<PAGE>   1

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

                                   FORM 10-KSB

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____ TO ____


                           COMMISSION FILE NO. 0-25435

                        CROSS MEDIA MARKETING CORPORATION
             (Exact name of registrant as specified in its charter)


            DELAWARE                              13-4042921
    (State of incorporation)         (I.R.S. Employer Identification Number)

                           410 PARK AVENUE, SUITE 830
                            NEW YORK, NEW YORK 10022
          (Address of principal executive offices, including zip code)
                                 (212) 752-2601
              (Registrant's telephone number, including area code)

              Securities registered under Section 12(b) of the Act:

                                                   Name of Each Exchange
     Title of Each Class                           on which Registered
  --------------------------                       ---------------------
 Common Stock, $.001 par value                     American Stock Exchange


              Securities registered under Section 12(g) of the Act:

                                      None


        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 there is no disclosure of delinquent filers
pursuant to Item 405 of Regulation S-B contained herein, and will not be
contained, to the best of the issuer's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

        The issuer's revenues for the year ended December 31, 2001 were $61.9
million.

        As of March 20, 2001 the issuer had outstanding 35,717,169 shares of
Common Stock. The aggregate market value of the Common Stock held by
nonaffiliates as of March 20, 2001 was approximately $11.5 million, based on a
closing price for the Common Stock of $1.05 on the American Stock Exchange on
such date.


<PAGE>   2



                       DOCUMENTS INCORPORATED BY REFERENCE

                                                              Part of Form
                                                              10-KSB
                                                              into which
              Document                                        incorporated

Portions of the Registrant's Definitive Proxy Statement
  for its 2001 Annual Meeting of Stockholders ...................  III

        With the exception of the portions of the Definitive Proxy Statement for
the Registrant's 2001 Annual Meeting of Stockholders expressly incorporated into
this Report by reference, such document shall not be deemed filed as a part of
this Annual Report on Form 10-KSB.




<PAGE>   3


                        CROSS MEDIA MARKETING CORPORATION
                                   FORM 10-KSB
                      FOR THE YEAR ENDED DECEMBER 31, 2000


        The statements contained in this Annual Report on Form 10-KSB that are
not historical are forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, including statements regarding the Company's
expectations, beliefs, intentions or strategies regarding the future. The
Company intends that all forward-looking statements be subject to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements reflect the Company's views as of the date they are
made with respect to future events and financial performance, but are subject to
many risks and uncertainties, which could cause the actual results of the
Company to differ materially from any future results expressed or implied by
such forward-looking statements. Examples of such risks and uncertainties
include, but are not limited to: obtaining sufficient financing, among other
things, to make strategically appropriate acquisitions; the adequacy of accounts
receivable reserves; the risks associated with an economic slowdown; managing
future growth; the changing of market conditions and the other risks detailed in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Certain Trends and Uncertainties" in this Annual Report on Form
10-KSB and elsewhere herein. The Company does not undertake to update any
forward-looking statements.

PART I

ITEM 1. DESCRIPTION OF BUSINESS

GENERAL

        Cross Media Marketing Corporation (together with its subsidiaries,
"Cross Media Marketing" or the "Company") is a cross media direct marketing
company that integrates sophisticated marketing skills with new technologies for
the sale of multi-magazine subscription packages, discount buying club
memberships and telecommunication services. Through inbound and outbound
teleservices programs at Media Outsourcing, Inc. ("MOS"), its principal
operating business, the Company contacts and retains critical data on more than
eleven million consumers annually.

        The Company's principal office is located at 410 Park Avenue, New York,
New York and its telephone number at that address is (212) 752-2601.

BUSINESS STRATEGY

        The Company's strategy is to integrate well established direct marketing
skills with a variety of new technologies, including e-mail marketing, web-based
systems and interactive voice response, ultimately resulting in a multi-faceted
marketing platform for the sale of products and services. The Company expects
that this strategy will enable it to contact consumers on a cost effective basis
through multiple communications channels, such as e-mail, telemarketing,
traditional advertising and interactive voice response. The Company plans to use
these consumer contacts to develop a dynamic consumer database and to integrate
all of these activities into a



<PAGE>   4


single new system. When completed, the new system should enable the Company to
target marketing campaigns to select sub-groups of its total customer base and
to measure the success of campaigns while factoring in the different
communications channels used in those campaigns.

HISTORY

        The Company was incorporated in Delaware in May 1997 as "Brack
Industries, Inc." and changed its name to "Symposium Telecom Corporation" in
June 1998 and to "Symposium Corporation" in May 1999. The Company changed its
name to Cross Media Marketing Corporation in December 2000. The Company
commenced business operations in the quarter ended December 31, 1998. From
December 1998 through June 30, 1999, the Company had minimal operations and,
through its wholly-owned subsidiary Publishers Advantage Corporation ("PAC"),
was engaged principally in telemarketing magazine and periodical subscription
renewals to persons whose subscriptions had recently expired. The Company
discontinued the operations of PAC as of June 30, 1999.

        On January 28, 2000, Cross Media Marketing, through MOS, acquired
substantially all the assets and assumed certain liabilities of Direct Sales
International, LP ("DSI"), a magazine subscription agency based in Atlanta,
Georgia which sells new subscriptions to magazines of major US publishers. The
Company paid approximately $27.6 million to acquire DSI, including: (i) $25.0
million in cash, (ii) an agreement to loan $1.5 million to a company in which
DSI's former owner holds a majority interest, and (iii) approximately $1.1
million in closing costs and fees incurred in connection with the acquisition.
The Company also granted to the seller of DSI the right, which has an intrinsic
value of $1.2 million, to sell up to 600,000 shares of Common Stock back to the
Company at a fixed price. The Company financed the cash portion of the purchase
price by borrowing $16.0 million under a credit facility provided by Coast
Business Credit (resulting in proceeds of $15.8 million, net of fees) and by
using proceeds totaling approximately $9.2 million from the issuance of Common
Stock, warrants to purchase Common Stock, convertible preferred stock and
convertible debt. (See "MD&A--Financial Condition and Liquidity" for a further
description of such financing).

        On November 30, 2000, the Company acquired WeFusion.com, Inc.
("WeFusion"), an application service provider which has developed a database
architecture that will enable the Company to develop sophisticated customer
profiles. The Company paid approximately $2.5 million to acquire WeFusion,
including $0.6 million in cash and approximately $1.9 million in Common Stock
and warrants to purchase Common Stock. The WeFusion acquisition provided the
Company with additional technology and management expertise and also added two
million names to the Company's databases. The Company anticipates that
WeFusion's technology will enhance its ability to cross market products and
services through multiple channels to existing and newly acquired customers.

BUSINESS

        The Company acts as a clearinghouse which has the "Direct Authority" on
behalf of magazine publishers to accept magazine subscription orders and to
place those orders with fulfillment houses designated by the publishers. The
Company retains approximately 21 independent telesales agencies, also known as
call centers, to generate magazine subscriptions on



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its behalf. Two of these call centers accounted for approximately 35% of the
Company's magazine subscription revenues in 2000. In December 2000, the Company
established Company owned and operated call centers in Orlando, Florida and
Peoria, Illinois. Each month, generally using lists of names and telephone
numbers provided by the Company, the independent and Company owned call centers
contact between 900,000 and 1,000,000 potential customers.

        In the last quarter of 2000, the Company commenced an e-mail campaign in
conjunction with a third party to generate inbound telephone calls to many of
the call centers. As a result of the success of the e-mail campaign, the Company
expects that in future years it will rely on the internet to provide a
substantial number of customer contacts for its call centers. Utilizing the
hardware and software platform obtained through the acquisition of WeFusion, the
Company is developing a sophisticated system to track and control lead files,
customer contact statistics, customer profiles and internet based marketing
campaigns.

        The call centers offer the customer a bundle of four to five magazines
having an average selling price of approximately $600 per bundle, for an average
subscription period of between one and four years. Generally, the Company does
not sell single magazine subscriptions, although it plans to test several offers
for smaller magazine bundles in 2001. The Company decides whether to accept
orders submitted by the call centers by calling each customer to verify the
details of the magazine subscription order and the customer's credit card
information. When this process is complete, the Company forwards accepted orders
to the magazine publisher's fulfillment center for processing and pays the
publisher an agreed upon amount for the order. The Company charges the
subscriber for the order by automatically debiting the subscriber's credit card
on a monthly basis, generally over a 12 month period.

        At the time the Company verifies a customer's order it attempts to
generate additional revenue (and thereby to enhance the profitability of the
sale) by offering the customer the opportunity to participate in special
promotions sponsored by magazine publishers to spur the sale of subscriptions as
well as upsells of discount buying club memberships and telecommunications
services. The Company receives a special promotion commission from the
publishers based upon additional subscriptions sold to its customer base. In the
year ended December 31, 2000, the Company sold approximately 4.7 million special
promotion subscriptions, resulting in revenue of $2.1 million. The club
membership upsell involves the offer of a free trial membership in a discount
buying club sold by the Company on behalf of Memberworks, an unaffiliated third
party. In the year ended December 31, 2000, the upsell of memberships in
Memberworks generated revenue to the Company of approximately $3.3 million. The
telecommunications upsells involve the offer of long distance telephone service
or pre-paid long distance phone cards provided by Talk.com and Direct One,
respectively. In the year ended December 31, 2000, telecommunications upsells
generated revenue of approximately $0.3 million. In the year ended December 31,
2000, special publisher commissions and upsells represented 13.4% of total
revenues.

COMPETITION

        While there are no limitations on who may sell magazines to the public,
the companies and individuals that sell magazines must forward the subscriptions
to the publisher through a clearinghouse which has been granted authority to do
so by the publisher and must pay a fee to



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<PAGE>   6
the clearinghouse to clear the order. Establishing a clearinghouse relationship
is difficult due to magazine publishers' reluctance to grant this authority to
new companies. MOS has been granted authority to clear orders for approximately
250 major U.S. magazine publications. In addition to the Company, the industry
leaders in sales of magazine subscriptions are Synapse, USA Pubs and E News. Of
these, only USA Pubs utilizes a call center as its primary means of contacting
potential customers. The Company competes on the basis of the total value of the
bundle of magazines sold to the customer versus the cost of purchasing
individual magazine subscriptions as well as the convenience for the customer of
dealing with a single source for all of their magazine subscriptions.

REGULATION

        Telemarketing operations are subject to various state and federal
regulations. The Federal Telephone Consumer Protection Act of 1991 limits the
hours during which telemarketers may call consumers to between 8:00 AM and 9:00
PM, and prohibits the use of automated telephone dialing equipment to call
certain telephone numbers. The Federal Telemarketing and Consumer Fraud and
Abuse Prevention Act of 1994, and the Federal Trade Commission ("FTC")
regulations promulgated thereunder, prohibit deceptive, unfair or abusive
practices in telemarketing sales. Both the FTC and state attorneys general have
authority to prevent telemarketing activities that constitute "unfair or
deceptive acts or practices." Additionally, some states have enacted laws and
others are considering enacting laws targeted directly at telemarketing
practices, and there can be no assurance that any such laws, if enacted, will
not adversely affect the Company's current or future operations by adversely
affecting the operations and practices of the call centers owned by the Company
or the independent call centers with which the Company has relationships.
Compliance with regulations promulgated by these agencies is generally the
responsibility of the call center and as such the call centers owned by the
Company as well as the independent call centers with which the Company has
relationships could be subject to a variety of enforcement actions for any
failure to comply with such regulations.

        Laws and regulations applicable to direct marketing, telemarketing,
Internet marketing and consumer protection are becoming more prevalent. Each of
the fifty states and the federal government has laws regulating telemarketing,
sweepstakes promotions, promotional incentives and advertising to consumers
which vary from state to state. While the Company reviews its telemarketing
scripts and advertising copy to ensure that they comply with applicable laws,
there is no guarantee that federal or state authorities will not find that the
Company's marketing efforts do not comply with these laws. In addition, it is
likely that additional federal and/or state regulations regarding telemarketing,
sweepstakes, e-mail marketing and other marketing practices engaged in by Cross
Media Marketing will be enacted. If enacted, these regulations could have an
adverse effect on revenues and result in additional expenses to the Company.

        The Federal Trade Commission is currently in the process of reviewing
the provisions of the Telemarketing Sales Rule to determine if any changes to
the Rule should be made. If the Federal Trade Commission determines that changes
to the Rule are necessary, such changes could have a significant adverse effect
on the Company.

        In 1999, Congress enacted the Deceptive Mail Prevention and Enforcement
Act which imposes various restrictions on the offering of sweepstakes through
the mail. Additional sweepstakes legislation has been enacted or is pending in
various states. This additional regulation could have an adverse impact on the
Company's marketing activities.



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        Federal and state authorities have also been investigating various
companies' use of certain marketing practices, such as the use of personal
information, magazine subscription agents' sweepstakes practices and the
marketing of membership club services through the use of inbound and outbound
telemarketing campaigns. These investigations could result in additional rules,
regulations or industry standards which could have an adverse impact on the
Company's marketing practices.

        Laws and regulations directly applicable to Internet communications,
commerce, marketing and data protection are becoming more prevalent. If any of
these laws hinders the growth in use of the Internet generally, or decreases the
acceptance of the Internet as a medium of communications, commerce and
marketing, the business and prospects may suffer materially. The United States
Congress has enacted Internet laws regarding children's privacy, copyrights and
taxation. Other laws and regulations may be adopted covering issues such as user
privacy, marketing activities, pricing, content, taxation and quality of
products and services. The governments of some states and foreign countries have
begun to regulate transactions and levy sales or other taxes relating to the
Company's activities and will likely continue to do so. The laws governing the
Internet remain largely unsettled, even in areas where legislation has been
enacted. It may take years to determine whether and how existing laws such as
those governing intellectual property, privacy, libel and taxation apply to the
Internet and Internet advertising and marketing services. In addition, the
growth and development of the market for Internet commerce may prompt calls for
more stringent consumer protection laws, both in the United States and abroad,
that may impose additional burdens on companies conducting business over the
Internet.

        Laws and regulations regulating the transmission of unsolicited e-mail
marketing messages are being considered by many jurisdictions. Legislation of
that type has recently been adopted by the States of California, Virginia and
Washington, and similar legislation is pending in the State of New York and in
Congress. The Telecommunications Act of 1996 prohibits some types of information
and content from being transmitted over the Internet. The prohibition's scope
and the liability associated with a Telecommunications Act violation are
currently unsettled. In addition, although substantial portions of the
Communications Decency Act were held to be unconstitutional, the Company cannot
be certain that similar legislation will not be enacted and upheld in the
future.

        There has been increasing public debate about the collection,
distribution and use of information about consumers. Although this debate has
primarily focused on information collected through the Internet, many of the
issues apply to data gathered through other media. The Company interacts with
consumers through various direct marketing efforts, both online and offline. As
a consequence of government regulation or evolving standards of consumer privacy
protection, it may be required to make changes to its marketing media and
platforms in ways that could diminish the effectiveness of marketing efforts,
which could harm business.

TERMINATION OF NSI AGREEMENT

        In August 2000, the Company entered into an agreement (the "Agreement")
to acquire National Syndications, Inc. ("NSI"), a direct marketer of consumer
products and a party to service advertising contracts. In February 2001, the
Company and NSI terminated the




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Agreement. As a result, in the fourth quarter of 2000, the Company recorded a
pretax charge of $967,500, representing the write-off of non-refundable deposits
and professional fees related to the NSI transaction.

EMPLOYEES

        As of December 31, 2000, the Company had approximately 233 full-time and
51 part-time employees.


ITEM 2. DESCRIPTION OF PROPERTY

        The Company's principal office is located at 410 Park Avenue, New York,
New York. The Company has signed a ten-year lease to rent 6,516 square feet of
space at 461 Fifth Avenue, New York, New York at an estimated annual cost of
approximately $470,000. MOS' principal office is located at 2550 Heritage Court,
Atlanta, Georgia. These premises are leased from an entity that is partially
owned by the seller of DSI. The lease for this office provides for approximately
16,800 square feet of space, expires in 2004 and the annual rent is
approximately $280,000. In addition, MOS leases 1,840 square feet of office
space in Orlando, Florida at an annual rent of approximately $20,500 and 2,090
square feet of office space in Peoria, Illinois at an annual rent of
approximately $23,100. The Company believes that its office facilities are
adequate for its current needs, although it anticipates that MOS will need
additional office facilities in the Atlanta area during 2001.


ITEM 3. LEGAL PROCEEDINGS

        Cross Media Marketing is not a party to any pending legal proceedings.


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

        The Company held a Special Meeting of Stockholders on December 28, 2000
to consider a proposal to change the name of the Company from Symposium
Corporation to Cross Media Marketing Corporation.

        The results of the voting were as follows:

        Voted for:                  16,862,012
        Authority withheld:            154,583
        Abstained:                         500
        Broker non-votes:           11,587,424




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                                    PART II


ITEM 5.        MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

<TABLE>
<CAPTION>

                        2000                      1999
                        ----                      ----
                  HIGH         LOW          HIGH        LOW

<S>           <C>           <C>          <C>         <C>
First Quarter   $ 3 5/8      $ 1 1/2        n/a         n/a

Second Quarter  $ 2 5/8      $ 1 1/32      $    8     $    7

Third Quarter   $ 3 1/16     $ 1 3/4       $    8     $ 5 9/16

Fourth Quarter  $ 2 5/8      $ 1           $ 5 7/8    $ 1 1/16
</TABLE>

        Cross Media Marketing's Common Stock has been traded on the American
Stock Exchange since August 1, 2000. From August 1, through December 28, 2000,
the Common Stock traded under the symbol "SSM" and since December 29, 2000 has
traded under the symbol "XMM". Prior to August 1, 2000, the Common Stock was
quoted on the OTC Bulletin Board. The preceding table sets forth the high and
low bid prices for the Common Stock from the second quarter of 1999, the
Company's initial listing period on the OTC Bulletin Board, through December 31,
1999, and the high and low sales prices for the Common Stock from January 1,
through December 31, 2000. Prior to the Company's initial listing there was no
public market for the Common Stock. The trading volume of the Company's Common
Stock fluctuates and may be limited during certain periods. As a result, the
liquidity of an investment in the Company's Common Stock may be adversely
affected.

        On March 20, 2001 the closing price of the Common Stock on the American
Stock Exchange was $1.05 per share. As of March 20, 2001, Cross Media Marketing
had approximately 350 stockholders of record.

DIVIDENDS

        The Company has never paid or declared any dividends on its Common Stock
and does not contemplate paying any such dividends in the foreseeable future.
The Company currently intends to reinvest earnings, if any, in the development
and expansion of its business. The declaration of dividends in the future will
be at the discretion of the Board of Directors and will depend upon the
earnings, capital requirements and financial position of the Company, general
economic conditions, and other pertinent factors.

        The Company is restricted from paying dividends on the Common Stock
unless all accrued and unpaid cumulative dividends on the outstanding Series A
Convertible Preferred Stock have been paid or set apart for payment.

RECENT ISSUANCES OF UNREGISTERED SECURITIES

        On October 26, 2000, the Company issued five-year warrants to purchase
150,000 shares of Common Stock to Trilogy Capital, for consulting services
rendered to the Company. The



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issuance and sale of these securities was made in reliance on Section 4(2) of
the Securities Act as a transaction not involving any public offering, because:
(1) Trilogy Capital represented that it was an accredited investor and was
acquiring the securities for investment purposes; and (2) the Company did not
engage in any general advertisement or general solicitation in connection with
the issuance of the securities.

        On October 26, 2000, the Company issued five-year warrants to purchase
150,000 shares of Common Stock to Lexington Ventures, for consulting services
rendered to the Company. The issuance and sale of these securities was made in
reliance on Section 4(2) of the Securities Act as a transaction not involving
any public offering, because: (1) Lexington Ventures represented that it was an
accredited investor and was acquiring the securities for investment purposes;
and (2) the Company did not engage in any general advertisement or general
solicitation in connection with the issuance of the securities.

        On October 26, 2000, the Company issued five-year warrants to purchase
30,000 shares of Common Stock to Herbert Towning for services rendered to the
Company. The issuance and sale of these securities was made in reliance on
Section 4(2) of the Securities Act as a transaction not involving any public
offering, because: (1) Mr. Towning represented that he was an accredited
investor and was acquiring the securities for investment purposes; and (2) the
Company did not engage in any general advertisement or general solicitation in
connection with the issuance of the securities.

        On October 26, 2000, the Company issued five-year warrants to purchase
10,000 shares of Common Stock to Bernard Siou for services rendered to the
Company. The issuance and sale of these securities was made in reliance on
Section 4(2) of the Securities Act as a transaction not involving any public
offering, because: (1) Mr. Siou represented that he was an accredited investor
and was acquiring the securities for investment purposes; and (2) the Company
did not engage in any general advertisement or general solicitation in
connection with the issuance of the securities.

        On October 26, 2000, the Company issued five-year warrants to purchase
10,000 shares of Common Stock to Elisabeth Schoenenberger for services rendered
to the Company. The issuance and sale of these securities was made in reliance
on Section 4(2) of the Securities Act as a transaction not involving any public
offering, because: (1) Ms. Schoenenberger represented that she was an accredited
investor and was acquiring the securities for investment purposes; and (2) the
Company did not engage in any general advertisement or general solicitation in
connection with the issuance of the securities.

        On November 13, 2000, the Company issued five-year warrants to purchase
500,000 shares of Common Stock to Visual Radio, for consulting services rendered
to the Company. The issuance and sale of these securities was made in reliance
on Section 4(2) of the Securities Act as a transaction not involving any public
offering, because: (1) Visual Radio represented that it was an accredited
investor and was acquiring the securities for investment purposes; and (2) the
Company did not engage in any general advertisement or general solicitation in
connection with the issuance of the securities.



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<PAGE>   11



        On November 30, 2000, the Company issued 760,000 shares of Common Stock
and warrants to purchase an aggregate of 340,000 shares of Common Stock to the
former stockholders of WeFusion.com, Inc. in connection with the merger of
WeFusion with a subsidiary of the Company. The issuance and sale of these
securities was made in reliance on Section 4(2) of the Securities Act as a
transaction not involving any public offering, because (1) each WeFusion
stockholder represented either that it was an accredited investor or either
itself, or together with its purchaser representative, has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of the prospective investment and (2) the Company did not
engage in any general advertisement or general solicitation in connection with
the issuance of the securities.

        On December 1, 2000, the Company issued five-year warrants to purchase
50,000 shares of Common Stock to Capital Research Ltd. for consulting services
rendered to the Company. The issuance and sale of these securities was made in
reliance on Section 4(2) of the Securities Act as a transaction not involving
any public offering, because: (1) Capital Research Ltd. represented that it was
an accredited investor and was acquiring the securities for investment purposes;
and (2) the Company did not engage in any general advertisement or general
solicitation in connection with the issuance of the securities.

        On December 1, 2000, the Company issued five-year warrants to purchase
up to 250,000 shares of Common Stock to International Marketing Association,
Inc. for telemarketing services rendered to the Company. The issuance and sale
of these securities was made in reliance on Section 4(2) of the Securities Act
as a transaction not involving any public offering, because: (1) International
Marketing Association, Inc. represented that it was an accredited investor and
was acquiring the securities for investment purposes; and (2) the Company did
not engage in any general advertisement or general solicitation in connection
with the issuance of the securities.

        On December 1, 2000, the Company issued five-year warrants to purchase
up to 150,000 shares of Common Stock to East Coast Magazine Sales for
telemarketing services rendered to the Company. The issuance and sale of these
securities was made in reliance on Section 4(2) of the Securities Act as a
transaction not involving any public offering, because: (1) East Coast Magazine
Sales represented that it was an accredited investor and was acquiring the
securities for investment purposes; and (2) the Company did not engage in any
general advertisement or general solicitation in connection with the issuance of
the securities.

        On December 5, 2000, the Company issued five-year warrants to purchase
50,000 shares of Common Stock to Merz Consulting for consulting services
rendered to the Company. The issuance and sale of these securities was made in
reliance on Section 4(2) of the Securities Act as a transaction not involving
any public offering, because: (1) Merz Consulting represented that it was an
accredited investor and was acquiring the securities for investment purposes;
and (2) the Company did not engage in any general advertisement or general
solicitation in connection with the issuance of the securities.

        On December 27, 2000, the Company issued five-year warrants to purchase
up to 330,000 shares of Common Stock to Interactive Marketing Technologies
Group, Inc. ("IMTG") for services rendered and to be rendered under an agreement
between IMTG and the Company. The issuance and sale of these securities was made
in reliance on Section 4(2) of the Securities



                                      -9-
<PAGE>   12



Act as a transaction not involving any public offering, because: (1) IMTG
represented that it was an accredited investor and was acquiring the securities
for investment purposes; and (2) the Company did not engage in any general
advertisement or general solicitation in connection with the issuance of the
securities.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
  OF OPERATIONS

        The following discussion and analysis should be read together with the
consolidated financial statements of Cross Media Marketing and the accompanying
"Notes to the Consolidated Financial Statements" included elsewhere in this Form
10-KSB. This discussion summarizes the significant factors affecting the
consolidated operating results, financial condition and liquidity and cash flows
of Cross Media Marketing for the years ended December 31, 2000 and 1999,
respectively.

INTRODUCTION

        The Company was incorporated in Delaware on May 9, 1997 under the name
Brack Industries Inc. The Company changed its name to Symposium Corporation in
December 1998 and changed its name to Cross Media Marketing Corporation in
December 2000. The Company's principal business strategy is to integrate well
established direct marketing skills with a variety of new technologies,
including e-mail marketing, web-based systems and interactive voice response,
ultimately resulting in a multi-faceted marketing platform for the sale of
products and services. The Company was inactive until December 1998. From
December 1998 through June 1999, the Company, through its wholly-owned
subsidiary Publishers Advantage Corporation ("PAC"), had minimal operations and
was principally engaged in telemarketing in the United States for magazine and
periodical subscription renewals to persons whose subscriptions had recently
expired. The Company discontinued the operations of PAC as of June 30, 1999.

        In November 1999, the Company formed Media Outsourcing, Inc. ("MOS"), a
wholly-owned subsidiary, to acquire the assets of Direct Sales International, LP
("DSI"). On January 28, 2000, Cross Media Marketing, through MOS, acquired
substantially all the assets and assumed certain liabilities of DSI, a magazine
subscription agency based in Atlanta, Georgia which sells new subscriptions to
magazines of major US publishers. The Company paid approximately $27.6 million
to acquire DSI, including: (i) $25.0 million in cash, (ii) an agreement to loan
$1.5 million to a company in which DSI's former owner holds a majority interest
and (iii) approximately $1.1 million in closing costs and fees incurred in
connection with the acquisition. The Company also granted to the seller of DSI
the right, which has an intrinsic value of $1.2 million, to sell up to 600,000
shares of Common Stock back to the Company at a fixed price which has been
included in the calculation of purchase price in excess of net assets acquired.
The Company financed the cash portion of the purchase price by borrowing $16.0
million under a credit facility provided by Coast Business Credit (resulting in
proceeds of $15.8 million, net of fees) and by using proceeds totaling
approximately $9.2 million from the issuance of Common Stock, warrants to
purchase Common Stock, convertible preferred stock and convertible debt. (See
"MD&A--Financial Condition and Liquidity" for a further description of such
financing).



                                      -10-
<PAGE>   13



        On November 30, 2000, the Company acquired WeFusion.com, Inc.
("WeFusion"), an application service provider which has developed a database
architecture that will enable the Company to develop sophisticated customer
profiles. The Company paid approximately $2.5 million to acquire WeFusion,
including $0.6 million in cash and approximately $1.9 million in Common Stock
and warrants to purchase Common Stock.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

        REVENUES

        The Company recorded revenues totaling $61.9 million for the year ended
December 31, 2000. These revenues were derived from the sale of magazine
contracts at MOS totaling approximately $58.6 million and commission revenues
from sales of memberships in a third party discount-buying club totaling
approximately $3.3 million. There were no revenues in the comparable period in
1999 as such revenues related to the operations of DSI that were acquired on
January 28, 2000. The Company records its revenues from sales of magazine
subscriptions net of cancellation and collection reserves. In the third and
fourth quarters of 2000, the Company increased the reserves on its twenty pay
contracts (magazine subscriptions payable by the subscriber in twenty monthly
installments) resulting in a reduction of revenues of $1.1 million and $880,000,
respectively.

        COMMISSION EXPENSE

        The Company recognized approximately $30.8 million in commission expense
for the year ended December 31, 2000, reflecting payments made to brokers on MOS
magazine sales. There were no commission expenses in the comparable period in
1999 as such commission expenses related to the operations of DSI that were
acquired on January 28, 2000.

        MAGAZINE COSTS

        The Company incurred approximately $6.4 million of magazine costs for
2000, resulting from MOS magazine sales. There were no magazine costs in the
comparable period in 1999, as such magazine costs related to the operations of
DSI that were acquired on January 28, 2000.

        OTHER DIRECT COSTS

        The Company recorded $10.6 million of other direct costs related to the
magazine sales at MOS. Other direct costs consisted primarily of wages of
approximately $5.4 million, bank charges related to the processing of payments
received by credit cards of approximately $1.4 million and other costs of
approximately $3.8 million. There were no other direct costs for the comparable
period in 1999, as such other direct costs related to the operations of DSI that
were acquired on January 28, 2000.



                                      -11-
<PAGE>   14



        SALARIES AND BENEFITS

        Salary and benefits increased $3.8 million to $4.4 million in 2000 from
$0.6 million in 1999. This increase reflects salary expense of approximately
$2.5 million related to MOS and approximately $1.3 million of increased cost
related to increased staff at Cross Media Marketing (parent company) including a
Chief Operating Officer and other management positions. The Company had
approximately 233 full-time and 51 part-time employees as of December 31, 2000.

        CONSULTING EXPENSES

        Consulting expenses decreased $2.5 million, or 37.9%, to $4.1 million in
2000 from $6.6 million in 1999. Included in consulting expenses for 2000 are
approximately $1.6 million of non-cash charges for investor and public relations
and strategic planning services reflecting the estimated fair value of warrants
and options granted to purchase 2,512,000 shares of Common Stock ranging between
$1.00 and $4.00 per share with terms of between two and five years. Included in
consulting expenses for 1999 are approximately $3.3 million of non-cash charges
for investor relations and strategic planning services reflecting the estimated
fair value of five-year warrants granted to purchase 860,000 shares of Common
Stock ranging between $1.00 and $2.00 per share. The fair value of such warrants
was estimated using the Black-Scholes Option Pricing Formula. Additionally,
approximately $1.1 million and $2.7 million of the consulting expenses incurred
in 2000 and 1999, respectively, reflects the fair value of 535,000 shares and
870,000 shares of the Company's Common Stock issued for professional services
rendered in 2000 and 1999, respectively.

        OTHER OPERATING EXPENSES

        Other operating expenses increased $2.3 million, or 135.3%, to $4.0
million in 2000, from $1.7 million in 1999. The increase is primarily related to
$2.1 million of other operating expenses incurred at MOS since the acquisition
of the operations of DSI, including accounting and legal expenses of $306,000,
travel and entertainment expenses of $166,000, rent of $162,000 and depreciation
of $84,000. Other operating expenses in 1999 consisted primarily of accounting
and legal expenses of approximately $462,000, travel and entertainment expenses
of approximately $211,000 and office expenses of approximately $195,000. Also
included in other operating expenses for 1999 is the net loss of $178,511
incurred on the Company's PAC operation that was closed in June 1999 and a bad
debt expense of $500,000 related to the 100% valuation reserve recorded on a
$500,000 loan made to AmeriNet in 1999.

        AMORTIZATION OF GOODWILL

        During 2000, the Company recorded $0.5 million of goodwill amortization
primarily related to the $7.0 million of goodwill recorded in connection with
the January 28, 2000 DSI Acquisition. Goodwill related to the DSI Acquisition is
being amortized on a straight-line basis over a ten-year period.

        In connection with the acquisition of WeFusion, the Company recorded
$1.9 million of goodwill which is being amortized over a seven-year period and
will result in an increase in goodwill amortization of approximately $275,000
per year beginning in 2001.



                                      -12-
<PAGE>   15



        INTEREST EXPENSE

        During 2000, the Company recorded interest expense of $4.4 million,
primarily consisting of $2.4 million of non-cash interest related to the fair
value of shares and warrants issued in connection with the initial issuance and
subsequent conversions of the DSI Acquisition financings and approximately $1.9
million related to the amortization of deferred financing fees and interest on
the Coast Business Credit Financing Facility.

        COSTS OF ACQUISITIONS NOT CONSUMMATED

        In August 2000, the Company entered into an agreement (the "Agreement")
to acquire National Syndications, Inc. ("NSI"), a direct marketer of consumer
products and a party to service advertising contracts. In February 2001, the
Company and NSI terminated the Agreement. As a result of such termination, in
the fourth quarter of 2000, the Company recorded a charge of $967,500,
representing the write-off of non-refundable deposits and professional fees
incurred related to the NSI transaction.

        In February 2000, the Company announced its decision not to exercise its
options to purchase 50.1% of the outstanding Common Stock of AmeriNet or all of
the outstanding Common Stock of Hamilton Telecommunications, Ltd ("Hamilton").
As a result, the Company recorded a charge of $621,716 during the fourth quarter
of 1999, representing the cost of legal and professional fees. This charge,
which is presented as the cost of acquisitions not consummated, consists
principally of professional and consulting fees (including $38,000 representing
the fair value of Common Stock purchase warrants and $432,000 representing the
fair value of 225,000 shares of Common Stock that were issued to various
consultants).

        OTHER INCOME

        Other income increased $317,000 to $347,000 in 2000 from $30,000 in
1999. Included in other income for 2000 are approximately $245,000 of fees
earned from the sale of third-party long distance telephone service, interest
income and other fee income of approximately $102,000. Other income for 1999
represented interest income earned on the Company's overnight investments.

        INCOME TAXES

        The Company recorded a $0.3 million provision for income taxes in 2000
reflecting a state tax liability resulting from the MOS operations. No provision
was recorded for federal income taxes in 2000 or 1999, as the Company has
incurred net operating losses since inception. At December 31, 2000, the Company
had Federal and state net operating loss carryforwards of approximately $7.0
million that will be available to offset future taxable income, if any, through
December 2020. The utilization of net operating losses is subject to a
substantial limitation due to the "change of ownership" provisions under Section
382 of the Internal Revenue Code and similar state provisions. Such limitation
may result in the expiration of the net operating losses before their
utilization. A 100% valuation allowance has been established to reserve for the
deferred tax assets arising from the net operating losses and other temporary
differences since there is no assurance that their benefit will be realized in
the future.



                                      -13-
<PAGE>   16



        PREFERRED DIVIDENDS

        The Company accounted for the issuances of its preferred stock in
accordance with EITF Issue No. 98-5, as amended by EITF Issue 00-27. Both Issues
are titled "Convertible Securities With Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios". As a result of the issuance and
adoption of EITF 00-27 in November 2000, the Company has adjusted preferred
stock dividends recorded in prior 2000 quarters that were related to effective
beneficial conversion features resulting in approximately $1.8 million of
additional dividends recorded in the fourth quarter of 2000. In accordance with
EITF 00-27, the Company recorded $39.6 million of dividends for 2000, including
$38.7 million of non-cash deemed dividends and contractual dividends of
approximately $0.9 million in connection with the Series A, B, and C preferred
stock issued to complete the DSI Acquisition on January 28, 2000 and the
issuance of the New Series A and C Shares. Deemed dividends represent the
accretion of the difference between the carrying value and the mandatory
redemption amounts of preferred stock that resulted from the allocation of a
portion of the proceeds to Common Stock, Common Stock purchase warrants, and the
beneficial conversion features of the shares and dividends received in
connection with the conversion of the Series A preferred stock into Common Stock
on March 27, 2000 and dividends received upon the extension of the redemption
date and the adjustment of the default conversion price of the Series C
preferred stock.

        EXTRAORDINARY LOSS

        In connection with the DSI Acquisition, the Company agreed to provide a
$1.5 million credit facility to AmeriNet. In 2000, the Company loaned AmeriNet
an aggregate $300,000 pursuant to this credit facility. In November 2000, the
Company exchanged 1.0 million shares of its Common Stock, with a fair value of
$1.9 million, in full satisfaction of the remaining obligation to AmeriNet and,
accordingly, recognized in the fourth quarter 2000, an extraordinary loss on the
extinguishment of acquisition liability of $767,500.

        NET LOSS AND NET LOSS PER SHARE

        The net loss for the year ended December 31, 2000 was $44.6 million, or
$1.84 per share, compared to a net loss of $9.5 million, or $0.80 per share, for
1999. The increase in the net loss to common shareholders reflects the impact of
the $39.6 million of preferred dividends recorded for the year ended December
31, 2000 and increased interest charges related to the acquisition financings,
partially offset by decreased consulting costs and MOS's earnings from January
28, 2000 through December 31, 2000.

LIQUIDITY AND FINANCIAL CONDITION

        At December 31, 2000, the Company had cash on hand of $2.3 million. The
Company generated $4.1 million from operations and $22.6 million from financing
activities and used $24.7 million in investing activities. Through the
operations of MOS, the Company generates cash flow from the sale and collection
of trade receivables, commissions earned from publishers in connection with
originating paid subscriptions for certain publications, and commissions earned
on the sale of third party discount buying club memberships and
telecommunications services. MOS uses these funds as well as funds available
under its revolving credit facility to fund its working capital needs. Under
the Coast Business Credit Financing Facility, MOS is not permitted to make



                                      -14-
<PAGE>   17



distributions to Cross Media Marketing in excess of $1.8 million per annum, plus
any amounts necessary for tax obligations attributable to its operations. While
the Company believes that the cash flow from operations at MOS and the amount
available under the revolving credit facility are currently sufficient to meet
the Company's day-to-day operating requirements, such cash flow would not be
sufficient to satisfy certain other commitments nor would such cash flow be
sufficient to complete any additional acquisitions in furtherance of the
Company's overall strategy. Consequently, the Company may be required to raise
additional financing to provide for additional working capital.

        AMERINET COMMITMENT

        In February 2000, the Company decided not to exercise its option (the
"Option") to acquire 50.1% of the outstanding stock of AmeriNet, Inc., but as a
prerequisite to consummating the DSI Acquisition, agreed to provide a $1.5
million credit facility to AmeriNet in addition to a $500,000 loan made during
1999. Richard Prochnow (the seller of DSI) owns 50% of the Common Stock of
AmeriNet. Due to the uncertainty of AmeriNet's ability to repay any of such
loans, the Company treated its commitment to provide additional funding to
AmeriNet as an increase in the purchase price of DSI. Under the original terms
of the credit facility, the Company was obligated (1) to lend AmeriNet $100,000
per month for the ten months beginning in March 2000 through December 2000
inclusive, and (2) on or before July 28, 2000, to purchase for $500,000 a
$500,000 principal amount note issued by AmeriNet to RLP Holdings L.P., an
affiliate of Mr. Prochnow. The Company loaned AmeriNet an aggregate of $300,000
in connection with the credit facility. In November 2000, the Company exchanged
1.0 million shares of its Common Stock, with a fair value of $1.9 million, in
full satisfaction of the remaining obligation to AmeriNet of $1.2 million and
accordingly, recognized in the fourth quarter of 2000, an extraordinary loss on
the extinguishment of acquisition liability of $767,500.

        COAST BUSINESS CREDIT FINANCING FACILITY

        In connection with the DSI Acquisition, MOS and the Company entered into
an agreement with Coast Business Credit ("Coast") to provide a credit facility
(the "Coast Facility") used to fund the DSI Acquisition and working capital
needs of MOS. The Coast Facility is for a term of three years, and provides a
maximum credit line of $20.0 million, subject to certain availability
limitations. As a result of these limitations, the amount available for
borrowing under the Coast Facility at the time of the DSI Acquisition was $16.0
million, which MOS drew down in its entirety to finance the DSI Acquisition.
Interest on outstanding advances under the Coast Facility accrues at an annual
rate equal to the higher of (i) the prime rate plus 200 basis points, calculated
on the basis of the actual number of days elapsed in a 360 day year, and (ii)
9.0%. The Coast Facility requires the Company and MOS to comply with specified
financial covenants.

        In connection with the execution and delivery of the Coast Facility, the
Company granted Coast 300,000 five-year Common Stock purchase warrants at an
exercise price of $3.53 per share (110% of the closing price of the Common Stock
on the closing date). As a result of the operation of the anti-dilution
provisions, the exercise price was reduced to $2.39 per share and the number of
shares issuable upon the exercise of the warrants was increased to 443,884 as of
December 31, 2000. Accordingly, the Company recorded a non-cash interest charge
of approximately $260,000 as of December 31, 2000 related to such anti-dilution
adjustments.



                                      -15-
<PAGE>   18



Such anti-dilution provisions may result in additional charges in the future if
the Company issues its securities at a price less than the then current exercise
price of the Coast warrants.

        Coast extended the Coast Facility to the Company subject to the
condition that the Company raise additional equity capital of not less than $3.0
million by February 28, 2000 which was subsequently extended to March 31, 2000.
On March 30, 2000 the Company and Coast amended the Coast Facility as follows:
(i) the covenant requiring the Company to raise additional cash equity of $3.0
million was eliminated; (ii) the parties reduced the consolidated net worth
(defined as stockholder equity and subordinated debt) covenant to $9.0 million
from $12.0 million at March 31, 2000; and (iii) a new covenant was added
requiring that the Company maintain excess borrowing availability of $750,000.

        SERIES A CONVERTIBLE PREFERRED STOCK ("NEW SERIES A SHARES")

        On June 9, 2000, the Company issued 30,375 New Series A Shares and a
five-year warrant to purchase 225,000 shares of Common Stock at an initial
exercise price of $1.4850 (subject to certain anti-dilution and similar
adjustments). The aggregate purchase price for the New Series A Shares and the
warrant was $2,250,000. The Company also granted the purchaser of the New Series
A Shares an option, exercisable in the purchaser's sole discretion during the
sixty day period following June 9, 2000, to purchase up to an additional
$2,025,000 face amount of New Series A Shares and a warrant to purchase an
additional 150,000 shares of Common Stock for the same purchase price. The
purchaser exercised its option, and the Company issued and sold to the purchaser
an additional 20,250 New Series A Shares and the additional warrant on August 1,
2000 for an aggregate purchase price of $1,500,000. The face amount and
liquidation value of the New Series A Shares is $5,062,500.

        Dividends accrue on the New Series A Shares at an annual rate of 10% of
the face amount, payable semi-annually in cash and/or Common Stock at the
Company's option under certain conditions. The New Series A Shares are
redeemable, at the option of the Company, under certain conditions at a
redemption price of 100% of face value plus any accrued and unpaid dividends.

        The New Series A Shares are convertible at a conversion price equal to
the lesser of: (i) $1.93 (110% of the closing bid price of the Common Stock on
the date of the issuance, subject to adjustments); or (ii) 91% of the average of
the three lowest, non-consecutive closing bid prices for the Common Stock in the
ten trading days preceding the date of the holder's conversion notice to the
Company (the "Conversion Notice"). The conversion price and the exercise price
of the warrants are subject to downward adjustment to equal the lowest price at
which shares of the Common Stock or securities convertible into, or exchangeable
or exercisable for, shares of Common Stock are issued while the New Series A
Shares and warrants remain outstanding (if such price is lower than the then
effective conversion or exercise price), subject to certain exceptions. These
exceptions include: (i) the issuance of shares of Common Stock upon conversion
or exercise of outstanding options, warrants or convertible securities in
accordance with the terms of such options, warrants or convertible securities as
in effect upon the initial issuance date of the New Series A Shares (but subject
to certain anti-dilution adjustments); and (ii) certain issuances of securities
to, or adjustments in the exercise or conversion price of outstanding options,
warrants or convertible securities held by, the holders of the Series B



                                      -16-
<PAGE>   19



Convertible Preferred Stock and Series C Convertible Preferred Stock, to the
extent the number of additional shares of Common Stock resulting from such
issuances and adjustments do not exceed 5,000,000 shares.

        By letter agreement dated December 28, 2000 the holder of all the
outstanding New Series A Shares agreed not to convert the New Series A Shares
prior to June 9, 2001 if, on the date of such proposed conversion, the
then-current market price of the Company's Common Stock is less than $1.50 per
share (the "Conversion Floor"). On and after June 9, 2001 there will be no
Conversion Floor. The Company also agreed that it would not redeem the New
Series A Shares prior to June 9, 2001. The conversion provisions of the New
Series A Shares and warrants create a substantial risk of dilution to the
holders of the Company's Common Stock.

        The holder further agreed that the payment of semi-annual dividends on
the New Series A Shares for calendar year 2000 will be extended until March 28,
2001.

        SERIES A MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK ("SERIES A
        PREFERRED")

        On January 28, 2000, in a private placement, the Company sold 21,500
units, each unit consisting of one share of Series A Preferred, with a face
value of $100, and 20 shares of the Company's Common Stock, for gross proceeds
of $2.0 million. The Series A Preferred was initially convertible into 1,075,000
shares of Common Stock at a conversion ratio of $2.00 per share and was entitled
to a 16% cumulative dividend. The Series A Preferred was mandatorily redeemable
on or before March 28, 2000.

        On March 21, 2000, the holders of the Series A Preferred extended the
due date for the redemption of their shares from March 28, 2000 to April 12,
2000 in exchange for 275,000 shares of Common Stock. On March 27, 2000, they
agreed to convert their shares of Series A Preferred into 4,414,666 shares of
Common Stock at an effective conversion ratio of $0.50 per share based on the
Series A Preferred aggregate redemption price of $2,207,333, including
$2,150,000 representing the face value of the shares and accrued dividends of
$57,333. In addition, the Series A Preferred holders were issued 2,207,000
five-year Common Stock purchase warrants, including 1,103,500 with an exercise
price of $0.50 per share and 1,103,500 with an exercise price of $1.00 per
share. One of the Series A Preferred holders was paid a fee of 220,000 shares of
Common Stock in connection with the March 27, 2000 agreement.

        As a result of the extension and conversion, the former Series A
Preferred holders were issued 5,393,416 shares of the Company's Common Stock,
plus warrants to purchase 2,207,000 additional shares of the Company's Common
Stock as of March 27, 2000.

        SERIES B MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK ("SERIES B
        PREFERRED")

        On January 28, 2000, in a private placement, the Company sold 15,350
units, each unit consisting of one share of Series B Preferred, with a face
value of $100, and warrants to purchase 25 shares of Common Stock, for gross
proceeds of $1.5 million. The Series B Preferred was originally convertible into
767,500 shares of Common Stock at a conversion ratio of $2.00 per share and was
entitled to a 10% cumulative dividend, payable quarterly. The Common Stock
purchase warrants were exercisable for three years from the date of issuance and
had an exercise price of $1.50 per share. The Series B Preferred was mandatorily
redeemable on the earlier of



                                      -17-
<PAGE>   20
July 26, 2000 or upon the consummation of an additional financing transaction
resulting in gross proceeds of at least $10 million.

        By letter agreement dated June 16, 2000 (the "Letter Agreement"), the
Company offered (i) to permit the holders of Series B Preferred to convert their
shares of Series B Preferred into Common Stock at an effective conversion ratio
of $0.50 or (ii) to redeem the Series B Preferred at the then effective
redemption price ($100 per share plus accrued dividends). In addition, whether a
holder elected to convert shares of Series B Preferred or to be redeemed, the
Company agreed to issue to the holders, ratably in accordance with their
respective percentage interests in the outstanding Series B Preferred, an
aggregate of 122,800 three-year warrants to purchase Common Stock at an exercise
price of $0.75 per share and 200,000 three-year warrants to purchase Common
Stock at an exercise price of $1.50 per share (collectively, the "Additional
Warrants"). The Company also agreed to reduce the exercise price of the Original
Warrants from $1.50 to $0.75. In addition, the Company agreed to issue to
certain placements agents (who received commissions consisting of three-year
warrants to purchase a total of 58,163 shares of Common Stock (the "Commission
Warrants") in connection with the original Series B Preferred financing a total
of 17,820 three-year warrants to purchase Common Stock at an exercise price of
$0.75 per share and to reduce the exercise price of the Commission Warrants from
$1.50 per share to $0.75 per share.

        The holders of 30,000 shares elected to convert their Series B Preferred
(and accrued dividends thereon) into an aggregate of 610,333 shares of Common
Stock. The Company redeemed the remaining Series B Preferred shares on June 29,
2000 for an aggregate redemption price of $1,235,000 (plus $21,269 in accrued
dividends).

        SERIES C MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK ("SERIES C
        PREFERRED")

        On January 28, 2000, the Company issued 52,892 shares of Series C
Preferred resulting in proceeds to the Company totaling approximately $5.0
million. The Series C Preferred was initially convertible into shares of Common
Stock at a conversion ratio of $2.00 per share and was entitled to a 10%
cumulative dividend. In connection with the initial issuance and sale of the
Series C Preferred in January 2000 (the "Series C Shares"), the Company also
issued 1,763,067 shares of Common Stock to the holders of the Series C Shares
and reduced the exercise price of 2,000,000 Common Stock purchase warrants
previously issued to a holder of Series C Shares from $3.50 per share to $1.00
per share.

        The Series C Preferred was originally mandatorily redeemable on the
earlier of July 26, 2000 or upon the consummation of a financing transaction
resulting in gross proceeds of at least $10 million. On April 24, 2000, the
holders of the Series C Shares agreed to extend the mandatory redemption date of
the Series C Shares owned by them from July 26, 2000 to December 26, 2000 (the
"Mandatory Redemption Date") in exchange for 2,247,067 shares of Common Stock
and a reduction in the effective conversion ratio from $2.00 per share to $1.00
per share. The value of the shares of Common Stock issued and change in the
effective conversion ratio was reflected during the second quarter as an
additional deemed dividend in the amount of $8,560,417.



                                      -18-
<PAGE>   21



        On June 14, 2000, the Company issued an additional 7,500 shares of
Series C Preferred (the "New Series C Shares") and 250,000 shares of Common
Stock, resulting in proceeds of $750,000. The Company also agreed to reduce the
effective exercise price of 2,000,000 Common Stock purchase warrants held by the
purchaser of the New Series C Shares from $1.00 to $0.50 per share. The Company
also paid a fee in connection with the issuance of the New Series C Shares of
562.5 shares of Series C Preferred, five-year warrants to purchase 100,000
shares of Common Stock at a price of $1.88 per share and 18,750 shares of Common
Stock.

        On July 18, 2000, the holders of the Series C Shares and the New Series
C Shares agreed to waive the requirement that the failure of the Company to
redeem the Series C Preferred on or before the Mandatory Redemption Date would
trigger a reduction in the conversion ratio of the Series C Preferred from $1.00
to $0.25 per share. In consideration for this waiver, the Company agreed to
issue to such holders an aggregate of 1,523,750 shares of Common Stock, pro rata
in accordance with their percentage holdings of the Series C Shares and New
Series C Shares, and to issue as a fee in connection with such waiver, an
additional 1,500 shares of Series C Preferred and 50,000 shares of Common Stock.
The value of the shares issued was reflected during the third quarter of 2000 as
an additional deemed dividend in the amount of $3,026,028.

        On December 19, 2000, the holders of the Series C Shares and the New
Series C Shares agreed to extend the mandatory redemption date of the Series C
Preferred from December 26, 2000 to January 26, 2001. On January 25, 2001, the
holders agreed to further extend the redemption date from January 26, 2001 to
February 15, 2001. On February 15, 2001, the Company redeemed an aggregate of
22,992 Series C Shares and New Series C Shares for an aggregate redemption price
of $2,299,200 plus accrued and unpaid dividends of $122,300. The holders
converted all of the remaining Series C Shares and New Series C Shares into
3,946,250 shares of Common Stock (at an effective conversion ratio of $1.00 per
share). In consideration of the agreement of the holders to convert the Series C
Shares and New Series C Shares (which would otherwise have been mandatorily
redeemable by the Company in full on February 15, 2001), the Company agreed to
issue to the holders, pro rata in accordance with the number of shares converted
by each of them, an aggregate of 666,400 additional shares of Common Stock. The
Company will record a $900,000 non-cash dividend in the first quarter of 2001
reflecting the fair value of the 666,400 additional shares issued. The Company
agreed to pay a fee of $100,000 to one of the Series C holders in connection
with its services relating to the negotiation of these agreements.

        The redemption of the Series C Shares and New Series C Shares was funded
in part through the issuance and sale by the Company, in private placements, of
an aggregate of 1,500,000 shares of Common Stock at a price of $1.00 per share.

ACQUISITION BRIDGE FINANCING

        COMMTEL SERVICES LTD. NOTE

        On January 20, 2000, the Company entered into a note agreement (the
"Commtel Note") with Commtel Services Ltd. ("Commtel") for a 30-day bridge loan
in the principal amount of $300,000. The proceeds of this loan were used in
connection with the financing of the DSI Acquisition. The Commtel Note accrued
interest of a rate of 10% per annum, with principal and



                                      -19-
<PAGE>   22



interest due and payable on February 20, 2000. In consideration of the loan, the
Company issued 75,000 shares of its Common Stock to Commtel. The Company failed
to pay the Commtel Note at maturity, as a result of which: (i) the annual
interest rate on the Commtel Note increased to 18% on all outstanding principal
and accrued interest, and (ii) the Company was required to issue to Commtel an
additional 50,000 shares of Common Stock as of February 21, 2000 and an
additional 2,500 shares of Common Stock for each subsequent day until the
Commtel Note was paid or converted (aggregating 77,500 shares on March 21,
2000). On March 21, 2000, Commtel converted the Commtel Note into approximately
614,048 shares of Common Stock in satisfaction of all principal and interest
due. The proceeds received from the issuance of the Commtel Note with Common
Stock are being allocated to each component based on their relative fair values
on January 20, 2000 (the date of issuance). The fair value of the Common Stock
on January 20, 2000 was $2.31 per share and resulted in discounted carrying
value to the Commtel Note of $200,000 and an increase to stockholders' equity of
$100,000.

        As a result of the conversion of the Commtel Note, during the first
quarter of 2000, the Company recorded additional interest expense of
approximately $1.2 million including interest of 10% on the Commtel Note, the
fair market value of additional common shares issued under the penalty provision
of the Commtel Note, and the intrinsic value of the beneficial conversion of the
Commtel Note into 614,048 shares of Common Stock.

        FONTENELLE NOTE

        On January 25, 2000, the Company borrowed $500,000 from Fontenelle LLC,
which borrowing was evidenced by a $500,000 principal amount Convertible
Subordinated Note due March 25, 2000 (the "Fontenelle Note").

        The proceeds of this loan were used primarily in connection with the
financing of the DSI Acquisition. Interest accrued on the Fontenelle Note at an
annual rate of 10% and was due and payable along with the outstanding principal
at maturity. The Fontenelle Note was convertible into shares of Common Stock at
a conversion price of $2.00 per share. The Company paid the Fontenelle Note in
full on March 24, 2000.

        D2 LOAN

        On January 25, 2000, the Company borrowed $300,000 from D2 Co. LLC,
which was due on July 26, 2000 (the "D2 Loan"). The proceeds of the D2 Loan were
used primarily in connection with the financing of the DSI Acquisition. Interest
accrued on the D2 Loan at an annual rate of 10% and was due and payable along
with the outstanding principal at maturity. The outstanding principal amount of
the D2 Loan was convertible into 150,000 shares of the Company's Common Stock at
a conversion price of $2.00 per share. If the Company did not pay the D2 Loan by
July 26, 2000, the conversion price would have been reduced to $0.50 per share
(representing 600,000 shares of the Company's Common Stock). The Company paid
the D2 Loan in full on June 12, 2000.



                                      -20-
<PAGE>   23



NOTES PAYABLE

        MANAGEMENT GROUP NOTE

        On April 6, 2000, the Company entered into a term loan agreement with
The Management Group pursuant to which the Company borrowed $250,000. The loan
accrued interest at 10% per annum, compounded daily, and matured on July 31,
2000. In connection with the execution and delivery of the term loan agreement,
the Company issued 100,000 five-year Common Stock purchase warrants with an
exercise price of $1.50 per share. On July 31, 2000, the Company paid $100,000
of the outstanding principal of the loan plus accrued interest and agreed with
the holder to extend the maturity of the remaining principal balance to December
31, 2000 in consideration of the issuance to such holder of 80,000 five-year
Common Stock purchase warrants with an exercise price of $2.00 per share. The
Company repaid the remaining balance of the loan, with interest of approximately
$11,000, in December 2000.

        HERMITAGE CAPITAL CORP. NOTE

        On June 20, 2000, the Company entered into a note agreement with
Hermitage Capital Corp. ("Hermitage") for $178,800, which represented a portion
of Hermitage's fees earned in connection with the Company's Series C Shares
financing. The note accrued interest at 9% per annum. The Company repaid
$100,000 of the note with interest of approximately $3,000 on September 1, 2000.
The balance of the note was repaid, with interest of approximately $2,000, in
November 2000.

CERTAIN TRENDS AND UNCERTAINTIES

        BUSINESS RISKS

        HISTORY OF LOSSES AND MAY INCUR FUTURE LOSSES

        The Company continues to report net losses to holders of Common Stock.
The net loss to stockholders for the year ended December 31, 2000 was $44.6
million, or $1.84 per share, primarily as a result of preferred stock dividends
of $39.6 million. The preferred dividends include contractual dividends of $0.9
million and non-cash deemed dividends of $38.7 million. Deemed dividends
represent the accretion of the difference between the carrying value and the
mandatory redemption amounts of preferred stock that resulted from allocating a
portion of the proceeds to Common Stock, Common Stock purchase warrants, and the
beneficial conversion features of the shares. The Company may continue to incur
deemed dividends in the future. In addition, if net revenues grow more slowly
than anticipated, or if operating expenses exceed expectations, the business,
results of operations, financial condition and prospects of the Company would be
materially and adversely affected.

        LIMITED OPERATING HISTORY

        The Company developed its present business strategy in 1999 and
completed its first acquisition in January 2000. Therefore, the Company has a
limited history of operations under its present business strategy upon which the
likelihood of success can be evaluated. The



                                      -21-
<PAGE>   24
\


implementation of a new business strategy frequently involves risks, expenses
and uncertainties that may adversely affect the business, results of operations,
financial condition and prospects.

        THE NEED FOR ADDITIONAL FINANCING

        The Company will need additional debt or equity financing in order to
satisfy its obligation to purchase up to 600,000 shares of Common Stock from one
of its stockholders who has the right to require the repurchase of these shares
commencing on January 15, 2001. The Company may also require additional
financing to pursue its strategy of expanding its business through the
acquisition of companies whose businesses are strategically appropriate. This
financing may not be available or, if available, may not be available on terms
that are acceptable to the Company. The failure to obtain such financing on a
timely basis, or on economically favorable terms, could prevent the Company from
continuing its strategy or from responding to changing business or economic
conditions, and could cause the Company to experience difficulty in withstanding
adverse operating results or competing effectively. Therefore, such failure
could materially harm the Company.

        If additional funds are raised by issuing equity securities,
stockholders may experience dilution of their ownership interest. Moreover,
preferred stock could be issued that has rights senior to those of the Company's
Common Stock. If funds are raised by issuing debt securities, these securities
would have rights, preferences and privileges senior to holders of Common Stock
and the lenders may place limitations on the Company's operations.

        CREDIT FACILITY COVENANTS

        In January 2000, MOS and the Company entered into an agreement with
Coast Business Credit ("Coast") to provide a credit facility (the "Coast
Facility") to finance the acquisition of the Company's magazine subscription
telemarketing business and the ongoing working capital needs of MOS. The Coast
Facility has a term of three years, and provides a maximum credit line of $20
million, subject to certain availability limitations. The Company has guaranteed
MOS' obligations under the Coast Facility. Under the agreement with Coast, the
Company is required, among other things, to maintain a consolidated net worth of
not less than $9.0 million (defined as stockholders' equity and subordinated
debt) and excess borrowing availability of $750,000. If the Company cannot
satisfy these or other covenants under the Coast Facility, it will be required
to seek a waiver or amendment from Coast. Although Coast has agreed to waivers
and amendments in the past, there can be no assurance that it will do so in the
future. If MOS and the Company are in default of their obligations to Coast,
Coast would be entitled to accelerate the maturity of outstanding indebtedness
under the credit facility ($11.2 million as of December 31, 2000), and to
enforce its security interest in the assets.

        IF ACCOUNTS RECEIVABLE RESERVES ARE NOT ADEQUATE RESULTS OF OPERATIONS
        COULD BE MATERIALLY ADVERSELY AFFECTED

        The Company extends credit to subscribers who purchase multi-magazine
subscription packages of four to five magazines having an average selling price
of approximately $600 per bundle, for an average subscription period of between
one and four years. The Company has established a reserve to cover bad debts
based upon past history with subscriber receivables. If



                                      -22-
<PAGE>   25



accounts receivable reserves are inadequate, results of operations could be
materially adversely affected.

        ECONOMIC SLOWDOWN.

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

        MANAGING FUTURE GROWTH

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

        STRATEGIC INVESTMENTS IN OTHER BUSINESSES, ACQUISITIONS, LICENSE OF
        TECHNOLOGY AND OTHER ASSETS - DIFFICULTY INTEGRATING THESE BUSINESSES OR
        GENERATING AN ACCEPTABLE RETURN FROM ACQUISITIONS

        The Company intends to acquire, and to enter into strategic
relationships with, other businesses and acquire or license technology and other
assets. The Company cannot be sure that acquisition or licensing opportunities
will be available on acceptable terms or at all. These acquisitions and
strategic relationships will involve risks, including: inability to raise the
required capital; inability to compete successfully for available acquisition
candidates or strategic partners; difficulty in assimilating the acquired
assets, operations and personnel; disruption of ongoing business; distraction of
management from other responsibilities; and lack of the necessary experience to
enter new markets. The Company may not successfully overcome problems
encountered in connection with potential acquisitions or licensing arrangements.
In addition, acquisitions or strategic relationships could materially impair
operating results, causing the Company to incur additional debt, or requiring
the amortization of acquisition expenses and acquired assets.

        DEPENDENCE ON KEY PERSONNEL TO OPERATE THE BUSINESS EFFECTIVELY;
        DEPENDENCE ON CERTAIN INDEPENDENT CALL CENTERS

        The Company's future success may depend on the continued performance of
senior management and other key personnel. Future operating results may depend,
in part, upon the ability to retain the services of these individuals. The
Company cannot be sure that key personnel will not leave Cross Media Marketing
or compete with the Company, which could have a material adverse effect on the
Company's business, results of operations and financial condition.



                                      -23-
<PAGE>   26



The loss of the services of any of the executive officers or other key employees
could adversely affect the business. Senior management may not perform
effectively as individuals or work together as a team. In addition, competition
for employees in the industry and geographic area is intense.

        In the year ended December 31, 2000, two independent call centers
accounted for approximately 35% of the Company's magazine subscription revenues.
These call centers could terminate their relationship with the Company which
could have a material adverse effect on the Company's business.

        GOVERNMENT REGULATION COULD ADD SIGNIFICANT ADDITIONAL COSTS TO THE
        BUSINESS AND IMPOSE RESTRICTIONS ON CERTAIN MARKETING PRACTICES WHICH
        COULD HAVE A SIGNIFICANT ADVERSE EFFECT ON REVENUES

        Laws and regulations applicable to direct marketing, telemarketing,
Internet marketing and consumer protection are becoming more prevalent. Each of
the fifty states and the federal government has laws regulating telemarketing,
sweepstakes promotions, promotional incentives and advertising to consumers
which vary from state to state. While the Company reviews its telemarketing
scripts and advertising copy to ensure that they comply with applicable laws,
there is no guarantee that federal or state authorities will not find that the
Company's marketing efforts do not comply with these laws. In addition, it is
likely that additional federal and/or state regulations regarding telemarketing,
sweepstakes, e-mail marketing and other marketing practices engaged in by Cross
Media Marketing will be enacted. If enacted, these regulations could have an
adverse effect on revenues and result in additional expenses to the Company.

        The Federal Trade Commission is currently in the process of reviewing
the provisions of the Telemarketing Sales Rule to determine if any changes to
the Rule should be made. If the Federal Trade Commission determines that changes
to the Rule are necessary, such changes could have a significant adverse effect
on the Company.

        In 1999, Congress enacted the Deceptive Mail Prevention and Enforcement
Act which imposes various restrictions on the offering of sweepstakes through
the mail. Additional sweepstakes legislation has been enacted or is pending in
various states. This additional regulation could have an adverse impact on the
Company's marketing activities.

        Federal and state authorities have also been investigating various
companies' use of certain marketing practices, such as the use of personal
information, magazine subscription agents' sweepstakes practices and the
marketing of membership club services through the use of inbound and outbound
telemarketing campaigns. These investigations could result in additional rules,
regulations or industry standards which could have an adverse impact on the
Company's marketing practices.

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

        Laws and regulations directly applicable to Internet communications,
commerce, marketing and data protection are becoming more prevalent. If any of
these laws hinders the



                                      -24-
<PAGE>   27



growth in use of the Internet generally, or decreases the acceptance of the
Internet as a medium of communications, commerce and marketing, the Company's
business and prospects may suffer materially. The United States Congress has
enacted Internet laws regarding children's privacy, copyrights and taxation.
Other laws and regulations may be adopted covering issues such as user privacy,
marketing activities, pricing, content, taxation and quality of products and
services. The governments of some states and foreign countries have begun to
regulate transactions and levy sales or other taxes relating to the Company's
activities and will likely continue to do so. The laws governing the Internet
remain largely unsettled, even in areas where legislation has been enacted. It
may take years to determine whether and how existing laws such as those
governing intellectual property, privacy, libel and taxation apply to the
Internet and Internet advertising and marketing services. In addition, the
growth and development of the market for Internet commerce may prompt calls for
more stringent consumer protection laws, both in the United States and abroad,
that may impose additional burdens on companies conducting business over the
Internet.

        Laws and regulations regulating the transmission of unsolicited email
marketing messages are being considered by many jurisdictions. Legislation of
that type has recently been adopted by the States of California, Virginia and
Washington, and similar legislation is pending in the State of New York and in
Congress. The Telecommunications Act of 1996 prohibits some types of information
and content from being transmitted over the Internet. The prohibition's scope
and the liability associated with a Telecommunications Act violation are
currently unsettled. In addition, although substantial portions of the
Communications Decency Act were held to be unconstitutional, the Company cannot
be certain that similar legislation will not be enacted and upheld in the
future.

        CHANGES IN LAWS RELATING TO CONSUMER PRIVACY AND POTENTIALLY HEIGHTENED
        SCRUTINY OF THE COMPANY'S SERVICES COULD HARM BUSINESS

        There has been increasing public debate about the collection,
distribution and use of information about consumers. Although this debate has
primarily focused on information collected through the Internet, many of the
issues apply to data gathered through other media. The Company interacts with
consumers through various direct marketing efforts, both online and offline. As
a consequence of government regulation or evolving standards of consumer privacy
protection, it may be required to make changes to its marketing media and
platforms in ways that could diminish the effectiveness of marketing efforts,
which could harm the Company's business.

        MARKET RELATED RISKS

        SHARES ELIGIBLE FOR FUTURE SALE COULD CAUSE THE STOCK PRICE TO DECLINE
        DUE TO DILUTION

        As of March 20, 2001, there were 35,717,169 issued and outstanding
shares of Common Stock. If the holders of all outstanding options and Common
Stock purchase warrants exercised those options and warrants, and the holders of
all outstanding convertible securities converted them into Common Stock, the
Company would be required to issue approximately 23.2 million additional shares
of Common Stock, based on current exercise and conversion prices. The



                                      -25-
<PAGE>   28



conversion price of the outstanding New Series A Shares is subject to adjustment
in a manner that could result in substantial dilution to other holders of the
Company's equity securities. The New Series A Shares are convertible into Common
Stock at a floating rate based on the average of the three lowest
non-consecutive closing bid prices of the Common Stock during the ten trading
days prior to the date on which the conversion price is determined, subject to
certain adjustments (although prior to June 9, 2001, the New Series A Shares
cannot be converted into Common Stock if the closing bid price of the Common
Stock is less than $1.50 per share). Therefore, the lower the price of the
Common Stock at the time of conversion, the more shares of Common Stock the
holder of the New Series A Shares will receive upon conversion.

        The market price of the Common Stock could decline as a result of future
sales of substantial amounts of the Common Stock, or the perception that such
sales could occur. Furthermore, certain stockholders have the right to require
the Company to register for re-sale their shares of Common Stock, or shares of
Common Stock into or for which their shares of convertible preferred stock,
options or warrants are convertible or exercisable, which may facilitate the
sale of these shares in the public market. In excess of 34.0 million shares of
outstanding Common Stock and shares of Common Stock into or for which
outstanding options, warrants and convertible securities are exercisable or
convertible are entitled to these "registration rights."

        VOLATILITY OF STOCK PRICE

        The market price of the Common Stock has been, and is likely to continue
to be, volatile, experiencing wide fluctuations. Some of these fluctuations
appear to be unrelated or disproportionate to the Company's operating
performance. Future market movements may materially and adversely affect the
market price of the Common Stock.

        OTHER RISKS

        OWNERSHIP OF THE COMPANY IS CONCENTRATED

        The five largest stockholders of the Company beneficially owned in
excess of 50% of the Company's issued and outstanding Common Stock as of
December 31, 2000. Assuming that these stockholders acquired additional shares
of Common Stock by converting the shares of convertible preferred stock and
exercising the options and Common Stock purchase warrants that they owned on
December 31, 2000, they would beneficially own in excess of 70% of the issued
and outstanding Common Stock. As a result, these stockholders have the ability
to exert significant influence over the Company's business, including the
election of directors and the approval of any other action requiring the
approval of stockholders. This concentration of share ownership may: (i) delay
or prevent a change of control of the Company; (ii) impede a merger,
consolidation, takeover or other business combination involving the Company; or
(iii) discourage a potential acquirer from making a tender offer or otherwise
attempting to obtain control of the Company.



                                      -26-
<PAGE>   29



        PROVISIONS OF THE CORPORATE CHARTER DOCUMENTS AND DELAWARE LAW COULD
        DELAY OR PREVENT A CHANGE OF CONTROL.

        The Company's Certificate of Incorporation authorizes the board of
directors (the "Board of Directors") to issue up to 10,000,000 shares of
preferred stock, par value $.001 per share. The preferred stock may be issued in
one or more series, the terms of which may be determined at the time of issuance
by the Board of Directors, without further action by stockholders, and may
include, among other things, voting rights (including the right to vote as a
series on particular matters), preferences as to dividends and liquidation,
conversion and redemption rights, and sinking fund provisions. There is one
series of preferred stock currently outstanding which has a preference over the
Common Stock if the company is liquidated. In addition, specific rights granted
to future holders of preferred stock could be used to restrict the Company's
ability to merge with, or sell our assets to a third party. The ability of the
Board of Directors to issue preferred stock could discourage, delay, or prevent
a takeover of the Company, thereby preserving control by the current
stockholders.

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

ITEM 7.        FINANCIAL STATEMENTS

                          INDEX TO FINANCIAL STATEMENTS

                                                                      Page


Report of Independent Certified Public Accountants                     28

Financial Statements

        Consolidated Balance Sheets                                    29
        Consolidated Statements of Operations                          30
        Consolidated Statement of Stockholders' Equity                 31
        Consolidated Statements of Cash Flows                          32
        Notes to Consolidated Financial Statements                     33




                                      -27-
<PAGE>   30



               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
        Cross Media Marketing Corporation and Subsidiaries

We have audited the accompanying consolidated balance sheets of Cross Media
Marketing Corporation and Subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards 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. 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 consolidated financial position of Cross Media
Marketing Corporation and Subsidiaries as of December 31, 2000 and 1999 and the
consolidated results of their operations and their consolidated cash flows for
the years then ended, in conformity with accounting principles generally
accepted in the United States of America.

/s/ GRANT THORNTON LLP

New York, New York
February 15, 2001




                                      -28-



<PAGE>   31
          CROSS MEDIA MARKETING CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                                      DECEMBER 31,
                                                                               2000                   1999
                                                                       ----------------------  --------------------

<S>                                                                    <C>                     <C>
ASSETS:
Current assets
        Cash and cash equivalents                                       $          2,326,817    $          337,615
        Trade accounts receivable, net of collection and
            cancellation reserve of $24,573,041                                   26,255,317                  -
        Other receivables                                                          2,765,635                  -
        Prepaid expenses                                                             639,360                19,916
        Deferred expense                                                           1,164,714                  -
                                                                       ----------------------  --------------------
                Total current assets                                              33,151,843               357,531
                                                                       ----------------------  --------------------

        Property and equipment (at cost, less accumulated
          depreciation)                                                              866,590                34,208
        Deferred acquisition costs                                                         -               514,317
        Deferred financing costs                                                     768,056               150,000
        Goodwill                                                                   8,419,005                  -
        Other assets                                                                 738,846                  -
                                                                       ----------------------  --------------------
                                                                        $         43,944,340    $        1,056,056
                                                                       ======================  ====================

LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities
       Revolving credit facility                                        $         11,226,332    $             -
       Accounts payable and accrued expenses                                       5,814,828               523,373
       Accrued closing costs                                                       1,450,000                  -
       Amounts due to publishers                                                   7,035,939                  -
       Deferred revenue                                                            2,531,987                  -
                                                                       ----------------------  --------------------
            Total liabilities                                                     28,059,086               523,373
                                                                       ----------------------  --------------------

       Commitments

       Mandatorily redeemable preferred stock,
          par value $.001 per share; authorized
          10,000,000 shares; 62,455 outstanding at
          December 31, 2000                                                        6,245,450                  -

Stockholders' Equity
       Convertible preferred stock, $5,062,500
         liquidation value ; authorized; 50,625 shares
         issued and outstanding                                                    3,303,951                  -
       Common stock, par value $.001 per share;
          authorized , 100,000,000 shares; 29,604,519
          shares and 14,043,214 shares issued and
          outstanding at December 31, 2000 and 1999,
          respectively                                                                29,605                14,043
       Additional paid in capital                                                 63,221,911            12,848,277
       Note receivable - common stock                                             (2,497,500)           (2,500,000)
       Accumulated deficit                                                       (54,418,163)           (9,829,637)
                                                                       ----------------------  --------------------
         Total stockholders' equity                                                9,639,804               532,683
                                                                       ----------------------  --------------------

                                                                       ----------------------  --------------------
                                                                        $         43,944,340    $        1,056,056
                                                                       ======================  ====================
</TABLE>



       The accompanying notes are an integral part of this statement.


                                 -29-

<PAGE>   32
   Cross Media Marketing Corporation and Subsidiaries
         Consolidated Statements of Operations



<TABLE>
<CAPTION>

                                                                 For the Years ended December 31,

                                                                  2000                   1999
                                                            -----------------      ------------------

<S>                                                          <C>                   <C>
Revenues, net                                                   $ 61,852,360          $           -

Direct costs and expenses
       Commission expense                                         30,761,172                      -
       Magazine costs                                              6,364,565                      -
       Other direct costs                                         10,616,630                      -
                                                            -----------------      ------------------
                                                                  47,742,367                      -

       Gross profit                                               14,109,993                      -

       Salaries and benefits                                       4,448,508                 594,118
       Consulting expenses                                         4,105,698               6,577,827
       Other operating expenses                                    3,955,483               1,746,382
       Amortization of goodwill and other
          intangible assets                                          555,613                      -
       Costs of acquisitions not consummated                         967,500                 621,716
                                                            -----------------      ------------------
       Total expenses                                             14,032,802               9,540,043
                                                            -----------------      ------------------

Income (loss) from operations                                         77,191              (9,540,043)

Other income, (expense)
       Interest expense                                           (4,363,421)                     -
       Other income                                                  347,125                  29,910
                                                            -----------------      ------------------
                                                                  (4,016,296)                 29,910

Loss before income taxes                                          (3,939,105)             (9,510,133)

Provision for income taxes                                           279,345                      -
                                                            -----------------      ------------------

Loss before extraordinary item                                    (4,218,450)             (9,510,133)

Extraordinary loss                                                  (767,500)                     -

Net loss                                                          (4,985,950)             (9,510,133)

Preferred dividends                                              (39,602,806)                     -
                                                            -----------------      ------------------

Net loss to common stockholders                                $ (44,588,756)           $ (9,510,133)
                                                            =================      ==================


Basic and diluted net loss per share
       Loss before extraordinary item                                $ (1.81)                $ (0.80)
       Extraordinary loss on extinguishment of
         acquisition liability                                         (0.03)                     -
                                                            -----------------      ------------------
       Net loss per share                                            $ (1.84)                $ (0.80)
                                                            =================      ==================

Weighted  average shares of common stock
   outstanding - basic and diluted                                 24,284,483              11,852,273
                                                            =================      ==================
</TABLE>


       The accompanying notes are an integral part of this statement.



                                      -30-
<PAGE>   33



   CROSS MEDIA MARKETING CORPORATION AND SUBSIDIARIES
     CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
         YEARS ENDED DECEMBER 31, 2000 AND 1999


<TABLE>
<CAPTION>

                                                                   COMMON STOCK
                                                          ------------------------------

                                                                                            ADDITIONAL
                                                             NUMBER OF                        PAID-IN
                                                              SHARES           AMOUNT         CAPITAL
                                                          ----------------------------------------------

<S>                                                        <C>                <C>           <C>
BALANCE AT DECEMBER 31, 1998                                 7,370,464          $7,370        $587,152

Sales of common stock                                        5,429,250           5,429       5,475,589

Issuances of common stock from exercise of
previously issued warrants                                      28,500              29          28,451

Common stock issued for consulting services                  1,215,000           1,215       3,231,535

Warrants issued for consulting services                             --              --       3,525,550
Net loss for the year ended December 31, 1999                       --              --              --
                                                          ------------         ----------   ------------
BALANCE AT DECEMBER 31, 1999                                14,043,214          14,043      12,848,277

Common stock issued with preferred stock                     2,461,817           2,462       1,878,703

Common stock issued for preferred stock
extensions and conversions                                   9,224,232           9,224      17,660,202

Warrants issued with preferred stock                                --              --       3,056,621

Warrants issued for preferred stock
extensions and conversions                                          --              --       4,374,932

Accretion of mandatorily redeemable
preferred stock                                                     --              --              --

Deemed dividends relating to intrinsic conversion value             --              --      10,004,532

Contractual dividends                                               --              --              --

Conversion of preferred stock                                  610,333             611         866,545

Issuance of New Series A Preferred                                  --              --       2,496,103

Common stock issued with debt                                   75,000              75         179,425

Common stock issued in connection with default
and conversion of debt                                         741,548             742       1,397,576

Warrants issued to acquisition, bridge and
short-term note holders post issuance                               --              --       1,516,178

Common stock issued for consulting services                    655,275             655       1,358,300

Warrants and options issued primarily for
consulting services                                                 --              --              --

Repayment of note receivable for stock                              --              --       1,720,710

Adjustment of shares issued in previous period                  33,100              33             (33)

Common stock issued in connection with
acquisition                                                    760,000             760       1,927,340

Common stock issued in settlement of acquisition
liability                                                    1,000,000           1,000       1,936,500

Net loss for the year ended December 31, 2000

                                                          ------------          ------      ------------
BALANCE AT DECEMBER 31, 2000                                29,604,519         $29,605     $63,221,911
                                                          ============          ======      ============
</TABLE>


<TABLE>
<CAPTION>


                                                            PREFERRED          NOTE        ACCUMULATED
                                                              STOCK         RECEIVABLE       DEFICIT         TOTAL
                                                          -------------------------------------------------------------

<S>                                                        <C>             <C>             <C>             <C>
BALANCE AT DECEMBER 31, 1998                               $         --    $         --    $ (319,504)      $ 275,018

Sales of common stock                                                --      (2,500,000)           --       2,981,018

Issuances of common stock from exercise of
previously issued warrants                                           --              --            --          28,480

Common stock issued for consulting services                          --              --            --       3,232,750

Warrants issued for consulting services                              --              --            --       3,525,550

Net loss for the year ended December 31, 1999                        --              --     (9,510,133)    (9,510,133)
                                                          -------------     ------------   ------------   -------------
BALANCE AT DECEMBER 31, 1999                                         --      (2,500,000)    (9,829,637)       532,683

Common stock issued with preferred stock                             --              --              --     1,881,165

Common stock issued for preferred stock
extensions and conversions                                           --              --    (17,669,426)            --

Warrants issued with preferred stock                                 --              --             --      3,056,621

Warrants issued for preferred stock
extensions and conversions                                           --              --     (4,374,932)            --

Accretion of mandatorily redeemable
preferred stock                                                      --              --     (4,448,837)    (4,448,837)

Deemed dividends relating to intrinsic conversion value              --              --    (10,004,532)            --

Contractual dividends                                                --              --       (861,275)      (861,275)

Conversion of preferred stock                                        --              --             --        867,156

Issuance of New Series A Preferred                            3,303,951              --     (2,243,804)     3,556,250

Common stock issued with debt                                        --              --             --        179,500

Common stock issued in connection with default
and conversion of debt                                               --              --             --      1,398,318

Warrants issued to acquisition, bridge and
short-term note holders post issuance                                --              --             --      1,516,178

Common stock issued for consulting services                          --              --             --      1,358,955

Warrants and options issued primarily for
consulting services                                                  --              --             --      1,720,710

Repayment of note receivable for stock                               --           2,500             --          2,500

Adjustment of shares issued in previous period                       --              --            230            230

Common stock issued in connection with
acquisition                                                          --              --             --      1,928,100

Common stock issued in settlement of acquisition
liability                                                            --              --             --      1,937,500

Net loss for the year ended December 31, 2000                        --              --     (4,985,950)    (4,985,950)
                                                          -------------     -----------    -------------   ------------
BALANCE AT DECEMBER 31, 2000                                  3,303,951      (2,497,500)    (54,418,163)    9,639,804
                                                          =============     ===========    ============    ============
</TABLE>

                                                  -31-


<PAGE>   34
                        CROSS MEDIA MARKETING CORPORATION AND SUBSIDIARIES
                               CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>

                                                                                                          DECEMBER 31,
                                                                                                   2000               1999
                                                                                               ---------------   ----------------
<S>                                                                                             <C>               <C>
 CASH FLOWS FROM OPERATING ACTIVITIES:
              Net loss                                                                          $  (4,985,950)    $   (9,510,133)
              Adjustments to reconcile results of operations to
                  net cash effect of operating activities:
              Value of  common stock and common stock purchase
                  warrants issued for services                                                      3,079,655          6,486,300
              Non cash interest expense                                                             2,381,450                -
              Depreciation and amortization                                                         1,052,598              5,124
              Bad debt expense                                                                            -              500,000
              Write-off of organization costs                                                             -               25,110

              Net change in asset and liability accounts net of effect of
                  acquisitions:
                    Accounts receivable                                                              (753,942)
                    Prepaid expenses                                                                  145,956            (19,916)
                    Accounts payable and other accrued expenses                                     4,849,158            454,140
                     Other, net                                                                    (1,676,190)            39,315
                                                                                               ---------------   ----------------
              Net cash provided by (used in) operating activities                                   4,092,735         (2,020,060)
                                                                                               ---------------   ----------------

 CASH FLOWS FROM INVESTING ACTIVITIES:
              Purchase of equipment                                                                  (434,315)           (35,749)
              Loans made to AmeriNet                                                                      -             (500,000)
              Acquisition of DSI, net of cash acquired                                            (23,710,190)               -
              Acquisition of WeFusion                                                                (298,050)               -
              Loans made to Heritage                                                                 (275,000)               -
              Deferred acquisition costs                                                                  -             (242,317)
                                                                                               ---------------   ----------------
              Net  cash used in investing activities                                              (24,717,555)          (778,066)
                                                                                               ---------------   ----------------

 CASH FLOWS FROM FINANCING ACTIVITIES:
              Proceeds from sales of preferred stock                                               12,724,250                -
              Proceeds from sales of common stock                                                         -            3,009,498
              Payments received on note receivable                                                      2,500                -
              Proceeds from short-term notes                                                        1,350,000                -
              Repayment of short-term notes                                                        (1,228,800)               -
              Redemption of preferred stock                                                          (535,000)               -
              Net funds drawn on revolver for DSI Acquisition                                      16,000,000               -
              Net repayments of Revolving Credit Agreement                                         (4,773,668)               -
              Preferred dividends paid                                                               (510,260)               -
              Deferred financing costs                                                               (415,000)          (150,000)
                                                                                               ---------------   ----------------
              Net  cash provided by financing activities                                           22,614,022          2,859,498
                                                                                               ---------------   ----------------

 NET INCREASE IN CASH AND CASH EQUIVALENTS                                                          1,989,202             61,372
              Cash and cash equivalents at beginning of period                                        337,615            276,243
                                                                                               ---------------   ----------------
              Cash and cash equivalents at end of period                                        $   2,326,817     $      337,615
                                                                                               ===============   ================


 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

              Income taxes paid during the period                                               $     858,000     $          -
                                                                                               ===============   ================

              Interest paid during the period                                                   $   1,981,971     $          -
                                                                                               ===============   ================
</TABLE>


 SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

              During the year ended December 31, 2000, the Company recorded
equipment additions under capitalized lease obligations amounting to $354,398.
<TABLE>
<CAPTION>

<S>                                                                                                <C>
              ACQUISITIONS OF BUSINESSES:
             Assets acquired                                                                           $ 29,102,823
             Costs in excess of net assets acquired                                                       8,974,618
             Liabilities assumed                                                                         (7,036,974)
             Accrued closing  costs not yet satisfied                                                    (1,450,000)
             Accrued closing  costs settled in stock                                                     (3,228,100)
             Deferred acquisition costs from prior period                                                  (514,317)
             Cash received at closing                                                                    (1,839,810)
                                                                                                   -----------------
             Net cash paid for acquisitions of businesses                                              $ 24,008,240
                                                                                                   ================
</TABLE>

             The accompanying notes are an integral part of this statement.

                                            -32-

<PAGE>   35



                        Cross Media Marketing Corporation

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2000 and 1999
NOTE A - Organization

        The Company was incorporated in Delaware on May 9, 1997 under the name
Brack Industries Inc. The Company changed its name to Symposium Corporation in
December 1998 and changed its name to Cross Media Marketing Corporation in
December 2000. The Company's principal business strategy is to integrate well
established direct marketing skills with a variety of new technologies,
including e-mail marketing, web-based systems and interactive voice response,
ultimately resulting in a multi-faceted marketing platform for the sale of
products and services.

        The Company was inactive until December 1998. From December 1998 through
June 1999, the Company, through its wholly-owned subsidiary Publishers Advantage
Corporation ("PAC"), had minimal operations and was principally engaged in
telemarketing in the United States for magazine and periodical subscription
renewals to persons whose subscriptions had recently expired. The Company
discontinued the operations of PAC as of June 30, 1999. In November 1999, the
Company formed Media Outsourcing, Inc. ("MOS"), a wholly-owned subsidiary, to
acquire the assets of Direct Sales International, LP. The Company completed this
acquisition in January 2000 (see Note C).

NOTE B - Summary of Significant Accounting Policies

        Principles of Consolidation: The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.

        Cash and Cash Equivalents: The Company considers all highly liquid
investments with maturities of three months or less to be cash equivalents. Cash
equivalents at December 31, 2000 consist of an overnight repurchase agreement
of approximately $1.8 million and deposits in a money market fund of
approximately $495,000.

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

        Goodwill Amortization: Goodwill represents the excess of the purchase
price over the fair market value of net assets acquired in business
combinations. Goodwill is amortized as an expense on a straight-line basis over
periods of seven to ten years. The carrying value of goodwill is analyzed
quarterly by the Company, based upon the expected revenue and profitability
levels of the acquired enterprise, to determine whether the value and future
benefit may indicate a decline in value. If the Company determines that there
has been a decline in



                                      -33-


<PAGE>   36



value of the acquired enterprise, the Company writes down the value of the
goodwill to the revised fair value.

        Deferred Financing Costs: Deferred financing costs are amortized on a
straight-line basis over the term of the related credit facility (see Note F),
which is three years.

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

        Net Loss Per Share: Net loss per share is presented under Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128").
In accordance with SFAS No. 128, basic and diluted net loss per share has been
computed using the weighted-average number of shares of Common Stock outstanding
during the period. Potentially dilutive securities, consisting of 16,558,000 and
2,803,000 outstanding options and warrants for the years ended December 31, 2000
and 1999, respectively, have been excluded from the computation, as their effect
is anti-dilutive. If the Company had reported net income, diluted earnings per
share would have included the shares used in the computation of net loss per
share plus common equivalent shares related to 16,558,000 and 2,803,000
outstanding options and warrants for the years ended December 31, 2000 and 1999,
respectively.

        Revenues: Revenues derived from originating magazine subscriptions are
recognized by the Company when the Company receives the first installment
payment for subscriptions purchased. The customer can cancel the subscription
within ten days of the order. Amounts collected from customers prior to the
expiration of the cancellation period are recorded as deferred revenues.
Revenues also include commissions earned from publishers in connection with
originating paid subscriptions for certain publications. Commissions are also
earned from outside parties for securing memberships in a discount-buying club
and sales of long-distance telephone services. Commissions are recognized when
the related subscriptions or memberships are obtained. Revenues are reflected
net of cancellation and collection reserves. Such cancellation reserves are
based upon the Company's historical cancellation experience.

        The Company is in the direct marketing business which it considers its
sole business segment.

        Commission Expense: Commission expense is recognized when the Company
receives the first installment payment for subscriptions purchased. Amounts paid
to brokers prior to the expiration of the ten-day cancellation period are
recorded as deferred expenses.

        Reclassification: Certain amounts in the December 31, 1999 financial
statements have been reclassified to conform to the December 31, 2000
classifications.

        Use of Estimates in the Preparation of Financial Statements: The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements as
well as the



                                      -34-

<PAGE>   37



reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

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

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

NOTE C - Acquisition of Assets of Direct Sales International, LP ("DSI
Acquisition")

        On January 28, 2000, the Company, through its wholly-owned subsidiary
MOS, acquired substantially all of the assets and assumed certain liabilities of
Direct Sales International, LP ("DSI"), a Georgia limited partnership, for
approximately $27.6 million, including closing costs of approximately $1.1
million and an agreement to provide approximately $1.5 million of funding to
AmeriNet, Inc. ("AmeriNet"), a company 50.1% owned by the seller of DSI. Such
acquisition liability was settled during the fourth quarter of 2000 (see Note
D). The Company also granted to the seller of DSI the right, which has an
intrinsic value of $1.2 million, to sell up to 600,000 shares of Common Stock
back to the Company at a fixed price. Contemporaneously with the acquisition,
the Company entered into a consulting agreement with the seller of DSI that
terminates on December 31, 2002, and an amended secured promissory note of $2.5
million (see Note K). The transaction was accounted for as a purchase business
combination.

        The DSI Acquisition was financed with borrowings of $16.0 million ($15.8
million of proceeds, net of fees) under a revolving credit facility entered into
contemporaneously with consummating the DSI Acquisition and with proceeds
received from sales of Common Stock, Common Stock purchase warrants, Series A, B
and C mandatorily redeemable convertible preferred stock and the acquisition
bridge loans described below.

        The following table provides an analysis of the purchase price of the
DSI Acquisition. The excess of the purchase price over the book value of the net
assets acquired has been allocated to goodwill calculated as follows:

<TABLE>
<S>                                                    <C>
        Cash consideration paid to the seller                    $25,000,000
        Commitment to fund AmeriNet, Inc.                          1,500,000
</TABLE>


                                      -35-
<PAGE>   38



<TABLE>
<S>                                                         <C>
        Transaction expenses                                       1,114,317
        Seller's stock put right                                   1,200,000
                                                                ------------
        Total purchase cost                                       28,814,317

        Fair value of net assets acquired                         21,798,469
                                                                ------------

        Purchase price in excess of estimated fair value
           of net assets acquired allocated to goodwill         $  7,015,848
                                                                ============
</TABLE>


        Goodwill is being amortized on a straight-line basis over a ten-year
period.

        The following pro-forma information illustrates the estimated effects of
the DSI Acquisition as if such transaction were consummated on January 1, 1999:

<TABLE>
<CAPTION>
                                                    2000           1999
                                                    ----           ----
                                                     (in thousands except
                                                        per share date)
<S>                               <C>             <C>           <C>
        Total revenues            As reported      $61,852         $ -
                                  Pro forma         66,893         61,791

        (Loss) from               As reported     $(4,986)       $(9,510)
        continuing operations     Pro forma        (4,912)        (4,541)

        Basic and diluted         As reported      $(1.84)        $(0.80)
        (loss) per share          Pro forma         (0.37)         (0.41)
</TABLE>

NOTE D - WeFusion Acquisition

        On November 30, 2000, the Company acquired WeFusion.com, Inc.
("WeFusion"), an application service provider which has developed a database
architecture that will enable the Company to develop sophisticated customer
profiles. The Company paid approximately $2.5 million to acquire WeFusion,
including $600,000 in cash and approximately $1.9 million in Common Stock and
warrants. The fair value of net assets acquired amounted to approximately
$500,000, resulting in goodwill of approximately $2.0 million. Prior to the
acquisition, WeFusion had no revenues. The acquisition was insignificant to the
Company's financial statements taken as a whole. Goodwill is being amortized on
a straight-line basis over a seven-year period.

NOTE E - Equipment

        Equipment at cost, less accumulated depreciation, is summarized as
follows:

<TABLE>
<CAPTION>

                                                         2000       1999
                                                      --------   --------

<S>                                                  <C>        <C>
        Furniture and fixtures                        $199,000   $ 15,534
        Equipment                                      423,131     23,923
        Equipment acquired under
         capital lease obligations                     354,398       -
                                                      --------   --------

                                                        976,529    39,457

        Accumulated depreciation                       (109,939)   (5,249)
                                                       ---------  --------
                                                       $866,590   $34,208
                                                       =========  ========
</TABLE>



                                      -36-
<PAGE>   39



NOTE F - Revolving Credit Facility

        On January 28, 2000, the Company and MOS entered into a three-year
revolving credit facility, as amended, with a bank providing for borrowings of
up to $20 million subject to certain availability limitations stipulated in the
agreement (the "Coast Facility"). All borrowings under this facility are
repayable with interest at the prime rate plus 2% per annum but not less than
9%. The Company and MOS are also required to maintain certain minimum earnings
ratios and levels of net worth as defined in the agreement and MOS is restricted
from making distributions to the Company in excess of $1.8 million annually plus
any amounts necessary for tax obligations attributable to its operations. All of
MOS's assets (approximately $41.0 million as of December 31, 2000) are pledged
as collateral for this obligation. As of December 31, 2000, MOS had an
outstanding balance on the Coast Facility of approximately $11.2 million
compared to total availability of $17.9 million resulting in $6.7 million of
funds available to MOS at December 31, 2000.

        In connection with the execution and delivery of the Coast Facility, the
Company initially granted Coast 300,000 five-year Common Stock purchase warrants
at an exercise price of $3.53 per share (110% of the closing price of the Common
Stock on the closing date). As a result of the anti-dilution provisions, the
exercise price was reduced to $2.39 per share and the number of shares issuable
upon exercise of the warrants was increased to 443,884 as of December 31, 2000.
Accordingly, the Company recorded a non-cash interest charge of approximately
$260,000 as of December 31, 2000.

        MOS incurred fees and expenses in connection with the Coast Facility of
approximately $1.1 million, which includes amounts paid to a related party (see
Note R), are being amortized over three years.

NOTE G - Accounts Payable and Accrued Expenses

        Accounts payable and accrued expenses consist of the following:

<TABLE>
<CAPTION>
                                    2000           1999
                                    ----           ----
<S>                             <C>            <C>
Accounts payable                $ 1,591,820    $    50,094
Accrued professional fees           672,500        302,298
Accrued wages and bonuses         1,328,560         15,000
Dividends payable                   341,135           --
Accrued commissions                 442,413           --
Other                             1,438,400        155,981
                                -----------    -----------
                                $ 5,814,828    $   523,373
                                ===========    ===========
</TABLE>



                                      -37-
<PAGE>   40



NOTE H - Convertible Preferred Stock

Series A Convertible Preferred Stock ("New Series A Shares")

        On June 9, 2000, the Company issued 30,375 shares of New Series A Shares
and a five- year warrant to purchase 225,000 shares of Common Stock at an
initial exercise price of $1.4850 (subject to certain anti-dilution and similar
adjustments). The aggregate purchase price for the New Series A Shares and the
warrant was $2,250,000. The Company also granted the purchaser of the New Series
A Shares an option, exercisable in the purchaser's sole discretion during the
sixty day period following June 9, 2000, to purchase up to an additional
$2,025,000 face amount of New Series A Shares and a warrant to purchase an
additional 150,000 shares of Common Stock for the same purchase price. The
purchaser exercised its option, and the Company issued and sold to the purchaser
an additional 20,250 New Series A Shares and the additional warrant on August 1,
2000 for an aggregate purchase price of $1,500,000. The face amount and
liquidation value of the New Series A Shares is $5,062,500.

        Dividends accrue on the New Series A Shares at an annual rate of 10% of
the face amount, payable semi-annually in cash and/or Common Stock at the
Company's option under certain conditions. The New Series A Shares are
redeemable, at the option of the Company under certain conditions, at a
redemption price of 100% of face value plus any accrued and unpaid dividends.

        The New Series A Shares are convertible at a conversion price equal to
the lesser of: (i) $1.93 (110% of the closing bid price of the Common Stock on
the date of the issuance, subject to adjustments); or (ii) 91% of the average of
the three lowest, non-consecutive closing bid prices for the Common Stock in the
ten trading days preceding the date of the holder's conversion notice to the
Company (the "Conversion Notice"). The conversion price and the exercise price
of the warrants are subject to downward adjustment to equal the lowest price at
which shares of the Common Stock or securities convertible into, or exchangeable
or exercisable for, shares of Common Stock are issued while the New Series A
Shares and warrants remain outstanding (if such price is lower than the then
effective conversion or exercise price), subject to certain exceptions. These
exceptions include: (i) the issuance of shares of Common Stock upon conversion
or exercise of outstanding options, warrants or convertible securities in
accordance with the terms of such options, warrants or convertible securities as
in effect upon the initial issuance date of the New Series A Shares (but subject
to certain anti-dilution adjustments); and (ii) certain issuances of securities
to, or adjustments in the exercise or conversion price of outstanding options,
warrants or convertible securities held by, the holders of the Series B
Convertible Preferred Stock and Series C Convertible Preferred Stock, to the
extent the number of additional shares of Common Stock resulting from such
issuances and adjustments do not exceed 5,000,000 shares.

        By letter agreement dated December 28, 2000 the holder of all the
outstanding New Series A Shares agreed not to convert the New Series A Shares
prior to June 9, 2001 if, on the date of such proposed conversion, the
then-current market price of the Company's Common Stock is less than $1.50 per
share (the "Conversion Floor"). On and after June 9, 2001 there will be no
Conversion Floor. The Company also agreed that it would not redeem the New
Series A



                                      -38-
<PAGE>   41



Shares prior to June 9, 2001. The conversion provisions of the New Series A
Shares and warrants create a substantial risk of dilution to the holders of the
Company's Common Stock.

        The holder further agreed that the payment of semi-annual dividends on
the New Series A Shares for calendar year 2000 will be extended until March 28,
2001.

NOTE I - Mandatorily Redeemable Preferred Stock

Series A Mandatorily Redeemable Convertible Preferred Stock ("Series A
Preferred")

        On January 28, 2000, in a private placement, the Company sold 21,500
units, each unit consisting of one share of Series A Preferred, with a face
value of $100, and 20 shares of Common Stock for gross proceeds of $2.0 million.
The Series A Preferred was initially convertible into 1,075,000 shares of Common
Stock at a conversion ratio of $2.00 per share and carried a 16% per annum
cumulative dividend. The Series A Preferred was mandatorily redeemable on or
before March 28, 2000.

        On March 21, 2000, the holders of the Series A Preferred extended the
due date for the redemption of their shares from March 28, 2000 to April 12,
2000 in exchange for 275,000 shares for the Company's Common Stock; then, on
March 27, 2000, they agreed to convert their shares into 4,414,666 shares of
Common Stock at an effective conversion ratio of $0.50 per share based on the
Series A Preferred aggregate redemption price of $2,207,333, including
$2,150,000 representing the face value of the shares and accrued dividends of
$57,333. In addition, Series A Preferred holders were issued 2,207,000 five-year
Common Stock purchase warrants, including 1,103,500 with an exercise price of
$0.50 per share and 1,103,500 with an exercise price of $1.00 per share. One of
the Series A Preferred holders was paid a fee of 220,000 shares of Common Stock
in connection with the March 27 agreement.

        As a result of the extension and conversion, the former Series A
Preferred holders were issued 5,393,416 shares of the Company's Common Stock,
plus warrants to purchase 2,207,000 additional shares of the Company's Common
Stock as of March 27, 2000.

Series B Mandatorily Redeemable Convertible Preferred Stock ("Series B
Preferred")

        On January 28, 2000, in a private placement, the Company sold 15,350
units, each unit consisting of one share of Series B Preferred with a face value
of $100 and warrants to purchase 25 shares of Common Stock for gross proceeds of
$1.5 million. The Series B Preferred was originally convertible into 767,500
shares of Common Stock at a conversion ratio of $2.00 per share and carried a
10% cumulative dividend, payable quarterly. The Common Stock purchase warrants
were exercisable for three years from their date of issuance and had an exercise
price of $1.50 per share. The Series B Preferred was mandatorily redeemable on
the earlier of July 26, 2000 or upon the consummation of an additional financing
transaction resulting in gross proceeds of at least $10 million.

        By letter agreement dated June 16, 2000 (the "Letter Agreement"), the
Company offered (i) to permit the holders of Series B Preferred to convert their
shares of Series B Preferred into Common Stock at an effective conversion ratio
of $0.50 or (ii) to redeem the Series B Preferred



                                      -39-
<PAGE>   42



at the then effective redemption price ($100 per share plus accrued dividends).
In addition, whether a holder elected to convert shares of Series B Preferred or
to be redeemed, the Company agreed to issue to the holders, ratably in
accordance with their respective percentage interests in the outstanding Series
B Preferred, an aggregate of 122,800 three-year warrants to purchase Common
Stock at an exercise price of $0.75 per share and 200,000 three-year warrants to
purchase Common Stock at an exercise price of $1.50 per share (collectively, the
"Additional Warrants"). The Company also agreed to reduce the exercise price of
the Original Warrants from $1.50 to $0.75. In addition, the Company agreed to
issue to certain placement agents (who received commissions consisting of
three-year warrants to purchase a total of 58,163 shares of Common Stock (the
"Commission Warrants") in connection with the original Series B financing) a
total of 17,820 three-year warrants to purchase Common Stock at an exercise
price of $0.75 per share and to reduce the exercise price of the Commission
Warrants from $1.50 per share to $0.75 per share.

        The holders of 30,000 shares of Series B Preferred elected to convert
their shares of Series B Preferred (and accrued dividends thereon) into an
aggregate of 610,333 shares of Common Stock. The Company redeemed the remaining
Series B Preferred shares on June 29, 2000 for an aggregate redemption price of
$1,235,000 (plus $21,269 in accrued dividends).

Series C Mandatorily Redeemable Convertible Preferred Stock ("Series C
Preferred")

        On January 28, 2000, in a private placement, the Company sold 52,892
units each unit consisting of one share of Series C Preferred with a face value
of $100 and 33.33 shares of the Company's Common Stock for approximately $5
million. Additionally, the Company reduced the exercise price on 2 million
warrants previously issued to a Series C holder from $3.50 per share to $1.00
per share. The Series C Preferred was initially convertible into 2,644,600
shares of Common Stock at a conversion ratio of $2.00 per share and carried a
10% cumulative dividend.

        The Series C Preferred was mandatorily redeemable on the earlier of July
26, 2000 or upon the consummation of a financing transaction resulting in gross
proceeds of at least $10.0 million. On April 24, 2000, the holders of the Series
C Preferred extended the due date of the redemption of their shares from July
26, 2000 to December 26, 2000 (which was subsequently extended to February 15,
2001) in exchange for 2,247,067 shares of Common Stock and a reduction in the
conversion ratio from $2.00 per share to $1.00 per share. The value of the
shares issued and change in the conversion ratio was reflected during the second
quarter of 2000 as an additional deemed dividend in the amount of $8,560,417.

        On June 14, 2000, the Company issued 7,500 shares of Series C Preferred
(the "New Series C Shares") and 250,000 shares of Common Stock for $750,000. In
accordance with such issuance, the Company also agreed to reduce the exercise
price on 2,000,000 warrants held by the purchaser from $1.00 to $0.50 per share.
The Company also paid a fee in connection with the issuance of such shares of
562.5 shares of New Series C Shares, five-year warrants to purchase 100,000
shares of Common Stock at a price of $1.88 per share and 18,750 shares of Common
Stock.



                                      -40-
<PAGE>   43



        The New Series C Shares have a stated value of $100 per share and
accrued dividends at a rate of 10% per annum. The New Series C Shares were
convertible into shares of Common Stock at an effective conversion ratio of
$1.00.

        On July 18, 2000, the holders of the Series C Shares and the New Series
C Shares agreed to waive the requirement that the failure of the Company to
redeem the Series C Preferred on or before December 26, 2000 would trigger a
reduction in the conversion price of the Series C Preferred from $1.00 to $0.25.
In consideration for this waiver, the Company agreed to issue to such holders an
aggregate of 1,523,750 shares of Common Stock, pro rata in accordance with their
percentage holdings of the Series C Shares and New Series C Shares, and to issue
as a fee in connection with such waiver an additional 1,500 shares of Series C
Preferred and 50,000 shares of Common Stock. The value of the shares issued was
reflected during the third quarter of 2000 as an additional deemed dividend in
the amount of $3,026,028.

        On December 19, 2000, the holders of the Series C Shares and the New
Series C Shares agreed to extend the mandatory redemption date of the Series C
Preferred from December 26, 2000 to January 26, 2001. On January 25, 2001, the
holders agreed to further extend the redemption date from January 26, 2001 to
February 15, 2001. The holders also agreed to waive any default arising out of
the Company's failure to redeem such shares prior to February 15, 2001. On
February 15, 2001, the Company redeemed an aggregate 22,992 Series C Shares and
New Series C Shares for an aggregate redemption price of $2,299,200 plus accrued
and unpaid dividends of $122,300. The holders converted all of the remaining
Series C Shares and New Series C Shares into 3,946,250 shares of Common Stock
(at an effective conversion ratio of $1.00 per share). In consideration of the
agreement of the holders to convert the Series C Shares and New Series C Shares
(which would otherwise have been mandatorily redeemable by the Company in full
on February 15, 2001), the Company agreed to issue to the holders, pro rata in
accordance with the number of shares converted by each of them, an aggregate of
666,400 additional shares of Common Stock. The Company will record a $900,000
non-cash dividend in the first quarter of 2001 reflecting the fair value of the
666,400 additional shares issued. The Company agreed to pay one of the holders
of the Series C Preferred a fee of $100,000 in connection with its services
relating to the negotiation of these agreements.

        The redemption of the Series C Shares and New Series C Shares was funded
in part through the issuance and sale by the Company through February 2001 in
private placements of an aggregate of 1,500,000 shares of Common Stock at a
price of $1.00 per share.

NOTE J - Preferred Stock Accounting

        The Company accounted for the issuances of its preferred stock as
described in Note I in accordance with EITF Issue No. 98-5, as amended by EITF
Issue No. 00-27. Both Issues are titled "Convertible Securities With Beneficial
Conversion Features or Contingently Adjustable Conversion Ratios". As a result
of the issuance and adoption of EITF 00-27 in November 2000, the Company has
adjusted preferred stock dividends recorded in prior 2000 quarters that were
related to effective beneficial conversion features resulting in approximately
$1.8 million of additional dividends recorded in the fourth quarter of 2000.

        The following table summarizes (i) the allocation of the proceeds from
the issuances of preferred stock with Common Stock and Common Stock purchase
warrants, (ii) the preferred



                                      -41-
<PAGE>   44
stock dividends and reduction in retained earnings resulting from the beneficial
conversion feature and (iii) the incremental preferred stock dividends and
reduction in retained earnings that would result from contractual changes in
conversion prices in the event of a default:



<TABLE>
<CAPTION>


                            SERIES A      SERIES B        SERIES C       NEW SERIES C
                            --------      --------        --------       ------------

<S>                         <C>           <C>             <C>               <C>
Mandatory redemption amount $ 2,150,000   $1,535,000      $  5,439,200      $ 806,250
                             ==========    =========       ===========       ========

Allocation of proceeds to:
  Preferred stock            $1,428,571   $1,173,715      $  2,401,352       $372,844
  Common stock                      430           --             1,763            269
  Additional paid-in capital  1,860,999    1,282,285         4,948,237        749,731
  Retained earnings          (1,290,000)    (921,000)       (2,401,352)      (372,844)
                             ----------   ----------       -----------       ---------
  Gross proceeds            $  2,000,000  $1,535,000      $  4,950,000     $  750,000
                             ===========   =========        ==========       ========
</TABLE>

        The following table summarizes the preferred stock dividends recorded
for the year ended December 31, 2000.

<TABLE>
<CAPTION>
                           SERIES A   NEW SERIES A     SERIES B     SERIES C    NEW SERIES C     TOTAL
                           --------   ------------     --------     --------    ------------     -----
<S>                       <C>          <C>           <C>           <C>            <C>           <C>
 Deemed dividends at
     issuance             $1,428,571   $2,243,804    $1,173,715    $2,401,352     $372,844      $7,620,286

 Deemed dividends
    accreted/
   conversion             15,074,455     -              911,441    14,701,943      433,406      31,121,245

  Contractual
   dividends                  _           250,954        69,524       496,617       44,180         861,275
                         -----------   ----------    ----------   -----------   ----------     -----------

    Totals               $16,503,026   $2,494,758    $2,154,680   $17,599,912     $850,430     $39,602,806
                         ===========   ==========    ==========   ===========   ==========     ===========
</TABLE>

        All of the preferred shares, except for the New Series A Shares, were
issued with effective beneficial conversion features representing the difference
between the market value of the Company's Common Stock and the initial effective
conversion ratio on the date of issuance, based upon the amount of proceeds
allocated to the preferred shares. Since the preferred shares were immediately
convertible into Common Stock, the intrinsic value of the beneficial conversion
feature has been recognized as deemed dividends on the date of issuance.

        Deemed dividends accreted/conversion represents (i) normal accretion of
the difference between the carrying value of the preferred stock and its
mandatory redemption value; (ii) additional deemed dividends resulting from
reductions in conversion prices relating to effective beneficial conversion
features; (iii) Common Stock and warrants issued to holders in exchange for
extending mandatory redemption dates of certain of the preferred stock and (iv)
Common Stock issued on the conversion of the preferred stock. The Common Stock
and warrants issued or repriced in connection with extensions and conversions
described in (ii) and (iii) were accounted for at their fair market values on
their respective dates of issuance.

NOTE K - Note Receivable for Common Stock

        In June 1999, the Company issued 2.5 million shares of its Common Stock
to the seller of DSI for $1.00 per share in exchange for a note receivable with
interest at 7.75% per annum. In January 2000, the note was amended, at which
time the seller paid $2,500 of the principal and

                                      -42-
<PAGE>   45



the due date for the remaining balance was extended to January 2003 (except that
if the holder sells any portion of the stock, a portion of the proceeds from
such sale must be applied toward repaying the note). In addition, the
requirement to pay interest was rescinded. The stock note receivable is
presented in the stockholders' equity section of the balance sheet. The seller
has pledged 1.9 million shares as collateral for the note. The seller has the
right to sell up to 600,000 shares back to the Company for $3.00 per share from
January 2001 to the date that is 180 days following the effective date of a
registration statement covering the shares.

NOTE L - Acquisition Bridge Loans

Commtel Services LTD Note

        On January 20, 2000, the Company entered into a note agreement with
Commtel Services, Ltd. for a 30-day bridge loan in the principal amount of
$300,000 that was due, with interest at 10% per annum, on February 20, 2000. The
proceeds of the loan were used to acquire DSI. The Company issued 75,000 shares
of its Common Stock to Commtel as consideration for the loan.

        The proceeds received from the issuance of the note with Common Stock
were allocated to each component based on their relative fair values on January
20, 2000 (the date of issuance). The fair value of the Common Stock on January
20, 2000 was $2.31 and resulted in discounted carrying value to the note of
$200,000 and an increase to stockholders' equity of $100,000.

        The Company defaulted on its obligation to repay the note on its due
date and, as a result, the interest rate increased to 18% per annum and the
Company was required to immediately issue 50,000 additional shares of its Common
Stock to Commtel.

        On March 21, 2000, Commtel agreed to convert the note into 614,048
shares of Common Stock (representing a $0.50 per share conversion ratio) in
settlement of the $300,000 principal balance plus accrued interest of
approximately $7,000. In addition, the Company was also required to issue an
additional 77,500 shares of Common Stock to Commtel pursuant to the default
provisions of the note under which Commtel was entitled to 2,500 additional
shares of Common Stock for each day the note remained in default. As a result of
the above, Commtel received an aggregate of 816,548 shares of Common Stock.

        As a result of the conversion, the Company recorded additional interest
expense of approximately $1.2 million, including (i) contractual interest of
10%; (ii) the fair market value of additional shares of Common Stock issued in
exchange for the holders agreement to convert; (iii) the additional shares
issued under the penalty provision; (iv) and the intrinsic value of the
beneficial conversion of the note into 614,048 shares of Common Stock.

Fontenelle Subordinated Bridge Note

        On January 25, 2000, the Company entered into a Subordinated Bridge Note
agreement with Fontenelle LLC in the principal amount of $500,000, due with
accrued interest at 10% per annum on March 25, 2000. The proceeds of the loan
were used to acquire DSI. The loan was repaid with interest of approximately
$8,000 on March 24, 2000.



                                      -43-

<PAGE>   46



D2 Loan

        On January 25, 2000, the Company entered into a Convertible Subordinated
Bridge Loan in the amount of $300,000 with D2 Partners (the "D2 Loan"). The
proceeds of this loan were used to acquire DSI. The D2 Loan was repayable with
interest at 10% per annum on July 26, 2000. The Company paid the D2 Loan in
full, with interest of approximately $11,000, in June 2000.

NOTE M - Notes Payable

Management Group Note

        On April 6, 2000, the Company entered into a term loan agreement with
The Management Group pursuant to which the Company borrowed $250,000. The loan
accrued interest at 10% per annum, compounded daily, and matured on July 31,
2000. In connection with the execution and delivery of the term loan agreement,
the Company issued 100,000 five-year Common Stock purchase warrants, with an
estimated fair value of $103,000, at an exercise price of $1.50 per share. On
July 31, 2000, the Company paid $100,000 of the outstanding principal of the
loan plus accrued interest and agreed with the holder to extend the maturity of
the remaining principal balance to December 31, 2000 in consideration of the
issuance to such holder of 80,000 five-year Common Stock purchase warrants, with
an estimated fair value of $133,600, at an exercise price of $2.00 per share.
The fair value of such warrants was estimated using the Black-Scholes option
pricing model. The Company repaid the remaining balance of the loan, with
interest of approximately $11,000, in December 2000.

Hermitage Capital Corp. Note

        On June 20, 2000, the Company entered into a note agreement with
Hermitage Capital Corp. ("Hermitage") for $178,800, which represented a portion
of Hermitage's fees earned in connection with the Company's Series C Preferred
financing. The note accrued interest at 9% per annum. The Company repaid
$100,000 of the note with interest of approximately $3,000 on September 1, 2000.
The balance of the note was repaid, with interest of approximately $2,000, in
November 2000.

NOTE N - Costs of Acquisitions not Consummated

        In August 2000, the Company entered into an agreement (the "Agreement"),
to acquire National Syndications, Inc. ("NSI"), a direct marketer of consumer
products and a party to service advertising contracts. In February 2001, the
Company and NSI terminated the Agreement. As a result of such termination, in
the fourth quarter of 2000, the Company recorded a charge of $967,500,
representing the write-off of non-refundable deposits and professional fees
incurred related to the NSI transaction.

        In February 2000, the Company announced its decision not to exercise its
options to purchase 50.1% of the outstanding Common Stock of AmeriNet and all of
the outstanding Common Stock of Hamilton Telecommunications, Ltd. ("Hamilton").
As a result, the Company recorded a charge of $621,716 during the fourth quarter
of 1999 representing the cost of legal



                                      -44-

<PAGE>   47



and professional fees. The charge, principally consists of legal and
professional fees, including $38,000 for the fair value of Common Stock purchase
warrants and $432,000 for 225,000 shares of Common Stock that were issued to
various consultants.

        In connection with the AmeriNet agreement, the Company made a $500,000
loan to AmeriNet, which bears interest at 8%. At December 31, 2000 and 1999, the
entire amount of the note was reserved due to its uncertainty of collection.

NOTE O - Extraordinary Loss

        As part of the DSI Acquisition, the Company agreed to provide a $1.5
million credit facility to AmeriNet (see Note C). During 2000, the Company
loaned an aggregate $300,000 in connection with the credit facility. In November
2000, the Company exchanged 1.0 million shares of its Common Stock, with a fair
value of $1.9 million, in full satisfaction of the remaining obligation to
AmeriNet and accordingly, recognized in the fourth quarter 2000, an
extraordinary loss on the extinguishment of acquisition liability of $767,500.

NOTE P - Deferred Acquisition Costs

        In 1999, deferred acquisition costs of $514,317 principally represent
legal and consulting fees incurred in connection with the Company's acquisition
of the assets and business of DSI and include $272,000 for the fair value of
warrants issued to consultants in exchange for services. These costs were added
to the acquisition purchase price in determining the total cost to be allocated
to the net assets acquired (see Note C).

NOTE Q - Income Taxes

        Significant components of the Company's deferred tax assets are as
follows:

<TABLE>
<CAPTION>

                                                                    2000        1999
                                                                 ----------  ----------
<S>                                                              <C>         <C>
      Net operating losses                                       $2,800,000  $2,365,000
      Organization and start-up costs                                50,000      72,000
      Common stock purchase warrants issued for services          2,200,000   1,356,000
      Bad debt reserve                                              400,000     200,000
      Executive bonuses                                             500,000        -
      Accrued vacation pay                                           50,000       7,000
                                                                 ----------  ----------

                                                                  6,000,000    4,000,000
      Valuation allowance                                        (6,000,000)  (4,000,000)
                                                                 ----------  -----------

      Net deferred tax asset                                     $     --    $    --
                                                                 ==========  ===========
</TABLE>

        As of December 31, 2000, the Company has Federal and state net operating
loss carryforwards of approximately $7.0 million that will be available to
offset future taxable income, if any, through December 2020. The utilization of
net operating losses is subject to a substantial limitation due to the "change
of ownership" provisions under Section 382 of the Internal Revenue Code and
similar state provisions. Such limitation may result in the expiration of the
net operating losses before their utilization. A 100% valuation allowance has
been



                                      -45-
<PAGE>   48
established to reserve for the deferred tax assets arising from the net
operating losses and other temporary differences due to the uncertainty that
their benefit will be realized in the future.

        The following is a reconciliation of the normal expected statutory
Federal income tax rate to the effective rate reported in the financial
statements.


<TABLE>
<CAPTION>
                                                                       2000       1999
                                                                     --------    -------

<S>                                                                   <C>         <C>
       Computed "expected" benefit
               for Federal income taxes                               (34.0%)     (34.0%)
       Increase in valuation allowance
               for deferred tax assets                                 42.1        40.7
       Effect of State income taxes, net of Federal benefit            (3.2)       (6.7)
       Permanent differences                                            1.0          -
                                                                       -----       -----

                                                                        5.9%        --%
                                                                     ========    =======
</TABLE>

NOTE R - Related Party Transactions

        The Company paid $266,000 to a consulting firm owned by one of its
directors for services rendered in connection with obtaining the revolving
credit facility described in Note F, including $85,000 in cash through December
31, 1999, a $125,000 success fee and 30,000 Common Stock purchase warrants with
a fair value of approximately $56,000 upon closing the agreement in January
2000.

        During 2000, the Company paid approximately $575,000 to the seller of
DSI, who is the beneficial owner of more than 5% of the Company's Common Stock,
for consulting fees and expenses, and paid approximately $200,000 in property
lease payments to a partnership of which the seller of DSI is a partner.

        During 2000, the Company paid Capital Research Ltd., a beneficial owner
of more than 5% of the Company's Common Stock, approximately $128,000 in cash
and issued approximately 150,000 Common Stock purchase warrants with a fair
value of approximately $116,000 for consulting services. Additionally, the
Company paid such shareholder approximately $44,000 in cash, issued 5,455 shares
of the Company's Series C Preferred stock, with a fair value of approximately
$330,000, issued 1,039,672 shares of the Company's Common Stock, with a fair
value of approximately $1.8 million, and issued 417,334 Common Stock purchase
warrants with a fair value of approximately $1.1 million for services provided
in connection with the initial issuance and subsequent extensions and revisions
of the Company's Series A and Series C Preferred stock.



                                      -46-
<PAGE>   49
NOTE S - Commitments

Employment Agreements

        The Company has employment agreements with its four executive officers
providing for aggregate annual compensation amounting to approximately $1.2
million per annum plus bonuses (as defined in the agreements) and severance pay
in excess of $2.0 million for termination under certain circumstances.

        In addition, the Company also has agreements with several of its
employees providing for aggregate annual compensation amounting to $1.0 million
per annum plus bonuses (as defined in the agreements) and severance pay in
excess of $1.3 million for termination under certain circumstances.

Employment Benefit Plans

MOS has a defined contribution plan (the "Plan") under Section 401(k) of the
Internal Revenue Code which is available to all employees who meet established
eligibility requirements. Employee contributions are generally limited to 15% of
the employee's compensation. Under the provisions of the Plan, MOS may match a
portion of the participating employees' contributions. MOS's total contributions
to the Plan in 2000 were approximately $27,000.

Leases

        The Company leases certain facilities and equipment under operating
leases having terms ranging from three to ten years. The operating leases expire
in 2011. As of December 31, 2000, future minimum lease payments under
noncancellable operating leases are as follows:


<TABLE>
<CAPTION>
------------------- -----------------
<S>                 <C>
       2001                 $871,800
       2002                  966,300
       2003                  896,600
       2004                  684,400
       2005                  566,600
Thereafter                 2,652,000
                           ---------
Total                     $6,637,700
                          ==========
</TABLE>

NOTE T - Stock Options

        In December 1998, the Board of Directors approved the adoption of a
stock option plan (the "Plan"). The Plan authorizes the Compensation Committee
to administer the Plan and to grant to eligible directors, officers, employees
and consultants of the Company, non-qualified and "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986. The
Plan, as amended, provides for the reservation and availability of up to
6,500,000 shares of Common Stock of the Company, subject to future stock splits,
stock dividends, reorganizations and similar events. The exercise price of
incentive stock options may not be less than the fair market value of a share of
the Common Stock at the date of grant. The



                                      -47-
<PAGE>   50



Compensation Committee has the discretion to set the exercise price of
non-qualified stock options that are not incentive stock options. The Plan
limits the number of shares with respect to which options may be granted in a
year to any one optionee to 2,000,000 shares.

        The Company has adopted the disclosure provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). SFAS No. 123 establishes financial accounting
and reporting standards for stock-based employee compensation plans. SFAS No.
123 applies the intrinsic value method prescribed under Accounting Principles
Board Opinion No. 25 and related interpretations in accounting for its
stock-based compensation plans and therefore has not recognized compensation
expense for stock options issued to employees and Directors, since the exercise
prices of those awards are equal to the fair market value of the Company's
Common Stock on the date of grant.

        If the Company had elected to recognize compensation expense based upon
the fair value at the grant date, consistent with the methodology prescribed by
SFAS No. 123, pro forma net loss and net loss per share to Common Stockholders
for the years ended December 31, 2000 and 1999 would have increased to the
following pro-forma amounts:

<TABLE>
<CAPTION>

                                                     2000         1999
                                                 -----------  -----------
<S>                                              <C>          <C>
      Net loss
        As reported                              $(4,985,950) $(9,510,133)
        Pro forma                                 (5,556,211)  (9,697,124)

      Net loss per share to common
        As reported                              $     (1.84) $      (.80)
        Pro forma                                      (1.85)        (.82)
</TABLE>

        The following table summarizes the stock option activity for the years
ended December 31, 2000 and 1999:

<TABLE>
<CAPTION>
                                                     2000                   1999
                                           ---------------------- ---------------------

                                                                              WEIGHTED-
                                                         WEIGHTED-             AVERAGE
                                                          AVERAGE             EXERCISE
                                                         EXERCISE               PRICE
                                              OPTIONS     PRICE     OPTIONS
                                             ----------  --------- ---------  ---------

<S>                                            <C>         <C>        <C>        <C>
Outstanding - beginning of the year            482,000     $2.87      150,000    $1.00
Granted                                      4,007,000      1.99      450,000     3.01
Canceled                                      (375,000)     3.74     (118,000)    1.00
                                             ---------             ---------
Outstanding - end of the year                 4,114,000     1.93      482,000     2.87
                                              =========              =======

Options exercisable                           1,008,743     1.88      200,000     2.35

Weighted average fair value of
  options granted during the year                            .81                   .75
</TABLE>

        The following table summarizes additional information about outstanding
and exercisable stock options at December 31, 2000.

<TABLE>
<CAPTION>
                                         WEIGHTED-
                                          AVERAGE   WEIGHTED-                WEIGHTED-
          RANGE OF                       REMAINING   AVERAGE                  AVERAGE
          EXERCISE              NUMBER  CONTRACTUAL EXERCISE     NUMBER      EXERCISE
           PRICES             OUTSTANDING  LIFE      PRICE     EXERCISABLE     PRICE
                            ------------ ---------  --------- ------------- -----------
<S>   <C>                   <C>           <C>       <C>        <C>           <C>
        $1.00 - $1.38           463,000       3.0       $1.12      313,589       $1.01
        $1.88 - $3.20         3,551,000       4.6       $1.91      645,154       $1.96
            $6.38               100,000       2.7       $6.38       50,000       $6.38
                                -------                             ------
                              4,114,000                          1,008,743
                              =========                          =========
</TABLE>



                                      -48-
<PAGE>   51



        The fair value of these stock options was estimated at the date of grant
using the Black-Scholes option pricing model based on the following
assumptions in 2000 and 1999: an expected life of five years, a risk-free
interest rate of 6% and a volatility factor of 35%.

NOTE U - Stockholders' Equity

        At December 31, 2000, the Company was authorized to issue 100,000,000
shares of Common Stock, $0.001 par value and 10,000,000 shares of preferred
stock, $0.001 par value. A summary of the Company's Common Stock issuances for
the years ended December 31, 2000 and 1999 is as follows:

<TABLE>
<CAPTION>
                                                              2000                      1999
                                                   --------------------------  ------------------------
                                                      SHARES         AMOUNT       SHARES      AMOUNT
                                                   -----------     ----------  -----------  -----------

<S>                                               <C>            <C>           <C>         <C>

Cash                                                       ---    $      ---     2,957,750   $3,009,498
In connection with preferred stock transactions     12,296,383      2,748,321          ---          ---
Acquisition of WeFusion                                760,000      1,928,100          ---          ---
In connection with debt transactions                   816,548      1,498,318          ---          ---
Note receivable                                            ---            ---    2,500,000    2,500,000
Non-cash (principally consulting
 services)                                           1,688,374      1,358,955    1,215,000    3,232,750
                                                   -----------     ----------    ---------    ---------


                                                   $15,561,305     $7,533,694    6,672,750   $8,742,248
                                                   ===========     ==========    =========   ==========
</TABLE>

        The 1999 shares sold for cash include 28,500 shares issued pursuant to
the exercise of Common Stock purchase warrants.

        As of December 31, 2000, there were 29,604,519 issued and outstanding
shares of Common Stock. If the holders of all outstanding options and Common
Stock purchase warrants as of December 31, 2000 exercised those options and
warrants, and the holders of all outstanding convertible securities as of that
date converted them into Common Stock, the Company would be required to issue
approximately 27.1 million additional shares of Common Stock, based on current
exercise and conversion prices.

NOTE V - Consulting Expenses

        The Company recorded consulting expenses totaling $4.1 million and $6.6
million in 2000 and 1999, respectively. Included in the charges for 2000 are
approximately $1.6 million of non-cash charges reflecting the estimated fair
value of warrants and options granted to purchase 2,512,000 shares of Common
Stock at a range of between $1.00 to $4.00 per share with terms of between two
and five years. Included in the charges for 1999 are approximately $3.3 million
of non-cash charges reflecting the estimated fair value of five-year warrants
granted to purchase 860,000 shares of Common Stock at a range of between $1.00
to $2.00 per share. The fair value of such warrants was estimated using the
Black-Scholes option pricing model. Additionally, approximately $1.1 million and
$2.7 million of the consulting costs incurred in 2000 and 1999, respectively,
reflects the fair value of 535,000 shares and 870,000 shares of the Company's
Common Stock issued for professional services rendered in 2000 and 1999,
respectively.

        NOTE W - Subsequent Events




                                      -49-
<PAGE>   52



        On December 19, 2000, the holders of the Series C Shares and the New
Series C Shares agreed to extend the mandatory redemption date of the Series C
Preferred from December 26, 2000 to January 26, 2001. On January 25, 2001, the
holders agreed to further extend the redemption date from January 26, 2001 to
February 15, 2001. The holders also agreed to waive any default arising out of
the Company's failure to redeem such shares prior to February 15, 2001. On
February 15, 2001, the Company redeemed an aggregate of 22, 992 Series C Shares
and New Series C Shares for an aggregate redemption price of $2,299,200 plus
accrued and unpaid dividends of $122,300. The holders converted all of the
remaining Series C Shares and New Series C Shares into 3,946,250 shares of
Common Stock (at an effective conversion ratio of $1.00 per share). In
consideration of the agreement of the holders to convert the Series C Shares and
New Series C Shares (which would otherwise have been mandatorily redeemable by
the Company in full on February 15, 2001), the Company agreed to issue to the
holders, pro rata in accordance with the number of shares converted by each of
them, an aggregate of 666,400 additional shares of Common Stock. The Company
will record a $900,000 non-cash dividend in the first quarter of 2001 reflecting
the fair value of the 666,300 additional shares issued. The Company agreed to
pay one of the holders of the Series C Preferred a fee of $100,000 in connection
with its services relating to the negotiation of these agreements.

        The redemption of the Series C Shares and New Series C Shares was funded
in part through the issuance and sale through February 2001 in private
placements of an aggregate of 1,500,000 shares of Common Stock at a price of
$1.00 per share.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
  FINANCIAL DISCLOSURE.

        None.



                                    PART III

        The information and accompanying exhibits called for by Item 9.
"Directors, Executive Officers, Promoters and Control Persons; Compliance With
Section 16(a) of the Exchange Act," Item 10. "Executive Compensation," Item 11.
"Security Ownership of Certain Beneficial Owners and Management," and Item 12.
"Certain Relationships and Related Transactions" is incorporated herein by
reference to the Company's definitive proxy statement for its 2001 Annual
Meeting of Stockholders, which definitive proxy statement is expected to be
filed with the Commission no later than 120 days after the end of the fiscal
year to which this Report relates.

ITEM 9. EXHIBITS, LIST AND REPORTS ON FORM 8-K.

(a) Exhibits

Exhibit No.    Description



                                      -50-
<PAGE>   53



2.1             Asset Purchase Agreement made and entered into as of January 28,
                2000, by and among the Company, Direct Sales International, Inc.
                and Richard Prochnow, incorporated by reference to the Company's
                Report on Form 8-K, filed with the Securities and Exchange
                Commission, February 14, 2000.

2.2             Option Agreement dated June 9, 1999 by and among the Company,
                Direct Sales International L.P. and Richard Prochnow,
                incorporated herein by reference to the Company's Quarterly
                Report on Form 10-QSB for the period ended June 30, 1999.

3.1             Amended and Restated Certificate of Incorporation of the
                Company, incorporated by reference to the Company's Form 10-12G,
                filed with the Securities and Exchange Commission on February
                24, 1999.

3.2             Certificate of Designation of Series A Convertible Preferred
                Stock, par value $.001 ("Series A Preferred"), filed with the
                Secretary of State of Delaware on January 28, 2000, incorporated
                by reference to the Company's Annual Report on Form 10-KSB for
                the period ended December 31, 1999.

3.3             Certificate of Elimination of Series A Preferred, filed with the
                Secretary of State of Delaware on June 9, 2000.*

3.4             Certificate of Designation of Series B Convertible Preferred
                Stock, par value $.001 filed with the Secretary of State of
                Delaware on January 28, 2000, incorporated by reference to the
                Company's Annual Report on Form 10-KSB for the period ended
                December 31, 1999.

3.5             Certificate of Designation of Series C Convertible Preferred
                Stock, par value $.001 filed with the Secretary of State of
                Delaware on January 28, 2000, incorporated by reference to the
                Company's Annual Report on Form 10-KSB for the period ended
                December 31, 1999.

3.6             Certificate of Designation of Series A Convertible Preferred
                Stock, par value $.001, filed with the Secretary of State of
                Delaware on June 9, 2000, incorporated by reference to the
                Company's Report on Form 8-K, filed with the Securities and
                Exchange Commission on June 16, 2000.

3.7             Corrected Certificate of Designation of Series A Convertible
                Preferred Stock of the Company filed with the Secretary of State
                of Delaware on August 1, 2000, incorporated by reference to the
                Company's Quarterly Report on Form 10-QSB for the period ended
                September 30, 2000.



                                      -51-
<PAGE>   54



3.8             Certificate of Amendment to the Amended and Restated Certificate
                of Incorporation of the Company, filed with the Secretary of
                State of Delaware on October 11, 2000, incorporated by reference
                to the Company's Quarterly Report on Form 10-QSB for the period
                ended September 30, 2000.

3.9             Certificate of Amendment to the Amended and Restated Certificate
                of Incorporation of the Company, filed with the Secretary of
                State of Delaware on December 28, 2000, incorporated by
                reference to the Company's Report on Form 8-K filed with the
                Securities and Exchange Commission on December 29, 2000.

3.10            Amended and Restated By-Laws of the Company, incorporated by
                reference to the Company's Quarterly Report on Form 10-QSB for
                the period ended June 30, 1999.

4.1             Revised Common Stock Purchase Warrant to Purchase 225,000 shares
                of the Company's Common Stock issued to The Shaar Fund, Ltd.,
                dated June 9, 2000, incorporated by reference to the Company's
                Quarterly Report on Form 10-QSB for the period ended September
                30, 2000.

4.2             Common Stock Purchase Warrant to Purchase 150,000 shares of the
                Company's Common Stock issued to The Shaar Fund, Ltd., dated
                August 1, 2000, incorporated by reference to the Company's
                Quarterly Report on Form 10-QSB for the period ended September
                30, 2000.

4.3             Warrant Certificate dated August 23, 1999 issued to Steven
                Antebi representing the right to purchase 850,000 shares of the
                Company's Common Stock, incorporated by reference to the
                Company's Quarterly Report on Form 10-QSB for the period ended
                September 30, 2000.

4.4             Form of Common Stock Purchase Warrant (without cashless exercise
                provisions issued to former holders of Series A, B and C
                convertible preferred stock, various consultants, professionals
                and others.*)

4.5             Form of Common Stock Purchase Warrant (with cashless exercise
                provisions issued to various consultants, professional and
                others.*)

4.6             Form of Common Stock Purchase Warrant issued to various call
                center proprietors.*

4.7             Warrant Certificate issued to Imperial Credit Industries, Inc.,
                as nominee for Coast Business Credit, representing the right to
                purchase 300,000 shares of the Company's Common Stock (subject
                to anti-dilution adjustments).*



                                      -52-
<PAGE>   55



4.8             Warrant Certificate issued to Interactive Marketing Technologies
                Group, Inc. representing the right to purchase up to 330,000
                shares of the Company's Common Stock.*

4.9             Warrant Certificate issued to Steven Vanechanos representing the
                right to purchase up to 125,000 shares of the Company's Common
                Stock.*

4.10            Warrant Certificate issued to East Coast Magazine Sales
                representing the right to purchase up to 150,000 shares of the
                Company's Common Stock.*

4.11            Warrant Certificate issued to International Marketing
                Association, Inc. representing the right to purchase up to
                250,000 shares of the Company's Common Stock.*

10.1            Coast Credit Loan and Security Agreement, between Coast Business
                Credit, a division of Southern Pacific Bank ("Coast") and Direct
                Sales International, Inc., dated as of January 28, 2000,
                incorporated by reference to the Company's Annual Report on Form
                10-KSB for the period ended December 31, 1999.

10.2            Amendment to Coast Credit Loan and Security Agreement, between
                Coast and Direct Sales International, Inc., dated as of January
                28, 2000, incorporated by reference to the Company's Annual
                Report on Form 10-KSB for the period ended December 31, 1999.

10.3(a)         Amendment to Loan Documents between Coast and Media Outsourcing,
                Inc., dated as of March __, 2000, incorporated by reference to
                the Company's Annual Report on Form 10-KSB for the period ended
                December 31, 1999.

10.3(b)         Second Amendment to Coast Credit Loan and Security Agreement,
                between Coast and Direct Sales International, Inc., dated as of
                March 6, 2000, incorporated by reference to the Company's Annual
                Report on Form 10-KSB for the period ended December 31, 1999.

10.4            Amendment to Coast Credit Loan and Security Agreement, between
                Coast and Direct Sales International, Inc., dated as of March
                30, 2000, incorporated by reference to the Company's Annual
                Report on Form 10-KSB for the period ended December 31, 1999.

10.5            Continuing Guaranty executed by the Company as Guarantor, in
                favor of Coast, with respect to the indebtedness of Direct Sales
                International, Inc., dated as of January 28, 2000, incorporated
                by reference to the Company's Annual Report on Form 10-KSB for
                the period ended December 31, 1999.



                                      -53-
<PAGE>   56



10.6(a)         Lease Agreement, dated October 1, 1996, between P & T
                Properties, L.L.C., Lessor, and Direct Sales International,
                L.P., Lessee.*

10.6(b)         First Amendment to Lease Agreement, dated January 1, 1999,
                between P & T Properties, L.L.C., Lessor, and Direct Sales
                International, L.P., Lessee.*

10.7            Registration Rights Agreement, dated as of June 9, 2000, between
                the Company and the holder of the New Series A Shares,
                incorporated by reference to the Company's Report on Form 8-K
                filed with the Securities and Exchange Commission on June 16,
                2000.

10.8            Letter Agreement between the Company and the holders of the
                Series B Convertible Preferred Stock, dated June 16, 2000,
                incorporated by reference to the Company's Report on Form 8-K
                filed with the Securities and Exchange Commission on July 21,
                2000.

10.9            Employment Agreement between the Company and Ronald Altbach
                dated as of January 1, 1999, incorporated by reference to the
                Company's Quarterly Report on Form 10-QSB for the period ended
                June 30, 1999.+

10.10           Employment Agreement between the Company and Richard Kaufman,
                dated as of May 1, 2000, incorporated by reference to the
                Company's Quarterly Report on Form 10-QSB for the period ended
                September 30, 2000.+

10.11(a)        Employment Agreement between the Company and Polly Bauer dated
                as of September 20, 1999, incorporated by reference to the
                Company's Quarterly Report on Form 10-QSB for the period ended
                September 30, 1999.+

10.11(b)        Summary of terms of agreement between the Company and Polly
                Bauer relating to the termination of her employment with the
                Company, effective as of December 31, 2000. *+

10.12           Employment Agreement between the Company and Tim S. Ledwick
                dated as of September 21, 1999, incorporated by reference to the
                Company's Quarterly Report on Form 10-QKB for the period ended
                September 30, 1999.+

10.13           Employment Agreement between the Company and Andrew Nelson,
                dated as of November 2, 2000.* +



                                      -54-
<PAGE>   57



10.14           Employment Agreement between Symposium Fusion, Inc. (f/k/a
                WeFusion.com, Inc.) and Christopher Thompson, dated as of
                November 30, 2000. *+

10.15           Employment Agreement between Media Outsourcing Inc. (f/k/a
                Direct Sales International, Inc.) and Dennis Gougion, dated as
                of January 28, 2000.* +

10.16           1998 Stock Option Plan of the Company, as amended as of December
                31, 2000.*+

10.17           Letter Agreement, dated April 24, 2000, by and among the Company
                and the holders of the Series C Shares.*

10.18           Letter Agreement, dated May 30, 2000, by and among the Company
                and the holders of the Series C Shares.*

10.19           Letter Agreement, dated July 18, 2000, by and among the Company
                and the holders of the Series C Shares.*

10.20           Letter Agreement, dated December 19, 2000, by and among the
                Company and the holders of the Series C Shares, incorporated by
                reference to the Company's Report on Form 8-K, filed with the
                Securities and Exchange Commission on December 29, 2000.

10.21           Letter Agreement, dated December 28, 2000, by and among the
                Shaar Fund and the Company, incorporated by reference to the
                Company's Report on Form 8-K, filed with the Securities and
                Exchange Commission on December 29, 2000.

10.22           Agreement and Plan of Merger, dated November 30, 2000, by and
                among WeFusion.com, Inc., the Company, Symposium Fusion, Inc.
                and certain stockholders of WeFusion.com, Inc.*

21              List of subsidiaries of the Company.*

99.1            Registration Rights Agreement made and entered into as of
                January 28, 2000 by and between the Company and Richard
                Prochnow, incorporated by reference to Registrant's Current
                Report on Form 8-K, filed with the Securities and Exchange
                Commission February 14, 2000.

99.2            Amended Non-Negotiable Secured Promissory Note made by Richard
                Prochnow payable to the order of the Company, dated January 28,
                2000, incorporated by reference to Registrant's Current Report
                on Form 8-K, filed with the Securities and Exchange Commission
                on February 14, 2000.



                                      -55-
<PAGE>   58



99.3            Consulting Agreement between the Company, Direct Sales
                International, Inc. and Richard Prochnow, incorporated by
                reference to the Company's Current Report on Form 8-K, filed
                with the Securities and Exchange Commission on February 14,
                2000.

99.4            Loan Agreement made and entered into as of January 28, 2000,
                between the Company and AmeriNet, incorporated by reference to
                the Company's Current Report on Form 8-K, filed with the
                Securities and Exchange Commission, on February 14, 2000.

99.5            Form of Registration Rights Agreement.*

99.6            Letter Agreement, dated August 3, 2000, among the Company,
                Executive Management Services and Rupert Galliers-Pratt.*

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

* Filed herewith.
+ Management contract or compensatory plan identified pursuant to Item 13(a).


(b) Reports on Form 8-K

        On December 29, 2000, the Company filed a Current Report on Form 8-K
        reporting the name change to Cross Media Marketing Corporation, the
        extension of the mandatory redemption date of the Series C Shares Stock,
        and the agreement with the holder of all the New Series A Shares
        regarding conversion and dividends of the New Series A Shares.



                                      -56-
<PAGE>   59



                                   SIGNATURES

        In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.


Date: March 26, 2001                CROSS MEDIA MARKETING
                                    CORPORATION

                                      By:  /s/ Ronald Altbach
                                         -----------------------------
                                         Name:  Ronald Altbach
                                         Title: Chairman, Director and
                                                Chief Executive Officer



        In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.



                                            /s/ Ronald Altbach
                                            ------------------------------------
                                            Name: Ronald Altbach
                                            Title:  Chairman, Director and
                                            Chief Executive Officer


                                             /s/ Richard Kaufman
                                            ------------------------------------
                                            Name: Richard Kaufman
                                            Title: Director and President

                                             /s/ Tim. S. Ledwick
                                            ------------------------------------
                                            Name: Tim S. Ledwick
                                            Title: Chief Financial Officer

                                             /s/ Richard Cohen
                                            ------------------------------------
                                            Name: Richard Cohen
                                            Title: Director

                                             /s/ Bruce Dorskind
                                            ------------------------------------
                                            Name: Bruce Dorskind
                                            Title: Director

                                             /s/ Ken Lambert
                                            ------------------------------------
                                            Name: Ken Lambert
                                            Title: Director

Date:  March 26, 2001





                                      -57-