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

                        AMENDMENT NO. 1 ON FORM 10-KSB/A
                                 TO 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)

                          461 Fifth Avenue, 19th Floor
                            New York, New York 10017
          (Address of principal executive offices, including zip code)
                                 (212) 457-1200
              (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>

Explanatory Note

      On March 26, 2001, Cross Media Marketing Corporation (the "Company") filed
its Annual Report on Form 10-KSB for the year ended December 31, 2000.

      As  discussed  in  Note  X  to  the  consolidated   financial  statements,
subsequent  to  the  issuance  of  the  Company's  2000  consolidated  financial
statements, the management of the Company determined that the Company's practice
of  reporting  remittances  to  publishers  as  direct  costs and  expenses  was
inconsistent  with the Company's role as an agent for  publishers.  Accordingly,
the  Consolidated  Statement of Operations  for the year ended December 31, 2000
has been  restated to reflect the recording of revenues as the amount billed to
a customer, less the amount paid to a publisher when the Company is acting as an
agent.  The effect of the  restatement  is to decrease revenues, net and direct
costs and expenses for the year ended  December  31, 2000 by  $6,364,565.  Gross
profit,  loss before  income  taxes,  net loss and the related per share amounts
were not affected.

      In addition,  certain  expenses have been combined and  reclassified  into
General and Administrative Expenses.


      No attempt has been made to update  disclosures  for events  subsequent to
the filing date of March 26, 2001.

      The Financial Statements,  Notes to Consolidated  Financial Statements and
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations in this filing have been accordingly revised.

      The items amended are as follows:

      Part II, Item 6         Management's Discussion and Analysis of
                              Financial Condition and Results of Operations

      Part II, Item 7         Financial Statements

<PAGE>

                                     PART II

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.  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

<PAGE>

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 $55.5 million for the year ended
December  31,  2000.  These  revenues  were  derived  from the sale of  magazine
contracts at MOS totaling  approximately  $52.2 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,  collection  reserves,  and payments made to
publishers for fulfillment  costs. 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 pre-tax charges 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.

      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.

                                       2

<PAGE>

      General and Administrative Expenses

      General and administrative expenses increased $6.1 million to $8.4 million
in 2000 from $2.3 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). The Company had approximately 233 full-time and 51 part-time employees
as of December 31,  2000.  The increase is also 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, Inc. ("AmeriNet") in 1999.

      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.

      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.

      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

                                       3
<PAGE>

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 pretax charge of $967,500,
epresenting 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
ptions 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.
ncluded 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
ad 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.

      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

                                       4
<PAGE>

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.  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 Shares
stock.

      Extraordinary Loss on Extinguishment of Acquisition Liability

      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 funds its working  capital needs.  Under
the Coast Facility,  MOS is not permitted to make  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

                                       5
<PAGE>

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 $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.  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.

                                       6
<PAGE>

      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  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.

                                       7
<PAGE>

      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, 2000.

      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 July  26,  2000 or upon  the
consummation  of  an  additional  financing  transaction  resulting  in  gross
proceeds of at least $10 million.

                                       8
<PAGE>

      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.

      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

                                       9
<PAGE>

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 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

                                       10
<PAGE>

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.

                                       11
<PAGE>

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

                                       12
<PAGE>

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 to finance the
acquisition of the Company's magazine subscription  telemarketing business and
the ongoing  working  capital needs of MOS. The credit  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 they 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

                                       13
<PAGE>

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
cards  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.

                                       14
<PAGE>

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

                                       15
<PAGE>

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

                                       16
<PAGE>

conversion price of the outstanding  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 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.

                                       17
<PAGE>

      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, 25% 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                 19

Financial Statements

      Consolidated Balance Sheets
      Consolidated Statements of Operations
      Consolidated Statement of Stockholders' Equity
      Consolidated Statements of Cash Flows
      Notes to Consolidated Financial Statements                  F-1

                                       18
<PAGE>

               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. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of  material  misstatements.  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.

As discussed in Note X, the  accompanying  consolidated  statement of operations
for the year ended December 31, 2000 has been restated.

/s/ GRANT THORNTON LLP

New York,  New York
February 15, 2001 (except for Notes C and X, as to which the date is July 26,
2001)

                                       19
<PAGE>

--------------------------------------------------------------------------------
Item 7. Condensed Consolidated Financial Statements

               Cross Media Marketing Corporation and Subsidiaries
                      Condensed Consolidated Balance Sheet
                                  December 31,

                                                         2000          1999
                                                         ----          ----
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             866,590         34,208
           accumulated depreciation)
       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
         10,000,000 shares; 50,625 shares issued       3,303,951               -
         and outstanding
      Common stock, par value $.001 per share;
      authorized 100,000,000 shares; 29,604,519
      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
                                                    ============     ==========

The accompanying notes are an integral part of this statement.

<PAGE>

               Cross Media Marketing Corporation and Subsidiaries
                 Condensed Consolidated Statements of Operations

                                                        For the Year Ended
                                                           December 31,
                                                      2000                1999
                                                   (Restated)             -----
                                                   ---------

Revenues, net                                      55,487,795      $       --

Direct costs and expenses
      Commission expense                           30,761,172              --
      Other direct costs                           10,616,630              --
                                                 ------------      ------------
                                                   41,377,802              --

      Gross profit                                 14,109,993              --

      General and administrative expenses           8,403,991         2,340,500
      Consulting expenses                           4,105,698         6,577,827
      Amortization of goodwill and other              555,613              --
      intangible assets
      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 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
                                                  ===========      ============

The accompanying notes are an integral part of this statement.

<PAGE>

<TABLE>
<CAPTION>

                                                   Cross Media Marketing Corporation and Consolidated Subsidiaries
                                                       Condensed Consolidated Statement of Stockholders' Equity
                                                            For the years ended December 31, 2000 and 1999

                                                                   Common stock
                                                                                                      Additional
                                                   Preferred        Number of                          Paid-in
                                                     Stock            Shares           Amount          Capital
                                                     -----            ------           ------          -------

<S>                                                <C>             <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                     -        9,224,232            9,224       17,660,202
extensions and conversions

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 value                -                -                -       10,004,532

Contractual dividends

Conversion of preferred stock                               -         610,333               611          866,545

Issuance of New Series A Preferred                  3,303,951                                          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                                         -                -                -        1,720,710

Repayment of note receivable for stock

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                        3,303,951       29,604,519           29,605       63,221,911
                                                   ==========     ============       ==========      ===========
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                          Note         Accumulated
                                                      Receivable        Deficit           Total
                                                      ----------        -------           -----
<S>                                                 <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                              (17,669,426)                -
extensions and conversions

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 value                         (10,004,532)                -

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

Conversion of preferred stock                                                              867,156

Issuance of New Series A Preferred                                    (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                        $ (2,497,500)    $(54,418,163)      $9,639,804
                                                    ============     ============       ==========
</TABLE>

The accompanying notes are an integral part of this statement.


<PAGE>
<TABLE>
<CAPTION>

                 Cross Media Marketing Corporation and Subsidiaries
                  Condensed Consolidated Statements of Cash Flows
                              Year Ended 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 provided by 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)            -
          Repayment 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.


            ACQUISITIONS OF BUSINESS
          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
                                                                =============

The accompanying notes are an integral part of this statement.

<PAGE>

                        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  consists 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 a  business
combination.  Goodwill is  amortized  as an expense on a  straight-line  basis
over a period  from 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

                                       F-1

<PAGE>

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,  collection  reserves,
and payments made to publishers for fulfillment costs.  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

                                       F-2

<PAGE>

date of the financial statements as well as the reported amounts of revenues and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.

      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:

                                       F-3

<PAGE>

      Cash consideration paid to the seller                $25,000,000
      Commitment to fund AmeriNet, Inc.                      1,500,000
      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
                                                           ===========

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

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

                                                       2000        1999
                                                       ----        ----
                                                        (in thousands
                                                            except
                                                       per share date)

      Total revenues       As reported               $55,488       $ -
                           Pro forma                  60,529      61,791

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

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

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:


                                       F-4

<PAGE>

                                                2000         1999
                                                ----         ----

         Furniture and fixtures               $199,000     $ 15,534
         Equipment                             423,131       23,923
         Assets subject to capital leases      354,398          -
                                              --------     --------
                                               976,529       39,457

         Accumulated depreciation             (109,939)      (5,249)

                                              $866,590      $34,208

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:

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

                                       F-5

<PAGE>

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

                                      F-6

<PAGE>

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

                                       F-7

<PAGE>

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 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 3,000  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
unit 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.

                                       F-8

<PAGE>

      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

                                       F-9

<PAGE>

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            1,860,999        1,282,285              4,948,237       749,731
         capital
        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    New Series B   New Series C   Total
                                     --------     ------------    --------    ------------   ------------   -----
<S>                                 <C>            <C>            <C>          <C>           <C>          <C>

     Deemed dividends at issuance   $  1,428,57   $ 2,243,804    $ 1,173,715  $ 2,401,352    $372,844    $ 7,620,286

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

     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

                                       F-10

<PAGE>

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 $.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 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.

                                       F-11
<PAGE>

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

                                       F-12
<PAGE>

and  professional  fees.  The  charge,   which  is  presented  as  the  cost  of
acquisitions  not  consummated,  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 on Extinguishment of Acquisition Liability

      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:

                                                          2000        1999
                                                          ----        ----

      Net operating losses                             $2,800,000  $2,365,000
      Organization and start-up costs                      50,000      72,000
      Common stock purchase warrants issued for         2,200,000   1,356,000
      services
      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                           $      --  $        --
                                                       =========    =========
      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

                                       F-13
<PAGE>

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.

                                                         2000        1999
                                                         ----        ----
      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%         --%
                                                         ====         ====

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.


                                       F-14
<PAGE>

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:


         -------------------------------
              2001             $871,800
         -------------------------------
              2002              966,300
         -------------------------------
              2003              896,600
         -------------------------------
              2004              684,400
         -------------------------------
                  2005          566,600
         -------------------------------
         Thereafter           2,652,000
         -------------------------------
         Total               $6,637,700
         -------------------------------

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

                                       F-15
<PAGE>

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:

                                                2000          1999
                                                ----          ----
         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)

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

                                               2000               1999
                                               ----               ----
                                                 Weighted-         Weighted-
                                                  average           average
                                                 exercise          exercise
                                         Options   price   Options   price
                                         -------   -----   -------   -----

   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


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

                                         Weighted-
           Range of                      average     Weighted-               Weighted-
           exercise                     remaining    average                 average
            prices         Number       contractual  exercise  Number        exercise
                         outstanding       life       price    exercisable    price
                         -----------       ----       -----    -----------    -----

<S>     <C>     <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>

                                       F-16
<PAGE>

      The fair  value of these  stock  options  was  estimated  at the date of
grant using the  Black-Scholes  Option Pricing  Formula 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.

                                       F-17
<PAGE>

      NOTE W - Subsequent Events

      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.

      NOTE X - Restatement and Reclassification

      Subsequent to the issuance of the Company's  2000  consolidated  financial
statements, the management of the Company determined that the Company's practice
of  reporting  remittances  to  publishers  as  direct  costs and  expenses  was
inconsistent  with the Company's role as an agent for  publishers.  Accordingly,
the  Consolidated  Statement of Operations  for the year ended December 31, 2000
has been restated to reflect the recording of revenues as the amount billed to a
customer,  less the amount paid to a publisher  when the Company is acting as an
agent.  The effect of the  restatement  is to decrease  revenues,  net and
direct costs and expenses  for the year ended  December 31, 2000 by  $6,364,565.
Gross  profit,  loss  before  income  taxes,  net loss and the related per share
amounts were not affected.

      In addition,  certain  expenses have been combined and  reclassified  into
General and Administrative Expenses.


                                       F-18
<PAGE>

                                   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: July 26, 2001                 CROSS MEDIA MARKETING CORPORATION

                                    By: /s/ Chet Borgida
                                       ------------------------------------
                                       Name:  Chet Borgida
                                       Title: Senior Vice President and
                                              Chief Financial Officer



                                       42