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

                                    FORM 10-K

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

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

                                       OR

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

                FOR THE TRANSITION PERIOD FROM _______ TO _______

                         COMMISSION FILE NUMBER 0-25435

                        CROSS MEDIA MARKETING CORPORATION

             (Exact name of registrant as specified in its charter)

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

        461 FIFTH AVENUE, 19TH FLOOR NEW YORK, NEW YORK          10017

           (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)            (ZIP CODE)

           REGISTRANT'S TELEPHONE NUMBERING AREA CODE: (212) 457-1200

             Securities Registered Under Section 12 (b) of the Act:

Common Stock, $.001 par value                   American Stock Exchange
     TITLE OF EACH CLASS               NAME OF EACH EXCHANGE ON WHICH REGISTERED

             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 disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|

<PAGE>

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).

Yes |X|. No. | |.

The aggregate market value of the voting and non-voting common equity held by
nonaffiliates as of June 28, 2002 was approximately $94.9 million, based on a
closing price for the Common Stock of $9.40 on the American Stock Exchange on
such date.

As of April 1, 2003, there were 15,204,921 shares of common stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates certain information by reference from the Registrant's
Proxy Statement for the 2003 Annual Meeting of Stockholders.

With the exception of the portions of the Definitive Proxy Statement for the
Registrant's 2003 Annual Meeting of Stockholders expressly incorporated into
this Report by reference, such document shall not be deemed filed as a part of
this Annual Report on Form 10-K.

This Form 10-K has been prepared and filed in accordance with Regulation S-K.
Prior to fiscal 2002, the Company was eligible to file its annual and quarterly
reports under Regulation S-B as a small business issuer. Filings under
Regulation S-K have more expansive financial and other disclosure requirements
than filings under Regulation S-B. Accordingly, this Form 10-K contains expanded
financial and other disclosures as compared to the Company's Annual Report on
Form 10-KSB for the year ended December 31, 2001.

The expanded financial information includes one additional year presented in the
statement of operations, stockholders' equity and cash flows. In addition we
will include unaudited summary quarterly information is included in this Form
10-K.

----------
(1) The aggregate market value of the voting and non-voting common equity set
forth equals the number of shares of the Registrant's Common Stock outstanding
reduced by the number of shares of Common Stock held by officers, directors, and
shareholders owning 10% or more of the Registrant's Common Stock, multiplied by
$9.40, the last sale price for the Registrant's Common Stock on June 28, 2002,
the last business day of the Registrant's most recently completed second fiscal
quarter. The information provided shall in no way be construed as an admission
that any person whose holdings are excluded from this figure is an affiliate of
the Registrant or that such person is the beneficial owner of the shares
reported as being held by him, and any such inference is hereby disclaimed. The
information provided herein is included solely for the record keeping purposes
of the Securities and Exchange Commission.
<PAGE>

                        CROSS MEDIA MARKETING CORPORATION
                                TABLE OF CONTENTS

                                                                         PAGE

      PART I.

Item 1.     Business                                                       1
Item 2.     Property                                                       6
Item 3.     Legal Proceedings                                              6
Item 4.     Submission of Matters to a vote of Security Holders            7

      Part II.

Item 5.     Market for Registrant's Common Equity and Related
            Stockholder Matters                                            7
Item 6.     Selected Financial Data                                        9
Item 7.     Management's Discussion and Analysis of Financial Condition
            and Results of Operation                                       9
Item 7a.    Quantitative and Qualitative Disclosure about Market Risk      21
Item 8.     Financial Statements and Supplementary Data                   F-1
Item 9.     Changes in and disagreements with Accountants on Accounting    22
            and Financial Disclosure

      Part III.

Item 10.    Directors and Executive Officers of the Registrant             23
Item 11.    Executive Compensation
Item 12.    Security Ownership of Certain Beneficial Owners and            23
            Management and Related Stockholder Matters                     23
Item 13.    Certain Relationships and Related Transactions                 23
Item 14.    Controls and Procedures                                        23

      Part IV.

Item 15.    Exhibits, Financial Statement Schedules, and Reports on
             Form 8-K                                                      24

Signatures
Certifications


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                                     PART I

ITEM 1. BUSINESS

FORWARD-LOOKING STATEMENTS

Cross Media may from time to time make various written or oral "forward-looking
statements," including statements contained in Cross Media's filings with the
Securities and Exchange Commission, in its report to stockholders and in other
communications by Cross Media, that are intended to be subject to the safe
harbor created by the Private Securities Litigation Reform Act of 1995.
Statements that are not based on historical fact are "forward looking
statements." Certain statements contained in this Annual Report on Form 10-K,
including without limitation statements in Item 1. "Business," Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operation," and Item 8. "Financial Statements and Supplementary Data," contain
forward-looking statements that involve risks and uncertainties that could
affect Cross Media's ability to achieve the anticipated financial results. Such
forward-looking statements are based on current expectations of management but
involve certain risks and uncertainties. Cross Media's actual results,
performance or achievements could differ materially from the results,
performance or achievements projected in, or implied by, such forward-looking
statements as a result of risk factors, including, without limitation, the
following: the ability of the company to continue as a going concern; the
outcome of the class action stockholder, derivative and other lawsuits; the
proposed settlement with the Federal Trade Commission; Cross Media's ability to
replace or extend the Fleet credit facility, integrate the recently acquired JWE
Enterprises Inc. operations, generate sufficient quality and quantity leads for
magazine sales, and obtain adequate magazine advertising space for National
Syndications, Inc.; the continued engagement of its largest independent call
center; the adequacy of accounts receivable reserves, valuation of long lived
assets and deferred taxes; the company's default on cash payment obligations on
its preferred stock; changes in economic conditions or a material decline in the
availability of consumer credit; the performance of its independent call
centers; Cross Media's limited relevant operating history; competitive factors;
volatility in the market price of Cross Media's common stock and the securities
markets generally; Cross Media's ability to maintain the listing of its common
stock on the American Stock Exchange; and the risks relating to government
regulation of telemarketing and Internet marketing activities and potential
dilution. These factors are described in detail in this Annual Form 10-K.


Cross Media disclaims any intent or obligation to publicly update or revise any
forward-looking statements, regardless of whether new information becomes
available, future developments occur or otherwise.

GENERAL

Cross Media is a technology-driven direct marketing company that specializes in
executing targeted, interactive sales campaigns utilizing multiple direct
marketing channels, including, inbound and outbound telesales, print ads, web
marketing and e-mail. Cross Media sells a variety of products through these
multiple channels, including multi-magazine subscription packages, discount
buying club memberships, collectibles and lifestyle products.

Cross Media emphasizes its cross-channel marketing strategy, which is an
effective integration of online and offline marketing techniques. By utilizing
all available channels to make contact with the consumer, Cross Media seeks to
maximize the synergies of cross-channel marketing. Cross Media frequently
initiates contact with a consumer through one channel and consummates a
transaction through another channel. Cross Media delivers mass reach and
micro-targeted messages by leveraging its proprietary marketing assets,
including the following channels:

      o     Each month, Cross Media's owned and independent call centers working
            on its behalf communicate with approximately 1.5 million consumers.

      o     Utilizing its member base acquired in the LifeMinders acquisition in
            October 2001, Cross Media sent out up to 200 million individualized
            and personalized e-mails each month during 2002.

      o     Cross Media, through its subsidiary, National Syndications ("NSI"),
            acquired in January 2002, advertises Cross Media and NSI products in
            1,500 newspapers, reaching over 62 million U.S. homes weekly.

      o     Cross Media advertises its proprietary products on numerous
            websites, informally referred to internally as the Cross Media
            Network.

Cross Media's principal offices are located at 461 Fifth Avenue, New York, N.Y.
10017 and its telephone number at that address is (212) 457-1200.


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BUSINESS STRATEGY

Cross Media's strategy is to marry well established direct marketing skills with
a variety of newer technologies, including e-mail marketing, web-based systems
and database management, resulting in a multi-faceted marketing platform for the
sale of products and services. Through repeated interactions with consumers,
Cross Media expects at some point in the future to be able to decide on the best
channel or channels to use to market to a specific customer based on the
consumer's own behavior. As a result of this accretive marketing technique,
Cross Media expects that it can contact consumers on a cost effective basis.

Accretive marketing also permits Cross Media to accumulate significant
information about its customers and potential customers, including demographic
and pyschographic data, such as values, lifestyles, purchase behavior and
preferences. Cross Media plans to use its multiple consumer contacts to develop
a dynamic consumer database and to integrate all of its activities into a single
new system, which, when completed, will allow Cross Media to target marketing
campaigns to select sub-groups of its total customer base and even to individual
consumers. As Cross Media gains knowledge and data through its marketing
programs, it will be able to measure the success of these programs, eventually
being able to tailor marketing on a real-time basis according to each consumer's
profile, including channel preference, time of day preference, and product
preferences.

Cross Media's primary objective is to build a relationship with a customer and
to continually learn how to meet that customers' wants.

MAGAZINE SUBSCRIPTIONS

Magazine subscription sales accounted for 56%, 82% and 93%, of Cross Media's
2002, 2001 and 2000 revenues, respectively. Cross Media acts as a subscription
agency which has the direct authority on behalf of magazine publishers to
solicit magazine subscription orders and to enter those orders with fulfillment
houses designated by the publishers.

Each month, Cross Media sources lists of approximately 5 million potential
magazine buyers from traditional list brokers, producers of direct response
television commercials and infomercials, from web sites that supply names of
registrants and through Cross Media's proprietary Opt-Intelligence process.
Cross Media supplies these lists to its own call centers and approximately 20
independent telesales agencies that are contracted to generate sales of magazine
subscriptions on its behalf. One of these independent telesales agencies
accounted for approximately 34% of Cross Media's magazine subscription revenues
in 2002 and is expected to account for 25% in 2003.

Utilizing its proprietary hardware and software platform, Cross Media tracks and
controls each customer contact and compiles customer statistics and profiles.

Each consumer contacted is offered a "bundle" of four to five magazines
subscriptions having an average selling price of $600 per bundle, for a
subscription period of between one and four years. Generally, Cross Media does
not sell single magazine subscriptions. After the call center has submitted the
order to Cross Media for processing, Cross Media calls each customer to verify
the details of the magazine subscription order and the customer's credit card
information. This verification is digitally recorded for regulatory purposes.
When the verification process is complete, Cross Media forwards accepted orders
to the magazine publishers' fulfillment center for entry and pays the publishers
an agreed upon amount for the order. Cross Media charges the subscriber for the
order, automatically debiting the subscriber's credit card on a monthly basis,
generally over a 12-month period.

When a customer's order is verified, Cross Media attempts to generate additional
revenue and thereby to enhance the profitability of the sale. This is done in a
variety of ways, including offering the customer special promotions sponsored by
magazine publishers to increase subscriptions, as well as offering discount
buying club memberships and telecommunications services. In the year ended
December 31, 2002, Cross Media sold in excess of 700,000 special promotion
subscriptions, resulting in revenues of $1.4 million for the year.

MAGAZINE SUBSCRIPTION COMPETITION

While there are no limitations on who may sell magazines to the public, the
companies and individuals that sell magazines must forward the subscriptions to
the publisher through a clearinghouse, which has been granted authority to do so
by the publisher and must pay a fee to the clearinghouse to clear the order.
Establishing a clearinghouse relationship is difficult due to magazine
publishers' reluctance to grant this authority to new companies. Cross Media has
been granted authority to clear orders for approximately 250 major U.S. magazine
publications. In addition to Cross Media, the industry leaders in sales of
magazine subscriptions are Synapse, USA Pubs and Quality School Plan. Of these,
only USA Pubs utilizes a call center as its primary means of contacting
potential customers.

Cross Media competes on the basis of the total value of the bundle of magazines
sold to the customer versus the cost of purchasing individual magazine
subscriptions as well as the convenience for the customer of dealing with a
single source for all of their magazine subscriptions.

LIFESTYLE AND CONTINUITY PRODUCTS

Cross Media through its subsidiary, NSI, markets a wide range of lifestyle
products including videos, music, coins, collectibles, jewelry, horticulture,
and other general merchandise.


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<PAGE>

NSI, acquired by Cross Media in January of 2002, was founded in 1984 to source,
develop and market a wide variety of products through direct response
advertising in Parade Magazine. By agreeing to purchase all unsold advertising
space from a magazine at press time, NSI has secured advertising rates
substantially below those offered to other advertisers. Since its founding, NSI
has maintained an advertising contract with Parade and has made similar
agreements with USA Weekend and American Profile, the other two national Sunday
magazines. NSI receives notification of unsold space three to four weeks prior
to the date of publication and may run as many as 25 different product offers,
determined in large part by the regions, sizes, market locations and circulation
available. In certain instances NSI will buy scheduled space at a higher cost.
NSI also selectively markets its products in other print media including
freestanding inserts, magazines, credit card statement inserts, and package
inserts.

All products sold through NSI are test marketed prior to rollout and increased
profits are pursued through creative and price tests on successful offers. The
consumer response to test ads is analyzed using NSI's database of results of
over 3,000 past print ads. Cross Media utilizes its inbound call center
operation based in Jacksonville, Florida to take customer orders, target and
cross-sell related products and services, and update Cross Media's database,
while outbound operators market additional product offerings to the customer
base. Most products are sold under the Publishers Choice brand, while the Rogers
& Webster, Healthstyle and Publishers Choice Video Catalog brand are used for
specialty offers.

NSI has developed a sophisticated continuity business model that capitalizes on
low cost customer acquisition resulting from NSI's media contracts and owned
outbound telemarketing expertise. The continuity model has shown that a customer
will order products such as travel videos and collectible coins on a monthly
basis. NSI's operators are trained to encourage customers to purchase more than
one item in any interest category, which has enabled NSI to increase the
lifetime value of each customer obtained.

Current continuity programs include such products as:

      o     Morgan Silver Dollars -- Collectible U.S. silver dollars minted from
            1878 to 1921.

      o     Walking Liberty Half Dollars -- Collectible U.S. silver coins minted
            from 1929 to 1947.

      o     Colorized Commemorative State Quarters -- Specialty colorized
            versions of the popular series currently issued by the U.S. Mint.

      o     John F. Kennedy Half Dollars - Collectible U.S. Coins minted from
            1964 - 2000.

      o     World's Greatest Train Rides(TM) -- A 36 video series each featuring
            a scenic rail journey in a different travel destination.

      o     Hard Hat Harry(TM) Real Life Adventures for Kids -- A 24 video
            series each featuring the character Hard Hat Harry explaining a
            different subject to children 3 to 8.

      o     The Winning of World War II -- A 30 video series featuring live
            action combat footage.

      o     History of Air Combat - A 24 video series chronicling air combat
            from the past, present, and future.

      o     Genuine Gemstone Rings - A jewelry collection featuring a variety of
            genuine gemstones rings.

NSI test markets over 150 new offers and rolls out approximately 45 offers each
year. Some of these rollouts are for successful infomercial and spot TV offers
such as Total Gym, TAEBO(R), Thighmaster and Riverdance, for which NSI has
secured exclusive newspaper and Sunday magazine marketing rights. However, most
rollouts are developed internally by NSI including over 200 video titles
manufactured and sold as continuities under proprietary license, including Hard
Hat Harry's Real Life Construction Equipment for Kids and The Great Canadian
Train Ride. These video titles have been marketed on television by NSI as have
The Best of Victor Borge and David Carradine's Tai Chi Workout. In addition to
offerings videos and collectible coins, NSI also advertises a variety of offers
in other product lines including jewelry, books, music CD's, health aids,
horticulture and die cast collectibles.

LIFESTYLE AND CONTINUITY PRODUCTS COMPETITION

There are numerous marketers who advertise regularly in the Sunday magazines
including Bose, Franklin Mint, Techno Scout and United Research Books.
Advertising from some of these companies is competitive with some of NSI's
product lines, specifically collectible coins, die cast replicas, books and
certain general merchandise offers. There is virtually no competition in the
music and video categories. Cross Media is not aware of any other agreements
comparable to NSI's agreements with the Sunday magazines to purchase unsold
advertising space. In certain instances Cross Media will buy scheduled space at
a higher cost.

NSI competes with these other marketers on the basis of:

      o     its low cost and high volume of advertising space, which offers a
            unique vehicle to test-market new products offerings;


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<PAGE>

      o     a wide breadth of product offerings, which in 2002 was over 150
            individual offerings;

      o     expertise, both in outbound and inbound telesales, involving the
            cross-selling of continuity programs and additional products and
            services.

DATA SALES

Cross Media acquires in excess of 250,000 new magazine subscribers, continuity
buyers, transactional inquirers, lifestyle registrants, sweepstakes participants
and members each month. These names and related customer information are placed
in Cross Media's data bases and are cross referenced into relational databases
which are overlayed with demographic and psychographic compiled data in order to
create valuable interest groups that can be rented to other marketers. Cross
Media continuously adds to this data warehouse each month through more consumer
contacts, enriching it with more transactional specific data. Cross Media
believes the data mining potential is a powerful magnet to other companies and
provides Cross Media not only with an ever-increasing significant monthly
revenue source but a leverage tool for cross marketing partnerships with third
parties.

WEB PRESENCE AND ONLINE MARKETING

Cross Media uses the Internet to gather data about prospects and customers,
deliver personalized content, send targeted marketing messages to drive
consumers to call an 800-number or visit a website and generate customer
transactions. As such, the Internet has emerged as an important marketing
channel for Cross Media. The Internet is the exclusive channel for several of
Cross Media's brands, including LifeMinders(TM) and Intelligent Mailbox(TM) and
Opt-Intelligence(TM).

LifeMinders, which was acquired by Cross Media in October 2001, provides
personalized-information products and high-utility services for value-conscious,
time-pressed consumers. Some of the LifeMinders services include timely tips,
helpful hints, and informational e-newsletters.

LifeMinders is a data collection vehicle, partnering with newsletter publishers
to capture data on each registrant while affording the newsletter publisher
additional subscribers. LifeMinders receives a fee for each subscriber.

Intelligent Mailbox is a marketing platform that emerged from "inactive"
LifeMinders members. These are members for which Cross Media has significant
data, but who have less interest in forging a relationship with the LifeMinders
brand. The Intelligent Mailbox brand is distinct from LifeMinders in the eyes of
consumers, but leverages LifeMinders' content.

Opt-Intelligence is a service which generates incremental revenues for websites,
taking advantage of the registration process. Consumers entering information
during the registration process are offered a branded page of opt-in
opportunities which are targeted based on the consumer's information. The system
simultaneously allows advertisers to collect data in real time for an immediate
marketing of a product or service by initiating a "call to action". The branded
page of offers appears seamlessly during the website's registration process.
Opt-Intelligence handles all aspects of the offer page, including sales,
technology and management. In exchange for providing these services,
Opt-intelligence receives a free slot on each website's opt-in page, collecting
data and selling products through follow-up emails, print and telemarketing.

TECHNOLOGY

Cross Media businesses are supported by multiple technology components,
including Automated Calling Distributors (ACD's) from Tier 1 providers,
predictive dialers, content management software, e-mail delivery systems, data
marts and a data warehouse, customer targeting and behavior tracking sub-system,
a list management system, an e-commerce application, multiple websites, and
order management systems. These systems are architected from a variety of
technologies, primarily using Oracle and SQL Server databases on Intel-based
hardware.

Cross Media technology incorporates a variety of security procedures to protect
confidential customer data. Cross Media limits, monitors and protects all
outside access to its resources and data with state-of-the-art technology; all
suspicious activity is logged and analyzed by qualified staff. Cross Media's
data center is co-hosted at major third-party Internet data center operations
that are constantly monitored and provide both physical and logistical security.
These facilities provide redundant network connections and redundant connections
to power grids and diesel generators to ensure continuous operations. In
addition, these facilities provide physical security, around the clock
operations support and monitoring and network diagnostic support as needed.

The technology platform has been designed to scale appropriately with additional
customers and volume. As the customer base expands, Cross Media increases the
platform capacity and replicates its infrastructure to provide parallel
operations.

Cross Media's technology platform uses industry standard technologies to
maximize reliability. Cross Media believes it has increased hardware reliability
by a combination of redundancy at the component level and hot spares for groups
of components. Software and data reliability are improved through a variety of
processes and quality assurance procedures. Cross Media has incorporated
standard procedures, including daily database backups, off site storage of
critical archives, and incremental backup of ongoing database modifications into
its standard operating


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discipline. Additional reliability is provided by fault tolerant and redundant
platform architecture, which utilize clustering technology to ensure single
failures do not impact service availability.

REGULATION

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

Laws and regulations applicable to direct marketing, telemarketing, Internet
marketing, privacy, list development and use, and consumer protection and
membership club services are becoming more prevalent. Each of the 50 states and
the Federal government enforce various laws and regulations regulating
telemarketing, sweepstakes promotions, promotional incentives and advertising to
consumers. While Cross Media reviews its telemarketing scripts and advertising
copy and general marketing practices for compliance with applicable laws, there
is no guarantee that Federal or state authorities will not find that Cross
Media's marketing efforts do not comply with these laws. In addition, it is
likely that additional Federal and/or state regulations regarding telemarketing,
sweepstakes, privacy, list development and use, email marketing and other
marketing practices engaged in by Cross Media will be enacted. If enacted, these
regulations could have an adverse effect on revenues and result in additional
expenses to Cross Media and could require Cross Media to refrain from engaging
in specific activities or modify its business practices.

The Federal Trade Commission routinely reviews its trade regulation rules to
determine if changes are warranted. In January 2003, the Federal Trade
Commission concluded a year long review of the Telemarketing Sales Rule, which
was originally enacted in 1995. This review resulted in various changes and
additions to the existing rule. The amended rule includes, among other things,
regulations concerning a national do-not-call registry, caller identification
requirements, use of predictive dialers, and enhanced disclosure requirements
for certain types of transactions, such as "upsells." The amended rule becomes
effective March 31, 2003, with the exception of the national do-not-call and
caller identification provisions. Several industry associations have filed suit
against the FTC in connection with its promulgation of the do-not-call
regulation, claiming that the regulation is not within the FTC's jurisdiction.
Regardless of the outcome of those actions, several of the amended rule's new
provisions may affect Cross Media's telemarketing operations, which may
adversely affect its telemarketing practices.

Federal and state authorities have also been investigating various companies'
use of 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 Cross Media's marketing
practices.

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

Laws and regulations regulating the transmission of unsolicited e-mail marketing
messages are being considered by many jurisdictions. Legislation of that type
has been enacted in over half the states and similar legislation is pending in
several other states 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, Cross Media cannot be certain that similar legislation will
not be enacted and upheld in the future.

There has been increasing public debate about the collection, distribution and
use of information about consumers. Although this debate has primarily focused
on information collected through the Internet, many of the issues apply to data
gathered through other media. Cross Media


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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 Cross Media's business.

EMPLOYEES

As of March 28, 2003, Cross Media had approximately 731 full time employees and
101 part time employees.

Available Information

      Cross Media's internet address is www.xmmcorp.com. Cross Media makes
available free of charge on www.xmmcorp.com its annual report on Form 10-K and
is currently in the process of making available the quarterly reports on Form
10-Q and current reports on Form 8-K, and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as
reasonably practicable after we electronically file such material with, or
furnish it to, the SEC.

      In addition, Cross Media will provide, at no cost, paper or electronic
copies of our reports and other filings (excluding exhibits) made with the SEC.
Requests should be directed to:

                        Cross Media Marketing Corporation
                          461 Fifth Avenue, 19th Floor
                            New York, New York 10017
                              Attn: Ronald Altbach

The information on the website listed above, is not and should not be considered
part of this annual report on Form 10-K and is not incorporated by reference in
this document. This website is and is only intended to be an inactive textual
reference.

ITEM 2. PROPERTIES

Cross Media's principal offices are located at 461 Fifth Avenue, New York, New
York. Cross Media has a ten-year lease to rent 12,287 square feet of space at
461 Fifth Avenue, New York, New York at an estimated annual cost of
approximately $818,000 which expires, in 2011. Media Outsourcing Inc's., a
wholly owned subsidiary ("MOS"), principal offices are located at 200 Chastain
Center Blvd, Suite 250, Kennesaw, Georgia 30144 with an annual cost of
approximately $280,000 and expires in 2008. Cross Media has an additional office
in GA at 2550 Heritage Court, Atlanta, Georgia. The lease for this office
provides for approximately 16,800 square feet of space, expires in 2004 and the
annual rent is approximately $280,000.

NSI has an office in New York and two offices in Florida. The NSI office in New
York is located at 230 Fifth Avenue with an annual cost of approximately
$216,000 and NSI's two offices in Florida have an annual cost of approximately
$120,000 and $80,000, respectively. In January 2002, Cross Media entered into a
five-year lease at 11720 Sunrise Valley Drive, Reston Virginia with 10,376
square feet for an approximate cost of $247,000 annually. Cross Media also has
four call center locations in the state of Montana with aggregate annual lease
payments of $350,000.

ITEM 3. LEGAL PROCEEDINGS

Cross Media provides accruals for all direct costs associated with the estimated
resolution of contingencies at the earliest date at which it is deemed probable
that a liability has incurred and the amount of such liability can be reasonably
estimated.

Ecoupons.com

In March 2002, former stockholders of eCoupons.com, Inc., a company that merged
with and into LifeMinders in December 2000, filed a complaint on their behalf
and on behalf of other former stockholders, J.M. Thies, et al v. LifeMinders,
Inc. et al. (No. 02-2119-KHV), in the United States District Court for the
District of Kansas against LifeMinders, Inc. (which Cross Media acquired by
merger on October 24, 2001), and two directors of Cross Media and several former
officers and directors of LifeMinders. The plaintiffs alleged that the
defendants made misrepresentations to the plaintiffs to induce them to merge
eCoupons with and into LifeMinders. They requested monetary damages in an amount
not less than $4.2 million and punitive damages in an amount not less than $5
million against the defendants. In accordance with the terms of the merger
agreement with LifeMinders, Cross Media is obligated to indemnify the other
defendants. Cross Media was aware of the dispute prior to closing the
LifeMinders acquisition.

On November 6, 2002, the District Court for the District of Kansas (i) dismissed
all of the individual defendants from the action, (ii) ordered that plaintiffs'
claims against LifeMinders (now Cross Media) must proceed in arbitration, and
(iii) stayed all claims against LifeMinders pending the outcome of arbitration.

On January 27, 2003, the plaintiffs filed for arbitration with the American
Arbitration Association in Fairfax, VA, alleging the same facts as the Federal
court case. On March 6, 2003, Cross Media filed an answer, in which it denied
all allegations of wrongdoing, and a notice to dismiss the claim. Cross Media
intends to vigorously defend this matter. However, if an adverse final judgment
is issued against Cross Media in arbitration and if its insurance does not
adequately cover the damages, such an event could have a material adverse effect
on its financial condition and results of operations.

                            Federal Trade Commission

On April 9, 2002, the United States Department of Justice ("DOJ"), on behalf of
the Federal Trade Commission ("FTC"), filed a complaint, United States v.
Prochnow, et al. No. 1:02-CV-917 (JOF), in the United States District Court for
the Northern District of Georgia against Cross Media, MOS, Ronald Altbach,
Dennis Gougion, an officer of MOS, and Richard Prochnow, a former consultant to
MOS. The complaint


                                       6
<PAGE>

alleged violations of the Federal Telemarketing Sales Rule and the Federal Trade
Commission Act and non-compliance with a previous FTC order entered into by Mr.
Prochnow, individually and doing business as Direct Sales International, Inc.,
and Mr. Gougion, individually. MOS acquired certain assets of Direct Sales
International in January 2000. The complaint sought monetary civil penalties,
redress, injunctive, and other relief against any such future violations.

Simultaneous with the filing of the complaint, plaintiffs filed a motion for a
temporary restraining order against the defendants seeking, among other things,
compliance with the Telemarketing Sales Rule, the FTC Act, and the previous FTC
order. At the April 10, 2002 hearing for the temporary restraining motion, the
parties agreed to postpone the hearing for a later date to facilitate settlement
discussions. Following several negotiation meetings and subsequent agreements to
postpone the hearing date, on October 21, 2002, the court issued an order
denying the FTC's motion for a temporary restraining order, with leave to renew
the motion.

On March 28, 2003, Cross Media and MOS signed a proposed agreement with FTC and
DOJ staff attorneys resolving all matters of dispute between them regarding the
allegations in the April 9, 2002 complaint, without any admission of guilt by
Cross Media and MOS, and without trial or adjudication of any issue of fact or
law. However, the settlement agreement is subject to review and approval by the
FTC and the DOJ and is not final and binding on the parties until such process
is completed.

The settlement agreement, as currently, agreed, will require Cross Media and MOS
to comply with certain disclosure, record keeping and reporting requirements
regarding the manner in which they conduct their telemarketing business.
Further, the settlement agreement provides for a civil penalty of $1 million, of
which, $650,000 has been suspended by the government based on the accuracy and
completion of previously issued Company financial statements and the financial
results herein, resulting in a $350,000 payment to be made in two equal
installments. In the event of a default of either installment, the entire
penalty, with interest, shall become immediately due. Accordingly, Cross Media
has accrued $350,000 of the penalty as of December 31, 2002.

While Cross Media believes that the proposed settlement agreement will be
approved by the FTC and the DOJ as agreed upon with the staff attorneys
representing those agencies, there is no certainty that these agencies will
approve the settlement on the terms agreed upon or at all. Further, Cross Media
is unable to predict what effects, if any, this settlement agreement may have on
its operations.

Class Action Litigation

On July 16, 2002, Cross Media and Ronald Altbach were named as defendants in a
putative class action entitled Woodruff v. Cross Media Marketing Corp., 02 Civ.
5462, pending in the United States District Court for the Southern District of
New York. On October 8, 2002, this action and four other virtually identical
actions were consolidated under the caption In re Cross Media Marketing
Corporation Securities Litigation, 02 Civ. 5462 (RPP).

On December 13, 2002, the plaintiffs filed a superseding consolidated amended
complaint ("Complaint"), asserting claims for securities fraud under Section
10(b) and Section 20(a) of the Securities Exchange Act of 1934 against Cross
Media, Mr. Altbach, certain other current or former officers and a consultant on
behalf of a putative class of stockholders who purchased shares of Cross Media
between November 5, 2001 and July 11, 2002 at prices allegedly inflated by
purported material omissions in Cross Media's public disclosures.

Defendants filed its motion to dismiss the Complaint on March 3, 2003. That
motion is scheduled to be fully briefed by May 9, 2003, and will trigger an
automatic stay of disclosure under the Private Securities Litigation Reform Act
of 1995 pending a decision on the motion. If its motion to dismiss the Complaint
is denied, Cross Media intends to vigorously defend this matter on its own
behalf and on behalf of the current and former officers named as individual
defendants. Because this lawsuit is still in the early stages, Cross Media is
unable to predict the outcome or the effect it may have on Cross Media's
operating results, financial condition or stock price.

Shareholder Derivative Lawsuit

In September 2002, a shareholder derivative lawsuit Pardo v Altbach et al. 02 CV
6740 (JSM) was filed against Cross Media and certain of its current and former
directors alleging substantially the same claims made in the class action
complaints. The defendants dispute these claims and intend to vigorously defend
this matter. In October, the District Court for the Southern District of New
York entered an order extending the defendants' time to respond to the complaint
to 30 days following final entry of an order on defendants' motion dismiss the
consolidated amended shareholder suit. Because this lawsuit is in its early
stages, Cross Media is unable to predict the outcome or the effect it may have
on Cross Media's operating results, financial condition or stock price.

In addition to the matters described above, from time to time Cross Media
receives other complaints and inquiries in the course of conducting its regular
business. Cross Media responds to these matters as soon as they are received and
seeks to resolve them as expeditiously as possible with minimal interruption and
distraction to operations. Cross Media does not believe that the outcome of any
of these other matters will likely have a material impact on its business
operations.

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

None.

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Cross Media's common stock trades on the American Stock Exchange under the
symbol "XMM". The following table sets forth the range of high and low sale
prices of Cross Media's common stock since January 1, 2000 giving effect to the
1-for-5 share reverse split of Cross Media's common stock effected on October
24, 2001.


                                       7
<PAGE>

                                                                    Common Stock
                                                                    ------------
                                                                    HIGH    LOW
                                                                    -----   ----
FISCAL YEAR ENDED DECEMBER 31, 2001
  First Quarter .................................................  $11.88  $4.00
  Second Quarter ................................................   10.75   4.50
  Third Quarter .................................................   10.90   6.00
  Fourth Quarter ................................................    9.40   6.25
FISCAL YEAR ENDED DECEMBER 31, 2002
  First Quarter .................................................   13.18   8.91
  Second Quarter ................................................   14.89   8.70
  Third Quarter .................................................    9.35   0.75
  Fourth Quarter ................................................    1.23   0.42

As of March 31, 2003, there were approximately 417,000 holders of record of the
common stock.

DIVIDENDS

Cross Media has never paid or declared any dividends on its common stock and
does not contemplate paying any such dividends in the foreseeable future. Cross
Media currently intends to reinvest earnings, if any, in the development and
expansion of its business. The declaration of dividends in the future will be at
the discretion of the Board of Directors and will depend upon the earnings,
capital requirements and the financial position of Cross Media, general economic
conditions, restrictions under financing documents and other relevant factors.
Under the Fleet credit agreement, Cross Media is currently prohibited from
declaring and paying dividends other than dividends payable in shares of common
stock, to its stockholders.

RECENT ISSUANCES OF UNREGISTERED SECURITIES

On February 16, 2003, Cross Media issued ten-year warrants to purchase an
aggregate of 500,000 shares of common stock with an exercise price of $1.91 to
Lancer Offshore, Inc. due to non-payment of the principal balance of the note
issued on August 16, 2002. The issuance of these securities was made in reliance
on Section 4 (2) of the Securities Act as a transaction not involving any public
offering, because: (1) Lancer Offshore, Inc. represented that it was acquiring
the securities for investment purposes; and (2) Cross Media did not engage in
any general advertisement or general solicitation in connection with the
issuance of the securities.

On February 16, 2003, Cross Media issued ten-year warrants to purchase an
aggregate of 500,000 shares of common stock with an exercise price of $1.91 to
Lancer Offshore, Inc. due to non-payment of the principal balance of the amended
note issued in conjunction with the purchase of JWE. The issuance of these
securities was made in reliance on Section 4 (2) of the Securities Act as a
transaction not involving any public offering, because: (1) Lancer Offshore,
Inc. represented that it was acquiring the securities for investment purposes;
and (2) Cross Media did not engage in any general advertisement or general
solicitation in connection with the issuance of the securities.

On December 31, 2002, Cross Media issued five-year warrants to purchase an
aggregate of 10,000 shares of common stock with an exercise price of $0.55 to
Mark Danchak in connection with consulting services. The issuance of these
securities was made in reliance on Section 4 (2) of the Securities Act as a
transaction not involving any public offering, because: (1) Mark Danchak
represented that he was acquiring the securities for investment purposes; and
(2) Cross Media did not engage in any general advertisement or general
solicitation in connection with the issuance of the securities.

On December 31, 2002, Cross Media issued five-year warrants to purchase an
aggregate of 30,000 shares of common stock with an exercise price of $0.55 to
Jeffrey Leach in connection with consulting services. The issuance of these
securities was made in reliance on Section 4 (2) of the Securities Act as a
transaction not involving any public offering, because: (1) Jeffrey Leach
represented that he was acquiring the securities for investment purposes; and
(2) Cross Media did not engage in any general advertisement or general
solicitation in connection with the issuance of the securities.

On December 31, 2002, Cross Media issued five-year warrants to purchase an
aggregate of 20,000 shares of common stock with an exercise price of $0.55 to
Michael Rowsom in connection with consulting services. The issuance of these
securities was made in reliance on Section 4 (2) of the Securities Act as a
transaction not involving any public offering, because: (1) Michael Rowsam
represented that he was acquiring the securities for investment purposes; and
(2) Cross Media did not engage in any general advertisement or general
solicitation in connection with the issuance of the securities.


                                       8
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

The following selected consolidated financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operation" and Cross Media's condensed consolidated financial statements and
accompanying notes included elsewhere herein.

In reading the following selected historical financial data, please note the
following:

-     On January 28, 2000, Cross Media acquired substantially all of the assets
      and assumed certain liabilities of Direct Sales International, LP. (DSI)
      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)

-     On October 24, 2001, Cross Media acquired the stock of LifeMinders, Inc.,
      an online direct marketer, through the merger of LifeMinders with and into
      Cross Media. The total purchase price was approximately $62 million.

-     On January 11, 2002, Cross Media acquired all of the capital stock of NSI.
      NSI develops and markets a wide variety of products through direct
      response advertising in Sunday publications. The total cost of acquisition
      was approximately $20.1 million.

-     On May 27, 2002, Cross Media completed the acquisition of substantially
      all of the assets of JWE Enterprise, Inc., a magazine subscription
      business and the other 50% interest in an investment partnership from JWE
      Holdings, Inc. (collectively JWE)

<TABLE>
<CAPTION>
                                                      FOR THE YEARS ENDED
                                                          DECEMBER 31,
                                                 ----------------------------------------------------
                                                   2002       2001       2000       1999       1998
                                                 -------    --------   --------   --------   --------
<S>                                              <C>        <C>        <C>        <C>        <C>
Revenues, net                                    $145,118   $100,116   $ 55,939   $     --   $     --

Income (loss) from continuing operations         $(29,300)  $ 11,168   $    424   $ (9,540)  $   (319)

Net income (loss) per share applicable
to common stockholders
Basic                                              (2.38)       1.00      (9.18)     (0.80)     (0.18)
Diluted                                            (2.38)       0.86      (9.18)     (0.80)     (0.18)

Total assets                                    $123,694    $ 95,284   $ 43,944   $  1,056   $    344

Total long-term obligations                      $ 9,118    $  5,853   $ 10,419   $    523   $     69
</TABLE>


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

The following discussion and analysis should be read together with the
consolidated financial statements of Cross Media and the accompanying notes to
the Consolidated Financial Statements included elsewhere herein. This discussion
summarizes the significant factors affecting the consolidated operating results,
financial condition and liquidity and cash flows of Cross Media for the years
ended December 31, 2002, 2001 and 2000, respectively.

CRITICAL ACCOUNTING POLICIES

The SEC defines "critical accounting policies" as those that require application
of management's most difficult, subjective or complex judgments, often as a
result of the need to make estimates about the effect of matters that are
inherently uncertain and may change in subsequent periods.

Cross Media's critical accounting policies are described in Note C in the Notes
to the Consolidated Financial Statements included elsewhere herein. Not all of
these significant accounting policies require management to make difficult,
subjective or complex judgments or estimates. However, the following policies
could be deemed to be critical within the SEC definition.

Revenue Recognition

Magazine Revenue

Revenues derived from originating magazine subscriptions for publishers are
recognized by Cross Media when Cross Media receives the first installment
payment for subscriptions purchased and the publisher has accepted the order.
Magazine subscription revenues are recorded net of cancellations, collection
reserves, and payments made to publishers for fulfillment costs. Cross Media
performs an ongoing review of its cancellation and collection reserve using a
static pool analysis on the pay to maturity results of the portfolio of consumer
receivables, to ensure that the receivables reflect their net realizable value.
In 2002, Cross Media refined its estimates used in the analysis to factor in the
most current performance and to separately evaluate its reserve on older
receivables. These evaluations are inherently judgmental and require material
estimates based on historical experience of collectibility and economic trends.
Material differences may result in the amount and timing of Cross Media's
revenue for any period if Cross Media's management made different judgments or
utilized different estimates. For example, a one percent change in the estimated
cancellation and collection rate at December 31, 2002 would result in a change
in the cancellation and collection reserve, and a change in net revenue of $3.4
million.


                                       9
<PAGE>

Other Magazine Revenue

Cross Media receives fees from outside third parties for securing memberships in
the third party's discount-buying club. These fees are recognized when the
related subscriptions or memberships are obtained. Revenues also include
commissions earned from publishers for providing certain publications to
customers who purchased multiple subscriptions.

Revenue from Print Advertising

Revenue from print advertising relates to National Syndications Inc. ("NSI")
operations are one time purchases made by customers. Revenue from print
advertising is usually generated by inbound calling in response to advertising
space in Sunday magazines and involves the one time sale of products such as
coins and collectibles. Revenue is recognized gross as Cross Media acts as the
principal to the transaction with the customer and are responsible for providing
the product to the customer and have general inventory and credit risk on the
transaction.

Continuity Revenue

Continuity revenue is generated from the sale of products to a customer over
multiple months, generally involving the sale of videos or coins. Revenue is
recognized upon each shipment of product, net of reserves. Revenue is recorded
gross as Cross Media is the principal and is primarily responsible for providing
the product to the customer and has general inventory and credit risk on the
transaction.

Income Taxes

Management must make estimates in recording Cross Media's provision for income
taxes, including determination of deferred tax assets and deferred tax
liabilities and any valuation allowances that might be required against the
deferred tax assets. Cross Media has recorded a valuation allowance against the
deferred tax asset based upon management's assessment of the realizability of
the asset through future taxable income.

Restructuring

During the quarter ended September 30, 2002, Cross Media announced changes to
its business plan and other actions to reduce operating expenses through a
reduction in workforce and non-personnel operating expenses. As a result of this
restructuring, Cross Media recorded $4.2 million in restructuring costs during
the third quarter ended September 30, 2002. The restructuring costs consist of
$2.3 million relating to Cross Media's estimate of employee severance and
related costs for employees terminated and $1.9 million relating to estimates of
office space lease commitments where Cross Media intends to close offices, net
of any sublease rentals, and other exit costs. Restructuring costs were accrued
in accordance with EITF 94-3 "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit and Activity".

RESULTS OF OPERATIONS

      YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

<TABLE>
<CAPTION>
                                                     For the Year Ended 2002
                                          ---------------------------------------------
                                          Magazine   Collectibles    Other      Total
                                          --------   ------------   --------   --------
<S>                                       <C>        <C>               <C>     <C>
Revenue, net                              $ 92,222   $     48,758      4,138   $145,118
Commission expense                          40,940             --         --     40,940
Other direct costs                          40,523         44,299      5,207     90,029
                                          --------   ------------   --------   --------
Gross Profit                                10,759          4,459     (1,069)    14,149
General and adminstrative expenses          13,596          7,749      9,295     30,640
Depreciation and amortization                2,036            373         88      2,497
Impairment charge                                                      6,116      6,116
Restructuring charge                            --             --      4,196      4,196
                                          --------   ------------   --------   --------
Income from operations                      (4,873)        (3,663)   (20,764)   (29,300)
Equity in income of limited partnerships        --            625         --        625
Interest Income (Expense)                   (2,791)            --       (714)    (3,505)
Other Income (Expense)                        (129)           612         33        516
                                          --------   ------------   --------   --------
Income (loss) before taxes                $ (7,793)  $     (2,426)  $(21,445)  $(31,664)
                                          ========   ============   ========   ========

<CAPTION>
                                                     For the Year Ended 2001
                                          --------------------------------------------
                                          Magazine   Collectibles   Other      Total
                                          --------   ------------  --------   --------
<S>                                       <C>        <C>           <C>        <C>
Revenue, net                              $ 99,606   $         --  $    510   $100,116
Commission expense                          42,568             --        --     42,568
Other direct costs                          29,135             --       174     29,309
                                          --------   ------------  --------   --------
Gross Profit                                27,903             --       336     28,239
General and adminstrative expenses          13,410                    1,780     15,190
Depreciation and amortization                1,135             --       746      1,881
                                          --------   ------------  --------   --------
Income from operations                      13,358             --    (2,190)    11,168
Interest Income (Expense)                   (2,003)                     (57)    (2,060)
                                          --------   ------------  --------   --------
Income (loss) before taxes                $ 11,355   $         --  $ (2,247)  $  9,108
                                          ========   ============  ========   ========
</TABLE>

Revenues, net: During the year ended December 31, 2002, net revenues were $145.1
million, a $45 million or 45% increase from net revenues of $100.1 million for
the year ended December 31, 2001. The increase in revenues relates to (1) $48.8
million generated from the sale of coins, collectibles and other products sold
through our print and telesales channels, which we acquired through our
acquisition of NSI during the first quarter of 2002 (2) a decrease in our
magazine revenues and other related revenues of approximately $7.4 million and
(3) an increase in our online revenues of $3.6 million.

The decrease in magazine revenues of $7.4 million is a result of a (a) $6.7
million reduction in other magazine revenues such as commissions from discount
third party buying clubs, publisher fees and other magazine revenues, (b) $7.2
million increase in the reserve for collection of consumer receivables due to a
refinement to its estimates used in the pay to maturity analysis on its
magazine accounts receivable to reflect current trends in the accounts
receivable population, partially offset by (1) $3.8 million increase in revenues
associated with higher sales of magazine subscriptions, due to the expanded call
center operations in the first two quarters of 2002 and (2) $2.6 million
decrease in magazine costs relating to payments to publishers for fulfillment
costs, which increased net magazine revenues, due to new negotiated rate
agreements with publishers. During the fourth quarter 2002, Cross Media noted a
decline in the performance of its older receivables and recorded an additional
reserve of $6.3 million.


                                       10
<PAGE>

Magazine revenues decreased $6.7 million due to the termination of a contract
for third party discount buying clubs, which was subsequently replaced but with
lower commission fees and a downturn in the advertising marketing, which
effected revenues for publisher fees. Collectibles revenue was adversely
impacted by returns of approximately $1.0 million in January and February of
2003 relating to fourth quarter 2002 sales of a new product offering. Online
revenues increased $3.7 million due to new programs implemented in 2002, which
were not operational during 2001.

Commission Expense: Commission expense decreased $1.6 million or 3.8% to $40.9
million in the year ended December 31, 2002 from $42.6 million in the same
period of 2001 as a result of a decrease in magazine contracts from our
independent call centers. Commission expense increased as a percentage of net
magazine revenues from 42.7% for the year ended December 31, 2001 compared to
44.4% for the year ended December 31, 2002, as a result of the decrease in the
revenues of $7.2 relating to the refinement of the estimates used in its pay to
maturity analysis to factor in the most current performance of the receivables.

Other Direct Costs: Other direct costs increased $60.7 million from $29.3
million for the year ended December 31, 2001 to $90 million for the year ended
December 31, 2002. This increase is a result of $44.3 million in direct costs
relating to sale and promotional advertising costs incurred in connection with
the sale of coins, collectibles and other products relating to our print and
outbound telesales channels, which were acquired through our acquisition of NSI
during the first quarter of 2002, as well as a $16.4 million or 56% increase in
other direct costs relating to the magazine and online business. The increase in
direct costs is primarily attributable to the operational costs incurred with
the acquisition of JWE of approximately $7 million, $5 million in costs relating
to the online business, which was not operational in 2001 and increased direct
costs associated with the magazine business of $4.4 million relating to a
planned increase in personnel based on Cross Media's anticipated growth which
did not occur.

General and Administrative Expenses: General and administrative expenses
increased $15.4 million to $30.6 million for the year ended December 31, 2002
from $15.2 million in the year ended December 31, 2001. The increase is
attributable to the following: (1) an increase of general and administrative
costs relating to the acquisitions of NSI and JWE of $7.7 million and $0.9
million, respectively, during 2002,(2) a $1.7 million increase in employee
benefits and other costs relating to the online business, (3) a $2.9 million
increase in additional professional fees and FTC settlement fees and (4) an
additional $2.4 million relating to the increased corporate overhead and
expansion of MOS' operations in the first and second quarters in anticipation of
increased revenue from growth of operations, which did not occur.

Depreciation and amortization: Depreciation and amortization increased $0.6
million or 32% from $1.9 million for the year ended December 31, 2001 to $2.5
million for the year ended December 31, 2002. The increase in depreciation and
amortization directly relates fixed assets additions for the expansion of our
operations for the magazine and online business of approximately $8.5 million.
Additionally, Cross Media recorded $0.4 million relating to the fixed assets
acquired in the NSI acquisition in 2002.

Impairment charge: During the fourth quarter of 2002, Cross Media had a fair
valuation of each reporting unit determined through the use of an outside
independent valuation consultant. The consultant considered both the income
approach and the market approach in determining fair value. As a result of this
annual impairment test, Cross Media recorded a pretax goodwill impairment charge
of $6.1 million. This fourth quarter impairment charge related to the
Lifeminders goodwill associated with the future recoverability of the tax net
operating losses.

Restructuring Charge: During the year ended December 31, 2002, Cross Media
implemented a restructuring plan to better align its operating costs with its
anticipated future revenue stream. The total restructuring charge of $4.2
million related to the elimination of approximately 30 employee positions across
multiple business units and lease obligation costs for office space that Cross
Media is no longer occupying, net of sublease income.

Interest Expense: For the year ended December 31, 2002 interest expense was
approximately $3.5 million an increase of $1.4 million from the year ended
December 31, 2001. Interest expense increased $0.6 million due to higher debt
outstanding of $25 million on the revolving credit facility compared to $17.3
million at the end of 2001. In addition, Cross Media incurred approximately $0.8
million for the amortization of deferred financing relating to the Fleet Credit
Facility.

Equity in income from affiliates was approximately $0.6 million a result of
NSI's 49% ownership of several limited partnerships acquired as part of the NSI
acquisition in 2002.

Other Income (expense): For the year ended December 31, 2002, Cross Media
recorded approximately $0.5 million in other income relating to management fees
received from one if its 49% limited partnership which was acquired as part of
the NSI acquisition in 2002.

Provision for Income Taxes: During the year ended December 31, 2002, Cross Media
recorded a provision for income tax of approximately $2.3 million compared to a
$0.3 million for the year ended December 31, 2001. The $2.3 million tax
provision relates to a 100% valuation allowance on the $2.8 million in deferred
taxes recorded during 2001 for the expected benefit of the existing company's
NOL's and the NOL acquired with the acquisition of LifeMinders to be realized in
2002.

Preferred Dividends: For twelve months ended December 31, 2002, Cross Media
recorded approximately $87,000 in preferred dividends as a result of the
issuance of the Series B preferred stock in conjunction with the acquisition of
JWE, compared to $0.8 million of preferred dividends recorded during the year
ended December 31, 2001 in connection with the Series A Preferred Stock, which
is no longer outstanding.

Extraordinary Loss: Upon entering into the new credit agreement with Fleet,
Cross Media terminated its credit agreement with Coast Business Credit
("Coast"). Cross Media repaid the remaining borrowings of approximately $18
million under the Coast facility, as well as an early termination fee of $0.2
million. As a result of the early termination of the Coast facility during the
year ended December 31, 2002 Cross Media recorded an extraordinary charge of
approximately $0.5 million relating to the early termination fee and the write
off of the unamortized balance of deferred financing costs relating to the Coast
facility.

Net Income (Loss) Applicable to Common Stockholders: For the twelve months ended
December 31, 2002, Cross Media had a net loss applicable to common stockholders
of approximately $34.5 million, which resulted in diluted loss per share
applicable to common stockholders of $2.38 compared to a net income applicable
to common stockholders


                                       11
<PAGE>

of $0.86 per share for the year ended December 31, 2001.

RESULTS OF OPERATIONS

      YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

Revenues, net: During the year ended December 31, 2001, net revenues were $100.1
million, a 79% increase from net revenues of $55.9 million for the year ended
December 31, 2000. Net revenues increased as a result of higher sales of
magazine contracts, increased revenue from sales of memberships, higher
publisher fees, revenues from the sales of long distance telephone service and
other revenues. For the year ended December 31, 2001, net revenues were derived
primarily from the sales of magazine contracts totaling approximately $81.9
million and other revenues of $18.2 million consisting of commission revenue
from sales of memberships to discount third party buying clubs, publisher fees,
revenues from the sales of long distance service and other revenues, a 73.1% and
110.9% increase over prior year for sales of magazine contracts of $47.3 million
and other revenues of $8.7 million, respectively. During the year ended December
31, 2001, Cross Media evaluated actual collection and cancellations experience
activity as it relates to magazine sales. During the third and fourth quarter
2001, Cross Media performed a reconciliation of its detailed customer portfolio
and historical reserve for collections. This resulted in an increase to net
revenues of approximately $1.0 million and $1.3 million in the third and fourth
quarter 2001, respectively.

Commission Expenses: Commission expense increased 38% to $42.6 million during
the year ended December 31, 2001 from $30.8 million in 2000 as a result of
higher sales. Commission expense decreased as a percentage of net magazine
revenues from 65% for the year ended December 31, 2000 compared to 52% for the
year ended December 31, 2001 as a result of the use of Cross Media's company
owned and operated call centers, which Cross Media established during 2001.

Other Direct Costs: For the year ended December 31, 2001, Cross Media recorded
$29.3 million of other direct costs related to sales of magazine contracts and
other revenues, an $18.7 million increase from the $10.6 million of other direct
costs recorded for the year ended December 31, 2000. The increase primarily
consists of $12.0 million relating to the expansion of Cross Media's company
owned and operated call centers as well as increase of $8.7 million relating to
direct recurring payroll, rent and other costs related to the expansion of Cross
Media's operations. For the year ended December 31, 2001, other direct costs as
a percentage of total net revenues were 29% compared to 19% for year ended
December 31, 2001. During the fourth quarter 2001, Cross Media reduced other
direct costs by approximately $1.4 million due to revisions of estimates for
certain publishers, sale of magazine contracts, offset by the amortization of
leads inventory. The increase is a result of the use of company owned and
operated call centers during the year ended December 31, 2000.

General and Administrative: General and administrative expenses increased $2.9
million to $17 million for year ended December 31, 2001 from $14.1 million year
ended December 31, 2000. The increase is primarily attributable to an increase
in operational expenses incurred due to the expansion of Cross Media's
operations. As a percentage of revenues, general and administrative expenses
decreased from 25% in 2000 to 17% in 2001.

Interest Expense: During the year ended December 31, 2001, interest expense was
approximately $2.1 million compared to $4.4 million for the year ended December
31, 2000. The decrease is primarily related to the one time non-cash interest
expense recorded for the year ended 2000 of approximately $2.4 million related
to the fair value of shares and warrants issued in connection with the initial
issuance and subsequent conversions of securities issued in the DSI acquisition
financings. Interest expense relating to the Coast Business Credit financing
facility for the year ended December 31, 2001 was approximately $2.0 million
compared to $1.9 million for the year ended December 31, 2000 relating to the
amortization of deferred financing fees and interest on the Coast Business
Credit financing facility.

Income Taxes: Cross Media recorded a provision of $275,000 for income taxes in
2001 reflecting a state tax liability resulting from the MOS' operations. During
the fourth quarter of 2001, Cross Media recorded an adjustment of $700,000 to
reduce the valuation allowance on the deferred tax asset, based on an assessment
of historical and projected future profitability. In recording the asset during
the fourth quarter, Cross Media considered that it had experienced six
consecutive quarters of profitability and at that time forecasted continued
profitability in the foreseeable future. At December 31, 2001, Cross Media's
forecast for 2002 showed sufficient pre-tax net income to utilize the net
operating loss carryforwards and absorb the tax benefit of certain timing
differences included in the deferred tax asset. This resulted in the adjustment
of $700,000 to reduce the valuation allowance on the deferred tax asset. In
addition, Cross Media was in the process of finalizing its evaluation of certain
tax savings strategies identified in the fourth quarter, which resulted in
$325,000 of additional tax savings recognized in the fourth quarter. Cross Media
also recorded a deferred tax asset of $2.1 million, relating to the expected
utilization of net operating loss carryforwards relating to the acquisition of
LifeMinders, Inc., which was acquired in October 2001. This asset was recorded
as part of the opening balance sheet of LifeMinders, Inc.

Preferred Dividends: For the year ended December 31, 2001, Cross Media recorded
preferred dividends of approximately $831,000 compared to $39.6 million of
preferred dividends in 2000. The 2001 dividends consisted of approximately
$900,000 relating to the conversion of preferred stock which would otherwise
have been mandatorily redeemable by Cross Media in full on February 15, 2001,
$500,000 of contractual dividends relating to preferred stock offset by
approximately $600,000 relating to the reversal of a previously recorded
beneficial conversion of dividends for the preferred stock, which was converted
in connection with the acquisition of LifeMinders. In accordance with EITF
00-27, Cross Media 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 preferred stock issued to complete the
acquisition of DSI on January 28, 2000 and other issuances of preferred stock.
Deemed dividends represent the accretion of the difference between Cross Media
and the carrying value and


                                       12
<PAGE>

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 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 preferred stock.
All of the outstanding preferred stock of Cross Media was converted into common
stock or redeemed by Cross Media in 2001.

Extraordinary Loss: In connection with the acquisition of DSI, Cross Media
agreed to provide a $1.5 million credit facility to AmeriNet. In 2000, Cross
Media loaned AmeriNet an aggregate $300,000 pursuant to this credit facility. In
November 2000, Cross Media 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
$768,000.

Net Income (Loss) Applicable to Common Stockholders and Net Income (Loss)
Applicable to Common Stockholders Per Share: For the year ended December 31,
2001, Cross Media had net income applicable to common stockholders of
approximately $8 million, which resulted in diluted earnings per share
applicable to common stockholders of $0.86. The net loss for the year ended
December 31, 2000 was $44.6 million, or $9.18 per share. This reflects the
impact of the $39.6 million of preferred dividends recorded for the year ended
December 31, 2000, increases in MOS earnings and increased interest charges
related to the DSI acquisition financings, partially offset by decreased
consulting costs from January 28, 2000 through December 31, 2000.

                         LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2002 Cross Media had cash on hand of $30,000. Cross
Media generates cash flow from the sale of magazines and collection of consumer
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. Cross Media also generates cash
flow through the sale of coins, collectibles and other products relating to the
print and outbound sales channels.

During the twelve months ended December 31, 2002 Cross Media used $15.4 million
in operating activities, used $17.4 million in investing activities, relating to
the net cash paid in connection with the NSI and JWE acquisitions plus purchases
of equipment, and generated $20.3 million from financing activities from the
private placement of Cross Media common stock and a new Fleet credit facility,
described below. The $15.4 million used in operating activities is principally
comprised of $34.5 million net loss from operations and an increase in our
magazine and other receivables of $5.9 million relating to an increase in
revenues, partially offset by an increase in our payables and accrued
liabilities of $12.9 million and non-cash charges of approximately $9.4 million.
The $17.4 million used in investing activities is principally comprised of $10.0
million and $1.9 million in cash paid to acquire both NSI and JWE during 2002
and approximately $6.4 million in cash used to purchase equipment. The $20.3
million generated through financing activities is principally comprised of $27.1
million of net proceeds relating to the Fleet credit facility, $11.0 million in
net proceeds from a common stock offering, $2.5 million of net proceeds from the
exercise of stock options and warrants, $3.7 million relating to bridge loan and
notes received during 2002, offset by $18.1 million repayment of the Coast
facility and $4.0 million of payments of notes and other acquisition related
payables, financing costs relating to the NSI and JWE acquisitions and other
financing related activities.

The Company is required to redeem the Series C Convertible Preferred Stock
issued in connection with the JWE acquisition in specified equal installments on
the last day of each month, beginning on January 31, 2003 through May 31, 2004,
and the balance on June 30, 2004 by paying in cash, out of funds legally
available, therefore, at a sum per share equal to the Stated Value totaling $1.9
million as set forth in the Certificate of Designation. However, Cross Media has
not made payments to the JWE Parties in January, February, and March 2003.
Because Cross Media has not made these payments, the preferred stock may be
redeemed at the option of the holder at any time.

Cross Media has experienced a net loss applicable to common stockholders of
$34.5 million during the year ending December 31, 2002. Cross Media had negative
cash flows from operations for the years ending December 31, 2002 and 2001 of
$15.4 million and $12 million, respectively. Cross Media was required to repay
all outstanding borrowings under the Fleet credit facility as of December 31,
2002. As of March 31, 2003 Cross Media was unable to obtain replacement
financing and was not in compliance with several financial covenants under the
credit agreement. In March 2003, Cross Media received a notice of default from
Fleet. In addition, Cross Media is unable to incur additional borrowings under
the credit facility.

Management has undertaken certain actions in an attempt to improve the Company's
liquidity and return the company to profitability. These actions included
significant overhead reductions instituted in the third quarter of 2002. Cross
Media intends to make additional overhead reductions and/or sell certain assets
to improve cash flow. In November 2002, Cross Media received an initial
financing proposal from an asset-based lender, which would, if consummated,
provide a $50 million credit facility to replace Cross Media's Fleet credit
facility. The proposal is contingent upon the lenders due diligence, other
conditions and final documentation. Management is also in discussions with
several other lenders and investors. We may not be able to complete this
proposed financing or any other replacement financing.

As a result of its liquidity restrictions, Cross Media has been unable to meet
certain of its customer and vendor payable obligations, and has been forced to
extend the terms of such payments. Management has developed a plan for meeting
these payment obligations whereby it will become current with respect to its
customer obligations.

The independent auditor's report to our financial statements for the years ended
December 31, 2002 and 2001 include an emphasis paragraph, in addition to their
audit opinion, stating that Cross Media's recurring losses from operations and
working capital deficiency raise substantial doubt about Cross Media's ability
to continue as a going concern. The financial statements do not include any
adjustments to reflect the possible effects on recoverability and classification
of assets or the amounts and classification of liabilities, which may result
from Cross Media's inability to continue as a going concern.

Cross Media's ability to obtain both replacement and additional financing
depends on many factors beyond its control, including the state of the capital
markets, the market price of Cross Media's common stock, the prospects of the
business and the approval by the stockholders of an amendment to the certificate
of incorporation increasing the number of shares of common stock Cross Media is
authorized to issue. The necessary additional financing may not be available to
Cross Media or may be available only on terms that would result in further
dilution to the current owners of Cross Media's common stock. Failure to obtain
commitments for interim and longer term financing would have a


                                       13
<PAGE>

material adverse effect on the business, results of operations and financial
condition, which may include ceasing Cross Media's operations . If the financing
Cross Media requires to sustain its working capital needs is unavailable or
insufficient, Cross Media may be unable to continue as a going concern.

                                 NSI AQUISITION

On January 11, 2002, Cross Media acquired all of the capital stock of NSI. NSI
develops and markets a wide variety of products through direct response
advertising in Sunday publications. The acquisition substantially expanded Cross
Media's consumer reach through the addition of 62.5 million households to
support Cross Media's powerful multi-product, multi-channel sales for
traditional and online direct marketing. The acquisition positions Cross Media
as the largest print advertiser on Sunday in the United States through its
presence in over 1500 newspapers. Cross Media recorded the cost of the NSI
acquisition of approximately $20.1 million, as follows: (i) $9 million in cash,
(ii) $3.1 million in negotiable promissory notes, (iii) $2.5 million in
non-negotiable promissory notes, (iv) $3.2 million through the issuance of
279,859 shares of common stock, (v) a $1.3 million liability for the estimated
current portion of the contingent consideration (described below) and (vi)
approximately $1 million in transaction costs, including warrants valued at
$372,000. Cross Media may pay up to approximately $3.1 million in contingent
consideration based on three times the Limited partnerships' 2001 EBITDA of
certain limited partnerships of which NSI is a party (the "Limited
partnerships") and the aggregate Limited partnerships' income from January 1,
2001 through December 31, 2004. The contingent consideration, if paid, will be
accounted for as additional purchase price. The remaining balance of the $2.1
million contingent consideration has not been recorded on the balance sheet as
of December 31, 2002, as the outcome of the contingency is not determinable
beyond a reasonable doubt. Goodwill and other identifiable intangible assets
recorded as a result of the transaction was $19.5 million as of December 31,
2002. The operating results from NSI have been included in the consolidated
results of operations since the date of the acquisition.

The promissory notes bear interest at the rate of 7% per annum, are payable in
36 consecutive monthly installments on the last business day of each month,
payments commenced on January 31, 2002, and were initially secured by the assets
of NSI. Upon the closing of the NSI transaction, Cross Media obtained a letter
of credit in the amount of $1 million from Fleet National Bank under the NSI
existing credit agreement. On March 19, 2002, Cross Media obtained a letter of
credit in the amount of $5.6 million, representing the full amount of the notes,
under its credit facility (See Note H) and the lien on the NSI assets was
released. As of December 31, 2002, $4.0 million was outstanding as a result of
payments made under the note agreement.

                                 JWE ACQUISITION

On May 27, 2002, Cross Media completed the acquisition of substantially all of
the assets of JWE Enterprises, Inc., a magazine subscription business, and the
other 50% interest in a joint venture from JWE Holdings, Inc. (collectively
JWE). The purchase of JWE should (1) increase sales relating to magazine
subscriptions (2) provide an increase in contribution margin based on historical
financial information (3) decrease the dependency on using our independent
teleservice agencies to generate the sale of magazine subscriptions and (4)
provide additional experienced call center management team. The non-contingent
purchase price for the acquisition was approximately $9.1 million, consisting of
(i) approximately $1.7 million in cash, of which $1.5 million was borrowed from,
and is evidenced by a note payable to, Lancer Offshore Inc. (ii) 416,980 shares
of common stock, with a fair value of $5.0 million, (iii) 2,000 shares of Series
B convertible redeemable preferred stock (the "Preferred Stock") having a
redemption value and fair value on the date of issuance of $1.9 million and (iv)
$0.6 million of additional consideration, payable in cash in the fourth quarter
of 2002. As additional consideration Cross Media issued warrants as payment for
fees incurred in connection with the acquisition valued at approximately $1.1
million. In addition, Cross Media may be required to make additional cash
payments of up to $10.0 million during the period of January 1, 2003 through
June 30, 2005 if certain performance criteria for the acquired businesses are
met.

On May 27, 2002 Cross Media issued 2,000 shares of Series B convertible
preferred stock with a $950 per share liquidation value to Jason Ellsworth, in
conjunction with the purchase of JWE. Beginning on November 23, 2002, Jason
Ellsworth had the right to convert the preferred stock into a number of shares
of Cross Media common stock equal to $950 divided by the lower of the same price
used for calculating the number of Cross Media common shares delivered at
closing or at the then market price (subject to a floor of 85% of the closing
price). Beginning on November 23, 2002, Jason Ellsworth had the right to put the
preferred stock to Cross Media at $950 per share. The preferred stock did not
have voting rights and there were dividends on the preferred stock at the rate
of 8% per annum, payable annually (beginning June 30, 2003) and at redemption.
On December 5, 2002 an agreement was made between Jason Ellsworth and Cross
Media, which amended certain terms of the original purchase agreement. As a
result of this agreement (1) Jason Ellsworth agreed that he would not put the
preferred stock or transfer or assign the shares, except if Cross Media repays
its existing bank loan obligations owed in full on or before December 31, 2002
(2) if Cross Media did not repay in full its existing bank loan obligations on
or before December 31, 2002 all accrued and unpaid dividends on the shares
accrued were payable in full no later than January 5, 2003 and (3) Cross Media
shall exchange the Series B shares for an equal number of Series C shares.
During January, 2003, Cross Media paid all accrued and unpaid dividends as well
as converted the Series B shares to Series C shares. The Series C shares are
identical to Series B Shares, except that the Company is required to redeem the
Series C Convertible Preferred Stock in specified equal installments on the last
day of each month beginning on January 31, 2003 through May 31, 2004 and the
balance on June 30, 2004 by paying in cash, out of funds legally available
therefore, at a sum per share equal to the Stated Value as set forth in the
Certificate of Designation. However, Cross Media has not made payments to JWE in
January, February, and March 2003. As a result, the holder has the right under
certain circumstances to require Cross Media to redeem the Series C shares for
$1.9 million.

                                CREDIT FACILITIES

In March 2002, Cross Media obtained a $2 million revolving credit facility from
Lancer, a principal stockholder of Cross Media. The interest rate on borrowings
under the revolving credit facility was 8% per annum and Lancer had the right to
demand repayment of all borrowings at any time after March 31, 2002. Cross Media
issued to Lancer two-year warrants to purchase 50,000 shares of common stock at
an exercise price of $10.00 per share as an inducement for Lancer to provide
Cross Media the revolving credit facility. On March 19, 2002, all outstanding
amounts owed under the Lancer facility were paid off upon entering into the
Fleet credit facility, and subsequently the Lancer facility was terminated.

On March 19, 2002, Cross Media entered into a credit agreement with Fleet
National Bank, as agent for the lender banks and as issuing lender and the
several other lenders, to provide Cross Media a $35 million credit facility,
subject to certain availability limitations. Interest on the credit facility
accrues at the prime rate designated from time to time by the agent, Fleet, plus
an applicable margin. The applicable margin is subject to adjustment based on
Cross Media's leverage ratio. Cross Media also pays a commitment fee during the
term of the facility based on the unused borrowings under the facility, and a
letter of credit fee based on the applicable margin for the prime rate loans
during the time that letters of credit remain outstanding.

Cross Media's active subsidiaries are joint and several co-borrowers under the
Fleet credit facility. Cross Media has pledged all of its assets and


                                       14
<PAGE>

all of the assets and capital stock of its subsidiaries to secure its
obligations under the facility. The Fleet credit facility imposes certain
limitations on Cross Media's activities, including restrictions on acquisitions,
incurring additional indebtedness, granting liens and declaring and paying
dividends. Cross Media is also required to maintain minimum EBITDA levels and
minimum leverage, consolidated net worth and fixed charge coverage ratios.

Upon entering into the new credit agreement with Fleet, Cross Media terminated
its credit agreement with Coast. Cross Media repaid the remaining borrowings
under the Coast Facility of approximately $18 million as well as an early
termination fee of $0.2 million. As a result of the early termination of the
Coast facility, Cross Media recorded an extraordinary charge of approximately
$0.5 million.

On August 13, 2002, the Fleet credit facility was amended to (i) increase the
interest rate by 0.5%, (ii) adjust certain financial covenants, (iii) require
Cross Media to obtain up to $3.0 million of subordinated debt financing in form
satisfactory to the lenders on or prior to September 2, 2002, the failure of
which shall be a default, (iv) reduce the facility from $35 million to $30.7
million, provided that the remaining approximately $1.5 million of borrowing
availability will only become available if Cross Media obtains the $3.0 million
of subordinated debt financing described above, (v) provide that a default will
occur if the settlement of the FTC complaint (See Note Q) is settled on terms
that would require Cross Media to make a payment of damages, penalties, fines or
similar payments in excess of $1 million, (vi) provide that a default will occur
if neither of the following occurs by November 1, 2002: (a) the obligations
under the credit facility are repaid and the lenders obligations to lend to be
terminated or (b) Cross Media enters into a binding commitment with one or more
financial institutions reasonably acceptable to Fleet which enables the credit
facility to be paid in full and the lenders obligations to lend to be terminated
by November 30, 2002; provided, however, that Cross Media may extend these dates
by one month by making a $50,000 cash payment; and (vii) waive certain other
non-financial defaults.

On August 16, 2002, Cross Media's credit facility was further amended. The
amendment reduced the amount of subordinated debt financing which Cross Media
was required to receive by September 2, 2002 from $3.0 million to $1.5 million.
Cross Media obtained this financing from Lancer on August 19, 2002, as described
below. Cross Media borrowed $750,000 under the facility without obtaining the
lenders prior consent.

As of December 31, 2002, Cross Media had $25.0 million outstanding under the
Fleet credit facility and is in default of the credit agreement. Cross Media is
not able to repay the credit facility from cash from operations and must obtain
replacement financing. During the quarter ended September 30, 2002, Cross Media
wrote off all deferred financing fees related to the credit facility, which
amounted to approximately $0.5 million

As of December 31, 2002 and March 31, 2003, Cross Media is in default of the
Fleet Credit facility. Cross Media received a notice of default from Fleet in
March 2003. There can be no assurance that a waiver will be obtained or that
Fleet will not demand payment and foreclose on its collateral. As of March 31,
2003 Cross Media has not obtained replacement financing. Cross Media has
received an initial financing proposal from an asset-based lender for a $50
million credit facility. There can be no assurance that the proposed financing
will be completed.

As of March 31, 2003, the interest rate on the outstanding loans under the Fleet
credit facility was currently 5.0%, the commitment fee was .375% and the letter
of credit fee was 2.5%.

PRIVATE PLACEMENT

In March 2002, Cross Media completed a private placement in which it sold
1,105,475 shares of its common stock at a price of $10.50 per share to a limited
number of accredited investors and received gross proceeds of approximately
$11.6 million. Stonegate Securities, Inc. served as placement agent, for which
it received a placement agent fee equal to 6% of the gross five-year warrants to
purchase 110,548 shares of Cross Media common stock at an exercise price of
$10.50 per share. The proceeds were used to reduce borrowings under the Fleet
credit facilily.

LANCER NOTES

To fund the JWE acquisition in May 2002, Cross Media borrowed $1.5 million from
Lancer Offshore, Inc. ("Lancer"). This note was amended in August 2002 (the "May
Lancer Note"). The amended May Lancer Note was due February 16, 2003, and bears
interest at the rate of 6% per annum until November 27, 2002 and 10% thereafter.
Interest, which accrues from the date of issuance of the original note, is
payable at maturity. Because Cross Media is in default of the note for failure
to repay the note at its maturity, (i) Cross Media issued to Lancer a warrant to
purchase 500,000 shares of common stock (the "May Lancer Note Warrants") and
(ii) Lancer may convert the May Lancer Note into shares of common stock of Cross
Media at a rate of $1.91 of principal of, and/or accrued unpaid interest on the
note. The May Lancer Note Warrants will be exercisable for a period of ten
years from the date of issuance at an exercise price of $1.91 per share. In
connection with the amendment of the original note and issuance of the May
Lancer Note, Cross Media issued to Lancer an additional ten-year warrant to
purchase 200,000 shares of its common stock at an exercise price of $1.91 per
share. This resulted in a deferred finance charge of approximately $250,000
using the Black-Scholes fair market value approach. Cross Media is accounting
for this as a non-cash interest charge, which is being amortized over the life
of the note.

On August 16, 2002 Cross Media borrowed an additional $1.65 million from Lancer
for operational cash needs. Cross Media must pay the entire unpaid balance and
accrued interest on or after the earlier of (i) August 16, 2003 or (ii) the
receipt by Cross Media of debt and/or equity financing resulting in at least $5
million of gross proceeds to Cross Media. The note bears interest at an annual
rate of 10%, payable quarterly, in arrears. If Cross Media does not repay this
note on the Maturity Date (August 16, 2003), the lenders may convert the note
into shares of common stock at the ratio of $1.91 of principal and for accrued
interest on the note. In addition, pursuant to the terms of this note, Cross
Media issued to Lancer a warrant to purchase 500,000 shares of common stock
because the note was not paid on February 16, 2003. Cross Media issued 200,000
warrants to purchase shares of common stock to Lancer in conjunction with the
note. This resulted in a deferred financing charge of approximately $250,000
using the Black-Scholes fair market value approach. Cross Media is accounting
for this as a non-cash interest charge, which is being amortized over the life
of the note. All of these warrants are exercisable until August 16, 2012 at a
price of $1.91 per share of common stock. Cross Media paid Lancer a fee of
$150,000 for providing this financing which is being amortized as interest
expense over the life of note.

CONTRACTUAL OBLIGATIONS

<TABLE>
<CAPTION>
                                                              PAYMENTS DUE IN
                                             ===================================================
                             BALANCE AT
(dollars in thousandss)     DEC. 31, 2002      2003        2004-05       2006-07      after 2007
=======================     =============    =========     ========      ========     ==========
<S>                            <C>           <C>           <C>           <C>           <C>
Bank debt                      $ 25,036      $ 25,036      $     --      $     --      $     --
Capital lease commitments         3,015         1,586         1,840             7            --
Operating leases                     --         2,584         4,878         4,086         4,160
Preferred Stock                   1,900         1,200           700            --            --
Notes Payable                     7,182         5,219         1,963            --            --
                               ========      ========      ========      ========      ========
</TABLE>

COMMITMENTS

<TABLE>
<CAPTION>
                                                                 AMOUNTS EXPIRING IN
                                                   ==================================================
                                   BALANCE AT
(dollars in thousands             DEC. 31, 2002      2003        2004-05       2006-07      after 2007
=====================             =============    ========      ========      ========     ==========
<S>                                  <C>           <C>           <C>           <C>           <C>
Acquisition earn outs                $    557      $  2,300      $  2,300      $     --      $     --
FTC Settlment                             350           350            --            --            --
Severance commitment                    1,181           823           358            --            --
Executive employment contracts                        3,300            --            --            --
</TABLE>

                                  RISK FACTORS

      CROSS MEDIA'S LOSSES FROM OPERATIONS AND WORKING CAPITAL DEFICIENCY RAISE
      SUBSTANTIAL DOUBT ABOUT ITS ABILITY TO CONTINUE AS A GOING CONCERN.


                                       15
<PAGE>

      Cross Media has experienced a net loss applicable to common stockholders
      of $34.5 million during the year ended December 31, 2002. As a result,
      Cross Media restructured its operations, reduced costs and eliminated
      certain business initiatives. Cross Media recorded a restructuring charge
      of $4.2 million during the year ended December 31, 2002.

      The independent auditor's report to Cross Media's financial statements for
      the years ended December 31, 2002 and 2001 include an emphasis paragraph,
      in addition to their audit opinion, stating that Cross Media's recurring
      losses from operations and working capital deficiency raise substantial
      doubt about Cross Media's ability to continue as a going concern. The
      financial statements do not include any adjustments to reflect the
      possible effects on recoverability and classification of assets or the
      amounts and classification of liabilities, which may result from Cross
      Media's inability to continue as a going concern.

      Cross Media's ability to obtain both replacement and additional financing
      depends on many factors beyond its control, including the state of the
      capital markets, the market price of Cross Media's common stock, the
      prospects of the business and the approval by the stockholders of an
      amendment to the certificate of incorporation increasing the number of
      shares of common stock Cross Media is authorized to issue. The necessary
      additional financing may not be available to Cross Media or may be
      available only on terms that would result in further dilution to the
      current owners of Cross Media's common stock. Failure to obtain
      commitments for interim and longer term financing would have a material
      adverse effect on the business, results of operations and financial
      condition. If the financing Cross Media requires to sustain its working
      capital needs is unavailable or insufficient, Cross Media may be unable to
      continue as a going concern.

      CROSS MEDIA IS IN DEFAULT OF ITS CREDIT FACILITY AND SUBJECT TO
      RESTRICTIVE CREDIT FACILITY COVENANTS WHICH COULD HARM ITS FINANCIAL
      STATUS AND HAVE A NEGATIVE IMPACT ON ITS STOCK PRICE.

      Cross Media has pledged all of its assets and the assets and stock of its
      subsidiaries to Fleet and all assets to secure its obligations under its
      facility.

      Under the agreement with Fleet, Cross Media is also required, among other
      things, to maintain minimum financial ratios and remain current on certain
      other debt and trade payables. Moreover, Cross Media was required to
      obtain a binding commitment by November 30, 2002 to replace its existing
      credit facility and to repay the existing credit facility by December 31,
      2002. As of March 28, 2003, Cross Media is not in compliance with certain
      financial covenants required by the Fleet Credit Facility, has not
      obtained a waiver, did not make the required November 2002 cash payment of
      $50,000 and is in default of its loan. Cross Media has received a notice
      of default from Fleet. Therefore, the lenders are entitled to accelerate
      the maturity of outstanding indebtedness under the credit facility, $25
      million as of March 31, 2003 and to enforce its security interest in the
      pledged assets and stock, which would materially interrupt Cross Media's
      operations and possibly require Cross Media to curtail or cease
      operations. There can be no assurance that a waiver will be obtained or
      that Fleet will not declare a default and demand payment and foreclose on
      its collateral.

      CROSS MEDIA HAS A LIMITED RELEVANT OPERATING HISTORY, WHICH MAKES IT
      DIFFICULT TO EVALUATE ITS PROSPECTS.

      Cross Media developed its business strategy in 1999, completed its first
      acquisition in January 2000, and opened its first company-owned and
      operated call center and undertook its first email campaign in the last
      quarter of 2000. Moreover, Cross Media has acquired three businesses
      during the previous twelve months. Therefore, Cross Media has a limited
      history of operations under its current business strategy upon which the
      likelihood of its success can be evaluated.

      The implementation of a new business strategy frequently involves risks,
      expenses and uncertainties that may adversely affect Cross Media's
      business, results of operations, financial condition and prospects,
      including:

      -     the ability to compete effectively against other companies;

      -     the need to hire, retain and motivate qualified personnel;

      -     the ability to anticipate and adapt to the changing market; and

      -     the ability to develop and introduce new products and services and
            continue to develop and upgrade technology.

      CLASS ACTION AND STOCKHOLDER DERIVATIVE LAWSUITS HAVE BEEN FILED AGAINST
      CROSS MEDIA AND CERTAIN OF ITS OFFICERS AND DIRECTORS ALLEGING SECURITIES
      LAW VIOLATIONS, THE EFFECT OF WHICH CANNOT CURRENTLY BE DETERMINED.

      On July 16, 2002, Cross Media and Ronald Altbach, were named as defendants
      in a putative class action entitled Woodruff v. Cross Media Marketing
      Corp., 02 Civ. 5462, pending in the United States District Court for the
      Southern District of New York. On October 8, 2002, this action and four
      other virtually identical actions were consolidated under the caption In
      re Cross Media Marketing Corporation Securities Litigation, 02 Civ. 5462
      (RPP).

      On December 13, 2002, the plaintiffs filed a superseding consolidated
      amended complaint ("Complaint"), asserting claims for securities fraud
      under Section 10(b) and Section 20(a) of the Securities Exchange Act of
      1934 against Cross Media, Mr. Altbach,


                                       16
<PAGE>

      certain other current or former officers and a consultant on behalf of a
      putative class of stockholders who purchased shares of Cross Media between
      November 5, 2001 and July 11, 2002 at prices allegedly inflated by
      purported material omissions in Cross Media's public disclosures.

      Defendants filed their motion to dismiss the Complaint on March 3, 2003.
      That motion is scheduled to be fully briefed by May 9, 2003. Discovery has
      been stayed per the Private Securities Litigation Reform Act of 1995
      pending a decision on the motion. If its motion to dismiss the Complaint
      is denied, Cross Media intends to vigorously defend this matter on its own
      behalf and on behalf of the current and former officers named as
      individual defendants. Because this lawsuit is still in the early stages,
      Cross Media is unable to predict the outcome or the effect it may have on
      Cross Media's operating results, financial condition or stock price.

      In September 2002, a shareholder derivative lawsuit Pardo v Altbach et al.
      02 CV 6740 (JSM) was filed against Cross Media and certain of its current
      and former directors alleging substantially the same claims made in the
      class action complaints. The defendants dispute these claims and intend to
      vigorously defend this matter. In October, the District Court for the
      Southern District of New York entered an order extending the defendants'
      time to respond to the complaint to 30 days following final entry of an
      order on defendants' motion dismiss the consolidated amended shareholder
      suit. Because this lawsuit is in its early stages, Cross Media is unable
      to predict the outcome or the effect it may have on Cross Media's
      operating results, financial condition or stock price.

      THE UNITED STATES JUSTICE DEPARTMENT HAS FILED A COMPLAINT AGAINST CROSS
      MEDIA, MEDIA OUTSOURCING, INC. AND TWO OF THEIR OFFICERS, ALLEGING
      VIOLATIONS OF THE TELEMARKING SALES RULE AND THE FEDERAL TRADE COMMISSION
      ACT.

      On April 9, 2002, the United States Justice Department ("DOJ"), on behalf
      of the Federal Trade Commission ("FTC"), filed a complaint United States
      v. Prochnow, et al. No. 1:02-CV-917 (JOF) in the United States District
      Court for the Northern District of Georgia against Cross Media, Media
      Outsourcing, Inc., a wholly owned subsidiary, ("MOS"), Ronald Altbach,
      Dennis Gougion, an officer of MOS, and Richard Prochnow, a former
      consultant to MOS. The complaint alleged violations of the Federal
      Telemarketing Sales Rule and the Federal Trade Commission Act and
      non-compliance with a previous FTC order entered into by Mr. Prochnow,
      individually and doing business as Direct Sales International, Inc., and
      Mr. Gougion, individually. MOS acquired certain assets of Direct Sales
      International in January 2000. The complaint seeks monetary civil
      penalties, redress, injunctive, and other relief against any such future
      violations.

      Simultaneous with the filing of the complaint, plaintiffs filed a motion
      for a temporary restraining order against the defendants seeking, among
      other things, compliance with the Telemarketing Sale Rule, the FTC Act,
      and the previous FTC order. At the April 10 hearing for the temporary
      restraining motion, the parties agreed to postpone the hearing for a later
      date to facilitate settlement discussions. Following several negotiation
      meetings and subsequent agreements to postpone the hearing date, on
      October 21, 2002, the court issued an order denying the FTC's motion for a
      temporary restraining order, with leave to renew the motion.

      On March 28, 2003, Cross Media and MOS signed a proposed agreement with
      FTC and DOJ staff attorneys resolving all matters of dispute between them
      regarding the allegations in the April 9, 2002 complaint, without any
      admission of guilt by Cross Media and MOS, and without trial or
      adjudication of any issue of fact or law. However, the settlement
      agreement is subject to review and approval by the FTC and the DOJ and is
      not final and binding on the parties until such process is completed.

      The settlement agreement, as currently agreed, will require Cross Media
      and MOS to comply with certain disclosure, record keeping and reporting
      requirements regarding the manner in which they conduct their
      telemarketing business. Further, the settlement agreement provides for a
      civil penalty of $1 million, of which $650,000 has been suspended by the
      government based on the accuracy and completion of previously issued
      Company financial statements and the financial results herein, resulting
      in a $350,000 payment to be made in two equal installments. In the event
      of a default of either installment, the entire penalty, with interest,
      shall become immediately due. Accordingly, Cross Media has accrued
      $350,000 of the penalty as of December 31, 2002.

      While Cross Media believes that the proposed settlement agreement will be
      approved by the FTC and the DOJ as agreed upon with the staff attorneys
      representing those agencies, there is no certainty that these agencies
      will approve the settlement on the terms agreed upon or at all. Further,
      Cross Media is unable to predict what effects, if any, this settlement
      agreement may have on its operations.

      THE ANTICIPATED BENEFITS OF THE JWE ENTERPRISES ACQUISITION MAY NOT BE
      REALIZED IN A TIMELY FASHION, OR AT ALL. IN ADDITION, CROSS MEDIA'S
      OPERATIONS MAY BE ADVERSELY AFFECTED IF THE OPERATION OF JWE's BUSINESSES
      DIVERTS TOO MUCH ATTENTION AWAY FROM CROSS MEDIA'S BUSINESS.

      The success of the JWE acquisition will depend, in part, on Cross Media's
      ability to realize the anticipated revenue enhancements, growth
      opportunities and synergies of the combined company and effectively
      utilize resources Cross Media now has after the acquisition. There are
      risks related to the integration and management of the acquired technology
      and operations and personnel. The integration of the business will be a
      complex, time-consuming and potentially expensive process and may disrupt
      Cross Media's business if not completed in a timely and efficient manner.
      Some of the difficulties that may be encountered include:

      -     the diversion of management's attention from other ongoing business
            concerns; and

      -     potential conflicts between business cultures.


                                       17
<PAGE>

      If management focuses too much time, money and effort to integrate JWE's
      operations and assets, they may not be able to execute its overall
      business strategy.

      IF CROSS MEDIA DOES NOT OBTAIN ADDITIONAL FINANCING IT MIGHT NOT HAVE
      SUFFICIENT OPERATING CASH FLOW TO PAY ITS VENDORS, MARKETING PARTNERS AND
      OTHER ENTITIES ON WHOM IT RELIES ON TO CONDUCT ITS BUSINESS.

      Cross Media had negative cash flows from operations for the years ending
      December 31, 2002 and 2001 of $15.4 million and $12 million, respectively.
      Cross Media is in default of its credit agreement and the $1.5 million
      Lancer Note, has extended its payables and other obligations and has not
      satisfied its monthly redemption obligations under the Series C shares. It
      is pursuing various financing alternatives to allow it to replace its
      current credit facility and allow the execution of its business plan. If
      Cross Media does not raise sufficient financing or increase liquidity
      through operating cash flow, it may not have the ability to pay its
      obligations on a timely basis.

      IF CROSS MEDIA IS UNABLE TO COLLECT ITS RECEIVABLES IN A TIMELY MANNER ITS
      CASH FLOW FROM OPERATIONS WILL BE NEGATIVELY IMPACTED.

      Cross Media is subject to the risks associated with selling products on
      credit, including delays in collection or uncollectibility of accounts
      receivable. If Cross Media experiences significant delays in collection or
      uncollectibility of accounts receivable, its liquidity and working capital
      position could suffer.

      IF SUBSCRIPTION CANCELLATION RESERVES ARE NOT ADEQUATE, CROSS MEDIA COULD
      BE REQUIRED TO INCREASE ITS RESERVES, WHICH WILL RESULT IN A REDUCTION OF
      REVENUES AND INCOME.

      Cross Media allows subscribers who purchase multi-magazine subscription
      packages to pay over a one year period. For such packages Cross Media has
      established a reserve to cover subscription cancellations based upon its
      past history with such orders. If Cross Media's accounts subscription
      cancellation reserves are inadequate, it will be required to further
      increase reserves, which will reduce revenues and could otherwise
      materially adversely affect Cross Media's results of operations. During
      2002, Cross Media increased its reserve by $6.9 million which resulted in
      a decrease in net revenue and an increase in net loss of $6.9 million.

      THE NATURE OF CROSS MEDIA'S BUSINESS SUBJECTS IT TO THE EFFECTS OF
      ECONOMIC SLOWDOWNS.

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

      THE LOSS OF CROSS MEDIA'S LARGEST INDEPENDENT CALL CENTERS WOULD LIKELY
      RESULT IN A REDUCTION OF REVENUES AND OTHERWISE ADVERSELY AFFECT OPERATING
      RESULTS.

      For the year ended December 31, 2002, one independent call center
      accounted for approximately 34% of MOS's magazine subscription revenues
      and for the year ended December 31, 2001, two independent call centers
      accounted for approximately 39% of Cross Media's magazine subscription
      revenues. These call centers do not have any commitment to generate sales
      for Cross Media and could therefore, at any time, terminate their
      relationships with Cross Media without notice, which could have a material
      adverse effect


                                       18
<PAGE>

      on Cross Media's business. Moreover, over the past few months, Cross Media
      has become increasingly dependent on its largest call center and expects
      the trend to continue for the foreseeable future.

      IF CROSS MEDIA'S LEAD GENERATION FOR MAGAZINE SALES DECLINES, ITS
      OPERATING RESULTS WILL BE ADVERSELY AFFECTED.

      Cross Media is substantially dependent upon the quality and quantity of
      leads for magazine sales. Cross Media obtains leads from many sources. To
      the extent that Cross Media is unable to generate sufficient leads and/or
      the percentage of sales generated by its leads decreases, Cross Media's
      magazine sales will decline.

      NSI'S SUCCESS IS HEAVILY DEPENDENT UPON ITS ABILITY TO OBTAIN ADEQUATE
      MAGAZINE ADVERTISING SPACE.

      NSI's lifestyles and continuity product sales are heavily dependent upon
      NSI obtaining sufficient magazine advertising space. NSI historically
      acquires magazine advertising space at favorable rates through agreements
      to purchase unsold advertising space from selected magazines. While Cross
      Media believes that NSI will be able to purchase sufficient advertising
      space in the future, the advertising rates are expected to be higher,
      which will adversely affect NSI's gross margins. Moreover, NSI may not
      accurately estimate the amount of unsold advertising space available to it
      in time to buy sufficient additional advertising space. Additionally,
      because NSI must purchase advertising space before it will know how much
      unsold advertising space it will receive, NSI may have more advertising
      space available than it needs, which could adversely effect NSI's
      operating results.

      CROSS MEDIA RELIES ON ITS INTELLECTUAL PROPERTY RIGHTS AND OTHER
      PROPRIETARY INFORMATION, AND ANY FAILURE TO PROTECT AND MAINTAIN THESE
      RIGHTS AND INFORMATION COULD PREVENT CROSS MEDIA FROM COMPETING
      EFFECTIVELY.

      Cross Media seeks to protect its technologies, intellectual property
      rights and proprietary information through a combination of patent,
      copyright, trade secret and trademark law, as well as confidentiality or
      license agreements with employees, consultants, and corporate and
      strategic partners. If Cross Media is unable to prevent the unauthorized
      use of its proprietary information or if its competitors are able to
      develop similar technologies independently, the competitive benefits of
      Cross Media's technologies, intellectual property rights and proprietary
      information will be diminished.

      THE CONTENT CONTAINED IN CROSS MEDIA'S ELECTRONIC MAIL MESSAGES AND
      DISPLAYED ON ITS WEB SITES MAY SUBJECT IT TO SIGNIFICANT LIABILITY FOR
      NEGLIGENCE, COPYRIGHT OR TRADEMARK INFRINGEMENT OR OTHER MATTERS.

      If any of the content that Cross Media creates and delivers to consumers
      by electronic mail or any content that is accessible from the company's
      websites contains errors, third parties could make claims against Cross
      Media for losses incurred in reliance on such information. In addition,
      the content contained in or accessible from its websites could include
      material that is defamatory, violates the copyright or trademark rights of
      third parties, violates consumer protection laws or regulations, or
      subjects it to liability for other types of claims. Cross Media's general
      liability insurance may not cover claims of these types or may not be
      adequate to indemnify it for all liability that may be imposed. Any
      imposition of liability, particularly liability that is not covered by
      insurance or is in excess of insurance coverage, could result in
      significant costs and expenses and damage Cross Media's reputation. Cross
      Media has also entered into agreements with certain e-commerce partners
      under which Cross Media may be entitled to receive a share of certain
      revenue generated from the purchase of goods and services through direct
      links to LifeMinders' e-commerce partners from the emails sent by Cross
      Media. These agreements may expose Cross Media to additional legal risks
      and uncertainties, including potential liabilities to consumers of those
      products and services by virtue of Cross Media's involvement in providing
      access to those products or services, even if Cross Media does not provide
      those products or services. Any indemnification provided to Cross Media in
      its agreements with these parties, if available, may not adequately
      protect Cross Media.

      CONCERNS ABOUT, OR BREACHES OF, THE SECURITY OF CROSS MEDIA'S CUSTOMER AND
      MEMBER DATABASE COULD RESULT IN SIGNIFICANT EXPENSES TO PREVENT BREACHES,
      AND SUBJECT CROSS MEDIA TO LIABILITY FOR FAILING TO PROTECT ITS CUSTOMERS'
      AND MEMBERS' INFORMATION.

      Cross Media maintains a database containing information about its
      customers. Unauthorized users may, among other things, remotely access
      this database or authorized users may make unauthorized copies of all or
      part of the database for their own use. As a result of these security and
      privacy concerns, Cross Media may incur significant costs to protect
      against the threat of security breaches or to alleviate problems caused by
      security breaches, and may be unable to effectively target direct
      marketing offers to customers or may be subject to legal claims by
      customers if unauthorized third parties gain access to Cross Media's
      system and alter or destroy information in its database. Also, any public
      perception that Cross Media engaged in the unauthorized release of, or
      failed to take adequate means to protect, customer information, whether or
      not correct, could adversely affect Cross Media's ability to retain
      customers, its perception among the general public, and subject it to
      regulatory or private law suits.


                                       19
<PAGE>

      PROBLEMS WITH THE PERFORMANCE AND RELIABILITY OF THE INTERNET
      INFRASTRUCTURE COULD ADVERSELY AFFECT SALES AND THE QUALITY AND
      RELIABILITY OF THE PRODUCTS AND SERVICES OFFERED TO CUSTOMERS.

      Cross Media depends to a certain extent on the Internet infrastructure to
      market to potential customers, gather data about prospects and customers
      and to deliver attractive, reliable and timely email newsletters and
      advertisements. As Internet usage grows, the Internet infrastructure may
      not be able to support the demands placed on it by this growth, and its
      performance and reliability may decline. Among other things, continued
      development of the Internet infrastructure will require a reliable network
      backbone with necessary speed, data capacity and security. Currently,
      there are regular failures of the Internet network infrastructure,
      including outages and delays, and the frequency of these failures may
      increase in the future. These failures may reduce the number of potential
      customers who respond to marketing campaigns and the benefits of
      LifeMinders' products and services to LifeMinders' members. In addition,
      the Internet could lose its viability as a commercial medium due to delays
      in the development or adoption of new technology required to accommodate
      increased levels of Internet activity or due to government regulation.

      GOVERNMENT REGULATION COULD ADD SIGNIFICANT ADDITIONAL COSTS TO CROSS
      MEDIA'S BUSINESS AND IMPOSE RESTRICTIONS ON CROSS MEDIA'S MARKETING
      PRACTICES WHICH COULD INTERFERE WITH CROSS MEDIA'S OPERATIONS AND HAVE A
      SIGNIFICANT ADVERSE EFFECT ON REVENUES.

      Laws and regulations applicable to direct marketing, telemarketing,
      Internet marketing, privacy, list development and use, and consumer
      protection and membership club services are becoming more prevalent. Each
      of the 50 states and the Federal government enforce various laws and
      regulations regulating telemarketing, sweepstakes promotions, promotional
      incentives and advertising to consumers. While Cross Media reviews its
      telemarketing scripts and advertising copy and general marketing practices
      for compliance with applicable laws, there is no guarantee that Federal or
      state authorities will not find that Cross Media's marketing efforts do
      not comply with these laws. In addition, it is likely that additional
      Federal and/or state regulations regarding telemarketing, sweepstakes,
      privacy, list development and use, email marketing and other marketing
      practices engaged in by Cross Media will be enacted. If enacted, these
      regulations could have an adverse effect on revenues and result in
      additional expenses to Cross Media and could require Cross Media to
      refrain from engaging in specific activities or modify its current
      business practices.

      The Federal Trade Commission routinely reviews its trade regulation rules
      to determine if changes are warranted. In January 2003, the Federal Trade
      Commission concluded a year long review of the Telemarketing Sales Rule,
      which was originally enacted in 1995. This review resulted in various
      changes and additions to the existing rule. The amended rule now includes,
      among other things, regulations concerning a national do-not-call
      registry, caller identification requirements, use of predictive dialers,
      and enhanced disclosure requirements for certain types of transactions,
      such as "upsells." The amended rule becomes effective March 31, 2003, with
      the exception of the national do-not-call and caller identification
      provisions. Several industry associations have filed suit against the FTC
      in connection with its promulgation of the do-not-call regulation,
      claiming that the regulation is not within the FTC's jurisdiction.
      Regardless of the outcome of those actions, several of the amended rule's
      new provisions will affect Cross Media's telemarketing operations, which
      may adversely affect its telemarketing practices.

      Federal and state authorities have also been investigating various
      companies' use of 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 Cross Media's marketing practices.

      CROSS MEDIA IS DEFENDING A LAWSUIT, WHICH, IF DETERMINED ADVERSELY AGAINST
      IT AND IF ITS INSURANCE DOES NOT ADEQUATELY COVER THE DAMAGES, COULD HAVE
      A MATERIAL ADVERSE EFFECT ON ITS FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS.

      In March 2002, former stockholders of eCoupons.com, Inc., a company that
      merged with and into LifeMinders in December 2000, filed a complaint on
      their behalf and on behalf of other former stockholders, J.M. Thies, et al
      v. LifeMinders, Inc. et al. (No. 02-2119-KHV), in the United States
      District Court for the District of Kansas against LifeMinders, Inc. (which
      Cross Media acquired by merger on October 24, 2001), and two directors of
      Cross Media and several former officers and directors of LifeMinders. The
      plaintiffs allege that the defendants made misrepresentations to the
      plaintiffs to induce them to merge eCoupons with and into LifeMinders.
      They requested monetary damages in an amount not less than $4.2 million
      and punitive damages in an amount not less than $5 million against the
      defendants. In accordance with the terms of the merger agreement with
      LifeMinders, Cross Media is obligated to indemnify the other defendants.
      Cross Media was aware of the dispute prior to closing the LifeMinders
      acquisition.

      On November 6, 2002, the District Court for the District of Kansas (i)
      dismissed all of the individual defendants from the action, (ii) ordered
      that plaintiffs' claims against LifeMinders (now Cross Media) must proceed
      in arbitration, and (iii) stayed all claims against LifeMinders pending
      the outcome of arbitration.

      On January 27, 2003, the plaintiffs filed for arbitration with the
      American Arbitration Association in Fairfax, VA, alleging the same facts
      as the Federal court case. On March 6, 2003, Cross Media filed an answer,
      in which it denied all allegations of wrongdoing, and a motion to dismiss
      the claim. Defenses and Counterclaims to the plaintiffs' action. Cross
      Media intends to vigorously defend this matter. However, if an adverse
      final judgment is issued against


                                       20
<PAGE>

      Cross Media in arbitration and if its insurance does not adequately cover
      the damages, such an event could have a material adverse effect on its
      financial condition and results of operations.

      THE SUBSTANTIAL NUMBER OF OPTIONS AND WARRANTS TO PURCHASE CROSS MEDIA
      COMMON STOCK COULD RESULT IN DILUTION TO CROSS MEDIA STOCKHOLDERS.

      If the holders of the outstanding Cross Media preferred stock, options and
      common stock purchase warrants exercise those options and warrants,
      including those issued in connection with the merger and warrants being
      issued as partial consideration for conversion of outstanding preferred
      stock, and the holders of all outstanding convertible securities converted
      them into common stock, Cross Media would be required to issue
      approximately 5.8 million additional shares of common stock, based on
      current exercise and conversion prices, which will result in dilution to
      Cross Media stockholders.

      BECAUSE OWNERSHIP OF CROSS MEDIA IS CONCENTRATED, A SMALL NUMBER OF
      STOCKHOLDERS EXERT SIGNIFICANT INFLUENCE OVER CROSS MEDIA.

      If a few of the largest stockholders of Cross Media were to act together,
      as a result of their aggregate ownership, they would have the ability to
      exert significant influence over Cross Media'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:

      -     delay or prevent a change of control of Cross Media;

      -     impede a merger, consolidation, takeover or other business
            combination involving Cross Media; and/or

      -     discourage a potential acquirer from making a tender offer or
            otherwise attempting to obtain control of Cross Media.

      PROVISIONS OF CROSS MEDIA'S CORPORATE CHARTER DOCUMENTS AND DELAWARE LAW
      COULD DELAY OR PREVENT A CHANGE OF CONTROL.

      Cross Media's certificate of incorporation authorizes the board of
      directors to issue up to 10,000,000 shares of preferred stock. The
      preferred stock may be issued in one or more series, the terms of which
      may be determined at the time of issuance by Cross Media's 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. Specific
      rights granted to future holders of preferred stock could be used to
      restrict Cross Media's ability to merge with, or sell its assets to, a
      third party. The ability of Cross Media's board of directors to issue
      preferred stock could discourage, delay, or prevent a takeover of Cross
      Media, thereby preserving control by the current stockholders.

      As a Delaware corporation, Cross Media 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 exceptions, an interested stockholder is a person
      who, together with affiliates and associates, owns, or within three years
      did own, 15% or more of a corporation's voting stock. As a result of the
      application of Section 203, potential acquirers may be discouraged from
      attempting to acquire Cross Media, thereby possibly depriving its
      stockholders of acquisition opportunities to sell or otherwise dispose of
      its stock at above-market prices typical of acquisitions.

      CROSS MEDIA MAY NOT BE ABLE TO MAINTAIN THE LISTING OF ITS COMMON STOCK ON
      THE AMERICAN STOCK EXCHANGE.

      We may not be able to maintain the listing of our common stock on the
      American Stock Exchange ("Exchange"). If our stock trades at a low price
      for a substantial period of time, as may be determined by the Exchange, we
      may be required to effect a reverse split of such shares within a
      reasonable time after being notified by the Exchange that such action is
      appropriate under all the circumstances. In its review of whether a share
      price is too low or whether a reverse split is appropriate, the Exchange
      will consider all pertinent factors, including market conditions in
      general, the number of shares outstanding, plans which may have been
      formulated by management, applicable regulations of the state of
      incorporation or of any governmental agency having jurisdiction over Cross
      Media, and the relationship to other Exchange policies regarding continued
      listing. If the Exchange were to determine that our share price is too low
      and that we should reverse split our shares but we were unable to comply
      for any reason, our common stock may be delisted from the Exchange.
      Delisting of our common stock could materially adversely affect the market
      price, the market liquidity of our common stock and our ability to raise
      necessary capital. Moreover, it would likely be more difficult to trade in
      or to obtain accurate quotations as to the market price of our common
      stock. Maintaining compliance with all SEC requirements is important for
      maintaining a listing, including timely filings reviewed or audited by
      independent public accounts, regular annual shareholder meetings, and the
      payment of required fees.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate

Cross Media has a $35 million bank credit facility with Fleet National Bank as
agent for the lender banks and as issuing lender and the several other lenders.
As of December 31, 2002, Cross Media had $25 million outstanding under this
facility. Cross Media borrows funds under the credit facility at revolving prime
rate plus unapplicable margin (5% at March 31, 2003) and/or obtain letters of
credit. Management believes that a 1% increase in the revolving prime rate would
not have a material impact to Cross Media's financial position or its results of
operations.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                          INDEX TO FINANCIAL STATEMENTS

                                                                     PAGE
                                                                     ----
Report of Independent Certified Public Accountants................   F-1
Financial Statements
  Consolidated Balance Sheets ....................................   F-2
  Consolidated Statements of Operations ..........................   F-3
  Consolidated Statement of Stockholders' Equity .................   F-4
  Consolidated Statements of Cash Flows ..........................   F-5
  Notes to Consolidated Financial Statements .....................   F-7
Schedule II Valuation and Qualifying Account                         22


                                       21
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the 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, 2002 and 2001, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 2002, 2001
and 2000. These financial statements are the responsibility of Cross Media's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as 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, 2002 and 2001 and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 2002, 2001 and 2000 in
conformity with accounting principles generally accepted in the United States of
America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note B, the Company
incurred a net loss of $34.5 million and used $15.4 million of cash in operating
activities for the year ended December 31, 2002 and was in default of certain
financial covenants of its credit agreement. These factors, among others, as
discussed in Note B to the financial statements, raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note B. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.

As discussed in Note G to the financial statements, the Company adopted
Statement of Financial Accounting Standards No., 142 "Goodwill and Other
Intangible Assets" ("SFAS 142") on January 1, 2002.

We have also audited Schedule II for each of the three years in the period ended
December 31, 2002. In our opinion, this schedule, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information therein.


/s/ Grant Thornton LLP

New York, New York
March 31, 2003


                                      F-1
<PAGE>

               CROSS MEDIA MARKETING CORPORATION AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                  December 31,    December 31,
                                                                      2002            2001
                                                                  ------------    ------------
                                                                 (IN THOUSANDS EXCEPT SHARE DATA)
<S>                                                               <C>             <C>
ASSETS:
Current assets
  Cash and cash equivalents                                       $         30    $     12,490
  Accounts receivable, net of reserves
     of $21,216 and $21,756, December 31, 2002 and 2001,
     respectively                                                       59,529          46,058
  Other receivables                                                      3,854           6,664
  Inventory                                                              2,500             529
  Prepaid expenses and other current assets                              2,018           1,300
  Deferred expenses                                                      2,400           2,239
                                                                  ------------    ------------
          Total current assets                                          70,331          69,280
  Property and equipment, net                                            9,585           4,425
  Deferred taxes                                                            --           2,800
  Goodwill and intangibles net                                          42,657          17,923
  Other assets                                                              --             856
  Investment in limited partnerships                                     1,121              --
                                                                  ------------    ------------
          Total assets                                            $    123,694    $     95,284
                                                                  ============    ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities
  Revolving credit facility                                       $     25,036    $     17,329
  Accounts payable                                                      21,751           1,371
  Accrued expenses                                                       5,312           5,006
  Amounts due to publishers                                              3,386           3,768
  Capital lease obligations                                              1,367             539
  Deferred revenue                                                       2,280           3,191
  Notes and other acquisition related payables                           5,776              --
  Restructuring liability                                                2,813              --
                                                                  ------------    ------------
          Total current liabilities                                     67,721          31,204
Long term liabilities
  Amounts due to publishers                                              3,607           4,984
  Capital lease obligations                                              1,648             869
  Notes and other acquisition related payables                           1,963              --

Series B Convertible Preferred Stock, 2 shares                           1,900              --

STOCKHOLDERS' EQUITY:
  Common stock, par value $.001 per share;
     authorized 40,000 shares; 15,049 issued
     and 15,018 outstanding at December 31,
     2002 and 12,712 issued and 12,614
     outstanding at December 31, 2001                                       15              13
  Additional paid in capital                                           128,905         106,183
  Treasury stock, 31 shares at December 31,
     2002 and 98 shares at December 31, 2001                              (424)           (857)
  Note receivable -- common stock                                         (698)           (698)
  Accumulated deficit                                                  (80,943)        (46,414)
                                                                  ------------    ------------
          Total stockholders' equity                                    46,855          58,227
                                                                  ------------    ------------
                                                                  $    123,694    $     95,284
                                                                  ============    ============
</TABLE>

The accompanying notes are an integral part of this statement.


                                      F-2
<PAGE>

               CROSS MEDIA MARKETING CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                                      FOR THE YEARS ENDED
                                                          DECEMBER 31,
                                               --------------------------------
                                                 2002        2001        2000
                                               --------    --------    --------
                                                         (IN THOUSANDS,
                                                EXCEPT SHARE AND PER SHARE DATA)

Revenues, net ..............................   $145,118    $100,116    $ 55,939
Direct costs and expenses
  Commission expense .......................     40,940      42,568      30,762
  Other direct costs .......................     90,029      29,309      10,617
                                               --------    --------    --------
                                                130,969      71,877      41,379
     Gross profit ..........................     14,149      28,239      14,560
General and administrative expenses ........     30,640      15,190      13,546
Depreciation and amortization ..............      2,497       1,881         590
Impairment charge ..........................      6,116          --          --
Restructuring charge .......................      4,196          --          --
                                               --------    --------    --------
Income(loss) from operations ...............    (29,300)     11,168         424

Equity in income of limited partnerships ...        625
Interest expense ...........................     (3,505)     (2,060)     (4,363)
Other income ...............................        516          --          --
                                               --------    --------    --------
Income (loss) before income taxes ..........    (31,664)      9,108      (3,939)
Provision for income taxes .................      2,300         275         279
                                               --------    --------    --------
Net income (loss) before extraordinary item     (33,964)      8,833      (4,218)
Extraordinary loss .........................        478          --         768
                                               --------    --------    --------
Net income (loss) ..........................    (34,442)      8,833      (4,986)
Preferred dividends ........................         87         831      39,603
                                               --------    --------    --------
Net income (loss) to common stockholders ...   $(34,529)   $  8,002    $(44,589)
                                               ========    ========    ========
Income (loss) per share applicable to common
  stockholders:
    Income (loss) per share before
    extraordinary item:
  Basic ....................................   $  (2.35)   $   1.00    $  (9.02)
                                               ========    ========    ========
  Diluted ..................................   $  (2.35)   $   0.86    $  (9.02)
                                               ========    ========    ========
Extraordinary loss per share
  Basic ....................................   $  (0.03)         --    $  (0.16)
                                               ========    ========    ========
  Diluted ..................................   $  (0.03)         --    $  (0.16)
                                               ========    ========    ========
Income (loss) per share applicable to common
  stockholders:
  Basic ....................................   $  (2.38)   $   1.00    $  (9.18)
                                               ========    ========    ========
  Diluted ..................................   $  (2.38)   $   0.86    $  (9.18)
                                               ========    ========    ========
Weighted -- average shares of common stock
  outstanding:
  Basic ....................................     14,531       7,963       4,857
                                               ========    ========    ========
  Diluted ..................................     14,531       9,300       4,857
                                               ========    ========    ========

The accompanying notes are an integral part of this statement.


                                      F-3
<PAGE>

               CROSS MEDIA MARKETING CORPORATION AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                           Common stock                     Treasury Stock
                                        ------------------   Additional   ------------------
                            Preferred   Number of             Paid-in     Number of                Note      Accumulated
                              Stock      Shares     Amount    Capital      Shares     Amount    Receivable     Deficit       Total
                            ---------   ---------   ------   ----------   ---------   ------    ----------   -----------    -------
<S>                         <C>         <C>         <C>      <C>          <C>         <C>       <C>          <C>            <C>
Balance at
 December 31, 1999                          2,809   $    3   $   12,860          --   $   --    $   (2,500)  $    (9,830)   $   533
Common stock issued with
 preferred                                    492       --        1,881                                                       1,881
Common stock issued for
 preferred stock extensions
 and conversions                            1,845        2       17,668                                          (17,670)        --
Warrants issued with
 preferred stock                                                  3,057                                                       3,057
Warrants issued for
 preferred stock extensions
 and conversions                                                  4,375                                           (4,375)        --
Accretion of mandatorily
 redeemable preferred stock                                                                                       (4,448)    (4,448)
Deemed dividends relating
 to intrinsic value                                              10,004                                          (10,004)        --
Contractual dividends                                                                                               (861)      (861)
Conversion of preferred
 stock                                        122       --          867                                                         867
Issuance of New Series
 A Preferred                    3,304                             2,496                                           (2,244)     3,556
Common stock issued with
 debt                                          15       --          179                                                         179
Common issued in connection
 with default and
 conversion of debt                           148       --        1,398                                                       1,398
Warrants issued to
 acquisition, bridge and
 short-term note holders
 post issuance                                                    1,516                                                       1,516
Common issued for
 consulting services                          131        1        1,359                                                       1,360
Options and warrants issued
 for consulting services                                          1,721                                                       1,721
Repayment of stock
 receivable                                                                                              2                        2
Adjustment of shares issued
 in previous period                             7       --           --                                                          --
Common stock issued in
 connection with
 acquisition                                  152                 1,928                                                       1,928
Common stock issued in
 settlement of acquisition
 liability                                    200                 1,937                                                       1,937
Net loss for the year ended
 December 31, 2000                                                                                                (4,986)    (4,986)
                            ---------   ---------   ------   ----------   ---------   ------    ----------   -----------    -------
Balance at
 December 31, 2000              3,304       5,921        6       63,246          --   $   --        (2,498)      (54,418)     9,640
                            =========   =========   ======   ==========   =========   ======    ==========   ===========    =======
Sales of common stock                         488                 2,438                                                       2,438
Common stock and warrants
 issued for consulting
 services                                       5       --          292                                                         292
Common stock issued in
 connection with
 mandatorily redeemable
 preferred stock conversion                   922        1        4,842                                             (900)     3,943
Contractual dividends                                                25                                             (519)      (494)
Exercise of stock options
 and warrants                                 510        1        1,435                                                       1,436
Put right settlement                                                            120     (600)        1,800                    1,200
Common stock issued in
 settlement of dividends                      108       --        1,450                                                       1,450
Issuance of common stock in
 connection with LFMN
 acquisition                                4,536        5       30,524                                                      30,529
Conversion of New Series A
 shares to common stock        (3,304)        342                 1,652                                                      (1,652)
Purchase/Cancellation of
 treasury shares                             (120)                 (600)        (22)    (257)                                  (857)
Registration of warrants                                            161                                                         161
Value options issued in
 connection with LFMN
 acquisition                                                      1,880                                                       1,880
Reversal of beneficial
 conversion previously
 recorded, with LFMN
 acquisition                                                     (1,162)                                             590       (572)
Net income for the year
 ended December 31, 2001                                                                                           8,833      8,833
                            ---------   ---------   ------   ----------   ---------   ------    ----------    ----------   --------
Balance at
 December 31, 2001          $      --   $  12,712   $   13   $  106,183          98   $ (857)   $     (698)  $   (46,414)   $58,227
                            =========   =========   ======   ==========   =========   ======    ==========    ==========   ========

Sales of common stock -
 Private Placement                          1,105        1       10,954                                                      10,955
Exercise of options and
 warrants                                     652        1        3,702                                                       3,703
Shares issued in NSI
 acquisition                                  280       --        3,218                                                       3,218
Shares issued in JWE
 acquisition                                  417       --        4,975                                                       4,975
Warrants issued in
 connection with
 NSI acquisition                                                    393                                                         393
Other                                                                48                                                          48
Warrants issued in
 connection with
 Lancer Notes                                                       501                                                         501
Warrants issued for
 consulting services                                                 22                                                          22
Cancel shares in treasury                    (117)      --       (1,091)               1,091                                     --
Buyback of shares in
 treasury                                                                       (67)    (658)                                  (658)
Preferred dividends                                                                                                  (87)       (87)
Net income for the 12
 months ended
 December 31, 2002                                                                                               (34,442)   (34,442)
                            ---------   ---------   ------   ----------   ---------   ------    ----------    ----------   --------
Balance at
 December 31, 2002          $      --      15,049   $   15   $  128,905          31   $ (424)   $     (698)   $  (80,943)  $ 46,855
                            =========   =========   ======   ==========   =========   ======    ==========    ==========   ========
</TABLE>


                                      F-4
<PAGE>

               CROSS MEDIA MARKETING CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                   FOR THE YEARS ENDED
                                                                                      DECEMBER 31,
                                                                            -------------------------------
                                                                              2002        2001       2000
                                                                            --------    --------   --------
                                                                                     (IN THOUSANDS)
<S>                                                                         <C>         <C>        <C>
Cash flows from operating activities:
  Net income (loss) .....................................................   $(34,529)   $  8,833   $ (4,986)
  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 ......................................        545         292      3,080
     Non cash interest expense ..........................................         --         110      2,381
     Depreciation and amortization ......................................      2,497       1,881        590
     Impairment charge ..................................................      6,116          --         --
     Extraordinary item .................................................        278          --         --
     Minority interest ..................................................       (263)         --         --
  Net change in asset and liability accounts, net of businesses acquired:
     Accounts receivable ................................................     (5,936)    (23,423)      (754)
     Inventories and other current assets ...............................      2,942      (2,845)    (1,067)
     Accounts payable and other accrued expenses ........................     12,912       3,079      4,849
                                                                            --------    --------   --------
  Net cash (used in) provided by operating activities ...................    (15,438)    (12,073)     4,093
                                                                            --------    --------   --------
Cash flows from investing activities:
  Purchase of equipment .................................................     (6,352)     (2,534)      (434)
  Acquisition of DSI, net of cash acquired ..............................         --          --    (23,711)
  Acquisition of LifeMinders, net of cash acquired ......................        905      18,060         --
  Acquisition of WeFusion ...............................................         --          --       (298)
  Acquisition of NSI, net of cash acquired ..............................     (9,928)
  Acquisition of JWE, net of cash acquired ..............................     (1,875)
  Loans made to Heritage ................................................         --          --       (275)
  Investment in limited partnerships ....................................       (141)
                                                                            --------    --------   --------
  Net cash (used in) provided by investing activities ...................    (17,391)     15,526    (24,718)
                                                                            --------    --------   --------
Cash flows from financing activities:
  Net proceeds from sales of preferred stock ............................         --          --     12,724
  Net proceeds from sales of common stock ...............................     10,967       2,438         --
  Net proceeds from exercise of options/warrants ........................      2,484       1,435
  Net repayments of Coast credit agreement ..............................    (18,152)
  Net proceeds from revolving credit facility ...........................     27,158
  Proceeds from acquisition bridge notes ................................      2,000          --      1,350
  Repayment of bridge note ..............................................       (500)       (199)    (1,226)
  Payment of NSI notes and other acquisition related payable ............     (3,972)
  Redemption of preferred stock .........................................         --      (2,100)      (535)
  Net funds drawn on Revolving Credit Agreement .........................         --       6,103     11,226
  Preferred dividends paid ..............................................         --         251       (510)
  Accrued closing costs .................................................         --        (250)        --
  Deferred financing costs ..............................................       (499)       (111)      (415)
  Payments to purchase treasury stock ...................................       (658)       (857)        --
  Proceeds from Lancer notes ............................................      1,650
  Capital lease payments ................................................       (169)
                                                                            --------    --------   --------
  Net cash provided by financing activities .............................     20,309       6,710     22,614
                                                                            --------    --------   --------
</TABLE>


                                      F-5
<PAGE>

<TABLE>
<CAPTION>
                                                                                   FOR THE YEARS ENDED
                                                                                      DECEMBER 31,
                                                                            -------------------------------
                                                                              2002        2001       2000
                                                                            --------    --------   --------
                                                                                     (IN THOUSANDS)
<S>                                                                         <C>         <C>        <C>
Net (decrease) increase in cash and cash equivalents ....................    (12,520)     10,163      1,989
  Cash and cash equivalents at beginning of period ......................     12,490       2,327        338
                                                                            --------    --------   --------
  Cash and cash equivalents at end of period ............................   $     30    $ 12,490   $  2,327
                                                                            ========    ========   ========
Supplemental disclosure of cash flow information:
  Income taxes paid during the period ...................................        470          --        858
                                                                            ========    ========   ========
  Interest paid during the period .......................................   $  1,074    $  1,909   $  1,982
                                                                            ========    ========   ========
Supplemental disclosure of non-cash financing activities:
  Non-cash reduction of notes receivable (Note D) .......................   $           $  1,800   $     --
                                                                            ========    ========   ========

<CAPTION>
                                                                          (IN THOUSANDS)
<S>                                                                         <C>
Supplemental disclosure of non-cash investing activities:
Acquisition of NSI in 2002:
Cash paid to former NSI owner ...........................................   $  9,000
Total transaction costs paid ............................................        928
                                                                            --------
Total cash paid .........................................................      9,928

Non cash consideration:
Promissory notes issued .................................................      5,600
Value of common stock issued ............................................      3,200
Contingent consideration ................................................      1,000
Value of warrants issued ................................................        372
                                                                            --------
Total non cash consideration ............................................     10,172

Total consideration for NSI .............................................   $ 20,100
                                                                            ========
Acquisition of JWE in 2002:
Cash paid to JWE owner ..................................................   $  1,500
Total transaction costs paid ............................................        375
                                                                            --------
Total cash paid .........................................................      1,875

Non Cash Consideration:
Preferred stock issued ..................................................      1,900
Value of common stock issued ............................................      5,000
Contingent consideration ................................................        550
Value of warrants issued ................................................      1,145
                                                                            --------
Total non cash consideration ............................................      8,595

Total consideration for JWE .............................................   $ 10,470
                                                                            ========
Acquisitions of Lifeminders in 2001:
Gross cash acquired from LifeMinders ....................................   $ 49,531
Cash paid to existing LifeMinders Stockholders ..........................    (24,063)
Cash paid to convert/redeem the New Series A Shares .....................     (3,500)
Total transaction costs paid ............................................     (3,908)
                                                                            --------
Total cash paid for LifeMinders .........................................     31,471
                                                                            --------
Net cash acquired from acquisition of LifeMinders .......................   $ 18,060
                                                                            ========
Acquisitions of DSI in 2000:
Assets acquired .........................................................   $ 28,805
Costs in excess of net assets acquired ..................................      8,975
Liabilities assumed .....................................................     (7,037)
Accrued closing costs not yet satisfied .................................     (1,450)
Accrued closing costs settled in stock ..................................     (3,228)
Deferred acquisition costs from prior period ............................       (514)
Cash received at closing ................................................     (1,840)
                                                                            --------
Net cash paid for acquisitions of businesses ............................   $ 23,711
                                                                            ========
</TABLE>

Cross Media purchased $2.6 million and $0.8 million pursuant to capital lease
obligations during the years ended December 31, 2002 and 2001, respectively.

The accompanying notes are an integral part of this statement.


                                      F-6
<PAGE>

                       Cross Media Marketing Corporation
                   Notes to Consolidated Financial Statements

NOTE A -- NATURE OF BUSINESS

Cross Media is a technology-driven direct marketing company that specializes in
executing targeted, interactive sales campaigns utilizing multiple direct
marketing channels, including direct mail, inbound and outbound telesales, print
ads, web marketing and e-mail. Cross Media sells a variety of products through
these multiple channels, including multi-magazine subscription packages,
discount buying club memberships, collectibles, and lifestyle products. Cross
Media utilizes its proprietary database management and profiling technology to
augment and perpetually update its permission-based database of over 30 million
consumers.

Cross Media emphasizes its cross-channel marketing strategy, which is an
effective integration of online and offline marketing techniques. By utilizing
all available channels to make contact with the consumer, Cross Media seeks to
maximize the synergies of cross-channel marketing. Cross Media frequently
initiates contact with a consumer through one channel and consummates a
transaction through another channel. For example, e-mails or direct mail often
attract the interest of a consumer, who then responds by calling an 800 number.

NOTE B - BASIS OF PRESENTATION

The accompanying consolidated financial statements have been prepared assuming
Cross Media will continue as a going concern. Cross Media has experienced a net
loss of $34.5 million and used $15.4 million of cash in operating activities for
the year ended December 31, 2002 and was in default of certain financial
covenants of its bank credit agreement and its Lancer note agreements(See Note
H). Cross Media does not currently have sufficient financial resources to fund
its operations and is required to refinance its outstanding debt. Cross Media
has pledged its assets to secure its bank credit facility. A demand for
immediate repayment of the credit facility or the action by the bank to secure
possession of the collateral could lead to the termination of the Company's
business. These factors, among others, raise substantial doubt about Cross
Media's ability to continue as a going concern. Cross Media is actively pursuing
financing from asset based lenders as well as equity investors. Cross Media
cannot give any assurance that it will generate sufficient cash flow from
operations or obtain financing to replace its credit facility or other operating
requirements.

During the third quarter of 2002 Cross Media restructured its operations,
reduced costs and eliminated certain business initiatives. Cross Media's
business plan for 2003, contemplates additional cost reductions, and the
refinancing of its bank credit facility. There can be no assurance that these
plans will be successful. The financial statements do not include any
adjustments to reflect the possible effects on recoverability and classification
of assets or the amounts and classification of liabilities, which may result
from the inability of Cross Media to continue as a going concern.

NOTE C -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation: The consolidated financial statements include the
accounts of Cross Media and its wholly owned subsidiaries and majority owned
limited partnerships. Cross Media's investments in limited partnerships where
Cross Media's ownership interest is 50% or less are accounted for on the equity
method. As of December 31, 2001 Cross Media had one investment in a limited
partnership (J. Cross Marketing) in which Cross Media was the general partner
and had an ownership interest of 75% interest. This entity was consolidated
because Cross Media had management control over the entity. Media Outstourcing
Inc. a 100% wholly owned subsidiary was included in the consolidated financial
statements as of and for each of the three year periods ended December 31, 2002.
National Syndications Inc. ("NSI") consolidated financial results were included
as of December 31, 2002 and for the period from January 11, 2002 (date of
acquisition) to December 31, 2002 and JWE consolidated financial results were
included as of December 31, 2002 and for the period from May 27, 2002 to
December 31, 2002. During 2002, the Cross Media acquired a 49% interest in
several limited partnerships. Cross Media accounts for the investment in these
limited partnerships on the equity method. As part of the acquisition of JWE in
2002 (See Note D) Cross Media also acquired the remaining ownership interest in
J. Cross Marketing.


                                      F-7
<PAGE>

                       Cross Media Marketing Corporation
             Notes to Consolidated Financial Statements (continued)

Segment Reporting: Cross Media is in the direct marketing business and is
organized with principal operating segments. These segments consist of (1)
Magazine Segment  (2) Collectible Segment and (3) Other. (See Note R)

Magazine Revenue: Revenues derived from originating magazine subscriptions are
recognized when the publisher accepts the order and Cross Media receives the
first installment payment for subscriptions purchased, since Cross Media has
completed the process of originating the subscription and has the ability to
reasonably estimate collectibility. Magazine revenues are reflected net of
cancellation, collection reserves and amounts due to publishers. Such
cancellation and collection reserves are based upon Cross Media's historical
cancellation and collection experience, as well as the placement for collection
of these receivables to outside third parties and third party collection
agencies. Cross Media continually evaluates actual collection and cancellation
experience as it relates to magazine sales and adjusts collection and
cancellation reserves based on actual experience. Based upon this evaluation,
Cross Media refined its estimate used in its pay to maturity analysis to factor
in the most current performance of the receivables and to separately evaluate
the reserve required for older receivables and as a result, Cross Media
decreased net revenues by $6.3 million in the fourth quarter of 2002. For the
twelve months ended December 31, 2002, one independent call center accounted for
approximately 34% of Cross Media's magazine subscription revenues. This call
center does not have any commitment to generate sales for Cross Media and could
therefore, at any time, terminate its relationships with Cross Media without
notice, which could have a material adverse effect on Cross Media's business.

Other Magazine Revenues: Cross Media receives fees from outside third parties
for securing memberships in the third party's discount-buying club. These fees
are recognized when the related subscriptions or memberships are obtained.
Revenues also include commissions earned from publishers for providing certain
publications to customers who purchased multiple subscriptions.

Revenue from Print Advertising: Revenue from print advertising relating to
National Syndications Inc. ("NSI") operations are one time purchases made by
customers. Revenue from print advertising is usually generated by inbound
calling in response to advertising space in Sunday magazines and involves the
one time sale of products such as coins and collectibles. Revenue is recognized
gross, upon delivery to customer, as Cross Media acts as the principal to the
transaction with the customer and are responsible for providing the product to
the customer and have general inventory and credit risk on the transaction.
Revenue is adjusted for estimated returns based on past experience.

Continuity Revenue: Continuity revenue is generated from the sale of products to
a customer over multiple months, generally involving the sale of videos or
coins. Revenue is recognized upon each shipment of product, net of expected
reserves. Revenue is recorded gross as Cross Media is the principal and is
primarily responsible for providing the product to the customer and has general
inventory and credit risk on the transaction. A provision for estimated returns
is reflected in the revenues recorded based on past experience.

Accounts Receivable: Cross Media's receivables are due from consumers. Cross
Media provides valuation reserves for cancellations and collections and based on
the type of consumer receivables as follows:

      Magazine: Cross Media evaluates actual collection and cancellation
      experience as it relates to magazine sales and adjusts collection and
      cancellation reserves based on actual experience.

      Installment Receivables - Cross Media specifically identifies receivables
      whose history has shown, after repeated attempts to collect, that these
      are no longer collectible and is written off. These customers are sent to
      collection agencies with a 100% valuation allowance.

Commission Expense: Commission expense is recognized when Cross Media receives
the first installment payment for subscriptions purchased.

Advertising and promotion costs: Costs related to direct response, advertising
and promotion are amortized over the three month period based on the estimated
revenues to be generated. During the period from January 11, 2002 (date of NSI
acquisition) through December 31, 2002 Cross Media recognized $16.8 million in
advertising and promotional costs. As of December 31, 2002 Cross Media had a
balance of $0.8 million in deferred advertising and promotion costs. For the
years ended December 2001 and 2000, Cross Media did not defer advertising and
promotion costs.

Shipping and Handling Costs: In December 2000, the Emerging Issues Task Force
reached a consensus on Issue 00-01, Accounting for Shipping and Handling Fees
and Costs (Issue 00-01). Issue 00-01 requires that all amounts billed to
customers related to shipping and handling cost is an accounting policy decision
that should be disclosed pursuant to Accounting Principles Board (APB) No. 22,
Disclosure Policies. Cross Media bills customers for the shipping and handling
costs. These amounts are included in net sales. The cost of shipping products to
the customer is recognized at the time the products are shipped to the customer
and is included in cost of goods sold. Shipping costs included in cost of goods
sold for the period of January 11, 2002 (date of NSI acquisition) through
December 31, 2002 was approximately $3.7 million.

Cash and Cash Equivalents: Cross Media considers all highly liquid investments
with maturities of three months or less to be cash equivalents.

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.

Effective January 1, 2002, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. In accordance with this standard, Cross Media performs
impairment tests on its long-lived assets, excluding goodwill and other
intangible assets, when circumstances indicate that their carrying amounts may
not be recoverable.


                                      F-8
<PAGE>

                       Cross Media Marketing Corporation
             Notes to Consolidated Financial Statements (continued)

If required, recoverability is tested by comparing the estimated future
undiscounted cash flows of the asset or asset group to its carrying value. If
the carrying value is not recoverable, the asset or asset group is written down
to market value.

Disclosures About Fair Value of Financial Instruments: The following methods and
assumptions were used to estimate the fair value of each class of financial
instruments for which it is practicable to estimate that value:

o     Cash and cash equivalents: The carrying value approximates fair value due
      to the short maturity of these instruments.

o     Short-term debt: The carrying value approximates fair value due to the
      short maturity of these instruments and their variable interest rate.

o     Derivative financial instruments: The carrying value is re-measured at
      each balance sheet date based on the fair value of these instruments.

o     Stock note receivable: approximate fair value due to the ability of the
      Company to settle amounts it owes to the note holder against the note
      receivable balance.

Software Developed for Internal Use: In accordance with SOP No. 98-1.
"Accounting for Costs of Computer Software Developed of Obtained for Internal
Use" and EITF Issue 00-02, "Accounting for Web Site Development Costs", Cross
Media capitalizes costs incurred to purchase or develop internal-use software,
including costs to develop web-sites, when technological feasibility has been
established, it is probable that the project will be completed and the software
is used as intended.

Derivatives: Cross Media follows the provision of SFAS No. 133, "Accounting for
Derivatives and Hedging Activities." ("SFAS No. 133"). SFAS No. 133 establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) issued,
acquired, or substantially modified after December 31, 1997 be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. Cross Media enters into swap and cap
agreements to minimize interest rate risk. The fair value of the contracts was
not material for the years ending December 31, 2002 and 2001.

Inventories: Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method. Inventories consist of
purchased items ready for resale.

Goodwill: Goodwill represents the excess of the purchase price over the fair
market value of net assets acquired in business combinations. The carrying value
of goodwill is analyzed by Cross Media, 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 Cross Media determines
that there has been a decline in value of the acquired enterprise, Cross Media
will write down the value of the goodwill to the revised fair value. On July 1,
2001, Cross Media adopted Statements of Financial Accounting Standards ("SFAS")
No. 141, "Business Combinations" and beginning January 1, 2002, Cross Media
adopted SFAS No. 142, "Goodwill and Other Intangible Assets." Upon adoption of
SFAS 142, Cross Media no longer amortizes goodwill. As required by SFAS 142,
Cross Media completed a review of its reporting units for goodwill impairment
and determined that there was an impairment charge relating to the Lifeminders
goodwill. (See Note G).

Income Taxes: As part of the process of preparing Cross Media's consolidated
financial statements, Cross Media is required to estimate its income taxes in
each of the jurisdictions in which Cross Media operates. This process involves
Cross Media estimating its actual current tax exposure together with assessing
temporary differences resulting from different basis of balance sheet items
between book and tax. These differences result in deferred tax assets and
liabilities, which are included within Cross Media's consolidated balance sheet.
Cross Media must then look at the likelihood that its deferred tax assets will
be recovered from future taxable income and to the extent Cross Media believes
that recovery is not likely, Cross Media must establish a valuation allowance.

Deferred Financing Costs: Deferred financing costs are costs incurred in
connection with obtaining outside financing and are amortized on a straight-line
basis which approximates the interest method over the expected term of the
related credit facility.

Net income (loss) per share applicable to common stockholders: Net income (loss)
per share applicable to common stockholders 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 plus potentially dilutive securities.


                                      F-9
<PAGE>

The following table sets forth the computation of basic and diluted earnings per
share which reflects the effect of the 5:1 reverse stock split:

<TABLE>
<CAPTION>
                                                               FOR THE FISCAL YEARS ENDED
                                                                    (IN THOUSANDS)
                                                              2002        2001        2000
                                                            --------------------------------
<S>                                                         <C>         <C>        <C>
Numerator
    Net Income (loss) before extraordinary item:            $(33,964)   $ 8,833    $   (4,218)
    Extraordinary loss...................................       (478)                    (768)
                                                            ---------------------------------
    Net Income                                               (34,442)     8,833        (4,986)
    Preferred stock dividends                                     87        831        39,603
                                                            ---------------------------------
    Net Income (loss) applicable to common stockholders     $(34,529)   $ 8,002    $  (44,589)

Denominator
   Basic - weighted average shares                            14,531      7,963         4,857
      Preferred stock                                                       596
      Stock Options                                                         196
      Warrants                                                              545
                                                            ---------------------------------
   Diluted weighted average shares                            14,531      9,300         4,857

Income (loss) per share before extraodinary item:
   Basic.................................................   $  (2.35)   $  1.00    $    (9.02)
                                                            =================================
   Diluted...............................................   $  (2.35)   $  0.86    $    (9.02)
                                                            =================================

Extraordinary loss per share:
   Basic.................................................   $  (0.03)   $    --    $    (0.16)
                                                            =================================
   Diluted...............................................   $  (0.03)   $    --    $    (0.16)
                                                            =================================

Income (loss) per share applicable to common stockholders
   Basic.................................................   $  (2.38)   $  1.00    $    (9.18)
                                                            =================================
   Diluted...............................................   $  (2.38)   $  0.86    $    (9.18)
                                                            =================================
</TABLE>

      Stock options and warrants which were not included in the calculation,
      were the equivalent of 4.7 million, 3.9 million, and 3.3 million shares
      for the twelve months ended December 31, 2002, 2001 and 2000,
      respectively, because they were antidilutive. In addition, the effect of
      the convertible preferred stock was also antidilutive in 2002 and 2000.

Accounting for Stock-Based Compensation: Cross Media applies Accounting
Principals Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations in accounting for its stock-based
compensation plans. Accordingly, Cross Media records expense for employee stock
compensation plans equal to the excess of the market price of the underlying
Cross Media shares at the date of grant over the exercise price, at the grant
dates since inception of the plan all grant awards have had an exercise price
equal to the market price on the date of grant and therefore, no compensation
expense has been recorded. The following table summarizes the pro forma
operating results of Cross Media had compensation cost for stock options granted
(See Note P) been determined in accordance with the fair value based method
prescribed by Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" (SFAS No. 123). Cross Media has presented the
following disclosures in accordance with SFAS 148 "Accounting for Stock-Based
Compensation-Transition and Disclosures."


                                      F-10
<PAGE>

                       Cross Media Marketing Corporation
             Notes to Consolidated Financial Statements (continued)

<TABLE>
<CAPTION>
                                                                                    FOR THE YEAR ENDED
                                                                                       DECEMBER 31,
                                                                             -----------------------------
                                                                                 2002      2001       2000
                                                                             --------    ------   --------
                                                                       (In thousands, except per share amounts)
<S>                                                                          <C>         <C>      <C>
Net Income (loss) applicable to common stockholders', as reported            $(34,529)   $8,002   $(44,589)
Adjust: Stock-based employee compensation expense determined
               under fair value method ..........................              (1,833)   (4,433)      (429)
                                                                             --------    ------   --------
 Pro forma net income (loss) ....................................            $(36,362)   $3,569   $(45,018)
                                                                             ========    ======   ========
Net Income (loss) per share applicable to common stockholders':
      Basic, as reported ........................................            $  (2.38)   $ 1.00   $  (9.18)
      Basic, pro forma ..........................................            $  (2.50)   $ 0.45   $  (9.27)
      Diluted, as reported ......................................            $  (2.38)   $ 0.86   $  (9.18)
      Diluted, pro forma ........................................            $  (2.50)   $ 0.38   $  (9.27)
</TABLE>

The pro forma amounts that are disclosed in accordance with SFAS No. 123 reflect
the portion of the estimated fair value of awards that were earned for the years
ended December 31, 2002, 2001 and 2000.

The fair value of stock option grants is estimated using the Black-Scholes
option-pricing model with the following assumptions:

                                                         FOR THE YEAR ENDED
                                                            DECEMBER 31,
                                                     --------------------------
                                                      2002      2001      2000
                                                     ------    ------    ------
Term (years)                                              5         5         5
Volatility                                               45%       35%       35%
Risk-free interest rate                                   6%        6%        6%
Dividend yield                                            0%        0%        0%
Weighted-average fair value per option               $ 4.21    $ 3.81    $ 4.05

Reclassification: Certain amounts in the December 31, 2001 and 2000 financial
statements have been reclassified to conform to the December 31, 2002
classifications.

Use of Estimates in the Preparation of Financial Statements: The preparation of
financial statements in conformity with generally accepted accounting principles
in the United States requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements as
well as the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. These estimates and
assumptions relate to estimates of pay to maturity of accounts receivable, used
in recording net revenue, collectibility of accounts receivable, the
realizability of goodwill and other intangible assets, amounts due to publishers
and due from partners, accruals, income taxes, deferred advertising costs,
inventory realization and other factors. Management has exercised reasonable
judgment in deriving these estimates; however, actual results could differ from
these estimates. Consequently, changes in conditions could affect Cross Media's
estimates.

Concentration of Credit Risk: Cross Media's financial instruments that are
exposed to concentrations of credit risk consists primarily of cash and cash
equivalents and trade accounts receivable. Cross Media 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.
Cross Media has not experienced any losses in such accounts and believes it is
not exposed to any significant credit risks. Financial instruments, which
potentially subject Cross Media to concentrations of credit risk consist
principally of trade accounts receivable as Cross Media does not require
collateral or other securities to support customer receivables. Cross Media
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 Cross Media's
customer base.

Leases: Leases, which meet certain criteria, are capitalized as capital leases.
In such leases, assets and obligations are recorded initially at the fair market
value of the leased assets. The equipment under capitalized leases is amortized
using the straight-line method over the assets' estimated economic lives.
Interest expense relating to the liabilities is recorded to effect a constant
rate of interest over the term of the obligations. Leases not meeting
capitalization criteria are classified as operating leases and related rentals
are charged to expense as incurred.

New Accounting Pronouncements: In August 2001, the FASB, issued SFAS, No. 143,
"Accounting for Obligations Associated with the Retirement of Long-Lived
Assets." SFAS No. 143 addresses financial accounting and reporting for the
retirement obligation of an asset. This statement provides that companies should
recognize the asset retirement cost at its fair value as part of the cost of the
asset and classify the accrued amount as a liability. The asset retirement
liability is then accreted to the ultimate payout as interest expense. The
initial measurement of the liability would be subsequently updated for revised
estimates of the discounted cash outflows. The Statement will be effective for
fiscal years beginning after June 30, 2002. Cross Media has not yet determined
the effect that SFAS No. 143 will have on its consolidated financial position,
results of operations or cash flows.


                                      F-11
<PAGE>

                       Cross Media Marketing Corporation
             Notes to Consolidated Financial Statements (continued)

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
This statement eliminates the requirement under SFAS 4 to aggregate and classify
all gains and losses from extinguishment of debt as an extraordinary item, net
of related income tax effect. This statement also amends SFAS 13 to require that
certain lease modifications with economic effects similar to sale-leaseback
transactions be accounted for in the same manner as sale-leaseback transactions.
In addition, SFAS No. 145 requires reclassification of gains and losses in all
prior periods presented in comparative financial statements related to debt
extinguishment that do not meet the criteria for extraordinary item in
Accounting Principles Board Opinion ("APB") 30. The statement is effective for
fiscal years beginning after May 15, 2002 with early adoption encouraged. Cross
Media will adopt SFAS No. 145 effective January 1, 2003. Cross Media will record
the extraordinary loss of $0.5 million recorded as of March 31, 2002 as income
from operations in the first quarter of 2003.

On July 30, 2002, The FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." The standard requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. Examples of costs
covered by the standard include lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. SFAS No. 146 is to
be applied prospectively to exit or disposal activities initiated after December
31, 2002. Cross Media is currently evaluating the requirements and impact of
this statement on our consolidated results of operations and financial position.

In November 2002, the FASB issued interpretation ("FIN") No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." FIN No. 45 requires certain guarantees to
be recorded at fair value, which is different from current practice, which is
generally to record a liability only when a loss is probable and reasonably
estimable. FIN No. 45 also requires a guarantor to make significant new
disclosures, even when the likelihood of making any payments under the guarantee
is remote. The disclosure provisions of FIN No. 45 are effective for financial
statements of interim or annual periods after December 15, 2002. Cross Media has
adopted the recognition and measurement provisions of FIN No. 45 on a
prospective basis with respect to guarantees issued or modified after December
31, 2002. The adoption of the disclosure provisions have been reflected in these
financial statements.

In November 2002, the Emerging Issues Task Force reached a consensus opinion on
EITF 00-21, "Revenue Arrangements with Multiple Deliverables." The consensus
provides that revenue arrangements with multiple deliverables should be divided
into separate units of accounting if certain criteria are met. The consideration
for the arrangement should be allocated to the separate units of accounting
based on their relative fair values, with different provisions if the fair value
of all deliverables are not known or if the fair value is contingent on delivery
of specified items or performance conditions. Applicable revenue recognition
criteria should be considered separately for each separate unit of accounting.
EITF 00-21 is effective for revenue arrangements entered into in fiscal periods
beginning after June 15, 2003. Entities may elect to report the change as a
cumulative effect adjustment in accordance with APB Opinion 20, Accounting
Changes. Cross Media has not determined the effect of adoption of EITF 00-21 on
its financial statements or the method of adoption it will use.

In November 2002 the Emerging Issues Task Force reached a consensus opinion on
EITF 02-16, "Accounting by a Customer (including a reseller) for Certain
Consideration Received from a Vendor." EITF 02-16 requires that cash payments,
credits, or equity instruments received as consideration by a customer from a
vendor should be presumed to be a reduction of cost of sales when recognized by
the customer in the income statement. In certain situations, the presumption
could be overcome and the consideration recognized either as revenue or a
reduction of a specific cost incurred. The consensus should be applied
prospectively to new or modified arrangements entered into after December 31,
2002. Cross Media has not yet determined the effects of EITF 02-16 on its
financial statements.

On December 31, 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for an entity that voluntarily changes to the fair value method of
accounting for stock-based employee compensation. In addition, it also amends
the disclosure provisions of SFAS No. 123 to require prominent disclosure about
the effects on reported net income, including per share amounts, of an entity's
accounting policy decisions with respect to stock-based employee compensation in
annual and interim financial statements. SFAS No. 148 does not amend SFAS No.
123 to require companies to account for their stock-based employee compensation
using the fair value method. The disclosure provisions of SFAS No. 123 were
effective immediately in 2002. SFAS 148 is effective for fiscal years ending
after December 15, 2002. The transition provisions for a change to the fair
value based method may be early adopted, provided that financial statements for
the 2002 fiscal year have not been issued as of December 31, 2002. As of
December 31, 2002, the Cross Media does not have any immediate plans to change
its method of accounting for stock-based employee compensation to the fair value
method. Included in the 2002 financial statements are the required disclosures
per SFAS 148.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities", an Interpretation of ARB No. 51 ("FIN 46"). FIN 46
requires certain variable interest entities to be consolidated by the primary
beneficiary of the entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 is effective for all
new variable interest entities created or acquired after January 31, 2003. For
variable interest entities created or acquired prior to February 1, 2003, the
provisions of FIN 46 must be applied for the first interim or annual period
beginning after June 15, 2003. Cross Media does not expect this new
interpretation to have a material effect on its future results of operations or
cash flows.


                                      F-12
<PAGE>

                       Cross Media Marketing Corporation
             Notes to Consolidated Financial Statements (continued)

NOTE D -- ACQUISITIONS

Acquisitions are accounted for as a purchase and, accordingly, have been
included in Cross Media's consolidated results of operations since the
acquisition date. The purchase price is allocated based on the estimate fair
value of the assets acquired and the liabilities assumed. Purchase price
allocations are subject to refinement until all pertinent information regarding
the acquisition is obtained.

                           DIRECT SALES INTERNATIONAL

On January 28, 2000, through Cross Media's wholly-owned subsidiary MOS, Cross
Media 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). Cross Media also granted to Richard Prochnow, the
seller of DSI (Prochnow), and to RLP Holdings, L.P. the right, which has an
intrinsic value of $1.2 million, to sell up to 120,000 shares of common stock
back to Cross Media at a fixed price. The intrinsic value approximated the fair
value, because it was deemed to be the contractual settlement amount of the put
obligation, which was exercisable within one year of the grant date. Goodwill of
$7.5 million associated with the acquisition of DSI was amortized on a straight
line basis over a ten year period until June 30, 2002, when the Company adopted
SFAS No. 142, "Goodwill and Other Intangible Assets".

In June 1999, Cross Media issued to Mr. Prochnow 2,500,000 shares of common
stock valued at $2.5 million, in exchange for a $2.5 million, 8% ten-year note
receivable as an incentive for Mr. Prochnow to enter into an acquisition with
Cross Media. On January 28, 2000, Cross Media completed its acquisition of Mr.
Prochnow's company - Direct Sales International. Concurrent with the
acquisition, Cross Media entered into a Registration Rights Agreement, with Mr.
Prochnow. The registration rights agreement contained a put right which granted
Mr. Prochnow the right, to put up to 600,000 shares of the common stock
purchased in June 1999, back to Cross Media at a price of $3 per share.

The put agreement required Cross Media to buy back the shares between January
15, 2001 and the 180th day following the effective date of the registration
statement filed by Cross Media. At January 28, 2000, the put liability was
calculated based on the 600,000 shares of common stock to be put back to Cross
Media at $3 less the $1 per share that, by right of offset, reduced Mr.
Prochnow's note receivable with Cross Media, for a net liability of $1.2
million. The put liability was included in other liabilities at the date of the
acquisition as a cost of the acquisition.

On May 10, 2001, Mr. Prochnow exercised the put right in full, to sell 600,000
shares of Cross Media's Common Stock to Cross Media for an aggregate purchase
price of $1.8 million. In recording the exercise of the put right, Cross Media,
by right of offset, reduced its notes receivable of $2.5 million from Mr.
Prochnow by $1.8 million and reduced the put liability by $1.2 million, which
was recorded when the put was initially granted. Cross Media also reduced
stockholders' equity by $600,000, which was the value assigned when the shares
were issued as part of the acquisition of Direct Sales International.

                                   LIFEMINDERS

On October 24, 2001, Cross Media acquired the stock of LifeMinders, Inc.,
("LFMN") an online direct marketer, through the merger of LifeMinders with and
into Cross Media. Cross Media acquired LifeMinders to expand its multi-product
marketing channels and to utilize its 25-million name consumer database to
support traditional and online direct marketing. The acquisition also provided
Cross Media with approximately $20 million in net cash. Cross Media was
determined to be the accounting acquirer in accordance with SFAS 141 "Business
Combinations". The total purchase price of the merger was approximately $62
million. Cross Media received in aggregate approximately $18 million in cash
after payments to existing LifeMinders shareholders of $24 million, $3.5 million
for the redemption and inducement to convert Series A preferred stock and $4
million in transaction costs. In addition, Cross Media issued an aggregate of
approximately 4.54 million shares of common stock to the former LifeMinders
shareholders. Cross Media recorded goodwill of $11.2 million as a result of
total consideration over the net assets acquired on the date of the merger.
During the first quarter of 2002, Cross Media revalued the intangibles acquired
from the acquisition of LFMN and reduced the value recorded at December 31, 2001
from $6.0 million to $3.3 million based on an outside third party evaluation.
During the quarter ended September 30, 2002, Cross Media discovered it had
previously relied on inaccurate information used for the original valuation and
based on this revised information further reduced the value from $3.3 million to
$0 based on a discounted cash flow method. This resulted in a decrease in
amortization of the intangibles previously recorded of approximately $0.6
million during the twelve months ended December 31, 2002.

                                       NSI

On January 11, 2002, Cross Media acquired all of the capital stock of NSI. NSI
develops and markets a wide variety of products through direct response
advertising in Sunday publications. The acquisition substantially expanded Cross
Media's consumer reach through the addition of 62.5 million households to
support Cross Media's multi-product, multi-channel sales for traditional and
online direct marketing. Cross Media recorded the cost of the NSI acquisition of
approximately $20.1 million, as follows: (i) $9 million in cash, (ii) $3.1
million in negotiable promissory notes, (iii) $2.5 million in non-negotiable
promissory notes, (iv) $3.2 million through the issuance of 279,859 shares of
common stock, (v) a $1.3 million liability for the estimated current portion of
the contingent consideration (described below) and (vi) approximately $1


                                      F-13
<PAGE>

                       Cross Media Marketing Corporation
             Notes to Consolidated Financial Statements (continued)

million in transaction costs, including warrants valued at $372,000. Cross Media
may pay up to approximately $3.1 million in contingent consideration based on
three times the Limited partnerships' 2001 EBITDA of certain limited
partnerships of which NSI is a party (the "Limited partnerships") and the
aggregate Limited partnerships' income from January 1, 2001 through December 31,
2004. The contingent consideration, if paid, will be accounted for as additional
purchase price. The remaining balance of the $1.8 million contingent
consideration has not been recorded on the balance sheet as of December 31,
2002, as the outcome of the contingency is not determinable beyond a reasonable
doubt. Goodwill and other intangible assets recorded as a result of the
transaction was $19.5 million as of December 31, 2002. The operating results
from NSI have been included in the consolidated results of operations since the
date of the acquisition.

The promissory notes bear interest at the rate of 7% per annum, are payable in
36 consecutive monthly installments on the last business day of each month,
payments commenced on January 31, 2002, and were initially secured by the assets
of NSI. Upon the closing of the NSI transaction, Cross Media obtained a letter
of credit in the amount of $1 million from Fleet National Bank under the NSI
existing credit agreement. On March 19, 2002, Cross Media obtained a letter of
credit in the amount of $5.6 million, representing the full amount of the notes,
under its credit facility (See Note H) and the lien on the NSI assets was
released. As of December 31, 2002, $4.0 million was outstanding as a result of
payments made under the note agreement.

The following table summarizes the fair values of the assets acquired and
liabilities assumed at the date of acquisition.

                                 (IN THOUSANDS)

Accounts receivable ..................................................   $ 4,413
Inventory ............................................................     3,527
Other current assets .................................................     2,908
Fixed assets .........................................................     1,102
Other assets .........................................................     1,551
                                                                         -------
          Total assets acquired ......................................   $13,501
Current liabilities ..................................................    13,204
                                                                         -------
          Net assets acquired ........................................   $   297
                                                                         =======

                                 JWE Acquisition

On May 27, 2002, Cross Media completed the acquisition of substantially all of
the assets of JWE Enterprises, Inc., a magazine subscription business, and the
other 50% interest in an investment partnership from JWE Holdings, Inc.
(collectively JWE). The purchase of JWE should (1) increase sales relating to
magazine subscriptions (2) provide an increase in contribution margin based on
historical financial information (3) decrease the dependency on using Cross
Media's independent teleservice agencies to generate the sale of magazine
subscriptions and (4) provide additional experienced call center management
team. The non-contingent purchase price for the acquisition was approximately
$9.1 million, consisting of (i) approximately $1.7 million in cash, of which
$1.5 million was borrowed from, and is evidenced by a note payable to, Lancer
Offshore Inc. (ii) 416,980 shares of common stock, with a fair value of $5.0
million, (iii) 2,000 shares of Series B convertible redeemable preferred stock
(the "Preferred Stock") having a redemption value and fair value on the date of
issuance on the date of issuance of $1.9 million and (iv) $0.6 million of
additional consideration, payable in cash in the fourth quarter of 2002. As
additional consideration Cross Media issued warrants valued at approximately
$1.1 million. In addition, Cross Media may be required to make additional cash
payments of up to $10 million during the period of January 1, 2003 through June
30, 2005 if certain performance criteria for the acquired businesses are met.
Cross Media will record these cash payments as an adjustment to goodwill as
incurred since the payments are not forfeited if the seller's employment with
Cross Media terminates.

The fair values of the assets acquired and liabilities assumed at the date of
acquisition was approximately $0.2 million, which consisted mainly of fixed
assets. The allocation of the purchase price to acquired assets and liabilities
in accordance with SFAS No. 141, resulted in the allocation of $10.0 million to
goodwill and $0.2 to fixed assets. The acquisition was accounted for as a
purchase in accordance with SFAS No. 141. The operating results of JWE have been
included in the consolidated results of operations since the date of
acquisition. Any adjustment to the allocation of the purchase price for these
acquisitions upon finalization of the valuation of assets acquired and
liabilities assumed is not expected to have a significant effect on Cross
Media's financial statements.

The following unaudited pro forma consolidated results illustrate the estimated
effects of the acquisitions of DSI, LifeMinders and NSI as if such transactions
were consummated on January 1, 2000. The results of JWE in 2000 are not
available and are not reflected in proforma information. The pro forma data is
for informational purposes only and may not necessarily reflect results of
operations had the acquired companies been operated as part of Cross Media since
January 1, 2000.


                                      F-14
<PAGE>

                       Cross Media Marketing Corporation
             Notes to Consolidated Financial Statements (continued)

<TABLE>
<CAPTION>
                                                                                   FOR THE YEARS ENDED
                                                                                       DECEMBER 31,
                                                                           -----------------------------------
                                                                              2002         2001         2000
                                                                           ---------    ---------    ---------
                                                                                  (IN THOUSANDS EXCEPT
                                                                                    PER SHARE AMOUNTS)
<S>                                                          <C>           <C>          <C>          <C>
Revenues, net ............................................   As Reported   $ 145,118    $ 100,116    $  55,939
                                                             Proforma      $ 150,078    $ 171,742    $ 155,245

Income (loss) before extraordinary item ..................   As Reported   $ (33,964)   $   8,833    $  (4,218)
                                                             Proforma      $ (34,323)   $ (41,589)   $(112,554)

Extraordinary loss .......................................   As Reported   $     478    $      --    $     768
                                                             Proforma      $     478    $      --    $     768

Net income (loss) applicable to common stockholders ......   As Reported   $ (34,529)   $   8,002    $ (44,589)
                                                             Proforma      $ (34,888)   $ (42,420)   $(152,929)

Income (loss) per share before extraordinary item:
       --basic ...........................................   As Reported   $   (2.35)   $    1.00    $   (9.02)
                                                             Proforma      $   (2.28)   $   (3.16)   $  (14.74)
       --diluted .........................................   As Reported   $   (2.35)   $    0.86    $   (9.02)
                                                             Proforma      $   (2.28)   $   (2.87)   $  (14.74)
Extraordinary loss:
       --basic ...........................................   As Reported   $   (0.03)   $      --    $   (0.16)
                                                             Proforma      $   (0.03)   $      --    $   (0.07)
       --diluted .........................................   As Reported   $   (0.03)   $      --    $   (0.16)
                                                             Proforma      $   (0.03)   $      --    $   (0.07)
Income (loss) per share applicable to common stockholders:
       --basic ...........................................   As Reported   $   (2.38)   $    1.00    $   (9.18)
                                                             Proforma      $   (2.31)   $   (3.16)   $  (14.81)
       --diluted .........................................   As Reported   $   (2.38)   $    0.86    $   (9.18)
                                                             Proforma      $   (2.31)   $   (2.87)   $  (14.81)
</TABLE>

NOTE E--INVENTORY

The components of inventories are as follows:

                                                                   DECEMBER 21,
                                                                 ---------------
                                                                  2002     2001
                                                                 ------   ------
                                                                 (IN THOUSANDS)

Finished goods ...............................................   $2,269   $   --
Leads ........................................................      231      529
                                                                 ------   ------
                                                                 $2,500   $  529
                                                                 ======   ======

Leads Inventory includes only the actual cost of "names files" purchased from
outside sources. The leads are used to generate sales through Cross Media's
calling programs, therefore, Cross Media is capitalizing the costs in acquiring
the asset as they have future economic benefits. As the names are used to
generate sales calls the costs are relieved from inventory and charged to costs.
Leads inventory during the Fourth Quarter of 2002 averaged between $0.2 and $0.3
million.


                                      F-15
<PAGE>

                       Cross Media Marketing Corporation
             Notes to Consolidated Financial Statements (continued)

NOTE F - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at cost, less accumulated depreciation, is
summarized as follows as of December 31, 2002 and 2001:

                                                                 DECEMBER 21,
                                                             ------------------
                                                               2002       2001
                                                             -------    -------
                                                               (IN THOUSANDS)

Furniture and fixtures ...................................   $ 1,326    $   621
Equipment ................................................     3,221      4,279
Computer Hardware ........................................     3,117         --
Computer Software ........................................     4,776         --
Leasehold Improvements ...................................     1,001        174
Construction in progress .................................       139         --
                                                             -------    -------
                                                              13,580      5,074
Accumulated depreciation .................................    (3,995)      (649)
                                                             -------    -------
                                                             $ 9,585    $ 4,425
                                                             =======    =======

During 2002 and 2001 Cross Media financed approximately $2.6 million and $1.2
million, respectively, of equipment shown above under a capital lease obligation
to be paid over a three to five year period. Accumulated amortization was
approximately $0.9 million at December 31, 2002.

NOTE G -GOODWILL AND OTHER INTANGIBLE ASSETS

On July 20, 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS
No. 141 is effective for all business combinations completed after June 30,
2001. SFAS No. 142 is effective for fiscal years beginning after December 15,
2001; however, certain provisions of this Statement apply to goodwill and other
intangible assets acquired between July 1, 2001 and the effective date of SFAS
No. 142. Major provisions of these Statements and their effective dates for
Cross Media are as follows: (1) All business combinations initiated after June
30, 2001 must use the purchase method of accounting. The pooling of interest
method of accounting is prohibited except for transactions initiated before July
1, 2001; (2) Intangible assets acquired in a business combination must be
recorded separately from goodwill if they arise from contractual or other legal
rights or are separable from the acquired entity and can be sold, transferred,
licensed, rented or exchanged, either individually or as part of a related
contract, asset or liability; (3) Goodwill, as well as intangible assets with
indefinite lives, acquired after June 30, 2001, will not be amortized. Effective
January 1, 2002, all previously recognized goodwill and intangible assets with
indefinite lives will no longer be subject to amortization; (4) Effective
January 1, 2002, goodwill and intangible assets with indefinite lives will be
tested for impairment annually and whenever there is an impairment indicator;
and, (5) All acquired goodwill must be assigned to reporting units for purposes
of impairment testing and segment reporting.

On January 1, 2002, the Cross Media adopted SFAS No. 142, and accordingly,
stopped amortizing goodwill. In connection with adopting this standard, Cross
Media considered the measurement of the transitional impairment. Initial
adoption had no effect on Cross Media's financial statements. As of December 31,
2002, Cross Media in performing its annual impairment test had a fair valuation
of each reporting unit determined through the use of an outside independent
valuation consultant. The consultant considered the income approach, the market
approach and the discounted cash flow in determining fair value. As a result of
this annual impairment test, Cross Media recorded a pretax goodwill impairment
charge of $6.1 million. This fourth quarter impairment charge related to the
Lifeminders goodwill is included in the other segment and is associated with the
future recoverability of the tax net operating losses.

The following table provides comparative disclosure of adjusted net income
excluding goodwill amortization expense, net of taxes, for the periods
presented:

<TABLE>
<CAPTION>
                                                               FOR THE YEARS ENDED
                                                                    DECEMBER 31,
                                                               -------------------
                                                                 2001       2000
                                                               --------   --------
<S>                                                            <C>        <C>
Reported income (loss) applicable to common stockholders       $  8,002   $(44,589)
      Add back goodwill amortization                              1,240        555
                                                               --------   --------
Adjusted net income (loss) applicable to common stockholders   $  9,242   $(44,034)
                                                               ========   ========
Income(Loss) per share applicable to common stockholders
      - basic                                                  $   1.16   $  (9.07)
      - diluted                                                $   0.99   $  (9.07)
</TABLE>


                                      F-16
<PAGE>

                       Cross Media Marketing Corporation
             Notes to Consolidated Financial Statements (continued)

Goodwill and identifiable intangible assets (contracts and trademarks) totaled
$42.6 million at December 31, 2002.

The change in the carrying value of goodwill and purchased intangibles for the
years ended December 31, 2002 and 2001 was as follows:

                                                           2002          2001
                                                         --------      --------

Balance at January 1                                     $ 17,923      $  8,419

Goodwill acquired during the year                          29,859        10,744
Adjustments to purchase price allocations                     991            --
Impairment losses                                          (6,116)           --
Amortization of goodwill and other identifiable
     intangible assets                                         --        (1,240)
                                                         --------      --------

Balance at December 31                                   $ 42,657      $ 17,923
                                                         ========      ========

The following table is a break out of goodwill and other intangibles by business
segment:

                       Magazine      Collectible       Other         Total
                       --------      -----------       -----         -----
December 31, 2002      $17,808         $19,546       $ 5,303        $42,657
December 31, 2001        5,789              --        12,134         17,923

Contracts and trademarks were determined to have an indefinite life as such, no
amortization of the intangible asset will be recorded.

NOTE H -- REVOLVING CREDIT FACILITY AND NOTES PAYABLE

                              FLEET CREDIT FACILITY

On March 19, 2002, Cross Media entered into a credit agreement with Fleet
National Bank, as agent for the lenders and as issuing lender, and the several
other lenders, to provide Cross Media a $35 million credit facility, subject to
certain availability limitations. Interest on the credit facility accrues at the
prime rate designated from time to time by the agent, Fleet, plus an applicable
margin. The applicable margin is subject to adjustment based on Cross Media's
leverage ratio. Cross Media also pays a commitment fee during the term of the
facility based on the unused borrowings under the facility, and a letter of
credit fee based on the applicable margin for the LIBOR rate loans during the
time that letters of credit remain outstanding.

All of Cross Media's subsidiaries are joint and several co-borrowers under the
Fleet credit facility. Cross Media has pledged all of its assets and all of the
assets and capital stock of its subsidiaries to secure its obligations under the
facility. The Fleet credit facility imposes certain limitations on Cross Media's
activities, including restrictions on acquisitions, incurring additional
indebtedness, granting liens and declaring and paying dividends. Cross Media is
also required to maintain minimum EBITDA levels and minimum leverage,
consolidated net worth and fixed charge coverage ratios. Cross Media is not in
compliance with these covenants.

Upon entering into the new credit agreement with Fleet, Cross Media terminated
its credit agreement with Coast Business Credit ("Coast"). Cross Media repaid
the remaining borrowings under the Coast Facility of approximately $18.0 million
as well as an early termination fee of $0.2 million. As a result of the early
termination of the Coast facility, Cross Media recorded an extraordinary charge
of approximately $0.5 million.

On August 13, 2002, the Fleet Credit Facility was amended to (i) increase the
interest rate by 0.5%, (ii) adjust certain financial covenants, (iii) require
Cross Media to obtain up to $3.0 million of subordinated debt financing in form
satisfactory to the lenders on or prior to September 2, 2002, the failure of
which shall be a default, (iv) reduce the facility from $35 million to $30.7
million, provided that the remaining approximately $1.5 million of borrowing
availability will only become available if Cross Media obtains the $3.0 million
of subordinated debt financing described above, (v) provide that a default will
occur if the settlement of the FTC complaint (See Note Q) is settled on terms
that would require Cross Media to make a payment of damages, penalties, fines or
similar payments in excess of $1 million, (vi) provide that a default will occur
if neither of the following occurs by November 1, 2002: (a) the obligations
under the credit facility are repaid and the lenders obligations to lend to be
terminated or (b) Cross Media enters into a binding commitment with one or more
financial institutions reasonably acceptable to Fleet which enables the credit
facility to be paid in full and the lenders obligations to lend to be terminated
by November 30, 2002; provided, however, that Cross Media may extend these dates
by one month by making a $50,000 cash payment; and (vii) waive certain other
non-financial defaults.

On August 16, 2002, Cross Media's credit facility was further amended. The
amendment reduced the amount of subordinated debt financing which Cross Media is
required to receive by September 2, 2002 from $3.0 million to $1.5 million.
Cross Media obtained this financing from Lancer on August 19, 2002, as described
below. Cross Media borrowed $750,000 under the facility without needing to
obtain the lenders prior consent.

As of December 31, 2002, Cross Media had $25.0 million outstanding under the
Fleet credit facility. Cross Media will not be able to repay the credit facility
from cash from operations and must obtain replacement financing. During the
quarter ended September 30, 2002 Cross Media wrote off all deferred financing
fees related to the credit facility, which amounted to approximately $0.5
million

As of December 31, 2002 and as of March 31, 2003, Cross Media is not in
compliance with certain financial covenants required by the Fleet Credit
Facility, did not make the required November 1, 2002 cash payment of $50,000 and
is in default of its loan. Cross Media has not obtained a waiver, but is
currently in discussion with Fleet to obtain a waiver. Cross Media received a
notice of default from Fleet in March 2003. There can be no assurance that a
waiver will be obtained or that Fleet will not demand payment and foreclose on
its collateral. As of December 31, 2002 Cross Media has not obtained replacement
financing. Cross Media has received an initial financing proposal from an
asset-based lender for a $50 million credit facility. There can be no assurance
that the proposed financing will be completed.

                             LANCER CREDIT FACILITY

On March 1, 2002, Cross Media obtained a $2 million revolving credit facility
from Lancer, a principal stockholder of Cross Media. The interest rate on
borrowings under the revolving credit facility was 8% per annum and Lancer had
the right to demand repayment of all borrowings at any time after March 31,
2002. Cross Media issued to Lancer two-year warrants to purchase 50,000 shares
of common stock at an exercise price of $10.00 per share as an inducement for
Lancer to provide Cross Media the revolving credit facility.

On March 19, 2002, Cross Media repaid the $2 million of outstanding borrowings
under the Lancer revolving credit facility plus accrued interest from the
proceeds from the Fleet credit facility, described below, and the Lancer
revolving credit facility was terminated.


                                      F-17
<PAGE>

                       Cross Media Marketing Corporation
             Notes to Consolidated Financial Statements (continued)

                                  LANCER NOTES

To fund the JWE acquisition in May 2002, Cross Media borrowed $1.5 million from
Lancer Offshore, Inc. ("Lancer"). This note was amended in August 2002 (the "May
Lancer Note"). The amended May Lancer Note was due February 16, 2003, and bears
interest at the rate of 6% per annum until November 27, 2002 and 10% thereafter.
Interest, which accrues from the date of issuance of the original note, is
payable at maturity. Because Cross Media is in default of the note for failure
to repay the note at its maturity (i) Cross Media issued to Lancer a warrant to
purchase 500,000 shares of common stock (ii) Lancer may convert the May Lancer
note into (i) shares of common stock of Cross Media at the rate of $1.91 of
principal of, and/or accrued unpaid interest on, the note or (ii) receive a
warrant to purchase up to a number of shares of common stock of Cross Media
equal to 500,000 multiplied by a fraction, the numerator of which is the then
outstanding principal amount of the May Lancer Note and the denominator of which
is $1.5 million (the "May Lancer Note Warrants"). The May Lancer Note Warrants
will be exercisable for a period of ten years from the date of issuance at an
exercise price of $1.91 per share. In connection with the amendment of the
original note and issuance of the May Lancer Note, Cross Media issued to Lancer
an additional ten-year warrant to purchase 200,000 shares of its common stock at
an exercise price of $1.91 per share. This resulted in a deferred finance charge
of approximately $250,000 using the Black-Scholes fair market value approach.
Cross Media is accounting for this as a non-cash interest charge, which is being
amortized over the life of the note.

On August 16, 2002 Cross Media borrowed an additional $1.65 million from Lancer
for operational cash needs. Cross Media must pay the entire unpaid balance and
accrued interest on or after the earlier of (i) August 16, 2003 or (ii) the
receipt by Cross Media of debt and/or equity financing resulting in at least $5
million of gross proceeds to Cross Media. The note bears interest at an annual
rate of 10%, payable quarterly, in arrears. If Cross Media does not repay this
note on the Maturity Date (August 16, 2003), the lenders may convert the note
into shares of common stock at the ratio of $1.91 of principal and for accrued
interest on the note. In addition, pursuant to the terms of this note, Cross
Media issued to Lancer a warrant to purchase 500,000 shares of common stock.
Cross Media issued 200,000 warrants to purchase shares of common stock to Lancer
in conjunction with the note. This resulted in a deferred financing charge of
approximately $250,000 using the Black-Scholes fair market value approach. Cross
Media is accounting for this as a non-cash interest charge, which is being
amortized over the life of the note. All of these warrants are exercisable until
August 16, 2012 at a price of $1.91 per share of common stock. Cross Media paid
Lancer a fee of $150,000 for providing this financing which is being amortized
as interest expense over the life of note.

On February 16, 2003, Cross Media issued 10 year warrants to purchase an
aggregate of 1 million shares of common stock with an exercise price of $1.91 to
Lancer Offshore, Inc. due to non-payment of the principal balance of the May
Lancer Note and the August Lancer Note. Cross Media recorded a non-cash charge
of approximately $0.2 million using the Black-Scholes fair market value
approach.

The table that follows is a summary of maturities of all of the Cross Media's
debt obligations due after December 31, 2002:

                                                                 AMOUNTS DUE IN
                                                                  2003     2004
                                                                 (In Thousands)

Credit Facility                                                 $25,036   $   --
Notes and acquisition related payables:
    Lancer Notes                                                $ 3,150   $   --
    NSI Notes                                                     2,069    1,963
    Acquisition related payables (See Note D)                       557
                                                                -------   ------
Total Notes and acquisition related payables                    $ 5,776   $1,963
                                                                =======   ======

NOTE I -- STOCKHOLDERS' EQUITY

At December 31, 2002 Cross Media was authorized to issue 40,000,000 shares of
common stock, $.001 par value. As of December 31, 2002 and 2001 there were
approximately 15,049,000 and 12,614,000 shares of common stock outstanding,
respectively. All prior year share amounts have been properly restated to
reflect the 1:5 reverse stock split effected on October 24, 2001.

During the years ended December 31, 2002 and 2001, Cross Media received proceeds
of $3.7 and $3.8 million, respectively, from the exercise of stock options and
warrants.


                                      F-18
<PAGE>

                       Cross Media Marketing Corporation
             Notes to Consolidated Financial Statements (continued)

In March 2002, Cross Media completed a private placement in which it sold
1,105,475 shares of its common stock at a price of $10.50 per share to a limited
number of accredited investors and received gross proceeds of approximately
$11.6 million. Stonegate Securities, Inc. served as placement agent, for which
it received a placement agent fee equal to 6% of the gross proceeds and
five-year warrants to purchase 110,548 shares of Cross Media common stock at an
exercise price of $10.50 per share.

In April, 2002 Cross Media cancelled 117,000 treasury shares which resulted in a
decrease of additional paid in capital of approximately $1 million.

If the holders of all outstanding options and common stock purchase warrants
were exercised as of December 31, 2002 and 2001, Cross Media would have been
required to issue approximately 4.7 and 4.6 million, respectively, additional
shares of common stock.

During the fourth quarter 2002, Cross Media issued five year warrants to
purchase an aggregate of 60,000 shares of common stock with an exercise price of
$0.55 for consulting services performed for Cross Media. This resulted in a non
cash consulting charge of approximately $22,000 using the Black-Scholes fair
market value approach.

NOTE J -- CONVERTIBLE PREFERRED STOCK

           SERIES A CONVERTIBLE PREFERRED STOCK (NEW SERIES A SHARES)

On June 9, 2000, Cross Media issued 30,375 shares of New Series A Shares and a
five-year warrant to purchase 45,000 shares of Common Stock at an initial
exercise price of $7.425 (subject to certain anti-dilution and similar
adjustments). The aggregate purchase price for the New Series A Shares and the
warrant was $2.25 million. Cross Media 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 30,000 shares of Common Stock for the same purchase price. The
purchaser exercised its option, and Cross Media 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 $1.5 million. 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 Cross Media's
option under certain conditions. On July 18 2001, Cross Media issued 81,464
shares of Cross Media's common stock to the holders of the Series A shares for
payment of accrued dividends as of that date which was in conjunction with the
merger agreement with LifeMinders, Inc. In addition, Cross Media has reserved
26,889 shares of common stock for issuance as payment of dividends accrued
through the date of conversion of the New Series A Shares.

The Series A preferred stock was convertible at a conversion price equal to the
lesser of: (i) $9.65 (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 days, non-consecutive closing bid prices for the Common Stock in the ten
trading days preceding the date of the holder's conversion notice to Cross Media
(the Conversion Notice). The conversion price and the exercise price of the
warrants were subject to downward adjustment to equal the Cross Media's stock
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.

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 Cross Media's common stock is less than $7.50 per share (the Conversion
Floor). The holders agreed that they would not redeem the New Series A Shares
prior to June 9, 2001. The conversion provisions of the New Series A Shares and
warrants would create a substantial risk of dilution to the holders of Cross
Media common stock.

On October 24, 2001, Cross Media completed its merger with LifeMinders. As a
result of the merger, pursuant to the July 18, 2001 agreements, Cross Media made
a cash payment of $2,531,250 to redeem 25,312.5 New Series A Shares and the
remaining 25,312.5 New Series A Shares were converted into 342,061 shares of
Cross Media's common stock. In addition, Cross Media made a payment to the
holder of $968,750 in cash and issued to the holder 50,000 warrants to purchase
shares of Cross Media's common stock with an exercise price of $9.9225 per
share. (See Note D)

                      SERIES B CONVERTIBLE PREFERRED STOCK

On May 23, 2002 Cross Media issued 2,000 shares of Series B convertible
preferred stock with a $950 per share liquidation value to Jason Ellsworth, in
conjunction with the purchase of JWE. After six months Jason Ellsworth can
convert the preferred stock into a number of shares of Cross Media common stock
equal to $950 divided by the lower of the same price used for calculating the
number of Cross Media common shares delivered at closing or at the then market
price (subject to a floor of 85% of the closing price). After six months Jason
Ellsworth can also put the preferred stock to Cross Media at $950 per share. The
preferred stock will not have voting rights and there will be dividends on the


                                      F-19
<PAGE>

                       Cross Media Marketing Corporation
             Notes to Consolidated Financial Statements (continued)

preferred stock at the rate of 8% per annum, payable annually (beginning June
30, 2003) and at redemption. On December 5, 2002 an agreement was made between
Jason Ellsworth and Cross Media, which amended certain terms of the original
purchase agreement. As a result of this agreement the following changes occurred
related to the preferred stock: (1) Jason Ellsworth agreed that he would not put
the preferred stock or transfer or assign the shares, except if Cross Media
repays its existing bank loan obligations owed in full on or before December 31,
2002 (2) if Cross Media did not repay in full its existing bank loan
obligations on or before December 31, 2002 all accrued and unpaid dividends on
the shares accrued shall be payable in full no later than January 5, 2003. (3)
Cross Media shall exchange the Series B shares for an equal number of Series C
shares. During January 2003, Cross Media paid all accrued and unpaid dividends
as well as converted the Series B shares to Series C shares. The Series C shares
were converted upon the same terms and conditions as the Series B shares, except
that the Company is required to redeem the Series C Convertible Preferred Stock
in specified equal installments on the last day of each month beginning on
January 31, 2003 through May 31, 2004 and the balance on June 30, 2004 by paying
in cash, out of funds legally available therefore, at a sum per share equal to
the Stated Value as set forth in the Certificate of Designation. However, Cross
Media has not made payments to the JWE Parties in January, February, and March
2003. As a result, the holder has the right under certain conditions to require
the Company to redeem the Series C Shares for $1.9 million.

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

On January 28, 2000, in a private placement, Cross Media issued 52,892 Series C
Preferred shares resulting in proceeds to Cross Media totaling approximately
$5.0 million. The Series C Preferred was initially convertible into shares of
Common Stock at a conversion ratio of $10.00 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), Cross Media also
issued 352,613 shares of Common Stock to the holders of the Series C Shares and
reduced the exercise price of the 400,000 Common Stock purchase warrants
previously issued to a holder of Series C Shares and an affiliate of such holder
from $17.50 per share to $5.00 per share.

The Series C preferred stock 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 $10.0 million. On April 24, 2000, the
holders of the Series C Shares agreed to extend the mandatory redemption date of
the Series C Shares from July 26, 2000 to December 26, 2000 (the Mandatory
Redemption Date) in exchange for 449,413 shares of common stock and a reduction
in the effective conversion ratio from $10.00 per share to $5.00 per share. The
value of the shares of common stock issued and change in the effective
conversion ratio was reflected during the second quarter of 2000 as an
additional deemed dividend in the amount of $8,560,417.

On June 14, 2000, Cross Media issued an additional 7,500 shares of Series C
Preferred (the New Series C Shares) and 50,000 shares of Common Stock, resulting
in proceeds of $750,000. Cross Media also agreed to reduce the exercise price of
400,000 common stock purchase warrants held by the purchaser of the New Series C
Shares and an affiliate of such purchaser from $5.00 to $2.50 per share. Cross
Media 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 20,000
shares of common stock at a price of $9.40 per share and 3,750 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 Cross Media's failure 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 $5.00 to $1.25 per share.
In consideration for this waiver, Cross Media agreed to issue to such holders an
aggregate of 304,750 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 10,000 shares of Common Stock. The value of the shares was
reflected during 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, Cross Media 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 789,250 shares
of Common Stock (at an effective conversion ratio of $5.00 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
Cross Media in full on February 15, 2001), Cross Media agreed to issue to the
holders, pro rata in accordance with the number of shares converted by each of
them, an aggregate of 133,280 additional shares of Common Stock. The value of
the shares of Common Stock issued was reflected in 2001 as an additional deemed
dividend in the amount of $899,640. Cross Media agreed to pay a fee of $100,000
to one of the Series C holders in connection with their services relating to the
negotiation of these agreements. There was a note payable of $199,200 related to
the redemption of the preferred stock, which was repaid with interest during
2001.

The redemption of the Series C Shares and the New Series C Shares was funded in
part through the issuance and sale by Cross Media, in private placements, of an
aggregate of 300,000 shares of Common Stock at a price of $5.00 per share.

                           REDEEMABLE PREFERRED STOCK

Cross Media accounted for the issuances of its preferred stock 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, Cross Media had 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.


                                       44
<PAGE>

                       Cross Media Marketing Corporation
             Notes to Consolidated Financial Statements (continued)

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 Cross Media'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);
(iii) were accounted for at their fair market values on their respective dates
of issuance and (v) in connection with the LFMN acquisition (see Note D), Cross
Media redeemed the remaining outstanding New Series A shares and recorded a
reduction of preferred dividends of approximately $600,000 for the reversal of
previously recorded deemed dividends relating to the beneficial conversion
features.

The following table summarizes the above preferred stock dividends recorded for
the years ended December 31, 2002, 2001 and 2000:

                                                   2002       2001        2000
                                                 --------   --------    --------
                                                         (IN THOUSANDS)

Deemed dividends .............................   $     --   $    901    $ 38,742
Contractual dividends ........................         87        519         861
Reversal of deemed dividends recorded
  in connection with the beneficial
  features upon redemption of shares .........                  (589)
                                                 --------   --------    --------
Total dividends ..............................   $     87   $    831    $ 39,603
                                                 ========   ========    ========

NOTE K -- EXTRAORDINARY LOSS

Upon entering into the new credit agreement with Fleet in 2002, Cross Media
terminated its credit agreement with Coast Business Credit ("Coast"). Cross
Media repaid the remaining borrowings under the Coast facility of approximately
$18 million as well as an early termination fee of $0.2 million. As a result of
the early termination of the Coast facility, Cross Media recorded an
extraordinary charge of approximately $0.5 million.

As part of the DSI Acquisition in 2000, Cross Media agreed to provide a $1.5
million credit facility to AmeriNet. During 2000, Cross Media loaned an
aggregate $300,000 in connection with the credit facility. In November 2000,
Cross Media 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 2000, an extraordinary loss on the extinguishment
of acquisition liability of $0.8 million.

NOTE L--RESTRUCTURING COSTS

During the quarter ended September 30, 2002, Cross Media announced changes to
its business plan and other actions to reduce operating expenses through a
reduction in workforce and non-personnel operating expenses. As a result of this
restructuring, Cross Media recorded $4.2 million in restructuring costs during
the third quarter ended September 30, 2002. The restructuring costs consist of
$2.7 million relating to Cross Media's estimate of employee severance and
related costs for employees terminated and $1.5 million relating to estimates of
office space lease commitments where Cross Media intends to close offices, net
of any sublease rentals, and other exit costs. During the fourth quarter of 2002
Cross Media reallocated $0.3 million in restructuring costs from employee
severance to lease cancellation due to a decrease in the estimated expected
employee severance costs and the delay in the sublease of certain office leases.
Cross Media terminated approximately 53 employees in various locations and
departments. Restructuring costs were accrued in accordance with EITF 94-3
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit and Activity". As of December 31, 2002 the balance sheet reflects a
restructuring liability of $2.8 million net of termination payments made. The
following table illustrates the components of the restructuring charge:


                                      F-20
<PAGE>

                       Cross Media Marketing Corporation
             Notes to Consolidated Financial Statements (continued)

                                 (In Thousands)

Employee severance and related costs                                    $ 2,300
Lease cancellation, net of sublease income                                1,900
                                                                        -------
Total Restructuring Charge                                                4,200
Less: Paid severance                                                     (1,387)
                                                                        -------
Restructuring liability as of December 31, 2002                         $ 2,813
                                                                        =======

NOTE M - INVESTMENT IN LIMITED PARTNERSHIPS

In connection with the acquisition of NSI in January 2002, the Company has
investments in several limited partnerships that operate in similar lines of
business as the Company. As of December 31, 2002, the investment in the limited
partnerships consists of 49% equity ownership interests. Interests in these
unconsolidated limited partnerships are accounted for under the equity-method.

A summary of the financial information of the Limited Partnerships at December
31, is as follows:

                                                              For the year ended
                                                              December 31, 2002
                                                              ------------------
                                                                (In thousands)

Total assets                                                              $3,890
                                                                          ======
Total liabilities                                                         $1,808
Stockholders' equity                                                      $2,082
                                                                          ------
Total liabilities and equity                                              $3,890
                                                                          ======
Net sales                                                                 $8,190
Net income                                                                $1,275

Cross Media may pay up to approximately $3.1 million in contingent consideration
based on three times the Limited partnerships' 2001 EBITDA of certain limited
partnerships of which NSI is a party (the "Limited partnerships") and the
aggregate Limited partnerships' income from January 1, 2001 through December 31,
2004. The contingent consideration, if paid, will be accounted for as additional
purchase price. During 2002, Cross Media paid approximately $0.8 million in
contingent consideration payments to the existing owners of NSI.

NOTE N -- INCOME TAXES

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

                                                       2002      2001      2000
                                                      ------    ------    ------
Current:
  Federal .........................................   $ (500)   $  700        --
  State ...........................................                275       279
Deferred:
  Federal .........................................    2,068      (700)       --
  State ...........................................      732        --        --
                                                      ------    ------    ------
Total Provision for income taxes ..................   $2,300    $  275    $  279
                                                      ======    ======    ======


                                      F-21
<PAGE>

                       Cross Media Marketing Corporation
             Notes to Consolidated Financial Statements (continued)

Significant components of Cross Media's deferred tax assets are as follows:

<TABLE>
<CAPTION>
                                                       2002        2001        2000
                                                     --------    --------    --------
<S>                                                  <C>         <C>         <C>
Net operating losses .............................   $ 49,611    $ 39,806    $  2,800
Depreciation and amortization ....................         36          50          50
Common stock purchase warrants issued for services      2,373       2,205       2,200
Bad debt reserve .................................        454         458         400
Executive bonuses ................................         21          --         500
Accrued vacation pay .............................         --          --          50
Software development .............................       (561)       (365)         --
Restructuring Reserve ............................      1,000          --          --
                                                     --------    --------    --------
                                                       52,934      42,154       6,000
Valuation allowance ..............................    (52,934)    (39,354)     (6,000)
                                                     --------    --------    --------
Net deferred tax asset ...........................   $     --    $  2,800    $     --
                                                     ========    ========    ========
</TABLE>

As of December 31, 2002 and 2001, Cross Media has Federal and state net
operating loss carryforwards of approximately $120.7 million and $95 million
respectively, that will be available to offset future taxable income, if any,
through December 2021. This consists primarily of $92.4 of net operating losses
acquired in connection with the acquisition of LifeMinders, Inc. When this net
operating loss carryforward is realized, Cross Media will first adjust the
valuation allowance to the extent of any goodwill relating to LifeMinders. 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 valuation allowance has
been 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.

Included in the deferred tax asset is approximately $1.0 million net operating
loss which was generated from stock option deductions. When recognized, the
benefit for this deduction will be credited to equity when realized.

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

<TABLE>
<CAPTION>
                                                               2002       2001       2000
                                                              ------     ------     ------
<S>                                                            <C>        <C>         <C>
Computed expected provision (benefit) for Federal income
  taxes ...................................................    (34.0%)     34.0%     (34.0%)
Change in temporary differences treated as fully reserved .       --       (7.2)        --
Utilization of net operating loss carryforwards ...........       --      (16.6)        --
Increase (decrease) in valuation allowance for deferred tax
  assets ..................................................     49.0       (7.6)      42.1
Effect of State income taxes, net of Federal benefit ......     (5.2)       3.0       (3.2)
Permanent differences .....................................      0.9       (2.6)       1.0
Prior year over accrual ...................................     (1.9)        --         --
                                                              ------     ------     ------
                                                                 8.8%       3.0%       5.9%
                                                              ======     ======     ======
</TABLE>


                                      F-22
<PAGE>

                       Cross Media Marketing Corporation
             Notes to Consolidated Financial Statements (continued)

NOTE O -- RELATED PARTY TRANSACTIONS

During the year ended December 31, 2002, Cross Media purchased leads from Jason
Ellsworth, former owner of JWE and current employee of Cross Media, for
approximately $0.7 million.

Cross Media has two notes payable outstanding as of December 31, 2002
aggregating $3.2 million that are payable to Lancer, a principal stockholder of
the Cross Media. (See Note H for more details regarding the terms of the notes)

Cross Media entered into a five-year services agreement with TBC Telemarketing,
Inc. (d/b/a Concentra) effective July 1, 2001 under which Concentra would
provide two senior consultants to train, manage and supervise one or more
telemarketing centers selected by Cross Media. As compensation for its services,
Concentra would receive a base monthly retainer of $35,000, subject to an
increase of 50% of the base retainer for each additional consultant Concentra
provides at Cross Media's request, and a mark-up of all call center fees.
Concentra would also be eligible to receive monthly bonuses based on the number
of qualified orders received by the call centers supervised by Concentra. Cross
Media would be requried to pay a termination fee of $200,000 if it terminated
the service agreement for no cause. Dan Berman, former Senior Vice President of
Operations of Cross Media, is Chairman of the Board of Concentra. Upon the
commencement of Dan Berman's employment with Cross Media, Cross Media agreed to
loan Concentra up to $0.2 million. Interest on the loan is payable at an annual
rate of 7%. The loan will be repaid by applying 20% of any monthly bonus
payments payable under the services agreement, and upon termination of the
services agreement or Dan Berman's employment for any reason other than by Cross
Media without cause, any remaining principal and interest on the loan becomes
due and payable, except that if Cross Media terminates the services agreement
without cause, the loan is forgiven. Cross Media terminated the services
agreement with Concentra on October 16, 2002. On December 4, 2002 Concentra gave
notice of its demand for arbitration seeking payment of fees under the service
agreement. In February 2003 Cross Media entered into a settlement agreement with
Concentra under which (1) Cross Media was required to pay $0.1 million in cash
upon execution of the agreement and pay 12 monthly installments of $25,000
beginning on April 15, 2003 and (2) Cross Media was required to issue a number
of restricted shares of Cross Media common stock equal to $100,000 divided by
the closing price of the common stock on the trading day prior to the execution
date. Cross Media has provided for the settlement as of December 31, 2002, which
is reflected in accrued liabilities.

Cross Media's investment partnerships are also vendors of Cross Media. Cross
Media's investment partnerships consist of the following: National Collectibles,
National Express, Tristar, Telebrands II, E. Mishan, Gardenstate Nutritional,
Telebrands I, Media Syndications and Silver Carrot. During the year ended
December 31, 2002 Cross Media paid approximately $0.6 million to the limited
partnerships for inventory purchases. As of December 31, 2002 Cross Media had
approximately $0.6 million outstanding as payables owed to the investment
partnerships.

NOTE P -- STOCK OPTIONS

In December 1998, the Board of Directors approved the adoption of a stock option
plan (the Plan). The Plan, as amended, authorizes the Compensation Committee to
administer the Plan and to grant to eligible directors, officers, employees and
consultants of Cross Media, 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 2,800,000 shares
of Common Stock of Cross Media, 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 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 400,000 shares.

The following table summarizes the stock option activity for the years ended
December 31, 2002, 2001 and 2000 (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                        2002                  2001                  2000
                                                 -------------------   -------------------   -------------------
                                                           WEIGHTED-             WEIGHTED-             WEIGHTED-
                                                            AVERAGE               AVERAGE               AVERAGE
                                                           EXERCISE              EXERCISE              EXERCISE
                                                 OPTIONS     PRICE     OPTIONS     PRICE     OPTIONS     PRICE
                                                 -------   ---------   -------   ---------   -------   ---------
<S>                                              <C>       <C>         <C>       <C>         <C>       <C>
Outstanding -- beginning of the year .........     2,512   $    9.51       855   $    9.40        96   $   14.35
Granted ......................................       435        8.96     1,657        9.44       834        9.95
Canceled .....................................      (674)       7.07        --                   (75)      18.70
                                                 -------               -------               -------
Outstanding -- end of the year ...............     2,273       10.03     2,512        9.51       855        9.65
                                                 =======               =======               =======
Options exercisable ..........................     1,191        8.57       707        8.57       506        9.40
Weighted average fair value of options granted
  during the year ............................             $    4.21             $    3.81             $    4.05
</TABLE>


                                      F-23
<PAGE>

The following table summarizes additional information about outstanding and
exercisable stock options at December 31, 2002. (in thousands, except per share
amounts)

                                WEIGHTED-
                                 AVERAGE     WEIGHTED-                 WEIGHTED-
RANGE OF                        REMAINING     AVERAGE                   AVERAGE
EXERCISE           NUMBER      CONTRACTUAL   EXERCISE      NUMBER      EXERCISE
PRICES           OUTSTANDING      LIFE         PRICE     EXERCISABLE     PRICE
--------------   -----------   -----------   ---------   -----------   ---------
$.05-$5.00               481          2.42   $    3.81           234   $    4.30
$5.25-$8.00              199          2.80   $    6.50           102   $    6.49
$8.10-$12.07           1,484          2.69   $    9.63           813   $    9.71
$12.50-$16.00             12          3.17   $   13.55             4   $   11.51
$19.65-$117.29            97          3.07   $   50.45            38   $   50.45
                 -----------                             -----------
                       2,273                                   1,191
                 ===========                             ===========

All options granted have exercise prices equal to the market value on the date
of grant.

NOTE Q-- COMMITMENTS AND CONTINGENCIES

EMPLOYMENT AGREEMENTS

Cross Media has employment agreements with its seven executives officers
providing for aggregate annual compensation amounting to approximately $2.2
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, Cross Media also has agreements with several of its employees
providing for aggregate annual compensation amounting to $1.1 million per annum
plus bonuses (as defined in the agreements) and severance pay in excess of
$500,000 for termination under certain circumstances.

EMPLOYMENT BENEFIT PLANS

Cross Media 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 2002 were approximately $0.2 million and have
been funded to the plan.

LITIGATION

Cross Media provides accruals for all direct costs associated with the estimated
resolution of contingencies at the earliest date at which it is deemed probable
that a liability has incurred and the amount of such liability can be reasonably
estimated.

                                  Ecoupons.com

In March 2002, former stockholders of eCoupons.com, Inc., a company that merged
with and into LifeMinders in December 2000, filed a complaint on their behalf
and on behalf of other former stockholders, J.M. Thies, et al v. LifeMinders,
Inc. et al. (No. 02-2119-KHV), in the United States District Court for the
District of Kansas against LifeMinders, Inc. (which Cross Media acquired by
merger on October 24, 2001), and two directors of Cross Media and several former
officers and directors of LifeMinders. The plaintiffs alleged that the
defendants made misrepresentations to the plaintiffs to induce them to merge
eCoupons with and into LifeMinders. They requested monetary damages in an amount
not less than $4.2 million and punitive damages in an amount not less than $5
million against the defendants. In accordance with the terms of the merger
agreement with LifeMinders, Cross Media is obligated to indemnify the other
defendants. Cross Media was aware of the dispute prior to closing the
LifeMinders acquisition.

On November 6, 2002, the District Court for the District of Kansas (i) dismissed
all of the individual defendants from the action, (ii) ordered that plaintiffs'
claims against LifeMinders (now Cross Media) must proceed in arbitration, and
(iii) stayed all claims against LifeMinders pending the outcome of arbitration.


                                      F-24
<PAGE>

On January 27, 2003, the plaintiffs filed for arbitration with the American
Arbitration Association in Fairfax, VA, alleging the same facts as the Federal
court case. On March 6, 2003, Cross Media filed its answer, in which it denied
all allegations of wrongdoing, and a notice to dismiss the claim. Cross Media
intends to vigorously defend this matter. However, if an adverse final judgment
is issued against Cross Media in arbitration and if its insurance does not
adequately cover the damages, such an event could have a material adverse effect
on its financial condition and results of operations.

                            Federal Trade Commission

On April 9, 2002, the United States Department of Justice ("DOJ"), on behalf of
the Federal Trade Commission ("FTC"), filed a complaint, United States v.
Prochnow, et al. No. 1:02-CV-917 (JOF), in the United States District Court for
the Northern District of Georgia against Cross Media, MOS, Ronald Altbach,
Dennis Gougion, an officer of MOS, and Richard Prochnow, a former consultant to
MOS. The complaint alleged violations of the Federal Telemarketing Sales Rule
and the Federal Trade Commission Act and non-compliance with a previous FTC
order entered into by Mr. Prochnow, individually and doing business as Direct
Sales International, Inc., and Mr. Gougion, individually. MOS acquired certain
assets of Direct Sales International in January 2000. The complaint sought
monetary civil penalties, redress, injunctive, and other relief against any such
future violations.

Simultaneous with the filing of the complaint, plaintiffs filed a motion for a
temporary restraining order against the defendants seeking, among other things,
compliance with the Telemarketing Sales Rule, the FTC Act, and the previous FTC
order. At the April 10, 2002 hearing for the temporary restraining motion, the
parties agreed to postpone the hearing for a later date to facilitate settlement
discussions. Following several negotiation meetings and subsequent agreements to
postpone the hearing date, on October 21, 2002, the court issued an order
denying the FTC's motion for a temporary restraining order, with leave to renew
the motion. See Note U for current status.

On March 28, 2003, Cross Media and MOS signed a proposed agreement with FTC and
DOJ staff attorneys resolving all matters of dispute between them regarding the
allegations in the April 9, 2002 complaint, without any admission of guilt by
Cross Media and MOS, and without trial or adjudication of any issue of fact or
law. However, the settlement agreement is subject to review and approval by the
FTC and the DOJ and is not final and binding on the parties until such process
is completed.

The settlement agreement, as currently agreed, will require Cross Media and MOS
to comply with certain disclosure, record keeping and reporting requirements
regarding the manner in which they conduct their telemarketing business.
Further, the settlement agreement provides for a civil penalty of $1,000,000, of
which $650,000 has been suspended by the government based on the accuracy and
completion of previously issued Company financial statements and the financial
results herein, resulting in a $350,000 payment to be made in two equal
installments. in the event Of a default of either installment, the entire
penalty, with interest, shall become immediately due. Accordingly, Cross Media
has accrued $350,000 of the penalty as of December 31, 2002.

While Cross Media believes that the proposed settlement agreement will be
approved by the FTC and the DOJ as agreed upon with the staff attorneys
representing those agencies, there is no certainty that these agencies will
approve the settlement on the terms agreed upon or at all. Further, Cross Media
is unable to predict what effects, if any, this settlement agreement may have on
its operations.

                            Class Action Litigation

On July 16, 2002, Cross Media and Ronald Altbach were named as defendants in a
putative class action entitled Woodruff v. Cross Media Marketing Corp., 02 Civ.
5462, pending in the United States District Court for the Southern District of
New York. On October 8, 2002, this action and four other virtually identical
actions were consolidated under the caption In re Cross Media Marketing
Corporation Securities Litigation, 02 Civ. 5462 (RPP).

On December 13, 2002, the plaintiffs filed a superseding consolidated amended
complaint ("Complaint"), asserting claims for securities fraud under Section
10(b) and Section 20(a) of the Securities Exchange Act of 1934 against Cross
Media, Mr. Altbach, certain other current or former officers and a consultant on
behalf of a putative class of stockholders who purchased shares of Cross Media
between November 5, 2001 and July 11, 2002 at prices allegedly inflated by
purported material omissions in Cross Media's public disclosures.

Defendants filed its motion to dismiss the Complaint on March 3, 2003. That
motion is scheduled to be fully briefed by May 9, 2003. Discovery has been
stayed per the Private Securities Litigation Reform Act of 1995 pending a
decision on the motion. If its motion to dismiss the Complaint is denied, Cross
Media intends to vigorously defend this matter on its own behalf and on behalf
of the current and former officers named as individual defendants. Because this
lawsuit is still in the early stages, Cross Media is unable to predict the
outcome or the effect it may have on Cross Media's operating results, financial
condition or stock price.

                      Director and Officer Indemnification

Cross Media's Restated Certificate of Incorporation, as amended, provides
indemnification of directors and officers of the company to the fullest extent
permitted by the Delaware General Corporation Law (the "DGCL"). Section
102(b)(7) of the DGCL permits, in part, a corporation in its certificate of
incorporation or an amendment thereto to eliminate or limit the personal
liability of a director for violations of the director's fiduciary duty, except
for breaches of fiduciary duty of loyalty to the corporation, acts or omissions
made not in good faith or which involve intentional misconduct or a knowing
violation of law, or for transactions not permitted by the DGCL or prohibited by
law.

Section 145 of the DGCL provides, in part, that a corporation may indemnify any
persons, including directors and officers, who are, or are threatened to be
made, parties to any threatened, pending or completed legal action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of such corporation), by reason of the fact that
such person is or was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise,
provided such director, officer, employee or agent acted in good faith and in a
manner he reasonably believed to be in or not opposed to the corporation's best
interests and, with respect to any criminal actions or proceedings, had no
reasonable cause to believe that his conduct was unlawful.

Cross Media maintains liability insurance for each director and officer for
certain losses arising from claims or charges made against them while acting in
their capacities as directors or officers of the company.

                         Shareholder Derivative Lawsuit

In September 2002, a shareholder derivative lawsuit Pardo v Altbach et al. 02 CV
6740 (JSM) was filed against Cross Media and certain of its current and former
directors alleging substantially the same claims made in the class action
complaints. The defendants dispute these claims and intend to vigorously defend
this matter. In October, the District Court for the Southern District of New
York entered an order extending the defendants' time to respond to the complaint
to 30 days following final entry of an order on defendants' motion dismiss the
consolidated amended shareholder suit. Because this lawsuit is in its early
stages, Cross Media is unable to predict the outcome or the effect it may have
on Cross Media's operating results, financial condition or stock price.

In addition to the matters described above, from time to time Cross Media
receives other complaints and inquiries in the course of conducting its regular
business. Cross Media responds to these matters as soon as they are received and
seeks to resolve them as expeditiously as possible with minimal interruption and
distraction to operations. Cross Media does not believe that the outcome of any
of these other matters will likely have a material impact on its business
operations. Cross Media's Restated Certificate of Incorporation, as amended,
provides indemnification of directors and officers of the company to the fullest
extent permitted by the Delaware General Corporation Law (the "DGCL"). Section
102(b)(7) of the DGCL permits, in part, a corporation in its certificate of
incorporation or an amendment thereto to eliminate or limit the personal
liability of a director for violations of the director's fiduciary duty, except
for breaches of fiduciary duty of loyalty to the corporation, acts or omissions
made not in good faith or which involve intentional misconduct or a knowing
violation of law, or for transactions not permitted by the DGCL or prohibited by
law.

Section 145 of the DGCL provides, in part, that a corporation may indemnify any
persons, including directors and officers, who are, or are threatened to be
made, parties to any threatened, pending or completed legal action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of such corporation), by reason of the fact that
such person is or was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise,
provided such director, officer, employee or agent acted in good faith and in a
manner he reasonably believed to be in or not opposed to the corporation's best
interests and, with respect to any criminal actions or proceedings, had no
reasonable cause to believe that his conduct was unlawful.

Cross Media maintains liability insurance for each director and officer for
certain losses arising from claims or charges made against them while acting in
their capacities as directors or officers of the company.

LEASES

Cross Media leases certain facilities and equipment under operating and capital
leases having terms ranging from three to ten years. The operating leases expire
in 2011. As of December 31, 2002, future minimum lease payments under
noncancellable leases are as follows:

                                                            OPERATING   CAPITAL
                                                            ---------   -------
                                                               (IN THOUSANDS)

  2003 ..................................................   $   2,584     1,586
  2004 ..................................................       2,627     1,384
  2005 ..................................................       2,251       456
  2006 ..................................................       2,031         7
  2007 ..................................................       2,055        --
Thereafter ..............................................       4,160        --
Less: Interest ..........................................          --      (448)
                                                            ---------   -------
Total ...................................................   $  15,708   $ 2,985
                                                            =========   =======

Cross Media recorded rental expense for the years ended December 31, 2002, 2001
and 2000 of approximately $3.2 million, $1.0 million and $0.3 million,
respectively.


                                      F-25
<PAGE>

NOTE R --SEGMENT REPORTING

Cross Media is a direct marketing company that specializes in executing
targeted, interactive sales campaigns utilizing multiple direct marketing
channels, including, inbound and outbound telesales, print ads, web marketing
and e-mail. Cross Media sells a variety of products through these multiple
channels, including multi-magazine subscription packages, discount buying club
memberships, collectibles and lifestyle products. Cross Media is organized
within three principal operating segments: Magazine Segment, Collectibles
Segment and Other. Individual subsidiary companies are included in each of Cross
Media's three operating segments based on the operating decisions maker manages
the business. The Other Segment includes, corporate related items as well as
Cross Media's online business.

In the Magazine Segment, Cross Media acts as a subscription agency which has the
direct authority on behalf of the magazine publishers to solicit magazine
subscription orders and to enter those orders with fulfillment houses designated
by the publishers. Each consumer is offered a "bundle" of four to five magazines
having an average selling price of $600 per bundle, for a subscription period
between one to four years. In addition, Cross Media attempts to generate
additional revenue and enhance the profitability of each sale by offering the
customer special promotions sponsored by magazine publishers to increase
subscriptions, as well as offering discount buying clubs memberships. The
Collectibles Segment markets a wide range of lifestyle products including
videos, music, coins, collectibles, jewelry, horticulture and other general
merchandise. By agreeing to purchase all unsold advertising space from a
magazine at press time, Cross Media has secured advertising rates substantially
below those offered to other advertisers. In addition, Cross Media has a
continuity business model that capitalizes on low cost customer acquisition
resulting from media contracts and owned outbound telemarketing operations.
Customers will order products such as travel, videos and collectible coins on a
monthly basis therefore producing a continuous revenue stream. The Other Segment
consists of the Online business and Corporate overhead. Cross Media uses the
Internet to gather data about prospects and customers, deliver personalized
content, send targeted marketing messages to drive consumers to call an
800-number or visit a web site and generate customer transactions. The Internet
is the exclusive channel for several of Cross Media's brands, including
LifeMinders(TM)and Intelligent Mailbox(TM) and Opt-Intelligence(TM).

<TABLE>
<CAPTION>
                          Operating
                 Net        Income      Interest   Depreciation &     Capital       Total
                Sales       (Loss)      Expense     Amortization    Expenditures    Assets
               --------   ----------    --------   --------------   ------------   --------
<S>            <C>        <C>           <C>        <C>              <C>            <C>
  2002
Magazine       $ 92,223   $   (4,871)   $  2,823   $        2,036   $      7,300   $ 48,438
Collectibles     48,757       (3,664)         --              372             --      9,041
Other             4,138      (20,765)        682               89            948     66,175
               --------   ----------    --------   --------------   ------------   --------
    Total      $145,118   $  (29,300)   $  3,505   $        2,497   $      6,352   $123,654

  2001
Magazine       $ 99,606   $   13,359    $  2,003   $        1,136   $      2,134   $ 47,704
Collectibles         --           --          --               --             --         --
Other               510       (2,191)         57              745            400     47,580
               --------   ----------    --------   --------------   ------------   --------
    Total      $100,116   $   11,168    $  2,060   $        1,881   $      2,534   $ 95,284

  2000
Magazine       $ 55,939   $    6,262    $  1,683   $          532             --   $ 40,714
Collectibles         --           --          --               --             --         --
Other                --       (5,838)      2,680               58            434      3,230
               --------   ----------    --------   --------------   ------------   --------
    Total      $ 55,939   $      424       4,363   $          590   $        434     43,944
</TABLE>

NOTE S -- QUARTERLY FINANCIAL DATA (Unaudited)

The tables that follow summarize unaudited quarterly financial data for the
years ended December 31, 2002 and 2001.

<TABLE>
<CAPTION>
                                                  2002 Quarter Ended
                                  --------------------------------------------------
                                  March 31    June 30    September 30    December 31
                                  --------    -------    ------------    -----------
                                         (In thousands, except per share data)
<S>                               <C>         <C>        <C>             <C>
Revenues, net .................   $ 44,001    $37,092    $     36,403    $    27,622
Gross Profit ..................     10,625      5,259           2,275         (4,010)
Income (loss) from operations .      2,806     (3,814)        (11,458)       (16,834)
Extraordinary loss ............       (478)        --              --             --
Net income (loss) .............      1,095     (2,962)        (12,532)       (20,043)
Income (loss) per common share,
 Basic and diluted ............       0.08      (0.20)          (0.84)         (1.33)
</TABLE>


                                      F-26
<PAGE>

<TABLE>
<CAPTION>
                                                  2001 Quarter Ended
                                  --------------------------------------------------
                                  March 31    June 30    September 30    December 31
                                  --------    -------    ------------    -----------
                                         (In thousands, except per share data)
<S>                               <C>         <C>        <C>             <C>
Revenues, net .................   $ 19,678    $23,601    $     25,910    $    30,927
Gross Profit ..................      4,893      6,089           8,118          9,139
Income (loss) from operations .      1,611      2,876           3,559          3,122
Net income (loss) .............        921      1,906           2,438          3,568

Income (loss) per common share,
 Basic ........................      (0.03)      0.25            0.32           0.38
 Diluted ......................      (0.03)      0.20            0.26           0.32
</TABLE>

NOTE T -- FISCAL YEAR 2002 AND 2001 FOURTH QUARTER ADJUSTMENTS

In the fourth quarter, Cross Media refined its estimates used in its pay to
maturity analysis on its magazine accounts receivables to factor in the most
current performance of the receivables and to separately evaluate the reserve
required for older receivables. This change in estimate resulted in a decrease
of $6.3 million to net revenues. Additionally, during the fourth quarter of 2002
Cross Media had a fair valuation of each reporting unit determined through the
use of an outside independent valuation consultant. The consultant considered
the income approach, the market approach and discounted cash flows in
determining fair value. As a result of this annual impairment test, Cross Media
recorded a pretax goodwill impairment charge of $6.1 million. This fourth
quarter impairment charge related to the Lifeminders goodwill associated with
the future recoverability of the tax net operating losses.

In the fourth quarter of 2001, in addition to the adjustments recorded to
revenue and income taxes, Cross Media recognized the effect of certain
adjustments and estimates, which resulted in an increase to net income of $1.4
million. These adjustments relate to (1) properly matching the accrual for the
liability to publishers for subscriptions placed from non-dealer partners with
the reimbursement to be received from the partner of $1.5 million, (2) revision
of the estimate of deferred expenses incurred on deferred revenue to include
other incremental costs incurred in generating the sale of magazine contracts
for an additional deferral of $756,000, (3) reduction of amounts related to
publishers for subscriptions of magazine for cancellations that take place after
the subscription is placed, which resulted in a decrease of Cross Media's
liability of $710,000, (4) recognition of $1.2 million in amortization of leads
inventory based on the age of the lead and the projected revenues to be
generated by the lead and (5) write off of $400,000 relating to receivables from
Cross Media's publisher bonus program relating to uncollectible amounts.
Management feels that these adjustments do not have a material effect on
previously reported quarterly operating results.


                                      F-27

<PAGE>

Schedule II

VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                                                Balance             Additions                            Balance
                                                                at                  Charged                              at
                                                                Beginning           to                                   End
                                                                of Year             Earnings        Writeoffs            of Year
                                                                -------             --------        -----------          -------
                                                                            (In thousands)
<S>                                                              <C>                <C>               <C>                 <C>
Year ended December 31, 2002
          Reserve for cancellations, collections, bad
          debts and estimated returns                            $21,756            $46,776           $ 47,316(1)         $21,216
          Allowance for deferred tax assets                           --              2,800(2)              --              2,800

Year ended December 31, 2001
          Reserve for cancellations, collections, bad
          debts and estimated returns                             24,573             39,246             42,063(1)          21,756

Year ended December 31, 2000
          Reserve for cancellations, collections, bad
          debts and estimated returns                             23,508             26,859            (25,794)(1)         24,573
</TABLE>

----------
(1)   Write-offs of account receivables net of recoveries.

(2)   Increase in the valuation reserve for deferred taxes.

<PAGE>

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

None.

In accordance with Section 10A(i)(2) of the Securities Exchange Act of 1934, as
added by Section 202 of the Sarbanes-Oxley Act of 2002, the Company is
responsible for disclosing any non-audit services approved by the Company's
Audit Committee (the "Committee") to be performed by Grant Thornton, LLP ("GT"),
the Company's external auditor. Non-audit services are defined in the Act as
services other than those provided in connection with an audit or a review of
the financial statements of the Company. During the year ending December 31,
2002, the Committee discussed the engagements with GT for tax planning services
and management consulting services relating to systems selection.


                                       22
<PAGE>

                                    PART III

The information and accompanying exhibits called for by Item 10. Directors,
Executive Officers, Promoters and Control Persons; Compliance with Section 16(a)
of the Exchange Act, Item 11. Executive Compensation, Item 12. Security
Ownership of Certain Beneficial Owners and Management, and Item 13. Certain
Relationships and Related Transactions is incorporated herein by reference to
Cross Media's definitive proxy statement for its 2003 Annual Meeting of
Stockholders, which definitive proxy statement is expected to be filed with the
Commission no later than 120 days after the end of the fiscal year to which this
Report relates.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

The information called for by this item is incorporated by reference to the
Company's definitive proxy statement relating to its 2003 Annual Meeting of
Shareholders, which will be filed with the SEC.

ITEM 11. EXECUTIVE COMPENSATION

The information called for by this item is incorporated by reference to the
Company's definitive proxy statement relating to its 2003 Annual Meeting of
Shareholders, which will be filed with the SEC.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The information called for by this item is incorporated by reference to the
Company's definitive proxy statement relating to its 2003 Annual Meeting of
Shareholders, which will be filed with the SEC.

Equity Compensation Plan Table

The following table details information regarding the Company's existing equity
compensation plans as of December 31, 2002:

<TABLE>
<CAPTION>
                                                                                                     (c)
                                                                                            Number of securities
                                                (a)                    (b)                  remaining available
                                       Number of securities      Weighted-average           for future issuance
                                        to be issued upon        exercise price of              under equity
                                            exercise of             outstanding             compensation plans
                                        outstanding options,     options, warrants         (excluding securities
Plan Category                            warrants and rights         and rights           reflected in column (a))
-------------                            -------------------         ----------           ------------------------
<S>                                              <C>                    <C>                      <C>
Equity compensation plans
approved by security holders                     2,273                  $10.03                   527,000

Equity compensation plans not
approved by security holders                        --                      --                        --
                                                 -----                  ------                   -------
Total                                            2,273                  $10.03                   527,000
                                                 =====                  ======
</TABLE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information called for by this item is incorporated by reference to the
Company's definitive proxy statement relating to its 2003 Annual Meeting of
Shareholders, which will be filed with the SEC.

ITEM 14. CONTROLS AND PROCEDURES

Within the 90-day period prior to the filing of this report, an evaluation was
carried out under the supervision and with the participation of Cross Media's
management, including the Chief Executive Officer and Chief Financial Officer,
of the effectiveness of our disclosure controls and procedures. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that Cross Media's disclosure controls and procedures are effective to
ensure that information required to be disclosed by Cross Media in reports that
it files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms. Subsequent to the date of
their evaluation, there were no significant changes in Cross Media's internal
controls or in other factors that could significantly affect the internal
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.

                                     PART IV

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

(a) Financial Statements

Report of Independent Certified Public Accountants
Financial Statements
  Consolidated Balance Sheets
  Consolidated Statements of Operations
  Consolidated Statement of Stockholders' Equity
  Consolidated Statements of Cash Flows
  Notes to Condensed Consolidated Financial Statements
Schedule II Valuation and Qualifying Account

(b) Reports on Form 8-K

On August 29, 2002, we filed a Current Report on Form 8-K regarding the
amendment to the credit facility.

On July 18, 2002 we filled a Current Report on Form 8-K regarding the
resignation of Jonathan Bulkeley from the Board of Directors and the filing of a
class action law suit against Cross Media.

On June 17, 2002 we filed a Current Report on Form 8-K regarding an interview
with our Chairman and the OTC discussing the status of the FTC investigation.

On June 4, 2002, we filed a Current Report on Form 8-K regarding the JWE
acquisition.

On April 11, 2002, we filed a Current Report on Form 8-K regarding the
announcement of a non-binding letter of intent relating to a proposed
acquisition and the completion of a private placement of common stock.

On April 10, 2002, we filed a Current Report on Form 8-K regarding an interview
with our Chairman discussing the FTC matter.

On January 28, 2002, we filed a Current Report on Form 8-K regarding the
acquisition of NSI.

On January 28, 2002, we filed a Current Report on Form 8-K regarding the
unaudited pro forma combined condensed statement of operations relating to the
acquisition of NSI.

(c) Exhibits

EXHIBIT NO.                             DESCRIPTION
-----------                             -----------

2.1(10)     Amended and Restated Agreement and Plan of Merger, dated August 20,
            2001, among Cross Media Marketing Corporation and LifeMinders, Inc.,
            as amended.

2.2(13)     Agreement and Plan of Merger, dated as of January 4, 2002 by and
            among Cross Media, CMMSC, NSI and Anthony Pironti (the "NSI
            Agreement").

2.3(13)     List of Omitted Schedules/Exhibits to the NSI Agreement.

2.4(13)     Agreement and Plan of Merger dated as of January 4, 2002, by and
            among, Cross Media CMCMC, PCM and Anthony Pironti (the "PCM
            Agreement").

2.5(13)     List of Omitted Schedules/Exhibits to the PCM Agreement.

2.6(16)     Asset Purchase Agreement for the purchase by the Registrant of
            certain assets of JWE Enterprises, Inc. ("Enterprises") and JWE
            Holdings, Inc. ("Holdings") dated as of May 27, 2002 by and among
            the Registrant, Enterprises, Holdings and Jason Ellsworth, the sole
            stockholder of Enterprises and Holdings.

3.1(12)     Amended and Restated Certificate of Incorporation of Cross Media
            filed with the Secretary of State of the State of Delaware on
            October 24, 2001.

3.2(12)     Amended and Restated Bylaws of Cross Media.

4.1(16)     Certificate of Designation of Series B Convertible Preferred Stock,
            filed with the Secretary of State of the State of Delaware on May
            24, 2002.

4.2         Certification of Designation of Series C Convertible Preferred
            Stock, filed with the Secretary of State of Delaware on April 2,
            2003.

4.3         Warrant to purchase 500,000 shares of Common Stock issued to Lancer
            on February 16, 2003.

4.4         Warrant to purchase 500,000 shares of Common Stock issued to Lancer
            on February 16, 2003.

10.1(a)(2)  Lease Agreement, dated as of October 1, 1996, between P & T
            Properties, L.L.C., Lessor, and Direct Sales International, L.P.,
            Lessee.

10.1(b)(2)  First Amendment to Lease Agreement, dated as of January 1, 1999,
            between P & T Properties, L.L.C., Lessor, and Direct Sales
            International, L.P., Lessee.

10.2(4)     Letter Agreement between Cross Media and The Shaar Fund Ltd., holder
            of the Series A Convertible Preferred Stock, dated as of July 18,
            2001.

10.3(4)     Agreement between Cross Media and The Shaar Fund Ltd., dated as of
            July 18, 2001.

10.4(a)(1)  Employment Agreement between Cross Media and Richard Kaufman, dated
            as of May 1, 2000.

10.4(b)(6)  Amendment to Employment Agreement dated as of May 1, 2001 between
            Cross Media and Richard Kaufman.


                                       23
<PAGE>

10.5(5)     Employment Agreement between Cross Media and Andrew Nelson, dated as
            of November 21, 2000.

10.6(5)     Employment Agreement between Cross Media and Chet Borgida, dated as
            of May 7, 2001.

10.7(10)    Employment Agreement between Cross Media and Dan Berman, dated as of
            July 16, 2001.

10.8(3)     Employment Agreement between Symposium Fusion, Inc. (f/k/a
            WeFusion.com, Inc.) and Christopher Thompson, dated as of November
            30, 2000.

10.9(a)(3)  Employment Agreement between Media Outsourcing Inc. (f/k/a Direct
            Sales International, Inc.) and Dennis Gougion, dated as of January
            28, 2000.

10.9(b)     Amendment to Employment Agreement dated as of January 28, 2000
            between Dennis Gougion and Media Outsourcing, Inc.

10.10(6)    Employment Agreement, dated as of May 1, 2001, between Cross Media
            and Ronald Altbach.

10.11(13)   Employment Agreement between NSI and Anthony Pironti dated as of
            January 11, 2002.

10.12(2)    Agreement and Plan of Merger, dated as of November 30, 2000, by and
            among WeFusion.com, Inc., Cross Media, Symposium Fusion, Inc. and
            certain stockholders of WeFusion.com, Inc.

10.13(6)    Agreement of Lease, dated as of February 16, 2001, between Cross
            Media and 461 Fifth Avenue Associates LLC.

10.14(10)   1998 Stock Option Plan of Cross Media, as amended as of December 31,
            2001.

10.15(7)    1998 Stock Option Plan of LifeMinders.

10.16(8)    2000 Stock Incentive Plan of LifeMinders.

10.17(8)    WITI Corporation 1996 Stock Option Plan.

10.18(9)    SmartRay Network, Inc. Stock Option and Restricted Stock Purchase
            Plan.

10.19(10)   Ecoupons.com, Inc. 1999 Stock Option Plan.

10.20(6)    Agreement, dated as of May 10, 2001, among Cross Media, Richard
            Prochnow and RLP Holdings, L.P.

10.21(5)    Services Agreement, dated as of July 1, 2001, between Media
            Outsourcing, Inc. and TBC Telemarketing, Inc. d/b/a TBC Consulting
            Group.

10.22(5)    Limited Liability Company Agreement, dated as of June 8, 2001,
            between Media Outsourcing, Inc. and JWE Holdings, Inc.

10.23(13)   Security Agreement among the Registrant, Cross Media Syndications
            Corporation ("CMMSC"), Anthony Pironti, Randall Gouse and Jess
            Joseph dated as of January 11, 2002.

10.24(13)   Security Agreement among the Registrant, Preferred Consumer Markets,
            Inc. ("PCM"), Anthony Pironti, Randall Gouse and Jess Joseph dated
            as of January 11, 2002.

10.25(15)   Credit Agreement between Cross Media and Fleet National Bank dated
            March 19, 2002.

10.26(15)   Pledge Agreement between Cross Media and Fleet National Bank dated
            March 19, 2002.

10.27(15)   Security Agreement between Cross Media and Fleet National Bank dated
            March 19, 2002.

10.28(15)   Trademark Security Agreement between Cross Media and Fleet National
            Bank dated March 19, 2002.

10.29(15)   Trademark Security Agreement between Media Outsourcing Inc. and
            Fleet National Bank dated March 19, 2002.

10.30(15)   Trademark Security Agreement between National Syndications, Inc. and
            Fleet National Bank dated March 19, 2002.

10.31(15)   Trademark Security Agreement between eCoupons, Inc. and Fleet
            National Bank dated March 19, 2002.

10.32(10)   Amended and Restated Agreement and Plan of Merger by and between
            Cross Media and LifeMinders dated as of August 20, 2001.

10.33(13)   Agreement and Plan of Merger by and among National Syndications,
            Inc. ("NSI"), CMMSC, Cross Media and the stockholders of NSI.


                                       24
<PAGE>

10.34(13)   Agreement and Plan of Merger by and among Cross Media, Cross Media
            Consumer Marketing Corporation, PCM and the stockholders of PCM.

10.35(14)   Waiver, Consent and Amendment to Credit Agreement dated August 13,
            2002 by and among Cross Media, MOS, NSI, Fleet National Bank as
            agent in the lenders and issuing agent and the other lenders.

10.36(17)   Amendment to Waiver and Credit Agreements by and among Cross Media,
            Media Outsourcing, Inc., National Syndications, Inc. and Preferred
            Consumer Marketing, as borrowers, Fleet National Bank, as agent and
            issuing lender, and the other lenders under the Credit Agreement
            dated as of March 19, 2002.

10.37(17)   $1,650,000 principal amount note issued to the Lender on August 16,
            2002.

10.38(17)   $1,500,000 principal amount note issued to the Lender on August 16,
            2002.

21.1        Subsidiaries of Cross Media.

23.1        Consent of Grant Thornton LLP.

99.1        Certification of Cross Media Marketing Corporation's Principal
            Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
            pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99.2        Certification of Cross Media Marketing Corporation's Principal
            Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
            pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1)         Incorporated by reference to Cross Media's Quarterly Report on Form
            10-QSB for the quarter ended September 30, 2000, filed with the SEC
            on November 11, 2000.

(2)         Incorporated by reference to Cross Media's Annual Report on Form
            10-KSB for the fiscal year ended December 31, 2000, filed with the
            SEC on March 26, 2001.

(3)         Incorporated by reference to Cross Media's Quarterly Report on Form
            10-QSB for the quarter ended June 30, 1999, filed with the SEC on
            August 16, 1999.

(4)         Incorporated by reference to Cross Media's Current Report on Form
            8-K filed with the SEC on July 25, 2001.

(5)         Incorporated by reference to Cross Media's Quarterly Report on Form
            10-QSB for the quarter ended June 30, 2001, filed with the SEC on
            August 14, 2001.

(6)         Incorporated by reference to Cross Media's Quarterly Report on Form
            10-QSB for the quarter ended March 31, 2001, filed with the SEC on
            May 15, 2001.

(7)         Incorporated by reference to LifeMinders' Amendment No. 1 to the
            Registration Statement on Form S-1 filed with the SEC on October 29,
            1999.

(8)         Incorporated by reference to LifeMinders' Registration Statement on
            Form S-8 filed with the SEC on June 27, 2000.

(9)         Incorporated by reference to LifeMinders' Registration Statement on
            Form S-8 filed with the SEC on September 29, 2000.

(10)        Incorporated by reference to the applicable exhibit or annex
            contained in Cross Media's Registration Statement on Form S-4, as
            amended, initially filed wit the SEC on April 22, 2001.

(11)        Incorporated by reference to the applicable exhibit contained in
            Cross Media's Registration on Form S-3, filed with the SEC on
            October 31, 2001.

(12)        Incorporated by reference to the applicable exhibit contained in the
            Cross Media's Current Report on Form 8-K (for the event dated
            October 24, 2001) filed with the SEC on March 1, 2001.

(13)        Incorporated by reference to the applicable exhibit contained in
            Cross Media's Current Report on Form 8-K (for the event dated
            January 11, 2002) filed with the SEC on January 28, 2002.

(14)        Incorporated by reference to the applicable exhibit contained in
            Cross Media's Current Report on Form 10-Q filed with the SEC on
            August 14, 2002.

(15)        Incorporated by reference to the applicable exhibit contained in
            Cross Media's Annual Report on Form 10-K for the year ended December
            31, 2001, filed with the SEC on March 27, 2002.

(16)        Incorporated by reference to the applicable exhibit contained in
            Cross Media's Current Report on Form 8-K filed with the SEC on June
            4, 2002.

(17)        Incorporated by reference to the applicable exhibit contained in
            Cross Media's Current Report on Form 8-K filed with the SEC on
            August 29, 2002.


                                       25
<PAGE>

                                   SIGNATURES

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

Date: March 31, 2003

CROSS MEDIA MARKETING CORPORATION


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

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

      SIGNATURE                         TITLE                        DATE
---------------------      --------------------------------   ------------------


 /s/ RONALD ALTBACH          Chairman, Director and Chief     March 31, 2003
---------------------              Executive Officer
   Ronald Altbach            (principal executive officer)

 /s/ RICHARD KAUFMAN            Director and President        March 31, 2003
---------------------
   Richard Kaufman

  /s/ CHET BORGIDA          Senior Vice President and Chief   March 31, 2003
---------------------              Financial Officer
    Chet Borgida           (principal financial officer and
                             principal accounting officer)

 /s/ DOUGLAS GRAHAM                    Director               March 31, 2003
---------------------
   Douglas Graham

  /s/ RICHARD COHEN                    Director               March 31, 2003
---------------------
    Richard Cohen

 /s/ JAMES L. NELSON                   Director               March 31, 2003
---------------------
   James L. Nelson

/s/ WILLIAM MORRISSEY                  Director               March 31, 2003
---------------------
  William Morrissey


                                       26
<PAGE>

                  Certification of Principal Executive Officer

I, Ronald Altbach, Chief Executive Officer of Cross Media Marketing Corporation,
certify that:

1. I have reviewed this annual report on form 10K of Cross Media Marketing
Corporation;

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

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

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

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

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

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

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

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

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

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

Date: April 2, 2003


                                        /s/ Ronald Altbach
                                        ----------------------------------------
                                        Ronald Altbach
                                        Chief Executive Officer


                                       27
<PAGE>

                  Certification of Principal Financial Officer

I, Chet Borgida, Chief Financial Officer of Cross Media Marketing Corporation,
certify that:

1. I have reviewed this annual report on Form 10K of Cross Media Marketing
Corporation;

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

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

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

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

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

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

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

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

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

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

Date: April 2, 2003


                                        /s/ Chet Borgida
                                        ----------------------------------------
                                        Chet Borgida
                                        Chief Financial Officer


                                       28