24, 1997, the Company and General Electric Capital  Corporation ("GE
Capital")  entered into a stock purchase  agreement  (the "Purchase  Agreement")
providing  for the  purchase  by GE  Capital  of (i)  50,000  shares of Series D
redeemable  convertible  preferred  stock,  par  value  $0.01  per  share,  (the
"Convertible  Preferred Stock"),  and (ii) a warrant to purchase up to 1,778,334
shares of common stock (the "Original  Warrant"),  all for an aggregate purchase
price of  $15,000,000.  The Convertible  Preferred  Stock was  convertible  into
shares  of  common  stock  at  a  conversion  rate,   subject  to  anti-dilution
adjustments.  The Original Warrant is subject to reduction or cancellation based
on the  Company's  meeting  certain  financial  goals set forth in the  Original
Warrant  or upon the  occurrence  of a  qualified  secondary  offering  within a
certain time period, as defined.

The  Company  recorded  the  Convertible   Preferred  Stock  at  a  discount  of
approximately  $1,362,000,  to  reflect an  allocation  of the  proceeds  to the
estimated  value of the Original  Warrant and was being  amortized as a dividend
using the interest method over the redemption period.

Dividends  were  cumulative  and  accrued  at  the  rate  of 6% per  annum.  The
convertible  preferred stock was  mandatorily  redeemable for $300 per share, if
not previously  converted,  on the sixth  anniversary of the original issue date
and was redeemable at the option of the holder upon the occurrence of an organic
change in the Company, as defined in the purchase agreement.

On April 21, 1999, the Company  exercised its right to convert all 50,000 shares
of  GE  Capital's   Series  D  redeemable   convertible   preferred  stock  into
approximately   800,000  shares  of  common  stock.  In  conjunction   with  the
conversion,  all preferred  shareholder rights,  including quarterly  dividends,
financial  covenants,  acquisition  approvals  and board seats,  were  cancelled
effective immediately.

                                       53
<PAGE>

In May 1999, the Original Warrant was amended in connection with the issuance of
a promissory  note.  Upon an occurrence of a Qualified  Secondary  Offering,  as
defined in the agreement,  the Original  Warrant was fixed at 33,334 shares with
an  exercise  price of $.01 per  share.  The  amendment  changed  the amount and
exercise price per share to 50,000 shares with an exercise price of one-third of
the  offering  price in a Qualified  Secondary  Offering.  In August  1999,  the
warrant  was  amended  a second  time to amend  the  definition  of a  Qualified
Secondary Offering to include a Qualified Private Placement,  as defined, and to
change the time frame for the  completion of a Qualified  Secondary  Offering or
Private  Placement  from  December  31,  1999 to on or after  December  20, 1999
through  April 30,  2000.  The Company has not  completed a Qualified  Secondary
Offering or Private  Placement  during the  specified  period,  accordingly  the
Original  Warrant  remains  exercisable  for up to 1,778,334  shares  subject to
reduction or cancellation based on the Company's meeting certain financial goals
for fiscal year 2001. The Company did not meet certain  financial  goals for the
fiscal year ended June 30, 2001 as set forth in the  warrant.  Accordingly,  the
warrant in the amount of  1,778,334  shares with an  exercise  price of $.06 was
issued in October 2001.

13.   COMMON STOCK, STOCK OPTIONS, AND WARRANTS:

Common Stock: In February 2001, the Company entered into a strategic partnership
agreement  (the  "Agreement")  with Paris based  Firstream.  Firstream  paid the
Company $3.0 million and in April 2001  received  250,000  restricted  shares of
common  stock,  plus a two-year  warrant for 66,667  shares priced at $18.00 per
share.  The warrants are exercisable  over a two year period.  The warrants were
valued at $.9 million as determined by the  Black-Scholes  option  pricing model
and were  recorded to equity.  In  accordance  with the  Agreement,  the Company
recorded proceeds of $1.8 million; net of fees and expenses,  to equity and $1.0
million was designated as deferred  revenue to provide for new  initiatives.  As
part of the  strategic  partnership,  MKTG will  launch  several  new  Firstream
products and services in the areas of wireless communications,  online music and
consumer  marketing  programs for early adopters of new products.  The remaining
balance is $.8 million as of June 30, 2002. In July 2002, the Company received a
letter  from  Firstream  canceling  the  Strategic   Partnership  Agreement  and
requesting payment of the remaining $.8 million, which has been categorized as a
liability at June 30, 2002.  The Company is having  discussions  with  Firstream
regarding the remaining liability.

Related to the  issuance of  Firstream  common  shares,  a warrant was issued to
purchase  50,000  common  shares  for broker fee  compensation.  The  warrant is
exercisable  over a two year  period.  The  warrant was valued at $.3 million as
determined by the Black-Scholes option pricing model.

During the year ended June 30, 2001, the Company exchanged 328,334 shares of
unregistered MKTG common stock for WiredEmpire preferred stock. The exchange
resulted in a gain of $13,410,273, which was recorded through equity and is
included in net loss attributable to common stockholders and earnings per
share - discontinued operations for the year ended June 30, 2001.

In March 2001, the Company entered into a settlement  agreement with an employee
of Metro Fulfillment, Inc. ("MFI"), which, until March 1999, was a subsidiary of
the  Company.   The  complaint  sought  compensatory  and  punitive  damages  of
$10,000,000 in connection with the  individual's  employment at MFI. The Company
admitted no liability.  The total cost of the settlement  was  $1,297,970  which
included cash payments aggregating  $225,000,  foregiveness of a note receivable
over eight years and related  interest  of $931,787  and the  issuance of 16,667
shares of unregistered MKTG common shares valued at $141,183.

In October  2000,  the Company  amended the  earn-out  provision of the purchase
agreement  of Stevens Knox and  Associates,  Inc. In October  2000,  the Company
issued  22,046 of  unregistered  MKTG common  shares  valued at $250,096  and in
February  2002 the Company  issued  125,914 of  unregistered  MKTG common shares
valued at $300,000.  The $550,096 earn-out settlement was considered an addition
to the purchase price and goodwill in the year ended June 30, 2001.

In September 1999, the Company  completed a private  placement of 521,765 shares
of  common  stock  for

                                       54
<PAGE>

proceeds of approximately $30.5 million, net of approximately $2.3 million of
placement fees and expenses. The shares have certain registration rights. The
proceeds of the private placement were used in connection with the Company's
Internet investments, to repay certain short-term debt and for working capital
purposes. The shares were registered on October 29, 1999.

Stock  Options:  The Company  maintains a  non-qualified  stock option plan (the
"1991 Plan") for key employees,  officers, directors and consultants to purchase
525,000  shares of common stock.  The Company also  maintains a qualified  stock
option plan (the "1999  Plan") for the issuance of up to an  additional  500,000
shares of common stock under  qualified and  non-qualified  stock options.  Both
plans are administered by the  compensation  committee of the Board of Directors
which has the  authority to determine  which  officers and key  employees of the
Company will be granted options, the option price and vesting of the options. In
no event shall an option expire more than ten years after the date of grant.

The following  summarizes the stock option  transactions under the 1991 Plan for
the three years ended June 30, 2002:
                                          Number                 Option Price
                                         of Shares                 Per Share
                                         ---------               ------------

  Outstanding at June 30, 1999            260,065

  Granted                                       -
  Exercised                               (39,214)            $12.00 to $30.00
  Cancelled                                (2,914)            $12.00 to $18.66
                                        ----------
  Outstanding at June 30, 2000            217,937
                                          =======
  Granted                                       -
  Exercised                                  (750)            $15.00 to $18.66
  Cancelled                               (31,406)            $12.00 to $31.14
                                          --------
  Outstanding at June 30, 2001            185,781
                                          =======
  Granted                                       -
  Exercised                                     -
  Cancelled                               (23,913)            $12.00 to $30.00
                                          --------
  Outstanding at June 30, 2002            161,868
                                          =======

The following  summarizes the stock option  transactions under the 1999 Plan for
the three years ended June 30, 2002:
                                            Number                 Option Price
                                          of Shares                  Per Share
                                          ---------                ------------

  Outstanding at June 30, 1999             31,761
  Granted                                 388,818              $9.24 to $90.75
  Exercised                                     -
  Cancelled                                     -
                                          --------
  Outstanding at June 30, 2000            420,579
                                          =======
  Granted                                  39,167            $21.378 to $26.625
  Exercised                                   (40)                  $9.24
  Cancelled                               (28,810)            $9.24 to $90.378
                                          --------
  Outstanding at June 30, 2001            430,896
                                          =======

                                       55
<PAGE>

  Granted                                       -
  Exercised                                     -
  Cancelled                              (158,278)             $9.24 to $90.75
                                          --------
  Outstanding at June 30, 2002            272,618
                                          =======


During  Fiscal  1999,  66,667  stock  options  were  granted with a below market
exercise  price on the date of  employment  to a then  executive of the Company.
22,167  options  vested  immediately  and the balance  ratably over the next two
years. The aggregate difference of $1,232,000 between the exercise price and the
market price on the date of grant has been recorded as deferred compensation and
included in stockholders'  equity. The deferred compensation was being amortized
into compensation expense over the vesting period of the options. In March 2000,
in connection  with a severance  agreement,  all options became fully vested and
the balance of  deferred  compensation  was  expensed.  The  Company  recognized
compensation expense of approximately  $444,000 in 1999.  Approximately $788,000
was recognized as  compensation  expense and included in loss from  discontinued
operations for the year ended June 30, 2000.

In addition to the 1991 and 1999 Plans,  the Company has option  agreements with
current  and  former  officers  and  employees  of the  Company.  The  following
summarizes transactions for the three years ended June 30, 2002:

                                               Number          Option Price
                                              of Shares          Per Share
                                              ---------        ------------

  Outstanding at June 30, 1999                 233,340
  Granted                                       62,500            $26.625
  Exercised                                    (40,000)           $31.02
  Cancelled                                          -
                                               -------
  Outstanding at June 30, 2000                 255,840
                                               =======
  Granted                                      166,667       $26.625 to $27.00
  Exercised                                          -
  Cancelled                                    (41,667)           $105.75
                                               --------
  Outstanding at June 30, 2001                 330,840
                                               =======
  Granted                                            -
  Exercised                                          -
  Cancelled                                    (37,501)           $26.625
                                               --------
  Outstanding at June 30, 2002                 293,339
                                               =======


As of June 30, 2002,  661,518  options are  exercisable.  The  weighted  average
exercise  price of all  outstanding  options is $25.97 and the weighted  average
remaining  contractual  life is 4.89 years. The weighted average grant date fair
value of all outstanding  options is $22.60.  At June 30, 2002,  277,755 options
were available for grant.

Had the Company determined compensation cost based on the fair value methodology
of SFAS 123 at the grant  date for its stock  options,  the  Company's  loss and
earnings per share from  continuing  operations  would have been adjusted to the
pro forma amounts indicated below:


                                       56
<PAGE>

<TABLE>
<CAPTION>
                                                                       Years ended June 30,
                                                      ---------------------------------------------------------
                                                       2002                   2001                2000
                                                       ----                   ----                ----
<S>                                                   <C>                    <C>                <C>
Loss from continuing
  operations                   as reported            $(60,824,298)          $(67,090,567)      $(41,130,223)
                               pro forma              $(65,545,317)          $(75,750,739)      $(46,731,147)
Net loss attributable to
  common stockholders          as reported            $(66,095,771)          $(66,492,466)      $(75,673,203)
                               pro forma              $(70,816,790)          $(75,152,638)      $(81,274,127)

Earnings per share             as reported            $   (10.81)            $   (12.49)        $   (17.08)
                               pro forma              $   (11.58)            $   (14.13)        $   (18.34)
</TABLE>

Pro forma net loss  reflects  only options  granted in fiscal 1996 through 2002.
Therefore,  the full impact of calculating  compensation  cost for stock options
under SFAS No. 123 is not reflected in the pro forma net loss amounts  presented
above because  compensation  cost is reflected over the options' maximum vesting
period of seven years and compensation cost for options granted prior to July 1,
1995, has not been considered.  The fair value of each stock option is estimated
on the date of grant using the Black-Scholes option pricing model. The following
assumptions  used for grants in fiscal years ended June 30, 2002,  2001 and 2000
are as follows:

                                2002              2001                 2000
                                ----              ----                 ----

Risk -free interest rate    5.9% to 6.2%      5.9% to 6.2%         4.5% to 6.0%
Expected option life        Vesting life+     Vesting life+        Vesting life+
                              two years         two years            two years
Dividend yield                  None             None                  None
Volatility                      103%             103%                   90%

As of June 30, 2002, the Company has 1,947,758 warrants  outstanding to purchase
shares of common stock at prices ranging from $0.06 to $171.31.  All outstanding
warrants are currently exercisable.


14.   INCOME TAXES:                                        As of June 30,
                                                           --------------
                                                      2002           2001
                                                      ----           ----
  Deferred tax assets:
       Net operating loss carryforwards:
           Continuing operations                    $48,645,647   $40,041,097
       Abandoned lease reserves                       3,012,350             -
       Compensation on option grants                  1,232,941     1,370,754
       Amortization of intangibles                   10,104,829             -
       Realized/unrealized loss on investments                -    14,897,079
       Other                                            272,468             -
                                                  -------------  ------------

           Total assets                              63,268,235    56,308,930

  Deferred tax liabilities:
       Amortization of intangible assets                      -    (1,730,901)
       Other                                                  -    (2,673,495)
                                                  -------------    -----------
           Total liabilities                                  -    (4,404,396)
                                                  -------------    -----------
  Net deferred tax assets                            63,268,235    51,904,534
  Valuation allowance                               (63,268,235)  (51,904,534)
                                                    ------------  ------------
  Net deferred tax assets                        $            -     $        -
                                                  ==============   ===========

                                       57
<PAGE>

The difference between the Company's U.S. federal statutory rate of 35%, as well
as its state and local rate net of federal  benefit of 5%, when  compared to the
effective  rate is  principally  comprised of the valuation  allowance and other
permanent disallowable items.

The Company has a U.S. federal net operating loss carry forward of approximately
$139,000,000  available  which  expires  from 2011  through  2021.  Of these net
operating  loss  carry  forwards  approximately  $61,400,000  is the  result  of
deductions  related  to  the  exercise  of  non-qualified  stock  options.   The
realization  of these net operating loss carry forwards would result in a credit
to equity.  These loss carry  forwards  are subject to annual  limitations.  The
Company has recognized a full valuation  allowance  against  deferred tax assets
because it is more likely than not that  sufficient  taxable  income will not be
generated during the carry forward period available under the tax law to utilize
the deferred tax assets.


15.   EMPLOYEE RETIREMENT SAVINGS 401(k) PLANS:

Certain  subsidiaries  sponsor tax deferred  retirement  savings plans  ("401(k)
plans") which permit  eligible  employees to contribute  varying  percentages of
their  compensation  up to the  annual  limit  allowed by the  Internal  Revenue
Service.

The  Company  currently  matches  the  50%  of  the  first  $3,000  of  employee
contribution  up to a maximum of $1,500  per  employee.  Matching  contributions
charged to expense  were  $240,432,  $535,757  and $274,951 for the fiscal years
ended June 30, 2002, 2001 and 2000, respectively.

Certain  subsidiaries  also provided for  discretionary  Company  contributions.
Discretionary contributions charged to expense for the fiscal years end June 30,
2001 and 2000 were $27,590 and $64,024, respectively.


16.   DISCONTINUED OPERATIONS:

On October 1, 1999, the Company completed an acquisition of approximately 87% of
the  outstanding  common  stock of  Cambridge  Intelligence  Agency  for a total
purchase  price of $2.4 million which  consisted of $1.6 million in common stock
of the Company and an interest in the  Company's  Permission  Plus  software and
related  operations  valued at $.8  million,  subject  to  certain  adjustments.
Concurrently with this acquisition,  the Company formed WiredEmpire,  a licensor
of email marketing tools. Effective with the acquisition, Cambridge Intelligence
Agency and the Permission Plus asset was merged into WiredEmpire.

In March 2000, the Company  completed a private placement of 3,200,000 shares of
Convertible  Preferred  Stock of its  WiredEmpire  subsidiary  for  proceeds  of
approximately $18.7 million, net of placement fees and expenses of $1.3 million.
In connection with the discontinued  operations of WiredEmpire,  the Company has
offered to redeem the preferred shares in exchange for MKTG common shares.

On  September  21, 2000,  the  Company's  Board of Directors  approved a plan to
discontinue the operation of its WiredEmpire  subsidiary.  The Company shut down
the operations by the end of January 2001. The estimated losses  associated with
WiredEmpire  were  approximately  $34.5  million.  These losses for  WiredEmpire
included  approximately  $19.5  million in losses  from  operations  through the
measurement  date and  approximately  $15.0  million of loss on  disposal  which
included   approximately  $2.0  million  in  losses  from  operations  from  the
measurement  date  through the  estimated  date of  disposal.  It also  included
provisions for vested compensation expense of $2.0 million, write down of assets
to net  realizable  value  of $8.8  million,  lease  termination  costs  of $1.9
million,  employee  severance and benefits of $1.8 million and other contractual
commitments  of $.5  million.  As of June 30, 2002,  approximately  $1.7 million
remains accrued  representing  payments expected to be made related to legal and
lease obligations.

                                       58
<PAGE>

The assets and liabilities of WiredEmpire have been separately classified on the
consolidated   balance  sheets  as  "Net  current  liabilities  of  discontinued
operations."  A summary of these  liabilities  at June 30, 2002 and 2001 were as
follows:

                                                        2002            2001
                                                        ----            ----

Current assets                                               -               -
Current liabilities                                  $(1,714,406)  $(2,396,171)
                                                    -------------  ------------

Net current liabilities of discontinued operations   $(1,714,406)  $(2,396,171)
                                                     ============  ============
Minority interest in subsidiary, preferred stock     $  (280,946)     (280,946)
                                                     ============  ============

In September 2000 the Company offered to exchange the preferred  shares for MKTG
common shares.  During the fiscal year end June 30, 2001, the Company  exchanged
328,334  shares of  unregistered  MKTG common  stock for  WiredEmpire  preferred
stock.  The  exchange  resulted  in a gain of  $13,410,273,  which was  recorded
through  equity and is included in net loss attributable to common  stockholders
and earnings  per share -  discontinued  operations  for the year ended June 30,
2001. As of June 30, 2002, 48,000 shares of WiredEmpire preferred stock have not
been exchanged.

In January  2001,  the  Company  sold  certain  assets of  WiredEmpire  for $1.3
million,  consisting  of $1.0  million in cash and $.3  million  held in escrow,
which  was paid in May  2001.  This  transaction  resulted  in a gain on sale of
assets of $1.3 million and is included in the  statement of operations in income
(loss) from discontinued operations.

Results of these operations have been classified as discontinued  operations and
all prior periods have been restated.


17.   SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

For the year ended June 30, 2002:
     o   The  Company  issued  125,914 of  unregistered  MKTG  common  shares in
         February 2002 valued at $300,000 in settlement of an earn-out provision
         for the acquisition of Stevens Knox and Associates,  Inc.  entered into
         in the previous fiscal year.
     o   The preferred shareholders converted 1,799 shares of preferred stock to
         903,866 shares of common stock during the year ended June 30, 2002.

For the year ended June 30, 2001:

     o   The Company received $860,762 of uncollateralized  financing to acquire
         additional  capitalized  software.  The notes bear interest at 9.5% per
         annum and are  payable  in  monthly  installments  over 36 months  with
         maturity dates ranging from September 30, 2003 and December 30, 2003.
     o   The Company  exchanged 328,334 shares of unregistered MKTG common stock
         for WiredEmpire  preferred  stock.  The exchange  resulted in a gain of
         $13,410,273,  which was recorded  through equity and is included in net
         loss attributable  to  common  stockholders  and  earnings  per share -
         discontinued operations.
     o   The Company issued 22,046 of unregistered MKTG common shares in October
         2000 valued at $250,096 in settlement of an earn-out  provision for the
         acquisition of Stevens Knox and Associates, Inc.
     o   The Company issued 16,667 unregistered MKTG common shares in March 2001
         valued at $141,183 in settlement  of a complaint in connection  with an
         employee of MFI.

                                       59
<PAGE>

For the year ended June 30, 2000:

   o Capital lease obligations of $708,510 were incurred for the leasing of
     certain equipment.

   o The Company sold its 15% minority interest in Metro Fulfillment, Inc. for a
     Note Receivable in the amount of $222,353.

   o In addition, there were certain non-cash transactions related to the
     acquisitions of Grizzard, Coolidge and the investment in Fusion Networks,
     Inc. (See Notes 3 and 4).

Supplemental disclosures of cash flow data:
-------------------------------------------
                                              2002          2001        2000
                                              ----          ----        ----
    Cash paid during the year for:
        Interest                            $588,683   $6,256,346   $1,510,937
        Financing charge                    $      -     $128,133      $90,741
        Income tax paid                      $67,824      $75,261      $48,429

Supplemental  schedule of non-cash investing and financing  activities
----------------------------------------------------------------------
o    Details of businesses acquired in purchase transactions:

                                                                     2000
                                                                     ----
         Working capital deficit, other than cash acquired       $ 11,627,717
         Fair value of other assets acquired                     $117,702,990
         Liabilities assumed or incurred                         $ 30,303,214
         Fair value of stock issued for acquisitions             $ 48,837,375

         Cash paid for acquisitions
             (including related expenses)                        $ 50,770,586
         Cash acquired                                           $    580,468
                                                                 ------------
         Net cash paid for acquisitions                          $ 50,190,118

 18.   SEGMENT INFORMATION:

In accordance  with SFAS No. 131,  "Disclosures  about Segments of an Enterprise
and Related  Information"  segment information is being reported consistent with
the  Company's  method  of  internal  reporting,   which  excludes  discontinued
operations  from the  segments.  In  accordance  with  SFAS No.  131,  operating
segments are defined as components of an enterprise for which separate financial
information  is  available  that is evaluated  regularly by the chief  operating
decision  maker  in  deciding  how  to  allocate   resources  and  in  assessing
performance. MKTG is organized primarily on the basis of product lines. Based on
the  nature of the  services  provided  and class of  customers,  as well as the
similar economic characteristics, MKTG's product lines have been aggregated. The
accounting  policies of the segment are the same as those  described  in Note 2,
Summary of Significant  Accounting Policies. No single customer accounted for 5%
or more of total revenues. MKTG earns 100% of its revenues in the United States.






                                       60
<PAGE>


Supplemental disclosure of revenues by product:

                                         2002            2001         2000
                                         ----            ----         ----
List sales and services             $  8,082,483    $ 14,042,986   $12,935,003
Database marketing                    10,935,112      13,535,405    13,076,455
Telemarketing/telefundraising         16,027,212      16,905,623    15,204,985
Marketing communication services       2,831,004      80,678,673    19,399,802
Website development and design         1,029,705       2,445,241     1,720,076
Other                                     66,593         114,761       151,613
                                  --------------  -------------- -------------
Consolidated total                   $38,972,109    $127,722,689   $62,487,934
                                     ===========    ============   ===========

The marketing communication services product line was included in the sale of
Grizzard (see Note 19).


19.   SALE OF GRIZZARD

On June 13, 2001, the board of directors and management of the Company  approved
a formal plan to sell  Grizzard.  On July 18, 2001,  the Company  entered into a
definitive  agreement to sell Grizzard.  On July 31, 2001, the Company completed
its sale of all the  outstanding  capital  stock of its Grizzard  subsidiary  to
Omnicom Group, Inc. The purchase price of the transaction was $89.8 in cash, net
of a working capital adjustment.  As a result of the sale agreement, the Company
fully paid the term loan of $35.5 million and $12.0 million line of credit.  The
Company  recorded an  extraordinary  loss of  approximately  $4.7 million in the
fiscal  year ended  June 30,  2002 as a result of the early  extinguishments  of
debt.  The Company  retained $43.8 million in cash proceeds from the sale before
closing fees and other costs of approximately  $8.0 million.  The purchase price
was determined through arms-length negotiations between the purchaser and MKTG.

At June 30, 2001, the assets and liabilities of Grizzard have been classified as
net assets held for sale in the amount of $80.9 million.  In the year ended June
30, 2001, the Company recognized a loss on assets held for sale in the amount of
$36.7 million representing a write-down of the amount of assets held for sale to
net realizable value. The Company recorded a gain on sale of $1.7 million in the
year  ended  June  30,  2002.  Grizzard's  revenues  included  in the  Company's
statement of operations for the fiscal years ended June 30, 2002,  2001 and 2000
were $2.8 million, $82.8 million and $19.6 million, respectively. Grizzard's net
loss  included in the  Company's  statement of  operations  for the fiscal years
ended June 30, 2002,  2001 and 2000 were $8.5  million,  $41.0  million and $3.8
million, respectively.

The major components of net assets held for sale at June 30, 2001 were as
follows:

  Intangible assets, net                                       $57,200,067
  Property, plant and equipment, net                            13,977,943
  Accounts receivable, net                                      12,572,136
  Inventory                                                      3,941,011
  Other current assets                                           2,652,142
  Other asset and liabilities, net                                 721,432
  Accounts payable                                              (2,944,515)
  Accrued expenses and other liabilities                        (7,237,944)
                                                                ----------
                                                               $80,882,272
                                                               ===========

                                       61
<PAGE>


                                  Supplemental
                                                  Pro forma information
                                               For the years ended June 30,
                                                        Unaudited
                                                        ---------

                                               2002                2001
                                               ----                ----
   Revenues                                  $36,141,000        $44,932,000
   Loss from continuing
        operations                          $(59,023,000)      $(25,244,000)
   Net loss per common share
      continuing operations,
      basic and diluted                       $(9.65)              $(4.75)
                                              =======              =======

The unaudited pro forma information is provided for informational  purposes only
and assumes that  Grizzard was sold as of the  beginning of fiscal year 2001. It
is based on historical  information and is not necessarily  indicative of future
results of operations of the consolidated entities.


20.   SUBSEQUENT EVENTS

On October 2, 2002, the common  stockholders  approved the right of the Series E
preferred  shareholders  to  convert  their  preferred  stock to  common  stock.
Subsequently,  the preferred  shareholders  converted  951.44 shares of Series E
preferred  stock to 508,829 shares of common stock (see Note 12). The redemption
value of preferred stock at October 15, 2002 including interest and penalties is
$35,308,982.

In  connection  with the  notification  received from  Nasdaq(see  Note 12), the
Company has explored and is continuing to explore  alternatives to remain listed
on Nasdaq. The Company believes it has sufficient  alternatives and will execute
on any one or more of these  alternatives to remain listed. The Company believes
a potential delisting is not probable.

The Company has received waivers from its lender for certain  subsidiaries which
were in violation of certain  working  capital and net worth  covenants of their
credit  agreements as of June 30, 2002. In  consideration  for the waivers,  the
Company  repaid  approximately  $.8 million  balance of one credit  facility and
agreed with the lender to cease future advances of this facility.  Based on this
repayment,  the  availability  under  the two  remaining  credit  facilities  is
approximately $.9 million (see Note 7).
















                                       62
<PAGE>




<TABLE>
<CAPTION>
                                                                    Schedule II


                               MKTG Services, Inc.
                        Valuation and Qualifying Accounts
                For the Years Ended June 30, 2002, 2001, and 2000

------------------------------------------------------------------------------------------------------------------------
         Column A          Column B                    Column C                Column D          Column E
------------------------------------------------------------------------------------------------------------------------
                                                      Additions
                                           -------------------------------
                          Balance at         Charged To      Charged To
        Description        Beginning          Costs And         Other         Deductions-       Balance At
                           Of Period          Expenses         Accounts-       Describe(1)     End Of Period
                                                               Describe
--------------------------------------------------------------------------------------------------------------------------------

       Allowance for doubtful accounts

       <S>                 <C>                <C>            <C>              <C>                <C>
       Fiscal 2002         $2,423,610         $1,268,692     $2,325,816(2)    $1,609,133         $4,408,985

       Fiscal 2001         $2,287,857         $1,802,727               -      $1,666,974(3)      $2,423,610

       Fiscal 2000           $551,043           $427,578     $1,642,442(4)      $333,206         $2,287,857
</TABLE>













________________________________________________
(1) Represents accounts written off during the period.
(2) Represents  increase to allowance for doubtful  account  reserve for the
gross portion of the receivable.  Only reserve for net commissions  earned are
charged to costs and  expenses.  The  reserve is offset by a  corresponding
decrease to accounts  payable.
(3) Includes accounts written-off during the period and the ending account
balance for Grizzard of $243,000 which is included in assets held for sale.
(4) Represents allowance for doubtful account balance on the opening balance
sheets for acquisitions made during the year.



                                       63
<PAGE>

                                                                    Exhibit 3.11


                            CERTIFICATE OF AMENDMENT

                                       OF

                 RESTATED AND AMENDED ARTICLES OF INCORPORATION


Marketing  Services Group,  Inc., a corporation  organized under the laws of the
State of Nevada,  by its Chief  Executive  Officer and assistant  secretary does
hereby certify:

1. That the board of directors of said  corporation  at a meeting duly  convened
and held on the 7th day of December,  2001,  passed a resolution  declaring that
the  following  change  and  amendment  in  the  articles  of  incorporation  is
advisable.

RESOLVED that article first of said articles of incorporation be amended to read
as follows:

          "The name of the corporation shall be MKTG Services, Inc."

2. That the number of shares of the corporation outstanding and entitled to vote
on an amendment to the article of incorporation is 5,620,603; that said change
and amendment has been consented to and authorized by the written consent of
stockholders holding at least a majority of each class of stock outstanding and
entitled to vote thereon.



IN WITNESS  WHEREOF,  the said Marketing  Services  Group,  Inc. has caused this
certificate to be signed by its Chief Executive Officer and Assistant  Secretary
and its corporate seal to be hereto affixed this 18th day of March, 2002.

                                           ------------------------


                                           By: /S/ J.Jeremy Barbera
                                           ------------------------
                                                     Jeremy Barbera
                                            Chief Executive Officer

                                           By: /S/    Cindy H. Hill
                                           ------------------------
                                                      Cindy H. Hill
                                                Assistant Secretary


                                       64
<PAGE>


                                                                      Exhibit 21

 SUBSIDIARIES OF THE REGISTRANT

                                                                State of
                                                              Incorporation
                                                              -------------
     Alliance Media Corporation                                 Delaware
     MKTG Services - New York, Inc.                             New York
     MKTG TeleServices, Inc.                                    California
     MKTG Services - Philly, Inc.                               New York
     MKTG Services - Boston, Inc.                               Delaware
     Pegaus Internet, Inc.                                      New York
     WireEmpire, Inc.                                           Deleware


































                                       65
<PAGE>




                                                                     Exhibit 23

                       CONSENT OF INDEPENDENT ACCOUNTANTS


The Board of Directors
MKTG Services, Inc.

We  hereby  consent  to the  incorporation  by  reference  in  the  Registration
Statements on Forms S-3 (No.  333-33174,  No.  333-34822 and No.  333-89973) and
Forms  S-8  (No.  333-94603  and No.  333-82541)  of  MKTG  Services,  Inc.  and
Subsidiaries,  of our report dated  September  26, 2002,  except for Note 20 for
which the date is October  15,  2002,  relating  to the  consolidated  financial
statements and financial  statement schedule which appears in this Annual Report
on Form 10-K.
                                                /s/ PricewaterhouseCoopers LLP

New York, New York
October 15, 2002























                                       66
<PAGE>







                                                                      Exhibit 24



                            CERTIFICATION PURSUANT TO
                            18 U. S. C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


In connection  with the Annual Report of MKTG Services,  Inc. (the "Company") on
Form 10-K for the period  ended June 30, 2002 as filed with the  Securities  and
Exchange  Commission  on the date hereof (the  "Report"),  I, Cindy H. Hill,  as
Chief  Accounting  Officer of the Company,  certify,  pursuant to 18 U.S.C.  ss.
1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
   the Securities Exchange Act of 1934: and

2) The  information  contained in the Report  fairly  presents,  in all material
respects, the financial condition and results of operations of the Company.


                             /s/ Cindy H. Hill
                             -----------------
                             Cindy H. Hill
                             Chief Accounting Officer

                             October 15, 2002


In connection  with the Annual Report of MKTG Services,  Inc. (the "Company") on
Form 10-K for the period  ended June 30, 2002 as filed with the  Securities  and
Exchange Commission on the date hereof (the "Report"),  I, J. Jeremy Barbera, as
Chairman  of the Board and Chief  Executive  Officer  of the  Company,  certify,
pursuant  to 18  U.S.C.  ss.  1350,  as  adopted  pursuant  to  ss.  906  of the
Sarbanes-Oxley Act of 2002, that:

1) The Report fully complies with the  requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934: and

2) The  information  contained in the Report  fairly  presents,  in all material
respects, the financial condition and results of operations of the Company.


                             /s/ J. Jeremy Barbera
                             ---------------------
                             J. Jeremy Barbera
                             Chairman of the Board and Chief Executive Officer

                             October 15, 2002






                                       67
<PAGE>