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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                ________________

                                    FORM 10-K
                                ________________

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

                   For the fiscal year ended 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 000-27065

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

            Washington                                   91-1809146
 (Jurisdiction of incorporation)            (I.R.S. Employer Identification No.)

                             95 South Jackson Street
                                    Suite 300
                            Seattle, Washington 98104
                    (Address of principal executive offices)

                  Registrant's telephone number: (206) 441-9100

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

                                            Name of each exchange
                 Title of each class         on which registered
                 -------------------         -------------------
                         None                        N/A

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

                           Common Stock, no par value
                                (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|

<PAGE>

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

      The aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold on Nasdaq as of the last business day of the registrant's most
recently completed second fiscal quarter, which was June 28, 2002: $3,026,695.

      The number of shares of the registrant's Common Stock outstanding as of
March 14, 2003 was 4,220,933.

                       DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the definitive Proxy Statement to be delivered to shareholders
in connection with the Annual Meeting of Shareholders to be held on June 10,
2003 are incorporated by reference into Part III.

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                           FORWARD LOOKING STATEMENTS

Certain statements in this Annual Report constitute forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements can often be identified by terminology such as may,
will, should, expect, plan, intend, expect, anticipate, believe, estimate,
predict, potential or continue, the negative of such terms or other comparable
terminology. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of Aptimus, Inc. ("Aptimus", "we", "us" or the "Company"), or
developments in the Company's industry, to differ materially from the
anticipated results, performance or achievements expressed or implied by such
forward-looking statements. Important factors currently known to management that
could cause actual results to differ materially from those in forward-looking
statements include, without limitation, fluctuation of the Company's operating
results, the ability to compete successfully, the ability of the Company to
maintain current client and distribution partner relationships and attract new
ones, the sufficiency of remaining cash and short-term investments to fund
ongoing operations and the ability to integrate acquired companies. For
additional factors that may cause actual results to differ materially from those
contemplated by such forward-looking statements, please see the risks and
uncertainties described under "Business -- Risk Factors" in Part I of this
Annual Report. Certain of the forward-looking statements contained in this
Report are identified with cross-references to this section and/or to specific
risks identified under "Business -- Risk Factors."

                                     PART I

Item 1: Business

Overview

      Aptimus (http://www.aptimus.com) is a leader in online lead generation and
customer acquisition programs for major consumer marketers. At the core of the
Company's approach is a proprietary and highly scalable offer-serving platform,
which includes patent-pending Dynamic Revenue OptimizationTM (DRO) technology.
DRO automatically determines the performance of various marketing campaigns and
adjusts offer impressions to maximize results, thus placing the right offers in
front of the right customers and realizing the benefits of true one-to-one
direct marketing. Aptimus presents direct response offers from advertisers
across an ever-expanding network of distribution partner web sites and email
channels. The Company's primary offer presentation formats include
cross-marketing promotions at the points of registration, purchase, login,
download, or other transactional activities on web sites, as well as email
campaigns. Aptimus' current clients include many of the top 500 direct
marketers, such as AT&T, JPMorgan Chase, Columbia House, Drugstore.com, General
Mills, Gevalia, IBM, TV Guide, USA Today, AOL Time Warner, and Readers Digest.
Aptimus has offices in Seattle and San Francisco, and is publicly traded on the
National Association of Securities Dealers (NASD) Over the Counter Bulletin
Board (OTCBB) under the symbol APTM.OB.

Company History

      Aptimus began in 1994 as the FreeShop division of Online Interactive, Inc.
This division was spun-off from Online Interactive, Inc. in 1997 as FreeShop
International, Inc., and later became FreeShop.com, Inc. FreeShop was an online
direct marketing web site connecting marketers and consumers in an innovative
new approach made possible by the Internet. The concept was to leverage the
unique qualities of the Internet to change the direct marketing paradigm and
allow consumers to pick and choose the promotional offers they actually wanted
from direct marketers. This site-centric approach led to the Company's growth
through our initial public offering in 1999 and into 2000. The core of our
business model was the lead generation business, a decades-old two-step
marketing process where marketers offer a free trial, sample or information as a
first step to acquiring a new customer. By the year 2000, our lead generation
business was surrounded by advertising and sponsorship opportunities, which
eventually grew to 65% of our revenues in the second quarter of 2000.

      During the year 2000, funding for Internet companies slowed and stock
prices generally declined. Lack of funding, combined with an increased focus
among Internet companies on profitability over revenue growth objectives,
resulted in reduced marketing spending by Internet companies, most notably in
the second half of 2000. This drop in spending has had significant repercussions
throughout the industry and materially affected our advertising and sponsorship
businesses.

      While the Company faced major challenges in 2000 and our results suffered,
we maintained our aggressive posture and focused on what we know best - online
direct marketing. Toward that end, beginning in June 2000 we undertook an
evaluation of all aspects of


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how we do business. Through this effort, we made a number of determinations and
commitments that formed the basis of our strategy going forward.

      o     We determined that revenue streams from advertising and sponsorship
            opportunities were declining quickly and would not likely return to
            their earlier levels for some time to come. Those revenue streams
            were critical to making rapid growth via our site-centric approach
            possible, given the high marketing and infrastructure costs of
            growing a Web site audience.

      o     We determined that our lead generation core business remained
            strong, although the Internet-centric aspects such as e-mail list
            development for Internet companies would be more challenging to
            build. Direct marketing in general continued to prosper, and most
            direct marketers recognized the importance of the Internet as a key
            part of their distribution mix.

      o     We determined that all major sites throughout the industry would be
            feeling the same impacts on advertising spending, and thus would be
            seeking alternative revenue-generation opportunities such as
            action-based pricing (where fees are paid on a per-lead or other
            results basis).

      o     We determined that our direct marketing clients could be served
            better by our placement of their offers in relevant context through
            other companies' Web sites and email channels, without Aptimus
            spending the significant resources required to continue to maintain
            and grow our own web site audiences.

      As a result of these determinations, we made a shift to build a network
strategy beginning in the Summer of 2000, placing direct marketing clients'
offers in contextually relevant locations on partner Web sites throughout the
Internet. Consistent with this new strategy, in October 2000 we renamed our
company Aptimus, Inc., and christened our network the Aptimus Network.

      From the summer of 2000 to the summer of 2001, we laid the foundation for
our new network business model, and also reevaluated and changed all aspects of
our company in the process. We exited the Web site business and terminated most
of the contracts that were tied to our Web site business. We also reduced our
staff from a high of 215 to 28 at the end of 2001 primarily through
restructuring plans implemented in February of 2001 and June of 2001. In
addition, in November 2001 we completed a major issuer tender offer, acquiring
9,230,228 shares of our outstanding common stock, or approximately 69.87% of our
outstanding shares as of November 15, 2001. The issuer tender offer was
completed in order to increase the upside potential for continuing shareholders
who believed in the future of online direct marketing and our Company while
simultaneously allowing shareholders who desired to exit the stock to do so at a
substantial premium to market prices at the time.

      As of the summer of 2001, we were a fully transitioned company focused
exclusively on our network business opportunity, and poised for a turnaround in
our growth. During the third quarter, we took 166,000 lead generation orders via
our network generating $188,000 in revenues, up from 100,000 orders in the
second quarter. The momentum continued to increase in the fourth quarter, where
we generated 342,000 orders and $378,000 in revenues, doubling both numbers on a
quarter-to-quarter basis.

      The positive momentum continued in 2002. We experienced steady growth in
orders and revenues over the course of the year and ended the fourth quarter
with 1.3 million orders and $823,000 in revenue. With continued positive
momentum, a strong technology foundation, and a low fixed cost structure, we are
on our way to realizing the power and growth potential of our network model. We
hope to build on the foundation of our recent successes and develop Aptimus into
an Internet survivor and category leader in online direct marketing technologies
and services.

Industry Background

Direct Marketing

      Advertising expenditures can be broadly defined as either brand or direct
marketing. Brand advertising is intended to generate brand name awareness and
create a specific image for a particular company, product or service. Direct
marketing involves any direct communication to a consumer intended to generate a
specific response or action, generally a purchase of a product or service.

Traditional Direct Marketing

      Traditional direct marketing media include direct mail, telemarketing,
newspaper, magazine, radio and television advertising. Although traditional
direct marketing is effective and widely used, it presents a number of
challenges for marketers and consumers alike. Traditional direct marketers
generally lack specific and timely information on a particular consumer's
immediate interests. As a


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result, marketers spend considerable resources on communications most consumers
don't want or need. Given the costs associated with traditional direct
marketing, which typically include printing, data processing, postage, assembly,
labor, telecommunications, and facilities, low response rates make the process
increasingly inefficient.

Online Direct Marketing

      Online direct marketing media include banner advertisements,
interstitials, advertorials, text-links, pop-ups, targeted email solicitations
and Web site sponsorships. Online direct marketing is more efficient than
traditional direct marketing because it requires lower production costs, and
provides easier and faster customer response features. In addition, online
direct marketing allows marketers to develop one-to-one relationships with
customers; collect instantaneous data and feedback on marketing campaigns; and
enables highly customized marketing campaigns.

      Even with these advantages, direct marketers face challenges in realizing
the full potential of the Internet as a marketing medium. With millions of Web
sites, only a fraction of which have significant audiences, it is difficult for
marketers to decide where to spend their marketing budgets. Even leading brand
name marketers who build their own Web sites must find ways to attract a
sizeable audience. In addition, technological hurdles may impede conventional
direct marketers from successfully extending their activities to the Internet.

The Aptimus Solution

      Aptimus provides a single-source online solution for marketers to acquire
new customers via online media. The Aptimus Network presents consumers with
relevant offers geared to their immediate interests, allowing marketers to reach
consumers with the right offers when they are most likely to respond. Our offer
presentation serving technology platform enables us to promote offers
contextually across the Internet via both web site and email channels. Our
dynamic revenue optimization technology enables us to improve offer placement
and response on-the-fly. Our Aptimus TransAction Masterfile of over 25 million
opt-in email names also allows us to rapidly and aggressively promote successful
offers to both broad and targeted audiences. Built on our DRO patent-pending
technology platform, which is flexible, scalable and proprietary, the Aptimus
Network can support millions of users and hundreds of marketers and Web site
partners.

Contextual Marketing

      The Aptimus Network draws its strength from contextual marketing. Marketer
offers are placed among partner Web sites and e-mail channels, complementing the
content and as a result creating value for consumers and marketers alike. The
result: the right offers presented at the right place and the right time.

Benefits to Consumers

      Aptimus puts consumers in control of the direct marketing process by
empowering them to select offers that most interest them and meet their
individual needs. Through the Aptimus Network of Web site partners, we bring
together consumers and marketers in a contextual interactive environment. The
Aptimus Network has a broad range of offers from top consumer brands. The offers
include items such as catalogs, magazines, product samples, software, brochures,
and coupons, covering a variety of interests such as travel, personal finance,
entertainment and sports. In addition, because many offers are free or trial
offers, consumers are able to try new products and services before making
purchase decisions.

Benefits to Marketers

      Aptimus benefits marketers by offering a powerful, cost effective way to
acquire new customers online. Aptimus provides marketers with a diverse tool kit
designed to meet their objectives throughout the direct marketing process, from
awareness to interest to trial to sale. Our services include all facets of the
digital direct marketing process, from pre-campaign planning, to offer
consultation, creative execution, lead generation, campaign
measurement/reporting and campaign refinement. Marketers generally pay Aptimus
based solely on the results we achieve for them. Marketers pay Aptimus for the
number of leads and/or orders delivered. Since our lead generation services are
billed on a results basis, marketers can test direct marketing services with
little risk. Additionally, direct marketers control their campaigns by setting
budget, duration and lead volume caps. Most importantly, because consumers
select the offers they want to receive, direct marketers acquire higher quality
leads.

Benefits to Web site partners


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      Aptimus helps Web site partners by generating powerful new incremental
revenue streams from their current efforts, often through marketing placements
that are not otherwise monetized. Our base of clients and offers brings new
revenue opportunities and our dynamic platform automatically optimizes those
opportunities for maximum revenues. Compelling promotional offers also can help
to engage Web site visitors. Aptimus works closely with partners to identify
areas of their Web sites that have the most profit potential, and then
dynamically serves targeted offers that match users' interests. Partners share
in the cost-per-action results. Similarly, partners who have large opt-in email
files can participate in the Aptimus TransAction Masterfile for additional
revenues through the delivery of special offers via email to their customers.

Strategy

      Our objective is to be the dominant pay-for-performance online direct
response network. We intend to achieve this objective by the following key
strategies:

Expand Client Base

      Aptimus provides direct marketers with a cost-effective alternative to
traditional direct marketing and, as a result, the Company has a significant
opportunity to increase the number of direct marketing clients we serve. In
particular, we are seeing more national consumer brand companies seeking
Internet-based direct marketing vehicles, and we plan to initiate new
relationships and expand our existing relationships with these companies. We
continue to focus our sales staff to drive this client growth. We plan to
continue to expand and refine the services we offer to our clients, including
enhanced marketing programs, new methods of presenting offers, expanded and
customized data-gathering options and increased opportunities for following up
on initial lead generation. In addition to enhancing our existing marketing
programs, we will be developing new programs in an effort to meet the needs of
new and different marketers. Finally, we also offer our services to advertising
and direct marketing agencies as a solution for their client companies to access
consumers on the Internet.

Grow Web site Distribution Partner Base

      We intend to continue to grow our Partner web site distribution network by
focusing on the top 250 Web sites in audience size. Because our services are
performance based, it is critical that we have high volumes of marketing
impressions to create the maximum results. Thus, larger web sites, and
especially those with high volumes of transactional activities such as
registrations, joins, or purchases and/or large opt-in email files, are the most
valuable distribution partners for our network.

Expand Offers

      The number and quality of offers available through our network are
critical to our ability to increase revenues. We plan to expand the number and
variety of offers in the Aptimus Network as rapidly as possible. We will drive
this expansion through the focused efforts of our internal sales team, agent
relationships, and advertising and direct marketing agency partnerships.

Increase Effective Revenues Per Impression

      Our dynamic offer serving technology platform automatically maximizes
revenues on the fly through a patent-pending algorithmic approach. This
proprietary technology "optimizes" offer presentation on a real time basis,
assuring that the best performing offers in price and conversion (orders per
impression) automatically receive more exposure while lower performing offers
receive less exposure. Over time, as we continue to add new clients and offers,
this system should automatically increase our revenues based on the impressions
we receive for our offers. In addition, clients have a built-in incentive to
improve their offers and the fees they pay to Aptimus per order, as the revenue
results per impression for their offer will be a key factor in determining the
volumes of orders they receive.

Continue to Develop and Use Technology to Enhance Direct Marketing Capabilities

      The Aptimus Network will continue to evolve in order to address the
evolving needs of direct marketers, web publishers and customers with a
sophisticated technology offering. The network resides on a proprietary platform
that is flexible, reliable and scalable. It can support millions of consumers
and hundreds of marketer clients and distribution partners. We continually
update our technology in order to provide our clients and partners with the most
effective offer presentations and reporting mechanisms.


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<PAGE>

Client Services

      We offer marketers and Web site publishers a full suite of products and
services designed to meet their objectives throughout the entire marketing
process. We provide the infrastructure that makes direct marketing work in the
digital world. Combining media and technology expertise, our products and
services enable direct marketers to deliver the right offers to the right
prospects, at the right time, while helping Web publishers maximize their
revenue and build their business online.

      Our primary business is generating customer leads for our marketer clients
through free, trial and promotional offers. We promote these offers across our
network of partner Web sites and through email campaigns delivered to
company-owned and managed opt-in email lists. Consumers place orders for the
offers that interest them through us. We then deliver the order information to
our clients, who are each responsible for fulfilling these orders. Information
sent to our clients includes information required for order fulfillment as well
as additional information requested by the marketer. Marketers pay Aptimus for
each customer order, or lead, we generate.

Sales and Marketing

Client Base Development

      We sell our solutions to direct marketer clients primarily through a sales
and marketing organization comprised of Aptimus employed sales staff and
independent contractors. Our salespeople are located primarily in San Francisco.
As part of our strategy to increase our client base, we will expand our sales
force and client account management teams on an as needed basis. We conduct
comprehensive marketing programs promoting Aptimus and our services to support
our direct sales efforts. These programs include public relations and
advertising campaigns, tradeshow exhibits, and other programs designed to
generate awareness and sales leads from major consumer direct marketers. Our
marketing efforts also include ongoing customer and prospect communications
programs.

Partner Base Development

      Aptimus has a dedicated business development team who target and offer
high-quality Web publishers the opportunity to participate in the Aptimus
Network. Aptimus account managers work closely with our partner Web sites to
determine the most advantageous offer placements and presentation formats, often
monetizing previously untapped content. We continually and dynamically analyze
consumer response to offers placed on distribution partner Web sites in order to
optimize results. We also experiment with multiple overall presentation formats
and placements to maximize revenues for our distribution partners.

Operations and Technology

      We have implemented a broad array of offer presentation, dynamic
optimization, customer service, transaction processing and reporting systems
using both proprietary and licensed technologies. The Aptimus Network resides on
a proprietary platform that is flexible, reliable and scalable. It can support
millions of consumers and large numbers of marketers and partners. Aptimus'
proprietary network has been developed using both data and process engineering
approaches to ensure a comprehensive and reliable architecture. Aptimus has
filed a non-provisional patent application with the US Patent and Trademark
Office that covers our proprietary offer rotation engine as a whole as well as
its various unique component parts. The Aptimus Network technology has been
created with four foundation goals in mind:

            Flexibility: The network is built entirely in Java, HTML, and XML,
      and is intended to run across all platforms and networks.

            Compatibility: To support the network, we have designed our remote
      registration drivers to scale easily across partner Web sites with a
      minimum of technical integration required.

            Reliability: We have conducted hundreds of thousands of transactions
      across our network of partner sites with a negligible failure rate. All
      our data transfers are conducted according to industry-standard security
      protocols, including Secure Sockets Layer (SSL).

            Scalability: All of our technologies are designed for rapid,
      complete deployment across a large number of distribution partners. We
      leverage existing registration implementations at our partner sites to
      speed up the integration process.

      The Aptimus Network technology has been designed to evolve with the
business and the Internet marketplace.


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<PAGE>

Competition

      At the core of the Aptimus' network lead generation business is a
proprietary, patent-pending technology and direct marketing approach called
Dynamic Revenue Optimization, which automatically determines on a real-time
basis the best marketer offers for promotion on each distribution partner's Web
site and in each email sent. The technology is designed to optimize results for
Aptimus' marketer clients by placing the right offers in front of the right
customers, while maximizing revenues for Aptimus and its distribution partners.

      While we believe that our proprietary technology offers us an advantage
over the competition, we nonetheless face competition from other online
advertising and direct marketing companies such as ValueClick, Engage, Avenue A,
and MaxWorldwide, some of which are also clients or partners of Aptimus.

      Aptimus also competes for Internet advertising revenues with large Web
publishers and Web portals, such as AOL Time Warner, MSN, Overture, Terra Lycos,
Google, and Yahoo!. These companies also have the potential to become major
distribution partners for Aptimus.

Seasonality

      Aptimus is subject to seasonal fluctuations. Direct marketers generally
increase their customer acquisition efforts in the late third quarter and early
fourth quarter more than at any other time of the year. Further, in the United
States Internet user traffic typically drops during the summer months.
Expenditures by advertisers and direct marketers tend to vary in cycles that
reflect overall economic conditions as well as budgeting and buying patterns.

Intellectual Property

      We regard our copyrights, service marks, trademarks, pending patents,
trade secrets, proprietary technology and similar intellectual property as
critical to our success, and we rely on trademark, patent and copyright law,
trade secret protection and confidentiality and license agreements with our
employees, customers, independent contractors, partners and others to protect
our intellectual property rights. We have registrations or pending registrations
of the trademark "Aptimus" and "The Aptimus Network" in the United States,
Australia, Canada, China, the European Union, and New Zealand. We also have a
pending non-provisional patent application in the United States and under the
Patent Cooperation Treaty for protection in the PCT member states that covers
our proprietary offer rotation engine as a whole as well as its various unique
component parts.

      We have registered a number of domain names, including aptimus.com among
others. Internet regulatory bodies regulate domain names. The regulation of
domain names in the United States and in foreign countries is subject to change
in the future. Regulatory bodies could establish additional top-level domains,
appoint additional domain name registrars or modify the requirements for holding
domain names. The relationship between regulations governing domain names and
laws protecting trademarks and similar intellectual property rights is unclear.
Therefore, we could be unable to prevent third parties from acquiring domain
names that infringe on or otherwise decrease the value of our trademarks and
other proprietary rights.

      Aptimus may be required to obtain licenses from others to refine, develop,
market and deliver new services. We may be unable to obtain any such license on
commercially reasonable terms, if at all, or guarantee that rights granted by
any licenses will be valid and enforceable.

Financial Information About Geographic Areas

      For the years ended December 31, 2002, 2001 and 2000 revenues attributable
to the Unites States have been $2.8 million, $1.7 million and $16.7 million, or
97%, 93% and 99%, respectively For the past three fiscal years all long-lived
assets of the Company have been located in the United States.

Employees


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      As of March 14, 2003, Aptimus had a total of 21 employees. The current
employee mix includes 9 in sales and marketing, 7 in technology and development,
and 5 in finance and administration. Unions represent none of our employees. We
consider relations with our employees to be good.


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                          RISKS RELATED TO OUR BUSINESS

We have a limited operating history, which makes it difficult to predict our
future performance.

      Our limited operating history makes predicting our future performance
difficult and does not provide investors with a meaningful basis for evaluating
an investment in our common stock. From our inception in June 1994 through June
1997, we existed as a division of Online Interactive, Inc. We began operations
as an independent company in June 1997. In the first half of 1998, we began
offering advertising opportunities on our Web sites and in our email
newsletters, in addition to our primary business of lead generation. As a
result, our performance from the end of the first quarter of 1998 through
January 2001 was not comparable to prior periods. In February 2001, we
repositioned the cCmpany as a direct marketing infrastructure provider, focusing
all our resources on building our direct marketing network. As a result, our
subsequent performance has not been and will not be comparable to prior periods.
Moreover, the current economic downturn in the Internet business, specifically,
and the overall economy, generally, has caused many online and traditional
advertisers to drastically cut back or eliminate their advertising and marketing
budgets and, in some cases, cease business operations altogether. Further
erosion of this revenue source may adversely affect our operating results.

We will face risks encountered by early-stage companies in Internet-related
businesses and may be unsuccessful in addressing these risks.

      We face risks frequently encountered by early-stage companies in new and
rapidly evolving markets, including the market for online direct marketing. We
may not succeed in addressing these risks, and our business strategy may not be
successful. These risks include uncertainties about our ability to:

      o     attract a larger number of consumers to our direct marketing
            network;

      o     contract with new marketing clients and add new and compelling
            content to our offer network;

      o     contract with new online distribution partners with access to large
            volumes of online users;

      o     contract with third-party providers of systems upon which our
            services may depend;

      o     collect receivables for services performed from existing marketing
            clients;

      o     manage our evolving operations;

      o     adapt to potential decreases in online advertising rates;

      o     successfully introduce new products and services;

      o     continue to develop and upgrade our technology and to minimize
            technical difficulties and system downtime;

      o     create and maintain the loyalty of our customers, partners and
            clients;

      o     maintain our current, and develop new, strategic relationships and
            alliances; and

      o     attract, retain and motivate qualified personnel.

We have a history of losses, expect future losses and may never achieve
profitability.

      We have not achieved profitability and are likely to continue to incur
substantial losses through 2003. We incurred net losses of $21.1 million, or 1.2
times the amount of net revenues for the year ended December 31, 2000, $17.9
million, or more than 9.5 times the amount of our net revenues, for the year
ended December 31, 2001, and $5.5 million, or more than 1.9 times the amount of
our net revenues, for the year ended December 31, 2002. As of December 31, 2002,
our accumulated deficit was $61.6 million. We have replaced an earlier strategy
of increased expenditures to accelerate growth with our current strategy of
maintaining operating expenses and capital expenditures to levels commensurate
with actual growth. In February 2001 the decision was made to discontinue
activities related to our consumer-direct Web sites. Although this decision has
resulted in a decrease in continuing operating expenses after the


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first quarter of 2001, we still must significantly increase net revenues to
achieve profitability. Even if we do achieve profitability, we may be unable to
sustain profitability on a quarterly or annual basis in the future. It is
possible that our net revenues will grow more slowly than we anticipate or that
operating expenses will exceed our expectations. Our accountants have noted that
these conditions raise substantial doubt about our ability to continue as a
going concern, as emphasized in their report included in this annual report.

We may need additional financing in the near future, without which we may be
required to restrict or discontinue our operations.

      Our business does not currently generate the cash necessary to fund our
operations. We anticipate that our available cash resources will be sufficient
to meet our currently anticipated capital expenditures and working capital
requirements for at least the next three to six months. Thereafter, we may need
to raise additional funds to continue operation, develop or enhance our services
or products, fund expansion, respond to competitive pressures or acquire
businesses or technologies. Unanticipated expenses, poor financial results or
unanticipated opportunities that require financial commitments could give rise
to earlier financing requirements. If we raise additional funds through the
issuance of equity or convertible debt securities, the percentage ownership of
our existing shareholders would be reduced, and these securities might have
rights, preferences or privileges senior to those of our common stock.
Additional financing may not be available on terms favorable to the Company, or
at all. If adequate funds are not available or are not available on acceptable
terms, our ability to fund our expansion, take advantage of business
opportunities, develop or enhance services or products or otherwise respond to
competitive pressures would be significantly limited, and we might need to
significantly restrict or discontinue our operations.

Our quarterly operating results are uncertain and may fluctuate significantly,
which could negatively affect the value of our share price.

      Our operating results have varied significantly from quarter to quarter in
the past and may continue to fluctuate. For example, during the year ended
December 31, 2002, the percentage of annual net revenues attributable to the
first, second, third and fourth quarters were 26.5%, 26.8%, 18.4% and 28.3%,
respectively. Our operating results for a particular quarter or year may fall
below the expectations of securities analysts and investors. With the
significant shift in the business to an online direct marketing infrastructure
provider, operating results in the near term may fall below earlier established
expectations of securities analysts and investors. These lower operating results
may cause a decrease in our stock price.

      Our limited operating history and new business model makes it difficult to
ascertain the effects of seasonality on our business. We believe, however, that
our revenues may be subject to seasonal fluctuations because advertisers
generally place fewer advertisements during the first and third calendar
quarters of each year. In addition, expenditures by advertisers tend to be
cyclical, reflecting overall economic conditions as well as budgeting and buying
patterns. A decline in the economic prospects of advertisers could alter current
or prospective advertisers' spending priorities, or the time periods in which
they determine their budgets, or increase the time it takes to close a sale with
our advertisers.

If we cannot secure sufficient promotional offers from our marketer clients, our
business will suffer.

      If we are unsuccessful in acquiring and renewing a continuing array of
free, trial and promotional offers for our distribution network, our order
volumes will likely decrease. The attractiveness of our offer network to
consumers and distribution partners is based in part on our ability to provide a
broad variety of offers of interest to consumers. In addition, a number of other
Web sites give consumers access to similar offers. We face competition for free,
trial and promotional offers from these Web sites as well as a variety of other
online and traditional competitors. Without sufficient variety and quality of
offers, our promotional offer network will become less attractive to both
marketers and our distribution partners through whose sites the offers are
promoted, and our ability to generate revenues from marketer clients will be
adversely affected.

If we cannot maintain our licenses with data owners, our business will suffer.

      We distribute promotional offers by means of email to lists of names owned
by the Company or managed by the Company under license from third-party list
owners. Growth in this segment of our business accounts for an increasing
portion of our revenues. We face competition from other providers of list
management services. If we are unsuccessful in maintaining our current license
agreements with data list owners, our email-based order volumes will likely
decrease. As a consequence, our ability to generate revenues from the email
segment of our business will be adversely affected.


                                       11
<PAGE>

The majority of our contracts have month-to-month terms, and the loss of a
significant number of these contracts in a short period of time could harm our
business.

      During the year ended December 31, 2002, nearly 100% of our contracts had
month-to-month terms with automatic renewal unless terminated by either party
with 30 days' notice. The loss of a significant number of these contracts in any
one period could result in a reduction in the size of our offer network, cause
an immediate and significant decline in our net revenues and cause our business
to suffer.

The loss of the services of any of our executive officers or key personnel would
likely cause our business to suffer.

      Our future success depends to a significant extent on the efforts and
abilities of our senior management, particularly Timothy C. Choate, our
Chairman, President and Chief Executive Officer, Chris Redlitz our Senior Vice
President of Sales and Business Development and other key employees, including
our technical and sales personnel. The loss of the services of any of these
individuals could harm our business. We may be unable to attract, motivate and
retain other key employees in the future. Competition for employees in our
industry has experienced a reduction in intensity. However, in the past we have
experienced difficulty in hiring qualified personnel. We do not have employment
agreements with any of our key personnel, nor do we have key-person insurance
for any of our employees.

Any future acquisitions present many risks and uncertainties generally
associated with acquisitions, including, without limitation:

      o     difficulties integrating operations, personnel, technologies,
            products and information systems of acquired businesses;

      o     potential loss of key employees of acquired businesses;

      o     adverse effects on our results of operations from
            acquisition-related charges and amortization of goodwill and
            purchased technology;

      o     increased fixed costs, which could delay profitability;

      o     inability to maintain the key business relationships and the
            reputations of acquired businesses;

      o     potential dilution to current shareholders from the issuance of
            additional equity securities;

      o     inability to maintain our standards, controls, procedures and
            policies;

      o     responsibility for liabilities of companies we acquire; and

      o     diversion of management's attention from other business concerns.

Broker-dealers may be discouraged from effecting transactions in our shares
because they are considered penny stocks and are subject to the penny stock
rules.

      Rules 15g-1 through 15g-9 promulgated under the Securities Exchange Act of
1934, as amended, impose sales practice and disclosure requirements on NASD
broker-dealers who make a market in "a penny stock". A penny stock generally
includes any non-Nasdaq equity security that has a market price of less than
$5.00 per share. Our shares have been quoted on the OTCBB since March 7, 2003.
Prior to March 7, 2003, our shares were quoted on the Nasdaq SmallCap Market.
The price of our shares on such markets ranged from $0.38 to $2.25 during the
period from January 1, 2002 to March 14, 2003, and the closing price of our
shares on March 14, 2003 was $0.38. Purchases and sales of our shares are
generally facilitated by NASD broker-dealers who act as market makers for our
shares. The additional sales practice and disclosure requirements imposed upon
broker-dealers may discourage broker-dealers from effecting transactions in our
shares, which could severely limit the market liquidity of the shares and impede
the sale of our shares in the secondary market.

      Under the penny stock regulations, a broker-dealer selling penny stock to
anyone other than an established customer or "accredited investor" (generally,
an individual with net worth in excess of $1,000,000 or an annual income
exceeding $200,000, or $300,000 together with his or her spouse) must make a
special suitability determination for the purchaser and must receive the
purchaser's written consent to the transaction prior to sale, unless the
broker-dealer or the transaction is otherwise exempt.


                                       12
<PAGE>

      In addition, the penny stock regulations require the broker-dealer to
deliver, prior to any transaction involving a penny stock, a disclosure schedule
prepared by the Securities and Exchange Commission relating to the penny stock
market, unless the broker-dealer or the transaction is otherwise exempt. A
broker-dealer is also required to disclose commissions payable to the
broker-dealer and the registered representative and current quotations for the
securities. Finally, a broker-dealer is required to send monthly statements
disclosing recent price information with respect to the penny stock held in a
customer's account and information with respect to the limited market in penny
stocks.

Since our stock price is volatile, we may become subject to securities
litigation that is expensive and could result in a diversion of resources.

      The market price of our common stock has fluctuated in the past and is
likely to continue to be highly volatile. Securities class action litigation has
often been brought against companies that experience volatility in the market
price of their securities. Litigation brought against us could result in
substantial costs to us in defending against the lawsuit and a diversion of
management's attention that could reduce the value of your investment.

Our directors and executive officers hold a substantial portion of our stock,
which could limit your ability to influence the outcome of key transactions,
including changes of control.

      As of March 14, 2003, Mr. Choate beneficially owned approximately 34.5% of
our issued and outstanding common stock and our directors and executive officers
as a group beneficially owned approximately 35.1% of our issued and outstanding
common stock. As a result, the ability of our other stockholders to influence
matters requiring approval by our stockholders, including the election of
directors and the approval of mergers or similar transactions, could be limited.

Our articles of incorporation, bylaws, change in control agreements and the
Washington Business Corporation Act contain anti-takeover provisions which could
discourage or prevent a takeover, even if an acquisition would be beneficial to
our shareholders.

      Provisions of our amended and restated articles of incorporation and
bylaws [and change in control agreements we have entered into with certain of
our executive officers] could make it more difficult for a third party to
acquire us, even if doing so would be beneficial to our shareholders. These
provisions include:

      o     authorizing the issuance of "blank check" preferred stock that could
            be issued by our board of directors, without shareholder approval,
            to increase the number of outstanding shares or change the balance
            of voting control and thwart a takeover attempt;

      o     prohibiting cumulative voting in the election of directors, which
            would otherwise allow less than a majority of shareholders to elect
            directors; and

      o     declaration of a dividend distribution of preferred share purchase
            rights and adoption of a Rights Plan in March 2002, which would
            discourage a change of control attempt without the approval of the
            Board of Directors.

      o     acceleration of option vesting and payment of severance in the event
            an executive loses his job as a consequence of the sale or merger of
            the Company.

      In addition, Chapter 23B.19 of the Washington Business Corporation Act and
the terms of our stock option plan may discourage, delay or prevent a change in
control which you may favor.

If a significant number of our clients experience a decline in their financial
condition, the collectibility of our accounts receivable may suffer, materially
adversely affecting our financial results.

      A decline in the financial condition of clients owing significant amounts
to us could cause us to write off the amounts owed by these entities as bad
debt, which could have a material adverse effect on our financial results.

An increase in the number of orders on our network may strain our systems or
those of our third-party service providers, and we are vulnerable to system
malfunctions.


                                       13
<PAGE>

      Any serious or repeated problems with the performance of our network could
lead to the dissatisfaction of consumers, our marketer clients or our
distribution partners. The order volume on our network is expected to increase
over time as we seek to expand our client, consumer and distribution partner
base. The proprietary and third-party systems that support our network must be
able to accommodate an increased volume of traffic. Although we believe our
systems and those of our third-party hosting service providers can currently
accommodate well in excess of current order volumes, our network has, in the
past, experienced slow response times and other systems problems for a variety
of reasons, including failure of our third party Internet service providers,
hardware failures and failure of software applications. In these instances, our
network was typically unavailable or slow for approximately one and one-half to
two hours. Although these failures did not have a material adverse effect on our
business, we may experience similar problems in the future that could have a
material adverse effect on our business.

We face intense competition from marketing-focused companies for marketer
clients and may be unable to compete successfully.

      We may be unable to compete successfully with current or future
competitors. We face intense competition from online advertising and direct
marketing companies like ValueClick, Engage, Avenue A and MaxWorldwide.
Competition with smaller privately funded direct competitors also continues to
be a factor. We expect competition from online competitors to remain intense
because there are no substantial barriers to entry in our industry. Increased
competition could result in price reductions for online advertising space and
marketing services, reduced gross margins and loss of market share.

      Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than Aptimus. These advantages may allow them to respond more quickly
and effectively to new or emerging technologies and changes in customer
requirements. These advantages may also allow them to engage in more extensive
research and development, undertake farther-reaching marketing campaigns, adopt
more aggressive pricing policies and make more attractive offers to potential
employees, strategic partners and advertisers. In addition, current and
potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products or services to address the needs of our prospective marketer
clients.

      Online marketing is a rapidly developing industry, and new types of
products and services may emerge that are more attractive to consumers and
marketers than the types of services we offer. As a result, it is possible that
new competitors may emerge and rapidly acquire significant market share.

If our customers request products and services directly from our marketer
clients instead of requesting the product or service from us, our business could
suffer.

      Our marketer clients, data licensors and/or distribution partners may
offer the same free, trial or promotional products or services on their own Web
sites or email programs that we offer via our offer distribution network and
email programs. Our customers may choose to request products or services
directly from our marketer clients, data licensors and/or distribution partners
instead of requesting the product or service through us, which would result in
lower net revenues to the Company from lead generation and cause our business to
suffer.

If third-party Internet service providers place limitations or restrictions on
commercial email addressed to their subscribers, our business could suffer.

      Our email program distributes commercial email to company-owned and
licensed lists of individual Internet users, some of whom are subscribers of
third-party Internet service providers or ISPs such as AOL, Yahoo! and MSN.
These ISPs have the ability to limit, restrict or otherwise filter the emails
delivered to their subscribers. Efforts by such ISPs to limit or restrict
third-party commercial emails such as ours, if successful, could result in lower
net revenues to the Company from lead generation and cause our business to
suffer.

We may need to incur litigation expenses in order to defend our intellectual
property rights, and might nevertheless be unable to adequately protect these
rights.

      We may need to engage in costly litigation to enforce our intellectual
property rights, to protect our trade secrets or to determine the validity and
scope of the intellectual property rights of others. We can give no assurance
that our efforts to prevent misappropriation or infringement of our intellectual
property will be successful. An adverse determination in any litigation of this
type


                                       14
<PAGE>

could require us to make significant changes to the structure and operation of
our services and features or to license alternative technology from another
party. Implementation of any of these alternatives could be costly and
time-consuming and may not be successful. Any intellectual property litigation
would likely result in substantial costs and diversion of resources and
management attention.

      Our success largely depends on our trademarks, including "Aptimus," and
internally developed technologies, including our patent pending opt-in serving
platform, which includes offer rotation and implementation, order collection,
order processing and lead delivery, that we seek to protect through a
combination of patent, trademark, copyright and trade secret laws. Protection of
our proprietary technology and trademarks is crucial as we attempt to build our
proprietary advantage, brand name and reputation. Despite actions we take to
protect our intellectual property rights, it may be possible for third parties
to copy or otherwise obtain and use our intellectual property without
authorization or to develop similar technology independently. In addition, legal
standards relating to the validity, enforceability and scope of protection of
intellectual property rights in Internet-related businesses are uncertain and
still evolving. Although we are not currently engaged in any lawsuits for the
purpose of defending our intellectual property rights, we may need to engage in
such litigation in the future. Moreover, we may be unable to maintain the value
of our intellectual property rights in the future.

We could become involved in costly and time-consuming disputes regarding the
validity and enforceability of recently issued or pending patents.

      The Internet, including the market for e-commerce and online advertising,
direct marketing and promotion, is characterized by a rapidly evolving legal
landscape. A variety of patents relating to the market have been recently
issued. Other patent applications may be pending. We have a pending provisional
patent application, which we intend to further develop and prosecute. It is
possible that significant activity in this area may continue and that litigation
may arise due to the patent holder's and/or our efforts to enforce applicable
patent rights.

      We may incur substantial expense and management attention may be diverted
if litigation occurs. Moreover, whether or not claims against us have merit, we
may be required to enter into license agreements or be subject to injunctive or
other equitable relief, either of which would result in unexpected expenses or
management distraction.

We may face litigation and liability for information displayed on our network or
delivered in an email.

      We may be subjected to claims for defamation, negligence, copyright or
trademark infringement and various other claims relating to the nature and
content of materials we publish on our offer distribution network or distribute
by email. These types of claims have been brought, sometimes successfully,
against online services in the past. We could also face claims based on the
content that is accessible from our network through links to other Web sites. In
addition, we may be subject to litigation based on laws and regulations
concerning commercial email. Any litigation arising from these claims would
likely result in substantial costs and diversion of resources and management
attention, and an unsuccessful defense to one or more such claims could result
in material damages and/or injunctive or other equitable relief. We have no
insurance coverage for these types of claims. Moreover, any claim that
successfully limited or entirely prevented our current commercial email
activities would result in lower net revenues to the Company and cause a
material adverse effect on our business.

Security and privacy breaches could subject us to litigation and liability and
deter consumers from using our network.

      We could be subject to litigation and liability if third parties penetrate
our network security or otherwise misappropriate our users' personal or credit
card information. This liability could include claims for unauthorized purchases
with credit card information, impersonation or other similar fraud claims. It
could also include claims for other misuses of personal information, such as for
unauthorized marketing purposes. In addition, the Federal Trade Commission and
other federal and state agencies have investigated various Internet companies in
connection with their use of personal information. We could be subject to
investigations and enforcement actions by these or other agencies. In addition,
we rent customer names and street addresses to third parties. Although we
provide an opportunity for our customers to remove their names from our rental
list, we nevertheless may receive complaints from customers for these rentals.

      The need to transmit confidential information securely has been a
significant barrier to electronic commerce and communications over the Internet.
Any compromise of security could deter people from using the Internet in general
or, specifically, from using the Internet to conduct transactions that involve
transmitting confidential information, such as purchases of goods or services.
Many marketers seek to offer their products and services on our distribution
network because they want to encourage people to use the


                                       15
<PAGE>

Internet to purchase their goods or services. Internet security concerns could
frustrate these efforts. Also, our relationships with consumers may be adversely
affected if the security measures we use to protect their personal information
prove to be ineffective. We cannot predict whether events or developments will
result in a compromise or breach of the technology we use to protect customers'
personal information. We have no insurance coverage for these types of claims.

      Furthermore, our computer servers or those of our third-party hosting
service providers may be vulnerable to computer viruses, physical or electronic
break-ins and similar disruptions. We may need to expend significant additional
capital and other resources to protect against a security breach or to alleviate
problems caused by any such breaches. We may be unable to prevent or remedy all
security breaches. If any of these breaches occur, we could lose marketing
clients, distribution partners and visitors to our distribution network.

                          RISKS RELATED TO OUR INDUSTRY

If the acceptance of online advertising and online direct marketing does not
increase, our business will suffer.

      The demand for online marketing may not develop to a level sufficient to
support our continued operations or may develop more slowly than we expect. We
expect to derive almost all of our revenues from contracts with marketer clients
under which we provide online marketing services through our offer distribution
network and our commercial email programs. The Internet has not existed long
enough as a marketing medium to demonstrate its effectiveness relative to
traditional marketing methods. Marketers that have historically relied on
traditional marketing methods may be reluctant or slow to adopt online
marketing. Many marketers have limited or no experience using the Internet as a
marketing medium. In addition, marketers that have invested substantial
resources in traditional methods of marketing may be reluctant to reallocate
these resources to online marketing. Those companies that have invested a
significant portion of their marketing budgets in online marketing may decide
after a time to return to more traditional methods if they find that online
marketing is a less effective method of promoting their products and services
than traditional marketing methods. Moreover, the Internet-based companies that
have adopted online marketing methods may themselves develop more slowly than
anticipated or not at all. This, in turn, may result in slower growth in demand
for the online direct marketing services of the type provided by the Company.

      We do not know if accepted industry standards for measuring the
effectiveness of online marketing will develop. An absence of accepted standards
for measuring effectiveness could discourage companies from committing
significant resources to online marketing. There are a variety of pricing models
for marketing on the Internet. We cannot predict which, if any, will emerge as
the industry standard. Absence of such a standard makes it difficult to project
our future pricing and revenues.

If we are unable to adapt to rapid changes in the online marketing industry, our
business will suffer.

      Online marketing is characterized by rapidly changing technologies,
frequent new product and service introductions, short development cycles and
evolving industry standards. We may incur substantial costs to modify our
services or infrastructure to adapt to these changes and to maintain and improve
the performance, features and reliability of our services. We may be unable to
successfully develop new services on a timely basis or achieve and maintain
market acceptance.

We face risks from potential government regulation and other legal uncertainties
relating to the Internet.

      Laws and regulations that apply to Internet communications, commerce,
commercial email and advertising are becoming more prevalent. The adoption of
such laws could create uncertainty in use of the Internet and reduce the demand
for our services, or impair our ability to provide our services to clients.
Congress has enacted legislation regarding children's privacy on the Internet,
several states have passed laws restricting certain forms of commercial email,
and similar legislation is pending in a number of other states. Additional laws
and regulations may be proposed or adopted with respect to the Internet,
covering issues such as user privacy, freedom of expression, pricing, content
and quality of products and services, taxation, advertising, delivery of
commercial email, intellectual property rights and information security. The
passage of legislation regarding user privacy or direct marketing on the
Internet may reduce demand for our services or limit our ability to provide
customer information to marketers. Furthermore, the growth of electronic
commerce may prompt calls for more stringent consumer protection laws. For
example, the European Union has adopted a directive addressing data privacy that
may result in limits on the collection and use of consumer information. The
adoption of consumer protection laws that apply to online marketing could create
uncertainty in Internet usage and reduce the demand for our services, or impair
our ability to provide those services to clients.


                                       16
<PAGE>

      In addition, we are not certain how our business may be affected by the
application of existing laws governing issues such as property ownership,
copyrights, encryption and other intellectual property issues, taxation, libel,
obscenity and export or import matters. It is possible that future applications
of these laws to our business could reduce demand for our services or increase
the cost of doing business as a result of litigation costs or increased service
delivery costs.

      Our services are available on the Internet in many states and foreign
countries, and these states or foreign countries may claim that we are required
to qualify to do business in their jurisdictions. Currently, we are qualified to
do business only in Washington and California. Our failure to qualify in other
jurisdictions if we were required to do so could subject us to taxes and
penalties and could restrict our ability to enforce contracts in those
jurisdictions.

Item 2: Properties

      The Company currently occupies 9,677 square feet in a leased facility in
Seattle, Washington and 7,188 square feet in a leased facility in San Francisco,
California. The current lease in Seattle expires in May 2004, and the current
lease in San Francisco expires in July 2003. The leased facilities are adequate
for the Company's needs.

Item 3: Legal Proceedings

      We are not engaged in any material litigation at this time.

Item 4: Submission of Matters to a Vote of Security Holders

      None.


                                       17
<PAGE>

                                     PART II

Item 5: Market for Registrant's Common Equity And Related Stockholder Matters

                           Price Range of Common Stock

      The Company's Common Stock (the "Common Stock") was quoted on the Nasdaq
National Market under the symbol "FSHP" from our initial public offering on
September 27, 1999 through October 23, 2000. From October 24, 2000 through
September 30, 2002 the Common Stock was quoted on the Nasdaq National Market
under the symbol "APTM." From October 1, 2002 to March 6, 2003 the Common Stock
was quoted on the Nasdaq Small-Cap Market under the symbol "APTM." Since March
7, 2003, the Common Stock has been trading on the NASD OTCBB under the symbol
"APTM.OB." Prior to September 27, 1999, there was no public market for our
common stock. The following table shows the high and low closing sale prices for
our common stock as reported on the Nasdaq National Market and Nasdaq Small-Cap
Market for the periods indicated:

                                                         High         Low
                                                         ----         ---

    Year Ended December 31, 2001
      First quarter...............................     $   1.25    $   0.38
      Second quarter..............................     $   0.41    $   0.27
      Third quarter...............................     $   0.47    $   0.16
      Fourth quarter..............................     $   1.05    $   0.44
    Year Ended December 31, 2002
      First quarter...............................     $   2.25    $   0.50
      Second quarter..............................     $   2.00    $   1.05
      Third quarter...............................     $   1.45    $   0.66
      Fourth quarter..............................     $   0.86    $   0.48

      As of March 14, 2003, there were approximately 1,873 holders of record of
the Common Stock and 4,220,933 shares of the Common Stock outstanding.

      The Company has never paid cash dividends on the Common Stock and does not
intend to pay cash dividends on the Common Stock in the foreseeable future. The
Company's board of directors intends to retain any earnings to provide funds for
the operation and expansion of the Company's business.

Recent Sales of Unregistered Securities

      In October 2002, the Company issued 150,000 shares of unregistered common
stock to the landlord of its Seattle office space, Merrill Place LLC, as
additional consideration in connection with the modification of the Company's
Seattle real property lease. The shares were issued in reliance upon the
exemptions from registration provided by Rule 506 of Regulation D and Section
4(2) under the Securities Act, as Merrill is an accredited investor.


                                       18
<PAGE>

Item 6: Selected Financial Data

                             SELECTED FINANCIAL DATA
                      (in thousands, except per share data)

      The following selected financial data are qualified in their entirety by
reference to, and you should read them in conjunction with, Aptimus' financial
statements and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
Annual Report.

<TABLE>
<CAPTION>
                                                                                    Aptimus, Inc.
                                                         --------------------------------------------------------------------
                                                                               Year ended December 31,
                                                         --------------------------------------------------------------------
                                                           1998           1999           2000           2001           2002
                                                         --------       --------       --------       --------       --------
<S>                                                      <C>            <C>            <C>            <C>            <C>
      Statement of Operations Data:
      Revenues ....................................      $  1,251       $  8,506       $ 16,873       $  1,874       $  2,915
        Operating expenses:
        Sales and marketing .......................         3,088         15,042         29,571          6,185          1,972
        Connectivity and network costs ............           181            616          2,047          1,780          1,311
        Partner fees ..............................            --             --             --            321          1,013
        Research and development ..................           387            901          2,439          1,632            559
        General and administrative ................           417          1,343          3,055          2,423          1,687
        Depreciation and amortization .............           140          1,156          2,419          2,268          1,305
        Equity-based compensation .................           174          1,117            774            371             11
        Lease renegotiation costs and abandonment .            --             --             --             --            478
           of leasehold improvements
        Restructuring costs .......................            --             --             --          4,998             --
                                                         --------       --------       --------       --------       --------
                Total operating expenses ..........         4,387         20,175         40,305         19,978          8,336
                                                         --------       --------       --------       --------       --------
      Operating loss ..............................        (3,136)       (11,669)       (23,432)       (18,104)        (5,421)
      Interest expense ............................            66             40            114            155             24
      Other (income) expense, net .................            (3)          (818)        (2,442)          (381)            59
                                                         --------       --------       --------       --------       --------
      Net loss ....................................      $ (3,199)      $(10,891)      $(21,104)      $(17,878)      $ (5,504)
                                                         ========       ========       ========       ========       ========
      Basic and diluted net loss per share ........      $  (0.51)      $  (1.08)      $  (1.36)      $  (1.44)      $  (1.35)
                                                         ========       ========       ========       ========       ========
      Shares used to compute basic and
        Diluted per share amounts .................         6,224         10,043         15,567         12,400          4,073
                                                         ========       ========       ========       ========       ========

<CAPTION>
                                                                                  As of December 31,
                                                         --------------------------------------------------------------------
                                                           1998           1999           2000           2001           2002
                                                         --------       --------       --------       --------       --------
<S>                                                      <C>            <C>            <C>            <C>            <C>
      Balance Sheet Data:
        Cash and cash equivalents .................      $  2,892       $ 33,795       $ 12,854       $  3,651       $    667
        Working capital (deficiency) ..............         2,014         46,736         23,032          4,387            698
        Total assets ..............................         3,687         55,816         35,532          7,510          1,941
        Long-term obligations, less current portion           195             40            944             68             --
        Total shareholders' equity ................         2,243         50,911         29,868          6,644          1,232
</TABLE>


                                       19
<PAGE>

Item 7: Management's Discussion and Analysis of Financial Condition and Results
of Operations

Overview

      We began our direct marketing business in 1994 as the FreeShop division of
Online Interactive, Inc. In addition to operating the FreeShop division, Online
Interactive was also engaged in the business of selling software over the
Internet. In July 1997, Online Interactive transferred the FreeShop division to
FreeShop International, Inc., a newly formed, wholly owned subsidiary, and spun
off FreeShop International through a distribution to its shareholders. On
February 19, 1999, FreeShop International changed its name to FreeShop.com, Inc.
On October 16, 2000 FreeShop.com, Inc. changed its name to Aptimus, Inc.

      Today, Aptimus' mission is to provide the most powerful and effective ways
to acquire new customers via the Internet. This is the same mission we had in
1994 when we launched our business. We continue to believe that the Internet is
the most important new medium for customer acquisition objectives in recent
history.

      We are positioning ourselves to be the leading online direct response
network. Our focus is creating high volume performance-based customer
acquisition solutions for major consumer marketers. To achieve these objectives,
we leverage our proprietary technology platform to dynamically present offers to
large volumes of transacting consumers at the point of transaction, when they
are most likely to respond, across a broad variety of web sites. In our network
we focus our efforts around two primary offer presentation formats:

      1.    CoRegistration - We present relevant offers to transacting consumers
            in a manner that allows them to "opt-in" or choose the offers they
            wish to receive. By managing the registration process, we can target
            offers "real time" based on the site demographics, the data entered
            in the order process (e.g. geotargeting), and/or the substance of
            the specific transaction. Managed transactions include product
            purchases, email and site registrations or joins, and other
            transactional actions occurring on the web sites of our distribution
            partners.

      2.    Email - We present relevant offers to consumers via opt-in email
            lists, including lists that we own, lists that we manage for others,
            and third party lists.

      During 2002, we derived our revenues primarily from lead generation
contracts related to the Aptimus network of sites and opt-in email lists. We
receive lead generation revenues when we deliver customer information to a
marketer in connection with an offer presented via our network. Revenue from the
Aptimus network started in the first quarter of 2001. In prior years we derived
our revenues from lead generation activities, banner advertising, site
sponsorships and newsletter sponsorships related to the FreeShop site, which was
sold in May of 2001. Lead generation pricing is based on cost per lead and
varies depending on the type of offer. Generally, pricing of advertising is
based on cost per impression or cost per click through. In the second half of
2000, we saw a shift away from these traditional advertising models towards a
cost per action model where advertisers pay based on actual orders or
registrations received. The services we deliver are primarily sold under
short-term agreements that are subject to cancellation. We recognize revenues in
the period in which we deliver the service, provided we have no further
performance obligation.

      For the years ended December 31, 2000, 2001, and 2002 our ten largest
clients accounted for 28.0%, 40.2% and 44.6% of our net revenues, respectively.
No single client accounted for more than 10% of net revenues in the years ended
December 31, 2000 and 2002. One customer accounted for 10.3% of revenues during
the year ended December 31, 2001.

      Our business has been operating at a loss and generating negative cash
flows from operations since inception. As of December 31, 2002, we had an
accumulated deficit of approximately $61.6 million. With the reductions in
continuing operating expenses that have been made and growth in revenues, we
anticipate achieving positive earnings and cash flows during the year ending
December 31, 2003. However, there are still many challenges to achieving this
goal, including the availability of additional financing, and the achievement is
by no means assured. See "Risks Related to Our Business".

      On March 7, 2003, our common stock was delisted from the Nasdaq SmallCap
Market due to our noncompliance with the continued listing standards for that
market. Since March 7, 2003, our common stock has been quoted on the OTCBB under
the symbol "APTM.OB".


                                       20
<PAGE>

Results of Operations

      The following table sets forth statement of operations data for the
periods indicated as a percentage of net revenues:

<TABLE>
<CAPTION>
                                                            Year Ended December 31,
                                                       -----------------------------------
                                                         2000         2001           2002
                                                       -------      -------        -------
<S>                                                     <C>         <C>             <C>
      Net revenues ..............................        100.0%       100.0%         100.0%
      Operating expenses:
        Sales and marketing .....................        175.3        330.0           67.7
        Connectivity and network costs ..........         12.1         95.0           45.0
        Partner fees ............................           --         17.2           34.7
        Research and development ................         14.5         87.1           19.2
        General and administrative ..............         18.1        129.3           57.9
        Depreciation and amortization ...........         14.3        121.0           44.7
        Equity-based compensation ...............          4.6         19.8            0.4
        Lease renegotiation costs and abandonment
          of Leasehold improvements .............           --           --           16.4
        Restructuring costs .....................           --        266.7             --
                                                       -------      -------        -------
                Total operating expenses ........        238.9      1,066.1          286.0
                                                       -------      -------        -------
      Operating loss ............................       (138.9)      (966.1)        (186.0)
      Interest expense ..........................          0.7          8.2            0.8
      Other (income) expense, net ...............        (14.5)       (20.3)           2.0
                                                       -------      -------        -------
      Net loss ..................................       (125.1)%     (954.0)%       (188.8)%
                                                       =======      =======        =======
</TABLE>

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

      Net revenues. We derive our revenues primarily from lead generation
contracts. Leads are obtained both from a network of partner sites and opt-in
email lists. Our net revenues increased by $1.0 million, or 56%, to $2.9 million
in the year ended December 31, 2002 from $1.9 million in the year ended December
31, 2001. The increase in revenues resulted from a $2.2 million increase in
revenues from our network and a $1.2 million decrease in the discontinued
FreeShop site related revenues.

      Revenue related to our network increased due to an increase in
transactions taking place on the network. The quantity of transactions has
increased as a result of adding more partners and clients to the network and
sending more emails. The average number of emails sent per month in 2002
increased by 425% compared to the monthly average in 2001. The increase in
transaction volume was tempered by a concurrent decrease in the average fee per
lead of approximately 12%. Also, email marketing was implemented as part of our
network model in the third quarter of 2001 and did not provide revenues for an
entire year in 2001.

      Revenue related to the FreeShop site decreased as a result of
discontinuation of our consumer-direct Web sites.

      The table below provides detail of the composition of our net revenue, in
thousands:

<TABLE>
<CAPTION>
                                               Year Ended December 31,
                                         ---------------------------------
                                           2000         2001         2002
                                         -------      -------      -------
<S>                                      <C>          <C>          <C>
      Network revenue .............      $    --      $   630      $ 2,837
      FreeShop site related revenue       16,873        1,244           78
                                         -------      -------      -------
        Total revenue .............      $16,873      $ 1,874      $ 2,915
</TABLE>

      Sales and marketing. In the second half of 2001 and all of 2002 sales and
marketing expenses consisted primarily of marketing and operational personnel
costs, bad debts, and outside sales costs. In the first half of 2001 and all of
2000, sales and marketing expenses were primarily comprised of advertising
costs, marketing and operational personnel costs related to developing our brand
and generating visits to our Web sites, as well as personnel and other costs.
Sales and marketing expenses decreased by $4.2 million, or 68%, to $2.0 million
in 2002 from $6.2 million in 2001. The decrease in sales and marketing expenses
is primarily a result of a $1.6 million reduction in advertising and public
relations spending and $1.8 million in reduced payroll costs. Sales and
marketing expenses in 2003 are expected to be relatively consistent with amounts
in 2002.

      Connectivity and network costs. Connectivity and network costs consist of
expenses associated with the fees, maintenance and usage of our network as well
as email delivery costs. Such costs include email delivery costs, Internet
connection charges, hosting facility costs, banner ad serving fees and personnel
costs. Internet and network connectivity decreased by $468,000, or 26%, to $1.3


                                       21
<PAGE>

million in 2002 from $1.8 million in 2001. This decrease resulted from the
elimination of costs associated with the FreeShop site in May of 2001. Internet
and network connectivity expenses are expected to decrease slightly in 2003
compared to amounts in 2002.

      Partner fees. Partner fees expense consists of fees to distribution
partners participating in our network. Partner fees increased by $692,000, or
216%, to $1.0 million in 2002 from $321,000 in 2001. This increase resulted from
approximately a 350% increase in network related revenues. Partner fees have
increased at a lower rate than network revenues as a result of email based
campaigns. Email based campaigns that are sent to Company-owned lists do not
have any partner fees associated with them. Also the cost of delivering the
emails and certain third-party costs are generally deducted before calculating
the fees due partners for email based campaigns not sent to Company-owned lists.
With the implementation of the network model advertising expenses included in
sales and marketing were virtually eliminated.

      Research and development. Research and development expenses primarily
include personnel costs related to maintaining and enhancing the features,
content and functionality of our Web sites, network and related systems.
Research and development expenses decreased by $1.1 million, or 66%, to $559,000
in 2002 from $1.6 million in 2001. Reductions in staff resulting from the
restructuring and cost cutting efforts have reduced labor expenses by
approximately $480,000 and outside services by approximately $440,000 compared
to the prior year. Research and development expenses in 2003 are expected to be
relatively consistent with amounts in 2002.

      General and administrative. General and administrative expenses primarily
consist of management, financial and administrative personnel expenses and
professional service fees. General and administrative expenses decreased by
$736,000, or 30%, to $1.7 million in 2002 from $2.4 million in 2001. The two
largest factors in the decrease in general and administrative expenses was a
decrease in Legal, accounting and other outside service fees of approximately
$260,000 and one time costs in 2001 of approximately $370,000. The one time
costs in 2001 resulted from termination of an operating agreement acquired as
part of the XmarksTheSpot acquisition, and costs incurred for investment banking
services related to potential strategic transactions. General and administrative
expenses in 2003 are expected to be relatively consistent with amounts in 2002.

      Depreciation and amortization. Depreciation and amortization expenses
consist of depreciation on leased and owned computer equipment, software, office
equipment and furniture and amortization on intellectual property, non-compete
agreements, acquired technology, work force in-place and goodwill from
acquisitions. Depreciation and amortization expenses decreased by $964,000, or
43%, to $1.3 million in 2002 from $2.3 million in 2001. The decrease in
depreciation is a result of assets disposed or written off in 2001 as part of
the restructuring, assets becoming fully depreciated during 2002 and abandonment
of some leasehold improvement costs in September 2002.

      Equity-based compensation. Equity-based compensation expenses consist of
amortization of unearned compensation recognized in connection with stock
options and stock grants granted to employees and directors at prices below the
fair market value of our common stock. Unearned compensation is recorded based
on the intrinsic value when we issue stock options to employees and directors at
an exercise price below the estimated fair market value of our common stock at
the date of grant. Unearned compensation is also recorded based on the fair
value of the options granted as calculated using the Black-Scholes option
pricing model when options or warrants are issued to advisors and other service
providers. Unearned compensation is amortized over the vesting period of the
option or warrant. Equity-based compensation expenses decreased by $360,000, or
97%, to $11,000 in 2002 from $371,000 in 2001. The decrease in equity-based
compensation is primarily a result of the recognition of $305,000 in
equity-based compensation for restricted stock grants in September 2001.
Equity-based compensation expense in 2003 is expected to be relatively
consistent with amounts in 2002.

      Lease renegotiation costs and impairment of leasehold improvements. We
renegotiated the lease with our Seattle landlord to substantially reduce the
amount of space we lease and the corresponding rental rate we pay for our
Seattle offices. The new arrangement accommodates our limited space requirements
and reflects the current market's lower rates. Under the terms of the new lease,
beginning October 1, 2002, Aptimus began paying significantly less rent for a
significantly reduced amount of office space. As part of the transition, Aptimus
lost the use of a majority of the leasehold improvements made in Seattle. Lease
renegotiation costs and impairment of leasehold improvements of $478,000 has
been recorded; $377,000 relates to the net book value of the leasehold
improvements being surrendered to the landlord, $25,000 relates to a cash
payment and $76,000 relates to the issuance of 150,000 shares of our
unregistered common stock to the Seattle landlord as compensation for amending
the lease. In addition, we recently successfully renegotiated our lease with the
San Francisco landlord to substantially reduce the rental rate we pay for our
San Francisco offices. As a result, we reduced our base monthly rental rate by
50%, effective January 1, 2003, but otherwise left unchanged our use and the
amount of space under lease in San Francisco. No additional consideration was
given to the landlord, nor were any impairment


                                       22
<PAGE>

charges incurred as a consequence of the amended rental rate. No significant
additional lease renegotiation costs or impairments of leasehold improvements
are expected in 2003.

      Restructuring costs. Restructuring costs consist of costs associated with
repositioning the Company as a direct marketing infrastructure provider and the
discontinuance of our consumer-direct Web sites. The restructuring category was
new for 2001, as this was the first time we undertook a restructuring. There
were no restructuring costs recorded in 2002 as no further restructurings were
undertaken in 2002. Amounts accrued in 2001 were paid in January of 2002 as
expected and no additional amounts were incurred related to the 2001
restructuring. We do not expect to incur restructuring costs in 2003.

      Interest expense. Interest expense in 2002 relates to capital equipment
leases. Interest expense totaled $24,000 and $155,000 in the years ended
December 31, 2002, and 2001, respectively. Interest expense decreased as the
Imperial Bank note was paid off in August 2001 and the Fingerhut Companies note
was paid off in November 2001.

      Other (income) expense, net. Other (income) expense, net, consists of
interest income, gains and losses on disposal of assets and impairments on
long-term investments. Other (income) expense, net, decreased by $440,000 to a
$59,000 expense in 2002 from a $381,000 gain in 2001. Interest income has
decreased as the balance available for investment has decreased due to use of
cash for operations and a decline in interest rates. In addition to the decrease
in interest income an impairment on long-term investments of $107,000 was
recorded during the year.

Income Taxes. No provision for federal income taxes has been recorded for any of
the periods presented due to our current loss position.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

      Net revenues. Our net revenues decreased by $15.0 million, or 89%, to $1.9
million in the year ended December 31, 2001 from $16.9 million in the year ended
December 31, 2000. This decline in revenue resulted primarily from a general
decline in the Internet advertising industry and the shift in focus to a network
lead generation model from a consumer direct business model, including
discontinuation of our consumer-direct Web sites.

      Sales and marketing. In the second half of 2001 sales and marketing
expenses consisted primarily of marketing and operational personnel costs, bad
debts, and outside sales costs. In the first half of 2001 and all of 2000, sales
and marketing expenses were primarily comprised of marketing and operational
personnel costs related to developing our brand and generating visits to our Web
sites, as well as personnel and other costs. Sales and marketing expenses
decreased by $23.4 million, or 79%, to $6.2 million in 2001 from $29.6 million
in 2000. The decrease in sales and marketing expenses was primarily a result of
$13.7 million reduction in advertising spending, $5.5 million in reduced payroll
costs, settlement of liabilities for $358,000 less than previously recorded and
recovery of $304,000 of amounts that had been reserved for as bad debts. As a
result of the decrease in revenue, sales and marketing expense increased as a
percentage of revenue even though the total sales and marketing expense
decreased.

      Connectivity and network costs. Connectivity and network costs decreased
by $200,000, or 15%, to $1.8 million in 2001 from $2.0 million in 2000. This
decrease resulted from the elimination of costs associated with the FreeShop
site in May of 2001.

      Partner fees. Partner fees increased by $321,000, to $321,000 in 2001 from
zero in 2000. This increase resulted from the implementation of the network
model. Prior to the network model such costs for partner fees did not exist.
With the implementation of the network model advertising expenses included in
sales and marketing were virtually eliminated.

      Research and development. Research and development expenses decreased by
$800,000, or 33%, to $1.6 million in 2001 from $2.4 million in 2000. Reductions
in staff resulting from the restructuring and cost cutting efforts have reduced
labor expenses by approximately $970,000 compared to 2000. The reductions were
partially offset by increased consulting costs during the first quarter of 2001.
These consulting costs were incurred to integrate and improve the network
technology platform during the first three months of 2001. As a result of the
decrease in revenue, research and development expense increased as a percentage
of revenue even though the total research and development expense decreased.

      General and administrative. General and administrative expenses decreased
by $632,000, or 21%, to $2.4 million in 2001 from $3.1 million in 2000. The
decrease in general and administrative expenses was in equal measure a result of
decreases in labor costs and a decrease in revenue based business taxes. As a
result of the decrease in revenue, general and administrative expense increased
as a percentage of revenue even though the total general and administrative
expense decreased.


                                       23
<PAGE>

      Depreciation and amortization. Depreciation and amortization expenses
decreased by $151,000, or 6%, to $2.3 million in 2001 from $2.4 million in 2000.
The decrease in depreciation and amortization was a result of a $447,000
increase in depreciation expense and a $598,000 decrease in amortization
expense. The net increase in depreciation was a result of a $545,000 increase
related to fixed assets acquired in the year ended December 31, 2000, a $41,000
increase related to fixed assets acquired in the year ended December 31, 2001,
and a $139,000 decrease related to disposals of fixed asset during 2001. The net
decrease in amortization was primarily a result of the write-off of intangible
assets related to the restructuring in the first and second quarter of 2001.
This decrease was offset by a $337,000 increase as a result of acquiring
XMarkstheSpot, Inc. in December 2000. As a result of the decrease in revenue,
depreciation and amortization expense increased as a percentage of revenue.

      Equity-based compensation. Equity-based compensation expenses decreased by
$403,000, or 52%, to $371,000 in 2001 from $774,000 in 2000. The decrease in
equity-based compensation was primarily a result of options forfeited by
terminated employees. This decrease was offset by the recognition of $305,000 in
equity-based compensation for restricted stock grants issued in September 2001.

      Restructuring costs. Restructuring costs consist of costs associated with
repositioning the Company as a direct marketing infrastructure provider and the
discontinuance of our consumer-direct Web sites. The restructuring category was
new for 2001, as this is the first time we undertook a restructuring. The total
costs of $4,998,000 were comprised of $1,965,000 of severance costs, $902,000 of
losses related to abandonment and disposal of capitalized software and fixed
assets and $2,131,000 of losses related to impairment of intangible assets
resulting from the repositioning activities.

      Interest expense. Interest expense resulted from capital equipment leases
and notes payable to Imperial Bank, Fingerhut Companies and AFCO. Interest
expense totaled $155,000 and $114,000 in the year ended December 31, 2001, and
2000, respectively. Interest expense increased due (1) the $838,000 note payable
to Fingerhut Companies that was entered into in April 2001 in partial
consideration for the redemption of common stock from Fingerhut Companies, (2)
the Imperial Bank notes were held for a greater portion of 2001 than 2000, and
(3) approximately $200,000 of capital leases were assumed in December 2000.

      Other income, net. Other income, net, decreased by $2.1 million to
$381,000 in 2001 from $2.4 million in 2000. Interest income decreased as the
balance available for investment decreased due to use of cash for operations and
a decline in interest rates. In addition to the decrease in interest income an
impairment on long-term investments of $197,000 and a $74,000 loss on disposal
of fixed assets were recorded during the year ended December 31, 2001.

      Income Taxes. No provision for federal income taxes was recorded for any
of the periods presented due to our current loss position.

Liquidity and Capital Resources

      Since we began operating as an independent company in June 1997, we have
financed our operations primarily through the issuance of equity securities.
Gross proceeds from the issuance of stock through December 31, 2002 totaled
$65.7 million, including $21.5 million raised from Fingerhut Companies. As of
December 31, 2002, we had approximately $718,000 in cash, cash equivalents and
short-term securities, providing working capital of $698,000. No off balance
sheet assets or liabilities existed at December 31, 2002.

      Net cash used in operating activities was $3.8 million and $12.5 million
in the years ended December 31, 2002 and 2001, respectively. Cash used in
operating activities in the year ended December 31, 2002 resulted primarily from
net losses, a decrease in accrued liabilities and an increase in accounts
receivable, which were partially offset by an increase in accounts payable and a
decrease in prepaid expenses. Cash used in operating activities in the year
ended December 31, 2001 resulted primarily from net losses, and decreases in
accrued liabilities and accounts payable, which were partially offset by a
decrease in accounts receivable and prepaid expenses.

      Net cash provided by investing activities was $1.0 million and $10.8
million in the years ended December 31, 2002 and 2001, respectively. In the year
ended December 31, 2002, $29,000 was used to purchase computer equipment,
software, furniture, office equipment and to pay for leasehold improvements;
$10,000 was used to purchase an intangible asset; $43,000 was received from the
sale of computer equipment and furniture; and $1.0 million was received from the
of sale of short-term securities. In the year ended December 31, 2001, $370,000
was used to purchase computer equipment, software, furniture, office equipment
and to pay for


                                       24
<PAGE>

leasehold improvements; $81,000 was received from the sale of computer equipment
and furniture; and $11.1 million, net, was received from the of sale and
purchase of short-term securities.

      Net cash used in financing activities was $168,000 and $7.4 million in the
years ended December 31, 2002 and 2001, respectively. Net cash used in financing
activities in 2002 resulted from principle payments of $84,000 on capital leases
and $89,000 in principle payment on notes payable, which were offset by $5,000
in proceeds from stock option exercises. Net cash used in financing activities
in 2001 resulted from the repurchase of nearly 12.2 million shares of common
stock for $4.9 million, principle payments of $156,000 on capital leases and
$2.4 million in principal payment on notes payable.

      We believe our current cash and cash equivalents will be sufficient to
meet our anticipated cash needs for working capital and capital expenditures for
at least the next three to six months. Thereafter, we may need to raise
additional capital to meet our long-term operating requirements. Subject to the
receipt of such additional financing, if required, on terms favorable to the
Company,, we anticipate achieving positive earnings and cash flows in the near
future. However, there are still many challenges to achieving this goal and the
achievement is by no means assured. See "Risks Related to Our Business".

      Our cash requirements depend on several factors, including the level of
expenditures on advertising and brand awareness, the rate of market acceptance
of our services and the extent to which we use cash for acquisitions and
strategic investments. Unanticipated expenses, poor financial results or
unanticipated opportunities requiring financial commitments could give rise to
earlier financing requirements. If we raise additional funds through the
issuance of equity or convertible debt securities, the percentage ownership of
our shareholders would be reduced, and these securities might have rights,
preferences or privileges senior to those of our common stock. Additional
financing may not be available on terms favorable to us, or at all. The
delisting from the Nasdaq SmallCap Market and the going concern contingency
contained in our audit report may make raising additional capital more
difficult. If adequate funds are not available or are not available on
acceptable terms, our ability to fund our expansion, take advantage of business
opportunities, develop or enhance services or products or otherwise respond to
competitive pressures would be significantly limited, and we might need to
significantly restrict our operations.

      The following table summarizes the contractual obligations and commercial
commitments entered into by the Company.

                                                       Payments Due by Period
                                                   -----------------------------
         Contractual Obligations                   Total        2003        2004
      -----------------------------------------    -----        ----        ----
      Capital lease obligations ...............       73          73          --
      Operating leases ........................      213         167          46
      Other long-term obligations .............      490         420          70
                                                    ----        ----        ----
          Total Contractual Cash Obligations ..     $776        $660        $116
                                                    ====        ====        ====

      The operating agreement included in other long-term obligations above can
be terminated early with no penalties after February 2003.

Critical Accounting Policies

      Our significant accounting policies are described in Note 2 to the
financial statements included in Item 8 of this Annual Report. We believe our
most critical accounting policies include revenue recognition, allowance for
doubtful accounts and fixed assets.

      The Company currently derives revenue from providing lead generation and
customer acquisition activities through a network of website and email partners.
Revenues earned for lead generation through the Aptimus network are based on a
fee per lead and are recognized when the lead information is delivered to the
client. Revenues earned for e-mail mailings can be based on a fee per lead, a
percentage of revenue earned from the mailing, or a cost per thousand e-mails
sent. Revenues from e-mail mailings sent on a cost per thousand basis are
recognized when the e-mails are delivered. Revenues from e-mail mailings sent on
a fee per lead or a percentage of revenue earned basis are recognized when
amounts are determinable. In accordance with EITF 99-19, the Company recognizes
revenues shared with network partners and opt-in email list owners on a gross
basis.

      The estimate of allowance for doubtful accounts is comprised of two parts,
a specific account analysis and a general reserve. Accounts where specific
information indicates a potential loss may exist are reviewed and a specific
reserve against amounts due is recorded. As additional information becomes
available such specific account reserves are updated. Additionally, a general
reserve is applied to the aging categories based on historical collection and
write-off experience. As trends in historical collection and write-offs change,
the percentages applied against the aging categories are updated.


                                       25
<PAGE>

      Property and equipment are stated at cost less accumulated depreciation
and are depreciated using the straight-line method over their estimated useful
lives. Leasehold improvements are amortized on a straight-line method over their
estimated useful lives or the term of the related lease, whichever is shorter.
Equipment under capital leases, which all contain bargain purchase options, is
recorded at the present value of minimum lease payments and is amortized using
the straight-line method over the estimated useful lives of the related assets.
The estimated useful lives are as follows:

             Office furniture and equipment......     Five years
             Computer hardware and software......     Three years
             Leasehold improvements..............     Three to Five years

      The cost of normal maintenance and repairs are charged to expense as
incurred and expenditures for major improvements are capitalized. Gains or
losses on the disposition of assets in the normal course of business are
reflected in the results of operations at the time of disposal.

      Changes in circumstances such as technological advances or changes to the
Company's business model can result in the actual useful lives differing from
the Company's estimates. In the event the Company determines that the useful
life of a capital asset should be shortened the Company would depreciate the net
book value in excess of the estimated salvage value, over its remaining useful
life thereby increasing depreciation expense. Long-lived assets, including fixed
assets and intangible assets other than goodwill, are reviewed for impairment
whenever events or changes in circumstances indicate the carrying amount of the
asset may not be recoverable. A review for impairment involves developing an
estimate of undiscounted cash flow and comparing this estimate to the carrying
value of the asset. The estimate of cash flow is based on, among other things,
certain assumptions about expected future operating performance. The Company's
estimates of undiscounted cash flow may differ from actual cash flow due to,
among other things, technological changes, economic conditions, changes to our
business model or changes in our operating performance.

Recent Accounting Pronouncements

      In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS 143 addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. The adoption of SFAS 143 did not have an
impact on the results of operations, financial position or cash flows of the
Company.

      In October 2001, the FASB issued SFAS No.144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS 144 establishes a single
accounting model, based on the framework established in SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," for long-lived assets to be disposed of by sale, and resolves
significant implementation issues related to SFAS 121. SFAS 144 is effective for
financial statements issued for fiscal years beginning after December 15, 2001,
although earlier application is encouraged. The adoption of SFAS 144 did not
have an impact on the results of operations, financial position or cash flows of
the Company.

      In April 2002, the FASB issued Statement of Financial Accounting Standards
No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections." SFAS 145 rescinds or amends
various standards on accounting for debt extinguishments, intangible assets of
motor carriers, and certain lease transactions. Additional technical corrections
and amendments were made to various other existing authoritative pronouncements.
The adoption of SFAS 145 did not have an impact on the results of operations,
financial position or cash flows of the Company.

      In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities."
SFAS 146 requires that a liability for a cost associated with an exit or
disposal activity be recognized and measured initially at fair value only when
the liability is incurred. Under prior guidance, a liability for such costs
could be recognized at the date of commitment to an exit plan. The provisions of
this Statement are to be applied prospectively to exit or disposal activities
initiated after December 31, 2002. The Company does not expect the Statement to
result in a material impact on its financial position or results of operations.

      In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." The Interpretation elaborates on the
disclosures to be made by sellers or guarantors of products and services, as
well as those entities guaranteeing the financial performance of others. The
Interpretation further clarifies that a guarantor is required to recognize, at
the inception of a guarantee, a liability for the obligations it has undertaken


                                       26
<PAGE>

in issuing the guarantee. The initial recognition and initial measurement
provisions of this Interpretation are effective on a prospective basis to
guarantees issued or modified after December 31, 2002, and the disclosure
requirements are effective for financial statements of periods ending after
December 15, 2002. The Company believes that its disclosures with regards to
these matters are adequate as of December 31, 2002.

      In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure, an amendment of FASB Statement No. 123." This Statement amends SFAS
123 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, it amends the disclosure requirements of Statement 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. As of December 31, 2002, the Company continued
to follow the intrinsic value method to account for stock-based employee
compensation. The additional disclosure requirements of this Statement are
effective for financial statements for interim periods beginning after December
15, 2002.

Item 7A: Quantitative and Qualitative Disclosures About Market Risk

      All of the Company's cash equivalents, short-term securities and capital
lease obligations are at fixed interest rates and therefore the fair value of
these instruments is affected by changes in market interest rates. As of
December 31, 2002, however, the Company's cash equivalents and short-term
securities mature within three months. As of December 31, 2002, the Company
believes the reported amounts of cash equivalents, short-term securities and
capital lease obligations to be reasonable approximations of their fair values.
As a result, the Company believes that the market risk and interest risk arising
from its holding of financial instruments is minimal.


                                       27
<PAGE>

Item 8: Financial Statements and Supplementary Data

                          INDEX TO FINANCIAL STATEMENTS

                                  Aptimus, Inc.
                              Financial Statements

                                                                         Page
                                                                         ----
    Reports of Independent Accountants..............................      29
    Balance Sheet as of December 31, 2001 and 2002..................      31
    Statement of Operations for the years ended December 31,
      2000, 2001 and 2002...........................................      32
    Statement of Shareholders' Equity for the years ended
      December 31, 2000, 2001 and 2002..............................      33
    Statement of Cash Flows for the years ended December 31,
      2000, 2001 and 2002...........................................      34
    Notes to Financial Statements...................................      35


                                       28
<PAGE>

                        Report of Independent Accountants

To the Board of Directors and Shareholders of Aptimus, Inc.

      We have audited the accompanying balance sheets of Aptimus, Inc. at
December 31, 2002 and 2001, and the related statements of operations,
shareholders' equity and cash flows for the years then ended. 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 based on our audit.

      We conducted our audits of these statements in accordance with auditing
standards generally accepted in the United States of America. Those standards
require that we plan and perform the audits 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. An audit also includes, assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Aptimus, Inc., as of
December 31, 2002 and 2001, and the results of its operations and its cash flows
for the years then ended, 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 index appearing under Item 15(a)(2)
schedule 1.2 on page 51 presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
financial statements.

      The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.


Moss Adams LLP

Seattle, Washington
January 27, 2003


                                       29
<PAGE>

                        Report of Independent Accountants

To the Board of Directors and Shareholders of Aptimus, Inc.

      In our opinion, the accompanying December 31, 2000 statements of
operations, of shareholders' equity and of cash flows listed in the index
appearing under Item 15(a)(1) on page 51 present fairly, in all material
respects, the results of Aptimus, Inc.'s operations and its cash flows for the
year ended December 31, 2000 in conformity with accounting principles generally
accepted in the United States of America. In addition, in our opinion, the
financial statement schedule at December 31, 2000, listed in the index appearing
under Item 15(a)(2) on page 51 presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
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 audit 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
audit provides a reasonable basis for our opinion.

      The financial statements described in the preceding paragraph have been
prepared assuming that the Company will continue as a going concern. As
discussed in Note 1 to the financial statements, the Company has suffered
recurring losses from operations that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.


PricewaterhouseCoopers LLP
Seattle, Washington
February 28, 2001


                                       30
<PAGE>

                                  APTIMUS, INC.

                                  BALANCE SHEET
                                 (in thousands)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                              December 31,
                                                                       -------------------------
                                                                         2001             2002
                                                                       --------         --------
<S>                                                                    <C>              <C>
      Cash and cash equivalents ...............................        $  3,651         $    667
      Accounts receivable, net ................................             269              530
      Prepaid expenses and other assets .......................             219              159
      Short-term investments ..................................           1,046               51
                                                                       --------         --------
                Total current assets ..........................           5,185            1,407
      Fixed assets, net of accumulated depreciation ...........           2,115              440
      Intangible assets, net ..................................              33               24
      Long-term investments ...................................             147               40
      Deposits ................................................              30               30
                                                                       --------         --------
                                                                       $  7,510         $  1,941
                                                                       ========         ========
                      LIABILITIES AND SHAREHOLDERS' EQUITY

      Accounts payable ........................................        $    204         $    297
      Accrued and other liabilities ...........................             421              344
      Current portion of capital lease obligations ............              84               68
      Current portion of notes payable ........................              89               --
                                                                       --------         --------
                Total current liabilities .....................             798              709
      Capital lease obligations, net of current portion .......              68               --
                                                                       --------         --------
                Total liabilities .............................             866              709
                                                                       --------         --------
      Commitments and contingent liabilities (note 9)
      Shareholders' equity Common stock, no par value; 100,000
        Shares authorized, 3,985 and 4,221 issued and
        Outstanding at December 31, 2001 and 2002, respectively          60,173           60,282
      Additional paid-in capital ..............................           2,534            2,506
      Deferred stock compensation .............................             (13)              (2)
      Accumulated deficit .....................................         (56,050)         (61,554)
                                                                       --------         --------
                Total shareholders' equity ....................           6,644            1,232
                                                                       --------         --------
                                                                       $  7,510         $  1,941
                                                                       ========         ========
</TABLE>

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


                                       31
<PAGE>

                                  APTIMUS, INC.

                             STATEMENT OF OPERATIONS
                      (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                     Year ended December 31,
                                                            ------------------------------------------
                                                              2000             2001             2002
                                                            --------         --------         --------
<S>                                                         <C>              <C>              <C>
      Net revenues .....................................    $ 16,873         $  1,874         $  2,915
      Operating expenses:
        Sales and marketing ............................      29,571            6,185            1,971
        Connectivity and network costs .................       2,047            1,780            1,312
        Partner fees ...................................          --              321            1,013
        Research and development .......................       2,439            1,632              559
        General and administrative .....................       3,055            2,423            1,687
        Depreciation and amortization ..................       2,419            2,268            1,305
        Equity-based compensation ......................         774              371               11
        Lease renegotiation costs and abandonment of
           leasehold improvements ......................          --               --              478
        Restructuring costs ............................          --            4,998               --
                                                            --------         --------         --------
                Total operating expenses ...............      40,305           19,978            8,336
                                                            --------         --------         --------
      Operating loss ...................................     (23,432)         (18,104)          (5,421)
      Interest expense .................................         114              155               24
      Other (income) expense net .......................      (2,442)            (381)              59
                                                            --------         --------         --------
      Net loss .........................................    $(21,104)        $(17,878)        $ (5,504)
                                                            ========         ========         ========
      Basic and diluted net loss per share .............    $  (1.36)        $  (1.44)        $  (1.35)
                                                            ========         ========         ========
      Weighted average shares used in computing per
        Share information ..............................      15,567           12,400            4,073
                                                            ========         ========         ========
</TABLE>

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


                                       32
<PAGE>

                                  APTIMUS, INC.

                        STATEMENT OF SHAREHOLDERS' EQUITY
                                 (in thousands)

<TABLE>
<CAPTION>
                                                  Common stock           Additional      Deferred                         Total
                                             ------------------------      paid-in         stock         Accumulated   Shareholders'
                                              Shares           Amount      capital     Compensation        Deficit       equity
                                             -------           ------    ----------    ------------      -----------   -------------
<S>                                          <C>               <C>         <C>           <C>              <C>           <C>
Balances at December 31, 1999..............   15,524            66,587      2,858         (1,466)          (17,068)       50,911
Repurchase of common stock.................     (664)           (1,637)                                                   (1,637)
Exercise of stock options and warrants.....      211               229                                                       229
Issuance of shares under employee
  stock purchase program...................       28               115                                                       115
Deferred compensation related to
  grants of stock options..................                                   146           (146)                             --
Deferred compensation related to
  forfeitures of stock options.............                                  (486)           486                              --
Amortization of deferred stock
  Compensation.............................                                                  774                             774
Issuance of common stock in connection
  with business acquisition................      406               580                                                       580
Net loss...................................                                                                (21,104)      (21,104)
                                             -------           -------     ------        -------          --------      --------
Balances at December 31, 2000..............   15,505            65,874      2,518           (352)          (38,172)       29,868
Repurchase of common stock.................  (12,162)           (5,637)         7                                         (5,630)
Exercise of stock options and
  warrants.................................       56                14        (14)                                            --
Issuance of shares under employee
  stock purchase program...................        7                 3                                                         3
Issuance of restricted shares under
  2001 Stock Plan..........................      635                          304                                            304
Deferred compensation related to
  forfeitures of stock options.............                                  (281)           281                              --
Amortization of deferred stock
  Compensation.............................                                                   58                              58
Adjustments to common stock in
  connection with a business acquisition ..      (56)              (81)                                                      (81)
Net loss...................................                                                                (17,878)      (17,878)
                                             -------           -------     ------        -------          --------      --------
Balance on December 31, 2001...............    3,985            60,173      2,534            (13)          (56,050)        6,644
Exercise of stock options and
  warrants.................................       86                34        (29)                                             5
Issuance of common stock in
  connection with lease renegotiation......      150                75                                                        75
Compensation related to issuance of
  stock options to outside contractor......                                     1                                              1
Amortization of deferred stock
  Compensation.............................                                                   11                              11
Net loss...................................                                                                 (5,504)       (5,504)
                                             -------           -------     ------        -------          --------      --------
Balance on December 31, 2002...............    4,221           $60,282     $2,506        $    (2)         $(61,554)     $  1,232
                                             =======           =======     ======        =======          ========      ========
</TABLE>

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


                                       33
<PAGE>

                                  APTIMUS, INC.

                             STATEMENT OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                            Year ended December 31,
                                                                  ------------------------------------------
                                                                    2000             2001             2002
                                                                  --------         --------         --------
<S>                                                               <C>              <C>              <C>
Cash flows from operating activities
Net loss .................................................        $(21,104)        $(17,878)        $ (5,504)
  Adjustments to reconcile net loss to net cash used in
     operating activities:
     Depreciation and amortization .......................           2,419            2,268            1,305
     Bad debt expense (recovery) .........................           1,995             (296)              (2)
     Amortization of deferred stock compensation .........             774              371               11
     Compensation on shares of common stock issued .......              --               --               76
     Abandonment of fixed assets from lease renegotiation               --               --              377
     Restructuring costs .................................              --            4,998               --
     Cash paid for restructuring costs ...................              --           (1,900)             (15)
     Loss (gain) on disposal of property and equipment ...              (3)              74               (2)
     Impairment of long-term investment ..................              --              197              107
     Amortization of discount on short-term investments ..            (301)             (84)              (4)
     Changes in assets and liabilities, net of effects of
       business acquisitions:
       Accounts receivable ...............................          (1,107)           2,267             (259)
       Prepaid expenses and other assets .................            (253)             564               60
       Accounts payable ..................................           1,203           (2,384)             108
       Accrued and other liabilities .....................          (2,236)            (739)             (77)
                                                                  --------         --------         --------
       Net cash used by operating activities .............         (18,613)         (12,542)          (3,819)
                                                                  --------         --------         --------
Cash flows from investing activities
     Purchase of property and equipment ..................          (3,239)            (370)             (29)
     Proceeds from disposal of fixed assets ..............              23               81               43
     Purchase of intangible asset ........................              --               --              (10)
     Payment for business acquisitions ...................          (1,554)              --               --
     Purchase of short-term investments ..................         (21,259)          (3,947)              (1)
     Sale of short-term investments ......................          23,500           14,997            1,000
     (Purchase of) proceeds from  long-term investments ..              (1)               1               --
                                                                  --------         --------         --------
          Net cash provided (used) by investing activities          (2,530)          10,762            1,003
                                                                  --------         --------         --------
Cash flows from financing activities
       Proceeds from note payable ........................           2,000               --               --
       Repayment of notes payable ........................            (400)          (2,375)             (89)
       Principal payments under capital leases ...........            (105)            (156)             (84)
       Repurchase of common stock ........................          (1,637)          (4,899)              --
       Issuance of common stock, net of issuance costs ...             344                7                5
                                                                  --------         --------         --------
          Net cash provided (used) by financing activities             202           (7,423)            (168)
                                                                  --------         --------         --------
  Net decrease in cash and cash equivalents ..............         (20,941)          (9,203)          (2,984)
  Cash and cash equivalents at beginning of period .......          33,795           12,854            3,651
                                                                  --------         --------         --------
  Cash and cash equivalents at end of period .............        $ 12,854         $  3,651         $    667
                                                                  ========         ========         ========
</TABLE>

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


                                       34
<PAGE>

                                  APTIMUS, INC.

                          NOTES TO FINANCIAL STATEMENTS

1. Organization and business

      Aptimus began as a division of Online Interactive, Inc. (Online), a
Washington corporation, incorporated in July 1994. On June 30, 1997, Online
Interactive contributed the FreeShop Division, including certain net assets, to
its wholly owned subsidiary, FreeShop International, Inc., a Washington
corporation incorporated on June 23, 1997, which then began operating as a
separate entity.

      On February 19, 1999, FreeShop International, Inc. changed its name to
FreeShop.com, Inc. On October 16, 2000 FreeShop.com, Inc. changed its name to
Aptimus, Inc. (Aptimus or the Company). Aptimus operates an online direct
marketing network. Aptimus is primarily an online marketing service that
generates sales leads, creates product awareness, and initiates consumer
purchases through multiple online marketing vehicles, including free and trial
offers, banner advertising, email newsletter sponsorship, and others.

      The Company has been in operation since 1994 and has incurred operating
losses since inception. The financial statements have been prepared assuming the
Company will continue as a going concern and do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets and liabilities that may result from this uncertainty.

      The Company's ability to continue as a going concern is dependent on a
number of factors, including the success of the Company's intention to
reposition itself as a direct marketing infrastructure provider (Note 3), its
level of future revenues under the new operating plan and its ability to keep
operating costs low. There can be no assurance that the Company will be able to
increase revenues or contain operating expenses as planned.

      If the Company is unable to increase revenues or contain operating
expenses as planned it may not have sufficient funds to satisfy its cash
requirements. The Company may be forced to curtail operations further, dispose
of assets or seek additional funding. Such events would materially and adversely
affect the value of the Company's equity securities. There can be no assurance
that the Company will be able to successfully complete the steps necessary to
continue as a going concern.

2. Summary of significant accounting policies

Use of estimates

      The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

Cash, cash equivalents and short-term investments

      The Company generally considers any highly liquid investments purchased
with an original or remaining maturity of three months or less at the date of
purchase to be cash equivalents.

      The Company classifies, at the date of acquisition, its marketable
securities into categories in accordance with the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." At December 31, 2001 and 2002, short-term
investments consisted of commercial paper and certificates of deposit with
maturities of less than one year. Currently, the Company classifies all of its
short-term investments as held to maturity, which are reported at amortized
cost, which approximated their fair value at December 31, 2001 and 2002.
Realized gains and losses and declines in value of securities judged to be other
than temporary are included in other income (expense), net.

      The Company invests its cash and cash equivalents in deposits at three
major financial institutions that may, at times, exceed federally insured
limits. Management believes that the risk of loss is minimal. To date, the
Company has not experienced any losses related to temporary cash investments.

Accounts receivable


                                       35
<PAGE>

      The Company grants credit to its customers for substantially all of its
sales. The estimate of allowance for doubtful accounts is comprised of two
parts, a specific account analysis and a general reserve. Accounts where
specific information indicates a potential loss may exist are reviewed and a
specific reserve against amounts due is recorded. As additional information
becomes available such specific account reserves are updated. Additionally, a
general reserve is applied to the aging categories based on historical
collection and write-off experience. As trends in historical collection and
write-offs change, the percentages applied against the aging categories are
updated. The Company has reserved for all outstanding balances past due greater
than ninety days as of December 31, 2002 and 2001.

Fixed assets

      Property and equipment are stated at cost less accumulated depreciation
and are depreciated using the straight-line method over their estimated useful
lives. Leasehold improvements are amortized on a straight-line method over their
estimated useful lives or the term of the related lease, whichever is shorter.
The estimated useful lives are as follows:

             Office furniture and equipment......     Five years
             Computer hardware and software......     Three years
             Leasehold improvements..............     Three to Five years

      The cost of normal maintenance and repairs are charged to expense as
incurred and expenditures for major improvements are capitalized. Gains or
losses on the disposition of assets in the normal course of business are
reflected in the results of operations at the time of disposal. Equipment under
capital leases, which all contain bargain purchase options, is recorded at the
present value of minimum lease payments and is amortized using the straight-line
method over the estimated useful lives of the related assets.

Intangible assets

      Intangible assets are stated at cost less accumulated amortization and are
amortized using the straight-line method over their estimated useful lives. The
estimated useful lives are as follows:

             Email names...................................     Two years
             Aptimus trademark and logo....................     Three years

      At December 31, 2001 and 2002, accumulated amortization of intangible
assets was $24,000 and $42,000, respectively.

Long-term investments

      Long-term investments consist of minority equity investments in non-public
companies. These investments are being accounted for on the cost basis and will
be evaluated for impairment each quarter. During the years ended December 31,
2001 and 2002 the Company recorded charges of approximately $197,000 and
$107,000, respectively, related to the impairment of these investments.

Impairment of long-lived assets

      The Company evaluates its long-lived assets for impairment and continues
to evaluate them as events or changes in circumstances indicate that the
carrying amount of such assets may not be fully recoverable. The Company
evaluates the recoverability of long-lived assets by measuring the carrying
amount of the assets against the estimated undiscounted future cash flows
associated with these assets. At the time such evaluations indicate that the
future undiscounted cash flows of certain long-lived assets are not sufficient
to recover the carrying value of such assets, the assets are adjusted to their
fair values. No losses for impairment were recognized during 2000 while during
2001 impairment losses were recognized as part of the restructuring charges. As
discussed further in Note 5, the Company recorded charges of $377,000 during
2002 related to the abandonment of leasehold improvements.

Fair value of financial instruments

      The carrying amounts of the Company's financial instruments, including
cash and cash equivalents, short-term investments, accounts receivable, accounts
payable, accrued liabilities and long-term debt approximate fair value because
of their short maturities.

Deferred revenues


                                       36
<PAGE>

      Deferred revenues consist of advance billings and payments on marketing
contracts and are included in accrued and other liabilities in the accompanying
balance sheet.

Revenue recognition

      The Company currently derives revenue from providing lead generation and
customer acquisition programs through a network of website and email
distribution partners.

      Revenue earned for lead generation through the Aptimus network is based on
a fee per lead and is recognized when the lead information is delivered to the
client. Revenue earned for e-mail mailings can be based on a fee per lead, a
percentage of revenue earned from the mailing, or a cost per thousand e-mails
delivered. Revenue from e-mail mailings delivered on a cost per thousand basis
is recognized when the e-mail is delivered. Revenues from e-mail mailings sent
on a fee per lead or a percentage of revenue earned from the mailing basis are
recognized when amounts are determinable, generally when the customer receives
the leads.

      Revenues generated through network partners and opt-in email list owners
are recorded on a gross basis in accordance with Emerging Issues Task Force
consensus 99-19 (EITF 99-19). Fees paid to network partners and opt-in email
list owners related to these revenues are shown as Partner fees on the Statement
of Operations. Email based campaigns that are sent to Company owned lists do not
have partner fees associated with them.

      The Company has evaluated the guidance provided by EITF 99-19 as it
relates to determining whether revenue should be recorded gross or net for the
payments made to network partners and opt-in email list owners. The Company has
determined the recording of revenues gross is appropriate based upon the
following factors:

      o     Aptimus acts as a principal in these transactions;

      o     Aptimus and its customer are the only companies identified in the
            signed contracts;

      o     Aptimus is solely responsible to the client for fulfillment of the
            contract;

      o     Aptimus determines how the offer will be presented across the
            network; and

      o     Amounts earned are based on leads or emails delivered and are not
            based on amounts paid to partners.

      In addition to the ongoing revenue related to the network and email
mailings some revenue has been recognized through March 31, 2002 related to
services performed on the FreeShop site. These revenues have been recognized
when received, as collection was not reasonably assured at the time the services
were performed. As of December 31, 2002 it is not expected that any additional
amounts will be received that have not been previously recognized as revenue.

      Prior to May 15, 2001 the Company derived revenue from its online
marketing service activities, including lead generation, advertising, and list
rental.

      Lead generation revenues consist of fees received, generally on a per
inquiry basis, for delivery of leads to clients. Revenue is recognized in the
period the leads are provided to the client.

      Advertising revenues consist of email newsletter sponsorships, banner
advertising, and anchor positions. Newsletter sponsorship revenues are derived
from a fixed fee or a fee based on the circulation of the newsletter. Newsletter
sponsorship revenues are recognized in the period in which the newsletter is
delivered. Banner advertising and anchor positions can be based on impressions,
fixed fees, or click throughs. Fixed fee contracts, which range from three
months to two years, are recognized ratably over the term of the agreement,
provided that no significant Company obligations remain. Revenue from
impressions or click through based contracts is recognized based on the
proportion of impressions or click throughs delivered, to the total number of
guaranteed impressions or click throughs provided for under the related
contracts.

      List rental revenues are received from the rental of customer names to
third parties through the use of list brokers. Revenue from list rental
activities is recognized in the period the names are delivered by the list
broker to the third party.


                                       37
<PAGE>

      Included in net revenues are barter revenues, which are generated from
exchanging lead generation and advertising services for advertising services.
Such transactions are recorded at the estimated fair value based on comparable
cash transaction. Revenue from barter transactions is recognized when
advertising or lead generation is provided, and services received are charged to
expense when used. For the year ended December 31, 2000, the Company recognized
revenue from barter transactions of $1,738,000. No barter transactions were
entered into or barter revenue recognized during the years ended December 31,
2001 and 2002.

      The Company also had advertising and lead generation agreements that
provided for payment in equity securities of non-public companies. Revenue is
recognized under such agreements when sufficient contemporaneous evidence exists
concerning the value of the equity securities. Revenue recognized under such
agreements, for the year ended December 31, 2000 was $344,000. No similar
arrangements existed in the years ended December 31, 2001 and 2002.

Advertising costs

      The Company expenses advertising costs as incurred. Total advertising
expense for the years ended December 31, 2000, 2001 and 2002 were $15,586,000,
$1,455,000 and $8,000, respectively.

Research and development costs

      Research and development costs are expensed as incurred.

Web site development costs

      Costs incurred in developing the Company's Web sites are accounted for in
accordance with Emerging Issues Task Force Issues Summary 00-02, "Accounting for
Web site Development Costs." As such, the Company expenses all costs incurred
that relate to the planning and post implementation phases of development. Costs
incurred in the development phase are capitalized and recognized over the Web
site's estimated useful life if the Web site is expected to have a useful life
beyond one year. Costs capitalized are included in fixed assets and are
amortized over three years. Costs associated with repair or maintenance of
existing sites or the development of Web site content are expensed as incurred.

Income taxes

      The Company accounts for income taxes under the asset and liability
method, which requires recognition of deferred tax assets and liabilities for
the expected future tax consequences of temporary differences between the
carrying amounts and the tax bases of assets and liabilities. If it is more
likely than not that some portion of a deferred tax asset will not be realized,
a valuation allowance is recorded.

Net loss per share

      Basic net loss per share represents net loss available to common
shareholders divided by the weighted average number of shares outstanding during
the period. Diluted net loss per share represents net loss available to common
shareholders divided by the weighted average number of shares outstanding,
including the potentially dilutive impact of common stock options and warrants.
Common stock options and warrants are converted using the treasury stock method.
Basic and diluted net loss per share is equal for all periods presented because
the impact of common stock equivalents is antidilutive.

      The following table sets forth the computation of the numerators and
denominators in the basic and diluted net loss per share calculations for the
periods indicated and those common stock equivalent securities not included in
the diluted net loss per share calculation (in thousands):

<TABLE>
<CAPTION>
                                                                            Year ended December 31,
                                                                  ------------------------------------------
                                                                    2000             2001             2002
                                                                  --------         --------         --------
<S>                                                               <C>              <C>              <C>
      Numerator:
        Net loss .............................................    $(21,104)        $(17,878)        $ (5,504)
                                                                  ========         ========         ========
      Denominator:
        Weighted average shares used in computing net loss
           per share .........................................      15,567           12,400            4,073
                                                                  ========         ========         ========
      Potentially dilutive securities consist of the
        following:
        Options to purchase common stock .....................       1,397            1,236            1,394
        Warrants to purchase common stock ....................          16               16               14
                                                                  --------         --------         --------
                                                                     1,413            1,252            1,408
                                                                  ========         ========         ========
</TABLE>


                                       38
<PAGE>

Concentrations of credit risk

      Concentrations of credit risk with respect to accounts receivable exist
due to the large number of Internet based companies. This risk is mitigated due
to the wide variety of customers to which the Company provides services, as well
as the customer's dispersion across many different geographic areas. During the
years ended December 31, 2000 and 2002, no single customer accounted for greater
than 10% of total net revenues. During the year ended December 31, 2001 one
customer accounted for 10.3% of net revenues. As of December 31, 2001 one
customer accounted for 22.0% of outstanding accounts receivable. As of December
31, 2002 two customers accounted for 18.2% and 11.6%, respectively, of
outstanding accounts receivable. The Company maintains an allowance for doubtful
accounts receivable based upon its historical experience and the expected
collectibility of all accounts receivable.

Stock compensation

At December 31, 2002, the Company has two stock-based employee compensation
plans, which are more fully described in Note 10. The Company accounts for those
plans under the recognition and measurement principles of APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related Interpretations. No
stock-based employee compensation cost is reflected in net income. The following
table illustrates the effect on net income and earning per share if the Company
had applied the fair value recognition provisions of FASB Statement No. 123,
Accounting for Stock-Based Compensation, to stock-based employee compensation
for the years ended December 31:

<TABLE>
<CAPTION>
                                                                                     2000             2001             2002
                                                                                   --------         --------         --------
<S>                                                                                <C>              <C>              <C>
Net loss, as reported ..........................................................   $(21,104)        $(17,878)        $ (5,504)
Add: Total stock-based employee compensation expense, included in the
   determination of net income as reported, net of related tax effects .........        774               59               11
Deduct: Total stock-based employee compensation expense determined
   under fair value based method for all awards, net of related tax effects ....     (2,989)            (932)            (373)
                                                                                   --------         --------         --------
Pro forma net loss .............................................................   $(23,319)        $(18,751)        $ (5,866)
                                                                                   ========         ========         ========

Earnings per share:
   Basic - as reported .........................................................   $  (1.36)        $  (1.44)        $  (1.35)
                                                                                   ========         ========         ========
   Basic - pro forma ...........................................................   $  (1.50)        $  (1.51)        $  (1.44)
                                                                                   ========         ========         ========
</TABLE>

For SFAS No. 123 pro forma disclosure, the fair value of each option is
estimated on the date of grant using the Black-Scholes option pricing model for
the years ended December 31, 2000, 2001 and 2002, with the following assumptions
used for grants to employees:

<TABLE>
<CAPTION>
                                                                      Year ended December 31,
                                                             ---------------------------------------
                                                               2000            2001            2002
                                                             -------         -------         -------
<S>                                                             <C>             <C>             <C>
            Weighted average risk free interest rate .....      6.29%           4.42%           3.29%
            Weighted average expected life (in years) ....      4.00            4.00            3.60
            Volatility ...................................       100%            100%            100%
            Dividends ....................................      None            None            None
</TABLE>

Comprehensive income

      To date, the Company has not had any transactions required to be reported
in comprehensive income other than its net loss.

Recent accounting pronouncements

      In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS 143 addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. The adoption of SFAS 143 did not have an
impact on the results of operations, financial position or cash flows of the
Company.


                                       39
<PAGE>

      In October 2001, the FASB issued SFAS No.144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS 144 establishes a single
accounting model, based on the framework established in SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," for long-lived assets to be disposed of by sale, and resolves
significant implementation issues related to SFAS 121. SFAS 144 is effective for
financial statements issued for fiscal years beginning after December 15, 2001,
although earlier application is encouraged. The adoption of SFAS 144 did not
have an impact on the results of operations, financial position or cash flows of
the Company.

      In April 2002, the FASB issued Statement of Financial Accounting Standards
No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections. SFAS 145 rescinds or amends various
standards on accounting for debt extinguishments, intangible assets of motor
carriers, and certain lease transactions. Additional technical corrections and
amendments were made to various other existing authoritative pronouncements. The
adoption of SFAS 145 did not have an impact on the results of operations,
financial position or cash flows of the Company.

      In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS
146 requires that a liability for a cost associated with an exit or disposal
activity be recognized and measured initially at fair value only when the
liability is incurred. Under prior guidance, a liability for such costs could be
recognized at the date of commitment to an exit plan. The provisions of this
Statement are to be applied prospectively to exit or disposal activities
initiated after December 31, 2002. The Company does not expect the Statement to
result in a material impact on its financial position or results of operations.

      In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. The Interpretation elaborates on the
disclosures to be made by sellers or guarantors of products and services, as
well as those entities guaranteeing the financial performance of others. The
Interpretation further clarifies that a guarantor is required to recognize, at
the inception of a guarantee, a liability for the obligations it has undertaken
in issuing the guarantee. The initial recognition and initial measurement
provisions of this Interpretation are effective on a prospective basis to
guarantees issued or modified after December 31, 2002, and the disclosure
requirements are effective for financial statements of periods ending after
December 15, 2002. The Company believes that its disclosures with regards to
these matters are adequate as of December 31, 2002.

      In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation - Transition and
Disclosure, an amendment of FASB Statement No. 123. This Statement amends SFAS
123 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, it amends the disclosure requirements of Statement 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. As of December 31, 2002, the Company continued
to follow the intrinsic value method to account for stock-based employee
compensation. The additional disclosure requirements of this Statement are
effective for financial statements for interim periods beginning after December
15, 2002.

3. Restructuring Costs

On February 20, 2001, we announced our intention to reposition the Company as a
direct marketing infrastructure provider, focusing all of our resources on
building a direct marketing network. As part of this repositioning all
activities related to our consumer-direct Web sites, including FreeShop.com,
Desteo.com, and CatalogSite.com were discontinued. As a result of these
activities, we reduced staffing levels by 161 employees during the first quarter
of 2001. In June of 2001 the decision was made to modify the restructuring plan
by disposing of the technology acquired in the XMarkstheSpot acquisition, to
reduce staffing by an additional 26 employees and to dispose of additional
equipment and software no longer being used in operations.

Restructuring costs of $4,998,000 for the year ended December 31, 2001 were
recognized in accordance with the guidance of Emerging Issues Task Force 94-3.
The restructuring resulted in the following charges during 2001 (in thousands):

<TABLE>
<CAPTION>
                                                              First        Second        Third         Fourth
      Types of Costs                                         Quarter      Quarter       Quarter       Quarter         Total
      --------------------------------------------------     -------      -------       -------       -------         -----
<S>                                                          <C>           <C>           <C>           <C>           <C>
      Employee severance ...............................     $1,462        $  503        $   --        $   --        $1,965
      Capitalized software costs .......................        364            --            --            --           364
      Disposal of fixed assets, Net ....................          4           534            --            --           538
      Impairment of intangible assets ..................        976         1,155                                     2,131
                                                             ------        ------        ------        ------        ------
         Total .........................................     $2,806        $2,192        $   --        $   --        $4,998
                                                             ======        ======        ======        ======        ======
      Balance of severance accrual at end of period ....     $  511        $  204        $   57        $   15        $   15
                                                             ======        ======        ======        ======        ======
</TABLE>


                                       40
<PAGE>

      In addition to severance costs, the repositioning resulted in the disposal
and abandonment of capitalized software and fixed assets. In conjunction with
the disposal of these assets, the Company received approximately $51,000 of
proceeds, which is included in the restructuring costs. Additionally, during
2001 we recorded a restructuring charge related to the impairment of intangible
assets related to the repositioning activities. Intangible assets related to the
acquisitions of Commonsite, LLC and Travel Companions International, Inc. were
impaired in the first quarter of 2001 as they related to our consumer direct Web
site business for which a plan of exit was implemented in the first quarter of
2001. Intangible assets related to the business acquisition of XMarkstheSpot,
Inc. were impaired in the second quarter of 2001 as the majority of the acquired
workforce was terminated and the acquired technology was replaced.

      At December 31, 2002 no assets or liabilities that were to be disposed of
as part of the 2001 restructuring plan remained on the balance sheet, we do not
anticipate any additional costs to be recorded as a result of the 2001
restructuring plan and all planned expenditures under the 2001 restructuring
plan have been completed.

4. Accounts receivable

      Accounts receivable consist of the following (in thousands):

                                                                December 31,
                                                           --------------------
                                                             2001         2002
                                                           -------      -------
      Accounts receivable ..............................   $   337      $   606
      Less: Allowance for doubtful accounts ............       (66)         (76)
      Less: Allowance for list rental adjustments ......        (2)          --
                                                           -------      -------
                                                           $   269      $   530
                                                           =======      =======

5. Property and equipment

      Property and equipment consist of the following (in thousands):

                                                                December 31,
                                                           --------------------
                                                             2001         2002
                                                           -------      -------
      Computer hardware and software ...................   $ 3,272      $ 3,150
      Office furniture and equipment ...................       473          285
      Leasehold improvements ...........................       892          222
                                                           -------      -------
                                                             4,637        3,657
      Less: Accumulated depreciation and amortization ..    (2,522)      (3,217)
                                                           -------      -------
                                                           $ 2,115      $   440
                                                           =======      =======

      Property and equipment includes equipment under capital leases in the
amount of $83,000 and $68,000 at December 31, 2001 and 2002, respectively.
Accumulated amortization on this equipment was $44,000 and $67,000 at December
31, 2001 and 2002, respectively.

      During the third quarter of 2002 we negotiated and reached agreement with
our Seattle landlord to substantially reduce the amount of space we lease and
the corresponding rental rate we pay for our Seattle offices. The new
arrangement accommodates our limited space requirements and reflects the current
market's lower rates. Under the terms of the new lease, beginning October 1,
2002, Aptimus began paying significantly less rent for a reduced amount of
office space and surrendered a majority of the leasehold improvements made in
Seattle. Lease renegotiation costs and impairment of leasehold improvements of
$478,000 were recorded; $377,000 related to the net book value of the leasehold
improvements being surrendered to the landlord, $25,000 related to a cash
payment required under the agreement to amend the lease and $76,000 related to
150,000 shares of unregistered common stock issued to the landlord. In addition,
we recently successfully renegotiated our lease with our San Francisco landlord
to substantially reduce the rental rate we pay for our San Francisco offices. As
a result, we reduced our base monthly rental rate by 50%, effective January 1,
2003, but otherwise left unchanged our use and the amount of space under lease
in San Francisco. No additional consideration was given to the landlord, nor
were any impairment charges incurred as a consequence of the amended rental
rate.

6. Accrued and other liabilities

      Accrued and other liabilities consist of the following (in thousands):


                                       41
<PAGE>

                                                      December 31,
                                                  ------------------
                                                   2001        2002
                                                  ------      ------
            Accrued advertising expense ....      $  105      $   --
            Accrued network partner fees ...          95         157
            Accrued commissions ............           8          17
            Deferred revenue ...............          24          12
            Accrued vacation ...............          58          70
            Restructuring costs ............          15          --
            Other ..........................         116          88
                                                  ------      ------
                                                  $  421      $  344
                                                  ======      ======

7. Note payable

      In September 2001 the Company borrowed $126,000 under a premium financing
agreement with AFCO. The agreement was secured by the unearned premiums of the
underlying insurance policy. Borrowings under this agreement were paid in 10
equal monthly payments through July 27, 2002 and bore interest at 8.5%.

8. Related party transactions

      During the year ended December 31, 2000, the Company provided services in
the amount of $250,000 to a company for which Fingerhut is a significant
shareholder. During the year ended December 31, 2000 Fingerhut acted as the list
broker for the Company. Fees paid to Fingerhut for such services were $36,000.
During 2001, the Company repurchased all shares of common stock held by
Fingerhut (see Note 10).

      In June 2001, certain assets of the Company's suspended Desteo operation
were sold to an entity controlled by relatives of the Company's CEO, Tim Choate.
Mr. Choate had no involvement in negotiating the terms of the sale. The sale,
which is in form substantially similar to the Company's earlier sale of certain
of its FreeShop-related assets to Altura International, Inc., was on an earn-out
basis in which the obligations of the purchaser are secured by the assets sold.
To date no amounts have been received under this agreement, as the purchasing
company has not earned any amounts from the site.

      In May 2002, 23,600 shares of our common stock were purchased from a
departing executive officer, on a ratable basis, by four of the Company's
executive officers for total purchase consideration of $27,376. To facilitate
this transaction the Company loaned each of the four executive officers the
$6,844 necessary to purchase their respective shares. The notes receivable bear
interest at the prime rate, are secured by the stock purchased with the loan
proceeds and are non-recourse. The terms of the notes receivable call for
repayment on the earlier of demand by the Company or the self-initiated,
voluntary termination of employment by the executive officer. The terms also
call for the loan to be forgiven on the earlier of two years, the merger or sale
of the Company, the filing of a bankruptcy petition by or against the company or
election by the Company Board of Directors in its sole discretion. The notes
remain in full force and effect. However, due to the flexibility of the note
terms, the Company felt the value of the notes should not be reflected on the
balance sheet. The value of these notes of $27,376 was expensed as compensation
expense in September 2002.


                                       42
<PAGE>

9. Commitments and contingencies

      The Company's office facilities are leased under operating leases that
provide for minimum rentals and require payment of property taxes and include
escalation clauses. In addition, the Company also leases certain equipment under
agreements treated for financial reporting purposes as capital leases.

      Future minimum lease payments under the non-cancelable leases are as
follows (in thousands).

                                                            Capital   Operating
     Year ending December 31,                                leases     leases
     ------------------------                               -------   ---------
       2003.............................................    $    73   $     167
       2004.............................................         --          46
                                                            -------   ---------
     Total minimum lease payments.......................         73    $    213
                                                            =======   =========
     Less: Amount representing interest.................         (5)
                                                            -------
     Present value of capital lease obligations.........         68
     Less: Current portion..............................        (68)
                                                            -------
     Capital lease obligations, net of current portion..    $    --
                                                            =======

      Rent expense for the years ended December 31, 2000, 2001 and 2002, was
$712,000, $824,000 and $648,000 respectively. The Company has also entered into
an agreement with a service provider that contains cancellation fees. The
non-cancelable portion of this agreement calls for payments totaling
approximately $35,000 through January 31, 2003. Cancellation fees do not apply
if the Company elects to terminate the agreement after January 31, 2003. Total
payments under this agreement through the end of the initial term would total
$490,000 through February 2004.

Litigation

      The Company may be subject to various claims and pending or threatened
lawsuits in the normal course of business. Management believes that the outcome
of any such lawsuits would not have a materially adverse effect on the Company's
financial position, results of operations or cash flows.

Change in Control Agreement

      In December 2002, the Board of Directors approved a Change in Control
Agreement. Under the terms of this agreement, key members of management are to
receive a severance package ranging between eight and twelve months salary in
the event of a change in control of the Company and termination of the employee.

10. Shareholders' equity

Preferred stock

      Subject to the provisions of the articles of incorporation and limitations
prescribed by law, the board of directors has the authority to issue, without
further vote or action by the shareholders, up to 6,814,516 additional shares of
preferred stock in one or more series.

      In March 2002, the Board of Directors of the Company declared a dividend
distribution of one preferred share purchase right (a "right") for each
outstanding share of Common Stock of the Company. The dividend is payable to the
stockholders of record on March 29, 2002. Each right entitles the registered
holder to purchase form the Company one one-thousandth of a share of Series C
Preferred Stock of the Company at a price of $15 per one one-thousandth of a
Preferred Share. In the event of an acquisition, except pursuant to a tender or
exchange offer which is for all outstanding Common Shares at a price and on
terms which a majority of certain members of the Board of Directors determines
to be adequate, each holder of a right will thereafter have the right to receive
upon exercise the number of Common Shares or of one one-thousandth of a share of
Preferred Shares having a value equal to two times the exercise price of the
right. There were no transactions during 2002 related to the rights.

Common stock

      In April 2001, the Company repurchased 2,720,000 shares of common stock
from Fingerhut in exchange for $250,000 in cash and a note payable for $838,000.
The note payable called for equal monthly payments, including interest at 9.5%,
for 18 months through October 2002. As part of the repurchase Fingerhut was also
issued a warrant for 150,000 shares with an exercise price of $2.50 per


                                       43
<PAGE>

share, subject to adjustment if future sales of common stock are sold for less
than $0.40 per share. The warrants were valued at $7,200 for which an expense
was recorded. In November 2001 the note payable to Fingerhut was paid-off early
at a $100,000 discount and the warrant was cancelled. The early extinguishment
of the note payable is shown as a reduction of the cost to repurchase the shares
in the common stock account in the accompanying financial statements.

      During November 2001, we completed an issuer tender offer by purchasing
9,230,000 shares of our Common Stock (the Tender Offer) for $0.48 per share in
cash for an aggregate purchase price of approximately $4,565,000, including
associated costs. We announced the tender offer on August 27, 2001 and commenced
the tender offer on October 10, 2001 by filing a Schedule TO-I. Following
completion of the tender offer approximately 3,985,000 shares of common stock
remained outstanding.

      During the year ended December 31, 2001 the Company repurchased 212,000
shares for approximately $184,000, respectively, under a 10b-18 stock repurchase
plan approved by the Board of Directors and initiated in August 2000.

Warrants

      In connection with the redemption of common stock from Fingerhut, in April
2001, the Company issued to Fingerhut a warrant for 150,000 shares with an
exercise price of $2.50 per share, subject to adjustment if future sales of
common stock are sold for less than $0.40 per share. This warrant was cancelled
in November 2001.

      In return for various services, the Company has issued warrants to
purchase shares of common stock. At December 31, 2002, warrants outstanding are
as follows:

            Year of issue     Shares    Exercise price  Year of expiration
            -------------     ------    --------------  ------------------
                1998          14,000        $ 1.02             2003

Stock options

      Effective June 30, 1997, the Company approved the 1997 Stock Option Plan
(the 1997 Plan) to provide for the granting of stock options to employees,
directors and consultants of the Company to acquire ownership in the Company and
provide them with incentives for their service. Under the terms of the 1997
Plan, 1,255,177 shares of common stock remain unissued and not subject to
options and have been reserved for issuance to plan participants.

      Effective June 12, 2001 the shareholders approved the 2001 Stock Plan (the
2001 Plan) to provide for the granting of stock options and restricted stock to
employees, directors and consultants of the Company to provide them with
incentives for their service. Under the terms of the 2001 Plan, 805,000 shares
of common stock remain unissued and not subject to options and have been
reserved for issuance to plan participants.

      The Plans are administered by the Board of Directors of the Company, which
determines the terms and conditions of the options or restricted stock shares
granted, including exercise price, number of shares granted and the vesting
period of such shares. The maximum term of options is ten years from the date of
grant. The options are generally granted at the estimated fair value of the
underlying stock, as determined by the Board of Directors, on the date of grant.
As of December 31, 2002, options to purchase 1,255,177 and 805,000 shares of
common stock were available for future grant under the 1997 Plan and the 2001
Plan, respectively. During 2001, 635,000 shares of restricted stock were issued
to the Board of Directors and certain members of senior management that by its
terms became fully vested as a result of the tender offer. For the years ended
December 31, 2000, 2001 and 2002, $211,000, $304,000 and $1,000, respectively,
of deferred compensation was recorded for options and restricted stock grants
for which the exercise price was lower than the fair market value at the date of
grant. The deferred compensation recognized is amortized over the vesting period
of the related options in accordance with Financial Accounting Standards Board
interpretation No. 28. During the years ended December 31, 2000, and 2001
$486,000 and $281,000 of unamortized deferred compensation was reversed due to
forfeitures of options. No such reversals were made in the year ended December
31, 2002.

      The following table presents option activity under the Plans (in
thousands, except prices):

<TABLE>
<CAPTION>
                                                                     Year ended December 31,
                                                   ------------------------------------------------------------
                                                         2000                2001                  2002
                                                   -----------------  -------------------   -------------------
                                                            Weighted             Weighted              Weighted
                                                             Average              Average               Average
                                                            Exercise             Exercise              Exercise
                                                   Shares    Price    Shares      Price     Shares      Price
                                                   ------   --------  ------     --------   ------     --------
<S>                                                <C>       <C>       <C>        <C>        <C>        <C>
Options outstanding at beginning of period ......  1,123     $3.92     1,397      $6.12      1,235      $1.88
Options granted..................................    786      9.00     1,258       0.40        755       0.76
Options exercised................................    200      1.14       223       0.35        124       0.38
Options forfeited................................    312      8.61     1,197       5.56        472       3.04
                                                   -----     -----     -----      -----      -----      -----
Options outstanding at end of period.............  1,397     $6.12     1,235      $1.88      1,394      $1.02
                                                   =====     =====     =====      =====      =====      =====
Weighted average fair value of options granted
  during the period..............................            $6.49                $0.29                 $0.48
</TABLE>


                                       44
<PAGE>

      The following table summarizes information about stock options outstanding
under the Plans at December 31, 2002 (in thousands, except prices and remaining
contractual life):

<TABLE>
<CAPTION>
                                      Options outstanding                                  Options exercisable
               -------------------------------------------------------------------     -----------------------------
                                                Weighted average
                                                    remaining
                                                   contractual    Weighted average                  Weighted average
                  Range of          Number of         life            exercise         Number of        Exercise
               exercise prices       shares        (in years)           price           Shares            price
               ---------------      ---------   ----------------  ----------------     ---------    ----------------
<S>                                 <C>                <C>             <C>                <C>            <C>
                $0.38--$ 0.81       1,138              9.0             $  0.50            493            $  0.45
                 1.02--  1.50         108              5.2                1.29            108               1.29
                 1.90--  4.75          73              7.3                2.18             40               2.26
                 5.31--  6.00          61              7.4                5.77             37               5.76
                12.69-- 14.88          14              6.9               14.31             10              14.27
                                    -----                                                ----
                                    1,394              8.5             $  1.02            688            $  1.17
                                    =====                                                ====
</TABLE>

      The weighted average fair values and weighted average exercise prices per
share at the date of grant for options granted under the plans were as follows:

<TABLE>
<CAPTION>
                                                                                     Year ended December 31,
                                                            ------------------------------------------------------------------------
                                                                     Average fair value                  Average exercise price
                                                            ----------------------------------     ---------------------------------
                                                              2000         2001         2002         2000         2001        2002
                                                            --------     --------     --------     --------     --------    --------
<S>                                                         <C>          <C>          <C>          <C>          <C>         <C>
    Options granted with exercise prices less than
      the fair value of the stock on the date of
      grant .............................................   $  12.61     $     --     $     --     $  15.82     $     --    $     --
    Options granted with exercise prices equal to the
      fair value of the stock on the date of grant ......   $   4.78     $   0.29     $   0.48     $   6.63     $   0.40    $   0.76
    Options granted with exercise prices greater than
      the fair value of the stock on the date of
      grant .............................................   $  18.99     $     --     $   0.10     $  27.96     $     --    $   1.49
</TABLE>

      During the years ended December 31, 2000, 2001 and 2002, the Company
granted options to purchase 5,000, zero and 6,000 shares of common stock,
respectively, to consultants, advisors and investment managers and as severance
to certain employees.

      The Company follows SFAS No. 123 in accounting for options and warrants
issued to non-employees. During the years ended December 31, 2002 and 2000, the
Company recognized $1,000 and $145,000, respectively, of expense in connection
with options issued to consultants and advisors. The Company did not issue any
options to non-employees during the year ended December 31, 2001. In determining
the fair value of the options and warrants granted or issued to non-employees on
the date of grant, the Company used the Black-Scholes option-pricing model with
the following assumptions:

<TABLE>
<CAPTION>
                                                                        Year ended December 31,
                                                                  -----------------------------------
                                                                    2000         2001          2002
                                                                  --------     --------      --------
<S>                                                                <C>            <C>           <C>
                 Weighted average risk free interest rate.....      6.62%         N/A           1.75%
                 Weighted average expected life (in years)....     10.00          N/A           1.00
                 Volatility...................................       100%         N/A            100%
                 Dividends....................................      none          N/A           none
</TABLE>

      No warrants were issued during 2000 or 2002. The weighted-average fair
value of warrants issued during 2001 was $0.05 per share.

11. Equity based compensation

      Equity based compensation by statement of operations classifications is as
follows:

<TABLE>
<CAPTION>
                                                                        Year ended December 31,
                                                                  -----------------------------------
                                                                    2000         2001          2002
                                                                  --------     --------      --------
<S>                                                                <C>         <C>           <C>
                 Sales and marketing ........................      $   545     $     25      $      3
                 Internet and network .......................           21            4            --
                 Research and development ...................          114            8            --
                 General and administrative .................           94          334             8
                                                                   -------     --------      --------
                      Total Equity-based compensation .......      $   774     $    371      $     11
                                                                   =======     ========      ========
</TABLE>


                                       46
<PAGE>

12. Stock purchase plan

      The Company's Board of Directors adopted the Employee Stock Purchase Plan
(the Purchase Plan) on April 17, 2000 under which two million shares have been
reserved for issuance. Under the Purchase Plan, eligible employees may purchase
common stock in an amount not to exceed 50% of the employees' cash compensation
or 1,800 shares per purchase period. The purchase price per share will be 85% of
the common stock fair value at the lower of certain plan-defined dates. Pursuant
to the Purchase Plan, 28,436 shares were purchased at a weighted average price
of $4.04 per share for the year ended December 31, 2000, and 7,200 shares were
purchased at a weighted average price of $0.39 per share for the year ended
December 31, 2001. No shares were purchased under the Purchase Plan in the year
ended December 31, 2002.

13. Employee retirement plan

      During 1999, the Company established the Aptimus 401(k) plan, a
tax-qualified savings and retirement plan intended to qualify under Section 401
of the Internal Revenue Code. All employees who satisfy the eligibility
requirements relating to minimum age and length of service are eligible to
participate in the plan and may enter the plan on the first day of any month
after they become eligible to participate. Participants may make pre-tax
contributions to the plan of up to 15% of their eligible earnings, subject to a
statutorily prescribed annual limit. The Company may make matching contributions
of up to 100% of the first 6% of the compensation elected for contribution to
the plan by an employee. Each participant is fully vested in his or her
contributions and the investment earnings thereon, but vesting in any matching
contributions by us takes place over a period of five years. The Company has
made no matching contributions to the plan as of December 31, 2002.

14. Income taxes

      A current provision for income taxes was not recorded for the years ended
December 31, 2000, 2001 and 2002 due to taxable losses incurred during such
periods. A valuation allowance has been recorded for deferred tax assets because
realization is primarily dependent on generating sufficient taxable income prior
to the expiration of net operating loss carry-forwards.

      Deferred tax assets at December 31, 2001 and 2002 are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                         December 31,
                                                                 -------------------------
                                                                   2001             2002
                                                                 --------         --------
<S>                                                              <C>              <C>
            Net operating loss carryforwards ................    $ 18,908         $ 20,565
            Nondeductible allowances and accruals ...........         205              358
            Expense related to stock options and warrants ...          45               77
                                                                 --------         --------
                                                                   19,158           21,000
            Less: Valuation allowance .......................     (19,158)         (21,000)
                                                                 --------         --------
                                                                 $     --         $     --
                                                                 ========         ========
</TABLE>

      At December 31, 2002, the Company had net operating loss carry forwards of
approximately $60.5 million for federal income tax reporting purposes. The net
operating losses will expire beginning in 2012 if not previously utilized.
Should certain changes in the Company's ownership occur, there could be a
limitation on the utilization of its net operating losses.

15. Supplemental cash flow information

      The following items are supplemental information required for the
statement of cash flows (in thousands):

<TABLE>
<CAPTION>
                                                                            Year ended December 31,
                                                                     ------------------------------------
                                                                       2000          2001           2002
                                                                     -------       -------        -------
<S>                                                                  <C>           <C>            <C>
            Cash paid during the period for interest ............    $   114       $   154        $    24
                                                                     =======       =======        =======
            Directors and Officers insurance premium financed ...    $    --       $   126        $    --
                                                                     =======       =======        =======
            Repurchase of common stock with note payable ........    $    --       $   838        $    --
                                                                     =======       =======        =======
            Common stock issued in connection with business
              combination .......................................    $   580       $   (81)       $    --
                                                                     =======       =======        =======
            Conversion of note payable ..........................    $    --       $    --        $    --
                                                                     =======       =======        =======
</TABLE>

16. Quarterly financial information (unaudited)


                                       47
<PAGE>

      The following table sets forth the Company's unaudited quarterly financial
information for the years ending December 31, 2000, 2001, and 2002 (in
thousands, except per share data).

<TABLE>
<CAPTION>
                                                                             Three months ended
                                                            --------------------------------------------------
                                                              3/31/00       6/30/00      9/30/00     12/31/00
                                                            ----------    ----------   ----------   ----------
<S>                                                         <C>           <C>          <C>          <C>
               Net revenue..............................    $    5,147    $    5,877   $    3,492   $    2,357
               Net loss.................................    $   (4,175)   $   (4,612)  $   (5,958)   $  (6,359)
                                                            ----------    ----------   ----------    ---------
                 Basic and diluted net loss per share...    $    (0.27)   $    (0.29)  $    (0.38)   $   (0.41)
                                                            ==========    ==========   ==========    =========

<CAPTION>
                                                                             Three months ended
                                                            --------------------------------------------------
                                                              3/31/01       6/30/01      9/30/01     12/31/01
                                                            ----------    ----------   ----------   ----------
<S>                                                         <C>           <C>          <C>          <C>
               Net revenue..............................    $      926    $      381   $      188   $      379
               Net loss.................................    $   (8,858)   $   (5,475)  $   (1,848)   $  (1,697)
                                                            ----------    ----------   ----------    ---------
                 Basic and diluted net loss per share...    $    (0.57)   $    (0.42)  $    (0.15)   $   (0.20)
                                                            ==========    ==========   ==========    =========

<CAPTION>
                                                                             Three months ended
                                                            --------------------------------------------------
                                                              3/31/02       6/30/02      9/30/02     12/31/02
                                                            ----------    ----------   ----------   ----------
<S>                                                         <C>           <C>          <C>          <C>
               Net revenue..............................    $      773    $      782   $      537   $      823
               Net loss.................................    $   (1,297)   $   (1,486)  $   (2,000)   $    (721)
                                                            ----------    ----------   ----------    ---------
                 Basic and diluted net loss per share...    $    (0.33)   $    (0.37)  $    (0.49)   $   (0.17)
                                                            ==========    ==========   ==========    =========
</TABLE>


                                       48
<PAGE>

Item 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

      As previously disclosed in our Current Report of Form 8-K filed December
17, 2001, effective December 10, 2001, Aptimus, Inc. ("Company") dismissed its
independent accountant, PricewaterhouseCoopers LLP ("PWC"). Effective December
10, 2001, the Company engaged Moss Adams LLP ("Moss Adams") to be the Company's
new independent accountant. The dismissal of PWC and appointment of Moss Adams
was unanimously approved by the Company's Board of Directors upon the
recommendation of the Audit Committee of the Board of Directors. Moss Adams has
accepted the engagement. For the two fiscal years ending December 31, 2000 and
the period ending December 10, 2001, the Company had not consulted with Moss
Adams regarding (i) either the application of accounting principles to a
specified transaction, either completed or proposed; or the type of audit
opinion that might be rendered on the Company's financial statements, and either
a written report was provided to the Company's or oral advice was provided that
Moss Adams concluded was an important factor considered by the Company in
reaching a decision as to the accounting, auditing or financial reporting issue;
or (ii) any matter that was either the subject of a disagreement, as that term
is defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions
to Item 304 of Regulation S-K, or a reportable event, as that term is defined in
Item 304(a)(1)(v) of Regulation S-K.

      The reports of PWC on the Company's financial statements for the two
fiscal years ending December 31, 2000 did not contain any adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principals, except that, the Independent Auditors'
Report on the Company's financial statement for the fiscal year ended December
31, 2000 did contain an explanatory paragraph regarding the uncertainty of the
Company's ability to continue as a going concern.

      In connection with its audits for the two fiscal years ending December 31,
2000 and through December 10, 2001, there were no disagreements with PWC on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements if not resolved to the
satisfaction of PWC would have caused them to make reference thereto in their
reports on the financial statements for such years, except that in connection
with its audit for the year ended December 31, 2000 PWC reported to the
Company's Audit Committee a disagreement regarding the valuation of private
equity in an entity received by the Company for services performed on behalf of
such entity. The divergent views of PWC and the Company related to the level and
recency of evidence needed to support recognition of revenue for such
transaction. This matter was satisfactorily resolved and the Company has
authorized PWC to respond fully to the inquiries of Moss Adams concerning the
subject matter thereof.

      During the two fiscal years ending December 31, 2000 and through December
10, 2001 there were no reportable events (as defined in Regulation S-K Item
304(a)(1)(v)), except that in connection with its audit for the year ended
December 31, 2000 PWC communicated to the Board of Directors two matters
involving the internal control structure and its operation that PWC considered
to be material weaknesses; namely (i) the Company's internal credit controls and
its evaluation of collectibility prior to recognition of revenue; and (ii)
properly identifying barter transactions and assessing the appropriateness of
any related revenue recognition.

                                    PART III

Item 10: Directors and Executive Officers of the Registrant

      Information with respect to Directors may be found under the caption
"Election of Directors and Management Information" in the Company's Proxy
Statement for the Annual Meeting of Shareholders to be held June 10, 2003 (the
"Proxy Statement"). Such information is incorporated herein by reference.

Item 11: Executive Compensation

      The information in the Proxy Statement set forth under the captions
"Information Regarding Executive Officer Compensation" and "Information
Regarding the Board and its Committees" is incorporated herein by reference.

Item 12: Security Ownership of Certain Beneficial Owners and Management and
related Stockholder Matters

      The information set forth under the caption "Information Regarding
Beneficial Ownership of Principal Shareholders, Directors, and Management" of
the Proxy Statement is incorporated herein by reference.

Item 13: Certain Relationships and Related Transactions

      The information set forth under the caption "Certain Relationships and
Related Transactions" of the Proxy Statement is incorporated herein by
reference.


                                       49
<PAGE>

Item 14: Controls And Procedures

(a)   Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, we evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-14(c) under the Exchange Act) as of a date
(the "Evaluation Date") within 90 days prior to the filing date of this report.
Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that, as of the Evaluation Date, our disclosure controls and
procedures were effective in timely alerting them to the material information
relating to us required to be included in our periodic SEC filings and Form 8-K
reports.

(b)   Changes in Internal Controls

There were no significant changes made in our internal controls during the
period covered by this report or, to our knowledge, in other factors that could
significantly affect these controls subsequent to the date of their evaluation.


                                       50
<PAGE>

                                     PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

      (a)1. Financial Statements

      The following financial statements of the registrant and the Report of
Independent Accountants thereon are included herewith in Item 8 above.

                                                                            Page
                                                                            ----
        Reports of Independent Accountants..............................     29
        Balance Sheet as of December 31, 2001 and 2002..................     31
        Statement of Operations for the years ended December 31,
          2000, 2001 and 2002...........................................     32
        Statement of Shareholders' Equity for the years ended
          December 31, 2000, 2001 and 2002..............................     33
        Statement of Cash Flows for the years ended December 31,
          2000, 2001 and 2002...........................................     34
        Notes to Financial Statements...................................     35

      (a)2. Financial Statement Schedules

    Schedule No.    Description
    ------------    -----------
        1.1         Valuation and Qualifying Accounts and Reserves 2000
        1.2         Valuation and Qualifying Accounts and Reserves 2001 and 2002

               Valuation and Qualifying Accounts and Reserves 2000

<TABLE>
<CAPTION>
                                                 Balance at       Charges to      Charges to                    Balance at
                                                  beginning        costs and         other                        end of
                                                  of period        expenses        accounts      Deductions       period
                                                 ----------       ----------      ----------     ----------     ----------
<S>                                               <C>             <C>             <C>               <C>         <C>
        Year ended December 31, 2000
          Allowance for doubtful accounts           371,116       1,994,844              --         564,901      1,801,059
          Tax valuation allowance.....            5,809,814              --       7,956,001              --     13,765,815
</TABLE>

          Valuation and Qualifying Accounts and Reserves 2001 and 2002

<TABLE>
<CAPTION>
                                                 Balance at       Charges to      Charges to                    Balance at
                                                  beginning        costs and         other                        end of
                                                  of period        expenses        accounts      Deductions       period
                                                 ----------       ----------      ----------     ----------     ----------
<S>                                              <C>               <C>            <C>             <C>           <C>
        Year ended December 31, 2001
          Allowance for doubtful accounts         1,801,059        (296,481)             --       1,436,578         68,000
          Tax valuation allowance.....           13,765,815              --       4,468,418              --     18,234,233
        Year ended December 31, 2002
          Allowance for doubtful accounts            68,000          (2,361)             --         (10,361)        76,000
          Tax valuation allowance.....           18,234,233              --       2,765,767              --     21,000,000
</TABLE>

(b) Reports on Form 8-K

None.

(c) Exhibits:

Exhibit
Number                                Description
------                                -----------
3.1*          Second Amended and Restated Articles of Incorporation of
              registrant.

3.1.1^^       Articles of Amendment filed September 16, 2000.

3.1.2+        Articles of Amendment filed March 29, 2002.


                                       51
<PAGE>

Exhibit
Number                                Description
------                                -----------
3.2*          Amended and Restated Bylaws of registrant.

4.1*          Specimen Stock Certificate.

4.2*          Form of Common Stock Warrant.

4.3^^^        Rights Agreement dated as of March 12, 2002 between registrant and
              Mellon Investor Services LLC, as rights agent.

10.1*++       Form of Indemnification Agreement between the registrant and each
              of its directors.

10.2.*++      1997 Stock Option Plan, as amended.

10.3.*++      Form of Stock Option Agreement.

10.4*         Investor Subscription Agreement, dated December 10, 1998, between
              registrant and Fingerhut Companies, Inc.

10.5*         Warrant Agreement, dated December 10, 1998, between registrant and
              Fingerhut Companies, Inc.

10.6*         Stockholders Agreement, dated December 10, 1998, among registrant,
              Timothy C. Choate, John P. Ballantine and Fingerhut Companies,
              Inc.

10.7*         Asset Purchase Agreement, dated May 5, 1999, among registrant,
              Travel Companions International, Inc., Jeff Mohr and Janet Mohr.

10.8*         Asset Purchase Agreement, dated May 6, 1999, among registrant,
              Commonsite LLC and Alan Bennett.

10.9*         Registration Rights Agreement, dated May 6, 1999, between
              registrant and Commonsite LLC.

10.10*        Loan and Security Agreement, dated September 18, 1998, between
              registrant and Imperial Bank.

10.11*        Lease Agreement, dated September 23, 1997 and amended as of
              February 16, 1999, between registrant and Merrill Place LLC.

10.11.1*      Second Amendment to Lease, dated November 30, 1999, between
              registrant and Merrill Place LLC.

10.12*        Promotion Agreement, dated May 18, 1998 and amended as of June 30,
              1998 and September 30, 1998, between registrant and CNET, Inc.

10.13+*       Linkshare Network Membership Agreement, dated September 23, 1998,
              between registrant and Linkshare Corporation.

10.14*        Letter Agreement dated June 18, 1999 between registrant and
              Fingerhut.

10.15*        Escrow Agreement dated June 18, 1999 between registrant and
              Fingerhut.

10.16*        Common Stock Purchase Warrant dated January 26, 1998 in favor of
              Karrie Lee.

10.17*        Warrant to Purchase Stock dated September 18, 1998 in favor of
              Imperial Bank.

10.18*        Common Stock Purchase Warrant dated January 23, 1998 in favor of
              Hallco Leasing Corporation.

10.19*        Common Stock Purchase Warrant dated December 4, 1997 in favor of
              Hallco Leasing Corporation.

10.20*        Common Stock Purchase Warrant dated January 26, 1998 in favor of
              Employco, Inc.

10.21+*       Marketing Agreement with NewSub Services, Inc. effective as of
              June 1, 1999.

10.22+*       Marketing Agreement with eNews.com, Inc. dated December 8, 1999.
              (Incorporated by reference Exhibit 10.1 to the Company's Report on
              Form 8-K filed January 12, 2000).

10.23**       Asset Purchase Agreement, dated November 22, 2000, among Aptimus,
              Inc. and XMarkstheSpot, Inc.

10.24***      Stock Redemption Agreement, dated as of April 16, 2001, by and
              between registrant and Fingerhut Companies. Inc.

10.25^++      Aptimus, Inc. 2001 Stock Plan.

10.25.1^^++   Form of Stock Option Agreement.

10.25.2^^++   Form of Restricted Stock Agreement (for grants).

10.25.3^^++   Form of Restricted Stock Agreement (for rights to purchase).

10.26^^       Letter Agreement, dated November 13, 2001, by and between
              registrant and Fingerhut Companies, Inc.

10.27++       Change in Control Agreement, dated as of December 6, 2002, by and
              between registrant and Timothy C. Choate

10.28++       Form of Change in Control Agreement, dated as of December 6, 2002,
              by and between registrant and each of certain executive managers
              of registrant


                                       52
<PAGE>

Exhibit
Number                                Description
------                                -----------
10.29         Lease Agreement, dated October 1, 2002, between registrant and
              Merrill Place LLC.

16.1(degree)  Letter dated December 12, 2001 from PricewaterhouseCoopers LLP to
              the Securities and Exchange Commission.

23.1          Consent of PricewaterhouseCoopers LLP, independent accountants.

23.2          Consent of Moss Adams LLP, independent accountants.

----------
*             Incorporated by reference to the Company's Registration Statement
              on Form S-1 (No. 333-81151).
**            Incorporated by reference to the Company's Annual Report on Form
              10-K, dated April 2, 2001.
***           Incorporated by reference to the Company's Current Report on Form
              8-K, dated April 16, 2001.
^             Incorporated by reference to the Company's Proxy Statement on
              Schedule 14A, dated May 17, 2001.
^^            Incorporated by reference to the Company's Quarterly Report on
              Form 10-Q, dated November 14, 2001.
^^^           Incorporated by reference to the Company's Current Report on Form
              8-K, dated March 12, 2002.
(degree)      Incorporated by reference to the Company's Current Report on Form
              8-K, dated December 10, 2001.
+             Incorporated by reference to the Company's Quarterly Report on
              Form 10-Q, dated May 15, 2002.
+             Confidential treatment has been granted as to certain portions of
              this Exhibit. Omitted portions have been filed separately with the
              Securities and Exchange Commission.
++            Management compensation plan or agreement.


                                       53
<PAGE>

                                   SIGNATURES

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

March 28, 2003                           APTIMUS, INC.


                                         By:     /s/ TIMOTHY C. CHOATE
                                             -------------------------------
                                                   Timothy C. Choate,
                                                Chief Executive Officer

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

<TABLE>
<CAPTION>
          Signature                                Title                               Date
          ---------                                -----                               ----
<S>                                     <C>                                       <C>
    /s/ TIMOTHY C. CHOATE                 Chairman of the Board,                  March 28, 2003
-----------------------------           President, Chief Executive
      Timothy C. Choate                   Officer and Director

      /s/ JOHN A. WADE                    Vice President, Finance                 March 28, 2003
-----------------------------           Chief Financial Officer and
        John A. Wade                     Chief Accounting Officer

    /s/ JOHN B. BALOUSEK                         Director                         March 28, 2003
-----------------------------
      John B. Balousek

     /s/ ERIC HELGELAND                          Director                         March 28, 2003
-----------------------------
       Eric Helgeland

     /s/ROBERT W. WRUBEL                         Director                         March 28, 2003
-----------------------------
      Robert W. Wrubel
</TABLE>


                                       54
<PAGE>

                                 CERTIFICATIONS

I, Timothy C. Choate, Chief Executive Officer of Aptimus, Inc., certify that:

      1. I have reviewed this annual report on Form 10-K of Aptimus, 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 or not 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: March 28, 2003


                                                       /s/ Timothy C. Choate
                                                       Timothy C. Choate
                                                       Chief Executive Officer


                                       55
<PAGE>

I, John A. Wade, Chief Financial Officer of Aptimus, Inc., certify that:

      1. I have reviewed this annual report on Form 10-K of Aptimus, 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 or not 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: March 28, 2003


                                                  /s/ John A. Wade
                                                  John A. Wade
                                                  Chief Financial Officer


                                       56
<PAGE>

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

In connection with the Annual Report of Aptimus, Inc. (the "Company") on Form
10-K for the year ended December 31, 2002 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Timothy C. Choate,
Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

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


                                                      /s/ Timothy C. Choate
                                                      Timothy C. Choate
                                                      Chief Executive Officer
                                                      March 28, 2003


                                       57
<PAGE>

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

In connection with the Annual Report of Aptimus, Inc. (the "Company") on Form
10-K for the year ended December 31, 2002 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, John A. Wade, Chief
Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

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


                                                      /s/ John A. Wade
                                                      John A. Wade
                                                      Chief Financial Officer
                                                      March 28, 2003


                                       58
<PAGE>

                                  EXHIBIT INDEX

Exhibit
 Number                                  Description
 ------                                  -----------
3.1*          Second Amended and Restated Articles of Incorporation of
              registrant.

3.1.1^^       Articles of Amendment filed September 16, 2000.

3.1.2+        Articles of Amendment filed March 29, 2002.

3.2*          Amended and Restated Bylaws of registrant.

4.1*          Specimen Stock Certificate.

4.2*          Form of Common Stock Warrant.

4.3^^^        Rights Agreement dated as of March 12, 2002 between registrant and
              Mellon Investor Services LLC, as rights agent.

10.1*++       Form of Indemnification Agreement between the registrant and each
              of its directors.

10.2*++       1997 Stock Option Plan, as amended.

10.3*++       Form of Stock Option Agreement.

10.4*         Investor Subscription Agreement, dated December 10, 1998, between
              registrant and Fingerhut Companies, Inc.

10.5*         Warrant Agreement, dated December 10, 1998, between registrant and
              Fingerhut Companies, Inc.

10.6*         Stockholders Agreement, dated December 10, 1998, among registrant,
              Timothy C. Choate, John P. Ballantine and Fingerhut Companies,
              Inc.

10.7*         Asset Purchase Agreement, dated May 5, 1999, among registrant,
              Travel Companions International, Inc., Jeff Mohr and Janet Mohr.

10.8*         Asset Purchase Agreement, dated May 6, 1999, among registrant,
              Commonsite LLC and Alan Bennett.

10.9*         Registration Rights Agreement, dated May 6, 1999, between
              registrant and Commonsite LLC.

10.10*        Loan and Security Agreement, dated September 18, 1998, between
              registrant and Imperial Bank.

10.11*        Lease Agreement, dated September 23, 1997 and amended as of
              February 16, 1999, between registrant and Merrill Place LLC.

10.11.1*      Second Amendment to Lease, dated November 30, 1999, between
              registrant and Merrill Place LLC.

10.12*        Promotion Agreement, dated May 18, 1998 and amended as of June 30,
              1998 and September 30, 1998, between registrant and CNET, Inc.

10.13+*       Linkshare Network Membership Agreement, dated September 23, 1998,
              between registrant and Linkshare Corporation.

10.14*        Letter Agreement dated June 18, 1999 between registrant and
              Fingerhut.

10.15*        Escrow Agreement dated June 18, 1999 between registrant and
              Fingerhut.

10.16*        Common Stock Purchase Warrant dated January 26, 1998 in favor of
              Karrie Lee.

10.17*        Warrant to Purchase Stock dated September 18, 1998 in favor of
              Imperial Bank.

10.18*        Common Stock Purchase Warrant dated January 23, 1998 in favor of
              Hallco Leasing Corporation.

10.19*        Common Stock Purchase Warrant dated December 4, 1997 in favor of
              Hallco Leasing Corporation.

10.20*        Common Stock Purchase Warrant dated January 26, 1998 in favor of
              Employco, Inc.

10.21+*       Marketing Agreement with NewSub Services, Inc. effective as of
              June 1, 1999.

10.22+*       Marketing Agreement with eNews.com, Inc. dated December 8, 1999.
              (Incorporated by reference Exhibit 10.1 to the Company's Report on
              Form 8-K filed January 12, 2000).

10.23**       Asset Purchase Agreement, dated November 22, 2000, among Aptimus,
              Inc. and XMarkstheSpot, inc.

10.24***      Stock Redemption Agreement, dated as of April 16, 2001, by and
              between registrant and Fingerhut Companies. Inc.

10.25^++      Aptimus, Inc. 2001 Stock Plan.

10.25.1^^++   Form of Stock Option Agreement.


                                       59
<PAGE>

Exhibit
 Number                                  Description
 ------                                  -----------
10.25.2^^++   Form of Restricted Stock Agreement (for grants).

10.25.3^^++   Form of Restricted Stock Agreement (for rights to purchase).

10.26^^       Letter Agreement, dated November 13, 2001, by and between
              registrant and Fingerhut Companies, Inc.

10.27++       Change in Control Agreement, dated as of December 6, 2002, by and
              between registrant and Timothy C. Choate

10.28++       Form of Change in Control Agreement, dated as of December 6, 2002,
              by and between registrant and each of certain executive managers
              of registrant

10.29         Lease Agreement, dated October 1, 2002, between registrant and
              Merrill Place LLC.

16.1(degree)  Letter dated December 12, 2001 from PricewaterhouseCoopers LLP to
              the Securities and Exchange Commission.

23.1          Consent of PricewaterhouseCoopers LLP, independent accountants.

23.2          Consent of Moss Adams LLP, independent accountants.

----------
*             Incorporated by reference to the Company's Registration Statement
              on Form S-1 (No. 333-81151).
**            Incorporated by reference to the Company's Annual Report on Form
              10-K, dated April 2, 2001.
***           Incorporated by reference to the Company's Current Report on Form
              8-K, dated April 16, 2001.
^             Incorporated by reference to the Company's Proxy Statement on
              Schedule 14A, dated May 17, 2001.
^^            Incorporated by reference to the Company's Quarterly Report on
              Form 10-Q, dated November 14, 2001.
^^^           Incorporated by reference to the Company's Current Report on Form
              8-K, dated March 12, 2002.
(degree)      Incorporated by reference to the Company's Current Report on Form
              8-K, dated December 10, 2001.
+             Incorporated by reference to the Company's Quarterly Report on
              Form 10-Q, dated May 15, 2002.
+             Confidential treatment has been granted as to certain portions of
              this Exhibit. Omitted portions have been filed separately with the
              Securities and Exchange Commission.
++            Management compensation plan or agreement.


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