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

                                    FORM 10-K

                                   (Mark One)
       |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2002

                                       or

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

            For the transition period from ___________ to___________

                        Commission File Number: 000-49906

                               MaxWorldwide, Inc.


             (Exact name of registrant as specified in its charter)


         Delaware                                           46-0487484
(State or other jurisdiction of                          (I.R.S. Employer
 incorporation or organization)                         Identification No.)

                        50 West 23rd Street, Fourth Floor
                            New York, New York 10010
               (Address of principal executive offices) (Zip Code)

                                 (212) 302-2424

              (Registrant's telephone number, including area code)

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

           Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $.001 per share
                                (Title of class)

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

         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 the 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 |


         The aggregate market value of the registrant's voting common stock held
by non-affiliates of the registrant was approximately $15,481,896(computed using
the last sale price of $0.94 per share of common stock on June 28, 2002 based on
the last reported sale price on the NASDAQ National Market on that date, and on
the assumption that directors and officers and more than 10% shareholders are
affiliates). There were 24,503,282 shares of the registrant's common stock, par
value $.001 per share, outstanding on March 31, 2003.


<PAGE>


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


                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the following document are incorporated by reference in Part III of
this report:

Definitive Proxy Statement intended to be filed with the Securities and Exchange
Commission (the "Commission").


<PAGE>


                               MAXWORLDWIDE, INC.

                                TABLE OF CONTENTS


<TABLE>
<CAPTION>

                                                                                                                             Page
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Part I

<S>                 <C>                                                                                                          <C>
         Item 1.    Business ....................................................................................................  1
         Item 2.    Properties .................................................................................................. 15
         Item 3.    Legal Proceedings ........................................................................................... 15
         Item 4.    Submission of Matters to a Vote of Security Holders.......................................................... 17

Part II

         Item 5.    Market for Registrant's Common Equity and Related Stockholders Matters....................................... 18
         Item 6.    Selected Financial Data ..................................................................................... 20
         Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations........................ 22
         Item 7A    Quantitative and Qualitative Disclosures About Market Risk................................................... 33
         Item 8.    Financial Statements and Supplemental Data................................................................... 35
         Item 9.    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure......................... 67

Part III

         Item 10.   Directors and Executive Officers of the Registrant........................................................... 67
         Item 11.   Executive Compensation ...................................................................................... 67
         Item 12.   Security Ownership of Certain Beneficial Owners and Management............................................... 67
         Item 13.   Certain Relationships and Related Transactions............................................................... 67

Part IV

         Item 14.   Controls and Procedures...................................................................................... 67
         Item 15.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................................. 68


Signatures                                                                                                                        72
</TABLE>


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THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS BASED ON OUR CURRENT
EXPECTATIONS, ASSUMPTIONS, ESTIMATES AND PROJECTIONS ABOUT MAXWORLDWIDE, INC.
AND OUR INDUSTRY. THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THESE FORWARD-LOOKING STATEMENTS. AS A RESULT OF CERTAIN FACTORS, AS MORE
FULLY DESCRIBED IN THIS SECTION AND ELSEWHERE IN THIS REPORT. MAXWORLDWIDE
UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS FOR
ANY REASON, EVEN IF NEW INFORMATION BECOMES AVAILABLE OR OTHER EVENTS OCCUR IN
THE FUTURE. FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE EXPRESSED OR IMPLIED BY THE FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE
NOT LIMITED TO, THOSE DESCRIBED IN "RISK FACTORS" OR IN THE DOCUMENTS
INCORPORATED BY REFERENCE IN THIS REPORT.

                                     PART I

MaxWorldwide, Inc.'s consolidated financial statements for the years ended
December 31, 2001 and 2000, as filed with the Commission on May 16, 2002, have
been restated. Accordingly, all financial data in this Report reflect the
effects of this restatement. See Note 3 to MaxWorldwide, Inc.'s Consolidated
Financial Statements for a description of the restatements.

ITEM 1.  BUSINESS

Company Overview

MaxWorldwide, Inc. (sometimes referred to herein as "MaxWorldwide" or the
"Company") is a leading independent company in online advertising sales and
representation. We are an Internet-based provider of marketing solutions for
marketers and Web publishers. These solutions principally rely on our sale of
Internet advertisements for websites that we represent, from which we generate
revenue by receiving commissions. We provide fully outsourced ad sales, e-mail
marketing and sweepstakes promotions and provide our clients with strategic full
service solutions that focus on maximizing results and returns. Our online
advertising sales and representation services are provided under the name
MaxOnline. In addition, we formerly operated a traditional direct marketing
business called MaxDirect that we sold in February 2003.

We commenced operations in January 1997 as a sole proprietorship. In May 1997,
we became a California limited liability company and changed our name to John
Bohan and Associates, LLC. At that time, we did business as AdNet Strategies. In
January 1998, we incorporated in California, elected S-corporation status and
changed our name to AdNet Strategies, Inc. In December 1998, we became a
California C-corporation and operated under the name Latitude 90, Inc. In
September 1999, we reincorporated in Delaware as L90, Inc. In February 2000, we
sold 7.5 million shares of common stock in an initial public offering and raised
$102.6 million. In July of 2002, we acquired the North American media business
of DoubleClick Inc. In connection with this acquisition, we reorganized the
company into a holding company structure, and we now operate under the name
MaxWorldwide, Inc.

On March 12, 2003, we entered into an agreement with Focus Interactive, Inc
("Focus") and certain of its affiliates to sell substantially all of our assets
related to our MaxOnline division (the "MaxOnline Sale"). A copy of the
Agreement and Plan of Merger, dated March 12, 2003, was filed with the
Commission as Exhibit 2.1 to our Form 8-K filed with the Commission on March 14,
2003. Pursuant to the merger agreement, we will receive $3.0 million in cash
upon the closing of the transaction and $2.0 million in cash, plus interest,
upon the first anniversary of the closing or, at the election of Focus, six
months thereafter. We could also receive up to an additional $1.0 million in
cash if the MaxOnline business that Focus is acquiring exceeds certain
performance levels in calendar year 2003. In addition, Focus would pay us 70% of
the accounts receivable transferred to Focus under the merger agreement and
collected by them during the eight month period beginning 120 days following the
effective date of the merger (net of certain expenses and accounts payable
associated with such accounts receivable). Focus also agreed to reimburse us,
within one year after the effective date of the merger, the amount of any
positive working capital in the MaxOnline business it acquires as a result of
the merger. The MaxOnline Sale is subject to approval by holders of a majority
of our outstanding shares of common stock and other customary conditions,
including without limitation, our receipt of an opinion from our financial
advisor that the MaxOnline Sale is fair, from a financial point of view, to the
holders of our common stock. Assuming all the conditions are satisfied or are
otherwise waived by us and/or Focus, we expect the MaxOnline Sale to close on or
about June 30, 2003. If the MaxOnline Sale is consummated, substantially all of
our operating assets, but excluding our cash, our name, MaxWorldwide and certain
limited intellectual property, will be sold to Focus. Accordingly, we would no
longer continue to operate our business in the manner historically operated and
as described below. If the MaxOnline sale is consummated, we currently intend to
adopt a plan of liquidation and dissolution pursuant to which we would liquidate
and dissolve the Company. Accordingly, we do not plan to operate any businesses
following the sale of MaxOnline.

MaxOnline Business Overview

Since our inception over six years ago, we have been a leading provider of
innovative marketing solutions that go beyond simple banners to produce better
customer conversion rates, resulting in higher prices for Web site publishers
and more value for marketers.


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We focus on the relationships between the customer and marketers and between the
customer and Web publishers.

An Internet based world is emerging in which the accessibility and accuracy of
information is creating more intelligent customers and a significantly more
competitive business environment. In this new digital world, marketers and
customers increasingly are interacting over an "always connected" network that
extends across the Internet through Web sites and e-mail, across television and
the wireless frontier (via cell phones, pagers, personal digital assistants
(PDAs) and other wireless devices). It is our belief that the reliance upon
traditional distribution channels will lessen as companies begin to interact on
a one-to-one basis with their customers, creating significant demand for
technologies and services that drive value, attract customers, build lasting
relationships with these customers and, ultimately, convert these relationships
into revenue.

Our marketing partnerships begin with brand building and initial customer
acquisitions and continue to evolve as we utilize our expertise to work with our
clients to determine the best possible inventory and methods to increase
traffic, stimulate transactions and develop one-to-one relationships. Our
Internet reach, inventory segmentation and marketing expertise provide both
marketers and Web publishers with effective, differentiated and simple solutions
to work together to grow their businesses and embrace the new economy.

Value to Advertisers -- Build Brands, Acquire New Customers, Increase Traffic,
Stimulate Transactions And Grow Relationships

From strategic development and design, to execution, tracking and analysis, we
are the complete source for value-generating marketing programs on the Internet.
Our marketing solutions were developed to help businesses build brands, acquire
customers, drive traffic, increase sales and promote customer retention. We
create advertising programs that include sponsorships, opt-in e-mail,
newsletters, content integration, microsites and sweepstakes. In addition, we
provide marketers an experienced e-mail list management and brokerage group, a
strategic marketing and creative services group and a network of high profile
web site publishers. In 2002, we worked with over 700 marketers worldwide and
have representation and sales agreements with over 1,100 Web publishing
partners. Through our network of flagship publishers and our non-exclusive
partnerships with leading Web sites, we reach 56.3% of the total online audience
(according to a December 31, 2002 Comscore Media Metrix report).

Value to Web Publishers -- A Fully Outsourced Marketing Sales Solution That
Allows Web Publishers To Focus On Their Core Competency

We offer Web publishers the ability to add value to their customer
relationships, thereby increasing the value of their inventory to marketers.
Through our superior sales representation, we are able to generate greater
revenue on the Internet for these Web publishers. MaxOnline delivers Internet
users relevant offers and promotions through targeted campaigns, enhancing
users' experiences and providing them with incentives to return to a Web site.
Outsourcing a Web publisher's sales efforts to MaxOnline helps streamline the
publisher's internal sales and marketing costs while broadening a site's reach
and impact to its customers. Our fully outsourced marketing sales solutions are
designed to generate greater revenue for Web publishers by increasing the value
of their inventory to marketers and by selling this inventory through an
experienced sales force. As a result, Web publishers are free to focus on the
core competency of their businesses.

The MaxOnline Difference

While a number of companies compete in the digital marketing space, we believe
MaxOnline stands out for a number of reasons.

Brands. MaxOnline has exclusive and non-exclusive advertising representation
relationships with Web sites, including top-tier, premium Web sites across key
vertical markets that offer marketers the opportunity to target consumers. The
brand or flagship sites offer marketers the ability to communicate their
marketing messages on recognized top brand Web sites. All of the sites typically
offer sponsorships, content integration and customized marketing opportunities
that align with a specific advertiser's online objectives.

Reach and Media. Through our non-exclusive relationships and flagship sites, we
are able to reach over 56% of the Web users in the United States (according to a
December 31, 2002 Comscore Media Metrix report). This reach enables marketers to
target and connect with a number of diverse audiences. In addition, we offer Web
publishers superior site representation, which includes the sale of their
advertising inventory and the provision of ad delivery and related services.

Opt-In E-mail Lists. We provide opt-in e-mail list management services for over
12 million permission based e-mail addresses. In addition, through our e-mail
list brokerage group we have partnered with other permission based list managers
and owners to potentially gain an unlimited reach in the e-mail market.

Marketing. Bringing extensive experience and a rich knowledge base, MaxOnline
professionals offer clients counsel and expertise in developing integrated,
Internet strategies designed to meet branding, customer acquisition and
revenue-generating goals. Our marketing services include the in-house
capabilities of our creative services group called MaxCreative to assist
marketers in designing contextually relevant marketing campaigns that attract
and retain the Internet user. From concept creation and innovative design to


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our back-end implementation, we provide a full service solution for customers'
online marketing needs. MaxCreative is a team of highly talented marketers,
designers and engineers. Our MaxCreative capabilities include: microsites, jump
pages, sweepstakes development, Webmercials, PowerAds, HTML and rich media
enhanced HTML e-mails, animated, audio, video, HTML and rich media banners and
skyscrapers, voice over recording and editing, video capture, interactive games,
copy writing and advanced flash programming.

Innovation. We have developed a suite of digital marketing tools that can be
used to achieve the following goals: build brands, acquire new customers,
increase traffic, stimulate transactions and grow relationships. Ultimately,
this translates into high value relationships among marketers, Web publishers
and their customers.

We believe that MaxOnline stands alone in offering full service sales and
marketing solutions designed to allow marketers and Web publishers to interact
in an environment that maximizes e-mail and Web-based inventory, while driving
one-to-one, business-to-consumer communication that stimulates transactions,
optimizes campaigns in real time and fosters the development of loyal
relationships with customers

Digital Marketing Tools

We provide marketers and Web publishers with a suite of digital marketing tools
designed to enable them to achieve the following goals:

         o  Build Brands
         o  Acquire New Customers
         o  Increase Traffic
         o  Stimulate Transactions
         o  Grow Relationships

By using our digital marketing tools to achieve these goals, marketers and Web
publishers are able to build targeted, high-value relationships with Internet
users. They are able to convert Internet visitors into loyal customers by
optimizing the value of each relationship on a customer-by-customer basis. Our
current portfolio of digital marketing tools includes:

Banners. The original brand awareness, traffic and lead generation tool that is
most effective through targeted delivery.

E-newsletters. Product awareness and customer acquisition through targeted
advertising and content within an e-mail newsletter.

Opt-in E-mails. Delivery of an offer to targeted, permission-based e-mail lists
as a method of lead generation and brand building.

Co-Reg. (co-registration). Lead-generation and customer acquisition obtained on
a permission-basis as consumers are registering on a Web site.

Link. Incentive-based viral marketing programs based upon word-of-mouth
referrals.

Sweepstakes. Incentive-based promotions to acquire new customers, drive traffic
and acquire opt-in information on users.

Games. Custom designed games that generate brand or product awareness and work
to acquire valuable user information and new permission based users.

Variety Ads. Customizable pop-up ads that build brand awareness, drive traffic
and generate leads through our over-the-page, under-the-page and
in-between-the-page ad units such as pop-ups and interstitials

Boomerang. Targeting ads to customers based on their recent online behavior.

MicroSites. Brand awareness and customer acquisition through custom-designed
mini-sites targeted at specific audiences.

Sponsorships. Brand awareness and association through sponsorship of a targeted
area or a special event on a Web site.

Content Integration. Strategic placement of relevant content within a Web site
to create brand association and drive qualified user traffic to a designated
advertiser's destination.

Broadband. Rich media advertising that combines the communication power of
television, radio and print with the interactive and direct response components
of the Internet.

Virtual Billboards. Customized virtual billboards that post a brand message or
promotion on top of a Web site's content before


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disappearing.

Overview of Our Former MaxDirect Business

MaxDirect was a division of MaxWorldwide, specializing in marketing services for
the direct marketing community. We acquired the direct marketing business of
Novus List Marketing on May 14, 2001, and formed MaxDirect. In February 2003, we
sold MaxDirect to American List Counsel. Accordingly, we no longer provide the
services previously provided by our MaxDirect division and described below.
While operated by us, MaxDirect was a provider of list marketing services to
leading publishing, catalog, e-commerce and other marketing companies as well as
to non-profit organizations.

While operated by us, MaxDirect offered its clients seven distinct services:
Database Management, List Management, Alternative Media, Database Overlay and
Enhancements, Modeling, Data Hygiene and List Rental Fulfillment.

Database Management. MaxDirect provided comprehensive data warehousing services.

List Management. The goal of List Management was to maximize revenue by renting
a client's database of names, addresses, and/or e-mail addresses to the business
marketplace.

Alternative Media. Alternative Media was a service providing a wide variety of
revenue producing programs for clients including: blow-in programs, package
inserts, co-ops and statement stuffers.

Database Overlay and Enhancements. MaxDirect had partnered with the industry's
leading data providers to append additional data to our managed properties in
order to offer more targeted selectivity on our managed files.

Modeling Services. While operated by us, MaxDirect used proprietary statistical
software that analyzed client data to identify which customer attributes
(variables) provided the most insight into predicting customer behavior.

Data Hygiene Process. While operated by us, MaxDirect provided a full array of
data hygiene services, including address standardization.

List Rental Fulfillment. While operated by us, MaxDirect used our proprietary
established software to maintain all aspects of a customer's database.

Privacy Concerns

We believe that issues relating to the privacy of Internet users and the use of
personal information about these users are extremely important. In the course of
delivering ads to a Web user, we only collect non-personally identifiable
information about the Web user. We do not collect any personally identifiable
information about the Web user unless the Web user voluntarily and knowingly
provides personally identifiable information. In implementing any service or
program designed to gather consumer data, we are always mindful of our
continuing commitment to uphold the privacy principles of the Direct Marketing
Association. We actively monitor privacy laws and regulations and seek to comply
with all applicable privacy requirements.

Employees

As of December 31, 2002, we had 87 full-time employees, including 62 in sales
and marketing, and 25 in accounting, human resources, business operations and
administration. We are not subject to any collective bargaining agreements and
believe that our employee relations are good. If the MaxOnline Sale is
consummated, we expect that substantially all of our sales and marketing, and
several accounting employees will be offered employment by Focus. We anticipate
approximately 12 administrative employees remaining with MaxWorldwide following
the MaxOnline Sale.

Sales and Marketing

We sell our MaxOnline sales and marketing solutions through a sales and
marketing team that consisted of a total of 42 employees as of December 31,
2002. Our MaxOnline ad sales team is comprised of sales managers, account
executives and sales support. MaxOnline is responsible for generating ad sales
revenue, which includes selling our e-mail services. During February 2003 we
sold our MaxDirect division, which resulted in the reduction of 20 sales and
marketing employees from our workforce.

We conduct a variety of marketing programs to generate demand for our products
and services, build market awareness, develop customer leads and establish
business relationships. Our marketing activities include public relations, print
advertisements, online and offline advertisements and direct marketing, Web
advertising seminars, trade shows, special events and ongoing customer
communications programs.


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Seasonality and Cyclicality

Our business is subject to seasonal fluctuations. Marketers generally place
fewer advertisements during the first and third calendar quarters of each year
and direct marketers generally mail substantially more marketing materials in
the third calendar quarter of each year. In addition, expenditures by
advertisers and direct marketers vary in cycles and tend to reflect the overall
economic conditions, as well as budgeting and buying patterns. Furthermore, user
traffic on the Internet tends to decrease during the summer months, which
results in fewer advertisements to sell and deliver. A decline in the general
economy or in the economic prospects of advertisers and direct marketers could
adversely affect our revenue. Our revenue in the past has been and may in the
future be materially affected by a decline in the economic prospects of our
customers or in the economy in general, which could alter our current or
prospective customers' spending priorities or budget cycles or extend our sales
cycle.

Competition

The market for interactive, Internet-based marketing solutions is extremely
competitive. Competition may increase as a result of industry consolidation. We
believe that our ability to compete depends upon many factors both within and
beyond our control, including the following:

- the timing and market acceptance of new solutions and enhancements to existing
solutions developed either by us or our competitors;

- the continued and increasing acceptance by marketers of the Internet as an
effective and cost-efficient means of advertising;

- the ability to adapt to the rapidly changing trends of the Internet;

- our customer service and support efforts;

- our sales and marketing efforts;

- our ability to scale our operation to successfully increase sales;

- our ability to adapt technology as customer needs change and grow; and

- the ease of use, performance, price and reliability of solutions developed
either by us or our competitors.

We compete for advertising revenue with large Web publishers and Web portals,
such as AOL, Lycos, MSN and Yahoo. We also compete with traditional advertising
media, including television, radio, cable and print, for a share of marketers'
total advertising budgets. In addition, we compete with a variety of Internet
advertising networks, content aggregation companies and advertising agencies.

Under our agreement with DoubleClick Inc. pursuant to which we purchased its
North American media business, we agreed to extend a covenant with DoubleClick
until July 10, 2003. This covenant provides that we will not engage in the use,
development, licensing, sale or distribution of any technology, product or
service that performs ad-management, serving and tracking for third parties with
the same or substantially similar purpose as our former adMonitor technology.
The covenant does permit us to perform these activities in connection with our
media sales and advertising and design services businesses.

If the MaxOnline sale is consummated, we will be prohibited from competing in
the type of business currently conducted by our MaxOnline division for a period
of one year following the closing.

Intellectual Property Rights

Our success and ability to compete are substantially dependent on our internally
developed technologies and trademarks that we protect through a combination of
patent, copyright, trade secret, unfair competition and trademark law as well as
contractual agreements. We have applied to register trademarks internationally
and in the United States.

We cannot guarantee that any of our current or future trademark applications
will be approved. Even if they are approved, these trademarks may be
successfully challenged by others or invalidated. Furthermore, if our trademark
applications are not approved because third parties own dominant trademarks, our
use of these trademarks may be restricted unless we enter into arrangements with
these third parties. We cannot assure you that we can enter into arrangements
with these third parties on commercially reasonable terms.

We generally enter into confidentiality, inventions or license agreements with
our employees, consultants and corporate partners and generally control access
to and distribution of our technologies, documentation and other proprietary
information. Despite these


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efforts, unauthorized parties may attempt to disclose, obtain or use our
advertising solutions or technologies. Our precautions may not prevent
misappropriation of our advertising solutions or technologies, particularly in
foreign countries where laws or law enforcement practices may not protect our
rights as fully as laws in the United States.

If the MaxOnline Sale is not consummated, we cannot guarantee that any of our
intellectual property rights will be viable or valuable in the future since the
validity, enforceability and scope of protection of intellectual property rights
in Internet related industries is uncertain and still evolving. If the MaxOnline
Sale is consummated, substantially all of our intellectual property will be sold
to Focus. Whether or not the MaxOnline Sale is consummated, third parties may
assert infringement claims against us. Any claims could subject us to
significant liability for damages and could result in the invalidation of our
intellectual property rights. In addition, any claims could result in
litigation, which would be time-consuming and expensive to defend, and divert
our time and attention. Even if we prevail, this litigation could cause our
business, results of operations and financial condition to suffer. Any claims or
litigation from third parties may also result in limitations on our ability to
use the intellectual property subject to these claims or litigation unless we
enter into arrangements with the third parties responsible for these claims or
litigation, which could be unavailable on commercially reasonable terms. We
believe that factors such as the creative skills of our personnel, new service
offerings, brand recognition and reliable customer service are more essential to
establishing and maintaining our position in the marketplace than the legal
protection of our technologies. We cannot assure you that others will not
develop technologies that are similar or superior to our technologies.

Acquisition

On July 10, 2002, we purchased the North American media business of DoubleClick
Inc. ("DoubleClick"). Pursuant to the Agreement and Plan of Merger, we paid $5.0
million in cash and issued 4.8 million shares of our common stock. In addition,
DoubleClick may also receive up to an additional $6.0 million in cash if, during
the three-year period subsequent to consummation of the transaction, the Company
achieves proforma earnings for two out of three consecutive quarters. Proforma
earnings, as defined in the merger agreement, is earnings before interest,
taxes, depreciation and amortization, excluding any one-time non-recurring
items, restructuring charges (including facility relocation charges),
transaction related costs, including costs incurred in connection with the
acquisition or disposition of a business, whether consummated or not, and any
asset impairment, including impairment of goodwill.

Dispositions

On February 10, 2003, we completed the sale of our MaxDirect traditional direct
marketing business to American List Counsel, Inc. As consideration for the sale,
American List Counsel paid us $2.0 million in cash and assumed certain
liabilities on the closing and agreed to pay, monthly, 92.5% of the acquired
MaxDirect accounts receivable collected by American List Counsel during the
first six months following the closing and 46.25% of the acquired MaxDirect
accounts receivable collected by American List Counsel during the second six
months following the closing, in each case net of any accounts payable
associated with such accounts receivable. In addition, American List Counsel
agreed to pay us $500,000 in cash if revenue generated by the MaxDirect business
during the one year period following the closing is at least $2.5 million and an
additional $1.0 million in cash if revenue generated by the MaxDirect business
during the one year period following the closing is at least $3.5 million.
American List Counsel also agreed to pay us $0.50 for each dollar of revenue
above $3.5 million generated by the MaxDirect business during the one-year
period following the closing.

On March 12, 2003, we entered into an agreement with Focus and certain of its
affiliates to sell substantially all of our assets related to our MaxOnline
division. A copy of the Agreement and Plan of Merger, dated March 12, 2003 was
filed with the Commission as Exhibit 2.1 to our Form 8-K filed with the
Commission on March 14, 2003. Pursuant to the merger agreement, we would receive
$3.0 million in cash upon the closing of the transaction and $2.0 million in
cash, plus interest, upon the first anniversary of the closing or, at the
election of Focus, six months thereafter. We could also receive up to an
additional $1.0 million in cash if the MaxOnline business that Focus is
acquiring exceeds certain performance levels in calendar year 2003. In addition,
Focus would pay us 70% of the accounts receivable transferred to Focus under the
merger agreement and collected by it during the eight month period beginning 120
days following the effective time of the merger (net of certain expenses and
accounts payable associated with such accounts receivable). Focus also agreed to
reimburse us, within one year after the effective time of the merger, the amount
of any positive working capital in the MaxOnline business it acquires as a
result of the merger. The MaxOnline Sale is subject to approval by holders of a
majority of our outstanding shares of common stock and other customary
conditions, including without limitation, our receipt of an opinion from our
financial advisor that the MaxOnline Sale is fair, from a financial point of
view, to the holders of our common stock. Assuming all the conditions are
satisfied or are otherwise waived by us and/or Focus, we expect the MaxOnline
Sale to close on our about June 30, 2003. If the MaxOnline Sale is consummated,
we currently intend to adopt a plan of liquidation and dissolution pursuant to
which we would liquidate the Company and dissolve the corporation. Accordingly
we will not plan to operate any businesses following the sale of MaxOnline. We
will significantly curtail administrative expenses, discharge our outstanding
liabilities and initiate the orderly distribution of our remaining assets to our
shareholders. If the MaxOnline Sale is not consummated, we intend to operate our
business in the ordinary course.


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Recent Developments

SEC Investigation and Nasdaq Delisting. On January 25, 2002, the Commission
issued a formal order of investigation in connection with non-specified
accounting matters, financial reports, public disclosures and trading activity
in our securities. We have an agreement with the Commission to settle the
Commission's investigation of our Company. Pursuant to the settlement, we
consented to the entry by the Commission of an order relating to certain cash
transactions that substantially offset one another when aggregated and appear to
represent barter arrangements that do not meet the criteria for revenue
recognition under GAAP. The Commission's findings in the order, which we will
not admit or deny, include findings that we improperly recorded and reported
revenue from certain barter transactions and misclassified certain research and
development expenses in 2000 and 2001. The order requires us to cease and desist
from further violations of sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the
Securities Exchange Act and Rules 12b-20, 13a-1 and 13a-13. The order does not
require us to pay any fine or monetary damages. In addition, in January 2002, we
were notified that the Nasdaq National Stock Market Listing Investigations
requested certain documents and other information relating to certain
transactions pursuant to Marketplace Rule 4330(c). Our common stock was delisted
from quotation on the Nasdaq Stock Market on August 20, 2002 for our failure to
timely file our quarterly report on Form 10-Q for the quarter ended June 30,
2002.

Restatements of Financials. On February 1, 2002, our Board of Directors
authorized the Audit Committee of the Board of Directors to commence an
independent internal investigation into the matters being investigated by the
Commission. The Audit Committee and we each engaged special counsel and a
forensic accounting firm to conduct a comprehensive examination of our financial
records. On May 6, 2002, we announced that the Audit Committee had concluded its
internal investigation and determined that certain of our financial results for
the years ended December 31, 2001 and December 31, 2000 would be restated. As a
result, we restated certain of our financial results as reflected in (i) our
annual report on From 10-K for the year ended December 31, 2001, which we filed
with the Commission on May 16, 2002, (ii) our amended quarterly reports on Form
10-Q for the quarters ended March 31, 2002, September 30, 2000, March 31, 2001,
June 30, 2001, and September 30, 2001, which we filed with the Commission on
June 11, 2002.

On June 28, 2002, we dismissed Arthur Andersen, LLP as our independent
accountant. Arthur Andersen's report on our financial statements for the years
ended December 31, 2001 and 2000 did not contain an adverse opinion or a
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope or accounting principles. During the years ended December 31, 2001 and
2000 and the interim period between December 31, 2001 and June 28, 2002, there
were no disagreements between us and Arthur Andersen on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedures, which disagreements, if not resolved to the satisfaction of Arthur
Andersen, would have caused it to make reference to the subject matter of the
disagreements in connection with its report. The dismissal of Arthur Andersen
LLP as our independent accountant was recommended and approved by both the Audit
Committee of the Board of Directors and the full Board of Directors. On July 9,
2002, we appointed PricewaterhouseCoopers LLP as our new independent accountant.

During the course of our preparation of our quarterly report on Form 10-Q for
the quarter ended June 30, 2002, we discovered certain errors in the application
of generally accepted accounting principles in the United States ("GAAP") which
required restatement of our previously issued financial statements. Because the
auditors that previously reported on the 2001 and 2000 consolidated financial
statements have ceased operations, we engaged our current auditors to re-audit
our financial results for the years ended December 31, 2001 and 2000. These
audits have resulted in a restatement of our financial statements for the years
ended December 31, 2000 and 2001 and for the quarter ended March 31, 2002. For a
description of the restatements, see Note 3 to the financial statements.

Management Changes. On February 1, 2002, our Vice President of Finance tendered
her resignation. On February 27, 2002, Steven Kantor joined us as Vice President
of Finance. On March 5, 2002, Mark Roah, a founder of the Company, resigned as a
member of the Board of Directors, citing personal reasons. On March 8, 2002,
John Bohan resigned as President and Chief Executive Officer and as a member of
our Board of Directors. On March 11, 2002, we named Mitchell Cannold as our new
President and Chief Executive Officer. Mr. Cannold now serves on our Board of
Directors. On March 12, 2002, we placed Thomas A. Sebastian, our Chief Financial
Officer, on administrative leave. On March 19, 2002, Thomas A. Sebastian
resigned from his position as Chief Financial Officer. On July 9, 2003, we named
William H. Mitchell as our new Chief Financial Officer, and on September 8, 2002
we named Hyunjin F. Lerner as our Vice President of Finance and Controller to
replace Mr. Kantor. William H. Wise, who currently serves as Chief Operating
Officer, joined us on July 10, 2002 in connection with our acquisition of
DoubleClick's North American media business.

Related Party Transactions. From March 2002 to October 2002, we engaged Los
Altos Group, Inc., a corporation for which Peter Sealey, a long-standing member
of the Board of Directors, serves as its Chief Executive Officer, as a
consultant to advise MaxWorldwide's management. On October 1, 2002, we engaged
William Apfelbaum, Chairman of our Board of Directors, as a consultant to advise
MaxWorldwide's management.

Securities Class Actions. Beginning on March 21, 2002, a number of securities
class action complaints were filed against us and certain of our former officers
and directors in the United States District Court for the Central District of
California. For a further description of the nature and status of these legal
proceedings see, "Item 3 - Legal Proceedings."

Derivative Actions. Beginning on March 22, 2002, we have been named as a nominal
defendant in a number of derivative actions,


                                       7
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purportedly brought on our behalf, filed in the Superior Court of the State of
California for the County of Los Angeles. For a further description of the
nature and status of these legal proceedings, see "Item 3 - Legal Proceedings."

Homestore.com, Inc. On July 31, 2002, we were named as a defendant in a
securities class action complaint initially filed in the United States District
Court for the Central District of California against Homestore.com, Inc. For a
further description of the nature and status of these legal proceedings, see
"Item 3 - Legal Proceedings."

eUniverse Merger. On January 3, 2002, we announced that we entered into an
Agreement and Plan of Merger with eUniverse, Inc. and L90 Acquisition
Corporation, a wholly-owned direct subsidiary of eUniverse. On March 21, 2002,
in light of the uncertainty as to the expected date of the conclusion of the
Commission's investigation, we and eUniverse, mutually and formally terminated
the merger agreement. Accordingly, the contingent cash distribution that was
anticipated as part of the merger will not occur. As part of the termination,
both companies have executed mutual general releases relating to the merger and
we reimbursed eUniverse for expenses related to the merger equal to $300,000.
Additionally, we purchased $800,000 of advertising through the eUniverse
Network.

Repurchase of Shares. On August 13, 2002, we purchased in a private sale
5,293,639 shares of our common stock owned by John Bohan, our former President
and Chief Executive Officer. Such purchase was made at a discount to the then
current market price of the stock. The aggregate purchase price was
approximately $2.65 million, or $0.50 per share. In addition, we agreed to
purchase an additional 303,333 shares from Mr. Bohan, subject to certain
conditions being satisfied. The purchase price for these additional shares is
also $0.50 per share.

                                  RISK FACTORS

You should consider carefully the following risks before you decide to buy our
common stock. The risks and uncertainties described below are not the only ones
we may face. Additional risks and uncertainties may also impair our business
operations. If any of the following risks actually occur, our business, results
of operations and financial condition would likely suffer. In such case, the
trading price of our common stock could decline, and you may lose all or part of
the money you paid to buy our common stock.

The contemplated sale of our MaxOnline division to Focus would deprive us of our
ability to generate revenue from what has historically been our business model.
The future of MaxWorldwide is uncertain and if the MaxOnline sale is consummated
would result in a liquidation of the company.

On March 12, 2003, we entered into an agreement with Focus to sell our online
advertising sales and representation business, MaxOnline. Upon the closing of
this sale, which is expected to occur on or about June 30, 2003, we will have no
operating business and we will not generate any revenue. If the MaxOnline Sale
closes, we intend to adopt a plan of liquidation and dissolution. If the closing
occurs and we liquidate our remaining assets, we can not assure you that we
would distribute cash or other assets to our stockholders having a value equal
to or greater than the price at which our common stock has traded in the past,
currently trades or the price at which it may trade in the future. Moreover,
liquidation would require that we keep a significant amount of assets in reserve
for a period of time to cover contingent liabilities. Administering a
liquidation could also take a long period of time and result in substantial
administrative costs.

Our revenue, prospects, operating results and stock price are difficult to
forecast and may fluctuate significantly due to the volatility in the internet
advertising industry and our relatively short operating history.

We began our business in January 1997 and have a brief operating history which
has included the acquisition of three businesses and the disposition of our
adMonitor technology. During that time, the Internet advertising industry, the
primary industry in which we have historically operated, has experienced
significant volatility. The stock market has also experienced extreme price and
volume fluctuations during this period, and our stock has been, and may continue
to be, highly volatile. Moreover, we are subject to various lawsuits stemming
from our announcement of the Commission's investigation. In addition, in August
2002, we were delisted from trading on the Nasdaq stock market. Given the
volatility in our industry and our stock price, our relatively short operating
history, and the various lawsuits that followed our announcement of the
Commission's investigation, it is very difficult to forecast future revenue,
operating results or stock performance. This unpredictability will likely result
in significant fluctuations in our quarterly results and stock price. Therefore,
you should not rely on quarter-to-quarter or year to year comparisons of results
of operations or our historical stock price as an indication of our future
performance. You should consider our prospects in light of the risks,
uncertainties, expenses and difficulties frequently encountered by companies in
the Internet industry and in an early stage of development, particularly
companies in rapidly evolving markets such as online advertising.

These risks include:

     -    our ability to manage our growth effectively;


                                       8
<PAGE>


     -    our ability to anticipate and adapt to the rapid changes and
          competitive developments in the internet industry;

     -    our ability to manage the volatile demands of our clients;

     -    our ability to scale our operation to successfully increase sales;

     -    our ability to continue to develop and upgrade our technology;

     -    our ability to continue to identify, attract, retain and motivate
          qualified personnel;

     -    market acceptance of the Internet as an advertising medium;

     -    delay, cancellation, expiration or termination of advertising
          contracts;

     -    system outages, disruption of the internet, delays in obtaining new
          equipment or problems with upgrades;

     -    seasonality in the demand for advertising;

     -    changes in government regulation of the Internet;

     -    actual or anticipated variations in our revenue, earnings and cash
          flow;

     -    adoption of new accounting standards affecting our industry;

     -    general economic and market conditions, extraordinary events such as
          the war with Iraq, and economic and market conditions specific to the
          internet;

     -    whether we successfully resolve the various lawsuits that followed our
          announcement of the Commission's investigation; and

     -    whether the MaxOnline Sale is consummated.

If we are unsuccessful in addressing these risks, our revenue may not grow in
accordance with our business model and may fall short of expectations of market
analysts and investors, which could negatively affect the price of our stock.

Pending litigation could harm our business.

In March 2002, certain of our current and former stockholders filed multiple
securities class action and derivative lawsuits against us and certain of our
former officers and directors. As described in Note 14 to the Company's
Consolidated Financial Statements, we believe we have reached agreements in
principle to settle these lawsuits. The settlements are still under negotiation,
and will be subject to certain terms and conditions, including court approval.
If these suits are not settled, the litigation exposure and the uncertainty
associated with this substantial unresolved litigation could seriously harm our
business and financial condition. In particular, these lawsuits could harm our
relationships with existing customers and our ability to obtain new customers.
The continued defense of these lawsuits also could result in the diversion of
our management's time and attention away from business operations, which could
harm our business. Negative developments with respect to these lawsuits could
cause our stock price to decline significantly. If we fail to reach final
agreement to settle these lawsuits, we are unable to determine the amount, if
any, that we may be required to pay in connection with the resolution of these
lawsuits by settlement or otherwise, and the size of any such payment could
seriously harm our financial condition.

Litigation resulting from the sale of our MaxOnline business to Focus could harm
our plans of liquidation.

The sale of our MaxOnline business to Focus may result in the termination of
certain third party relationships, including contracts we have with our ad
serving vendor, DoubleClick and certain Web sites. The termination of these
contracts could lead to the initiation of litigation by these parties which
could be time consuming and expensive to defend, and could divert our time and
attention. Such litigation could lead to a delay in the completion of the
transaction or the termination of the transaction.

We have a history of losses and expect to incur substantial losses in the
future.

Since before our initial public offering, we have been unable to generate a
profit during any fiscal year, and we cannot assure you that we will ever return
to profitability. We incurred net losses attributable to common stockholders of
approximately $28.0 million for the year ended December 31, 2002, $47.6 million
for the year ended December 31, 2001 and $26.0 million for the year ended
December 31, 2000. Our accumulated deficit from inception, as of December 31,
2002, was approximately $110.4 million. We expect to


                                       9
<PAGE>


continue to incur net losses for the foreseeable future due to ongoing operating
expenses and the continued expenses of defending ourselves in the derivative
actions and the securities class actions if we are not able to settle these
matters (see above, "Pending litigation could harm our business"). We cannot
assure you that we will realize higher revenue. If we do not succeed in
substantially increasing our revenue, our losses may continue indefinitely and
would likely increase.

Our revenue from advertisements and advertising services tend to be cyclical and
depend on the economic prospects of advertisers and the economy in general. A
continued decrease in expenditures by advertisers or a continued downturn in the
economy could cause our revenue to decline significantly in any given period.

We derive, and, if the MaxOnline Sale is not consummated, expect to continue to
derive for the foreseeable future, all of our revenue from the sale and
placement of advertisements on Web sites. Expenditures by advertisers tend to be
cyclical, reflecting overall economic conditions as well as budgeting and buying
patterns. The advertising market has experienced continued softness of demand,
lower prices for advertisements, the reduction or cancellation of advertising
contracts, an increased risk of uncollectible receivables from advertisers and
the reduction of marketing and advertising budgets. As a result, advertising
spending across traditional media, as well as the Internet, has decreased, as
well as our ability to collect revenue from the ads we serve.

Our customers continue to experience business conditions that could adversely
affect our business.

Our customers, particularly those who are Internet-related companies, have
experienced and may continue to experience difficulty raising capital and
supporting their current operations and implementing their business plans and,
therefore, may elect to reduce the resources they devote to advertising. Many
other companies in the Internet industry have ceased operations or filed for
bankruptcy protection. These customers may not be able to discharge their
payment and other obligations to us. The non-payment or late payment of amounts
due to us from our customers could negatively impact our financial condition. If
the current environment for Internet marketing and for Internet-related
companies does not improve, our business, results of operations and financial
condition could be materially harmed. For the year ended December 31, 2002, our
bad debt expense related to uncollected advertising fees and advertising credits
was $2.4 million. This bad debt expense was partially offset by $0.4 million in
reserves made against due to website payables, as a result of certain of our Web
publishers bearing the risk of non-payment of advertising fees from marketers.
Further reductions in advertising spending may occur. We also cannot assure you
that even if economic conditions improve, marketing budgets and advertising
spending will increase from current levels. As a result, our revenue from
advertisements on websites and through email list services may decline
significantly in any given period.

The occurrence of extraordinary events, such as the war with Iraq and the attack
on the World Trade Center and the Pentagon, may substantially decrease the use
of and demand for advertising over the Internet, which may significantly
decrease our revenue.

Following the attack on the World Trade Center and the Pentagon, some
advertisers cancelled their online advertising purchases. The same may occur as
a result of the war with Iraq. Any additional occurrences of terrorist attacks
or other extraordinary events that capture significant attention worldwide may
result in similar reductions in the use of and demand for online advertising and
may significantly decrease our revenue for an indefinite period of time.

Advertisers may be reluctant to devote a portion of their budgets to Internet
advertising and digital marketing solutions.

Companies providing media services on the Internet, including us, must compete
with traditional advertising media, including television, radio, cable and
print, for a share of advertisers' total marketing budgets. Widespread use of
online advertising depends upon businesses accepting a new way of marketing
their products and services. Potential customers may be reluctant to devote a
significant portion of their marketing budget to Internet advertising if they
perceive the Internet to be a limited or ineffective marketing medium. During
the current economic downturn and following the burst of the Internet "bubble,"
we believe that many potential customers have shifted their marketing budgets
away from online advertising. If the MaxOnline Sale is not consummated, since we
expect to derive substantially all of our revenue in the foreseeable future from
online advertising and in particular, the delivery of banner advertisements, any
continued shift in marketing budgets away from Internet advertising spending
could materially harm our business, results of operations or financial
condition. We believe that online banner advertising has dramatically decreased
since the middle of 2001 and has continued to decline throughout 2002, and this
is expected to continue through some or all of 2003, which has had and could
continue to have a material adverse effect on our business. If advertisers
determine that banner advertising is an ineffective or unattractive advertising
medium, we cannot assure you that we will be able to effectively make the
transition to any other form of Internet advertising. Also, there are "filter"
software programs that limit or prevent advertising from being delivered to a
user's computer. The commercial viability of Internet advertising, and our
business, results of operations and financial condition, would be materially and
adversely affected by Web users' widespread adoption of such software.

Government regulation may affect our ability to gather, generate or use
information for profiles and may hinder our ability to conduct business.


                                       10
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The legal and regulatory environment governing the Internet and the use of
information about Web users is uncertain and may change. A number of lawsuits
have recently been filed against certain Internet companies related to online
privacy. In addition, the Federal Trade Commission has begun investigations of,
and several Attorney Generals have instituted legal proceedings against, certain
Internet companies related to online privacy. United States legislators and
various state governments in the past have introduced a number of bills aimed at
regulating the collection and use of data from Internet users and additional
similar bills are currently being considered. The European Union has adopted a
directive addressing data privacy that may result in limitations on the
collection and the use of specific personal information regarding Internet
users. In addition, Germany and other European Union member countries have
imposed their own laws protecting data that can become personally identifiable
through subsequent processing. Other countries have enacted, or are considering,
limitations on the use of personal data as well. The effectiveness of our
services could be impaired by any limitation on the collection of data from
Internet users, and consequently, our business and results of operations could
be harmed.

A number of laws and regulations have been, and in the future may be, adopted
covering issues such as pricing, acceptable content, taxation and quality of
products and services on the Internet. This legislation could inhibit the growth
in the use of the Internet and decrease the acceptance of the Internet as a
communications and commercial medium. In addition, due to the global
accessibility of the Internet, it is possible that multiple federal, state or
foreign jurisdictions might inconsistently regulate our activities and our
customers. Any of these developments could limit our ability to do business and
to generate revenue.

From time to time, a small number of Web publishers may account for a
significant percentage of our advertising revenue. As a result, our failure to
develop and sustain long-term relationships with Web publishers, or the
reduction in traffic of a current Web publisher in our network, could limit our
ability to generate revenue.

Our contracts with Web publishers are generally one year in duration and can be
terminated by either party with as little as 30 days notice. We cannot assure
you that any of our Web publishers will continue their relationships with us.
Additionally, we may lose Web publishers as a result of acquisitions or as a
result of the discontinuation of operations of any of our Web publishers. If the
MaxOnline Sale is consummated, we anticipate transferring all of our Web
publishers to Focus in connection with the transaction.

From time to time, a limited number of marketers may account for a significant
percentage of our gross billings and revenue and a loss of one or more of these
marketers could cause our results of operations to suffer.

For the year ended December 31, 2002, revenue from our largest purchaser of
advertising accounted for approximately 13 % of our MaxOnline gross billings and
approximately 12% of revenue. Marketers typically purchase advertising under
short-term purchase order agreements. We cannot assure you that our top
marketers or our other marketers will continue their relationships with us. The
loss of one or more of the marketers that represent a significant portion of our
revenue could cause our results of operations to suffer. If the MaxOnline Sale
is consummated, we will no longer engage in business with marketers. In
addition, many of our contracts with Web publishers require us to bear the risk
of non-payment of advertising fees from marketers. Accordingly, the non-payment
or late payment of amounts due to us from a significant marketer could cause our
financial condition to suffer.

Since our business depends in part on market acceptance of electronic commerce,
if electronic commerce does not grow, or grows slower than we expect, our
ability to generate revenue may suffer.

Our success depends in part on market acceptance of electronic commerce. A
number of factors outside of our control could prevent this acceptance,
including the following:

     -    the necessary network infrastructure for substantial growth in usage
          of the Internet may not develop adequately;

     -    insufficient availability of telecommunication services or changes in
          telecommunication services could result in slower response times; and

     -    negative publicity and consumer concern surrounding the security of
          transactions could impede the growth of electronic commerce.

If electronic commerce does not grow, or grows slower than we expect, due to any
of the above factors, or any other factor, our ability to generate revenue could
suffer.

Our failure to adequately respond to rapid changes in technology and the
Internet could harm our ability to generate revenue.

The market for online products and services is subject to rapid change and
characterized by evolving industry standards and frequent introductions of new
technological developments. These new standards and technological developments
could make our existing or future products or services obsolete. Keeping pace
with the introduction of new standards and technological developments could
result in significant additional costs or prove to be difficult or impossible
for us. Any failure to keep pace with the introduction of new


                                       11
<PAGE>


standards and technological developments on a cost-effective basis could result
in increased costs and harm our ability to generate revenue.

Many competitors have substantial competitive advantages that may make it more
difficult for us to retain our existing marketers and Web publishers and to
attract new marketers and Web publishers.

The markets for online advertising and direct marketing are intensely
competitive. We compete with television, radio, cable and print for a share of
marketers' total advertising budgets. We also compete with large Web publishers
and Web portals, such as AOL, Lycos, MSN and Yahoo, for the online advertising
budgets of marketers. In addition, we compete with various Internet advertising
networks. Many of our current and potential competitors enjoy competitive
advantages over us, including significantly greater financial, technical and
marketing resources. They may also enjoy significantly greater brand recognition
and substantially larger bases of Web site clients and marketers.

As a result, our competitors may be able to respond more quickly than we can to
new or emerging technologies and changes in client requirements. Our competitors
may also have a significantly greater ability to undertake more extensive
marketing campaigns, adopt more aggressive pricing policies and make more
attractive offers to potential employees, strategic partners, marketers and Web
publishers. Further, our competitors may develop online and offline products and
services that are equal to or superior to our products and services or that
achieve greater market acceptance than our products and services. If we are
unable to compete successfully against existing or potential competitors, our
revenue and margins may decline.

If the MaxOnline Sale is not consummated, our failure to successfully acquire
and integrate new technologies and businesses could cause our results of
operations to suffer.

The Internet is a quickly changing environment, requiring companies to
constantly improve their technology and develop or acquire new technology. If
the MaxOnline Sale is not consummated and we continue in the Internet
advertising business, we cannot assure you that we will be able to identify
other acquisition or investment candidates. Even if we do identify other
candidates, we cannot assure you that we will be able to make any potential
acquisition or investment on commercially acceptable terms. Moreover, we may
have difficulty integrating and/or operating any acquired businesses, products,
services or technologies. These difficulties could disrupt our business,
distract our management and employees and increase our expenses. In addition, we
may incur debt or issue equity securities to fund any future acquisitions. The
issuance of equity securities could be dilutive to existing stockholders.

If we are unable to safeguard the security and privacy of our information, our
results of operations may suffer.

Our technical infrastructure is potentially vulnerable to physical or electronic
computer break-ins, viruses and similar disruptive problems. Weaknesses or
vulnerabilities in the Internet, a user's personal computer or in our services
could compromise the confidential nature of information transmitted over the
Internet. These factors could require us to devote significant financial and
human resources to protect against future breaches and alleviate or mitigate
problems caused by security breaches. Security breaches could result in
financial loss, litigation and other liabilities, any of which could cause our
results of operations to suffer.

Any failure by us to protect our intellectual property could harm our business
and competitive position.

We generally protect our intellectual property through a combination of
trademark, trade secret and copyright laws, confidentiality and inventions
agreements with our employees and third parties, and license agreements with
consultants, vendors and clients. We have filed applications for several
trademarks internationally and in the United States. We cannot assure you that
any of our trademark applications will be approved. Even if these applications
are approved, the trademarks may be successfully challenged by others or
invalidated. In addition, despite our efforts to protect our intellectual
property, unauthorized parties may attempt to copy aspects of our services or to
obtain and use information that we regard as proprietary. We may not have
adequate remedies for any breach of confidentiality agreements, and our trade
secrets may otherwise become known or independently developed by competitors.

We may be liable for content available or posted on the Web sites of our
publishers.

We may be liable to third parties for content in the advertising we serve if the
music, artwork, text or other content involved violates the copyright, trademark
or other intellectual property rights of such third parties or if the content is
defamatory. Any claims or counterclaims could be time-consuming, result in
costly litigation or divert management's attention.

We depend on third-party ad serving, Internet and telecommunications providers,
over whom we have no control, to operate our services. Interruptions in our
services caused by one of these providers or failure in our technology and
computing systems could have an adverse effect on revenue and our relationships
with our clients and securing alternate sources of these services could
significantly increase expenses.

We depend heavily on several third-party providers of ad serving, Internet and
related telecommunication services, including hosting


                                       12
<PAGE>


and co-location facilities, in operating our products and services. These
companies may not continue to provide services to us without disruptions in
service, at the current cost or at all. The costs associated with any transition
to a new service provider would be substantial, requiring us to reengineer our
computer systems and telecommunications infrastructure to accommodate a new
service provider. This process would be both expensive and time-consuming. In
addition, failure of our ad serving, Internet and related telecommunications
providers to provide the ad serving, data communications capacity in the time
frame required by us could cause interruptions in the services we provide.
Furthermore, we have periodically experienced minor systems interruptions,
including Internet disruptions, which we believe may occur periodically in the
future. The continuing and uninterrupted performance of our servers and
networking hardware and software infrastructure is critical to our business. Any
system failure that causes interruptions in our ability to service our customers
could reduce customer satisfaction and, if sustained or repeated, could cause
our results of operations to suffer.

The loss of key employees and the reduction in our workforce may impair our
business and results of operations. If we are unable to attract and retain sales
and client service personnel our business and future revenue growth could
suffer.

Our performance and future success is substantially dependent on the continued
service of our officers and other employees, all of who are employed on an
at-will basis. Many of our executive officers have worked together for only a
short period of time. For example, our President and Chief Executive Officer,
our Chief Financial Officer, our Chief Operating Officer and our Chief
Technology Officer have joined us within the past year. The loss of the services
of any of the above executive officers, our President of Sales or any other key
personnel could harm our business.

We have lost a number of our employees over the past year due to certain
acquisitions and dispositions and general economic conditions. In February 2003
as a result of the sale of our MaxDirect division to American List Counsel, we
reduced a portion of our workforce, particularly those employees associated with
the MaxDirect business. In addition, we reduced the combined workforce following
our acquisition of the North American media business of DoubleClick. These
reductions in workforce may negatively impact our ability to conduct business
and serve our customers and vendor partners with the level of service as we have
in the past, which could cause our business to suffer. Further, our workforce
reduction could cause concern among our customers, vendors and other significant
strategic relationships about our ability to meet their ongoing Internet
marketing solutions needs. Our remaining personnel may also seek employment with
larger, more stable companies they perceive to have better prospects. If the
MaxOnline Sale is consummated, we anticipate losing substantially all of our
employees. If the MaxOnline Sale is not consummated, our future success will
depend on our ability to identify, recruit, train, integrate and retain
qualified sales and marketing, managerial and technical personnel. Competition
for these personnel is intense. The inability to attract, integrate and retain
the necessary sales, marketing, technical and administrative personnel could
harm our ability to generate revenue.

Future sales of our common stock may affect the market price of our common
stock.

As of March 31, 2003, we had 24,503,282 shares of common stock outstanding,
excluding approximately 4.6 million shares subject to options outstanding as of
such date under our stock option plan that are exercisable at prices ranging
from $0.45 to $21.06 per share. Additionally, certain holders of our common
stock have registration rights with respect to their shares. We may be required
to file one or more registration statements in compliance with these
registration rights. We cannot predict the effect, if any, that future sales of
common stock or the availability of shares of common stock for future sale will
have on the market price of our common stock prevailing from time to time.
Because of our delisting from Nasdaq, our shares trade only on the "Pink
Sheets," which means that our trading volume is generally much lower that it was
when we were traded on Nasdaq. Sales of substantial amounts of common stock, or
the perception that such sales could occur, may materially and adversely affect
prevailing market prices for our common stock, particularly given our relatively
low trading volume.

We may need additional capital in the future to operate our business and we may
experience difficulty in obtaining this additional capital.

We believe that our existing cash and cash equivalents will be sufficient to
meet our anticipated cash needs for working capital and capital expenditures for
at least the next 12 months. We may need to raise additional funds in the future
to fund our operations, to enhance or expand the range of products and services
we offer or to respond to competitive pressures or perceived opportunities. We
cannot assure you that additional financing will be available on terms favorable
to us, or at all. If adequate funds are not available or not available when
required or on acceptable terms, the growth of our business and results of
operations may suffer.

We are subject to anti-takeover provisions, which may make it difficult for a
third party to acquire us.

A number of recent acquisitions and consolidations have occurred in our
industry. We are subject to anti-takeover provisions that may make it difficult
for a third party to acquire us, including the anti-takeover provisions of
Section 203 of the Delaware General Corporation Law. In general, the statute
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
For purposes of Section 203, a "business


                                       13
<PAGE>


combination" includes a merger, asset sale or other transaction resulting in a
financial benefit to the interested stockholder, and an "interested stockholder"
is a person who, together with affiliates and associates, owns, or within three
years prior, did own, 15% or more of the corporation's voting stock. These
provisions will not preclude us from consummating the MaxOnline Sale.

Our common stock was delisted from the Nasdaq Stock Market and as a result,
trading of our common stock has become more difficult.

Our common stock was delisted from the Nasdaq Stock Market on August 20, 2002
because we did not timely file our quarterly report on Form 10-Q for the quarter
ended June 30, 2002 following our discovery of the misclassification of certain
expenses in prior periods as research and development expenses. The result of
this action is a limited public market for our common stock. Trading is now
conducted in the over-the-counter market in the so-called "Pink Sheets."
Consequently, selling our common stock is more difficult because smaller
quantities of shares can be bought and sold, transactions can be delayed and
security analysts and news media's coverage of us may be reduced. These factors
could result in lower prices and larger spreads in the bid and ask prices for
shares of our common stock as well as lower trading volume.

As a result of the delisting of our common stock from the Nasdaq National
Market, our common stock may become subject to the "penny stock" regulations,
including Rule 15g-9 under the Securities Exchange Act of 1934. That rule
imposes additional sales practice requirements on broker-dealers that sell
low-priced securities to persons other than established customers and
institutional accredited investors. For transactions covered by this rule, a
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction prior to
sale. Consequently, the rule may affect the ability of broker-dealers to sell
our common stock and affect the ability of holders to sell their shares of our
common stock in the secondary market. In the event that our common stock becomes
subject to the penny stock regulations, the market liquidity for the shares
would be adversely affected.

E-mail marketing may not gain market acceptance, which could have a material
adverse effect on our business.

The degree to which our e-messaging platform is accepted and used in the
marketplace depends on market acceptance of e-mail as a method for targeted
marketing of products and services. Our ability to successfully differentiate
our services from random mass e-mailing products and services, which have
encountered substantial resistance from consumers, also will be important.
Businesses that already have invested substantial resources in traditional or
other methods of marketing may be reluctant to adopt new commercial methods or
strategies, such as e-mail marketing. In addition, individuals with established
patterns of purchasing goods and services based on traditional marketing methods
may be reluctant to alter those patterns. As a result of the factors listed
above, e-mail marketing may not be accepted by the marketplace, which would have
a material adverse effect on our business.

Our revenue could decline if we fail to effectively manage our existing
advertising space and our growth could be impeded if we fail to acquire new
advertising space.

The success of our current business depends in part on our ability to
effectively manage our existing advertising space. The Web sites that list their
unsold advertising space with us are not bound by long-term contracts that would
ensure us a consistent supply of advertising space, which we refer to as
inventory. In addition, Web sites can change the amount of inventory they make
available to us at any time. If a Web site publisher decides not to make
advertising space from its Web sites available to us, we may not be able to
replace this advertising space with advertising space from other Web sites that
have comparable traffic patterns and user demographics quickly enough to fulfill
our advertisers' requests. These events could result in lost revenue. We expect
that our customers' requirements will become more sophisticated as the Web
matures as an advertising medium. If we fail to manage our existing advertising
space effectively in order to meet our customers' changing requirements, our
revenue could decline.

The growth of our current business depends on our ability to expand our
advertising inventory. In order to attract new customers, we must maintain a
consistent supply of attractive advertising space. Our ability to attract new
Web sites and to retain Web sites currently in our network will depend on
various factors, some of which are beyond our control. These factors include our
ability to introduce new and innovative product lines and services, our ability
to efficiently manage our existing advertising inventory, our pricing policies
and the cost-efficiency to Web publishers of outsourcing their advertising
sales. We cannot assure you that the size of our inventory will increase or even
remain constant in the future. Furthermore, if the MaxOnline Sale is
consummated, we will sell to Focus substantially all of our existing advertising
space, relationships with Web publishers and other assets relating to our online
advertising business thereby materially adversely affecting our ability to
attract new customers.

We could lose customers or advertising inventory if we fail to measure clicks on
banner advertisements in a manner that is acceptable to our advertisers and Web
publishers.

In some instances, we earn advertising revenue and make payments to Web
publishers based on the number of clicks on advertisements delivered on our
network. Advertisers' and Web publishers' willingness to use our services and
join our network will depend on the extent to which they perceive our
measurements of clicks to be accurate and reliable. Advertisers and Web
publishers


                                       14
<PAGE>


often maintain their own technologies and methodologies for counting clicks and
from time to time we have had to resolve differences between our measurements
and theirs. Any significant dispute over the proper measurement of clicks or
other user responses to advertisements could cause us to lose our customers or
advertising inventory.


ITEM 2.  PROPERTIES

Our principal executive offices are located in New York, New York, where we
lease approximately 5,100 square feet under a lease that expires on February 12,
2009. In addition, we lease space for our sales and marketing efforts in
Chicago, IL; Greenwich, CT; San Francisco, CA; Santa Monica, CA and Seattle, WA.
We also leased space in Marina del Rey, CA, which formerly housed our
headquarters. This lease was terminated on April 7, 2003. Our MaxDirect business
was operated from space we leased in Valhalla, NY and Woodbury, MN. As a result
of our sale of MaxDirect, we no longer lease the Valhalla, NY and Woodbury, MN
spaces. We are continually evaluating our facility requirements. We believe that
our existing leased space is sufficient for our current operations and that
suitable replacement space will be available in the future on commercially
reasonable terms. If the MaxOnline Sale is consummated, Focus will assume the
leases for our facilities spaces in Chicago, IL; Greenwich, CT; New York, NY and
Santa Monica, CA.


ITEM 3.  LEGAL PROCEEDINGS

We are a party to lawsuits in the normal course of our business. Litigation in
general, and securities and intellectual property litigation in particular, can
be expensive and disruptive to normal business operations. Moreover, the results
of complex legal proceedings are difficult to predict. Other than as described
below, we are not a party to any material legal proceedings.

General Litigation

On April 2, 2001, EMI Communications Corp. filed a lawsuit against us in the
Queen's Bench (Brandon Centre), Manitoba, Canada. The suit alleges breach of
contract by L90, our wholly owned subsidiary. We believe this suit is without
merit and intend to vigorously defend against these claims. However, due to the
inherent uncertainties of litigation, we cannot accurately predict the ultimate
outcome of the litigation.

On November 21, 2001, Frank Addante, our former Chief Technology Officer, filed
a Demand for Arbitration with the American Arbitration Association in Los
Angeles, California. Mr. Addante claimed copyright infringement, breach of
contract, fraud, conversion, securities fraud and breach of fiduciary duty. He
sought an unspecified amount of damages, declaratory relief, injunctive relief
and an accounting (to determine monetary damages). In November 2002, we settled
this dispute with Mr. Addante. As part of the settlement and mutual release, we
paid $250,000 to Mr. Addante.

On May 2, 2002, John Bohan, the Company's former Chief Executive Officer, filed
an action against us in the Court of Chancery for the State of Delaware, seeking
an order requiring the Company to advance his defense costs in connection with
the Commission's investigation and the related civil litigation in accordance
with his indemnification agreement with the Company and its charter documents.
On June 6, 2002, the parties entered into a stipulation and order establishing a
procedure for the advancement of expenses subject to an undertaking by Mr. Bohan
to repay the Company if it is determined that indemnification is not warranted.
During the calendar years 2002 and 2003, the Company paid legal and other
professional fees and expenses of approximately $1.9 million, in the aggregate,
on behalf of certain former officers and directors, including Mr. Bohan,
pursuant to their indemnification agreements with the Company and the Company's
charter documents. Mr. Bohan was initially subject to an undertaking with the
Company pursuant to which he was obligated to repay all amounts advanced to him
by the Company in the event it was determined that that indemnification was not
warranted. In April 2003, the Company entered into an agreement, pursuant to
which it agreed to terminate Mr. Bohan's obligations to the Company under this
undertaking in exchange for a release from Mr. Bohan of all future
indemnification obligations of the Company to Mr. Bohan under his
indemnification agreement with the Company and its charter documents. The
payment made under this agreement is included in the $1.9 million of costs
described above.

On February 3, 2003, Anthony Hauser, a former founder of webMillion.com, Inc.,
filed against us, certain former officers and directors and William Apfelbaum,
our Chairman of the Board of Directors a Demand for Arbitration with the
American Arbitration Association in Los Angeles, California. Mr. Hauser claims
breach of contract, breach of fiduciary duty, misrepresentation and fraud and
securities law violations arising out of our acquisition of webMillion.com. He
has asserted damages in the amount of $6.0 million. We believe this arbitration
claim is without merit and intend to vigorously defend against these claims.
However, due to the inherent uncertainties of litigation, we cannot accurately
predict the ultimate outcome of the litigation. Any unfavorable outcome in
litigation could materially and adversely affect our business, financial
condition, results of operations and any distribution to shareholders in a
liquidation.

The Securities and Exchange Commission's Investigation and Nasdaq Delisting


                                       15
<PAGE>


On January 25, 2002, the Commission issued a formal order of investigation in
connection with non-specified accounting matters, financial reports, public
disclosures and trading activity in our securities. In connection with this
investigation, the Commission requested that we provide it with certain
documents and other information. We have reached an agreement with the staff of
the Commission to settle the Commission's investigation. Pursuant to the
settlement, we consented to the entry by the Commission of an order relating to
certain cash transactions that substantially offset one another when aggregated
and appear to represent barter arrangements that do not meet the criteria for
revenue recognition under GAAP. The Commission's findings in the proposed order,
which we will not admit or deny, include findings that we improperly recorded
and reported revenue from certain barter transactions and misclassified certain
research and development expenses in 2000 and 2001. The order requires us to
cease and desist from further violations of sections 13(a), 13(b)(2)(A) and
13(b)(2)(B) of the Securities Exchange Act and Rules 12b-20, 13a-1 and 13a-13.
The order does not require us to pay any fine or monetary damages. In addition,
in January 2002, we were notified that the Nasdaq National Stock Market Listing
Investigations requested certain documents and other information relating to
certain transactions pursuant to Marketplace Rule 4330(c). On August 20, 2002,
our common stock was delisted from the Nasdaq National Stock Market as a result
of our failure to timely file our quarterly report on Form 10-Q for the quarter
ended June 30, 2002.

On February 1, 2002, our Board of Directors authorized the Audit Committee of
the Board of Directors to commence an independent internal investigation into
the matters investigated by the Commission. The Audit Committee and we each
engaged special counsel and a forensic accounting firm to conduct a
comprehensive examination of our financial records. On May 6, 2002, we announced
that the Audit Committee had concluded its internal investigation and determined
that certain of our financial results for the years ended December 31, 2001 and
December 31, 2000 would be restated. As a result, we restated certain of our
financial results as reflected in (i) our annual report on Form 10-K for the
year ended December 31, 2001, which we filed with the Commission on May 16,
2002, (ii) our amended quarterly reports on Form 10-Q for the quarters ended
March 31, 2002, September 30, 2000, March 31, 2001, June 30, 2001, and September
30, 2001, which we filed with the Commission on June 11, 2002.

Following our dismissal of Arthur Andersen as our independent accountants, we
engaged PricewaterhouseCoopers LLP as our new independent accountants on July 9,
2002. During the course of our preparation of our quarterly report on Form 10-Q
for the quarter ended June 30, 2002, we discovered certain errors in the
application of generally accepted accounting principles in the United States
("GAAP") which required restatement of our previously issued financial
statements. Because the auditors that previously reported on the 2001 and 2000
consolidated financial statements have ceased operations, we engaged our current
auditors to re-audit our financial results for the years ended December 31, 2001
and 2000. These audits have resulted in a restatement of our financial
statements for the years ended December 31, 2001 and 2000 and for the quarter
ended March 30, 2002. As a result of this discovery we were unable to file on a
timely basis our 10-Q for the quarters ended June 30, 2002 and September 30,
2002. Following the delay in our filing of our 10-Q for the quarter ended June
30, 2002; Nasdaq informed us that our stock would no longer be listed on their
stock exchange. For a description of the restatements, see Note 3 to our
consolidated financial statements.

Securities Class Actions

Beginning on March 21, 2002, following the announcement of the Commission's
investigation and the internal investigation conducted by of the Audit Committee
of the Board of Directors, a number of securities class action complaints were
filed against us and certain of our former officers and directors in the United
States District Court for the Central District of California. The complaints
have been filed as purported class actions by individuals who allege that they
purchased our common stock during the purported class period. The complaints
generally allege that during 2000 and 2001 we, and the other named defendants,
made false or misleading statements of material fact about our financial
statements, including our revenue, revenue recognition policies, business
operations and prospects for the years 2000, 2001 and beyond. The complaints
seek an unspecified amount of damages on behalf of persons who purchased our
common stock during the purported class period. On July 17, 2002, the securities
class actions were consolidated in a single action for all purposes. On July 22,
2002, the court appointed John A. Levin & Co. as the lead plaintiff in the
consolidated action. On September 20, 2002, the lead plaintiff filed its
consolidated amended class action complaint. On March 18, 2003 the court granted
our motion to dismiss the consolidated class action lawsuit for failure to state
a claim upon which any relief may be granted and the consolidated class action
lawsuit was dismissed without prejudice. Because the class action lawsuit was
dismissed without prejudice, plaintiffs have an opportunity to amend the
complaint against the defendants. We have reached an agreement in principle with
the lead plaintiff to settle the class action for $5.0 million. Final terms of
the settlement are still under negotiation and are subject to certain terms and
conditions, including court approval.

Derivative Actions

Beginning on March 22, 2002, we have been named as a nominal defendant in at
least two derivative actions, purportedly brought on our behalf, filed in the
Superior Court of the State of California for the County of Los Angeles. The
derivative complaints allege that certain of our current and former officers and
directors breached their fiduciary duties to us, engaged in abuses of their
control of us, wasted corporate assets, and grossly mismanaged the Company. The
plaintiffs seek unspecified damages on our behalf from each of


                                       16
<PAGE>


the defendants. We have reached an agreement in principle, subject to certain
conditions, including court approval, to settle these derivative actions for
$775,000 in attorneys' fees and the adoption of certain corporate therapeutic
actions. We have received insurance proceeds sufficient to satisfy the $775,000
to be paid by us in settlement of the derivative suits.

Other Legal Matters

We periodically may become subject to other legal proceedings in the ordinary
course of our business.


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

No matters were submitted to a vote of security holders during the fiscal year
covered by this Report.


                                       17
<PAGE>


PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market for common stock

Beginning on January 28, 2000, the date of our initial public offering, our
common stock was quoted on the Nasdaq National Market under the symbol LNTY. On
April 18, 2002, the symbol under which we traded was changed to LNTYE pursuant
to Nasdaq Marketplace Rule 4310(c)(14) as a result of our delay in filing our
annual report on Form 10-K for the year ended December 31, 2001. The symbol was
later changed back to LNTY on June 20, 2002. On July 10, 2002, we reorganized
into a holding company format and began trading under the symbol MAXW. On August
20, 2002, our common stock was delisted from the Nasdaq National Stock Market.
The symbol under which we trade in the "Pink Sheets" is MAXW.PK. Prior to
January 28, 2000, there was no public market for our common stock. The following
table sets forth, for the periods indicated, the high and low sales prices per
share of our common stock.

<TABLE>
<CAPTION>

Period                                                                    High         Low
------                                                                --------     -------

<S>                                                                      <C>         <C>
First Quarter (January 1, 2001 through March 31, 2001)                   $ 6.63      $ 2.28
Second Quarter (April 1, 2001 through June 30, 2001)                       3.00        1.68
Third Quarter (July 1, 2001 through September 30, 2001)                    2.63        0.95
Fourth Quarter (October 1, 2001 through December 31, 2001)                 1.71        0.93
First Quarter (January 1, 2002 through March 31, 2002)                     2.07        0.92
Second Quarter (April 1, 2002 through June 30, 2002)                       1.40        0.84
Third Quarter (July 1, 2002 through September 30, 2002)                    0.96        0.20
Fourth Quarter (October 1, 2002 through December 31, 2002)                 0.64        0.40
</TABLE>


On March 31, 2003, the last sale price of our common stock reported by the Pink
Sheets was $0.67 per share. As of March 31, 2003, we had approximately 89
holders of record of our common stock.

Dividend Policy

During the fiscal years ending December 31, 2002 and, 2001, we did not declare
or pay cash dividends on any of our common stock.

Sale of Unregistered Securities

On July 10, 2002, we issued an aggregate of 4.8 million shares of common stock
to DoubleClick. These securities were issued, among other consideration, in
exchange for the North American media business of DoubleClick. These securities
were issued and sold in reliance upon the exemption provided for by Section 4(2)
of the Securities Act and Regulation D promulgated thereunder.

Use of Proceeds from our Initial Public Offering

The effective date of our initial public offering of shares of common stock was
January 28, 2000 (SEC Registration No. 333-87607). We completed our initial
public offering on February 2, 2000, through which we sold 7,475,000 shares of
our common stock, inclusive of the underwriters' over allotment, at an initial
public offering price of $15.00 per share. Our initial public offering was
managed by SG Cowen Securities Corporation, Banc of America Securities LLC, CIBC
Oppenheimer Corp. and Wit Capital Corporation. The initial public offering
resulted in gross proceeds of approximately $112.1 million, approximately $7.8
million of which was applied toward the underwriting discount and commission.
Expenses related to the offering totaled approximately $1.5 million. Our net
proceeds from the offering were approximately $102.6 million. From the time of
receipt through the date of this report, these net proceeds have been applied
toward general corporate purposes and strategic acquisitions.


                                       18
<PAGE>


<TABLE>
<CAPTION>


Equity Compensation Plan Information

------------------------------------------------------------------------------------------------------------------------------------
Plan category                    Number of securities to be       Weighted-average exercise       Number of securities remaining
                                 issued upon exercise of          price of outstanding options,   available for future issuance
                                 outstanding options, warrants    warrants and rights             under equity compensation plans
                                 and rights                                                       (excluding securities reflected
                                                                                                  in column (a))
                                 (a)                              (b)                             (c)
------------------------------------------------------------------------------------------------------------------------------------
<S>                              <C>                              <C>                             <C>
Equity compensation plans        3,067,414                        $2.51                           5,518,288
approved by security holders
------------------------------------------------------------------------------------------------------------------------------------
Equity compensation plans not    31,833                           $1.37.                          none.
approved by security holders
------------------------------------------------------------------------------------------------------------------------------------
Total                            3,099,247                        $2.50                           5,518,288
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       19
<PAGE>


ITEM 6.  SELECTED FINANCIAL DATA

You should read the following selected financial data with the consolidated
financial statements and related notes and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" appearing elsewhere in this
Form 10-K. The Statement of Operations data for the fiscal years ended December
31, 2002, 2001 and 2000 and the balance sheet data as of December 31, 2002 and
2001 are derived from our restated consolidated financial statements that are
included elsewhere herein. The Statement of Operations data for the fiscal years
ended December 31, 1999 and 1998 and the balance sheet data as of December 31,
2000, 1999 and 1998 were derived from our unaudited financial statements.

On January 25, 2002, the Securities and Exchange Commission (the "Commission")
issued a formal order of investigation in connection with non-specified
accounting matters, financial reports, public disclosure and trading activity in
our securities. On February 1, 2002, our Board of Directors authorized the Audit
Committee to commence an independent internal investigation into the matters
that prompted the Commission's investigation. To assist in this inquiry, we and
the Audit Committee each engaged separate special counsel and forensic
accounting firms. As a result, certain of our financial results for the years
ended December 31, 2001 and December 31, 2000 were restated in our Form 10-K
filed with the Commission May 16, 2002. During July 2002 we retained
PricewaterhouseCoopers LLP ("PricewaterhouseCoopers") as our new independent
accountants. During the course of our preparation of our quarterly report on
Form 10-Q for the quarter ended June 30, 2002, we discovered misclassifications
of certain research and development expenses in our previously reported
financial statements. As a result, we engaged PricewaterhouseCoopers to re-audit
our financial results for the years ended December 31, 2001 and 2000. This
engagement is in addition to our original engagement of PricewaterhouseCoopers
to audit our financial results for the year ended December 31, 2002. These
audits have resulted in a restatement of our financial statements for the years
ended December 31, 2001 and 2000 and for the quarter ended March 30, 2002.

In addition, we determined that certain expenses previously classified as
research and development expenses ("R & D") in our 1999 and 1998 financial
statements should be more appropriately classified in other captions within our
Consolidated Statement of Operations. We concluded that of the $2.5 million of
previously reported research and development expense in 1999, approximately $1.8
million should have been recorded as cost of revenue as they represented costs
associated with running our adMonitor product, and approximately $0.2 million of
personnel-related costs associated with business development personnel should
have been recorded to sales and marketing expense. The remaining balance of
approximately $0.5 million represents personnel costs associated with enhancing
existing products. The Company has determined that such costs are more
appropriately classified as product development expense. The Company also
determined that with respect to the $0.1 million of previously reported 1998
research and development expense it is more appropriate to classify this expense
as product development expense in the unaudited financial statements.

Furthermore, we determined that due to certain features of our Series A, B and C
preferred stock, the Company inappropriately included such preferred stock
within "Stockholders' Equity" in its previously reported financial statements.
The Company has determined that these securities should have been classified
outside of stockholders' equity for the periods they were outstanding. All
outstanding preferred stock was converted into common stock upon the initial
public offering of the Company's common stock in February 2000. These
adjustments have resulted in stockholders' equity being reduced by $16.0 million
and $2.0 million at December 31, 1999 and 1998, respectively.

As a result, our consolidated financial statements for 1999 and 1998 have been
restated and are therefore considered unaudited.

The selected five-year financial data has been restated to reflect the
adjustments made to our financial statements related to the improper application
of generally accepted accounting principles in prior periods. As a result of
these items, we have reduced our reported revenue by approximately $3.6 million
for the year ended December 31, 2000 and by approximately $1.1 million for the
year ended December 31, 2001. Cost of revenue increased by approximately $10.3
million and approximately $9.8 million for the years ended December 31, 2000 and
December 31, 2001 respectively. Operating expenses decreased by approximately
$7.4 million to approximately $36.8 million and decreased $19.7 million to $55.2
for the years ended December 31, 2000 and 2001, respectively. Our net loss for
the year ended December 31, 2000 increased from approximately $20.5 million to
approximately $26.0 million and our net loss for the year ended December 31,
2001 decreased from approximately $52.6 million to approximately $47.6 million.
Additionally we made certain reclassifications between operating and
non-operating expenses. The effect of these adjustments on our quarterly results
for the year ended December 31, 2001, along with additional adjustments relating
to the first quarter of 2002, are reflected in Note 18 to our consolidated
financial statements.


                                       20
<PAGE>


<TABLE>
<CAPTION>

                                                                                (in thousands, except per share data)
                                                                                       Years Ended December 31,
                                                                      -----------------------------------------------------------
Statement of Operations                                                  2002        2001        2000        1999        1998
                                                                      ----------- ----------- ------------ ---------- -----------
                                                                                   (restated)  (restated)  (restated)  (restated)
<S>                                                                    <C>         <C>         <C>          <C>       <C>
Revenue:
     Service fee-based revenue                                         $  14,779   $  19,142   $   43,582   $  7,283  $        -
     Commission-based revenue                                              8,033       7,405        1,520      1,918       2,189
                                                                      ----------- ----------- ------------ ----------------------
Total revenue                                                             22,812      26,547       45,102      9,201       2,189

Cost of revenue                                                           11,762      23,025       41,403      6,502           -
                                                                      ----------- ----------- ------------ ---------- -----------

Gross profit                                                              11,050       3,522        3,699      2,699       2,189
                                                                      ----------- ----------- ------------ ---------- -----------

Operating expenses (income):
     Sales and marketing                                                   9,766      15,736       16,548      5,082       1,362
     Product development                                                       -       2,322        1,250        614         138
     General and administrative                                           18,284      19,863       18,833      4,520         995
     Special charges                                                       9,893           -            -          -           -
     Impairment of goodwill and other intangible assets                    4,398      10,921            -          -           -
     Other impairment charges                                              1,915       3,271          162          -           -
     (Gain) loss on sale of adMonitor                                    (4,255)       3,068            -          -           -
                                                                      ----------- ----------- ------------ ---------- -----------
          Total operating expenses                                        40,001      55,181       36,793     10,216       2,495

                                                                      ----------- ----------- ------------ ---------- -----------
Operating loss                                                          (28,951)    (51,659)     (33,094)    (7,517)       (306)

Other income, net                                                            207       2,125        1,772         29          16
Investment impairment                                                          -     (1,000)            -          -           -
Interest income                                                              740       2,921        5,367          -           -
                                                                      ----------- ----------- ------------ ---------- -----------
Loss before provision for income taxes                                  (28,004)    (47,613)     (25,955)    (7,488)       (290)
Provision for income taxes                                                     -           2            2          -           -
                                                                      ----------- ----------- ------------ ---------- -----------
Net loss                                                                (28,004)    (47,615)     (25,957)    (7,488)       (290)
Cumulative dividends on participating preferred stock                          -           -            2      1,470          23
                                                                      ----------- ----------- ------------ ---------- -----------
Net loss attributable to common stockholders                           $(28,004)   $(47,615)   $ (25,959)   $(8,958)  $    (313)

Basic and diluted net loss per share attributable to common
stockholders:                                                          $  (1.11)   $  (1.94)   $   (1.18)   $ (0.93)  $   (0.04)
                                                                      =========== =========== ============ ========== ===========

Weighted average number of common shares outstanding:                     25,253      24,579       21,957      9,609       7,112
                                                                      =========== =========== ============ ========== ===========

<CAPTION>

                                                                                            (in thousands)
                                                                                       Years Ended December 31,
                                                                      -----------------------------------------------------------
                                                                         2002        2001        2000        1999        1998
                                                                      ----------- ----------- ------------ ---------- -----------
<S>                                                                    <C>         <C>         <C>          <C>       <C>
Balance Sheet Data:                                                               (restated)  (restated)   (restated) (restated)
Cash and cash equivalents                                              $  33,253   $  63,831   $   72,653   $  6,896  $    2,112
Working capital                                                           25,439      54,624       74,870      4,914       1,996
Total assets                                                              61,943      85,335      120,993     16,136       3,936
Other liabilities                                                             78       1,031          777      2,043         248
Convertible preferred stock                                                    -           -            -     16,006       2,000
Total stockholders' equity (deficit)                                      35,708      62,150      107,701    (8,694)         132
</TABLE>


                                       21
<PAGE>


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our financial condition and results
of operations together with the financial statements and the notes to financial
statements included elsewhere in this report. This discussion contains
forward-looking statements that reflect our plans, estimates and beliefs. Our
actual results could differ materially from those anticipated in these
forward-looking statements.

MaxWorldwide, Inc.'s consolidated financial statements for the years ended
December 31, 2001 and 2000, as filed with the Securities and Exchange Commission
on May 16, 2002, have been restated. Accordingly, all financial data in this
Report reflects the effects of this restatement. See Note 3 to MaxWorldwide,
Inc.'s Consolidated Financial Statements for a description of the restatements.

Overview

References in this Report to "MaxWorldwide," "we," "our" and "us" refer to
MaxWorldwide, Inc. and our consolidated subsidiaries. We are a leading provider
of marketing services for marketers. We design and implement online marketing
campaigns for our marketing clients and strategically place their ads on both
our internal network of Web sites and an external network of Web sites with
which we partner on individual marketing campaigns. Since our acquisition of the
list marketing business of Novus List Marketing in May 2001 until the sale of
our MaxDirect division in February 2003, our business consisted of two
divisions:

1. MaxOnline - which primarily consists of online website and e-mail
advertising; and

2. MaxDirect - which primarily consisted of offline direct marketing list
management, list mailing fulfillment and database management. We sold our
MaxDirect division to American List Counsel in February 2003 and therefore no
longer provide these services.

Our 2002 fiscal year presented a number of opportunities and challenges that led
to several significant events for our company. We began 2002 by entering into an
agreement to sell substantially all of our assets to eUniverse. We also
anticipated making a special distribution of a significant portion of our cash
to our shareholders in connection with the eUniverse transaction. However, in
January 2002 we were notified that the Commission had initiated an inquiry into
the manner in which we recorded certain transactions in 2000 and 2001. In light
of this inquiry, in March 2002 we and eUniverse agreed to terminate the proposed
sale and, as a result, we elected not to make the special distribution to our
shareholders. In response to the Commission's inquiry, we, including our Audit
Committee, immediately launched an internal investigation and hired forensic
accountants to review certain of our prior transactions. In May 2002, we
concluded our investigation and restated certain of our previously reported
financial results.

In March 2002 certain of our stockholders filed a number of securities class
action complaints against us and certain of our former officers and directors.
We also had derivative actions filed, purportedly brought on our behalf. We have
been defending these actions vigorously and we have had to devote a considerable
resources to defending these actions. We have reached an agreement in principle,
subject to certain conditions, including court approval, to settle the
derivative actions for $775,000 in attorneys' fees and the adoption of certain
corporate therapeutic actions. As referenced above in the "Legal Proceedings"
section, we have also reached an agreement in principle to settle the class
action complaint for $5.0 million. The final settlement is subject to certain
terms and conditions, including court approval. The majority of these settlement
amounts will be paid for by the Company's insurers.

Fiscal year 2002 also saw a significant change in our management team. In March
2002, Mitchell Cannold, a seasoned executive in the media industry, replaced
John Bohan as our President and Chief Executive Officer. In July 2002 William H.
Mitchell became our Chief Financial Officer following the resignation of Thomas
Sebastian in March 2002.

Under our new management team, in July 2002 we acquired the North America media
assets of a significant competitor, DoubleClick Media. In connection with this
acquisition, we changed our name to MaxWorldwide and reorganized into a holding
company structure.

Fiscal year 2002 also saw a change in our independent accountants from Arthur
Andersen to PricewaterhouseCoopers LLP. Following this change in July 2002, we
determined in August 2002 that it would be necessary to further restate certain
of our prior reported operating results. As a result, we were unable to file our
quarterly reports for the quarters ending June 30, 2002 and September 30, 2002.
This led to the de-listing of our common stock from The Nasdaq National Market
in August 2002. Our stock now trades on the Pink Sheets.


                                       22
<PAGE>


During the last quarter of 2002 we commenced the re-audit of our financial
statements for 2001 and 2000 with PricewaterhouseCoopers LLP. During the process
of our re-audit we determined that we would need to restate our historical
financial statements for issues primarily associated with the following:
activity formerly recorded as Research and Development, the webMillion and Novus
List Marketing acquisition accounting, the adMonitor transaction, our investment
in Zondigo, impairments of facility leases and fixed assets, revenue recognition
and bad debt expense. See Note 3 to the Company's Consolidated Financial
Statements for a description of the restatements.

In February 2003, we concluded that it would be in our stockholders' best
interest for us to sell our offline division, MaxDirect. We concluded that there
was little effective overlap between our online and offline customers and that
we should focus on maximizing the value of each business as separate business
units. Our competitors in the offline list management business were more
effectively structured and financed. Accordingly, in February 2003, we sold
MaxDirect to American List Counsel. (See "Business Transactions" below)

In March 2003, we agreed to sell our online business, MaxOnline to Focus. We
believe that to develop profitability in the online advertising business we
needed access to more products for our clients. Rather than develop or acquire
such products we believed the best interests of our shareholders would be served
by selling MaxOnline and adopting a plan of liquidation and dissolution. In
March 2003, we entered into an agreement to sell MaxOnline to Focus. This
transaction is subject to stockholder approval, which we will seek at a meeting
of our stockholders that we expect will occur in June 2003. If the sale of
MaxOnline is consummated, we will no longer own any of the operating assets
whose performance is described below and we intend to adopt a plan of
liquidation and dissolution pursuant to which we would liquidate and dissolve
the Company. If the MaxOnline Sale is not consummated, we intend to operate our
business in the ordinary course. (See "Business Transactions" below)

Critical Accounting Policies

This discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with generally accepted accounting principles. The
preparation of these consolidated financial statements requires us to make
estimates, judgments and assumptions, which are believed to be reasonable, based
on the information available. These estimates and assumptions affect the
reported amounts of assets, liabilities, revenue and expenses, and related
disclosure of contingent liabilities. A variance in the estimates or assumptions
used could yield a materially different accounting result. Described below are
the areas where we believe that the estimates, judgments or assumptions that we
have made, if different, would have yielded the most significant differences in
our financial statements.

Allowance for advertiser credits and bad debt and reserves against due to
websites and due to list owners

We record reductions to revenue for the estimated future credits issuable to its
customers in the event that delivered advertisements do not meet contractual
specifications. We follow this method since reasonably dependable estimates of
such credits can be made based on historical experience. Should the actual
amount of advertiser credits differ from our estimates, revisions to the
associated allowance may be required. We maintain an allowance for doubtful
accounts for estimated losses resulting from the inability of our customers to
make required payments. Our bad debt expense is partially offset by reserves
made against due to website payables, as a result of certain of the Company's
web publishers bearing the risk of non-payment of advertising fees from
marketers, and reserves against due to list owners, as a result of the Company's
list owners bearing the risk of non-payment from list buyers. If the financial
condition of our customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required in
subsequent periods.

Valuation of investments

We held equity interests in companies in areas within our strategic focus, some
of which have highly volatile fair values and uncertain profit potentials. We
evaluate our investments for impairment on a periodic basis and reduce the
carrying values of such assets to their estimated fair value when we believe an
investment has experienced a decline in value that is other than temporary.
Future adverse changes in market conditions or poor operating results of
strategic investments could indicate an inability to recover the carrying value
of our investments and may not be reflected in the investment's current carrying
value, thereby possibly requiring impairment charges in the future.

Goodwill

Statement of Financial Standards No. 142 "Goodwill and Other Intangible Assets"
("SFAS 142") requires that goodwill be tested for impairment at the reporting
unit level (operating segment or one level below an operating segment) on an
annual basis and between annual tests in certain circumstances. Application of
the goodwill impairment test requires judgment, including the identification of
reporting units, assigning assets and liabilities to reporting units, assigning
goodwill to reporting units, and determining the fair value of each reporting
unit. Significant judgments required to estimate the fair value of reporting
units include estimating future cash


                                       23
<PAGE>


flows, determining appropriate discount rates and other assumptions. Changes in
these estimates and assumptions could materially affect the determination of
fair value for each reporting unit.

Effective January 1, 2002, we adopted SFAS 142 and performed a transitional test
of our goodwill. The fair value of our reporting units were estimated using the
expected present value of future cash flows. Impairment losses recorded in the
future could have a material adverse impact on our financial conditions and
results of operations.

Long-lived Assets

The Company assesses the recoverability of long-lived assets, including
intangible assets, held and used whenever events or changes in circumstances
indicate that future cash flows (undiscounted and without interest charges)
expected to be generated by an asset's disposition or use may not be sufficient
to support its carrying amount. If such undiscounted cash flows are not
sufficient to support the recorded value of assets, an impairment loss is
recognized to reduce the carrying value of long-lived assets to their estimated
fair value.

Other impairment charges

The other impairment charges are primarily related to our facilities in Marina
Del Rey, London, Chicago and Santa Monica. In determining the impairment charge
associated with our future lease commitments, we estimated the future sublease
income for our excess and idle space which also included an estimate of the time
period required to identify sublessees. Our analysis was performed based on the
current real estate market conditions in the local markets where our facilities
are located. The impairment charge relating to future lease commitments is based
on these estimates. Should market conditions change, this information may be
updated and additional charges may be required.

Deferred tax assets

Pursuant to SFAS No. 109, a valuation allowance is provided to reduce the
deferred tax assets reported if, based on the weight of the available evidence,
it is more likely than not some portion or all of the deferred tax assets will
not be realized. For the year ended December 31, 2002 and 2001, we recorded a
full valuation allowance against our net deferred tax assets since management
believes that after considering all the available objective evidence, both
positive and negative, historical and prospective, with greater weight given to
historical evidence, it is more likely that these assets will not be realized
than will be realized. In the event that we were to determine that it would be
able to realize some or all of our deferred tax assets, an adjustment to the net
deferred tax asset would increase income and/or adjust additional paid-in
capital in the period such determination was made.

Property and equipment

Property and equipment is stated at cost and depreciated using the straight-line
method over the shorter of the estimated life of the asset or the lease term. We
periodically review the useful lives of our assets for appropriateness. In the
event that it is determined that the estimated useful life of our assets needs
to be adjusted to reflect depreciation expense over the remaining time that the
assets are expected to be remain in service, future income or losses will be
impacted in the subsequent periods after such a determination is made.

Business Transactions

On March 12, 2003, we entered into an agreement with Focus and certain of its
affiliates to sell substantially all of our assets related to our MaxOnline
division. A copy of the Agreement and Plan of Merger, dated March 12, 2003 was
filed with the Commission as Exhibit 2.1 to our Form 8-K filed with the
Commission on March 14, 2003. Pursuant to the merger agreement, we would receive
$3.0 million in cash upon the closing of the transaction and $2.0 million in
cash, plus interest, upon the first anniversary of the closing or, at the
election of Focus, six months thereafter. We could also receive up to an
additional $1.0 million in cash if the MaxOnline business that Focus is
acquiring exceeds certain performance levels in calendar year 2003. In addition,
Focus would pay us 70% of the accounts receivable transferred to Focus under the
merger agreement and collected by them during the eight month period beginning
120 days following the effective time of the merger (net of certain expenses and
accounts payable associated with such accounts receivable). Focus also agreed to
reimburse us, within one year after the effective time of the merger, the amount
of any positive working capital in the MaxOnline business it acquires as a
result of the merger. The MaxOnline Sale is subject to approval by holders of a
majority of our outstanding shares of common stock and other customary
conditions, including without limitation, our receipt of an opinion from our
financial advisor that the MaxOnline Sale is fair, from a financial point of
view, to the holders of our common stock. Assuming all the conditions are
satisfied or are otherwise waived by us and/or Focus, we expect the MaxOnline
Sale to close on our about June 30, 2003. If the MaxOnline Sale is consummated,
we currently intend to adopt a plan of liquidation and dissolution pursuant to
which we would liquidate the Company and dissolve the corporation. Accordingly
we will not plan to operate any businesses following the sale of MaxOnline. We
will significantly curtail administrative expenses, discharge our outstanding


                                       24
<PAGE>


liabilities and initiate the orderly distribution of our remaining assets to our
shareholders. If the MaxOnline Sale is not consummated, we intend to operate our
business in the ordinary course.

On February 10, 2003, we completed the sale of our MaxDirect traditional direct
marketing business to American List Counsel. As consideration for the sale,
American List Counsel paid us $2.0 million in cash, assumed certain liabilities
on the closing and agreed to pay, monthly, 92.5% of the acquired MaxDirect
accounts receivable collected by American List Counsel during the first six
months following the closing and 46.25% of the acquired MaxDirect accounts
receivable collected by American List Counsel during the second six months
following the closing, in each case net of any accounts payable associated with
such accounts receivable. In addition, American List Counsel agreed to pay us
$500,000 in cash if revenue generated by the MaxDirect business during the one
year period following the closing is at least $2.5 million and an additional
$1.0 million in cash if revenue generated by the MaxDirect business during the
one year period following the closing is at least $3.5 million. American List
Counsel also agreed to pay us $0.50 for each dollar of revenue above $3.5
million, generated by the MaxDirect business during the one-year period
following the closing.

On July 10, 2002 we purchased substantially all the assets of the DoubleClick's
North American media business. In exchange for the assets of the media business,
we issued to DoubleClick 4.8 million shares of our common stock and paid $5.0
million in cash. At that time, the 4.8 million shares represented approximately
16.1% of our outstanding common stock and were valued at approximately $4.1
million. DoubleClick may also receive an additional $6.0 million if, during the
three-year period subsequent to consummation of the transaction, we achieve
proforma earnings for two out of three consecutive quarters. Proforma earnings,
as defined in the agreement, are earnings before interest, taxes, depreciation
and amortization, excluding any one-time non-recurring items, restructuring
charges (including facility relocation charges), transaction related costs,
including costs incurred in connection with the acquisition or disposition of a
business, whether consummated or not, and any asset impairment, including
impairment of goodwill.

On October 2, 2001, the Company completed the sale of adMonitor, its ad serving
technology software and the technology underlying the ProfiTools solutions to
DoubleClick Inc. in exchange for cash of $6.8 million. Additionally, the Company
entered into an agreement which provides that until October 2002, the Company
would not engage in the use, development, licensing, sale or distribution of any
technology, product or service that performs ad-management, serving and tracking
for third parties with the same or substantially similar purpose as adMonitor.
This agreement was later extended to July 2003. The agreement permits the
Company to perform these activities in connection with their media sales and
advertising and design services businesses. As part of the sale, the Company
entered into a five-year, non-exclusive ad serving agreement for DART,
DoubleClick's ad serving technology, pursuant to which the Company would
purchase a minimum of $3.5 million of DART services over the term of the
agreement. The agreement also replaced any obligations that remained under a
prior settlement agreement with DoubleClick. Sale proceeds in an amount equal to
the minimum purchase commitment under the agreement of $3.5 million were
deferred. As the Company satisfied its minimum purchase commitment under this
agreement, it recorded a charge to cost of revenue and a corresponding amount to
"(Gain) loss on sale of adMonitor." In the fourth quarter of 2001, $0.2 million
of the $3.5 million minimum purchase commitment was satisfied. As a result of
the sale of adMonitor in the fourth quarter of 2001, the Company incurred losses
of approximately $6.1 million relating to fixed assets and contracts associated
with the adMonitor technology and severance of approximately $500,000,
associated with the disposition of adMonitor which were included in the
determination of gain or loss on this transaction. Accordingly, the Company
recognized an aggregate loss of approximately $3.1 million relating to this
transaction in 2001 which is included in "(Gain) loss on sale of adMonitor" in
the Consolidated Statement of Operations. During 2002 the Company favorably
settled a contract associated with adMonitor technology resulting in a $1.0
million gain and also recognized the remaining $3.3 million of proceeds which
were deferred. This resulted in a gain in 2002 totaling $4.3 million which is
included in "(Gain) loss on sale of adMonitor" and brought the net gain on this
transaction to $1.2 million. As a result of this transaction, the Company no
longer provides proprietary Internet ad serving, tracking and marketing
technology.

On May 14, 2001, we purchased substantially all the assets of a list marketing
business from Novus List Marketing, LLC. The results of the list marketing
business' operations have been included in the consolidated financial statements
since that date. Pursuant to the Asset Purchase Agreement, we paid approximately
$1.8 million in cash, $2.2 million in our common stock consisting of 914,210
shares, and approximately $750,000 issued in the form of a note payable, subject
to adjustment. Novus List Marketing was also eligible to receive up to an
additional $1.0 million over a two-year period if certain operating income goals
are achieved. As of December 31, 2002, these operating income goals were not
achieved and it does not appear that they will be achieved prior to the
expiration of the two-year period. In addition, certain former employees of
Novus are eligible to receive up to an additional $2.0 million over a two-year
period if certain operating income goals are achieved. As of December 31, 2001,
we had accrued $519,000 in association with this other consideration which was
paid in 2002. As of December 31, 2002, we had accrued $0 in association with
this other consideration, as it does not appear that the operating income goals
will be achieved. The acquisition has been accounted for using the purchase
method of accounting.

Operating Performance - 2002 Compared to 2001

Our revenue has been derived from a combination of online advertising sales and
both online and offline direct marketing sales. We offer online advertisements
primarily priced on a cost per every thousand ads viewed, or CPM, basis. Prior
to the sale of our offline business, MaxDirect, to American List Counsel, we
also offered direct marketing programs. Our MaxDirect division also offered


                                       25
<PAGE>


rentals of customer databases on a per thousand basis for names shipped.

Revenue from ad sales and direct marketing sales is earned under
commission-based and service fee-based contracts and is recognized in the period
the advertising is delivered provided collection of the resulting receivable is
reasonably assured. For commission-based contracts, we receive commissions on
gross billings from Web publishers and list owners for the sale of their ad
inventory and customer databases, respectively. Revenue earned from
commission-based contracts reflects only the amount of the commission earned
without any associated cost of revenue. We recognize commissions ratably over
the term of the marketing campaign, which typically ranges from one to twelve
months. Our MaxDirect division principally earned commission-based revenue. For
service fee-based contracts, we purchase advertising space, or ad inventory,
from Web publishers and are obligated to pay a service fee to Web publishers for
ads placed on their Web sites. Additionally, under service fee-based contracts,
we bear the risk of loss from the non-collection of fees payable by marketers
for ads sold. Consequently, revenue earned from service fee-based contracts
reflects the gross billings of the ads sold. Since we have both commission-based
and service fee-based contracts, revenue includes a mix of commissions received
under our commission-based contracts and gross billings to our marketing clients
under our service fee-based contracts.

The following table summarizes performance of our segments between 2002 and
2001:

<TABLE>
<CAPTION>

                                                        (in thousands)
                              Year ended December 31, 2002         Year ended December 31, 2001
                           -----------------------------------  -----------------------------------
                            MaxOnline   MaxDirect    Total      MaxOnline   MaxDirect     Total
                            ---------   ---------    -----      ---------   ---------     -----
<S>                           <C>         <C>        <C>          <C>         <C>         <C>
Gross billings                $ 26,026    $ 22,701   $ 48,727     $ 28,284    $ 16,589    $ 44,873
Net contract commissions         7,483      18,432     25,915        4,432      13,894      18,326
                           -----------------------------------  -----------------------------------
GAAP revenue                  $ 18,543    $  4,269   $ 22,812     $ 23,852    $  2,695    $ 26,547
                           ===================================  ===================================
Cost of revenue               $ 11,762    $      -   $ 11,762     $ 23,025    $      -    $ 23,025
                           ===================================  ===================================
Gross profit                  $  6,781    $  4,269   $ 11,050     $    827    $  2,695    $  3,522
                           ===================================  ===================================
</TABLE>

Gross billings represent the full amount due from marketers for the sale of web
publisher ad inventory, as well as the full amount due from marketers for the
rental of MaxDirect lists that we represent. Management believes gross billings
is a relevant and useful measure of financial performance. Management uses this
non-GAAP measure in analyzing the operating performance of the business, as it
is more indicative of the effectiveness of our sales force and the trends in our
business. We calculate our liabilities to suppliers and salesmen based on gross
billings. We are responsible for paying our ad serving and mailing vendors based
on all advertising delivered for our customers, irrespective of whether we share
risk of collection with Web sites and list owners. We use gross billings in
discussions with our management team surrounding future performance and as a
gauge for making financial decisions and allocating resources. Market share for
our industry is based, we believe, upon total advertising billings irrespective
of a Company's third party relationship with those suppliers. Gross billings
enable us to measure our position in the advertising market. We therefore
believe it is important to analyze this non-GAAP financial information along
with revenue in discussing our financial performance. Nevertheless, we believe
that gross billings should be considered in addition to, not as a substitute for
or superior to, revenue.

Net contract commissions represent the commissions paid to websites whose
contracted terms with the company require us to recognize revenue net of the
commissions paid to the Web site.

MaxOnline Performance

Gross billings. Gross billings for our MaxOnline division decreased 8.0% from
$28.3 million for the year ended December 31, 2001 to $26.0 million for the year
ended December 31, 2002. This decrease was partially attributable to the sale of
our adMonitor ad serving system in October 2001 and the resulting loss of
approximately $5.1 million of gross billings that we generated in 2001 from the
provision of the adMonitor ad serving product to our customers. Additionally,
general economic weakness and a slowdown in the Internet advertising market also
negatively affected gross billings. During 2002 we experienced competitive
pressure on advertising rates for impressions. This was significantly offset by
an increase in the number of advertisers MaxOnline serviced following our
purchase of DoubleClick's North American media business in July 2002. The
DoubleClick North American media business represented 600 websites that
MaxOnline did not represent prior to the merger. These sites accounted for $12.3
million of gross billings in 2002.

Revenue. Revenue decreased $5.4 million to $18.5 million for the year ended
December 31, 2002 from $23.9 million in 2001. This decrease was partially due to
the sale of our adMonitor ad serving system in October 2001 and the resulting
loss of approximately $5.1 million of revenue derived from the provision of the
adMonitor ad serving product to our customers. Decreases in revenue associated
with general economic weakness and a slowdown in the internet advertising market
were offset by increased numbers of advertisers for MaxOnline as a result of our
purchase of the DoubleClick North American media business in July 2002. The
percentage of gross billings related to commission-fee based web partners who
share the risk of collection with MaxOnline increased from 30.7% in 2001 to
44.7% in 2002, an increase of 45.6%. If the MaxOnline sale were consummated, we
would no longer own the assets used to


                                       26
<PAGE>


generate these gross billings or revenue. Accordingly, if the MaxOnline sale
were consummated, we would not expect to generate gross billings or revenue from
MaxOnline after the sale.

Cost of revenue. Cost of revenue includes service fees paid to our Web
publishers under our service fee-based contracts, personnel, equipment or third
party supplier costs associated with serving ads on our network and Internet
connectivity and bandwidth costs associated with ad serving. Additionally, cost
of revenue includes contest fees and insurance expense related to direct
marketing promotions. Cost of revenue decreased from $23.0 million for the year
ended December 2001 to $11.8 million for the year ended December 31, 2002. This
decrease is principally the result of the lower cost of ad serving from using
DoubleClick's ad serving product during the latter part of 2001 and the full
year 2002, as compared to the cost of operating our adMonitor ad serving system
in 2001. These costs were reduced by approximately $8.1 million in 2002. We also
reduced the percentage of revenue we compensate websites for selling advertising
on their websites, principally by increasing the number of Web sites we sell
advertising for on a non-exclusive sales arrangement. These non-exclusive
arrangements have lower required compensation levels than exclusive website
representation arrangements. Additionally, fees paid to Web sites under
service-fee based contract arrangements were reduced during the second half of
2002 as MaxOnline reduced the percentage of service-fee based revenue websites.
During the first half of 2002, service-fee based partners accounted for 56.4%
and 62.3% of gross billings for the first and second quarters, respectively.
This trend shifted in the third and fourth quarter with these partners
accounting for 43.2% and 31.7%, respectively. This shift was primarily a result
of an increase in e-mail advertising gross billings in the second half of 2002.
E-mail advertising is generally billed on a commission-fee basis.

Gross Profit. Our gross profit of $6.8 million in 2002 represented 36.6% of
revenue and 26.1% of gross billings. We had a gross profit of $827,000 in 2001
which represented 3.5% of revenue and 2.9% of gross billings. The increase in
gross profit and our margins in 2002 was a result of reduced costs to deliver
advertisements including reduced costs of outsourcing our ad serving compared to
the costs of running our own adMonitor ad serving system. Additionally we
reduced the average percentage of gross billings paid to web sites during 2002
for selling advertisements.

MaxDirect Performance

Gross billings. MaxDirect increased gross billings 36.8% from $16.6 million for
the year ended December 31, 2001 to $22.7 million for the year ended December
31, 2002. The increase was principally due to the period of time for which we
owned MaxDirect. We purchased MaxDirect on May 15, 2001. On an annualized basis,
gross billings slightly decreased as a result of the general economic slowdown
and the related reduction of expenditures by advertisers in direct marketing
during 2002.

Revenue. Revenue for MaxDirect increased 58.4% from $2.7 million for the year
ended December 31, 2001 to $4.3 million for the year ended December 31, 2002.
The increase was primarily attributable to the full year of operations that
MaxDirect contributed to us in 2002. As a result of the sale of MaxDirect to
American List Counsel in February 2003, we will not generate this revenue
subsequent to the date of sale.

Gross Profit. Our gross profit of $4.3 million in 2002 was 100% of revenue and
18.8% of gross billings. Our gross profit of $2.7 million in 2001 was 100% of
revenue and 16.2% of gross billings. The increase in gross profit dollars was
due to our ownership of MaxDirect for 12 months in 2002 versus 7.5 months in
2001. The higher gross profit margin, based on gross billings, was attributable
to increases in the use of alternative media and data services by our clients
during 2002. Alternative media and data service product billings have
significantly higher gross profit margins.

Operating Expenses for MaxWorldwide, including MaxOnline and MaxDirect

Sales and Marketing. Sales and marketing expenses include salaries, commissions,
travel, advertising, trade show costs and marketing materials. Sales and
marketing expenses were $9.8 million, or 42.8% of revenue, and 20.0% of gross
billings, for the year ended December 31, 2002. This compares to $15.7 million,
or 59.3% of revenue, and 35.1% of gross billings, for the year ended December
31, 2001. Compensation, including commissions for salespeople, decreased $6.0
million due to a reduction in the number of sales employees from an average of
122 employees in 2001 to an average of 64 employees for the year ended December
31, 2002, and a reduction in total commission rates paid to salespeople for
gross billings. Additionally the Company reduced marketing expenditures,
including advertising and industry conference expenses due to the reduced level
of advertising being sought by our clients. If the MaxOnline Sale is
consummated, our sales and marketing expenses will be eliminated.

Product Development. Product development expenses consist primarily of
compensation related expenses, consulting expenses and associated expenses
incurred for enhancement and maintenance of our former adMonitor ad serving
technology. Product development expenses amounted to $2.3 million or 8.7% of
revenue, and 5.2% of gross billings, for the year ended December 31, 2001. All
product development expenses were eliminated for the latter part of 2001 and the
full year 2002 as a result of the sale to DoubleClick of our adMonitor ad
serving technology in October 2001.

General and Administrative. General and administrative expenses consist
primarily of compensation and related benefits, professional


                                       27
<PAGE>


service fees, facility related costs and bad debt expense. General and
administrative expenses decreased by $1.6 million or 7.0% of revenue to $18.3
million or 80.2% of revenue, for the year ended December 31, 2002, compared to
$19.9 million or 74.8% of revenue, for the year ended December 31, 2001. General
and administrative expenses decreased as a percentage of gross billings from
44.3% to 37.5% for the years ended December 31, 2001 and 2002, respectively.
During the year ended December 31, 2002 general and administrative expenditures
decreased by $6.0 million due to the elimination of goodwill amortization
associated with the adoption of SFAS No. 142 "Goodwill and Other Intangible
Assets" which eliminated the amortization of goodwill, which was partially
offset by the increase of $2.6 million in amortization of other intangible
assets. Bad debt expense decreased by $3.1 million resulting from tighter credit
conditions put in place and a reduced demand for internet advertising by less
stable companies. The average number of general and administrative employees
decreased during the year from 29 employees in 2001 to 24 in 2002 resulting in a
decrease in compensation costs of $0.4 million. These decreases were offset by
increases in professional expenses for litigation not associated with the
Commission investigation and insurance costs. If the MaxOnline Sale is
consummated, we anticipate that a significant number of our employees would no
longer be employed by us. As a result, we would expect that general and
administrative expenses would decrease following the sale.

Special Charges. On January 25, 2002, the Commission issued a formal order of
investigation in connection with non-specified accounting matters, financial
reports, public disclosures and trading activity in our securities. As discussed
above, these allegations led in turn to the initiation of securities class and
derivative litigation against our Company and certain of our current or former
officers and directors. In connection with our internal investigation of the
charges, our defense against the Commission's charges and the securities class
action and derivative cases, our expenses incurred related to our
indemnification obligations to former officers and directors, and our accrual of
an estimated amount for the settlement of the class and derivative actions (net
of insurance proceeds), we have recognized a special charge in the total amount
of $8.8 million. Additionally, during the course of our preparation of our
quarterly report on Form 10-Q for the quarter ended June 30, 2002, we discovered
misclassifications of certain research and development expenses reported in our
financial statements for prior periods. Because the auditors that previously
reported on the 2001 and 2000 consolidated financial statements have ceased
operations, the Company engaged its current auditors to re-audit the Company's
financial results for the years ended December 31, 2001 and 2000. We have
estimated the total cost to complete the audits for the years 2000 and 2001 to
be $1.1 million, which is also included in Special Charges.


If we are able to satisfactorily conclude and resolve the various lawsuits we
would anticipate that Special Charges will be reduced in 2003. However, we are
paying for the ongoing legal defense costs of former officers due to our
indemnification of these officers. The amount of these defense costs in 2003
could mitigate the amount of the reduction in Special Charge expenses we expect
to incur in 2003.

Impairment of goodwill and other intangible assets. Impairment of goodwill and
other intangible assets was $4.4 million in 2002 and $10.9 million in 2001. The
persistence of unfavorable market conditions led the Company's management to
undertake a review of the recoverability of its investments in webMillion in the
fourth quarter of 2001. As a result of significantly lower than expected revenue
generated and considerably reduced estimates of future performance, management
concluded that its investment in webMillion was impaired. Accordingly, in the
fourth quarter of 2001, the Company recognized an impairment charge of
approximately $10.9 million representing the unamortized goodwill balance
relating to this acquisition.

In the fourth quarter of 2002, in connection with its annual goodwill impairment
test, the Company initiated a third-party valuation of its MaxOnline and
MaxDirect reporting units to determine whether the goodwill relating to these
units was recoverable. The fair market value of each of these units was
determined based upon discounted cash flow projections. The outcome of this
valuation resulted in an impairment charge of approximately $4.3 million
relating to the MaxOnline reporting unit being recorded in the fourth quarter of
2002. This valuation did not yield any impairment charge to the MaxDirect
reporting unit. In addition, the Company also determined that the fair value of
certain intangible assets were impaired. The Company recorded an impairment
charge of approximately $0.1 million based on the difference between carrying
value and estimated fair value of certain intangible assets also associated with
the online and offline reporting units.

Impairment Charges. For the year ended December 31, 2002 we recorded total
impairment charges of $1.9 million. We recorded $1.1 million of impairment
charges related to excess facility capacity stemming from the reduction of
employees and the relocation of our former Marina del Rey headquarters to New
York. Additionally, we recorded $0.8 million of charges relating to the
impairment of certain fixed assets utilized in our business which includes $0.1
million for assets in the Marina del Rey facility. For the year ended December
31, 2001, we recorded impairment charges of approximately $3.3 million related
to excess capacity stemming from our reduction of employees and efforts to
streamline operations. We evaluated our space requirements and the ability to
sub-lease portions of the leased facilities in the future. Based on these
evaluations we recognized a charge of $1.8 million for future facility lease
commitments. We recorded an impairment charge of $0.6 million for leasehold
improvements and fixed assets used in portions of the facilities with excess
capacity. We also recorded an impairment charge of $0.9 million for fixed assets
related to our adMonitor system that we sold to employees.

(Gain) loss on Sale of adMonitor. On October 2, 2001, we completed the sale of
adMonitor, our ad serving technology software, and


                                       28
<PAGE>


the technology underlying the ProfiTools solutions to DoubleClick Inc. in
exchange for cash of $6.8 million. Additionally, we entered into an agreement
which provides that until October 2002, we would not engage in the use,
development, licensing, sale or distribution of any technology, product or
service that performs ad-management, serving and tracking for third parties with
the same or substantially similar purpose as adMonitor. This agreement was later
extended to July 2003. The agreement permits us to perform these activities in
connection with their media sales and advertising and design services
businesses. As part of the sale, we entered into a five-year non-exclusive ad
serving agreement for DART, DoubleClick's ad serving technology, pursuant to
which we would purchase a minimum of $3.5 million of DART services over the term
of the agreement. The agreement also replaced any obligations that remained
under a prior settlement agreement with DoubleClick. Sale proceeds in an amount
equal to the minimum purchase commitment under the agreement of $3.5 million
were deferred. As we satisfied our minimum purchase commitment under this
agreement, we recorded charges to cost of revenue and amortized a corresponding
amount of the deferred gain to "(Gain) loss on sale of adMonitor." In the fourth
quarter of 2001, $0.2 million of the $3.5 million minimum purchase commitment
was satisfied. As a result of the sale of adMonitor in the fourth quarter of
2001,we incurred losses of approximately $6.1 million relating to fixed assets
and estimated remaining contractual obligations associated with the adMonitor
technology and severance of approximately $500,000, associated with the
disposition of adMonitor, which were included in the determination of gain or
loss on this transaction. Accordingly, we recognized a net loss of approximately
$3.1 million relating to this transaction in 2001 which is included in "(Gain)
loss on sale of adMonitor" in the Consolidated Statement of Operations. During
2002 we favorably settled a contract associated with the adMonitor technology
resulting in an adjustment to the loss on sale of adMonitor recorded in 2001 of
approximately $1.0 million and also recognized the remaining $3.3 million
deferred gain. This resulted in a gain in 2002 totaling $4.3 million which is
included in "(Gain) loss on sale of adMonitor" and brought the net gain on this
transaction to $1.2 million over two years. As a result of this transaction, we
no longer provide proprietary Internet ad serving, tracking and marketing
technology.

Other Income, Net. For the years ended December 31, 2002 and 2001, Other income,
net, was $0.2 million and $2.1 million, respectively. Other income, net, in 2002
consisted primarily of a gain from a legal settlement. Other income, net, for
the year ended December 31, 2001 consisted primarily of proceeds from
settlements of legal and other matters. Included in other income, net was
interest expense of $19,000 for the year ended December 31, 2002 and $116,000
for the year ended December 31, 2001.

Investment Impairment. During 2000, we made an investment in Zondigo, Inc.
("Zondigo"), a company focused on developing wireless technology. In the third
quarter of 2001, as a result of the significant decline in the market value of
Internet-based companies, Zondigo's limited cash resources and the declining
access of these companies to public and private financing, management performed
an assessment of its carrying value of its investment in Zondigo. In the course
of its analysis, we determined that the carrying value of our cost-method
investment in Zondigo was no longer recoverable. As a consequence, we wrote off
our entire investment in Zondigo and recognized an impairment charge of $1.0
million.

Interest Income. Interest income primarily consists of interest earned on cash
balances. Interest income was $0.7 million for the year ended December 31, 2002.
Interest income was $2.9 million for the year ended December 31, 2001. The
decrease in interest income in 2002 was primarily from the decrease in cash
available for investment and a decline in interest rates.

Provision for income taxes. The provision for income taxes for the years ended
December 31, 2002 and 2001 does not reflect tax benefits attributable to our net
operation loss and other tax carryforwards due to limitations and uncertainty
surrounding our prospective realization of such benefit.

Operating Performance - 2001 Compared to 2000

The following table summarizes performance of our segments in 2001 and 2000:

<TABLE>
<CAPTION>

                                                        (in thousands)
                              Year ended December 31, 2001         Year ended December 31, 2000
                           -----------------------------------  -----------------------------------
                            MaxOnline   MaxDirect    Total      MaxOnline   MaxDirect     Total
                            ---------   ---------    -----      ---------   ---------     -----
<S>                           <C>         <C>        <C>          <C>         <C>         <C>
Gross billings                $ 28,284    $ 16,589   $ 44,873     $ 47,745    $      -    $ 47,745
Net contract commissions
                                 4,432      13,894     18,326        2,643           -       2,643
                           -----------------------------------  -----------------------------------
GAAP revenue                  $ 23,852    $  2,695   $ 26,547     $ 45,102    $      -    $ 45,102
                           ===================================  ===================================
Cost of revenue               $ 23,025    $      -   $ 23,025     $ 41,403    $      -    $ 41,403
                           ===================================  ===================================
Gross profit                  $    827    $  2,695   $  3,522     $  3,699    $      -    $  3,699
                           ===================================  ===================================
</TABLE>

Gross billings represent the full amount due from marketers for the sale of web
publisher ad inventory, as well as the full amount due from marketers for the
rental of MaxDirect lists that we represent. Management believes gross billings
is a relevant and useful measure of financial performance. Management uses this
non-GAAP measure in analyzing the operating performance of the business, as it
is more indicative of the effectiveness of our sales force and the trends in our
business. We calculate our liabilities to suppliers and salesmen based on gross
billings. We are responsible for paying our ad serving and mailing vendors based
on all advertising delivered for our customers, irrespective of whether we share
risk of collection with websites and list owners. We use gross billings in


                                       29
<PAGE>


discussions with our management team surrounding future performance and as a
gauge for making financial decisions and allocating resources. Market share for
our industry is based, we believe, upon total advertising billings irrespective
of a Company's third party relationship with those suppliers. Gross billings
enable us to measure our position in the advertising market. We therefore
believe it is important to analyze this non-GAAP financial information along
with GAAP revenue in discussing our financial performance. Nevertheless, we
believe that gross billings should be considered in addition to, not as a
substitute for or superior to, GAAP revenue.

Contract commissions represent the commissions paid to websites whose contracted
terms with the company require us to recognize revenue net of the commissions
paid to the website.

MaxOnline Performance

Gross billings. Gross billings for our MaxOnline division decreased 40.8% from
$47.7 million for the year ended December 31, 2000 to $28.3 million for the year
ended December 31, 2001. General economic weakness and a slowdown in the
Internet advertising market negatively affected gross billings.

Revenue. Revenue decreased $21.2 million to $23.9 million for the year ended
December 31, 2001 from $45.1 million in 2000. This decrease was principally due
to the cyclical downturn in advertising as well as the overall reduction in
marketing spending by Internet related clients. Additionally, the percentage of
commission-based sites, which have lower revenue amounts and no associated
cost of revenue as compared with our service fee-based sites, increased from
9.3% in 2000 to 43.1% in 2001. This resulted in a larger percentage spread
between gross billings and revenue in 2001 as compared to 2000.

Cost of revenue. Cost of revenue includes service fees paid to our Web
publishers under our service fee-based contracts personnel and equipment costs
associated with serving ads on our network as well as Internet connectivity and
bandwidth costs associated with ad serving. Additionally, cost of revenue
includes contest fees and insurance expense related to direct marketing
promotions. Cost of revenue decreased from $41.4 million for the year ended
December 31, 2000 to $23.0 million for the year ended December 31, 2001. This
decrease was principally the result of a decrease in amounts due to websites
associated with the lower level of sales and an increase in our mix of
commission-based website partners. Furthermore, our average percentage of gross
billings paid to websites during this period decreased, as we were able to
negotiate lower fee arrangements with the websites on our network.

Gross profit. Our gross profit of $827,000 in 2001 represented 3.5% of revenue
and 2.9% of gross billings. Our gross profit of $3.7 million in 2000 represented
8.2% of revenue and 7.7% of gross billings. The decrease in gross profit and our
margins in 2001 was a result of increased costs to deliver advertisements
particularly for payroll related expenses to operate our adMonitor network. We
sold our adMonitor ad serving system in October 2001 and commenced use of a
third party ad serving product from DoubleClick at that time.

MaxDirect Performance

Gross billings and revenue. We purchased a list marketing business from Novus
List Marketing and formed MaxDirect on May 15, 2001. Accordingly, the gross
billings and revenue related to our MaxDirect operations that are presented
relate to the 7.5-month period ending December 31, 2001. Revenue of $2.7 million
from our MaxDirect operations for the year ended December 31, 2001 constituted
10.2% of our consolidated revenue during the full twelve-month period.

Gross profit. Our gross profit of $2.7 million in 2001 was 100% of MaxDirect's
revenue and 16.2% of gross billings. We purchased MaxDirect from Novus List
Management in May 2001.

Operating Expenses for MaxWorldwide, including MaxOnline and MaxDirect.

Sales and Marketing. Sales and marketing expenses included salaries,
commissions, travel, advertising, trade show costs and marketing materials
expense. Sales and marketing expenses were $15.7 million, or 59.3% of revenue,
and 35.1% of gross billings, for the year ended December 31, 2001, compared to
$16.5 million, or 36.7% of revenue and 34.7% of gross billings, for the year
ended December 31, 2000. The increase of in sales and marketing expense as a
percentage of revenue in 2001 was primarily due to a decrease in revenue as a
result of our transition from service fee-based contracts to commission-based
contracts. Our average number of sales and marketing employees were relatively
constant during the period and total compensation expense increased during the
period as we relied more heavily on salaries to compensate our employees. Our
principal reduction in expenses came in marketing costs where we reduced our
expenditures for advertising and industry conferences due to a slowdown in the
internet advertising market.

Product Development. Product development expenses consisted primarily of
compensation, consulting expenses and associated office expenses for the
maintenance and improvement of our adMonitor ad serving technology. Product
development expenses amounted to $2.3 million, or 8.7% of revenue and 5.2% of
gross billings, for the year ended December 31, 2001, compared to $1.3 million,
or 2.8% of revenue and 2.6% of gross billings, for the year ended December 31,
2000. The increased costs were principally attributable to an


                                       30
<PAGE>


increase in average product development employees in 2001. All product
development expenses were eliminated for the latter part of 2001 following our
sale of the adMonitor ad serving technology in October 2001 to DoubleClick.

General and Administrative. General and administrative expenses consisted
primarily of compensation and professional service fees. General and
administrative expenses increased by $1.1 million, to $19.9 million, or 74.8% of
revenue and 44.3% of gross billings, for the year ended December 31, 2001,
compared to $18.8 million, or 41.8% of revenue and 39.4% of gross billings, for
the year ended December 31, 2000. We experienced an increase of $3.8 million in
amortization expense associated with a full year of goodwill amortization
relating to the webMillion acquisition and a partial year of amortization
expense relating to goodwill and other intangible assets acquired in the Novus
List Marketing acquisition. This increase was partially offset by bad debt
expense which decreased from $6.7 million in 2000 to $5.1 million in 2001.

Impairment of goodwill and other intangible assets. During the year ended
December 31, 2001 we determined that due to the significantly lower than
expected revenue generated and considerably reduced estimates of future
performance, that the remaining goodwill of $10.9 million associated with our
webMillion.com acquisition was fully impaired.

Impairment Charges. For the year ended December 31, 2001, we recorded impairment
charges of approximately $3.3 million related to excess capacity stemming from
the reduction of employees and the company's reduction of employees and efforts
to streamline operations. We evaluated our space requirements and the ability to
sub-lease portions of the leased facilities in the future. Based on these
evaluations we recognized a charge of $1.8 million for future facility lease
commitments. Additionally we recorded an impairment charge of $0.6 million for
leasehold improvements and fixed assets used in portions of the facilities with
excess capacity. We recorded an impairment charge of $0.9 million for fixed
assets related to our adMonitor system that we sold to employees. For the year
ended December 31, 2000 we recorded facility impairments of $0.2 million
associated with the elimination of need for certain facilities in California due
to our decision to consolidate operations into the Marina del Rey headquarters.

(Gain) loss on Sale of adMonitor On October 2, 2001, we completed the sale of
adMonitor, our ad serving technology software, and the technology underlying the
ProfiTools solutions to DoubleClick Inc. in exchange for cash of $6.8 million.
Additionally, we entered into an agreement which provides that until October
2002, we would not engage in the use, development, licensing, sale or
distribution of any technology, product or service that performs ad-management,
serving and tracking for third parties with the same or substantially similar
purpose as adMonitor. This agreement was later extended to July 2003. The
agreement permits us to perform these activities in connection with their media
sales and advertising and design services businesses. As part of the sale, we
entered into a five-year non-exclusive ad serving agreement for DART,
DoubleClick's ad serving technology, pursuant to which we would purchase a
minimum of $3.5 million of DART services over the term of the agreement. The
agreement also replaced any obligations that remained under a prior settlement
agreement with DoubleClick. Sale proceeds in an amount equal to the minimum
purchase commitment under the agreement of $3.5 million were deferred. As we
satisfied our minimum purchase commitment under this agreement, we recorded a
charge to cost of revenue and a corresponding amount to "(Gain) loss)on sale of
adMonitor." In the fourth quarter of 2001, $0.2 million of the $3.5 million
minimum purchase commitment was satisfied. We also incurred impairment costs of
approximately $6.1 million relating to certain fixed assets and contracts
relating to the adMonitor technology and severance of approximately $500,000,
associated with the disposition of adMonitor which were included in the
determination of gain or loss on this transaction. Accordingly, we recognized an
aggregate loss of approximately $3.1 million relating to this transaction in
2001 which is included in Gain and loss on sale of adMonitor in the Consolidated
Statement of Operations

Other Income, Net. For the years ended December 31, 2001 and 2000 Other income,
net, was $2.9 million and $5.4 million, respectively. Other income, net, for the
year ended December 31, 2001 consisted primarily of proceeds from settlements of
legal and other matters. Included in Other income, net was interest expense of
$116,000 and $209,000 for the year ended December 31, 2001 and 2000,
respectively.

Investment Impairment. During 2000 we made an investment in Zondigo, Inc., a
company focused on developing wireless technology. In the third quarter of 2001,
as a result of the significant decline in the market value of Internet-based
companies, Zondigo's limited cash resources and the declining access of these
companies to public and private financing, management performed an assessment of
our carrying value of its investment in Zondigo. In the course of its analysis,
we determined that the carrying value of our cost-method investment in Zondigo
was no longer recoverable. As a consequence, we wrote off our entire investment
in Zondigo and recognized an impairment charge of $1.0 million.

Interest Income. Interest income primarily consisted of interest earned on cash
balances. Interest income was $2.9 million for the year ended December 31, 2001.
Interest income was $5.4 million for the year ended December 31, 2000. The
decrease in interest income in 2001 resulted primarily from the decrease in cash
available for investment and a decline in interest rates.

Provision for income taxes. The provision for income taxes for the years ended
December 31, 2001 and 2000 does not reflect tax benefits attributable to our net
operating loss and other tax carryforwards due to limitations and uncertainty
surrounding our prospective realization of such benefit.


                                       31
<PAGE>


Liquidity and Capital Resources

From our inception through September 1998, we financed our operations primarily
through internally generated cash flow. In September 1998, we completed a
private placement of equity securities to an individual investor and received
$1.9 million in net proceeds. In September 1999, we completed two private
placements of equity securities and received $12.9 million in net proceeds. In
February 2000, we completed our initial public offering of 7,475,000 shares of
our common stock (including 975,000 shares subject to the underwriter's
over-allotment option) at $15.00 per share. The initial public offering resulted
in aggregate net proceeds of approximately $102.6 million, net of underwriting
discounts and expenses of the offering. The net proceeds from these financings
have been, and continue to be used, for general corporate purposes and, when
required, for the expansion of our business and operations, to hire additional
personnel and to provide additional services.

Net cash used in operating activities was $20.5 million for the year ended
December 31, 2002, $13.2 million for the year ended December 31, 2001 and $22.9
million for the year ended December 31, 2000. Cash used in operating activities
for the year ended December 31, 2002 resulted from a net loss of $28.0 million
offset by non-cash charges relating primarily to $1.3 million in depreciation,
$2.6 million in intangible asset amortization, $2.0 million in provision for bad
debts and advertising credits and charges for impaired assets totaling $5.2
million. Gain on sale of adMonitor reduced cash flow by $4.3 million. In
addition, changes in our operating assets and liabilities increased cash flow
from operating activities by $0.4 million. Cash used in operating activities
for the year ended December 31, 2001 resulted from a net loss of $47.6 million
offset by non-cash charges relating primarily to $4.4 million in depreciation,
$6.5 million in goodwill and intangible asset amortization, $4.9 million in
provision for bad debts and advertising credits, loss on sale of adMonitor of
$3.1 million and charges for impaired assets totaling $13.4 million. In
addition, changes in our operating assets and liabilities increased cash flow
from operating activities by $1.8 million. Cash used in operating activities for
the year ended December 31, 2000 resulted from a net loss of $26.0 million
offset by non-cash charges relating primarily to $4.0 million in depreciation,
$2.7 million in goodwill amortization and $6.8 million in provision for bad
debts and advertising credits. In addition, changes in our operating assets and
liabilities decreased cash flow from operating activities by $10.7 million.

Net cash used in investing activities was $6.1 million for the year ended
December 31, 2002, and $16.1 million for the year ended December 31, 2000. Net
cash provided by investing activities was $4.6 million for the year ended
December 31, 2001. For the year ended December 31, 2002, the principal use of
cash was the purchase of DoubleClick's North American media business in July
2002 for $5.0 million plus associated $1.3 million in professional fees and the
issuance of 4.8 million shares of our common stock. For the year ended December
31, 2001, cash provided by investing activities was primarily the sale of the
adMonitor technology to DoubleClick Inc. for $6.8 million, partially offset by
the acquisition of $1.5 million of fixed assets and $2.1 million of cash used in
connection with the acquisition of the list marketing business from Novus. For
the year ended December 31, 2000, cash used in investing activities was
primarily related to purchases of approximately $13.7 million in equipment, and
$2.4 million in loans to officers, partially offset by $0.9 million of
repayments of loans to officers. In addition, net cash used in investing
activities includes $1.0 million related to the investment in Zondigo.

Net cash used by financing activities was $3.9 million for the year ended
December 31, 2002, and $0.2 million for the year ended December 31, 2001. Net
cash provided by financing activities was $104.8 million for the year ended
December 31, 2000. In 2002, cash used for financing activities included the
purchase of approximately 5.3 million shares of common stock from John Bohan,
for $2.6 million partly offset to repayments of loans from officers and employee
stock option exercises. Cash used by financing activities for the year ended
December 31, 2001 resulted primarily from the pay down of our capital lease
obligations and notes payable of $1.4 million partly offset by the release of
$1.2 million of restricted cash. Cash provided by financing activities for the
year ended December 31, 2000 resulted primarily from approximately $102.6
million in net proceeds from our initial public offering of common stock.

We do not have any off balance sheet financing activity and do not have any
special purpose entities.

We increased our liquidity as a result of the sale of our MaxDirect division in
February 2003, pursuant to which we received $2.0 million in cash on the
closing. American List Counsel also agreed to pay us, monthly, 92.5% of the
acquired MaxDirect accounts receivable collected by American List Counsel during
the first six months following the closing and 46.25% of the acquired MaxDirect
accounts receivable collected by American List Counsel during the second six
months following the closing, in each case net of any accounts payable
associated with such accounts receivable. We may also receive $500,000 in cash
if gross billings generated by the MaxDirect business during the one year period
following the closing are at least $2.5 million and an additional $1.0 million
in cash if gross billings generated by the MaxDirect business during the one
year period following the closing are at least $3.5 million plus another $0.50
for each dollar of revenue generated above $3.5 million. Pursuant to our
agreement with American List Counsel, we are also prohibited from operating in
the direct marketing business for a period of time following the closing.

Furthermore, if the MaxOnline Sale were consummated, we would no longer own any
of the assets we used to generate revenue during fiscal year 2002. We would also
be prohibited from competing with Focus in the online advertising industry for a
period of one year following the closing. We intend to significantly curtail
administrative expenses, discharge our outstanding liabilities and initiate the
orderly distribution of assets to our shareholders. Our liabilities include
contingent liabilities described in Note 14 of the


                                       32
<PAGE>


Company's Consolidated Financial Statements including, but not limited to, the
settlement of litigation against us in the Class Action and Derivative lawsuits,
any litigation arising from our sale of MaxOnline to Focus, payments of
termination or severance agreements with officers, employees and consultants,
payments pursuant to our required indemnification of former officers for their
professional fees, and professional fees associated with the liquidation of our
corporation and distribution of funds to shareholders. We are unable to
reasonably estimate the costs of many of these items and it is not yet probable
that we will need to pay others. Accordingly, other than the net $2.8 million
settlement anticipated for the suits, and the settlement of the indemnification
obligation with Mr. Bohan, we have not recorded a liability for these items. In
connection with the DoubleClick Media acquisition the Company agreed to pay
DoubleClick $6.0 million if, during the three-year period subsequent to
consummation of the transaction, the Company achieves proforma earnings for two
of three consecutive quarters. Proforma earnings, as defined in the agreement,
is earnings before interest, taxes, depreciation and amortization, excluding any
one-time non-recurring items, restructuring charges (including facility
relocation charges), transaction related costs, including costs incurred in
connection with the acquisition or disposition of a business, whether
consummated or not, and any asset impairment including the impairment of
goodwill. The Company has not achieved proforma earnings for any quarter since
the DoubleClick Media acquisition. This contingency was not assumed by ALC in
the sale of MaxDirect and will not be assumed by Focus in the sale of MaxOnline.
It is possible that payment of these contingent liabilities will have a material
adverse effect on our financial position.

Irrespective of whether we complete the MaxOnline sale, we believe that our
existing cash and cash equivalents will be sufficient to meet our anticipated
cash needs for working capital and capital expenditures for at least the next 12
months.

Inflation

Inflationary factors have not had a significant effect on our performance over
the past several years. A significant increase in inflation could affect our
future performance.

Recent Accounting Developments

In June 2002, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities" (SFAS No. 146), the provisions of which are
effective for any exit or disposal activities initiated by us after December 31,
2002. SFAS No. 146 provides guidance on the recognition and measurement of
liabilities associated with exit or disposal activities and requires that such
liabilities be recognized when incurred. The adoption of the provisions of SFAS
No. 146 will impact the measurement and timing of costs associated with any exit
and disposal activities initiated after December 31, 2002.

In November 2002, the FASB issued Interpretation (FIN) No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees Including Indirect
Guarantees of Indebtedness of Others. FIN No.45 elaborates on the disclosures to
be made by a guarantor in its interim and annual financial statements about its
obligations under certain guarantees that it has issued. It also clarifies that
a guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. The disclosure requirements in this interpretation are required for
financial statements of periods ending after December 15, 2002. The initial
measurement provisions of the interpretation are applicable on a prospective
basis for guarantee issued or modified after December 31, 2002. Management
believes that the adoption of FIN No. 45 will not have a significant effect on
the financial statements.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB Statement No.
123," which provides optional transition guidance for those companies electing
to voluntarily adopt the accounting provisions of SFAS No. 123. In addition, the
statement mandates certain new disclosures that are incremental to those
required by SFAS No. 123. We will continue to account for stock-based
compensation in accordance with APB No. 25. As such, this standard will not have
a material impact on our consolidated financial position or results of
operations. The Company has adopted the disclosure-only provisions of SFAS No.
148 at December 31, 2002.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to a variety of risks, including foreign currency fluctuations
and changes in interest rates affecting our interest income.

Interest Rate Risk

The primary objective of our investment activities is to preserve the principal
while at the same time maximizing yields without significantly increasing risk.
To achieve this objective, we maintain our portfolio of cash equivalents and
short-term investments in money market funds. Although we are subject to
interest rate risks, we believe an effective increase or decrease of 10% in
interest rate percentages would not have a material adverse effect on our
results from operations. The potential change noted above is based on
sensitivity analysis performed by us as of December 31, 2002.


                                       33
<PAGE>


We did not hold derivative financial instruments as of December 31, 2002.

Foreign Currency

Currently almost all of our sales and expenses are denominated in U.S. dollars
and as a result we have not experienced any significant foreign exchange gains
and losses to date. In 2003, we do not expect to incur significant transactions
in foreign currencies. Therefore, we do not anticipate any foreign exchange
gains or losses. We have not engaged in foreign currency hedging activities to
date.


                                       34
<PAGE>


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>

MaxWorldwide, Inc. and
Subsidiaries                                                                                                                   Page

<S>                                                                                                                            <C>
Report of Independent Accountants ...........................................................................................     36

Consolidated Balance Sheets as of December 31, 2002 and 2001 (restated)......................................................     37

Consolidated Statements of Operations for the years ended December 31, 2002, 2001 (restated) and 2000 (restated).............     38

Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 (restated) and 2000 (restated).............     39

Consolidated Statements of Stockholders' Equity for the years ended December 31, 2002, 2001 (restated) and 2000 (restated)...     40

Notes to Consolidated Financial Statements ..................................................................................  41-65

Schedule II - Valuation and Qualifying Accounts and Reserves ................................................................     66
</TABLE>


                                       35
<PAGE>


                        Report of Independent Accountants




To the Board of Directors and Stockholders of MaxWorldwide, Inc.:

In our opinion, the consolidated financial statements listed in the accompanying
index  present  fairly,  in all material  respects,  the  financial  position of
MaxWorldwide,  Inc. and its  subsidiaries at December 31, 2002 and 2001, and the
results of their  operations and their cash flows for each of the three years in
the period ended  December 31, 2002 in  conformity  with  accounting  principles
generally accepted in the United States of America. 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.

As discussed in Notes 1 and 7, effective  January 1, 2002,  the Company  adopted
Statement  of  Financial  Accounting  Standards  No.  142,  "Goodwill  and Other
Intangible Assets."

As discussed in Note 3, the Company has restated its financial  statements as of
December 31, 2001 and for the years ended  December 31, 2001 and 2000 as well as
its  financial  schedule  for the  years  ended  December  31,  2001  and  2000,
previously audited by other independent accountants who have ceased operations.

As discussed in Note 19, in February  2003 the Company  consummated  the sale of
substantially  all of the assets of its  MaxDirect  division.  Additionally,  in
March  2003 the  Company  entered  into an  agreement,  subject  to  shareholder
approval,  to sell substantially all of the assets of its MaxOnline division. If
this  transaction  is  consummated,  the  Company  intends  to  adopt  a plan of
liquidation and dissolution. The accompanying financial statements have not been
adjusted to reflect the impact of the potential liquidation of the Company.

PricewaterhouseCoopers LLP
New York, New York
May 8, 2003


                                       36
<PAGE>


                       MAXWORLDWIDE, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                      (in thousands, except share amounts)

<TABLE>
<CAPTION>

                                                                                                  December 31,
                                                                                              2002            2001
                                                                                          -------------- ---------------
                                         ASSETS                                                            (Restated)
<S>                                                                                           <C>             <C>
Current Assets:
         Cash and cash equivalents                                                            $  33,253       $  63,831
          Restricted cash                                                                           750               -
         Accounts receivable, net of allowance of $9,412 and $3,246 at December 31,
             2002 and 2001, respectively                                                         13,959          11,214
          Notes receivable from officers                                                              -             508
          Prepaid expenses and current assets                                                     3,634           1,225
                                                                                          -------------- ---------------
                       Total current assets                                                      51,596          76,778
          Property and equipment, net                                                               561           1,943
          Restricted cash                                                                         1,130           1,410
          Goodwill                                                                                2,961           1,676
          Intangible assets, net                                                                  5,436           3,308
          Other assets                                                                              259             220
                                                                                          -------------- ---------------
                       Total assets                                                           $  61,943       $  85,335
                                                                                          ============== ===============

                          LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
         Accounts payable                                                                      $    787        $    517
         Due to websites, net                                                                     5,025           5,191
         Due to list owners, net                                                                  5,667           7,241
         Accrued expenses and other current liabilities                                          13,181           6,150
         Deferred gain                                                                                -           2,583
         Deferred revenue                                                                         1,497             472
                                                                                          -------------- ---------------
                       Total current liabilities                                                 26,157          22,154
         Other liabilities                                                                           78           1,031
                                                                                          -------------- ---------------
                       Total liabilities                                                         26,235          23,185

Stockholders' Equity:
         Preferred stock, $0.001 par value, 15,000,000 shares authorized; none
             outstanding at December 31, 2002 and 2001                                                -               -
         Common stock, 0.001 par value, 53,333,333 shares authorized, 29,796,921
             and 24,913,058 shares issued at December 31, 2002 and 2001,
             respectively                                                                            30              25
        Additional paid-in capital                                                              148,742         144,563
        Treasury stock, 5,293,639 shares                                                        (2,647)               -
        Notes receivable for common stock                                                             -            (25)
        Accumulated deficit                                                                   (110,417)        (82,413)
                                                                                          -------------- ---------------
                       Total stockholders' equity                                                35,708          62,150
                                                                                          -------------- ---------------
                       Total liabilities and stockholders' equity                             $  61,943       $  85,335
                                                                                          ============== ===============
</TABLE>

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


                                       37
<PAGE>


                       MAXWORLDWIDE, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands, except share amounts)

<TABLE>
<CAPTION>
                                                                           Years Ended December 31,
                                                                      -----------------------------------
                                                                         2002        2001        2000
                                                                      ----------- ----------- -----------
<S>                                                                      <C>         <C>         <C>
Revenue:                                                                          (Restated)  (Restated)
          Service fee-based revenue                                    $  14,779   $  19,142   $  43,582
          Commission-based revenue                                         8,033       7,405       1,520
                                                                      ----------- ----------- -----------
Total revenue                                                             22,812      26,547      45,102

Cost of revenue                                                           11,762      23,025      41,403
                                                                      ----------- ----------- -----------

Gross profit                                                              11,050       3,522       3,699
                                                                      ----------- ----------- -----------

Operating expenses (income):
          Sales and marketing                                              9,766      15,736      16,548
          Product development                                                  -       2,322       1,250
          General and administrative                                      18,284      19,863      18,833
          Special charges                                                  9,893           -           -
          Impairment of goodwill and other intangible assets               4,398      10,921           -
          Other impairment charges                                         1,915       3,271         162
         (Gain) loss on sale of adMonitor                                (4,255)       3,068           -
                                                                      -----------------------------------
          Total operating expenses                                        40,001      55,181      36,793

                                                                      ----------- ----------- -----------
Operating loss                                                          (28,951)    (51,659)    (33,094)

Other income, net                                                            207       2,125       1,772
Investment impairment                                                          -     (1,000)           -
Interest income                                                              740       2,921       5,367
                                                                      ----------- ----------- -----------
Loss before provision for income taxes                                  (28,004)    (47,613)    (25,955)
Provision for income taxes                                                     -           2           2
                                                                      ----------- ----------- -----------
Net loss                                                                (28,004)    (47,615)    (25,957)
Cumulative dividends on participating preferred stock                          -           -           2
                                                                      ----------- ----------- -----------
Net loss attributable to common stockholders                           $(28,004)   $(47,615)   $(25,959)
                                                                      =========== =========== ===========

Basic and diluted net loss per share attributable to common
    stockholders:                                                      $  (1.11)    $ (1.94)   $  (1.18)
                                                                      =========== =========== ===========

Weighted average number of common shares outstanding used in basic
    and diluted net loss per share attributable to common
    stockholders                                                          25,253      24,579      21,957
                                                                      =========== =========== ===========
</TABLE>

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


                                       38
<PAGE>


                       MAXWORLDWIDE, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                           Years Ended December 31,
                                                                      -----------------------------------
                                                                         2002        2001        2000
                                                                      ----------- ----------- -----------
<S>                                                                      <C>         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:                                             (Restated)   (Restated)
Net loss                                                               $(28,004)   $(47,615)   $(25,957)
Adjustments to reconcile net loss to cash used in operating
activities-
       Depreciation expense                                                1,347       4,421       3,975
       Goodwill amortization                                                   -       6,104       2,727
       Intangible asset amortization                                       2,583         425           -
       Provision for bad debt and advertising credits                      1,973       4,917       6,830
       Gain on disposal of equipment                                           -       (254)           -
       Provision for officer loans                                           212         508           -
       (Gain) loss on sale of adMonitor                                  (4,255)       3,068           -
       Impairment of goodwill and intangible assets                        4,398      10,921           -
       Impairment of fixed assets                                            815       1,516           -
       Write-off of investment in Zondigo                                      -       1,000           -
       Non-cash charge for warrants issued                                     -           -         209
       Changes in assets and liabilities, net of the effect of
       acquisitions
          Decrease (increase) in accounts receivable                       1,366         894    (14,118)
          Decrease (increase) in prepaid expenses and other assets       (2,945)       1,094       (658)
          Increase (decrease) in accounts payable                        (1,120)     (1,272)         909
          Increase (decrease) in due to websites and list owners         (4,727)         121       1,400
          Increase (decrease) in deferred revenue                          (149)       (547)         948
          Increase in accrued expenses and other liabilities               7,980       1,504         837
                                                                      ----------- ----------- -----------
                       Net cash used in operating activities            (20,526)    (13,195)    (22,898)
                                                                      ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
          Purchase of equipment                                            (785)     (1,455)    (13,361)
          Purchase of intangible assets                                                            (200)
          Proceeds from sale of property and equipment                       647         825           -
          Proceeds from sale of adMonitor                                      -       6,840           -
          Notes receivable from officers                                       -           -     (2,364)
          Repayments of officer loans                                        321         464         884
          Repayment of notes receivable for common stock                       -           -         120
          Investment in Zondigo                                                -           -     (1,000)
          Acquisition of DoubleClick Media                               (6,324)           -           -
          Acquisition of Novus                                                 -     (2,071)           -
          Acquisition of webMillion, net of cash acquired                      -           -       (214)
                                                                      ----------- ----------- -----------
                       Net cash (used) provided in investing
                         activities                                      (6,141)       4,603    (16,135)
                                                                      ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
          Payments under capital lease obligations                         (210)       (424)       (398)
          Payments of notes payable                                        (688)     (1,016)       (327)
          Restricted cash                                                  (470)       1,209     (1,350)
          Proceeds from initial public offering, net of issuance
            costs                                                              -           -     102,587
          Exercise of warrants                                                 -           -       3,844
          Proceeds from exercise of employee stock options                   104           1         434
          Purchase of treasury stock                                     (2,647)           -           -
                                                                      ----------- ----------- -----------
                      Net cash (used) provided by financing
                        activities                                       (3,911)       (230)     104,790
                                                                      ----------- ----------- -----------
Net (decrease) increase in cash                                         (30,578)     (8,822)      65,757
Cash and cash equivalents, beginning of year                              63,831      72,653       6,896
                                                                      ----------- ----------- -----------
                      Cash and cash equivalents, end of year           $  33,253   $  63,831   $  72,653
                                                                      =========== =========== ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
        Interest                                                       $      14   $     116   $     209
                                                                      =========== =========== ===========
        Income taxes                                                   $       -   $       2   $       2
                                                                      =========== =========== ===========
</TABLE>


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


                                       39
<PAGE>


                       MAXWORLDWIDE, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                      (in thousands, except share amounts)

<TABLE>
<CAPTION>

                                                                                                          Notes

                                                                                                        Receivable

                                                                                   Additional             for

                                                                   Common Stock     Paid-In  Treasury    Common  Accumulated
                                                              --------------------
                                                                  Shares    Amount  Capital    Stock     Stock    Deficit    Total
                                                              ----------------------------------------------------------------------
<S>                                                               <C>       <C>    <C>       <C>     <C>       <C>          <C>
  BALANCE at December 31, 1999 (restated)                          6,694    $  7   $    182  $    -  $    (44) $  (8,839)   $(8,694)
    Net loss (restated)                                                -       -          -       -          -   (25,957)   (25,957)
    Conversion of preferred stock into common stock                5,276       5     16,001       -          -          -     16,006
    Issuance of common stock upon IPO, net of costs of $9,538      7,475       8    102,580       -          -          -    102,588
    Notes receivable for exercise of options                           -       -        101       -      (101)          -          -
    Repayment of notes receivable for common stock                     -       -          -       -        120          -        120
    Issuance of common stock for options                             502                434       -          -          -        434
     Issuance of common stock for purchase of
       webMillion (restated)                                       1,901       2     19,152       -          -          -     19,154
     Exercise of warrants                                          2,151       2      3,842       -          -          -      3,844
     Issuance of warrant                                               -       -        208       -          -          -        208
    Accrual of cumulative dividends on participating
     preferred stock                                                   -       -          -       -          -        (2)        (2)
                                                              ----------------------------------------------------------------------
  BALANCE at December 31, 2000 (restated)                         23,999      24    142,500       -       (25)   (34,798)    107,701
    Net loss (restated)                                                -       -                  -          -   (47,615)   (47,615)
    Notes receivable for exercise of options                           -       -                  -          -          -          -
    Notes receivable from officers                                     -       -                  -          -          -          -
    Issuance of common stock for options                               -       -          1       -          -          -          1
    Issuance of common stock for purchase of Novus (restated)        914       1      2,062       -          -          -      2,063
                                                              ----------------------------------------------------------------------
  BALANCE at December 31, 2001 (restated)                         24,913      25    144,563       -       (25)   (82,413)     62,150
    Net loss                                                           -       -          -       -          -   (28,004)   (28,004)
    Write off of notes receivable for common stock                     -       -          -       -         25          -         25
    Purchase of treasury stock                                   (5,294)       -          -   (2,647)        -          -    (2,647)
    Issuance of common stock for purchase of DoubleClick Media     4,800       5      4,075         -        -          -     4,080
    Issuance of common stock for options                              84       -        104         -        -          -       104
                                                              ----------------------------------------------------------------------
  BALANCE at December 31, 2002                                    24,503    $ 30   $148,742  $(2,647)  $     - $(110,417)  $ 35,708
                                                              ======================================================================
</TABLE>


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


                                       40
<PAGE>


                       MAXWORLDWIDE, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002

NOTE 1- Description of the Business

MaxWorldwide, Inc. and its subsidiaries (collectively, the "Company" or
"MaxWorldwide") is an Internet-based provider of marketing solutions for
advertisers and Web publishers. The Company provides fully outsourced ad sales,
as well as ad serving, direct marketing and sweepstakes promotions. The Company
develops targeted marketing campaigns that leverage the capabilities of the
Internet and direct marketing media. The Company also specializes in offline
list management, alternative media, and sophisticated data analytical services.

The Company commenced operations in January 1997 as a sole proprietorship. In
May 1997, the Company became a California limited liability company and changed
its name to John Bohan and Associates, LLC. At that time, the Company did
business as AdNet Strategies. In January 1998, the Company incorporated in
California, elected S-corporation status and changed its name to AdNet
Strategies, Inc. In December 1998, the Company became a California C-corporation
under the name Latitude 90, Inc. In September 1999, the Company reincorporated
in Delaware as L90, Inc. In February 2000, the Company sold 7.5 million shares
of common stock in an initial public offering and raised $102.6 million. In July
2002, the Company acquired the North American media business of DoubleClick Inc.
In connection with this acquisition, it reorganized into a holding company
structure and now operates under the name MaxWorldwide, Inc.

As discussed in Note 3, the Company's consolidated financial statements as of
December 31, 2001 and for the years ended December 31, 2001 and 2000 have been
restated. All applicable amounts relating to the restatements have been
reflected in these consolidated financial statements and the notes thereto.

NOTE 2- Summary of Significant Accounting Policies

a. Revenue Recognition

Revenue from ad sales is earned under commission-based and service fee-based
contracts and is recognized in the period the advertising is delivered provided
collection of the resulting receivable is reasonably assured. For
commission-based contracts, the Company invoices the full amount of revenue due
to Web publishers for the sale of their ad inventory and is entitled to receive
a commission. Revenue earned by the Company from commission-based contracts
reflects only the amount of the commission earned by the Company. For service
fee-based contracts, the Company is obligated to pay a fee to the Web publishers
for ads placed on their Web sites. Theses fees are included in cost of revenue.
Additionally, under service fee-based contracts, the Company collects and bears
the risk of loss for ads sold. Consequently, revenue earned from service
fee-based contracts reflects the full value of the ads sold, net of an allowance
for advertiser credits, which are estimated and established in the period in
which services are provided. These credits are generally issued in the event
that delivered advertisements do not meet contractual specifications. Actual
results could differ from these estimates. Deferred revenue consists primarily
of payments received in advance of revenue being earned for the delivery of
advertising.

The Company recognizes list rental revenue upon mailing of marketing material
using list names. It establishes reserves for anticipated adjustments at the
time of the mailing. Revenue earned from list rentals is included in
commission-based revenue and reflects only the amount of commission earned by
the Company.

b. Current Vulnerability Due to Certain Concentrations

The Company purchases advertising space from third party Web site partners. For
the years ended December 31, 2002 and 2001, no Web site partner hosted greater
than 10% of revenue. For the year ended December 31, 2000, the Company's largest
website publisher accounted for approximately 17% of revenue.

The Company provides online marketing solutions to markets and advertisers. For
the year ended December 31, 2001 and 2000, there were no online marketing
customers or advertising customers that comprised greater than 10% of revenue.
For the year ended December 31, 2002, the Company's largest online marketing
customer accounted for approximately 11% of revenue.

The Company provided list marketing services to publishers, catalog, e-commerce
and other marketing companies. For the years ended December 31, 2002 and 2001
there were no list marketing services customers that comprised greater than 10%
of revenue.

c. Cash and Cash Equivalents

For purposes of the balance sheets and statements of cash flows, cash and cash
equivalents includes all cash instruments due on demand or with an original
maturity of 90 days or less.


                                       41
<PAGE>


                       MAXWORLDWIDE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)


d. Restricted Cash

Restricted cash consists of certificates of deposits pledged under outstanding
letters of credit.

e. Accounts Receivable

The Company has receivables due from advertisers or their agencies resulting
from the sales of ads, and from list brokers resulting from the brokering of
lists to their clients. These receivables relate to both commission-based and
service fee-based contracts. The Company's credit exposure on commission-based
contracts is limited to the net amount of cash to be received by the Company
from ad sales and list rentals. The Company's credit exposure on service
fee-based contracts is the full amount of the ad sales as the Company is
obligated to pay the Web publishers for ads sold on their Web sites irrespective
of receiving payment from advertisers. The Company extends credit to its
customers, who are primarily located in the United States. The ability of these
customers to meet their obligations to the Company is dependent on their
economic health, as well as their industry and other factors.

The Company maintains an allowance for doubtful accounts that represents
management's estimate of expected losses on specific accounts and inherent
losses on other as yet unidentified accounts included in accounts receivable. In
estimating the potential losses on specific accounts, management performs
ongoing credit evaluations of its customers based on management analysis and
reviews of available public documents. Additionally, the Company establishes
contra-liability accounts against amounts due to websites, as a result of
certain of the Company's web publishers bearing the risk of non-payment of
advertising fees from marketers as well as against amounts due to list owners as
a result of the Company's list owners bearing the risk of non-payment from list
buyers. As of December 31, 2002 and 2001, the total reserves against amounts due
to websites were approximately $1.4 million and $1.1 million, respectively, and
reserves for due to list owners were approximately $0.5 million and $0.5
million, respectively.

f. Property and Equipment

Property and equipment are recorded at cost and depreciated over the estimated
useful life of the asset, using the straight-line method of depreciation.
Leasehold improvements are amortized over the shorter of the estimated useful
life of the asset or the term of the lease. Property, equipment and leasehold
improvements have estimated useful lives ranging from three to five years.
Property, equipment and leasehold improvements are adjusted to estimated fair
market values if they are determined to be lower than the net book value of the
assets. (See Note 9)

g. Impairment of Long-lived Assets

The Company assesses the recoverability of long-lived assets, including
intangible assets, held and used whenever events or changes in circumstances
indicate that future cash flows (undiscounted and without interest charges)
expected to be generated by an asset's disposition or use may not be sufficient
to support its carrying amount. If such undiscounted cash flows are not
sufficient to support the recorded value of assets, an impairment loss is
recognized to reduce the carrying value of long-lived assets to their estimated
fair value.

h. Goodwill and Other Intangible Assets

MaxWorldwide records as goodwill the excess of purchase price over the fair
value of the identifiable net assets acquired. Until December 31, 2001, goodwill
was amortized on a straight-line basis over its estimated useful life.

Effective January 1, 2002, the Company adopted the provisions of SFAS No. 141,
"Business Combinations," in its entirety and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 requires that the purchase method of accounting
be used for all business combinations entered into after June 30, 2001 and that
certain intangible assets acquired in a business combination shall be recognized
as assets apart from goodwill. SFAS No. 142 established new standards for
goodwill acquired in a business combination, eliminated amortization of goodwill
and sets forth methods to periodically evaluate goodwill for impairment.
Intangible assets with a determinable useful life will continue to be amortized
over that life. The Company completed its initial impairment testing and no
changes to the carrying value of its goodwill were made as a result of the
adoption of SFAS 142. SFAS 142 requires an annual test for impairment of
goodwill, as well as when a triggering event indicating impairment may have
occurred (See Note 7).

Intangible assets include customer lists, the website network acquired from
DoubleClick, purchased technology and non-compete agreements. Such intangible
assets are amortized on a straight-line basis or double-declining balance basis
over their estimated useful lives, which are generally one to seven years.

i. Product Development


                                       42
<PAGE>


                       MAXWORLDWIDE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)


Product development expenses consisted primarily of compensation related
expenses, consulting fees and other operating expenses associated with the
product development department. The product development department developed,
enhanced and maintained existing products and provided quality assurance. All
product development costs were expensed as incurred. As a result of the Company
selling its adMonitor technology to DoubleClick Inc. in October 2001 (see Note
3), all product development expenses ceased at that time.

j. Income Taxes

The Company provides for income taxes in accordance with the asset and liability
method. Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using the
enacted tax rates in effect for the year in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. A valuation allowance is provided to reduce the
deferred tax assets reported if, based on the weight of the available evidence,
it is more likely than not some portion or all of the deferred tax assets will
not be realized.

k. Basic and Diluted Net Loss Per Share

Basic net loss per common share excludes the effect of potentially dilutive
securities and is computed by dividing the net loss available to common
shareholders by the weighted-average number of common shares outstanding for the
reporting period. Diluted net loss per share adjusts this calculation to reflect
the impact of outstanding convertible securities, stock options and other
potentially dilutive financial instruments to the extent that their inclusion
would have a dilutive effect on net loss per share for the reporting period.

At December 31, 2002, 2001, and 2000 outstanding options and warrants of
approximately 3.2 million, 3.5 million, and 4.6 million, respectively, to
purchase shares of common stock were not included in the computation of diluted
net loss per share because to do so would have had an antidilutive effect for
the periods presented. As a result, the basic and diluted net loss per share
amounts are equal for all periods presented.

l. Stock-Based Compensation

MaxWorldwide accounts for its employee stock option plans under the intrinsic
value method, in accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. Under APB 25, generally no compensation expense is recorded
when the terms of the award are fixed and the exercise price of the employee
stock option equals or exceeds the fair value of the underlying stock on the
date of grant. The Company has adopted the disclosure-only requirements of SFAS
No. 123 Accounting for Stock-Based Compensation, which allows entities to
continue to apply the provisions of APB No. 25 for transactions with employees
and provide pro forma net income and pro forma earnings per share disclosures
for employee stock grants made as if the fair value based method of accounting
in SFAS No. 123 had been applied to these transactions (see Note 12).

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." This Statement amends SFAS No.
123,"Stock-Based Compensation" to provide alternative methods of transition for
a voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, this Statement amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the election of the method used on reported results.
The Company has adopted the disclosure-only provision of this statement at
December 31, 2002.

Had compensation cost for the Company's stock-based compensation plan been
determined based on the fair value at the grant dates for awards under this plan
consistent with the method of SFAS No. 123, Accounting for Stock-Based
Compensation, the Company's net loss and net loss per share would have been
increased to the pro forma amounts indicated below:

                                          (in thousands, except per share data)
                                                 Year Ended December 31,
                                          --------------------------------------
                                                2002         2001          2000
                                          -----------  -----------   -----------
                                                       (Restated)    (Restated)
Net loss as reported                       $(28,004)    $(47,615)     $(25,957)
Pro forma adjustment                         (1,006)      (3,753)       (3,797)
                                          -----------  -----------   -----------
Pro forma loss                             $(29,010)    $(51,368)     $(29,754)
                                          ===========  ===========   ===========


                                       43
<PAGE>


                       MAXWORLDWIDE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)


Basic and diluted net loss per share
      As reported                           $ (1.11)     $ (1.94)      $ (1.18)
      Pro forma loss                        $ (1.15)     $ (2.09)      $ (1.36)

The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants during the years ended December 31, 2002, 2001 and
2000: dividend yield of 0 percent; expected life of four years; a risk free
interest rate of 3.5 percent for year ended December 31, 2002, 4.7 percent for
the year ended December 31, 2001 and 5.9 percent for the year ended December 31,
2000; and an expected volatility of 87.6 percent for the year ended December 31,
2002, 114.7 percent for the year ended December 31, 2001 and 135.3 percent for
the year ended December 31, 2000.

m. Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles ("GAAP") 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 revenue and
expenses during the reporting period. Actual results could differ from those
estimates under different assumptions or conditions. The most significant
estimates relate to the Company's allowance for advertising credits and doubtful
accounts, useful lives of fixed and intangible assets, and the contra-liability
accounts against amounts due to websites and list owners.

n. Principles of Consolidation

The Company's consolidated financials as of December 31, 2002 and 2001 include
the accounts of the Company and its subsidiaries from their respective date of
acquisition. All significant intercompany transactions and balances have been
eliminated in consolidation.

o. Recent Accounting Pronouncements

In June 2002, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities" (SFAS No. 146), the provisions of which are
effective for any exit or disposal activities initiated by us after December
31,2002. SFAS No. 146 provides guidance on the recognition and measurement of
liabilities associated with exit or disposal activities and requires that such
liabilities be recognized when incurred. The adoption of the provisions of SFAS
No. 146 will impact the measurement and timing of costs associated with any exit
and disposal activities initiated after December 31, 2002.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB Statement No.
123," which provides optional transition guidance for those companies electing
to voluntarily adopt the accounting provisions of SFAS No. 123. In addition, the
statement mandates certain new disclosures that are incremental to those
required by SFAS No. 123. The Company will continue to account for stock-based
compensation in accordance with APB No. 25. As such, this standard will not have
a material impact on its consolidated financial position or results of
operations. The Company has adopted the disclosure-only provisions of SFAS No.
148 at December 31, 2002.

In November 2002, the FASB issued Interpretation (FIN) No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees Including Indirect
Guarantees of Indebtedness of Others. FIN No.45 elaborates on the disclosures to
be made by a guarantor in its interim and annual financial statements about its
obligations under certain guarantees that it has issued. It also clarifies that
a guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. The disclosure requirements in this interpretation are required for
financial statements of periods ending after December 15, 2002. The initial
measurement provisions of the interpretation are applicable on a prospective
basis for guarantee issued or modified after December 31, 2002. Management
believes that the adoption of FIN No. 45 will not have a significant effect on
the financial statements.

NOTE 3- Restatement of 2001 and 2000 Consolidated Financial Statements.

During the course of the Company's preparation of its quarterly report on Form
10-Q for the quarter ended June 30, 2002, the Company discovered certain errors
in the application of generally accepted accounting principles in the United
States ("GAAP") which required restatement of its previously issued financial
statements. Because the auditors that previously reported on the 2001 and 2000
consolidated financial statements have ceased operations, the Company engaged
its current auditors to re-audit the Company's financial results for the years
ended December 31, 2001 and 2000. As a result of the re-audit of the Company's
2001 and 2000 financial statements a number of adjustments were recorded to the
Company's historical financial statements. The principal adjustments are
discussed below.


                                       44
<PAGE>


                       MAXWORLDWIDE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)


Throughout these financial statements, the term "previously reported" will be
used to refer to the Company's 2001 and 2000 consolidated financial statements
filed with the Securities and Exchange Commission on Form 10-K on May 16, 2002.

Revenue related adjustments:
----------------------------

Reclassification to Other Income, net:

During 2000 MaxWorldwide inappropriately recorded a $1.0 million cash settlement
of a legal matter as revenue. The Company has reclassified this amount to "Other
income, net" in the restated financial statements.

Zondigo:

As discussed in Note 6, in November 2000 MaxWorldwide purchased a 19% interest
in Zondigo, Inc., a wireless technology company that was also a related party.
The cash purchase price for the shares was $1.95 million. In December 2000,
Zondigo paid the Company an aggregate of $0.95 million that MaxWorldwide
previously reported as revenue. The Company has determined that this revenue
should not have been recognized under GAAP. Accordingly, the Company has reduced
revenue and its investment in Zondigo by $0.95 million as of December 31, 2000.

In 2001 the Company concluded that its investment in Zondigo was impaired and
therefore recorded a $1.95 million impairment charge in its previously reported
2001 financial statements. As a result of restating the investment in Zondigo to
$1.0 million as described above, the impairment charge recorded in 2001 has also
been reduced to $1.0 million. Additionally, this impairment charge has been
reclassified from within "Loss from operations" to within "Investment
impairment" in the restated financial statements.

MaxDirect revenue adjustment:

During 2001 the Company recorded revenue in its MaxDirect division without
appropriately estimating the impact of sales adjustments granted in future
periods. This adjustment resulted in a reduction in total revenue and an
increase of the pre-tax loss of $0.3 million in 2001.

Revenue reversal:

During 2000 the Company recognized $0.2 million in service-fee based revenue and
$0.2 in cost of revenue relating to a transaction with the same customer. No
cash was ever exchanged relating to this transaction. The Company is reversing
the revenue and related cost of revenue as this transaction did not meet the
criteria for revenue recognition in accordance with GAAP.

Other adjustments:

These adjustments represent various revenue transactions that were subsequently
written off as bad debts. Upon further investigation of these transactions,
MaxWorldwide determined collectibility of the related receivables was not
reasonably assured at the time of the transactions. Accordingly, these
transactions have been reversed, as they did not meet the criteria for revenue
recognition under GAAP. These adjustments have resulted in a decrease in total
revenue and bad debt expense of $2.0 million in 2000.

Warrant issued to a customer:

In connection with an advertising agreement entered into during 2000, the
Company issued to the other party a warrant to purchase its common stock. In its
previously issued financial statements, the Company recorded general and
administrative expense of $0.2 million, representing the fair value of the
warrant on the date of issuance using the Black-Scholes option pricing model.
This expense is reflected as a reduction of revenue in the restated financial
statements.

Commission-based contracts vs. service fee-based contracts:

During 2001 and 2000 the Company inappropriately accounted for certain of its
commission-based contracts as service fee-based contracts and vice-versa (refer
to Note 2 for a further description of the Company's revenue recognition
policy). These adjustments have resulted in a decrease in total revenue of $0.8
million in 2001 and an increase in total revenue of $0.7 million in 2000.

The following table presents the effects of the aforementioned adjustments on
previously reported total revenue (in thousands):


                                       45
<PAGE>


                       MAXWORLDWIDE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)

<TABLE>
<CAPTION>

                                                                       Year ended December 31,
     Increase (decrease) to total revenue:                                2001          2000
                                                                      ------------- -------------

<S>                                                                       <C>             <C>
     Total revenue - as previously reported                               $ 27,646        48,715

     Reclassification to other income                                            -       (1,000)
     Zondigo                                                                     -         (950)
     MaxDirect revenue adjustment                                            (267)             -
     Revenue reversal                                                            -         (200)
     Other adjustments                                                           -       (1,961)
     Warrant issued to a customer                                                -         (209)
     Commission-based contracts vs. service fee-based contracts              (832)           707
                                                                      ------------- -------------

     Decrease in total revenue                                             (1,099)       (3,613)
                                                                      ------------- -------------

     Total revenue - as restated                                          $ 26,547     $  45,102
                                                                      ============= =============
</TABLE>

Other adjustments impacting pre-tax loss:
-----------------------------------------

webMillion.com, Inc. acquisition accounting:

As more fully described in Note 4, during 2000, the Company acquired
webMillion.com, Inc., a direct marketing promotions company. The goodwill
associated with this acquisition was being amortized over a period of twenty
years in the Company's previously reported financial statements. Given the
nature of the operations of webMillion.com, MaxWorldwide has concluded that an
amortization period of three years was more appropriate. Additionally, the
Company did not properly value its common stock issued in this transaction
resulting in a decrease of the previously reported goodwill recorded upon
consummation of this transaction. The net impact of these adjustments increased
amortization expense by approximately $5.1 million and $2.3 million in 2001 and
2000, respectively.

During 2001 the Company determined that the remaining goodwill associated with
this acquisition was fully impaired and recorded an impairment charge of $18.6
million. As a result of the aforementioned adjustment, this charge has been
reduced to approximately $10.9 million in the restated financial statements.

Novus List Marketing acquisition accounting:

As more fully described in Note 4, during 2001, the Company acquired the assets
related to the list marketing business of Novus List Marketing, LLC ("Novus").
The Company did not properly allocate the purchase price of $4.9 million to all
of the identifiable intangible assets acquired. Accordingly, in these restated
financial statements, goodwill recorded in this acquisition was reduced by $3.7
million and identifiable intangible assets increased by the same amount. This
resulted in an increase in amortization expense of $0.3 million in the restated
2001 financial statements. In addition to these items, certain other immaterial
adjustments were made to the initial purchase accounting for this transaction.

Facility and fixed asset impairment charges:

During 2001 and 2000, the Company consolidated some of its leased office space
and closed some of its offices and recorded impairment charges associated with
certain related fixed assets. In connection with these actions, the Company
determined that errors were made with respect to the timing of recording certain
liabilities and asset write-offs. These adjustments have resulted in an increase
in the previously reported pre-tax loss of $1.2 million and $0.2 million in 2001
and 2000, respectively.

Allowance for doubtful accounts:

In connection with the Company's review of prior years' financial records,
MaxWorldwide determined that its methodology for recording their allowance for
doubtful accounts in prior years was not appropriate. Accordingly, bad debt
expense has been reduced by $2.1 million in 2001 and has increased by $2.1
million in 2000 in these restated financial statements.

Reserve for amounts due to Web sites:

As discussed in Note 1 to the consolidated financial statements, the Company's
credit exposure on commission-based contracts is limited to the net amount of
cash to be received by the Company from ad sales. This fact was not properly
considered when recording


                                       46
<PAGE>


                       MAXWORLDWIDE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)


the expected amount to be paid to third-party Web sites. The Company has
adjusted for this item in these restated financial statements which resulted in
a decrease to pre-tax loss of $0.9 million and $0.2 million in 2001 and 2000,
respectively.

Other adjustments, net:

In addition to the items above other miscellaneous errors in the application of
GAAP were identified and corrected in these restated financial statements. The
net impact of these items resulted in a decrease to pre-tax loss in 2001 of $0.5
million and an increase to pre-tax loss of $0.1 million in 2000.

Reclassifications:

In addition to the above items and in connection with the Company's review of
prior years' financial statements it has determined certain errors were made
with respect to how certain items were classified in the Company's previously
reported Statement of Operations for the years ended December 31, 2001 and 2000
and Balance Sheet as of December 31, 2001. These items had no impact on
previously reported total revenue or net income. The principal reclassifications
are described below.

Research and development / product development:

During the Company's review of its historical financial statements, it was noted
that certain expenses previously classified as Research and development expense
("R&D") should more appropriately be classified in other captions within the
Statement of Operations. The Company has concluded that of the $14.1 million of
R&D expense reported in 2001, approximately $10.4 million should have been
recorded to cost of revenue as they represented costs associated with running
the adMonitor product, and approximately $1.2 million should have been recorded
to "Sales and marketing expense." The remaining balance of approximately $2.5
million represents personnel costs associated with enhancing existing products.
The Company has determined that such costs are more appropriately classified as
"Product development expense." Of the approximately $11.9 million of previously
reported R&D expense in 2000, approximately $9.7 million of this amount has been
reclassified to cost of revenue, approximately $0.8 million has been
reclassified to Sales and Marketing, and approximately $1.3 million has been
classified as "Product development expense" and approximately $0.1 million has
been classified to G&A in the restated financial statements.

Sales commissions:

During 2001 and 2000 approximately $1.2 million and $0.3 million of sales
commission expense and related bonuses were inappropriately included within
"General and administrative" and "Research and development" expenses in the
previously reported financial statements. These amounts have been reclassified
to "Sales and marketing expense" in the restated financial statements.

Accounting for sale of adMonitor:

As noted in Note 5, in October 2001 the Company sold its ad serving technology,
adMonitor, and certain related technology to DoubleClick, Inc. in exchange for
cash of $6.8 million. As part of this transaction, the Company entered into a
contract with DoubleClick in which MaxWorldwide became obligated to purchase a
minimum of $3.5 million of services from DoubleClick over a 3-year period. Sale
proceeds in an amount equal to the minimum purchase commitment of $3.5 million
were deferred. In the previously reported financial statements the Company
amortized this gain as services were provided by reducing the deferred gain and
reducing cost of revenue. The Company has determined that this deferred gain
would be more appropriately recorded, when amortized, as additional "(Gain) loss
on sale of adMonitor." This adjustment resulted in cost of revenue and "(Gain)
/loss on sale of adMonitor" increasing by $0.2 million in the 2001 financial
statements.

The Company also recorded impairment charges of approximately $6.1 million
relating to fixed assets and related contractual obligations as well as
severance of approximately $0.5 million associated with the disposition of
adMonitor. These charges were included in "Impairment Charges" in the previously
reported financial statements. As these costs are directly related to the
disposition of adMonitor, the Company determined that it would be appropriate to
include these charges in the determination of the gain or loss on this
transaction. Accordingly, these amounts have been reclassified to "(Gain) loss
on sale of adMonitor" in the restated 2001 financial statements and the
previously reported gain on the disposition of adMonitor of $3.3 million has
been reversed and in its place a loss of $3.1 million was recorded.

MaxDirect balance sheet reclassifications:

Since acquiring its MaxDirect business from Novus, the Company has incorrectly
accounted for certain receivables and payables in connection with this business.
As a result, accounts receivable, accounts payable and goodwill have been
reduced by approximately $2.2 million, $2.8 million and $1.0 million
respectively, at December 31, 2001.


                                       47
<PAGE>


                       MAXWORLDWIDE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)


Other income, net:

During 2001, the Company sold certain ad serving equipment with a net book value
of approximately $1.0 million to employees. These transactions resulted in a
loss of approximately $0.9 million. In the previously reported financial
statements these losses were reflected in "Loss on sale of equipment." The
Company has determined that it would be more appropriate to classify these
amounts in "Other impairment charges" in the restated financial statements.

Preferred Stock:

Due to certain features of our Series A, B and C preferred stock, the Company
inappropriately included such preferred stock within "Stockholders' Equity" in
its previously reported financial statements. The Company has determined that
these securities should have been classified outside of stockholders' equity for
the periods they were outstanding. All outstanding preferred stock was converted
into common stock upon the initial public offering of the Company's common stock
in February 2000. These adjustments have resulted in stockholders' equity being
reduced by $16.0 million and $2.0 million at December 31, 1999 and 1998,
respectively.

The following table presents the effects of the aforementioned adjustments on
previously reported pre-tax loss (in thousands):

<TABLE>
<CAPTION>

                                                                    Year ended December 31,
Increase (decrease) to pre-tax loss:                                  2001          2000
                                                                  ------------- --------------

<S>                                                                   <C>           <C>
Pre-tax loss - as previously reported                                 $ 52,635      $  20,466

Revenue restatement adjustments which impact pre-tax loss:
Zondigo                                                                      -            950
MaxDirect revenue adjustment                                               267              -
Other adjustments impacting pre-tax loss:
webMillion.com acquisition accounting                                  (2,657)          2,311
Novus List Marketing acquisition accounting                                 81              -
Zondigo                                                                  (950)              -
Facility and fixed asset impairment charges                              1,199            185
Allowance for doubtful accounts                                        (2,072)          2,141
Reserve for amounts due to Websites                                      (919)          (165)
Other adjustments, net                                                      29             67
                                                                  ------------- --------------

(Decrease) increase to pre-tax loss                                    (5,022)          5,489
                                                                  ------------- --------------

Pre-tax loss-restated                                                 $ 47,613      $  25,955
                                                                  ============= ==============

<CAPTION>

The following tables present the impact of the restatements:

              Year ended December 31, 2001                                      Previously        As
              Statement of Operations:                                           Reported      Restated
                                                                                 --------      --------
                                                                                  (in thousands, except
                                                                                    per share data)
<S>                                                                                <C>          <C>
              Revenue:
                  Service fee-based revenue                                        $ 20,533     $  19,142
                  Commission-based revenue                                            7,113         7,405
                                                                               ------------- -------------
                     Total revenue                                                   27,646        26,547

                     Cost of revenue                                                 13,265        23,025
                                                                               ------------- -------------

                     Gross profit                                                    14,381         3,522
                                                                               ------------- -------------

              Operating Expenses:
                  Sales and marketing                                                15,267        15,736
                  Product development                                                     -         2,322
                  Research and development                                           14,074             -
                  General and administrative                                         17,478        19,863
                  Impairment of goodwill and other intangible assets                      -        10,921
                  Other impairment charges                                           28,023         3,271
</TABLE>


                                       48
<PAGE>


                       MAXWORLDWIDE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)

<TABLE>
<CAPTION>

<S>                                                                                <C>          <C>
                  Loss on sale of adMonitor                                               -         3,068
                                                                               ------------- -------------
                      Total operating expenses                                       74,842        55,181
                                                                               ------------- -------------
              Operating loss                                                       (60,461)      (51,659)

              Other income, net                                                       4,905         2,125
              Investment impairment                                                       -       (1,000)
              Interest income                                                         2,921         2,921
                                                                               ------------- -------------

              Loss before provision for income taxes                               (52,635)      (47,613)
              Provision for income taxes                                                  2             2
                                                                               ------------- -------------
              Net loss                                                           $ (52,637)    $ (47,615)
                                                                               ============= =============

              Basic and diluted loss per share                                    $  (2.14)    $   (1.94)
                                                                               ============= =============

              Weighted average number of common shares outstanding used in basic
                  and diluted net loss per share                                     24,579        24,579
                                                                               ============= =============

<CAPTION>

                                                                                    As
                                                                                Previously        As
              Year ended December 31, 2001                                       Reported      Restated
                                                                                 --------      --------
                                                                                      (in thousands)
<S>                                                                               <C>          <C>
              Balance Sheet:
              Current Assets:
                 Cash and cash equivalents                                        $ 63,831     $  63,831
                 Accounts receivable, net of allowance of $3,246 as restated and
                     $5,050 as previously reported at December 31, 2001             13,560        11,214
                  Notes receivable from officers                                       508           508
                  Prepaid expenses and current assets                                  968         1,225
                                                                                 --------- -------------
                               Total current assets                                 78,867        76,778
                  Property and equipment, net                                        2,750         1,943
                  Restricted cash                                                    1,410         1,410
                  Goodwill                                                           5,964         1,676
                  Intangible assets, net                                                 -         3,308
                  Other assets                                                         402           220
                                                                                 --------- -------------
                               Total assets                                       $ 89,393     $  85,335
                                                                                 ========= =============

              Current Liabilities:
                 Accounts payable                                                 $  1,580      $    517
                 Due to websites, net                                                5,191         5,191
                 Due to list owners, net                                            10,009         7,241
                 Accrued expenses and other current liabilities                      5,723         6,150
                 Deferred gain                                                       2,583         2,583
                 Deferred revenue                                                      449           472
                                                                                 --------- -------------
                               Total current liabilities                            25,535        22,154
                 Other liabilities                                                     730         1,031
                                                                                 --------- -------------
                               Total liabilities                                    26,265        23,185

              Stockholders' Equity:
                 Common stock                                                           25            25
                 Additional paid-in capital                                        145,074       144,563
                 Notes receivable for common stock                                    (25)          (25)
                 Accumulated deficit                                              (81,946)      (82,413)
                                                                                 --------- -------------
                                Total stockholders equity                           63,128        62,150
                                                                                 --------- -------------
                               Total liabilities and stockholders' equity         $ 89,393     $  85,335
                                                                                 ========= =============

                                                                                    As
              Year ended December 31, 2000                                      Previously        As
              Statement of Operations:                                           Reported      Restated
                                                                                 --------      --------
</TABLE>


                                       49
<PAGE>


                       MAXWORLDWIDE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)


<TABLE>
<CAPTION>

                                                                                  (in thousands, except
                                                                                    per share data)
<S>                                                                               <C>          <C>
              Revenue:
                  Service fee-based revenue                                        $ 47,304     $  43,582
                  Commission-based revenue                                            1,411         1,520
                                                                               ------------- -------------
                     Total revenue                                                   48,715        45,102

                     Cost of revenue                                                 31,147        41,403
                                                                               ------------- -------------

                     Gross profit                                                    17,568         3,699
                                                                               ------------- -------------

              Operating Expenses:
                  Sales and marketing                                                15,419        16,548
                  Product development                                                     -         1,250
                  Research and development                                           11,907             -
                  General and administrative                                         16,848        18,833
                  Other impairment charges                                                -           162
                                                                               ------------- -------------
                      Total operating expenses                                       44,174        36,793
                                                                               ------------- -------------
              Operating loss                                                       (26,606)      (33,094)

              Other income, net                                                         773         1,772
              Interest income                                                         5,367         5,367
                                                                               ------------- -------------

              Loss before provision for income taxes                               (20,466)      (25,955)
              Provision for income taxes                                                  2             2
                                                                               ------------- -------------
              Net loss                                                           $ (20,468)    $ (25,957)
              Cumulative dividends on participating preferred stock                       2             2
                                                                               ------------- -------------
              Net loss attributable to common stockholders                       $ (20,470)    $ (25,959)
                                                                               ============= =============


              Basic and diluted loss per share attributable to common
              stockholders                                                        $  (0.95)    $   (1.18)
                                                                               ============= =============

              Weighted average number of common shares outstanding used in basic
                  and diluted net loss per share                                     21,535        21,957
                                                                               ============= =============
</TABLE>

NOTE 4- Acquisitions

webMillion.com, Inc.

On July 24, 2000, the Company acquired all the outstanding shares, options and
warrants of webMillion.com, Inc., ("webMillion") a direct marketing promotions
company. The results of webMillion.com's operations have been included in the
consolidated financial statements since that date. Pursuant to the Merger
Agreement, the Company issued 1,901,381 shares of its common stock to all the
shareholders of webMillion, valued at approximately $18.3 million. The value of
the common shares issued was determined based on the average market price of the
Company's common stock, as quoted on the Nasdaq National Market for the two days
immediately prior to the day of, and the two days immediately after the number
of shares and cash consideration became irrevocably fixed pursuant to the
agreement. Holders of warrants of webMillion received, in the aggregate, the
right to purchase from the Company 98,619 shares of common stock at a price per
share of $1.98 valued at approximately $830,000. A total of 361,063 of the
shares issued are being held in a three-year escrow as security for the
indemnification obligations of webMillion's former shareholders pursuant to the
Merger Agreement. This transaction was accounted for through the purchase method
of accounting. As a result of the tax-free purchase, webMillion.com, Inc.,
became a wholly owned subsidiary of the Company in 2000. The aggregate purchase
price of $19.4 million, inclusive of approximately $235,000 of direct
acquisition costs, was allocated to the assets acquired and the liabilities
assumed according to their fair values at the date of acquisition as follows:
(in millions)

              Current assets                          $   0.4
              Property and equipment                      0.1
              Goodwill                                   19.6
                                                 -------------
              Total assets acquired                   $  20.1
              Liabilities assumed                       (0.7)
                                                 -------------
              Net assets acquired                     $  19.4
                                                 =============


                                       50
<PAGE>


                       MAXWORLDWIDE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)


The Company has recorded approximately $19.6 million in goodwill, which
represents the remainder of the excess of the purchase price over the fair value
of net assets acquired. This goodwill was not tax deductible and was being
amortized on a straight-line basis over three years.

Novus List Marketing, LLC

On May 14, 2001, the Company purchased substantially all the assets of a list
marketing business from Novus List Marketing, LLC. ("Novus") The results of the
list marketing business' operations have been included in the consolidated
financial statements since that date. Pursuant to the Asset Purchase Agreement,
the Company paid approximately $1.8 million in cash, issued 914,210 shares of
common stock, valued at approximately $2.2 million, and incurred approximately
$0.75 million subject to adjustment, in a note payable to Novus List Marketing.
The note is non-interest bearing and was paid in full in 2002 after contractual
adjustments were made based upon the collection of receivables and payment of
liabilities acquired in the acquisition. In addition, Novus was eligible to
receive up to an additional $1.0 million over a two-year period if certain
operating income goals are achieved. As of December 31, 2002, these operating
income goals were not achieved and it does not appear that they will be achieved
prior to the expiration of the two-year period. In addition, certain former
employees of Novus were eligible to receive up to an additional $2.0 million
over a two-year period if certain operating income goals are achieved. As of
December 31, 2002 and 2001, the Company had accrued $0 and approximately $0.5
million, respectively in association with this other consideration. The value of
the common shares issued was determined based on the average market price of the
Company's common stock as quoted on the Nasdaq National Market for the two days
immediately prior to the day of, and the two days immediately after the number
of shares and cash consideration became irrevocably fixed pursuant to the
agreement. The acquisition has been accounted for using the purchase method of
accounting. The aggregate purchase price of $4.9 million which includes
approximately $0.2 million of direct acquisition costs has been allocated to the
assets acquired and the liabilities assumed based upon their fair values at the
date of acquisition as follows (in millions):

              Current assets                          $   6.7
              Other intangible assets                     3.7
              Goodwill                                    1.8
                                                 -------------
                  Total assets acquired                  12.2
              Current liabilities                        (7.3)
                                                 -------------
              Net assets acquired                     $   4.9
                                                 =============

On the basis of a fair value appraisal, approximately $2.7 million of the
purchase price has been allocated to broker relationships, $0.6 million to
acquire software and $0.4 million to non-compete agreements. The amounts
attributable to broker relationships and acquired technology are being amortized
on a straight-line basis over 7 years and 5 years, respectively. The Company has
also recorded approximately $1.8 million in goodwill, which represents the
remainder of the excess of the purchase price over the fair value of the net
assets acquired. This goodwill is tax deductible and was being amortized on a
straight-line basis over 10 years.

DoubleClick Media

On July 10, 2002 the Company purchased substantially all the assets of
DoubleClick's North American media business. In exchange for the assets of the
media business, MaxWorldwide issued to DoubleClick 4.8 million shares of
MaxWorldwide common stock, valued at approximately $4.1 million and paid $5.0
million in cash. The value of the common shares issued was determined based on
the average market price of the Company's common stock, as quoted on the Nasdaq
National Market for the two days immediately prior to the day of, the day of,
and the two days immediately after the number of shares and cash consideration
became irrevocably fixed pursuant to the agreement. DoubleClick may also receive
an additional $6.0 million if, during the three-year period subsequent to
consummation of the transaction, MaxWorldwide achieves proforma earnings, for
two out of three consecutive quarters. Proforma earnings, as defined in the
merger agreement, is earnings before interest, taxes, depreciation and
amortization, excluding any one- time non-recurring items, restructuring charges
(including facility relocation charges), transaction related costs, including
costs incurred in connection with the acquisition or disposition of a business,
whether consummated or not, and any asset impairment, including impairment of
goodwill. The purchase price has been allocated to the assets acquired and the
liabilities assumed on the basis of their respective fair values on the
acquisition date. Assets acquired have been reviewed by an independent appraisal
firm and include values for certain assets that will be amortized over lives
ranging from one to three years.

The aggregate purchase price of $10.4 million, inclusive of approximately $1.3
million of direct acquisition costs was allocated to the assets acquired and the
liabilities assumed according to their fair values at the date of acquisition as
follows: (in millions)

              Current assets                     $   6.6
              Property and equipment                 0.1


                                       51
<PAGE>


                       MAXWORLDWIDE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)


              Goodwill                               5.6
              Other intangible assets                4.8
                                             ------------
              Total assets acquired              $  17.1
              Liabilities assumed                   (6.7)
                                             ------------
              Net assets acquired                $  10.4
                                             ============

On the basis of a fair value appraisal, approximately $2.6 million of the
purchase price has been allocated to advertising contracts, $1.3 million to
DoubleClick's website network and $0.9 million to non-compete agreements and
other intangibles. The amounts attributable to advertising contracts and website
network are being amortized on double-declining balance basis over a two-year
period.

The Company has recorded approximately $5.6 million in goodwill, which
represents the remainder of the excess of the purchase price over the fair value
of net assets acquired. This goodwill is not tax deductible.

The following unaudited proforma results of operations have been prepared
assuming that the acquisition of DoubleClick Media, consummated during 2002, and
the acquisition of Novus, consummated during 2001, occurred at the beginning of
the respective periods presented. This proforma financial information should not
be considered indicative of the actual results that would be achieved had the
acquisitions been completed on the dates indicated and does not purport to
indicate results of operations as of any future date or any future period.

                                         Year ended December 31,
                                        ---------------------------
                                            2002          2001
                                        -------------  ------------
                                        (in thousands, except per share amounts)
                                         unaudited      unaudited
                                        ---------------------------
     Revenue                               $ 40,172     $ 103,521
     Net loss                               (29,751)      (60,541)
     Net loss per basic and diluted        $  (1.08)     $  (2.04)
     share

NOTE 5- Sale of adMonitor

On October 2, 2001, the Company completed the sale of adMonitor, its ad serving
technology software, and the technology underlying the ProfiTools solutions to
DoubleClick Inc. in exchange for cash of $6.8 million. Additionally, the Company
entered into an agreement which provides that until October 2002, the Company
would not engage in the use, development, licensing, sale or distribution of any
technology, product or service that performs ad-management, serving and tracking
for third parties with the same or substantially similar purpose as adMonitor.
This agreement was later extended to July 2003. The agreement permits the
Company to perform these activities in connection with their media sales and
advertising and design services businesses. As part of the sale, the Company
entered into a five-year non-exclusive ad serving agreement for DART,
DoubleClick's ad serving technology, pursuant to which the Company would
purchase a minimum of $3.5 million of DART services over the term of the
agreement. The agreement also replaced any obligations that remained under a
prior settlement agreement with DoubleClick. Sale proceeds in an amount equal to
the minimum purchase commitment under the agreement of $3.5 million were
deferred. As the Company satisfied its minimum purchase commitment under this
agreement, it recorded charges to cost of revenue and amortized a corresponding
amount of the deferred gain to "(Gain) loss on sale of adMonitor." In the fourth
quarter of 2001, $0.2 million of the $3.5 million minimum purchase commitment
was satisfied. As a result of the sale of adMonitor in the fourth quarter of
2001, the Company incurred losses of approximately $6.1 million relating to
fixed assets and estimated remaining contractual obligations associated with the
adMonitor technology and severance of approximately $500,000, associated with
the disposition of adMonitor which were included in the determination of gain or
loss on this transaction. Accordingly, the Company recognized a net loss of
approximately $3.1 million relating to this transaction in 2001, which is
included in Gain and loss on sale of adMonitor in the Consolidated Statement of
Operations. During 2002 the Company favorably settled a contract associated with
adMonitor technology resulting in an adjustment to the loss on the sale of
adMonitor recorded in 2001 of approximately $1.0 million and also recognized the
remaining $3.3 million deferred gain. This resulted in a gain in 2002 totaling
$4.3 million which is included in "(Gain) loss on sale of adMonitor" and brought
the net gain on this transaction to $1.2 million over two years. As a result of
this transaction, the Company no longer provides proprietary Internet ad
serving, tracking and marketing technology.

NOTE 6- Investment

On November 22, 2000, the Company purchased a 19% interest in Zondigo, Inc.
("Zondigo"), a wireless technology company. The cash purchase price for the
shares was equal to $1.0 million. This investment was being accounted for under
the cost method of accounting. Concurrent with the investment, the Company and
Zondigo entered into a strategic alliance and cross-licensing


                                       52
<PAGE>


                       MAXWORLDWIDE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)


agreement, pursuant to which both parties agreed to grant each other licenses to
certain of their respective technologies. Frank Addante, the Company's former
Chief Technology Officer, was the Chairman of Zondigo and Peter Sealey, one of
the Company's board members, previously served as Chairman of the Board of
Directors of Zondigo.

In the third quarter of 2001, as a result of the significant decline in the
market value of Internet-based companies, Zondigo's limited cash resources and
the declining access of these companies to public and private financing,
management performed an assessment of its carrying value of its investment in
Zondigo. In the course of its analysis, the Company determined that the carrying
value of its cost-method investment in Zondigo was no longer recoverable. As a
consequence, the Company wrote off its entire investment in Zondigo and
recognized an impairment charge of $1.0 million.

NOTE 7- Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill for the year ended December 31,
2002 are as follows (in thousands):

<TABLE>
<CAPTION>

                                                   MaxDirect    MaxOnline      Total
                                                  ------------ --------------------------
<S>                                                <C>         <C>          <C>
Balance at January 1, 2002 (restated)              $ 1,676     $       -    $    1,676

Acquisition of DoubleClick Media (see Note 4)            -         5,593         5,593

Goodwill impairment                                      -       (4,308)       (4,308)
                                                  ------------ -----------  -------------
Balance at December 31, 2002                       $ 1,676     $   1,285    $    2,961
                                                  ============ ===========  =============
</TABLE>

The following adjusts reported net loss and basic diluted net loss per share as
if SFAS No. 142 had been in effect as of January 1, 2000 as follows: (in
thousands except for per share amounts):

<TABLE>
<CAPTION>

                                                                             Years ended December 31,
                                                                      ---------------------------------------
                                                                         2002         2001          2000
                                                                      ------------ -----------  -------------
                                                                                    (restated)   (restated)
<S>                                                                    <C>          <C>          <C>
Reported net loss                                                      $(28,004)    $(47,615)    $ (25,957)
Add back: Goodwill amortization                                                -        6,104         2,727
                                                                      ------------ -----------  -------------
Adjusted net loss                                                      $(28,004)    $(41,511)    $ (23,230)
                                                                      ============ ===========  =============

Weighted average number of common shares outstanding used in basic
and diluted net loss per share attributable to common stockholders        25,253       24,579        21,957
                                                                      ============ ===========  =============

Reported net loss per share - basic and diluted                        $  (1.11)    $  (1.94)    $   (1.18)
Add back: Goodwill amortization                                                -         0.25          0.12
                                                                      ------------ -----------  -------------
Adjusted net loss per share - basic and diluted                        $  (1.11)    $  (1.69)    $   (1.06)
                                                                      ============ ===========  =============
</TABLE>

Intangible assets consist of the following (in thousands):

<TABLE>
<CAPTION>

                                                             December 31, 2002                    December 31,
                                            -----------------------------------------------------     2001
                                              Weighted                                              (restated)
                                              average                                             --------------
                                            amortization     Gross                       Net           Net
                                             period (in    carrying    Accumulated   intangible    intangible
                                              months)        amount    amortization    assets       assets
                                            ------------- ------------ ------------- ------------ --------------
<S>                                                   <C>    <C>          <C>           <C>           <C>
Customer lists                                        54     $  5,280     $ (1,712)     $  3,568      $   2,443
Website network                                       24        1,300         (548)          752              -
Purchased technology                                  54          734         (208)          526            485
Non-compete agreements and other                      24        1,220         (630)          590            380
                                            ------------- ------------ ------------- ------------ --------------
                                                      45     $  8,534     $ (3,098)     $  5,436      $   3,308
                                            ============= ============ ============= ============ ==============
</TABLE>

Other intangible asset amortization was $2.6 million, $0.4 million, and zero for
the years ended December 31, 2002, 2001 and 2000, respectively.

Based on the balance of intangible assets at December 31, 2002, the annual
amortization expense for each of the succeeding five years is estimated to be
$2.6 million, $1.3 million, $0.5 million, $0.4 million and $0.4 million in 2003,
2004, 2005, 2006 and 2007, respectively.


                                       53
<PAGE>


                       MAXWORLDWIDE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)


Impairment of Goodwill and Other Intangible Assets

The persistence of unfavorable market conditions led the Company's management to
undertake a review of the recoverability of its investments in webMillion in the
fourth quarter of 2001. As a result of significantly lower than expected revenue
generated and considerably reduced estimates of future performance, management
concluded that its investment in webMillion was impaired. Accordingly, in the
fourth quarter of 2001, the Company recognized an impairment charge of
approximately $10.9 million representing the unamortized goodwill balance
relating to this acquisition.

In the fourth quarter of 2002, in connection with its annual goodwill impairment
test, the Company initiated a third-party valuation of its MaxOnline and
MaxDirect reporting units to determine whether the goodwill relating to these
units was recoverable. The fair market value of each of these units was
determined based upon discounted cash flow projections. The outcome of this
valuation resulted in an impairment charge of approximately $4.3 million
relating to the MaxOnline reporting unit being recorded in the fourth quarter of
2002. This valuation did not yield any impairment charge to the MaxDirect
reporting unit. In addition, the Company also determined that the fair value of
certain intangible assets were impaired. The Company recorded an impairment
charge of approximately $0.1 based on the difference between carrying value and
estimated fair value of certain intangible assets also associated with the
online and offline reported units.

NOTE 8- Impairment Charges

2001 Impairment Charges

In 2001, the Company took certain actions to bring overhead costs in line with
anticipated revenue. These measures were primarily related to the consolidation
of the Company's leased office space. As a consequence, the Company recorded a
$3.3 million charge to operations during the year 2001. This charge included
approximately $1.8 million for the accrual of future lease costs (net of
estimated sublease income) and approximately $0.6 million for the write-off of
fixed assets situated in office locations that were consolidated or closed.
These fixed asset impairments arose primarily from the write-off of the carrying
values of leasehold improvements in offices in Marina Del Rey, London, Chicago
and Santa Monica. We also recorded an impairment charge of $0.9 million for
fixed assets related to our adMonitor system that we sold to employees.

As of December 31, 2001, approximately $1.7 million of this charge remained
accrued in Accrued expenses and other current liabilities.

2002 Impairment Charges

Throughout 2002, the Company continued taking certain actions to increase
operational efficiencies and bring costs in line with revenue. These measures
included the continued consolidation of the Company's leased office. As a
consequence, the Company recorded a $1.9 million charge to operations during the
year 2002. This charge included approximately $1.1 million for the accrual of
future lease costs and approximately $0.8 million for the write-off of fixed
assets. These impairments related primarily to the Company's decision in 2002 to
close the facility in Marina Del Rey, as well as the impairment of certain
computer equipment as the estimated fair value of this equipment was determined
to be lower than the carrying value of these assets.

As of December 31, 2002, approximately $1.8 and $0.1 of the total charges
recorded in 2001 and 2002 remained accrued in `Accrued expenses and other
current liabilities' and `Long-term obligations', respectively. The following
table sets forth a summary of the costs and related charges and the balance of
the reserves established.

                                                  (in thousands)
                                           Future       Fixed
                                           Lease        Asset
                                           Costs      Write-off      Total
                                         ----------- ------------ -------------
    2001 and 2002 Impairment Charges:
    ----------------------------------
    Balance at December 31, 2000            $   110     $      -      $    110
    2001 Impairment charge                    1,755        1,516         3,271
    Cash expenditures                         (210)            -         (210)
    Non-cash charges                              -      (1,516)       (1,516)
                                         ----------- ------------ -------------
    Balance at December 31, 2001              1,655            -         1,655

    2002 Impairment charge                    1,098          817         1,915
    Cash expenditures                         (855)            -         (855)
    Non-cash charges                              -        (817)         (817)
                                         ----------- ------------ -------------

                                       54
<PAGE>


                       MAXWORLDWIDE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)


                                         ----------- ------------ -------------
    Balance at December 31, 2002           $  1,898     $      -      $  1,898
                                         =========== ============ =============

NOTE 9- Property and Equipment

<TABLE>
<CAPTION>

                                                                     (in thousands)
                                                                   As Of December 31 ,
                                                    Estimated   --------------------------
                                                    Useful
                                                    Life           2002          2001
                                                    ----------- ------------ -------------
<S>                                                    <C>         <C>           <C>
    Property and equipment:                                                   (restated)
    Equipment                                            3 Yrs     $  2,799      $  4,111
    Furniture and fixtures                             3-5 yrs          242           290
    Leasehold improvements                               5 yrs           13            58
                                                                ------------ -------------
                                                                      3,054         4,459
    Less-accumulated depreciation and amortization                  (2,493)       (2,516)
                                                                ------------ -------------
    Property and equipment, net                                     $   561      $  1,943
                                                                ============ =============
</TABLE>

Depreciation and amortization expense related to property and equipment was
approximately $1.3 million, $4.4 million and $4.0 million in 2002, 2001 and
2000, respectively.

NOTE 10- Preferred Stock and Stockholders' Equity

a. Initial Public Offering

On February 2, 2000, the Company completed an initial public offering (the
"IPO") of 7,475,000 shares of common stock, including 975,000 shares subject to
the underwriter's over-allotment option, at $15.00 per share of common stock.
The IPO resulted in aggregate net proceeds to the Company of approximately
$102.6 million, net of underwriting discounts and expenses of the offering.

b. Stock Split

In October 1999, the Company announced that it would affect a reverse stock
split converting three shares of common stock into two shares of common stock.
On January 25, 2000, the Company effected the 2-for-3 reverse stock split. The
effect of these stock splits is retroactively reflected in the financial
statements and the accompanying notes to the financial statements.

c. Series A Preferred Stock Financing

On September 16, 1998, in a private placement transaction, the Company issued
2,000 shares of Series A preferred stock to William Apfelbaum at $1,000 per
share, convertible into common stock at the conversion price per share of $1.20.
The number of shares of common stock into which the Series A preferred stock
converted was an aggregate of 1,666,666 shares. Mr. Apfelbaum, the Company's
chairman, was issued a warrant to purchase up to 438,593 shares of the Company's
common stock at a price per share of $1.71. The holder of the Series A preferred
stock is entitled to registration rights regarding the shares of common stock
issued or issuable upon conversion and upon exercise of the warrant. The holder
of the outstanding shares of Series A preferred stock was entitled to receive,
upon conversion of shares of Series A preferred stock into common stock, a
dividend in cash accruing from September 16, 1998, at an annual rate of $40 per
share of Series A preferred stock so converted.

d. Series B Preferred Stock Financing

Commencing on August 6, 1999, in a private placement transaction, the Company
issued a total of 4,107,044 shares of Series B preferred stock at $2.35 per
share convertible into common stock at a three-to-two ratio. The principal
purchasers of the Series B preferred stock included DigaComm, L.L.C. and
Keystone Venture V, L.P. DigaComm, L.L.C. also purchased a warrant to acquire up
to 353,964 shares of common stock of the Company at a price per share of $5.30.
This warrant was automatically exercised on a cashless basis into shares of
common stock, with a fair value equivalent to the intrinsic value of the
warrant, upon the closing of the IPO. The holders of the Series B preferred
stock are entitled to registration rights regarding the shares of common stock
issued or issuable upon conversion and upon exercise of the warrant. The holders
of the outstanding shares of Series B preferred stock were entitled to receive,
upon conversion of shares of Series B convertible preferred stock into common
stock, a dividend in cash accruing from August 6, 1999, at an annual rate of
$0.141 per share of Series B preferred stock so converted. The holders of Series
B preferred stock collectively had the right to elect three members of the board
of directors.

e. Series C Preferred Stock Financing

On September 22, 1999, in a private placement transaction, the Company issued
1,307,190 shares of Series C preferred stock to


                                       55
<PAGE>


                       MAXWORLDWIDE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)


Development Ventures Inc. and Rare Medium Group, Inc. at $3.06 per share,
convertible into common stock at a three-to-two ratio. The holders of the
outstanding shares of Series C preferred stock were entitled to receive, upon
conversion of the Series C preferred stock into common stock, a dividend in cash
accruing from September 22, 1999, at an annual rate of $0.18 per share of Series
C preferred stock so converted. Development Ventures Inc. also purchased a
warrant to acquire up to 674,029 shares of common stock of the Company at a
price per share of $4.59. Rare Medium Group, Inc. also purchased a warrant to
acquire up to 600,000 shares of common stock of the Company at a price per share
of $4.59. Both warrants were automatically exercised on a cashless basis into
shares of common stock upon the closing of the IPO. The holders of Series C
preferred had their shares of common stock issuable upon conversion of the
Series C preferred stock, as well as the common stock issuable upon exercise of
their warrants, registered on the same registration statement used in the IPO.

Upon the IPO of the Company's common stock, the Company converted all
outstanding shares of Series A, B and C preferred stock into 5,276,156 shares of
common stock. Additionally, the Series A, B and C preferred stockholders
exercised their warrants to purchase shares of the Company's common stock.

f. Warrants

On June 7, 1999, the Company issued to The Roman Arch Fund L.P. and The Roman
Arch Fund II, L.P. four warrants to purchase up to an aggregate of 333,333
shares of common stock, later adjusted to an aggregate of 150,000 shares of
common stock as a result of the reverse stock split, at a strike price of $2.40
per share. These warrants may be exercised on a cashless basis and expire on the
fifth anniversary of the IPO.

On August 13, 1999, the Company issued to William Apfelbaum a warrant to
purchase up to 353,964 shares of common stock, at an exercise price of $5.30 per
share. Mr. Apfelbaum exercised this warrant on a cashless basis at the effective
date of the IPO and purchased 274,422 shares of common.

In connection with an advertising agreement, the Company issued a warrant to
purchase 50,000 shares of common stock at an exercise price of $15.00 per share.
This warrant was only exercisable from January 29, 2001 through February 5,
2001. The fair value of the warrant, which was reflected as a reduction of
revenue in 2000, was estimated at $209,000 on the date of issuance using the
Black-Scholes option pricing model with the following assumptions: dividend
yield of 0 percent; expected volatility of 65 %; risk-free interest rate of 6.12
%; and an expected life of one year. This warrant was not exercised and expired
on February 5, 2001.

NOTE 11- Income Taxes

Deferred income taxes arise as a result of temporary differences in the methods
used to determine income for financial reporting purposes versus income for tax
reporting purposes. These differences result primarily from accruals, reserves
and net operating losses carrying forward.

The provision (benefit) for income taxes consists of the following (in
thousands):

                                         Years Ended December 31,
                                   -------------------------------------
                                      2002         2001         2000
                                   -----------  -----------  -----------
                                                (restated)    (restated)
Current
   Federal                           $      -     $     -      $     -
   State                                    -           2            2
                                   -----------  -----------  -----------
                                            -           2            2
Deferred                              (8,678)     (12,057)     (10,532)
                                   -----------  -----------  -----------
                                      (8,678)     (12,055)     (10,530)
Valuation allowance                    8,678       12,055       10,530
                                   -----------  -----------  -----------
                                     $      -     $     -      $     -
                                   ===========  ===========  ===========

Significant components of the Company's deferred tax assets (liabilities) at
December 31, 2002 and 2001 are comprised primarily of net operating loss carry
forwards and are summarized as follows (in thousands):

                                             2002         2001         2000
                                           ----------  -----------  -----------
                                                        (restated)   (restated)
    Net operating loss carryforward         $30,564      $ 21,582     $ 11,042
    Reserve for bad debts                     1,296           618        1,808
    Accrued expenses                          2,242         1,365          122
    Intangible assets                           286           133            -


                                       56
<PAGE>


                       MAXWORLDWIDE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)


    Fixed assets                              (177)         (302)           124
    adMonitor sale                                -         1,314             -
    Rent Deposits                               21             64            21
    Zondigo                                       -           780           380
                                           ----------  -----------  -----------
    Gross deferred tax asset                 34,232        25,554        13,497
    Valuation allowance                     (34,232)      (25,554)      (13,497)
                                           ----------  -----------  -----------
    Deferred tax asset                     $      -     $       -     $       -
                                           ==========  ===========  ===========




At December 31, 2002 and 2001, the Company provided a valuation allowance for
net deferred tax assets which management determined were "more likely than not"
to be unrealizable. As a result, no deferred tax assets have been recorded by
the Company.

Differences between the Company's effective income tax rate and the U.S.
statutory rate were as follows:

<TABLE>
<CAPTION>

                                                            Years Ended December 31,
                                                      -------------------------------------
                                                         2002         2001         2000
                                                      -----------  -----------  -----------
<S>                                                        <C>          <C>          <C>
Tax at U.S. federal income tax rate                          34%          34%          34%
State taxes, net of federal income tax effect                 6%           6%           6%
Nondeductible goodwill and goodwill impairment              (9%)        (14%)         (4%)
charges
Other                                                         0%           0%           5%
Valuation allowance                                        (31%)        (26%)        (41%)
                                                      -----------  -----------  -----------
Income tax provision                                          0%           0%           0%
                                                      ===========  ===========  ===========
</TABLE>

The Tax Reform Act of 1986 limits the use of net operating loss and tax credit
carryforward in certain situations where changes occur in the stock ownership of
a company. The Company's net operating loss carryforwards were limited due to
the ownership change on the date of the Company's initial public offering, upon
the acquisition of webMillion and upon the acquisition of DoubleClick Media. The
Company has not determined if there are any additional IRC section 382
limitations of its net operating loss. The Company will make a determination if
any limitations will apply prior to utilization. The Company had a net operating
loss of carryforward of approximately $76 million with expiration dates between
2019 and 2023. Approximately $3.4 million of these net operating loss
carryforwards relate to the exercise of employee stock options and any tax
benefit derived from them, when realized will be accounted for as a credit to
additional paid-in capital rather than a reduction to the income tax provision.

NOTE 12- Other Financial Information

The following table summarizes the components of Other income, net:

                                         Years Ended December 31,
                                --------------------------------------------
                                    2002            2001           2000
                                --------------  -------------  -------------
                                                 (restated)     (restated)

                                                (In Thousands)

Legal settlements                     $   206       $  1,095       $  1,000
Interest expense                         (14)          (116)          (209)
Gain on sale of equipment                   -            254              -
Other                                      15            892            981
                                --------------  -------------  -------------
                                      $   207       $  2,125       $  1,772
                                ==============  =============  =============

NOTE 13- Stock Options

During April 1999, the Company adopted an employee stock option plan (`the
Plan") which, as amended, authorized the Board of Directors to grant up to an
aggregate of 8,676,101 options to purchase common stock shares. These shares may
be comprised of authorized but unissued shares or shares previously issued but
reacquired by the Company. The price of these options will be not less than the
fair market value of the shares, or greater than 110 percent of the fair market
value of the shares, at the date of grant. This Plan will terminate ten years
from the adoption date and may be amended by the Board of Directors and, under
certain circumstances, only with stockholder approval.

Generally options granted under the plan vest in twelve months from the date of
grant, and expire 10 years from the date of grant and terminate, to the extent
vested, generally, at the end of the three-month period following the
termination of employment.


                                       57
<PAGE>


                       MAXWORLDWIDE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)


Employee transactions during the years ended December 31, 2002, 2001 and 2000
are summarized as follows:

<TABLE>
<CAPTION>

                                                                     2002                    2001                   2000
                                                             ----------------------- ----------------------- ----------------------
                                                                          Weighted                Weighted               Weighted
                                                                           average                 average                average
                                                                          exercise                exercise               exercise
                                                                Shares      price       Shares      price      Shares      price
                                                             ----------------------- ----------------------- ----------------------
<S>                                                             <C>          <C>        <C>          <C>       <C>          <C>
Outstanding at beginning of period                              3,374,461    $ 5.65     4,443,738    $ 6.45    2,151,387    $ 2.82
Granted                                                         2,425,000      0.73       980,530      3.00    3,477,903      7.84
Exercised                                                        (83,886)      1.23         (416)      3.53    (502,041)      1.06
Forfeited                                                     (2,616,328)      4.73   (2,049,391)      6.06    (683,511)      7.28
                                                             ----------------------- ----------------------- ----------------------
Outstanding at end of period                                    3,099,247    $ 2.50     3,374,461    $ 5.65    4,443,738    $ 6.45
                                                             ======================= ======================= ======================
Options exercisable at end of period                              719,735               1,618,847                833,287
Weighted average fair value of options granted during period      $   .47                $   2.36                $  6.64
</TABLE>

The following table summarizes information about employee stock options
outstanding at December 31, 2002:

<TABLE>
<CAPTION>

                                       Options Outstanding                 Options Exercisable
                            ------------------------------------------  --------------------------
                                             Weighted
                                             average       Weighted                    Weighted
                                            remaining      average                      average
                               Number      contractual     exercise        Number      exercise
Range of Exercise Prices    Outstanding        life         price       Exercisable      price
--------------------------  -------------  ------------- -------------  ------------- ------------
<S>               <C>          <C>             <C>           <C>             <C>          <C>
     $  0.60 -    $  0.60      1,500,000            9.6      $   0.60              0
     $  1.00 -    $  1.50        532,333            8.8      $   1.22         31,958      $  1.37
     $  2.00 -    $  2.51        321,829            8.3      $   2.34        128,697      $  2.34
     $  3.50 -    $  4.94        460,697            6.8      $   4.41        374,365      $  4.37
     $  6.00 -    $  8.75         37,833            7.6      $   6.62         23,915      $  6.63
     $  9.13 -    $ 10.06        102,500            6.8      $   9.55         57,916      $  9.56
     $ 14.44 -    $ 21.06        144,055            6.9      $  15.08        102,884      $ 15.13
------------- ------------  -------------  ------------- -------------  ------------- ------------
     $  0.60 -    $ 21.06      3,099,247        8.7 yrs      $   2.50        719,735      $  5.90
============= ============  =============  ============= =============  ============= ============
</TABLE>

The Company granted 1.5 million options to employees and directors on February
5, 2003 at an exercise price of $0.45.

On August 11, 1999, John Bohan, the Company's former Chief Executive Officer and
President, granted options (the "1999 Bohan Options") to purchase an aggregate
of 303,333 shares of the Company's common stock held by Mr. Bohan. Mr. Bohan
granted such options to certain employees of the Company at an exercise price
per share equal to $3.53, the then fair market value per share of the Company's
common stock. On October 26, 2000, Mr. Bohan granted to options (the "2000 Bohan
Options") to purchase an aggregate of 205,000 shares of the Company's common
stock held by Mr. Bohan. Mr. Bohan granted such options to certain employees of
the Company at an exercise price per share equal to $4.81, the then fair market
value per share of the Company's common stock.

NOTE 14- Commitments and Contingencies

     a.   Legal Matters

The Company may become subject to legal proceeding from time to time in the
normal course of business. The following is a summary of the outstanding
actions.

                               General Litigation

On April 2, 2001, EMI Communications Corp. filed a lawsuit against the Company
in the Queen's Bench (Brandon Centre), Manitoba, Canada. The suit alleges breach
of contract by the Company. The Company believes this suit is without merit and
intends to vigorously defend against these claims. However, due to the inherent
uncertainties of litigation, the Company cannot accurately predict the ultimate
outcome of this matter.

On November 21, 2001, Frank Addante, the Company's former Chief Technology
Officer, filed a Demand for Arbitration with the American Arbitration
Association in Los Angeles, California. Mr. Addante claimed copyright
infringement, breach of contract, fraud, conversion, securities fraud and breach
of fiduciary duty. He sought an unspecified amount of damages, declaratory
relief, injunctive


                                       58
<PAGE>


                       MAXWORLDWIDE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)


relief and an accounting (to determine monetary damages). In November 2002, the
Company settled this dispute with Mr. Addante. As part of the settlement and
mutual release, the Company paid $250,000 to Mr. Addante.

On May 2, 2002, John Bohan, the Company's former Chief Executive Officer, filed
an action against us in the Court of Chancery for the State of Delaware, seeking
an order requiring the Company to advance his defense costs in connection with
the Commission's investigation and the related civil litigation in accordance
with his indemnification agreement with the Company and its charter documents.
On June 6, 2002, the parties entered into a stipulation and order establishing a
procedure for the advancement of expenses subject to an undertaking by Mr. Bohan
to repay the Company if it is determined that indemnification is not warranted.
During the calendar years 2002 and 2003, the Company paid legal and other
professional fees and expenses of approximately $1.9 million, in the aggregate,
on behalf of certain former officers and directors, including Mr. Bohan,
pursuant to their indemnification agreements with the Company and the Company's
charter documents. Mr. Bohan was initially subject to an undertaking with the
Company pursuant to which he was obligated to repay all amounts advanced to him
by the Company in the event it was determined that that indemnification was not
warranted. In April 2003, the Company entered into an agreement, pursuant to
which it agreed to terminate Mr. Bohan's obligations to the Company under this
undertaking in exchange for a release from Mr. Bohan of all future
indemnification obligations of the Company to Mr. Bohan under his
indemnification agreement with the Company and its charter documents. The
payment made under this agreement is included in the $1.9 million of costs
described above.


On February 3, 2003, Anthony Hauser, a former founder of webMillion.com, Inc.,
filed against the Company, certain former officers and directors and William
Apfelbaum, our Chairman of the Board of Directors, a Demand for Arbitration with
the American Arbitration Association in Los Angeles, California. Mr. Hauser
claims breach of contract, breach of fiduciary duty, misrepresentation, fraud
and securities law violations arising out of the Company's acquisition of
webMillion.com, Inc. He has asserted damages in the amount of $6.0 million. The
Company believes this arbitration claim is without merit and intends to
vigorously defend against these claims. However, due to the inherent
uncertainties of litigation, the Company cannot accurately predict the ultimate
outcome of the litigation. Any unfavorable outcome in litigation could
materially and adversely affect the Company's business, financial condition and
results of operations.

                                SEC Investigation

On January 25, 2002, the Securities and Exchange Commission issued a formal
order of investigation in connection with non-specified accounting matters,
financial reports, public disclosures and trading activity in the Company's
securities. In connection with this investigation, the Commission had requested
that the Company provide it with certain documents and other information. The
Company is continuing to fully cooperate with the Commission in its
investigation. The Company has reached an agreement with the staff of the
Commission to settle the Commission's investigation. Pursuant to the settlement,
the Company consented to the entry by the Commission of an order relating to
certain cash transactions that substantially offset one another when aggregated
and appear to represent barter arrangements that do not meet the criteria for
revenue recognition under GAAP. The Commission's findings in the order, which
the Company will not admit or deny, include findings that it improperly recorded
and reported revenue from certain barter transactions and misclassified certain
research and development expenses in 2000 and 2001. The order requires the
Company to cease and desist from further violations of sections 13(a),
13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act and Rules 12b-20,
13a-1 and 13a-13. The order does not require the Company to pay any fine or
monetary damages. In addition, in January 2002, the Company was notified that
the Nasdaq National Stock Market Listing Investigations requested certain
documents and other information relating to certain transactions pursuant to
Marketplace Rule 4330(c). On August 20, 2002, the Company's common stock was
delisted from the Nasdaq National Stock Market as a result of its failure to
timely file its quarterly report on Form 10-Q for the quarter ended June 30,
2002.

On February 1, 2002, the Company's Board of Directors authorized the Audit
Committee of the Board of Directors to commence an independent internal
investigation into the matters that prompted the Commission's investigation. The
Audit Committee and the Company each engaged special counsel and forensic
accounting firms to conduct a comprehensive examination of the Company's
financial records. On May 6, 2002, the Company announced that the Audit
Committee had concluded its internal investigation and determined that certain
of its financial results for the year ended December 31, 2000 and the three
quarters ended September 30, 2001 would be restated. As a result, the Company
restated certain of the Company's financial results as reflected in (i) its
annual report on From 10-K for the year ended December 31, 2001, which it filed
with the Commission on May 16, 2002, (ii) its amended quarterly report on Form
10-Q for the quarter ended March 31, 2002, which it filed with the Commission on
June 11, 2002, (iii) its amended quarterly report on Form 10-Q for the quarter
ended September 30, 2000, which it filed with the Commission on June 11, 2002,
(iv) its amended quarterly report on Form 10-Q for the quarter ended March 31,
2001, which it filed with the Commission on June 11, 2002, (v) its amended
quarterly report on Form 10-Q for the quarter ended June 30, 2001, which it
filed with the Commission on June 11, 2002 and (vi) its amended quarterly report
on Form 10-Q for the quarter ended September 30, 2001, which it filed with the
Commission on June 11, 2002.


                                       59
<PAGE>


                       MAXWORLDWIDE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)
                            Securities Class Actions


Beginning on March 21, 2002, following the announcement of the Commission
investigation and the internal investigation by the Audit Committee of the Board
of Directors, a number of securities class action complaints were filed against
the Company and certain of the Company's former officers and directors in the
United States District Court for the Central District of California. The
complaints have been filed as purported class actions by individuals who allege
that they purchased the Company's common stock during the purported class
period. The complaints generally allege that during 2000 and 2001 the Company,
and the other named defendants, made false or misleading statements of material
fact about the Company's financial statements, including its revenue, revenue
recognition policies, business operations and prospects for the years 2000, 2001
and beyond. The complaints seek an unspecified amount of damages on behalf of
persons who purchased the Company's common stock during the purported class
period. On July 17, 2002, the securities class actions were consolidated in a
single action for all purposes. On July 22, 2002, the court appointed John A.
Levin & Co. as the lead plaintiff in the consolidated action. On September 20,
2002, the lead plaintiff filed its consolidated amended class action complaint.
On March 18, 2003 the court granted the Company's motion to dismiss the
consolidated class action lawsuit for failure to state a claim upon which any
relief may be granted and the consolidated class action lawsuit was dismissed
without prejudice. Because the class action lawsuit was dismissed without
prejudice, plaintiffs have an opportunity to amend the complaint against the
defendants. The Company has reached an agreement in principle with the lead
plaintiff to settle the class action for approximately $5.0 million. Final terms
of the settlement are still under negotiation and are subject to certain terms
and conditions, including court approval. The $5.0 million settlement is
included in "Accrued expenses and other current liabilities" at December 31,
2002. Included in "Prepaid expenses and other current assets" at December 31,
2002 is approximately $2.2 million relating to insurance proceeds that the
Company received subsequent to December 31, 2002.

In July 2002, the Company was named as a defendant in a securities class action
complaint initially filed against Homestore.com, Inc. in the United States
District Court for the Central District of California. The complaint generally
alleges that the Company knowingly participated in Homestore's scheme to defraud
the investing public by entering into improper transactions with Homestore in
the second and third quarters of 2001. The complaints seek an unspecified amount
of damages on behalf of persons who purchased Homestore.com's common stock
during the purported class period. In March 2003, the lawsuit was dismissed with
prejudice with respect to the Company and it was not required to pay any
damages. On April 14, 2003, the lead plaintiff in the case filed a motion for
certification to gain the court's permission to pursue an interlocutory appeal
of the court's dismissal of the claims against the Company. The Company intends
to oppose the motion for certification of the interlocutory appeal.

                               Derivative Actions

Beginning on March 22, 2002, the Company has been named as a nominal defendant
in at least two derivative actions, purportedly brought on the Company's behalf,
filed in the Superior Court of the State of California for the County of Los
Angeles. The derivative complaints allege that certain of the Company's current
and former officers and directors breached their fiduciary duties to the
Company, engaged in abuses of their control of the Company, wasted corporate
assets, and grossly mismanaged the Company. The plaintiffs seek unspecified
damages on the Company's behalf from each of the defendants. The Company has
reached an agreement in principle, subject to certain conditions, including
court approval, to settle these derivative actions for $775,000 in attorneys'
fees and the Company's agreement to adopt certain corporate therapeutic actions.
The Company has received insurance proceeds sufficient to satisfy the $775,000
to be paid by it in settlement of the derivative suits, accordingly, no
provision has been made in the 2002 Consolidated Statement of Operations for
this settlement. The $775,000 is included in both "Prepaid expenses and other
current assets" and "Accrued expenses and other current liabilities" at December
31, 2002.

                                 Special Charges

The costs associated with of the Commission's investigation, the associated
securities class action and derivative lawsuits, and the re-audits of the
Company's financial statements by PricewaterhouseCoopers LLP have been included
within Special Charges in the Consolidated Statement of Operations. These
charges amounted to $9.9 million in 2002. The Company believes these costs will
continue into 2003 and that, although the amounts cannot be reasonably estimated
at this time, they may be material.


Included within Special charges are approximately $1.9 million of costs
associated with the Company's indemnification of legal defense costs for certain
of the Company's former officers and employees incurred by them in connection
with the Commission's investigation and related civil litigation. The Company is
subject to continuing indemnification obligations to certain individuals for
such costs under indemnification agreements with such individuals and pursuant
to the Company's charter documents. Each of these individuals has entered into
an undertaking with the Company which requires such individual to repay the
Company amounts advanced if it is determined that indemnification is not
warranted. Due to the inherent uncertainties of litigation, the Company cannot
estimate the ultimate amount of such costs and therefore no accrual has been
provided in the accompanying financial statements for


                                       60
<PAGE>


                       MAXWORLDWIDE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)


future costs associated with this indemnification. These costs, which will
continue to be incurred in 2003, may have a material adverse effect on
MaxWorldwide's financial condition and results of operations. In April 2003,
however, the Company entered into an agreement, pursuant to which it agreed to
terminate Mr. Bohan's obligations to it under the undertaking in exchange for a
release from Mr. Bohan of all of the Company's future indemnification
obligations to Mr. Bohan under his indemnification agreement with it and its
charter documents. The payment made under this agreement is included in the $1.9
million of costs described above.


b.  Office Leases

The Company leases facilities under operating lease agreements that expire at
various dates through 2007. The Company also subleases facilities under
operating leases expiring at various dates through 2004. The future minimum
leases payments and the sub rental income under these leases are as follows:

                                        ( in thousands)
                                    Operating     Sub Rental
                     Year             Leases        Income
              ----------------------------------- ------------
              2003                     $   1,086       $  228
              2004                           544           16
              2005                           223            -
              2006                           157            -
              2007 and thereafter            562            -
                                  ----------------------------
                                       $   2,572       $  244
                                  =============== ============

For the years ended December 31, 2002, 2001 and 2000 rent expense was
approximately $1.0 million, $1.8 million and $1.1 million respectively.

The schedule of payments excludes payments associated with the Marina del Rey
facility lease which was terminated in April 2003 for $1.2 million. (See Note 8)

c. Employment Agreements

The Company has employment agreements with certain officers that provide for
payments to such officers in the event the Company terminates their employment
without cause and under certain circumstances following a change in control.

d. Proforma earnings payment

In connection with the DoubleClick Media acquisition the Company agreed to pay
DoubleClick $6.0 million if, during the three-year period subsequent to
consummation of the transaction, the Company achieves proforma earnings for two
of three consecutive quarters. Proforma earnings, as defined in the agreement,
is earnings before interest, taxes, depreciation and amortization, excluding any
one-time non-recurring items, restructuring charges (including facility
relocation charges), transaction related costs, including costs incurred in
connection with the acquisition or disposition of a business, whether
consummated or not, and any asset impairment including the impairment of
goodwill. The Company has not achieved proforma earnings for any quarter since
the DoubleClick Media acquisition. This contingency was not assumed by ALC in
the sale of MaxDirect and will not be assumed by Focus in the sale of MaxOnline.
It is possible that payment of these contingent liabilities will have a material
adverse effect on our financial position.


NOTE 15- Employee Benefit Plans

Starting in May 2000 the Company has made available to its eligible employees a
401(k) defined contribution plan (the "Plan"). Employees become eligible for the
Plan once they attain age 21 and have performed two months of service. Eligible
employees can contribute up to a maximum of 15% of their eligible compensation.
The Company does not provide a matching contribution.

NOTE 16- Related Party Transactions

In November 2000, the Company issued approximately $1.5 million in notes
receivable for loans to officers prior to their resignation from the Company.
These notes bore interest at 5.0% per annum and mature at the occurrence of the
fifth anniversary of the date of the note or upon demand by the Company. The
notes were collateralized by a security interest in the officers' stock, as well
as, all other personal property of the former officers.

On October 15, 2001, the Company forgave loans to two former officers and
directors, totaling approximately $0.5 million. In


                                       61
<PAGE>


                       MAXWORLDWIDE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)


addition, the Company paid a total of $0.7 million in 2001 to cover taxes
incurred by such individuals with respect to the forgiveness of the debt. The
total of $1.2 million was expensed in the 2001 Consolidated Statement of
Operations. The two individuals paid to the Company approximately $0.5 million
in partial repayment of such loans during December 2001 and an additional amount
equal to approximately $0.3 million in February 2002. In 2002 the Company
forgave $0.1 million of the loans and established an additional provision for
the remaining $0.1 million outstanding balance. As a result of the loan
forgiveness and payment of taxes a loss of approximately $0.2 million and $1.2
million is included on the Statement of Operations in the general and
administrative expense for the years ended December 31, 2002 and 2001,
respectively.

As discussed more fully in Note 4, on July 10, 2002, the Company acquired
DoubleClick's North American media business. In exchange for the assets of the
media business, the Company issued Double Click 4.8 million shares of
MaxWorldwide common stock and paid $5.0 million in cash. Subsequent to the
purchase of DoubleClick's North American media business, the Company recognized
approximately $2.3 million in expenses, included in cost of revenue, during the
year ended December 31, 2002 relating to services provided by DoubleClick.

During 2001, the Company sold certain computer equipment with a net book value
of approximately $1.0 million to employees. This transaction resulted in a loss
of approximately $0.9 million, which is included in "Other impairment charges."

In March 2002, the Company entered into a consulting agreement with Peter Sealy,
a director to provide various business consulting services. The agreement
provides for a consulting fee of $16,000 per month. The agreement was terminated
in October 2002.

Effective October 2002 the Company entered into a consulting agreement with Mr.
Apfelbaum, Chairman of the Board of Directors. The two-year agreement provides
for monthly payments of $33,333. In the event that the agreement is terminated
without cause or following a change of control the Company is obligated to pay
to the consultant an amount equal to the greater of the remaining outstanding
obligations for the term of the agreement or $0.4 million.

On August 13, 2002, MaxWorldwide repurchased 5,293,639 shares of its common
stock from Mr. Bohan, the Company's former Chief Executive Officer and a former
director. The shares were purchased for $0.50 per share at a discount from the
then current market closing price. The Company also agreed to purchase up to
303,333 additional shares at $0.50 from Mr. Bohan. These shares are recorded as
treasury stock in the accompanying consolidated balance sheets.

NOTE 17- Segments

The Company is organized in two segments: MaxOnline and MaxDirect based on types
of services provided. MaxOnline is an Internet-based provider of marketing
solutions for advertisers and Web Publishers, which provides fully outsourced,
advertising sales, delivery and related services. MaxDirect was a provider of
list marketing services to publishing, catalog, e-commerce and other marketing
companies. On February 10, 2003 the Company consummated the sale of
substantially all of the assets of MaxDirect (See Note 19).

The accounting policies of the segments are the same as those described in the
summary of significant accounting policies.

Gross billings, revenue and gross profit by segment are as follows (in
thousands):

<TABLE>
<CAPTION>

                             Year ended December 31, 2002        Year ended December 31, 2001        Year ended December 31, 2000
                          ----------------------------------- ----------------------------------- ----------------------------------
                           MaxOnline   MaxDirect    Total     MaxOnline   MaxDirect     Total      MaxOnline  MaxDirect     Total
                           ---------   ---------    -----     ---------   ---------     -----      ---------  ---------     -----
<S>                          <C>         <C>        <C>         <C>         <C>         <C>          <C>          <C>       <C>
Gross billings               $ 26,026    $ 22,701   $ 48,727    $ 28,284    $ 16,589    $ 44,873     $ 47,745     $    -    $ 47,745
Net contract commissions        7,483      18,432     25,915       4,432      13,894      18,326        2,643          -       2,643
                          ----------------------------------- ----------------------------------- ----------------------------------
GAAP revenue                 $ 18,543    $  4,269   $ 22,812    $ 23,852    $  2,695    $ 26,547     $ 45,102     $    -    $ 45,102
                          =================================== =================================== ==================================
Cost of revenue              $ 11,762    $      -   $ 11,762    $ 23,025    $      -    $ 23,025     $ 41,403     $    -    $ 41,403
                          =================================== =================================== ==================================
Gross profit                 $  6,781    $  4,269   $ 11,050    $    827    $  2,695    $  3,522     $  3,699     $    -    $  3,699
                          =================================== =================================== ==================================
</TABLE>

Gross billings represent the full amount due from marketers for the sale of web
publisher ad inventory, as well as the full amount due from marketers for the
rental of MaxDirect lists that the Company represents. Management believes gross
billings is a relevant and useful measure of financial performance. Management
uses this non-GAAP measure in analyzing the operating performance of the
business, as it is more indicative of the effectiveness of our sales force and
the trends in our business. The Company calculates its liabilities to suppliers
and salesmen based on gross billings. The Company is responsible for paying its
ad serving and mailing vendors based on all advertising delivered for its
customers, irrespective of whether it shares risk of collection with websites
and list owners. The Company uses gross billings in discussions with its
management team surrounding future performance and as a gauge for making
financial decisions and allocating resources. Market share for its industry is
based, the Company believes, upon total


                                       62
<PAGE>


                       MAXWORLDWIDE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)


advertising billings irrespective of a company's third party relationship with
those suppliers. Gross billings enable the Company to measure its position in
the advertising market. The Company therefore believes it is important to
analyze this non-GAAP financial information along with GAAP revenue in
discussing its financial performance. Nevertheless, the Company believes that
gross billings should be considered in addition to, not as a substitute for or
superior to, GAAP revenue

NOTE 18- Quarterly Financial Data (Unaudited)

Provided below is the unaudited quarterly financial data for 2002 and 2001. The
unaudited quarterly results of operations for each of the quarters in the year
ended December 31, 2001 as well as for the quarter ended March 31, 2002 have
been restated for the matters identified in Note 3.

<TABLE>
<CAPTION>

                                                                                    (in thousands, except share amounts)
                                                                                        Three Months Ended
                                                                 ------------------------------------------------------------------
                                                                                                June 30,     Sept 30,    Dec 31,
                                                                        March 31, 2002            2002         2002        2002
                                                                 ----------------------------- -----------  ----------- -----------
                                                                 As Previously
                                                                   Reported       Restated
                                                                 -----------------------------
<S>                                                                 <C>             <C>           <C>          <C>         <C>

Statement of Operations Data
Revenue:
          Service fee-based revenue                                 $    1,657      $   1,455     $ 1,440      $ 5,861     $ 6,023
          Commission-based revenue                                       1,958          2,050       1,949        1,969       2,065
                                                                 -------------- -------------- -----------  ----------- -----------
Total revenue                                                            3,615          3,505       3,389        7,830       8,088

Cost of revenue                                                          1,186          1,581       1,613        4,309       4,259
                                                                 -------------- -------------- -----------  ----------- -----------

Gross profit                                                             2,429          1,924       1,776        3,521       3,829
                                                                 -------------- -------------- -----------  ----------- -----------

Operating expenses:
          Sales and marketing                                            3,116          2,804       1,957        2,720       2,285
          General and administrative                                     6,524          3,290       4,287        5,810       4,897
           Special charges                                                   -          3,117       5,384        1,242         150
          Impairment of goodwill and other intangible assets                 -              -           -            -       4,398
          Other impairment charges                                           -              -       1,435          480           -
         (Gain) loss on sale of adMonitor                                    -          (668)     (1,636)      (1,201)       (750)
                                                                  -------------- -------------- -----------  ----------- -----------
          Total operating expenses                                       9,640          8,543      11,427        9,051      10,980

                                                                  -------------- -------------- -----------  ----------- -----------
Operating loss                                                         (7,211)        (6,619)     (9,651)      (5,530)     (7,151)

Other income (expense) net                                                  10             10         (5)          (2)         204
Investment impairment                                                                       -           -            -           -
Gain (loss) on sale of equipment                                             -
Interest income                                                            282            286         179          156         119
                                                                  -------------- -------------- -----------  ----------- -----------
Loss before provision for income taxes                                 (6,919)        (6,323)     (9,477)      (5,376)     (6,828)
Provision for income taxes                                                   -              -           -            -           -

                                                                  -------------- -------------- -----------  ----------- -----------
Net loss                                                            $  (6,919)     $  (6,323)   $ (9,477)    $ (5,376)   $ (6,828)
                                                                  ============== ============== ===========  =========== ===========
Cumulative dividends on participating preferred stock                        -              -           -            -           -

                                                                 -------------- -------------- -----------  ----------- -----------
Net loss attributable to common stockholders                        $  (6,919)     $  (6,323)   $ (9,477)    $ (5,376)   $ (6,828)

Basic and diluted net loss per share                                $   (0.28)     $   (0.25)    $ (0.38)     $ (0.20)    $ (0.28)
                                                                 ============== ============== ===========  =========== ===========
Weighted average number of common shares outstanding used
in basic and diluted net loss per share                                 24,991         24,991      24,997       26,513      24,503
                                                                 ============== ============== ===========  =========== ===========
</TABLE>


                                       63
<PAGE>


                       MAXWORLDWIDE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)

<TABLE>
<CAPTION>

                                                                  (in thousands, except per share amounts)
                                                                           For the three months Ended
                                             ---------------------------------------------------------------------------------------
                                                    March 31,2001          June 30,2001          Sept 30,2001          Dec 31,2001
                                             ---------------------------------------------------------------------------------------
                                                 As                    As                   As                    As
                                             Previously            Previously            Previously            Previously
                                              Reported  Restated    Reported  Restated   Reported   Restated   Reported   Restated
                                             --------------------- --------------------- --------------------- ---------------------
<S>                                              <C>       <C>         <C>       <C>        <C>        <C>        <C>        <C>

Revenue:
          Service fee-based revenue              $6,497    $6,268      $6,179    $5,923     $6,413     $4,753     $1,444     $2,198
          Commission-based revenue                  591       602       1,335     1,281      1,155      2,231      4,032      3,291
                                             --------------------- --------------------- --------------------- ---------------------
Total revenue
                                                  7,088     6,870       7,514     7,204      7,568      6,984      5,476      5,489

          Cost of revenue                         4,415     7,150       3,573     5,603      3,133      6,084      2,144      4,188
                                             --------------------- --------------------- --------------------- ---------------------

Gross profit                                      2,673     (280)       3,941     1,601      4,435        900      3,332      1,301
                                             --------------------- --------------------- --------------------- ---------------------

Operating expenses:
          Sales and marketing                     4,381     4,926       3,696     4,285      4,122      3,392      3,068      3,133
          Product development                         -       667           -       656          -        626          -        373
          Research and development                3,664         -       3,534         -      4,162          -      2,714          -
          General and administrative              3,476     4,627       3,168     4,638      3,515      4,564      7,319      6,034
          Impairment of goodwill and other
          intangible assets                           -         -           -         -          -          -          -     10,921
          Other impairment charges                    -         -           -         -      2,117      1,507     25,906      1,764
         (Gain) loss on sale of adMonitor             -         -           -         -          -          -          -      3,068
                                             ------------------------------------------- --------------------- ---------------------
Total operating expenses                         11,521    10,220      10,398     9,579     13,916     10,089     39,007     25,293

                                             --------------------- --------------------- --------------------- ---------------------
Operating loss                                  (8,848)  (10,500)     (6,457)   (7,978)    (9,481)    (9,189)   (35,675)   (23,992)

Other income (expense) net                          191       186         509       764        117        770      4,088        405
Investment impairment                                 -         -           -         -          -    (1,000)          -          -
Gain (loss) on sale of equipment                      -         -           -         -          -          -          -          -
Interest income                                     989       989         727       727        533        533        672        672
                                             --------------------- --------------------- --------------------- ---------------------
Loss before provision for income taxes          (7,668)   (9,325)     (5,221)   (6,487)    (8,831)    (8,886)   (30,915)   (22,915)
Provision for income taxes                                      -           -         -          -          -          2          2
                                             --------------------- --------------------- --------------------- ---------------------
Net loss                                       ($7,668)  ($9,325)    ($5,221)  ($6,487)   ($8,831)   ($8,886)  ($30,917)  ($22,917)
                                             ===================== ===================== ===================== =====================
Cumulative dividends on participating
preferred stock                                       -         -           -         -          -          -          -          -

                                             --------------------- --------------------- --------------------- ---------------------
Net loss attributable to common
stockholders                                   ($7,668)  ($9,325)    ($5,221)  ($6,487)   ($8,831)   ($8,886)  ($30,917)  ($22,917)

Basic and diluted net loss per share            ($0.32)   ($0.39)     ($0.21)   ($0.27)    ($0.35)    ($0.36)    ($1.24)    ($0.92)
                                             ===================== ===================== ===================== =====================

Weighted average number of common shares
outstanding used in basic and diluted net
loss per share                                   23,999    23,999      24,471    24,471     24,913     24,913     24,913     24,913
                                             ===================== ===================== ===================== =====================
</TABLE>

NOTE 19- Subsequent Events

On February 10, 2003, the Company consummated the sale of substantially all of
the assets of MaxDirect to a wholly-owned subsidiary of American List Counsel,
Inc., a New Jersey corporation ("ALC"). The transaction did not include any of
the Company's assets relating to its online business, including e-mail list
management, e-mail brokerage and all other online services. As consideration for
MaxDirect, ALC paid $2.0 million in cash and assumed certain liabilities, on the
closing of the transaction (the "Closing"), and agreed to pay, monthly, 92.5% of
the acquired accounts receivable from MaxDirect collected by ALC during the
first six months following the Closing and 46.25% of the acquired accounts
receivable from the MaxDirect collected by ALC during the second six months
following the Closing, in each case net of any accounts payable associated with
such accounts receivable. In addition, ALC agreed to pay $500,000 in cash if
revenue generated by MaxDirect during the one year period following the Closing
is at least $2.5 million and an additional $1.0 million in cash if revenue
generated by MaxDirect during the one year period following the Closing are at
least $3.5 million. ALC also agreed to pay MaxWorldwide $0.50 for each dollar of
revenue above $3.5 million generated by MaxDirect during the one year period
following the Closing.

On March 12, 2003, the Company entered into an agreement with Focus Interactive,
Inc., formerly Bulldog Holdings, Inc. ("Focus") and certain of its affiliates to
sell substantially all of the Company's assets related to its MaxOnline division
(the "MaxOnline Sale"). A copy of the Agreement and Plan of Merger, dated March
12, 2003 was filed with the Commission as Exhibit 2.1 to the Company's Form 8-K
filed with the Commission on March 14, 2003. Pursuant to the merger agreement,
Focus would pay the Company $3.0


                                       64
<PAGE>


                       MAXWORLDWIDE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)


million upon closing of the MaxOnline sale, an additional $2.0 million within
one year following the closing or at the election of Focus, six months
thereafter, and up to an additional $1.0 million based upon the achievement of
certain revenue milestones. In addition, Focus would pay the Company 70% of the
accounts receivable transferred to Focus under the merger agreement and
collected by it during the eight month period beginning 120 days following the
effective time of the merger (net of certain expenses and accounts payable
associated with such accounts receivable). Focus also agreed to reimburse the
Company, within one year after the effective time of the merger, the amount of
any positive working capital in the MaxOnline business it acquires as a result
of the merger. The MaxOnline Sale is subject to approval by holders of a
majority of the Company's outstanding shares of common stock and other customary
conditions, including without limitation, the Company's receipt of an opinion
from its financial advisor that the MaxOnline Sale is fair, from a financial
point of view, to the holders of the Company's common stock. Assuming all the
conditions are satisfied or are otherwise waived by the Company and/or Focus,
the Company expects the MaxOnline Sale to close on or about June 30, 2003. If
the MaxOnline Sale is consummated, the Company currently intends to adopt a plan
of liquidation and dissolution pursuant to which we would liquidate the Company
and dissolve the corporation. Accordingly the Company will not plan to operate
any businesses following the sale of MaxOnline. The Company will significantly
curtail administrative expenses, discharge our outstanding liabilities and
initiate the orderly distribution of our remaining assets to our shareholders.
The Company's financial statements have not been adjusted to reflect the impact
of the potential liquidation of the Company. If the MaxOnline Sale is not
consummated, the Company intends to operate our business in the ordinary course.


                                       65
<PAGE>


                                   SCHEDULE II
                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                                 (in thousands)

<TABLE>
<CAPTION>

                                                          Balance      Additions                                            Balance
                                                             at       Charged to                                               at
                                                        Beginning of   Costs and       Other                                 End of
Description                                                Period       Expenses    Adjustments    Acquired   Deductions     Period
-----------                                             ----------- ------------  ------------- ----------- ------------ -----------
<S>                                                       <C>          <C>            <C>          <C>         <C>          <C>
For the year ended December 31, 2002
------------------------------------
 Allowances deducted from accounts receivable:
 Allowance for doubtful accounts                          $  3,246     $  1,890       $   (81)     $ 4,245     $  (418)     $ 8,882
 Allowance for advertising credits                               -          530              -           -            -         530
                                                        ----------- ------------  ------------- ----------- ------------ -----------
                         Total                            $  3,246     $  2,420       $   (81)     $ 4,245     $  (418)     $ 9,412
                                                        =========== ============  ============= =========== ============ ===========

 Reserves deducted from liabilities:
 Reserve against due to websites and due to list owners   $  1,627      $   447       $      -     $     -     $  (219)     $ 1,855
                                                        =========== ============  ============= =========== ============ ===========


For the year ended December 31, 2001 (restated)
-----------------------------------------------
 Allowances deducted from accounts receivable:
 Allowance for doubtful accounts                          $  4,136     $  6,169       $    433     $   676     $ (8,168)    $ 3,246
                                                        =========== ============  ============= =========== ============ ===========

 Reserves deducted from liabilities:
 Reserve against due to websites and due to list owners   $    430     $  1,087       $      -     $   603     $  (493)     $ 1,627
                                                        =========== ============  ============= =========== ============ ===========


For the year ended December 31, 2000 (restated)
-----------------------------------------------
 Allowances deducted from accounts receivable:
 Allowance for doubtful accounts                          $  1,038     $  6,830       $    443     $     -     $ (4,175)     $ 4,136
                                                        =========== ============  ============= =========== ============ ===========

 Reserves deducted from liabilities:
 Reserve against due to websites and due to list owners   $    265     $    165       $      -     $     -     $       -    $  430
                                                        =========== ============  ============= =========== ============ ===========
</TABLE>

Notes
-----
Other Adjustments are made up mainly of collection recoveries

"Acquired" represents amounts assumed in purchase business combinations


                                       66
<PAGE>


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

On June 28, 2002, we dismissed Arthur Andersen, LLP as our independent
accountant. Arthur Andersen's report on our financial statements for the years
ended December 31, 2001 and 2000 did not contain an adverse opinion or a
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope or accounting principles. During the years ended December 31, 2001 and
2000 and the interim period between December 31, 2001 and June 28, 2002, there
were no disagreements between the Company and Arthur Andersen on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedures, which disagreements, if not resolved to the satisfaction of
Arthur Andersen, would have caused it to make reference to the subject matter of
the disagreements in connection with its report. The dismissal of Arthur
Andersen LLP as our independent accountant was recommended and approved by both
the Audit Committee of the Board of Directors and the full Board of Directors.
On July 9, 2002, we appointed PricewaterhouseCoopers LLP as our new independent
accountant.

Previously reported on the Company's Form 8-K filed with the Commission on July
1, 2002.


                                    PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Incorporated by reference from the information in our proxy statement that we
intend to file with the Commission.

ITEM 11.  EXECUTIVE COMPENSATION

Incorporated by reference from the information in our proxy statement that we
intend to file with the Commission

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Incorporated by reference from the information in our proxy statement that we
intend to file with the Commission.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Incorporated by reference from the information in our proxy statement that we
intend to file with the Commission.

                                     PART IV

ITEM 14.  CONTROLS AND PROCEDURES

     (a)  Evaluation of Disclosure Controls and Procedures.

     Within 90 days of the filing date of this report, an evaluation was
     performed under the supervision and with the participation of the Company's
     management, including the Company's Chief Executive Officer and Chief
     Financial Officer, of the effectiveness of the design and operation of its
     disclosure controls and procedures (as defined in Rules 13a-14(c) and
     15d-14(c) promulgated under the Securities Exchange Act of 1934, as
     amended). Based on that evaluation, the Company's management, including the
     Chief Executive Officer and Chief Financial Officer, concluded that as of
     the evaluation date its disclosure controls and procedures were effective
     in alerting the Company to material information relating to the Company
     required to be included in this report.

     In connection with its audit of the Company's consolidated financial
     statements as of and for the year ended December 31, 2002,
     PricewaterhouseCoopers LLP advised the Company's management and its Audit
     Committee that it had identified a deficiency, which was designated a
     "reportable condition" but not a "material weakness." The reportable
     condition indicated that there was inadequate independent review of
     accounting activity performed on amounts appearing in the Company's
     consolidated financial statements. The Company believes this resulted from
     the extent of the effort to restate the prior year financial statements
     which required management and other finance department resources to devote
     significant attention to this task while at the same time completing the
     current year accounts.

     (b)  Changes in Internal Controls.

     There have been no significant changes in the Company's internal controls
     or in other factors that could significant affect these controls subsequent
     to the date of the evaluation referenced in paragraph (a) of this Item 14.


                                       67
<PAGE>


ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) Documents Filed As Part of This Report:

         (1) Index to Financial Statements. The following financial statements
of MaxWorldwide, Inc. are included in Part II, Item 8 of this Report:

<TABLE>
<CAPTION>

MaxWorldwide, Inc. and Subsidiaries                                                                                             Page

<S>                                                                                                                              <C>
Report of Independent Accountants ..........................................................................................      36

Consolidated Balance Sheets as of December 31, 2002 and 2001 (restated).....................................................      37

Consolidated Statements of Operations for the years ended December 31, 2002, 2001 (restated) and 2000 (restated).............     38

Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 (restated) and 2000 (restated)............      39

Consolidated Statements of Stockholders' Equity for the years ended December 31, 2002, 2001 (restated) and 2000 (restated)..      40

Notes to Consolidated Financial Statements .................................................................................   41-65
</TABLE>

         (2) Financial Statement Schedules. The following financial statement
schedule of MaxWorldwide, Inc. is included in Item 15(d):

Schedule II - Valuation and Qualifying Accounts and Reserves.

All other schedules are omitted as the required information is inapplicable or
the information is presented in the consolidated financial statements or related
notes.

         (3) Exhibits. The exhibits filed with this report are listed in the
Exhibit Index, which is filed under Item 15(c) of this report.

(b) Reports on Form 8-K.

None.


(c) Exhibits.


                                       68
<PAGE>


                                  EXHIBIT INDEX


Exhibit
Number            Description
------            -----------

2.1      Agreement of Merger dated September 15, 1999 (previously filed as an
         exhibit to the Registrant's S-1 Registration Statement filed with the
         Commission on September 23, 1999, which is incorporated herein by
         reference)
2.2      Agreement and Plan of Merger dated July 7, 2000, as amended on July 24,
         2000 ("webMillion Agreement"), among L90, WM Acquisition Corp.,
         webMillion.com, Inc., Anthony Hauser and Kenneth Adcock (previously
         filed as an exhibit to the Registrant's Current Report on Form 8-K
         filed with the Commission on July 28, 2000, which is incorporated
         herein by reference)
2.3      Asset Purchase Agreement dated May 14, 2001 ("Novus List Marketing
         Agreement") among Novus List Marketing, LLC, Henry A. Cousineau, III
         and L90, Inc.
2.4*     Asset Purchase Agreement dated October 2, 2001 ("adMonitor Agreement")
         between Registrant and DoubleClick, Inc. (previously filed as an
         exhibit to the Registrant's Quarterly Report on Form 10-Q for the
         quarter ended September 30, 2001, filed with the Commission on November
         14, 2001, which is incorporated herein by reference)
2.5      Agreement and Plan of Merger dated January 2, 2002 by and among the
         Registrant, eUniverse, Inc. and L90 Acquisition Corporation (previously
         filed as an exhibit to the Registrant's Current Report on Form 8-K
         filed with the Commission on January 3, 2002, which is incorporated
         herein by reference)
2.6      Agreement and Plan of Merger dated as of June 29, 2002 ("DoubleClick
         Media Agreement") by and among MaxWorldwide, L90, DoubleClick,
         DoubleClick Media Inc., Picasso Media Acquisition, Inc. and Lion Merger
         Sub, Inc. (previously filed as an exhibit to the Registrant's Current
         Report on Form 8-K filed with the Commission on July 1, 2002, which is
         incorporated herein by reference)
2.7*     Asset Purchase Agreement dated February 10, 2003 ("ALC Agreement")
         among L90, American List Counsel, Inc. and Data Marketing New England,
         Inc. (previously filed as an exhibit to the Registrant's Current Report
         on Form 8-K filed with the Commission on February 10, 2003, which is
         incorporated herein by reference)
2.8*     Agreement and Plan of Merger dated March 12, 2003 ("Focus Agreement")
         by and among Bulldog Holdings, Inc., The Excite Network, Inc., Millie
         Acquisition Sub, LLC, MaxWorldwide, L90 and Picasso Media Acquisition,
         Inc. (previously filed as an exhibit to the Registrant's Current Report
         on Form 8-K filed with the Commission on March 12, 2003, which is
         incorporated herein by reference)
2.9      Plan of Liquidation and Dissolution adopted by the Registrant's Board
         of Directors in April 2003.
2.10     Amendment to Agreement and Plan of Merger, dated May 5, 2003, among
         Focus Interactive, Inc. (formerly Bulldog Holdings, Inc.), The Excite
         Network, Inc., Millie Acquisition Sub, LLC, MaxWorldwide, Inc., L90,
         Inc., and Picasso Media Acquisition, Inc.
3.1      Amended and Restated Certificate of Incorporation (previously filed as
         an exhibit to the Registrant's Annual Report on Form 10-K for the year
         ended December 31, 2000, filed with the Commission on March 24, 2000,
         which is incorporated herein by reference)
3.2      Amended and Restated Bylaws (previously filed as an exhibit to the
         Registrant's S-1 Registration Statement filed with the Commission on
         September 23, 1999, which is incorporated herein by reference)
4.1      See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated
         Certificate of Incorporation and Bylaws of the Registrant defining the
         rights of holders of common stock of the Registrant.
4.2      Stock Purchase and Stockholders Agreement dated September 14, 1998
         (previously filed as an exhibit to the Registrant's S-1 Registration
         Statement filed with the Commission on September 23, 1999, which is
         incorporated herein by reference)
4.3      Registration Agreement dated August 6, 1999 (as amended) (previously
         filed as an exhibit to the Registrant's S-1 Registration Statement
         filed with the Commission on September 23, 1999, which is incorporated
         herein by reference)
4.4      Series C Registration Agreement dated September 22, 1999 (previously
         filed as an exhibit to the Registrant's S-1 Registration Statement
         filed with the Commission on September 23, 1999, which is incorporated
         herein by reference)
4.5      Registration Rights Agreement dated July 24, 2000 (previously filed as
         an exhibit to the Registrant's S-3 Registration Statement filed with
         the Commission on May 22, 2001, which is incorporated herein by
         reference)
4.6      Registration Agreement dated May 14, 2001 (previously filed as an
         exhibit to the Registrant's S-3 Registration Statement filed with the
         Commission on October 17, 2001, which is incorporated herein by
         reference)
4.7      Warrant No. PP-99-1 dated June 7, 1999 issued to The Roman Arch Fund
         L.P. ("Roman Arch PP Warrant") (previously filed as an exhibit to the
         Registrant's S-1 Registration Statement filed with the Commission on
         September 23, 1999, which is incorporated herein by reference)
4.8      Warrant No. PP-99-2 dated June 7, 1999 issued to The Roman Arch Fund II
         L.P. ("Roman Arch II PP Warrant") (previously filed as an exhibit to
         the Registrant's S-1 Registration Statement filed with the Commission
         on September 23, 1999, which is incorporated herein by reference)
4.9      Warrant No. IPO-99-1 dated June 7, 1999 issued to The Roman Arch Fund
         L.P. ("Roman Arch IPO Warrant") (previously filed as an exhibit to the
         Registrant's S-1 Registration Statement filed with the Commission on
         September 23, 1999, which is incorporated herein by reference)
4.10     Warrant No. IPO-99-2 dated June 7, 1999 issued to The Roman Arch Fund
         II L.P. ("Roman Arch II IPO Warrant") (previously filed as an exhibit
         to the Registrant's S-1 Registration Statement filed with the
         Commission on September 23, 1999, which is incorporated herein by
         reference)
4.11     Warrant No. W-WM1 dated July 24, 2000 issued to Jeffrey D. Wile ("Wile
         Warrant")
4.12     Warrant No. W-WM2 dated July 24, 2000 issued to David Hou ("Hou
         Warrant")
4.13     Warrant No. W-WM3 dated July 24, 2000 issued to Prime Ventures ("Prime
         Ventures Warrant")
4.14     Registration Rights Agreement dated July 10, 2002 between Registrant
         and DoubleClick Inc.
9.1      Stockholders Agreement dated July 10, 2002, as amended by that certain
         Amendment No. 1 dated April 4, 2003, between William Apfelbaum and
         DoubleClick Inc.


                                       69
<PAGE>


10.1     1999 Stock Incentive Plan (previously filed as an exhibit to the
         Registrant's S-1 Registration Statement filed with the Commission on
         September 23, 1999, which is incorporated herein by reference)
10.2     Form of Incentive Stock Option Agreement (previously filed as an
         exhibit to the Registrant's Annual Report on Form 10-K for the year
         ended December 31, 2000, filed with the Commission on March 24, 2000,
         which is incorporated herein by reference)
10.3     Form of Non-Statutory Stock Option Agreement (previously filed as an
         exhibit to the Registrant's Annual Report on Form 10-K for the year
         ended December 31, 2000, filed with the Commission on March 24, 2000,
         which is incorporated herein by reference)
10.4     Roman Arch PP Warrant (Exhibit 4.7)
10.5     Roman Arch II PP Warrant (Exhibit 4.8)
10.6     Roman Arch IPO Warrant (Exhibit 4.9)
10.7     Roman Arch II IPO Warrant (Exhibit 4.10)
10.8     Wile Warrant (Exhibit 4.11)
10.9     Hou Warrant (Exhibit 4.12)
10.10    Prime Ventures Warrant (Exhibit 4.13)
10.11    Form of Indemnification Agreement entered into between the Registrant
         and each of directors and executive officers (previously filed as an
         exhibit to the Registrant's S-1 Registration Statement filed with the
         Commission on September 23, 1999, which is incorporated herein by
         reference)
10.12    Employment Agreement entered into between the Registrant and Mitchell
         Cannold (previously filed as an exhibit to the Registrant's Annual
         Report on Form 10-K for the year ended December 31, 2001, filed with
         the Commission on May 16, 2002, which is incorporated herein by
         reference)
10.13    Employment Agreement entered into between the Registrant and William H.
         Mitchell
10.14    Employment Agreement entered into between the Registrant and William H.
         Wise
10.15    Severance Agreement entered into between the Registrant and Keith
         Kaplan
10.16    Severance Agreement entered into between the Registrant and Peter Huie
10.17    Employment Agreement entered into between the Registrant and the
         Registrant's former President and Chief Executive Officer, John Bohan
         (previously filed as an exhibit to the Registrant's S-1 Registration
         Statement filed with the Commission on September 23, 1999, which is
         incorporated herein by reference)
10.18    Letter Agreement dated October 31, 2001 by and between Registrant and
         the Registrant's former Chief Technology Officer, Kenneth Johnson
         (previously filed as an exhibit to the Registrant's Annual Report on
         Form 10-K for the year ended December 31, 2001, filed with the
         Commission on May 16, 2002, which is incorporated herein by reference)
10.19    Consulting Agreement entered into between the Registrant and William
         Apfelbaum
10.20    Consulting Agreement entered into between the Registrant and the Los
         Altos Group, Inc. (previously filed as an exhibit to the Registrant's
         Annual Report on Form 10-K for the year ended December 31, 2001, filed
         with the Commission on May 16, 2002, which is incorporated herein by
         reference)
10.21    webMillion Agreement (Exhibit 2.2)
10.22    Novus List Marketing Agreement (Exhibit 2.3)
10.23    adMonitor Agreement (Exhibit 2.4)
10.24    eUniverse Agreement (Exhibit 2.5)
10.25    DoubleClick Media Agreement (Exhibit 2.6)
10.26    ALC Agreement (Exhibit 2.7)
10.27    Focus Agreement (Exhibit 2.8)
10.28*   DoubleClick Master Services Agreement dated October 2, 2001, as amended
         on July 10, 2002, between Registrant and DoubleClick, Inc. (previously
         filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q
         for the quarter ended September 30, 2001, filed with the Commission on
         November 14, 2001, which is incorporated herein by reference)
10.29*   Dart Service Attachment for Publishers dated October 2, 2001, as
         amended on July 10, 2002, between Registrant and DoubleClick, Inc.
         (previously filed as an exhibit to the Registrant's Quarterly Report on
         Form 10-Q for the quarter ended September 30, 2001, filed with the
         Commission on November 14, 2001, which is incorporated herein by
         reference)
10.30    Office Lease dated October 25, 2000 between Registrant and Spieker
         Properties, L.P. (previously filed as an exhibit to the Registrant's
         Annual Report on Form 10-K for the year ended December 31, 2000, filed
         with the Commission on March 24, 2000, which is incorporated herein by
         reference)
10.31    Lease Termination Agreement dated April 7, 2003 between Registrant and
         CA-Marina Business Center Limited Partnership Agreement of Lease dated
         April 13, 1999 between Registrant and New Green 50W23 Realty LLC
10.32    Sub-Sublease Agreement dated February 28, 2000 between Registrant and
         Cravens & Company, Inc. (previously filed as an exhibit to the
         Registrant's Annual Report on Form 10-K for the year ended December 31,
         2000, filed with the Commission on March 24, 2000, which is
         incorporated herein by reference)
10.33    Agreement of Lease dated April 13, 1999 between Registrant and New
         Green 50W23 Realty LLC (previously filed as an exhibit to the
         Registrant's Annual Report on Form 10-K for the year ended December 31,
         2000, filed with the Commission on March 24, 2000, which is
         incorporated herein by reference)
16.1     Letter by Arthur Andersen LLP, the Registrant's former independent
         accountant regarding its dismissal as the Registrant's principal
         accountant (previously filed as an exhibit to the Registrant's Current
         Report on Form 8-K filed with the Commission on July 1, 2002, which is
         incorporated herein by reference)
21.1              Subsidiaries


                                       70
<PAGE>


23.1     Consent of PricewaterhouseCoopers LLP

99.1**   Certification of Chief Executive Officer and Chief Financial Officer
         pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
         of the Sarbanes-Oxley Act of 2002.

* Portions of this document have been redacted pursuant to a Request for
Confidential Treatment filed with the Securities and Exchange Commission.

**Pursuant to Commission Release No. 33-8212, this certification will be treated
as 'accompanying' this Annual Report on Form 10-K and not 'filed' as part of
such report for purposes of Section 18 of the Securities Exchange Act of 1934,
as amended (the 'Exchange Act'), or otherwise subject to the liability of
Section 18 of the Exchange Act, and this certification will not be deemed to be
incorporated by reference into any filing under the Securities Act of 1933, as
amended, or the Exchange Act, except to the extent that the registrant
specifically incorporates it by reference.


                                       71
<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.

MAXWORLDWIDE, INC., a Delaware corporation


By:    /s/  Mitchell Cannold
    --------------------------------------------------
         Mitchell Cannold
         President and Chief Executive Officer

Date:  May 8, 2003


KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Mitchell Cannold, William H. Mitchell, Peter M.
Huie and Hyunjin Lerner, his/her attorneys-in-fact, each with the power of
substitution, for him/her in any and all capacities, to sign any amendments to
this Report on Form 10-K, and to file the same, with Exhibits thereto and other
documents in connection therewith with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or
substitute or substitutes may do or cause to be done by virtue hereof.

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

<TABLE>
<CAPTION>

Name                                Capacity                                            Date
----                                --------                                            ----


<S>                                 <C>                                                 <C>
  /s/ Mitchell Cannold              Director, President and                             May 8, 2003
---------------------------------   Chief Executive Officer
Mitchell Cannold                    (Principal Executive Officer)


  /s/ William H. Mitchell           Chief Financial Officer                             May 8, 2003
---------------------------------

William H. Mitchell                 (Principal Financial Officer)

  /s/ Hyunjin Lerner                Vice President, Finance                             May 8, 2003
---------------------------------

Hyunjin Lerner                      (Principal Accounting Officer)

  /s/ William M. Apfelbaum          Chairman of the Board of Directors                  May 8, 2003
---------------------------------
William M. Apfelbaum

  /s/ Richard Costello              Director                                            May 8, 2003
---------------------------------

Richard Costello

  /s/ Geoffry Handler               Director                                            May 8, 2003
---------------------------------

Geoffry Handler

  /s/ G. Bruce Redditt              Director                                            May 8, 2003
---------------------------------

G. Bruce Redditt

  /s/ Peter Sealey                  Director                                            May 8, 2003
---------------------------------

Peter Sealey
</TABLE>


                                       72
<PAGE>

<PAGE>


                                  CERTIFICATION
                          PURSUANT TO 17 CFR 240.13a-14
                                PROMULGATED UNDER
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002



I, Mitchell Cannold, certify that:

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

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

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

4.       The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         have:

         (a)      designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this annual report is being prepared;

         (b)      evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

         (c)      presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

5.       The registrant's other certifying officers and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors (or persons
         performing the equivalent functions):

         (a)      all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

         (b)      any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

6.       The registrant's other certifying officers and I have indicated in this
         annual report whether there were significant changes in internal
         controls or in other factors that could significantly affect internal
         controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.


Date: May 8, 2003


  /s/ Mitchell Cannold
--------------------------------------------
Mitchell Cannold
President and Chief Executive Officer


                                       73
<PAGE>


                                  CERTIFICATION
                          PURSUANT TO 17 CFR 240.13a-14
                                PROMULGATED UNDER
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002


I, William H. Mitchell, certify that:

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

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

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

4.       The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         have:

         (a)      designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this annual report is being prepared;

         (b)      evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

         (c)      presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

5.       The registrant's other certifying officers and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors (or persons
         performing the equivalent functions):

         (a)      all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

         (b)      any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

6.       The registrant's other certifying officers and I have indicated in this
         annual report whether there were significant changes in internal
         controls or in other factors that could significantly affect internal
         controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.


Date: May 8, 2003


  /s/ William H. Mitchell
---------------------------------
William H. Mitchell
Chief Financial Officer


                                       74


<PAGE>


                                  EXHIBIT INDEX


Exhibit
Number            Description
------            -----------

2.1      Agreement of Merger dated September 15, 1999 (previously filed as an
         exhibit to the Registrant's S-1 Registration Statement filed with the
         Commission on September 23, 1999, which is incorporated herein by
         reference)
2.2      Agreement and Plan of Merger dated July 7, 2000, as amended on July 24,
         2000 ("webMillion Agreement"), among L90, WM Acquisition Corp.,
         webMillion.com, Inc., Anthony Hauser and Kenneth Adcock (previously
         filed as an exhibit to the Registrant's Current Report on Form 8-K
         filed with the Commission on July 28, 2000, which is incorporated
         herein by reference)
2.3      Asset Purchase Agreement dated May 14, 2001 ("Novus List Marketing
         Agreement") among Novus List Marketing, LLC, Henry A. Cousineau, III
         and L90, Inc.
2.4*     Asset Purchase Agreement dated October 2, 2001 ("adMonitor Agreement")
         between Registrant and DoubleClick, Inc. (previously filed as an
         exhibit to the Registrant's Quarterly Report on Form 10-Q for the
         quarter ended September 30, 2001, filed with the Commission on November
         14, 2001, which is incorporated herein by reference)
2.5      Agreement and Plan of Merger dated January 2, 2002 by and among the
         Registrant, eUniverse, Inc. and L90 Acquisition Corporation (previously
         filed as an exhibit to the Registrant's Current Report on Form 8-K
         filed with the Commission on January 3, 2002, which is incorporated
         herein by reference)
2.6      Agreement and Plan of Merger dated as of June 29, 2002 ("DoubleClick
         Media Agreement") by and among MaxWorldwide, L90, DoubleClick,
         DoubleClick Media Inc., Picasso Media Acquisition, Inc. and Lion Merger
         Sub, Inc. (previously filed as an exhibit to the Registrant's Current
         Report on Form 8-K filed with the Commission on July 1, 2002, which is
         incorporated herein by reference)
2.7*     Asset Purchase Agreement dated February 10, 2003 ("ALC Agreement")
         among L90, American List Counsel, Inc. and Data Marketing New England,
         Inc. (previously filed as an exhibit to the Registrant's Current Report
         on Form 8-K filed with the Commission on February 10, 2003, which is
         incorporated herein by reference)
2.8*     Agreement and Plan of Merger dated March 12, 2003 ("Focus Agreement")
         by and among Bulldog Holdings, Inc., The Excite Network, Inc., Millie
         Acquisition Sub, LLC, MaxWorldwide, L90 and Picasso Media Acquisition,
         Inc. (previously filed as an exhibit to the Registrant's Current Report
         on Form 8-K filed with the Commission on March 12, 2003, which is
         incorporated herein by reference)
2.9      Plan of Liquidation and Dissolution adopted by the Registrant's Board
         of Directors in April 2003.
2.10     Amendment to Agreement and Plan of Merger, dated May 5, 2003, among
         Focus Interactive, Inc. (formerly Bulldog Holdings, Inc.), The Excite
         Network, Inc., Millie Acquisition Sub, LLC, MaxWorldwide, Inc., L90,
         Inc., and Picasso Media Acquisition, Inc.
3.1      Amended and Restated Certificate of Incorporation (previously filed as
         an exhibit to the Registrant's Annual Report on Form 10-K for the year
         ended December 31, 2000, filed with the Commission on March 24, 2000,
         which is incorporated herein by reference)
3.2      Amended and Restated Bylaws (previously filed as an exhibit to the
         Registrant's S-1 Registration Statement filed with the Commission on
         September 23, 1999, which is incorporated herein by reference)
4.1      See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated
         Certificate of Incorporation and Bylaws of the Registrant defining the
         rights of holders of common stock of the Registrant.
4.2      Stock Purchase and Stockholders Agreement dated September 14, 1998
         (previously filed as an exhibit to the Registrant's S-1 Registration
         Statement filed with the Commission on September 23, 1999, which is
         incorporated herein by reference)
4.3      Registration Agreement dated August 6, 1999 (as amended) (previously
         filed as an exhibit to the Registrant's S-1 Registration Statement
         filed with the Commission on September 23, 1999, which is incorporated
         herein by reference)
4.4      Series C Registration Agreement dated September 22, 1999 (previously
         filed as an exhibit to the Registrant's S-1 Registration Statement
         filed with the Commission on September 23, 1999, which is incorporated
         herein by reference)
4.5      Registration Rights Agreement dated July 24, 2000 (previously filed as
         an exhibit to the Registrant's S-3 Registration Statement filed with
         the Commission on May 22, 2001, which is incorporated herein by
         reference)
4.6      Registration Agreement dated May 14, 2001 (previously filed as an
         exhibit to the Registrant's S-3 Registration Statement filed with the
         Commission on October 17, 2001, which is incorporated herein by
         reference)
4.7      Warrant No. PP-99-1 dated June 7, 1999 issued to The Roman Arch Fund
         L.P. ("Roman Arch PP Warrant") (previously filed as an exhibit to the
         Registrant's S-1 Registration Statement filed with the Commission on
         September 23, 1999, which is incorporated herein by reference)
4.8      Warrant No. PP-99-2 dated June 7, 1999 issued to The Roman Arch Fund II
         L.P. ("Roman Arch II PP Warrant") (previously filed as an exhibit to
         the Registrant's S-1 Registration Statement filed with the Commission
         on September 23, 1999, which is incorporated herein by reference)
4.9      Warrant No. IPO-99-1 dated June 7, 1999 issued to The Roman Arch Fund
         L.P. ("Roman Arch IPO Warrant") (previously filed as an exhibit to the
         Registrant's S-1 Registration Statement filed with the Commission on
         September 23, 1999, which is incorporated herein by reference)
4.10     Warrant No. IPO-99-2 dated June 7, 1999 issued to The Roman Arch Fund
         II L.P. ("Roman Arch II IPO Warrant") (previously filed as an exhibit
         to the Registrant's S-1 Registration Statement filed with the
         Commission on September 23, 1999, which is incorporated herein by
         reference)
4.11     Warrant No. W-WM1 dated July 24, 2000 issued to Jeffrey D. Wile ("Wile
         Warrant")
4.12     Warrant No. W-WM2 dated July 24, 2000 issued to David Hou ("Hou
         Warrant")
4.13     Warrant No. W-WM3 dated July 24, 2000 issued to Prime Ventures ("Prime
         Ventures Warrant")
4.14     Registration Rights Agreement dated July 10, 2002 between Registrant
         and DoubleClick Inc.
9.1      Stockholders Agreement dated July 10, 2002, as amended by that certain
         Amendment No. 1 dated April 4, 2003, between William Apfelbaum and
         DoubleClick Inc.


                                       75
<PAGE>


10.1     1999 Stock Incentive Plan (previously filed as an exhibit to the
         Registrant's S-1 Registration Statement filed with the Commission on
         September 23, 1999, which is incorporated herein by reference)
10.2     Form of Incentive Stock Option Agreement (previously filed as an
         exhibit to the Registrant's Annual Report on Form 10-K for the year
         ended December 31, 2000, filed with the Commission on March 24, 2000,
         which is incorporated herein by reference)
10.3     Form of Non-Statutory Stock Option Agreement (previously filed as an
         exhibit to the Registrant's Annual Report on Form 10-K for the year
         ended December 31, 2000, filed with the Commission on March 24, 2000,
         which is incorporated herein by reference)
10.4     Roman Arch PP Warrant (Exhibit 4.7)
10.5     Roman Arch II PP Warrant (Exhibit 4.8)
10.6     Roman Arch IPO Warrant (Exhibit 4.9)
10.7     Roman Arch II IPO Warrant (Exhibit 4.10)
10.8     Wile Warrant (Exhibit 4.11)
10.9     Hou Warrant (Exhibit 4.12)
10.10    Prime Ventures Warrant (Exhibit 4.13)
10.11    Form of Indemnification Agreement entered into between the Registrant
         and each of directors and executive officers (previously filed as an
         exhibit to the Registrant's S-1 Registration Statement filed with the
         Commission on September 23, 1999, which is incorporated herein by
         reference)
10.12    Employment Agreement entered into between the Registrant and Mitchell
         Cannold (previously filed as an exhibit to the Registrant's Annual
         Report on Form 10-K for the year ended December 31, 2001, filed with
         the Commission on May 16, 2002, which is incorporated herein by
         reference)
10.13    Employment Agreement entered into between the Registrant and William H.
         Mitchell
10.14    Employment Agreement entered into between the Registrant and William H.
         Wise
10.15    Severance Agreement entered into between the Registrant and Keith
         Kaplan
10.16    Severance Agreement entered into between the Registrant and Peter Huie
10.17    Employment Agreement entered into between the Registrant and the
         Registrant's former President and Chief Executive Officer, John Bohan
         (previously filed as an exhibit to the Registrant's S-1 Registration
         Statement filed with the Commission on September 23, 1999, which is
         incorporated herein by reference)
10.18    Letter Agreement dated October 31, 2001 by and between Registrant and
         the Registrant's former Chief Technology Officer, Kenneth Johnson
         (previously filed as an exhibit to the Registrant's Annual Report on
         Form 10-K for the year ended December 31, 2001, filed with the
         Commission on May 16, 2002, which is incorporated herein by reference)
10.19    Consulting Agreement entered into between the Registrant and William
         Apfelbaum
10.20    Consulting Agreement entered into between the Registrant and the Los
         Altos Group, Inc. (previously filed as an exhibit to the Registrant's
         Annual Report on Form 10-K for the year ended December 31, 2001, filed
         with the Commission on May 16, 2002, which is incorporated herein by
         reference)
10.21    webMillion Agreement (Exhibit 2.2)
10.22    Novus List Marketing Agreement (Exhibit 2.3)
10.23    adMonitor Agreement (Exhibit 2.4)
10.24    eUniverse Agreement (Exhibit 2.5)
10.25    DoubleClick Media Agreement (Exhibit 2.6)
10.26    ALC Agreement (Exhibit 2.7)
10.27    Focus Agreement (Exhibit 2.8)
10.28*   DoubleClick Master Services Agreement dated October 2, 2001, as amended
         on July 10, 2002, between Registrant and DoubleClick, Inc. (previously
         filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q
         for the quarter ended September 30, 2001, filed with the Commission on
         November 14, 2001, which is incorporated herein by reference)
10.29*   Dart Service Attachment for Publishers dated October 2, 2001, as
         amended on July 10, 2002, between Registrant and DoubleClick, Inc.
         (previously filed as an exhibit to the Registrant's Quarterly Report on
         Form 10-Q for the quarter ended September 30, 2001, filed with the
         Commission on November 14, 2001, which is incorporated herein by
         reference)
10.30    Office Lease dated October 25, 2000 between Registrant and Spieker
         Properties, L.P. (previously filed as an exhibit to the Registrant's
         Annual Report on Form 10-K for the year ended December 31, 2000, filed
         with the Commission on March 24, 2000, which is incorporated herein by
         reference)
10.31    Lease Termination Agreement dated April 7, 2003 between Registrant and
         CA-Marina Business Center Limited Partnership Agreement of Lease dated
         April 13, 1999 between Registrant and New Green 50W23 Realty LLC
10.32    Sub-Sublease Agreement dated February 28, 2000 between Registrant and
         Cravens & Company, Inc. (previously filed as an exhibit to the
         Registrant's Annual Report on Form 10-K for the year ended December 31,
         2000, filed with the Commission on March 24, 2000, which is
         incorporated herein by reference)
10.33    Agreement of Lease dated April 13, 1999 between Registrant and New
         Green 50W23 Realty LLC (previously filed as an exhibit to the
         Registrant's Annual Report on Form 10-K for the year ended December 31,
         2000, filed with the Commission on March 24, 2000, which is
         incorporated herein by reference)
16.1     Letter by Arthur Andersen LLP, the Registrant's former independent
         accountant regarding its dismissal as the Registrant's principal
         accountant (previously filed as an exhibit to the Registrant's Current
         Report on Form 8-K filed with the Commission on July 1, 2002, which is
         incorporated herein by reference)
21.1              Subsidiaries


                                       76
<PAGE>


23.1     Consent of PricewaterhouseCoopers LLP

99.1**   Certification of Chief Executive Officer and Chief Financial Officer
         pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
         of the Sarbanes-Oxley Act of 2002.

* Portions of this document have been redacted pursuant to a Request for
Confidential Treatment filed with the Securities and Exchange Commission.


**Pursuant to Commission Release No. 33-8212, this certification will be treated
as 'accompanying' this Annual Report on Form 10-K and not 'filed' as part of
such report for purposes of Section 18 of the Securities Exchange Act of 1934,
as amended (the 'Exchange Act'), or otherwise subject to the liability of
Section 18 of the Exchange Act, and this certification will not be deemed to be
incorporated by reference into any filing under the Securities Act of 1933, as
amended, or the Exchange Act, except to the extent that the registrant
specifically incorporates it by reference.



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