================================================================================
                       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 NOVEMBER 30, 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 0-27046

                                  TRAFFIX, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                    DELAWARE                               22-3322277
         (STATE OR OTHER JURISDICTION OF                (I.R.S. EMPLOYER
         INCORPORATION OR ORGANIZATION)                IDENTIFICATION NO.)

               ONE BLUE HILL PLAZA
              PEARL RIVER, NEW YORK                          10965
    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)              (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (845) 620-1212

                                 TITLE OF CLASS     EXCHANGE ON WHICH REGISTERED
                                 --------------     ----------------------------
SECURITIES REGISTERED PURSUANT    COMMON STOCK            NASDAQ NATIONAL MARKET
   TO SECTION 12(B) OF THE ACT:  $.001 PAR VALUE

SECURITIES REGISTERED PURSUANT    COMMON STOCK
   TO SECTION 12(G) OF THE ACT:  $.001 PAR VALUE

     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 (ss.229.405 of this chapter) is not contained herein,  and
will not be  contained,  to the best of  Registrant's  knowledge,  in definitive
proxy or information  statements  incorporated  by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.

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

     The  number of  shares  outstanding  of the  Registrant's  common  stock is
14,268,403 (as of 2/10/03).  The aggregate market value of the voting stock held
by nonaffiliates of the Registrant was approximately $38,612,473 (as of 2/10/03,
based upon a closing price of the Company's  Common Stock on the Nasdaq National
Market on such date of $3.41).

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None.
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                                  TRAFFIX, INC.

                       INDEX TO ANNUAL REPORT ON FORM 10-K
                FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
                   FOR THE FISCAL YEAR ENDED NOVEMBER 30, 2002

                               ITEMS IN FORM 10-K

                                                                            PAGE
                                                                            ----
PART I
  Item 1.   Business ......................................................    2
  Item 2.   Properties ....................................................    6
  Item 3.   Legal Proceedings .............................................    6
  Item 4.   Submission of Matters to a Vote of Security Holders ...........  N/A

PART II
  Item 5.   Market for the Registrant's Common Equity and Related
            Stockholder Matters ...........................................    9
  Item 6.   Selected Financial Data .......................................    9
  Item 7.   Management's Discussion and Analysis of Financial
            Condition and Results of Operations ...........................   10
  Item 7A.  Quantitative and Qualitative Disclosures About
            Market Risk ...................................................  N/A
  Item 8.   Financial Statements and Supplementary Data ...................   42
  Item 9.   Changes in and Disagreements with Accountants
            on Accounting and Financial Disclosure ........................  N/A

PART III
  Item 10.  Directors and Executive Officers of the Registrant ............   42
  Item 11.  Executive Compensation ........................................   46
  Item 12.  Security Ownership of Certain Beneficial Owners
            and Management and Related Stockholder Matters ................   49
  Item 13.  Certain Relationships and Related Transactions ................   51
  Item 14.  Control and Procedures ........................................   51

PART IV
  Item 15.  Exhibits, Financial Statement Schedules and
            Reports on Form 8-K ...........................................   52

SIGNATURES ................................................................   54


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                           FORWARD LOOKING INFORMATION
                              MAY PROVE INACCURATE

     THIS ANNUAL REPORT ON FORM 10-K CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS
AND INFORMATION  RELATING TO US THAT ARE BASED ON THE BELIEFS OF MANAGEMENT,  AS
WELL AS ASSUMPTIONS MADE BY AND INFORMATION CURRENTLY AVAILABLE TO US. WHEN USED
IN THIS DOCUMENT,  THE WORDS "ANTICIPATE,"  "BELIEVE,"  "ESTIMATE," AND "EXPECT"
AND  SIMILAR  EXPRESSIONS,  AS THEY  RELATE  TO US,  ARE  INTENDED  TO  IDENTIFY
FORWARD-LOOKING  STATEMENTS.  SUCH  STATEMENTS  REFLECT OUR  CURRENT  VIEWS WITH
RESPECT TO FUTURE  EVENTS AND ARE SUBJECT TO CERTAIN  RISKS,  UNCERTAINTIES  AND
ASSUMPTIONS,  INCLUDING  THOSE  DESCRIBED  IN THIS  ANNUAL  REPORT ON FORM 10-K.
SHOULD  ONE OR MORE OF  THESE  RISKS OR  UNCERTAINTIES  MATERIALIZE,  OR  SHOULD
UNDERLYING ASSUMPTIONS PROVE INCORRECT,  ACTUAL RESULTS MAY VARY MATERIALLY FROM
THOSE DESCRIBED HEREIN AS ANTICIPATED,  BELIEVED,  ESTIMATED OR EXPECTED.  WE DO
NOT INTEND TO UPDATE THESE FORWARD-LOOKING STATEMENTS.

ITEM 1. BUSINESS

   OVERVIEW

     We are a leading on-line database  marketing  company that uses our on-line
media  network to generate  leads,  customers and sales for us and our corporate
clients.  We provide  complete  end-to-end  marketing  solutions  for  companies
seeking to increase  sales and customers  through  on-line  marketing  programs,
database development and enhancement programs.  The services we offer range from
the  development  of a  complete  creative  promotion  to be used to market  the
client's  product to  consumers,  broadcasting  a promotion  on-line in order to
generate new customers  for the client,  delivery of data files from the results
of  campaigns,  creating  and  hosting  the  customized  websites  or web  pages
necessary to effect the consumer  transaction that drives the client's sales and
generating  comprehensive  reporting  in order  for the  client to  analyze  the
effectiveness  of a promotion.  We use our websites,  interactive  games,  email
marketing and database of  permission-based,  profiled  records (and the on-line
media of third  parties)  to  generate  the  customers,  sales and leads for our
clients. We are paid by our clients primarily on a success-based  model, in that
we receive a fee for every lead,  customer or sale generated for the client.  In
addition to our third party client-based  revenue,  we generate revenue from our
own  products  and  services,  such as retail gift items,  which  accounted  for
approximately  3.0% of our  revenue in the fiscal year ended  November  30, 2002
("Fiscal  2002").  Commencing in Fiscal 2003,  these  products and services have
been expanded, and will include an ISP service, a long-distance telecom service,
and on-line  dating.  We also generate  revenues from the sales and rentals (for
use both on-line and off-line) of our proprietary, profiled databases.

   BACKGROUND

     From our inception in 1993 (under the name "Quintel Communications,  Inc.")
through 1999, we generated the bulk of our revenue from database marketing using
the traditional media of television, postal mail and telemarketing.  In 2000, we
repositioned  our database  marketing  business to the on-line media of the Web.
Applying the direct marketing  disciplines  honed from our years of operating in
the "off-line" media, we believe we are able to provide enhanced  response-based
results in a more cost-efficient and scaleable manner via on-line marketing.  In
addition, as a result of our direct marketing background, we believe we are able
to design on-line marketing  programs to  cost-effectively  generate traffic and
leads for  traditional  direct  marketing  media  channels,  such as inbound and
outbound telemarketing and direct mail.

   ON-LINE MARKETING

     We own and operate multiple on-line properties, such as GroupLotto.com, the
free on-line  lottery,  and  AtlasCreditGroup.com,  AtlasEducationGroup.com  and
iMatchup.com (which commenced  operations in December 2002), as well as a number
of interactive games (such as Direct Deposit  Promotions and  Scratch&Win),  all
supplemented  by other  web  sites  and  services  provided  on the  Web.  These
activities are designed to generate real-time  response-based  marketing results
for our  corporate  clients,  as well as for our own offers.  When  visiting our
on-line  properties,  consumers are given the  opportunity to purchase,  sign-up
for, ask to be contacted regarding,  or simply indicate an interest in, hundreds
of offers for various products and services provided by our corporate


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clients and marketing  partners.  Specifically,  through these  interactive  Web
properties  we generate a variety of  transactional  results  for our  corporate
clients  ranging  from (a) Web traffic,  (b) inbound  telemarketing  calls,  (c)
outbound  telemarketing  leads, (d)  demographically/psychographically  profiled
lists of consumers,  (e) highly-targeted  customized  response-based  leads, (f)
completed  applications  for  products,  and (g) actual  sales of  products  and
services.

     WEBSITES. The GroupLotto website offers consumers the opportunity to win up
to $10  million  daily  in a free,  on-line  lottery.  The  lottery  prizes  are
indemnified  by an  independent,  third-party  agency.  In order  to play,  each
consumer must provide complete and accurate  registration  information and agree
to receive  ("opt-in")  marketing  messages  from  GroupLotto  and our marketing
partners.  The interactive  media on this website includes  registration  pages,
game banners,  and  "pop-ups",  the purpose of which is to generate web traffic,
leads and sales. Revenue is generated at this website from our corporate clients
who pay for such traffic,  leads and sales. We generate the bulk of our consumer
traffic to this  website  through  proprietary  and third party email  marketing
programs,  emailed to lists of consumers  who have  indicated an interest in our
product and service offers by opting in to receive information on such offers.

     Similar to the  GroupLotto  website,  we  generate  results for our clients
through several other  interactive  games and products.  For example,  we market
through a "scratch  and win" game that  offers  consumers  the chance to win any
number of prizes,  which range from $100 to $25,000. The consumer plays the game
by "scratching"  with the mouse certain parts of the entry ticket to uncover the
results.  These games are presented as "pop-ups" upon browser exit, and can also
be "pushed" to consumers by delivering them to the player's email inbox. We also
market credit card offers through our "Direct Deposit"  sweepstakes game (patent
pending),  whereby a consumer can win up to $5,000 instantly if a portion of his
or her credit card number matches a pre-selected winning number.

     We own and operate  several other  websites  such as  AtlasCreditGroup.com,
AtlasEducationGroup.com,  prizecade.com and jewelclaimcenter.com.  Such websites
are  deployed  to generate  revenue  for our clients in a similar  manner as the
GroupLotto model described above. Each of these sites is designed to appeal to a
specific consumer interest category that we matched with product promotions that
appeal to such interest category.

     EMAIL MARKETING. Direct  marketing  via  email  is  an  important  business
resource.  Each  program that we market for our clients can be  implemented  not
only through the websites,  interactive games and "pop-ups" discussed above, but
also, and often,  through email marketing.  We currently market to approximately
150 million  permission-based  records,  which are either owned or managed by us
under our revenue share arrangement.

     Compared  to  postal  marketing  and  telemarketing,   email  marketing  is
significantly  less  expensive,  offers  much  faster  response  times,  and, we
believe, provides for a more rich consumer media experience. We now own an email
delivery system (acquired in December 2001 through the acquisition of the assets
of  Infiknowledge.com,  a privately  held Canadian  technology  company),  which
reduces our  dependence on third party vendors and further  reduces the expenses
associated with delivering our monthly commercial email messages and reduces the
costs of our site maintenance and development costs. FOR A FURTHER DISCUSSION OF
RECENT BUSINESS AND LEGAL DEVELOPMENTS REGARDING THIS E-COMMERCE COMPONENT,  AND
SPECIFICALLY  THE LOSS OF A  SIGNIFICANT  CUSTOMER  AND EVENTS  IMPACTING  EMAIL
MARKETING,  SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS."

     One of the attractive features for clients,  and, we believe, a significant
competitive advantage,  is our ability to create and test a variety of marketing
campaigns  for  prospective  and  existing  corporate  clients at no risk to the
client.  Since we own, and have access to, extensive  databases,  manage our own
internal creative  department,  and can deliver email at a low cost, we are able
to offer  prospective  and existing  clients the  opportunity to test market new
products,  services, price points and creative concepts in order to determine if
an  on-line  campaign  works  for the  client,  and  which  campaigns  work most
effectively.


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<PAGE>

     Even  after  campaigns  are  fully  implemented,  we  further  analyze  the
marketing  results to gauge  whether the  campaigns  are  continuing to generate
adequate   results  for  the  client,   whether  the  media  is  being  utilized
cost-efficiently,  and to determine  whether new and different  copy is yielding
better overall results. These are the traditional direct-marketing  disciplines,
which we  believe  (when  coupled  with our  proprietary  databases,  the  other
databases  under  our  management  and  our  delivery  and  reporting  systems),
distinguish us from our competitors in the on-line marketing industry.

     SYNDICATION.  We expend a  significant  portion of our email  resources  to
generate  sales  for our own  products  and  services  and  for  traffic  to our
websites.  After we develop a campaign that works  efficiently on our own media,
we often  "syndicate"  the  program to  third-party  media.  Typically,  we have
expended  time,  media and  other  costs in  developing  certain  campaigns.  In
exchange for this invested effort, we obtain the right to market those campaigns
to a list of other on-line media companies.  We enter into agreements with these
other on-line  media  companies to run the  campaigns,  generally on a fee-share
arrangement.   We  believe  such  media  companies  benefit  from  receiving  an
immediately  marketable,  fully-packaged  and  tested  marketing  program.  As a
result,  we  believe  we are  able  to  leverage  campaigns  we  have  developed
(including  our own  products and  services) so that we can generate  additional
revenue  with  virtually  no  costs  or  risks  associated  with  such  business
extension.

   TRAFFIX'S PRODUCTS AND SERVICES

     A new  business  unit,  which we  introduced  during the three months ended
February 28, 2002,  is the on-line  marketing of our own products and  services.
For  example,  one of our  websites,  Thanksmuch.com,  sells gift items (such as
DVDs,  CDs and  inexpensive  jewelry)  directly  to  consumers.  When a consumer
selects a gift item and tenders his credit card, he is given the  opportunity to
purchase other,  more valuable  products and services at special  discounts.  In
addition to the  Thanksmuch  line of jewelry and gifts,  we are  developing  and
testing other  products and services for direct  marketing to  consumers.  These
products  include  credit  card  billed  products  in the "Voice  Over  Internet
Protocol" area  ("TxNET-LD"),  dial-up modem ISP back-up systems  ("TxNET-ISP"),
dating/personal programs conducted over the Internet ("iMatchup.com"),  jewelry,
voicemail,  DVDs and books. One of the additional  benefits of these programs is
our  ability to  accumulate  consumer  credit  card data,  which  allows for the
subsequent use of our marketing concept of "just-one-click" credit card billing,
making on-line purchases easier for the consumer, and allowing us to more easily
process  additional  sales and services in the future.  In addition,  certain of
these services are designed as monthly  recurring  revenue sources,  such as our
dating and long-distance  service.  Further, we anticipate that certain of these
services will derive monthly  recurring revenue streams through the use of Local
Exchange Carrier (LEC) billing.

     No assurances  can be given,  however,  that these  anticipated  sources of
revenue will generate any significant  income to our operations in future fiscal
periods,  if at all. During the year ended November 30, 2002, the Thanksmuch.com
website  generated   approximately  $1.3  million,   or  approximately  3.0%  of
consolidated  net  revenue,   with  an  approximate   $27,000   contribution  to
consolidated income from operations for such period.

     Our expansion in, and dependence on, our on-line direct marketing  efforts,
coupled with the potential for state and/or federal legislation limiting on-line
marketing's consumer contact capability, should all be considered when referring
to our  current  fiscal  year's  results,  as well as  prior  year's  historical
results, in evaluating the potential for our future operations,  cash flows, and
financial position.

   SEGMENT INFORMATION

     During the fiscal year ended  November 30, 2002, we generated  revenue from
the  following  segments:  E-Commerce  and Off-line  Marketing.  The  E-Commerce
segment  realized  significant  growth during the fiscal year ended November 30,
2002,  when compared to the prior fiscal periods,  and currently  represents the
core of our business operations.  Revenue in the E-commerce segment is generated
primarily  from  marketing of third party  products and services on our websites
and through email promotions.  The Off-Line  Marketing services segment consists
of  revenue  generated  by  us  through  off-line  direct  marketing   channels.
Historically, this segment's activities


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consisted of  telemarketing  services used for the  acquisition of long distance
and wireless  phone  customers for various phone  service  providers.  In Fiscal
2002,  this segment  consisted  exclusively  of our majority  owned  subsidiary,
Montvale Management, LLC, and the revenues and expenses of Montvale's net branch
services provided to qualified  mortgage banking and lending  institutions.  The
LEC Billed Products segment represented  telecommunications-related products and
services  marketed by us directly to consumers who were billed by local exchange
carriers on the  consumer's  telephone  bill.  This segment was inactive  during
Fiscal 2002.  Segment  information  is set forth in Note 13 to the  Consolidated
Financial  Statements referred to in the Financial  Statements and Supplementary
Data section hereof and  incorporated  herein by reference.  For a more detailed
discussion of our segment  information,  also see  "Management's  Discussion and
Analysis of Financial Condition and Results of Operations."

   COMPETITION

     We face intense  competition  in the  marketing  of products and  services,
particularly on the Internet. Many of our competitors are well established, have
reputations  for success in the  development  and marketing of services and have
significant financial, marketing,  distribution,  personnel and other resources.
These  financial  and other  capabilities  permit such  companies  to  implement
extensive advertising and promotional campaigns,  both generally and in response
to efforts by additional competitors to enter into new markets and introduce new
services.

   INSURANCE

     As an operating  entity,  we may be subject to  substantial  liability as a
result  of  our  day-to-day  operations.  Accordingly,  we  maintain  a  general
liability  insurance  policy  that  is  subject  to a per  occurrence  limit  of
$1,000,000 with a $2,000,000  aggregate limit and an umbrella policy covering an
additional  $10,000,000 of liability.  In addition, we have errors and omissions
insurance  with a limit of $5,000,000.  We also maintain  Directors and Officers
liability  insurance policies for legal costs and claims. Such insurance may not
be sufficient to cover all potential claims and additional  insurance may not be
available in the future at reasonable costs.

   GOVERNMENT REGULATION

     Various state laws exist,  and federal  legislation  is currently  pending,
that limit our ability to deliver  commercial e-mail messages to consumers.  The
Federal Trade Commission is convening a three-day  workshop to review commercial
e-mail practices.  There are presently no federal laws that explicitly  regulate
sending  unsolicited  e-mail.  The pending federal bills and existing state laws
require that certain  "opt-out"  procedures  be included in e-mails and prohibit
"false routing" or "fictitious address" information. Existing state, and pending
federal,  laws require functioning return e-mail addresses and that valid postal
addresses be included by the senders of commercial e-mail messages.  Some states
require an "ADV"  label in the  subject  line,  and  proscribe  false  header or
misleading subject lines. Attorneys General and/or consumers are given authority
to  enforce  the state  laws.  Over half the  states  have  enacted  legislation
affecting  the  sending of  unsolicited  commercial  e-mail.  If strict  federal
legislation  is  subsequently  written  into law,  with its  terms  specifically
limiting  our  ability  to market our  offers,  we could  potentially  realize a
material  adverse  impact  in future  fiscal  period  net  revenue  growth,  and
therefore, profitability and cash flows could be adversely affected.

     In November 2002, we received an inquiry from the Federal Trade  Commission
questioning  whether  we needed to  comply  with the  Graham  Leach  Bliley  Act
(privacy of consumer information for financial  institutions) arising from Atlas
Credit Group, one of our Internet subsidiaries.  We responded by stating that we
need not comply with the Graham  Leach  Bliley Act because  Atlas  Credit  Group
utilizes  advertising  from other  financial  institutions,  but is not itself a
financial  institution  as defined  under the statute.  We have not received any
further comments from the Federal Trade Commission. ThanksMuch.com, LLC, another
of our Internet  subsidiaries,  was served with a class action  lawsuit in State
Court in the County of Los  Angeles,  California,  for damages  associated  with
allegedly  violating  the State's  Shipping  and  Handling  laws.  This suit was
recently  settled.  The  settlement  offers a $5.00  certificate  to  California
consumers  on future  purchases  of  ThanksMuch  products  and  provides a small
payment for attorneys' fees.


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<PAGE>

     The Pennsylvania  Attorney  General's Office had requested us to enter into
an Assurance of Voluntary Compliance Agreement to resolve allegations concerning
certain of our sales  practices.  The Attorney General alleged that our Fly Free
telemarketing  program,  as  well  as  certain  pay-per-call  services,  did not
adequately  disclose to the  consumer  the terms of the offer  being  made.  The
Agreement  also  provides  for a payment  to the  State in an  amount  yet to be
determined.  Discussions  with the  Pennsylvania  Attorney  General's Office are
on-going.

     Any changes in the Internet operating landscape that materially hinders our
current  ability  and/or  cost to  deliver  commercial  e-mail  messages  to the
consumer records in our databases,  and the consumer records in the databases of
our  affiliates,  could  potentially  cause a material impact on net revenue and
gross margin and, therefore, our profitability and cash flows could be adversely
affected.

   EMPLOYEES

     We  currently  employ 104  full-time  employees,  including  six  executive
officers,  and two part-time  employees.  We believe that our relations with our
employees are satisfactory. None of our employees are represented by a union.

   TRANSACTIONS WITH MAJOR CUSTOMERS

     Transactions   with  major  customers  and  related   economic   dependence
information is set forth under the heading  Transactions with Major Customers in
Note 1 to the  Consolidated  Financial  Statements  referred to in the Financial
Statements  and  Supplementary  Data section hereof and  incorporated  herein by
reference.

   OUR COMPANY

     We were  organized  in 1993  under  the laws of the  State of  Delaware  as
Quintel Entertainment, Inc. We changed our name to Quintel Communications,  Inc.
in 1998 and to Traffix,  Inc. in 2000. Our executive  offices are located at One
Blue  Hill  Plaza,  Pearl  River,  New  York  10965,  our  Internet  address  is
www.traffixinc.com, and our telephone number is (845) 620-1212.

ITEM 2. PROPERTIES

     We lease approximately  15,000 square feet of space at One Blue Hill Plaza,
Pearl  River,  New  York,  all of which  is  currently  used  for our  principal
executive  offices.  The lease for such premises  expires on July 31, 2006.  The
base rent is $26,875 per month for the  remainder  of the term of the lease.  We
also lease, under two separate lease agreements, approximately 8,480 square feet
of space in Moncton, New Brunswick,  Canada, which is occupied by a wholly owned
subsidiary,  and is  currently  used  for  development  and  maintenance  of our
websites,  and to house other data operations and the computer equipment used in
our email delivery processes. The combined base rent is approximately $5,000 per
month,  and the expiration dates for the two leases are April 30, 2003 and April
30, 2005. We also lease 7,138 square feet of space,  through our majority  owned
subsidiary,  Montvale  Management,  LLC, in  Montvale,  New  Jersey.  Such lease
expires October 31, 2003. We also lease approximately 1,000 square feet of space
in  Woodmere,  Long  Island,  New  York,  which is  occupied  by a  wholly-owned
subsidiary,  and is currently used to house the sales and fulfillment operations
of such wholly-owned subsidiary. The base rent is $1,300 per month and the lease
expires June 30, 2003.  We intend to negotiate for the extension of those leases
scheduled to expire in 2003,  or, if we are unable to do so, to lease or acquire
other similar space in close proximity to our existing space.

ITEM 3. LEGAL PROCEEDINGS

   NANCY GAREN

     On or about  October 16, 2001,  Nancy  Garen,  author of "Tarot Made Easy",
commenced an action  against a series of defendants,  including our Company,  in
the  United  States  District  Court for the  Central  District  of  California,
entitled  NANCY  GAREN V.  STEVEN  L.  FEDER  ET AL.  (EDCV  01-790  (VAP-SGLx).
Plaintiff  alleged  that  defendants  were liable for a copyright  infringement,
contributory copyright infringement, vicarious copyright infringe-


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<PAGE>

ment,  unfair  competition,  contributory  federal unfair  competition and state
statutory   and  common  law  unfair   competition   and  damages  from  alleged
infringement of a copyright.  Pursuant to a settlement with the defendants other
than our Company,  the action was  dismissed as against us, with  prejudice  and
without any cost to us.

   MAVIES WINGLER

     On or about May 9, 2001,  Mavies Wingler  commenced an action against Group
Lotto, Inc. ("GLI"), one of our wholly-owned subsidiaries,  in the Circuit Court
of Logan County,  West  Virginia.  Ms. Wingler claims to have picked the winning
numbers entitling her to $10 million. On June 8, 2001, the action was removed to
the United States District  Court,  Southern  District of West Virginia,  and is
entitled  WINGLER V.  GROUPLOTTO,  INC.,  Docket  Number 2:01 -- CV -- 518.  The
action is in the discovery  stage.  At the end of 2002, Ms.  Wingler's  attorney
withdrew,  and she is now  representing  herself.  We and GLI have a contract of
indemnification with SCA Promotions,  Inc. to be indemnified for prizes paid out
to qualified winners.  GLI winners are required to produce the Group Lotto Entry
Notification  form ("GLEN")  within a specified  period of time after matching a
drawing's  winning  numbers in order to qualify for  receipt of the  appropriate
prize winnings. We do not believe that there is any merit to Ms. Wingler's claim
and intend to vigorously continue our defense thereof.

   DANIEL RODGERS

     In March 2002,  Daniel  Rodgers  commenced an action against our Company in
Supreme Court of the State of New York,  Rockland County.  The complaint alleges
that  we  disseminated  false  and  misleading   advertisements   through  email
advertisements and through the website of GLI. In August 2002, we filed a motion
to dismiss the complaint.  In January 2003, the court issued an order dismissing
the  action.  The  plaintiff  may  file an  appeal  from the  decision  within a
specified 30-day period, which has not yet expired.

   PLASMANET

     On November 21, 2002, Plasmanet, Inc., one of our competitors, commenced an
action  alleging  patent  infringement  and  misappropriation  of trade secrets.
PLASMANET, INC. V. APAX PARTNERS, INC., ET AL., Case No. 02 CIV 9290 (S.D.N.Y.).
Plasmanet operates a website, FreeLotto.com, which is similar to one operated by
GLI.  Plasmanet  alleges that on  September  24, 2002 it obtained a patent for a
"Free Remote  Lottery  System" and that we infringed  said patent.  In addition,
Plasmanet  asserts that we  misappropriated  Plasmanet's  trade secrets after we
were shown a private placement memorandum by an agent of Plasmanet's  investment
banker. The complaint seeks injunctive relief and unspecified money damages.  We
believe there is no merit to the claims and intend to vigorously  defend against
them.

   QWEST COMMUNICATIONS

     Qwest  Communications,  Inc.  has notified us of an  indemnification  claim
relating to a class  action filed  against  Qwest in  Minnesota.  BINDNER V. LCI
INTERNATIONAL  TELECOM CORP.  ET AL.,  District  Court of  Minnesota,  County of
Sibley,  Case No.  C0-00-242.  Plaintiffs in that action claim that in late 1999
into  mid-2000,  they were misled when they were  solicited to change their long
distance  carrier to Qwest.  They assert that they were not told that they would
have  to  stay at  certain  hotels  and pay  their  regular  rates  as part of a
promotion,  which offered them free airline tickets. We introduced the promotion
("Fly Free  America")  to Qwest,  and had been  retained by Qwest to operate the
telemarketing  campaign.  Fraud claims in the class action have been  dismissed,
leaving breach of contract and false  advertising  claims.  An  application  for
class  certification  is now  pending.  The  class  could be as large as  12,000
claimants.

     In or about May 2000,  we and Qwest  entered into an agreement  terminating
our contract and settling the amount due us (the "May 2000 Agreement").  The May
2000 Agreement  contained  language which Qwest claims obligates us to indemnify
Qwest for any loss it may  sustain by reason of the class  action.  We  maintain
that we have no  liability  in the matter.  In November  2002,  we  commenced an
arbitration  against Qwest to recover  certain moneys due us pursuant to the May
2000 Agreement.  In December 2002, Qwest filed  counterclaims in the arbitration
relating to the Fly Free America  program.  Qwest asserts that we must indemnify
Qwest for, among other things,  fines and penalties  amounting to  approximately
$1.5 million which Qwest claims it paid in con-


                                       7
<PAGE>

nection  with a number of consent  decrees it entered  into with  various  State
Attorneys  General,  an unspecified  amount of attorneys'  fees, and any and all
expenses, penalties or other amounts Qwest becomes liable for in connection with
the class action.  Qwest also seeks  reimbursement of approximately $3.1 million
it paid us pursuant to the May 2000 Agreement. We believe that there is no merit
to Qwest's  counterclaims  and intend vigorously to defend against them, as well
as to pursue our claim.

   COLUMBIA HOUSE/RYDEL

     In or about August 2002,  Sony Music  Entertainment,  Inc.,  d/b/a Columbia
House, one of our clients, notified us of an indemnification claim relating to a
class action filed against Columbia House,  among others, in Illinois.  RYDEL V.
COMTRAD INDUSTRIES,  INC. ET AL., Circuit Court of Cook County, Illinois, No. 02
CH 13269.  Plaintiff claims to have received unsolicited commercial e-mail from,
among  others,  Columbia  House,  in violation of Illinois law.  Columbia  House
advised us that it  believes  that the email in  question  was not  approved  by
Columbia House when it was sent by us, and asserted a claim for  indemnification
against us pursuant  to our  contract.  We and  Columbia  House  agreed to defer
resolution of the  indemnification  claim (and  reserved each of our  respective
rights).  Columbia  House is defending  against the class action and has filed a
motion to dismiss it. In or about  January 2003, we were named as a defendant in
the class action. In an additional count in the complaint, the plaintiff asserts
that we violated the Illinois  Consumer Fraud and Deceptive  Business  Practices
Act by providing to a  co-defendant  a list of  consumers  who had  consented to
receive  commercial  e-mails  when,  the  complaint  alleges,  they had not. The
complaint  seeks  injunctive  relief and unspecified  damages.  We are currently
investigating the claim, and will timely respond to the complaint in due course.

   SPRINT COMMUNICATIONS, TINA HARRISON, LISA WATTERS (UTAH CLAIMS)

     Sprint  Communications,  one of our former  clients,  has notified us of an
indemnification  claim  relating to a class action filed against  Sprint in Utah
(GILLMAN  V. SPRINT  COMMUNICATIONS  CO.  L.P.,  District  Court of Utah,  Third
Judicial District Salt Lake City, Civil No. 020406640). Plaintiff claims to have
received  unsolicited  commercial  e-mail in violation  of Utah law.  Sprint has
advised us that it is  defending  the action and has filed a motion for  summary
judgment  dismissing the claims. In addition,  Sprint has advised us that it has
received a  settlement  demand for an amount which is not  material.  In January
2003,  we received  notice of two  additional  claims filed in Utah state court:
WATTERS V. TRAFFIX, INC., MONGLYPH.COM,  AND PHILLIP C. WILSON AND JOHN DOES ONE
THROUGH TEN, (NO.  20413327);  and HARRISON V.  TRAFFIX,  INC. AND JOHN DOES ONE
THROUGH TEN, (No.  20414190),  District Court of Utah,  Third Judicial  District
Salt Lake County,  Sandy  Department.  In each of these  actions,  the plaintiff
claims  to  represent  a  class  of  Utah  residents  who  received  unsolicited
commercial  e-mail  in  violation  of Utah  law.  We are  currently  engaged  in
discussions to resolve these matters for an amount that would not be material.


                                       8
<PAGE>

                                     PART II

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

   MARKET INFORMATION

     Our  Common  Stock  trades on the  Nasdaq  National  Market  System.  Since
September  12,  2000,  the date upon  which we  changed  our name  from  Quintel
Communications,  Inc. to Traffix,  Inc.,  our Common  Stock has traded under the
symbol "TRFX". Prior thereto,  such Common Stock traded under the symbol "QTEL".
The following table sets forth the high and low sales prices of the Common Stock
as reported by Nasdaq for each full quarterly  period within the two most recent
fiscal years.

                                                            HIGH      LOW
                                                          -------   -------
Fiscal Year Ended November 30, 2002
   First Quarter .................................        $8.1500   $5.3000
   Second Quarter ................................         8.3000    5.6900
   Third Quarter .................................         6.1000    3.5000
   Fourth Quarter ................................         3.9000    2.5600

Fiscal Year Ended November 30, 2001
   First Quarter .................................        $2.9688   $1.3750
   Second Quarter ................................         3.6700    1.9375
   Third Quarter .................................         4.4500    3.0600
   Fourth Quarter ................................         6.2000    3.7400

   SECURITY HOLDERS

     To the best of our  knowledge,  at February 10, 2003,  there were 71 record
holders of our Common Stock. We believe there are numerous  beneficial owners of
Common Stock whose shares are held in "street name."

   DIVIDENDS

     We have not paid dividends  during the two most recently  completed  fiscal
years,  and have no  current  plans to pay  dividends  on our Common  Stock.  We
currently intend to retain all earnings for use in our business.

   RECENT SALES OF UNREGISTERED SECURITIES

     On  December  6, 2001,  we  consummated  the  acquisition  of the assets of
InfiKnowlege.com,  Inc. for aggregate consideration of $1,150,000,  a portion of
which consisted of $687,500 of our common stock,  or 117,522  shares,  valued at
$6.20 per share (the average  closing  prices of our common stock for the period
December 4 to December 10, 2001). In accordance  with such Agreement,  39,174 of
such shares were issued on each of December 6, 2001 and 2002 (and the  remaining
39,174  shares are to be issued on December 6, 2003).  The  foregoing  issuances
were exempt from the registration requirements of the Securities Act of 1933, as
amended,  by  virtue of  Section  4(2) of such Act as being  transactions  by an
issuer not involving any public offering.

ITEM 6.  SELECTED FINANCIAL DATA

     The following  table  presents our selected  historical  financial data for
each of the years in the five-year period ended November 30, 2002. The financial
data set forth should be read in conjunction with  "Management's  Discussion and
Analysis of Financial  Condition  and Results of  Operations"  and our financial
statements.


                                       9
<PAGE>

STATEMENT OF OPERATIONS DATA:

<TABLE>
<CAPTION>
                                                                  YEAR ENDED NOVEMBER 30,
                                       ------------------------------------------------------------------------
                                           2002           2001           2000          1999            1998
                                       -----------    -----------    -----------    -----------    ------------
<S>                                    <C>            <C>            <C>            <C>            <C>
Net revenue ........................   $44,042,925    $32,209,410    $26,611,863    $42,839,840    $ 94,690,251
Costs of sales .....................    12,243,635      9,152,462      9,057,027     26,952,097      80,037,115
Gross profit .......................    31,799,290     23,056,948     17,554,836     15,887,743      14,653,136
Selling, general and
   administrative expenses .........    27,371,985     16,783,655     12,080,543     10,881,156      34,049,435
                                       -----------    -----------    -----------    -----------    ------------
Income (loss) from operations ......     4,427,305      6,273,293      5,474,293      5,006,587     (19,396,299)
Interest expense ...................      (101,385)        (5,900)      (286,655)       (70,701)       (186,218)
Other income, net ..................       202,364     (2,574,694)     3,430,986      1,446,494       2,212,435
                                       -----------    -----------    -----------    -----------    ------------
Income (loss) before provision for
   income taxes (benefit) ..........     4,528,284      3,692,699      8,618,624      6,382,380     (17,370,082)
Provision for income taxes (benefit)     1,786,894      3,275,200      3,471,754      2,458,520        (417,464)
                                       -----------    -----------    -----------    -----------    ------------
Net income (loss) ..................   $ 2,741,390    $   417,499    $ 5,146,870    $ 3,923,860    $(16,952,618)
                                       ===========    ===========    ===========    ===========    ============
Basic net income (loss) per share ..   $      0.21    $      0.03    $      0.35    $      0.26    $      (1.00)
                                       ===========    ===========    ===========    ===========    ============
Diluted net income (loss) per share    $      0.19    $      0.03    $      0.33    $      0.26    $      (1.00)
                                       ===========    ===========    ===========    ===========    ============
Common Shares outstanding

   Basic ...........................    13,350,794     14,794,159     14,792,734     15,119,610      14,798,518
   Diluted .........................    14,247,450     15,396,619     15,494,663     15,241,662      15,965,404

BALANCE SHEET DATA:

<CAPTION>
                                             YEAR ENDED NOVEMBER 30,
                       -------------------------------------------------------------------
                          2002           2001          2000          1999         1998
                       -----------   -----------   -----------   -----------   -----------
<S>                    <C>           <C>           <C>           <C>           <C>
Working capital ....   $39,344,095   $40,057,164   $40,178,773   $36,789,213   $34,138,388
Total assets .......    51,190,993    52,742,584    52,198,843    57,277,279    64,413,144
Total liabilities ..     7,404,985    10,329,878    10,870,283    17,391,001    27,731,000
Stockholders' equity    43,786,008    42,412,706    41,328,560    39,886,278    36,682,144
</TABLE>

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

     The matters discussed in the following Management's Discussion and Analysis
of Financial  Condition  and Results of Operations  may contain  forward-looking
statements and information  relating to us that are based on the current beliefs
and  expectations of Management,  as well as assumptions made by and information
currently  available  to us.  When  used in  this  Management's  Discussion  and
Analysis,  and elsewhere in this Form 10-K, the words  "anticipate",  "believe",
"estimate", and "expect" and similar expressions,  as they relate to our Company
are intended to identify forward-looking statements. Such statements reflect the
current views of our management with respect to future events and are subject to
certain  risks,  uncertainties  and  assumptions,  which  could cause the actual
results  to  differ  materially  from  those  reflected  in the  forward-looking
statements.

     The  following   discussion   should  be  read  in  conjunction   with  the
consolidated  financial statements and the related notes thereto, as well as all
other  related  notes,  and  financial  and  operational  references,  appearing
elsewhere in this document.

   OVERVIEW

     We are a leading on-line database  marketing  company that uses our on-line
media  network to generate  leads,  customers and sales for us and our corporate
clients.  We provide  complete  end-to-end  marketing  solutions  for  companies
seeking to increase  sales and customers  through  on-line  marketing  programs,
database development and enhancement programs.  The services we offer range from
the  development  of a  complete  creative  promotion  to be used to market  the
client's  product to  consumers,  broadcasting  a promotion  on-line in order to
generate new customers  for the client,  delivery of data files from the results
of campaigns, creating and hosting the customized


                                       10
<PAGE>

websites or web pages necessary to effect the consumer  transaction  that drives
the  client's  sales and  generating  comprehensive  reporting  in order for the
client  to  analyze  the  effectiveness  of a  promotion.  We use our  websites,
interactive  games, email marketing and database of  permission-based,  profiled
records  (and the on-line  media of third  parties) to generate  the  customers,
sales and leads  for our  clients.  We are paid by our  clients  primarily  on a
success-based  model, in that we receive a fee for every lead,  customer or sale
generated for the client. In addition to our third party  client-based  revenue,
we generate  revenue  from our own products  and  services,  such as retail gift
items,  which accounted for approximately 3.0% of our revenue in the fiscal year
ended  November 30, 2002  ("Fiscal  2002").  Commencing  in Fiscal  2003,  these
products and services  have been  expanded,  and will include an ISP service,  a
long-distance  telecom service,  and on-line dating.  We also generate  revenues
from  the  sales  and  rentals  (for  use  both  on-line  and  off-line)  of our
proprietary, profiled databases.

   BACKGROUND

     From our inception in 1993 (under the name "Quintel Communications,  Inc.")
through 1999, we generated the bulk of our revenue from database marketing using
the traditional media of television, postal mail and telemarketing.  In 2000, we
repositioned  our database  marketing  business to the on-line media of the Web.
Applying the direct marketing  disciplines  honed from our years of operating in
the "off-line" media, we believe we are able to provide enhanced  response-based
results in a more cost-efficient and scaleable manner via on-line marketing.  In
addition, as a result of our direct marketing background, we believe we are able
to design on-line marketing  programs to  cost-effectively  generate traffic and
leads for  traditional  direct  marketing  media  channels,  such as inbound and
outbound telemarketing and direct mail.

   ON-LINE MARKETING

     We own and operate multiple on-line properties, such as GroupLotto.com, the
free on-line  lottery,  and  AtlasCreditGroup.com,  AtlasEducationGroup.com  and
iMatchup.com (which commenced  operations in December 2002), as well as a number
of interactive games (such as Direct Deposit  Promotions and  Scratch&Win),  all
supplemented  by other  web  sites  and  services  provided  on the  Web.  These
activities are designed to generate real-time  response-based  marketing results
for our  corporate  clients,  as well as for our own offers.  When  visiting our
on-line  properties,  consumers are given the  opportunity to purchase,  sign-up
for, ask to be contacted regarding,  or simply indicate an interest in, hundreds
of offers for various  products and services  provided by our corporate  clients
and marketing partners.  Specifically,  through these interactive Web properties
we generate a variety of transactional results for our corporate clients ranging
from  (a)  Web  traffic,   (b)  inbound   telemarketing   calls,   (c)  outbound
telemarketing  leads,  (d)  demographically/psychographically  profiled lists of
consumers,  (e) highly-targeted  customized  response-based leads, (f) completed
applications for products, and (g) actual sales of products and services.

     WEBSITES. The GroupLotto website offers consumers the opportunity to win up
to $10  million  daily  in a free,  on-line  lottery.  The  lottery  prizes  are
indemnified  by an  independent,  third-party  agency.  In order  to play,  each
consumer must provide complete and accurate  registration  information and agree
to receive  ("opt-in")  marketing  messages  from  GroupLotto  and our marketing
partners.  The interactive  media on this website includes  registration  pages,
game banners,  and  "pop-ups",  the purpose of which is to generate web traffic,
leads and sales. Revenue is generated at this website from our corporate clients
who pay for such traffic,  leads and sales. We generate the bulk of our consumer
traffic to this  website  through  proprietary  and third party email  marketing
programs,  emailed to lists of consumers  who have  indicated an interest in our
product and service offers by opting in to receive information on such offers.

     Similar to the  GroupLotto  website,  we  generate  results for our clients
through several other  interactive  games and products.  For example,  we market
through a "scratch  and win" game that  offers  consumers  the chance to win any
number of prizes,  which range from $100 to $25,000. The consumer plays the game
by "scratching"  with the mouse certain parts of the entry ticket to uncover the
results.  These games are presented as "pop-ups" upon browser exit, and can also
be "pushed" to consumers by delivering them to the player's email inbox. We also


                                       11
<PAGE>

market credit card offers through our "Direct Deposit"  sweepstakes game (patent
pending),  whereby a consumer can win up to $5,000 instantly if a portion of his
or her credit card number matches a pre-selected winning number.

     We own and operate  several other  websites  such as  AtlasCreditGroup.com,
AtlasEducationGroup.com,  prizecade.com and jewelclaimcenter.com.  Such websites
are  deployed  to generate  revenue  for our clients in a similar  manner as the
GroupLotto model described above. Each of these sites is designed to appeal to a
specific consumer interest category that we matched with product promotions that
appeal to such interest category.

     EMAIL  MARKETING.Direct  marketing  via  email  is  an  important  business
resource.  Each  program that we market for our clients can be  implemented  not
only through the websites,  interactive games and "pop-ups" discussed above, but
also, and often,  through email marketing.  We currently market to approximately
150  million  permission-based  records,  which  are  either  owned by us or are
managed by us under our revenue share arrangement.

     Compared  to  postal  marketing  and  telemarketing,   email  marketing  is
significantly  less  expensive,  offers  much  faster  response  times,  and, we
believe, provides for a more rich consumer media experience. We now own an email
delivery system (acquired in December 2001 through the acquisition of the assets
of  Infiknowledge.com,  a privately  held Canadian  technology  company),  which
reduces our  dependence on third party vendors and further  reduces the expenses
associated with delivering our monthly commercial email messages and reduces the
costs of our site maintenance and development costs. FOR A FURTHER DISCUSSION OF
RECENT BUSINESS AND LEGAL DEVELOPMENTS REGARDING THIS E-COMMERCE COMPONENT,  AND
SPECIFICALLY  THE LOSS OF A  SIGNIFICANT  CUSTOMER  AND EVENTS  IMPACTING  EMAIL
MARKETING,  SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS."

     One of the attractive features for clients,  and, we believe, a significant
competitive advantage,  is our ability to create and test a variety of marketing
campaigns  for  prospective  and  existing  corporate  clients at no risk to the
client.  Since we own, and have access to, extensive  databases,  manage our own
internal creative  department,  and can deliver email at a low cost, we are able
to offer  prospective  and existing  clients the  opportunity to test market new
products,  services, price points and creative concepts in order to determine if
an  on-line  campaign  works  for the  client,  and  which  campaigns  work most
effectively.

     Even  after  campaigns  are  fully  implemented,  we  further  analyze  the
marketing  results to gauge  whether the  campaigns  are  continuing to generate
adequate   results  for  the  client,   whether  the  media  is  being  utilized
cost-efficiently,  and to determine  whether new and different  copy is yielding
better overall results. These are the traditional direct-marketing  disciplines,
which we  believe  (when  coupled  with our  proprietary  databases,  the  other
databases  under  our  management  and  our  delivery  and  reporting  systems),
distinguish us from our competitors in the on-line marketing industry.

     SYNDICATION.  We expend a  significant  portion of our email  resources  to
generate  sales  for our own  products  and  services  and  for  traffic  to our
websites.  After we develop a campaign that works  efficiently on our own media,
we often  "syndicate"  the  program to  third-party  media.  Typically,  we have
expended  time,  media and  other  costs in  developing  certain  campaigns.  In
exchange for this invested effort, we obtain the right to market those campaigns
to a list of other on-line media companies.  We enter into agreements with these
other on-line  media  companies to run the  campaigns,  generally on a fee-share
arrangement.   We  believe  such  media  companies  benefit  from  receiving  an
immediately  marketable,  fully-packaged  and  tested  marketing  program.  As a
result,  we  believe  we are  able  to  leverage  campaigns  we  have  developed
(including  our own  products and  services) so that we can generate  additional
revenue  with  virtually  no  costs  or  risks  associated  with  such  business
extension.


                                       12
<PAGE>

TRAFFIX'S PRODUCTS AND SERVICES

     A new  business  unit,  which we  introduced  during the three months ended
February 28, 2002,  is the on-line  marketing of our own products and  services.
For  example,  one of our  websites,  Thanksmuch.com,  sells gift items (such as
DVDs,  CD's and  inexpensive  jewelry)  directly to  consumers.  When a consumer
selects a gift item and tenders his credit card, he is given the  opportunity to
purchase other,  more valuable  products and services at special  discounts.  In
addition to the  Thanksmuch  line of jewelry and gifts,  we are  developing  and
testing other  products and services for direct  marketing to  consumers.  These
products  include  credit  card  billed  products  in the "Voice  Over  Internet
Protocol" area  ("TxNET-LD"),  dial-up modem ISP back-up systems  ("TxNET-ISP"),
dating/personal programs conducted over the Internet ("iMatchup.com"),  jewelry,
voicemail,  DVD's and books. One of the additional benefits of these programs is
our  ability to  accumulate  consumer  credit  card data,  which  allows for the
subsequent use of our marketing concept of "just-one-click" credit card billing,
making on-line purchases easier for the consumer, and allowing us to more easily
process  additional  sales and services in the future.  In addition,  certain of
these services are designed as monthly  recurring  revenue sources,  such as our
dating and long-distance  service.  Further, we anticipate that certain of these
services will derive monthly  recurring revenue streams through the use of Local
Exchange Carrier (LEC) billing.

     No assurances  can be given,  however,  that these  anticipated  sources of
revenue will generate any significant  income to our operations in future fiscal
periods,  if at all. During the year ended November 30, 2002, the Thanksmuch.com
website  generated   approximately  $1.3  million,   or  approximately  3.0%  of
consolidated  net  revenue,   with  an  approximate   $27,000   contribution  to
consolidated income from operations for such period.

     Our expansion in, and dependence on, our on-line direct marketing  efforts,
coupled with the potential for state and/or federal legislation limiting on-line
marketing's consumer contact capability, should all be considered when referring
to our  current  fiscal  year's  results,  as well as  prior  year's  historical
results, in evaluating the potential for our future operations,  cash flows, and
financial position.

TRANSACTIONS WITH MAJOR CUSTOMERS

     Transactions   with  major  customers  and  related   economic   dependence
information  is set forth (1) following our  discussion of Liquidity and Capital
Resources,  (2) in our discussion of Critical  Accounting  Policy and Accounting
Estimate  Discussion  (immediately  following (1) previously  mentioned) and (3)
under  the  heading   Transactions  with  Major  Customers  in  Note  1  to  the
Consolidated  Financial  Statements referred to in the Financial  Statements and
Supplementary Data section hereof and incorporated herein by reference.

BASIS OF PRESENTATION

     Certain   amounts  for  the  prior   periods  that  are  presented  in  the
accompanying   consolidated  financial  statements,   and  referred  to  in  the
discussions  below,  have been  reclassified  in order to conform to the current
period presentation.

SEGMENT INFORMATION

     During  the  fiscal  year ended  November  30,  2002  ("Fiscal  2002"),  we
generated  revenue  from  the  following   segments:   E-Commerce  and  Off-line
Marketing.  The E-Commerce segment realized significant growth during the fiscal
year ended  November 30, 2002,  when compared to the prior fiscal  periods,  and
currently  represents  the  core  of our  business  operations.  Revenue  in the
E-commerce segment is generated primarily from marketing of third party products
and  services  on our  websites  and  through  email  promotions.  The  Off-Line
Marketing  services segment consists of revenue generated by us through off-line
direct marketing channels.  Historically, this segment's activities consisted of
telemarketing  services used for the  acquisition  of long distance and wireless
phone  customers  for various  phone  service  providers.  In Fiscal 2002,  this
segment  consisted  exclusively  of  our  majority  owned  subsidiary,  Montvale
Management, LLC, and the revenues and expenses of Montvale's net branch services
provided to qualified mortgage banking and lending institutions.  The LEC Billed
Products segment  represented  telecommunications-related  products and services
marketed by us directly to consumers who were


                                       13
<PAGE>

     billed by local exchange carriers (LECs) on the consumer's  telephone bill.
This segment was inactive  during Fiscal 2002,  but is expected to become active
again in the first quarter of Fiscal 2003,  resulting  from the marketing of our
products  and  services  that will be billed to  consumers  on their  phone bill
through  the  LECs.  Segment  information  is  set  forth  in  Note  13  to  the
Consolidated  Financial  Statements referred to in the Financial  Statements and
Supplementary Data section hereof and incorporated herein by reference.

RESULTS OF OPERATIONS

     Our  net  revenues,  on a  segmental  basis,  and  with  disclosure  of the
components  of the  individual  segments,  for each of the  fiscal  years  ended
November 30, 2002, 2001 and 2000 are set forth in the following tables:

               SEGMENT DATA -- NET REVENUES, BY SEGMENT COMPONENT
<TABLE>
<CAPTION>

YEAR ENDED NOVEMBER 30,                             2002          2001          2000
-----------------------                          -----------   -----------   -----------
E-COMMERCE COMPONENTS
<S>                                              <C>           <C>           <C>
GroupLotto and other websites ................   $12,589,401   $ 7,082,587   $ 4,825,781
Net branch commission fees ...................       904,810       347,416            --
Email marketing programs .....................    20,154,519    16,649,559     5,672,405
Data sales and rentals .......................     3,383,079     2,389,116            --
Sales of jewelry and gifts ...................     1,332,331            --            --
Internet game development and other ..........       442,979     2,006,547            --
                                                 -----------   -----------   -----------
TOTAL E-COMMERCE .............................   $38,807,119   $28,475,225   $10,498,186
                                                 -----------   -----------   -----------
OFF-LINE MARKETING SERVICE COMPONENTS
Net branch commission fees ...................   $ 5,166,867   $   521,123   $        --
Other off-line marketing .....................        68,939     1,693,453     8,958,774
                                                 -----------   -----------   -----------
TOTAL OFF-LINE MARKETING SERVICES ............   $ 5,235,806   $ 2,214,576   $ 8,958,774
                                                 -----------   -----------   -----------
LEC BILLED PRODUCTS AND SERVICES COMPONENTS
"900" Entertainment Service royalties ........   $        --   $   486,406   $ 3,393,428
Enhanced Services, principally voice mail ....            --       884,373     3,590,463
Other LEC Billed Services ....................            --       148,830       150,940
                                                 -----------   -----------   -----------
TOTAL LEC BILLED PRODUCTS AND SERVICES .......   $        --   $ 1,519,609   $ 7,134,831
                                                 -----------   -----------   -----------
CORPORATE AND OTHER COMPONENTS
Miscellaneous products, list revenue and other   $        --   $        --   $    20,072
                                                 -----------   -----------   -----------
         CONSOLIDATED TOTALS .................   $44,042,925   $32,209,410   $26,611,863
                                                 ===========   ===========   ===========
</TABLE>

     The following table sets forth for the periods  indicated the percentage of
net revenues  represented  by the certain  items  reflected in our  statement of
operations:

                                                  YEAR ENDED NOVEMBER 30,
                                                 -------------------------
                                                  2002     2001      2000
                                                 ------   ------    ------
Net Revenue ................................     100.0%   100.0%    100.0%
Cost of Sales ..............................      27.8%    28.4%     34.0%
Gross Profit ...............................      72.2%    71.6%     66.0%
Selling, general and administrative expenses      60.7%    48.7%     43.4%
Bad debt expense ...........................       1.5%     3.4%      1.9%
     Interest Expense ......................       0.2%     0.0%      1.1%
     Other Income (expense) ................       0.5%    (8.0)%    12.9%
Net Income .................................       6.2%     1.3%     19.3%


                                       14
<PAGE>

     The  following is a discussion  of our  financial  condition and results of
operations for the years ended November 30, 2002, 2001, and 2000,  respectively.
This  discussion may contain forward  looking-statements  that involve risks and
uncertainties.  Our actual  results  could  differ  materially  from the forward
looking-statements   discussed  herein.   This  discussion  should  be  read  in
conjunction with our consolidated  financial  statements,  the notes thereto and
other financial information included elsewhere in the report.

YEAR ENDED NOVEMBER 30, 2002 COMPARED TO YEAR ENDED NOVEMBER 30, 2001

     Our net  revenues,  on a segmental  basis,  and with the  components of the
individual  segments,  for each of the fiscal years ended  November 30, 2002 and
2001, are set forth in the following tables:

               SEGMENT DATA -- NET REVENUES, BY SEGMENT COMPONENT

<TABLE>
<CAPTION>
                                                                                CHANGE       CHANGE
                                                                               INC(DEC)     INC(DEC)
YEAR ENDED NOVEMBER 30,                           2002           2001             $             %
-----------------------                       ------------   ------------   ------------    --------
<S>                                           <C>            <C>            <C>                 <C>
E-COMMERCE COMPONENTS
GroupLotto and other websites .............   $ 12,589,401   $  7,082,587   $  5,506,814        78%
Net branch commission fees ................        904,810        347,416        557,394       160%
Email marketing programs ..................     20,154,519     16,649,559      3,504,960        21%
Data sales and rentals ....................      3,383,079      2,389,116        993,963        42%
Sales of jewelry and gifts ................      1,332,331             --      1,332,331       100%
Internet game development and other .......        442,979      2,006,547     (1,563,568)      (78)%
                                              ------------   ------------   ------------      ----
TOTAL E-COMMERCE ..........................     38,807,119   $ 28,475,225     10,331,894        36%
                                              ------------   ------------   ------------      ----
OFF-LINE MARKETING SERVICE COMPONENTS
Net branch commission fees ................      5,166,867        521,123      4,645,744       891%
Other off-line marketing ..................         68,939      1,693,453     (1,624,514)      (96)%
                                              ------------   ------------   ------------      ----
TOTAL OFF-LINE MARKETING SERVICES .........      5,235,806      2,214,576      3,021,230       136%
                                              ------------   ------------   ------------      ----
LEC BILLED PRODUCTS AND SERVICES COMPONENTS
"900" Entertainment Service royalties .....             --        486,406       (486,406)     (100)%
Enhanced Services, principally voice mail .             --        884,373       (884,373)     (100)%
Other LEC Billed Services .................             --        148,830       (148,830)     (100)%
                                              ------------   ------------   ------------      ----
TOTAL LEC BILLED PRODUCTS AND SERVICES ....             --      1,519,609     (1,519,609)     (100)%
                                              ------------   ------------   ------------      ----
  TOTAL CONSOLIDATED NET REVENUE ..........   $ 44,042,925   $ 32,209,410   $ 11,833,515        37%
                                              ============   ============   ============      ====
</TABLE>

     Consolidated Net Revenue increased $11,833,515,  or 37%, to $44,042,925 for
the year ended November 30, 2002 from $32,209,410 in the year ended November 30,
2001. The primary  component of the increase was  attributable to an approximate
$10.3 million increase in our E-commerce segment net revenues,  combined with an
increase of approximately $3 million in net revenue from our Off-line  Marketing
services  segment.  Such  increases  were  partially  offset  by a  decrease  of
approximately  $1.5  million  in our LEC  Billed  Product  and  Services  legacy
segment.  The E-commerce  segment revenue increase  resulted from our increasing
focus on  generating  revenue from our current  core  business,  on-line  direct
marketing.  We expect this segment to continue to represent the substantial part
of our revenue in future fiscal periods. Nevertheless, we continue to assess the
potential of revenue  generation from off-line,  conventional  direct  marketing
activities  and will  implement  that  strategy  if  deemed  beneficial  for our
Company.  Currently,  we are using our on-line  databases to enhance third party
off-line  databases  through  the  application  of overlay  technology,  whereby
databases  are  appended to one  another,  effectively  increasing  the depth of
consumer related information within the appended database.

     The  growth  in  our  E-commerce  segment  was  primarily  attributable  to
approximately  $20.1  million  in revenue  generated  from the  segment's  Email
marketing  program  sub-set.  This  represented a $3.5 million increase over the
prior year's $16.6 million in revenue generated from such segment's sub-set.  We
believe this substantial  increase of approximately  21% over the prior year was
primarily the result of our acquisition of significant volumes


                                       15
<PAGE>

of  permission-based  email  records,  extension  of the quantity and quality of
third  party  (client)  offers  being  emailed  to  the  databases  and  greater
efficiencies  in our email  delivery  programs.  In the prior year's  comparable
period,  specifically  the first three months of the fiscal year ended  November
30,  2001,  we had been in the early stages of  developing  and carrying out our
online  strategy.   The  revenue  from  the  email  marketing   program  sub-set
represented approximately 46% of our consolidated net revenue for the year ended
November 30, 2002,  as compared to 52% of our  consolidated  net revenue for the
year ended November 30, 2001.

     During the year ended  November  30, 2002,  specifically  within the period
March 1, 2002 to November 30, 2002, we experienced problems with the delivery of
our email promotional  offers.  These problems caused reduced revenue and income
from the E-Commerce  sub-segment.  We believe that the significant  component of
the email delivery  problem is attributable to Internet  Service  Providers that
unilaterally  block commercial emails from reaching their consumer  subscribers.
We have addressed the issue by deploying new reinforced  delivery platforms with
increased  redundancy  and  expanded  diversification  using both  internal  and
external emailing resources.  Although we have conceived of a number of programs
to address this specific  problem,  there can be no assurance  that any of these
programs will work effectively, or can be timely implemented.

     Various state laws exist,  and federal  legislation  is currently  pending,
that limit our ability to deliver  commercial e-mail messages to consumers.  The
Federal Trade Commission is convening a three-day  workshop to review commercial
e-mail practices.  There are presently no federal laws that explicitly  regulate
sending  unsolicited  e-mail.  The pending federal bills and existing state laws
require that certain  "opt-out"  procedures  be included in e-mails and prohibit
"false routing" or "fictitious address" information. Existing state, and pending
federal,  laws require functioning return e-mail addresses and that valid postal
addresses be included by the senders of commercial e-mail messages.  Some states
require an "ADV"  label in the  subject  line,  and  proscribe  false  header or
misleading subject lines. Attorneys General and/or consumers are given authority
to  enforce  the state  laws.  Over half the  states  have  enacted  legislation
affecting  the  sending of  unsolicited  commercial  e-mail.  If strict  federal
legislation  is  subsequently  written  into law,  with its  terms  specifically
limiting  our  ability  to market our  offers,  we could  potentially  realize a
material  adverse  impact  in future  fiscal  period  net  revenue  growth,  and
therefore, profitability and cash flows could be adversely affected.

     In November 2002, we received an inquiry from the Federal Trade  Commission
questioning  whether  we needed to  comply  with the  Graham  Leach  Bliley  Act
(privacy of consumer information for financial  institutions) arising from Atlas
Credit Group, one of our Internet subsidiaries.  We responded by stating that we
need not comply with the Graham  Leach  Bliley Act because  Atlas  Credit  Group
utilizes  advertising  from other  financial  institutions,  but is not itself a
financial  institution  as defined  under the statute.  We have not received any
further comments from the Federal Trade Commission. ThanksMuch.com, LLC, another
of our Internet  subsidiaries,  was served with a class action  lawsuit in State
Court in the County of Los  Angeles,  California,  for damages  associated  with
allegedly  violating  the State's  Shipping  and  Handling  laws.  This suit was
recently  settled.  The  settlement  offers a $5.00  certificate  to  California
consumers  on future  purchases  of  ThanksMuch  products  and  provides a small
payment for attorneys' fees.

     The Pennsylvania  Attorney  General's Office had requested us to enter into
an Assurance of Voluntary Compliance Agreement to resolve allegations concerning
certain of our sales  practices.  The Attorney General alleged that our Fly Free
telemarketing  program,  as  well  as  certain  pay-per-call  services,  did not
adequately  disclose to the  consumer  the terms of the offer  being  made.  The
Agreement  also  provides  for a payment  to the  State in an  amount  yet to be
determined.  Discussions  with the  Pennsylvania  Attorney  General's Office are
on-going.

     Any changes in the Internet operating landscape that materially hinders our
current  ability  and/or  cost to  deliver  commercial  e-mail  messages  to the
consumer records in our databases,  and the consumer records in the databases of
our  affiliates,  could  potentially  cause a material impact on net revenue and
gross margin and, therefore, our profitability and cash flows could be adversely
affected.


                                       16
<PAGE>

     Revenue  from our  E-commerce  segment's  "GroupLotto  and other web sites"
sub-set for Fiscal 2002 was $12.6 million,  which was an increase in revenues of
$5.5 million, or 78%, to Fiscal 2001 ($7.1 million in revenue). This increase is
the  result of our shift  from low  priced  "click  through"  revenue  to higher
revenue   generating   registration,   lead  generation  and  on-line   customer
acquisition based revenue. We generate a significant portion of our site traffic
from email  marketing.  As discussed in the prior  paragraph,  any change in the
Internet  operating  landscape  (such as the enactment of  additional  state and
Federal  legislation that materially  hinders our ability and/or cost to deliver
commercial  email  messages to  consumers)  could  potentially  cause a material
adverse impact on net revenue and gross margin and, therefore, our profitability
and cash flows.

     Additional increases in our consolidated  revenues were attributable to new
sub-sets added to the E-commerce segment during the year ended November 30, 2002
when  compared  to the year  ended  November  30,  2001.  The  combined  revenue
resulting from the new sub-sets  amounted to  approximately  $3.1 million and is
detailed as follows: (a) $904,810 of such increase relates to our majority-owned
subsidiary,  Montvale Management, LLC, that provides services under a net branch
agreement  with  licensed  mortgage  banking  and  brokerage  companies  in  the
acquisition  of candidates  for new mortgages  and the  refinancing  of existing
debt,  which  subsidiary  also conducts the same services  off-line and recorded
approximately $5.2 million within our Off-line  Marketing Services segment;  (b)
$1.3 million of such increase  relates to the on-line sales of jewelry and gifts
by our new subsidiary,  ThanksMuch, Inc., which was formed after the acquisition
of the assets of a closely  held private  company on December  14, 2001,  all as
more fully described in Note 1 to the financial statements; (c) $342,979 of such
increase relates to the Internet game development  revenues generated by our new
subsidiary,  InfiKnowledge  ULC,  which was formed after the  acquisition of the
assets of a closely held private  Canadian  company on December 6, 2001,  all as
more fully described in Note 1 to the financial statements;  and (d) the balance
of such increase, or $100,000,  was attributable to a web marketing,  design and
development  contract executed and completed by us during the three months ended
February 28, 2002.

     The  increases  in  revenues  from  our  E-commerce  segment  and  Off-line
Marketing  Services segment were partially offset by a decrease of $1,519,609 in
revenues  from our LEC Billed  Products and Services  segment.  A portion of the
decrease,  or $486,406,  resulted from the  expiration in the three months ended
February 28, 2001,  of certain  agreements  pursuant to which we had been paid a
royalty fee (with virtually no corresponding  costs) to refrain from conducting,
marketing,  advertising or promoting  certain LEC Billed  Products and Services.
Fiscal 2002 did not include any  revenue  related to these  services,  but we do
expect such segment to become  active  again during the first  quarter of Fiscal
2003,  resulting  from the  marketing of our products and services  that will be
billed to  consumers on their phone bills  through the LECs.  The balance of the
decrease in LEC Billed  Product  and Service  segment  revenue,  or  $1,033,203,
resulted from our  elimination of billing voice mail services under our contract
with the service bureau Federal Transtel,  Inc. ("FTT") in October 2001. FTT has
since filed for protection under the United States Bankruptcy Code.

     See  "Transactions  with Major  Customers"  and the Securities and Exchange
Commission's  ("SEC")  mandated FR-60  disclosures  following the "Liquidity and
Capital Resources" section for a further discussion of the significant  customer
concentrations,  loss of significant customer,  critical accounting policies and
estimates, and other factors that could affect future results.

     Our cost of revenues during the years ended November 30, 2002 and 2001, are
comprised  of (1)  direct  and  indirect  marketing  costs  associated  with the
acquisition  and  retention of consumers  for our  databases,  including  direct
response email marketing costs,  data purchases,  promotional  costs and premium
fulfillment costs, and (2) the related  contingent-based  prize  indemnification
expense,  and LEC segment  related  billing and  collection  fees,  and customer
service costs.


                                       17
<PAGE>

     Our  cost of  sales,  on a  segmental  basis,  and with  disclosure  of the
components of the individual segments,  for each of the years ended November 30,
2002 and 2001, are set forth below:

              CONSOLIDATED COST OF SALES, BY SEGMENT, BY COMPONENT

<TABLE>
<CAPTION>
                                                                               CHANGE      CHANGE
                                                                              INC(DEC)     INC(DEC)
YEAR ENDED NOVEMBER 30,                           2002           2001             $            %
-----------------------                        -----------   -----------    -----------    --------
E-COMMERCE
ADVERTISING, PROMOTION AND FULFILLMENT COSTS
<S>                                            <C>           <C>            <C>               <C>
Email marketing and related delivery costs .   $ 5,103,777   $ 4,046,881    $ 1,056,896       26%
Data purchases and premium costs ...........     5,983,008     3,357,308      2,625,700       78%
Promotional, creative and other costs ......       191,960       115,322         76,638       66%
                                               -----------   -----------    -----------     ----
   Total E-commerce Advertising ............    11,278,745     7,519,511      3,759,234       50%
                                               -----------   -----------    -----------     ----
SERVICE BUREAU FEES
Contingent based prize indemnification costs       345,559       381,525        (35,966)      (9)%
                                               -----------   -----------    -----------     ----
   Total E-commerce Cost of Sales ..........    11,624,304     7,901,036      3,723,268       47%
                                               -----------   -----------    -----------     ----
OFF-LINE MARKETING SERVICES
ADVERTISING, PROMOTION AND FULFILLMENT COSTS
Telemarketing, direct mail and related costs       619,331     1,283,035       (663,704)     (52)%
Premium fulfillment costs ..................            --       (89,009)        89,009     (100)%
                                               -----------   -----------    -----------     ----
   Total Off-line Marketing Cost of Sales ..       619,331     1,194,026       (574,695)     (48)%
                                               -----------   -----------    -----------     ----
LEC BILLED PRODUCTS AND SERVICES
SERVICE BUREAU FEES
Billing and collection fees ................            --        57,400        (57,400)    (100)%
                                               -----------   -----------    -----------     ----
   Total LEC Billed Cost of Sales ..........            --        57,400        (57,400)    (100)%
                                               -----------   -----------    -----------     ----
   CONSOLIDATED COST OF SALES ..............   $12,243,635   $ 9,152,462    $ 3,091,173       34%
                                               -----------   -----------    -----------     ----
</TABLE>

     Cost of sales on a consolidated  basis  increased $3.1 million,  or 34%, to
$12,243,635  for the year ended November 30, 2002,  from  $9,152,462 in the year
ended November 30, 2001.

     On a segmental level, our E-commerce segment cost of sales increased,  on a
net basis,  approximately $3.7 million, or 47%, to $11.6 million during the year
ended  November 30, 2002,  when  compared to $7.9 million  incurred in the prior
fiscal year.  Our  continuing  strategy of generating  revenues  primarily  from
direct  marketing   campaigns  delivered  on-line  was  the  significant  factor
contributing to this increase. We realized marketing costs for email delivery of
approximately $5.1 million in the year ended November 30, 2002,  representing an
increase of $1.1 million,  or 26%, when compared to  approximately $4 million in
email  delivery  costs incurred in the year ended November 30, 2001. In December
2001,   we  acquired  the  assets  of  a   Canadian-based   technology   company
(InfiKnowledge).  We believe that the  integration  of  Infiknowledge's  assets,
technology and human  resources into our operations and email delivery  platform
will continue to reduce the unitary costs of our email  promotions  and serve to
preserve  and/or  improve  operating  margins.  SEE THE PRECEDING  "NET REVENUE"
SECTION  FOR A FURTHER  DISCUSSION  OF RECENT  BUSINESS  AND LEGAL  DEVELOPMENTS
ATTRIBUTABLE TO EMAIL MARKETING.

     We  realized  costs  of  approximately  $4.5  million  for  data  purchases
necessary to build and maintain our marketing  databases and approximately  $1.5
million for premium costs related to premium redemption  obligations for certain
of  our  marketing  program  offers.   These  costs  represent  an  increase  of
approximately $2.6 million,  or 78%, over data purchase and fulfillment costs of
approximately  $3.4 million incurred during the year ended November 30, 2001. In
the prior fiscal year, we incurred  approximately  $158,000 in costs relative to
premium  redemption  obligations.   The  costs  associated  with  data  purchase
increases  were due, in  combination,  to our (a)  increasing the volume of data
acquired for our marketing  activities and (b) our increased  allocation of data
purchases for opt-in data.

     We use the  services  of an agency  for the  provision  of  indemnification
coverage in the event the  GroupLotto  site produces a winner in one of its free
on-line  lottery  games.  The  costs  attributable  to  the  provision  of  such
indemnification  coverage decreased in Fiscal 2002 approximately $35,966, or 9%,
when compared with Fiscal


                                       18
<PAGE>

2001. The primary  reason for this decrease was due to a slight  decrease in the
games played at the  GroupLotto.com  website  during the year ended November 30,
2002 when compared to the year ended November 30, 2001.

     Our Off-line Marketing Services segment's cost of sales decreased $574,695,
or 48%, to $619,331,  when compared to $1,194,026 during the year ended November
30, 2001. The Fiscal 2002 Off-line  Marketing  Services  segment's cost of sales
result from our  majority-owned-subsidiary,  Montvale  Management LLC, which was
consolidated  with our  activities  effective  September 1, 2001.  Prior to such
consolidation,  the subsidiary was primarily inactive.  In the fiscal year ended
November 30, 2001, our Off-line Marketing  Services segment primarily  consisted
of a contingent marketing fee that became payable upon the settlement of related
litigation,  in which we were granted an arbitration  award, thus triggering the
contingency.

     The balance of the decrease in cost of goods sold relates to the LEC Billed
Product and  Services  segment and  amounted  to a  reduction  of $57,400.  This
reduction resulted from our elimination of billing voice mail services under our
contract with the service bureau Federal Transtel, Inc. ("FTT") in October 2001.
FTT has since filed for protection under the United States Bankruptcy Code.

     Our gross profit in terms of dollars,  on a segmental  basis, and our gross
profit  percentage,  on a segmental  basis, for each of the years ended November
30, 2002 and 2001 are set forth below:

                      CONSOLIDATED GROSS PROFIT, BY SEGMENT

<TABLE>
<CAPTION>
                                                                  CHANGE       CHANGE
                                                                 INC(DEC)     INC(DEC)
YEAR ENDED NOVEMBER 30,               2002           2001           $             %
-----------------------            -----------   -----------   -----------    --------
<S>                                <C>           <C>           <C>                <C>
E-commerce .....................   $27,182,815   $20,574,189   $ 6,608,626        32%
Off-line Marketing services ....     4,616,475     1,020,550     3,595,925       352%
LEC Billed products and services            --     1,462,209    (1,462,209)     (100)%
                                   -----------   -----------   -----------      ----
   CONSOLIDATED TOTALS .........   $31,799,290   $23,056,948   $ 8,742,342        38%
                                   ===========   ===========   ===========      ====
</TABLE>

                CONSOLIDATED GROSS PROFIT PERCENTAGES, BY SEGMENT

                                                    ABSOLUTE      RELATIVE
                                                   PERCENTAGE    PERCENTAGE
                                                     CHANGE        CHANGE
YEAR ENDED NOVEMBER 30,            2002    2001     INC(DEC)      INC(DEC)
--------------------------------   ----    ----    ----------    ----------
E-commerce .....................   70.0%   72.3%      (2.3)%        (3.1)%
Off-line Marketing services ....   88.2%   46.1%      42.1%         91.3
LEC Billed products and services    0.0%   96.2%     (96.2)%      (100.0)%
                                   ----    ----       ----         -----
   CONSOLIDATED GROSS PROFIT
    PERCENTAGE .................   72.2%   71.6%       0.6%          0.9%
                                   ====    ====       ====         =====

     Consolidated  Gross Profit ("Gross  Margin") as a percentage of net revenue
was 72.2% during the year ended November 30, 2002, compared to 71.6% in the year
ended November 30, 2001,  representing an absolute  percentage point increase of
0.6%,  or a 0.9%  increase  on a  relative  basis.  On a  segmental  basis,  our
E-commerce segment realized a decrease in margin in Fiscal 2002 when compared to
Fiscal 2001.  The 2.3%  absolute  percentage  point  decrease  resulted from our
increased costs  associated with data purchases (which are fully expensed at the
time of receipt) and a significant  increase in premium  fulfillment  obligation
costs.  We  anticipate  that  the  immediate  expensing  policy  regarding  data
purchases  could provide a margin  improvement  benefit in future fiscal periods
through the  continued  marketing to such  acquired  data.  The costs of premium
fulfillment  obligations  related  to  our  marketing  of a  program  for a long
distance service  provider,  with such costs  approximating  $1.5 million in the
year ended  November  30, 2002.  We began  marketing  this  premium  fulfillment
sensitive  program in the fourth  quarter of Fiscal  2001,  pursuant to which we
incurred approximately $158,000 in accrued premium fulfillment costs. Offsetting
the decrease in gross margins,  as described  above,  our gross margin benefited
from the acquisition of the assets of  Infiknowledge.  The  Infiknowledge  asset
acquisition allowed us to develop our own email delivery platform, through which
we were able to decrease our reliance on third party email vendors.


                                       19
<PAGE>

By decreasing  this third party  reliance,  we were able to decrease the unitary
costs relative to email  delivery.  Changes in the gross margins  generated from
our  Off-line  Marketing  Services  segment and LEC Billed  Product and Services
segment  primarily  offset each other in terms of  percentage  changes.  See the
previous  discussions  of net  revenues  and cost of sales  for a more  detailed
discussion of such segments.

     Our Selling  Expenses and General and  Administrative  Expenses for each of
the years ended November 30, 2002 and 2001 are presented,  on a segmental basis,
and with the  components  of the  individual  segments,  in the tables set forth
below:

SEGMENT DATA -- SELLING EXPENSES

             CONSOLIDATED SELLING EXPENSES, BY SEGMENT, BY COMPONENT

<TABLE>
<CAPTION>
                                                                       CHANGE       CHANGE
                                                                      INC(DEC)     INC(DEC)
YEAR ENDED NOVEMBER 30,                    2002           2001           $            %
-----------------------                 -----------   -----------   -----------    --------
<S>                                     <C>           <C>           <C>               <C>
E-COMMERCE
Fee share commissions ...............   $ 5,711,535   $ 2,157,921   $ 3,553,614       165%
Other commissions ...................     1,595,209       356,133     1,239,076       348%
Selling salaries and related expenses     1,671,661     1,372,934       298,727        22%
Occupancy and equipment costs .......        22,715        23,118          (403)       (2)%
Travel and entertainment ............       243,789       244,913        (1,124)        0%
                                        -----------   -----------   -----------      ----
TOTAL SELLING-- E-COMMERCE SEGMENT ..     9,244,909     4,155,019     5,089,890       122%
                                        -----------   -----------   -----------      ----
OFF-LINE MARKETING SERVICES
Fee share commissions ...............            --            --            --         0%
Other commissions ...................            --            --            --         0%
Selling salaries and related expenses     2,048,015        87,573     1,960,442      2239%
Occupancy and equipment costs .......       143,959       191,211       (47,252)      (25)%
Travel and entertainment ............        35,805         3,470        32,335       932%
                                        -----------   -----------   -----------      ----
TOTAL SELLING-- OFF-LINE SEGMENT ....     2,227,779       282,254     1,945,525       689%
                                        -----------   -----------   -----------      ----
   CONSOLIDATED TOTALS ..............   $11,472,688   $ 4,437,273   $ 7,035,415       159%
                                        -----------   -----------   -----------      ----
</TABLE>

     Selling  expenses  on  a  consolidated  basis  increased  approximately  $7
million,  or 159%,  from $4.4 million during the year ended November 30, 2001 to
$11.5  million  during  the year ended  November  30,  2002.  The  increase  was
attributable  to  increases  of  approximately  $5.1  million in the  E-commerce
segment,  and increases of approximately  $1.9 million in the Off-line Marketing
Services segment.

     The significant  factors  contributing to the increase in selling  expenses
were (a) increased fee share commissions  incurred in our E-commerce  segment of
approximately  $3.6 million;  and (b) increased  selling-based  commissions  and
compensation  costs ($1.2 million and $299,000,  respectively)  arising from the
expansion of the E-commerce segment's sales force and selling activities.

     Regarding  the  increase in fee share  commissions,  during the fiscal year
ended  November 30, 2001,  we  significantly  expanded the practice of marketing
promotional offers on behalf of our marketing clients ("Clients") to third party
databases on a fee share commission basis. The fee share commission relationship
generally  arises  after we  conclude a  contractual  arrangement  with a Client
pursuant  to which we modify or develop  the copy,  offer  form and  promotional
materials for the Client's product or service.  We then test the promotion,  and
agree to deliver a minimum level of new customers,  and/or targeted leads to the
Client.  Simultaneously with the execution of these contractual arrangements, we
often  obtain the rights from the Client to market its  promotions  to a list of
third parties with whom we have marketing  relationships  (the "Third Parties").
We enter  into  contracts  with each  Third  Party with whom we intend to market
Client  promotions.  The terms of these  agreements  generally  provide that the
Third  Party  has the  right to (i)  approve  the  creative  materials  for each
promotion,  (ii) approve the timing of each promotion's mailing, (iii) terminate
the contract on short notice, and (iv) reject any promotion for any reason. Each
agreement  also  restricts  the Third Party from doing  business with the Client
other than through our Company for


                                       20
<PAGE>

the  period of time  covered by the  agreement,  and sets forth the terms of the
Third Party's compensation.  Payments are performance-based  only and are either
fixed fees paid for each customer or lead generated for the Client, or a revenue
share that is a percentage of the revenue generated (after deduction for certain
direct costs) by us for  marketing  that offer to the Third Party  database.  We
utilize  unique  Universal  Resource  Locater  identifier  links  ("URLs")  when
promotions are mailed to the Third Party  database.  It is the unique URL's that
form the tracking  mechanism by which the Client  reports  results to us, and we
are able to account for revenue  generated under the fee share  arrangement with
Third Parties.  During the fiscal year ended November 30, 2002, we significantly
increased the number of third party databases and lists under management,  which
is the primary factor  contributing to the increase in the fee share commissions
expense category.  Additionally,  the other commission expense category increase
was  attributable to agency  commissions paid on the sales to one of our largest
customers,  which  customer is no longer  conducting  business with us (see " --
Transactions with Major Customers").

     Selling expenses within the Off-line  Marketing Services segment for Fiscal
2002 increased  approximately $1.9 million,  or 689%, when compared to the prior
year's comparable period. This increase is attributable to the activities of our
majority owned subsidiary,  Montvale Management, LLC. This subsidiary was active
for the entire fiscal year ended November 30, 2002,  whereas in Fiscal 2001 such
subsidiary was only active for the fourth quarter.

SEGMENT DATA -- GENERAL AND ADMINISTRATIVE EXPENSES

   CONSOLIDATED GENERAL AND ADMINISTRATIVE EXPENSES, BY SEGMENT, BY COMPONENT

<TABLE>
<CAPTION>
                                                                        CHANGE        CHANGE
                                                                       INC(DEC)      INC(DEC)
YEAR ENDED NOVEMBER 30,                      2002          2001            $             %
-----------------------                   -----------   -----------   -----------    --------
E-COMMERCE
<S>                                       <C>           <C>           <C>                <C>
Compensation costs and related expenses   $ 4,668,160   $ 2,558,010   $ 2,110,150        82%
Professional fees .....................     1,408,053       853,050       555,003        65%
Insurance costs .......................       477,656       532,901       (55,245)      (10)%
Occupancy and equipment costs .........       347,170       284,148        63,022        22%
Site development, maintenance and
   Modifications ......................       868,755     1,750,638      (881,883)      (50)%
All other G&A expenses ................     1,592,736       740,883       851,853       115%
                                          -----------   -----------   -----------      ----
TOTAL G&A -- E-COMMERCE SEGMENT ........    9,362,530     6,719,630     2,642,900        39%
                                          -----------   -----------   -----------      ----
OFF-LINE MARKETING SERVICES
Compensation costs and related expenses            --       217,327      (217,327)     (100)%
Professional fees .....................        32,312       158,821      (126,509)      (80)%
Insurance costs .......................         3,754        84,142       (80,388)      (96)%
Occupancy and equipment costs .........            --        22,550       (22,550)     (100)%
All other G&A expenses ................     1,607,910        55,050     1,552,860      2821%
                                          -----------   -----------   -----------      ----
TOTAL G&A -- OFF-LINE SEGMENT ..........    1,643,976       537,890     1,106,086       206%
                                          -----------   -----------   -----------      ----
LEC BILLED PRODUCTS AND SERVICES
Compensation costs and related expenses            --       146,200      (146,200)     (100)%
Insurance costs .......................            --        84,142       (84,142)     (100)%
Occupancy and equipment costs .........            --        22,549       (22,549)     (100)%
All other G&A expenses ................            --        15,097       (15,097)     (100)%
                                          -----------   -----------   -----------      ----
TOTAL G&A -- LEC SEGMENT ...............           --       267,988      (267,988)     (100)%
                                          -----------   -----------   -----------      ----
CORPORATE AND OTHER
Compensation costs and related expenses     2,361,991     2,054,173       307,818        15%
Professional fees .....................       747,864     1,183,800      (435,936)      (37)%
Insurance costs .......................       475,775         3,474       472,301       100%
All other G&A expenses ................       659,286       495,601       163,685        33%
                                          -----------   -----------   -----------      ----
TOTAL G&A -- CORPORATE AND OTHER .......    4,244,916     3,737,048       507,868        14%
                                          -----------   -----------   -----------      ----
   CONSOLIDATED TOTALS ................   $15,251,422   $11,262,556   $ 3,988,866        35%
                                          -----------   -----------   -----------      ----
</TABLE>


                                       21
<PAGE>

     General  and  Administrative  expenses  ("G&A")  on  a  consolidated  basis
increased  approximately $4 million, or 35%, when comparing G&A of $11.3 million
for the year ended  November 30, 2001 to G&A of $15.3 million for the year ended
November 30,  2002.  The net increase  was  attributable  to (a) the  E-commerce
segment  (approximately  $2.6  million,  or 66% of total  increase),  with  such
increase related to increased  compensation  costs,  professional fees and other
G&A, offset by a decline in maintenance costs associated with our web sites, all
required to support  the 37%  increase in  revenues  generated  by such  segment
during the year ended  November 30, 2002,  (b) the Off-line  Marketing  Services
Segment  (approximately  $1.1  million,  or 27% of total  increase),  with  such
increase  related to G&A necessary to support the  segment's  growth in revenues
from Montvale  Management,  LLC (our majority  owned  subsidiary) of $868,539 in
Fiscal 2001 to  approximately  $6.1 million  during  Fiscal  2002,  and c) other
corporate  overhead  (approximately  $508,000,  or 13% of  total  increase)  not
specifically  identified  to our  operating  segments,  with such cost  increase
including (i) directors and officers liability insurance, (ii) professional fees
incurred in the defense of actions  arising  from legacy  operations,  and (iii)
other  non-allocable  G&A. These overhead  increases were partially offset by an
approximate $268,000 decrease in overhead attributable to our currently inactive
LEC Billed Product and Services segment.

                    CONSOLIDATED BAD DEBT EXPENSE, BY SEGMENT

                                                              CHANGE     CHANGE
                                                             INC(DEC)   INC(DEC)
YEAR ENDED NOVEMBER 30,              2002        2001           $          %
-----------------------            --------   ----------    ---------   --------
E-commerce .....................   $647,875   $  301,933    $ 345,942      115%
Off-line Marketing Services ....         --           --           --        0%
LEC Billed Products and Services         --      826,893     (826,893)    (100)%
Corporate and other ............         --      (45,000)      45,000     (100)%
                                   --------   ----------    ---------     ----
   CONSOLIDATED TOTALS .........   $647,875   $1,083,826    $(435,951)     (40)%
                                   --------   ----------    ---------     ----

     Bad Debt  expense  decreased  $435,951,  or 40%, to $647,875 in Fiscal 2002
from approximately $1.1 million in Fiscal 2001.

     We  continuously  evaluate  the  potential of the  collectibility  of trade
receivables by reviewing such factors as deterioration in the operating results,
financial condition or bankruptcy filings of our customers.  As a result of this
review process, we record bad debt provisions to adjust the related receivables'
carrying  amount to an amount that reflects  their  probable  realizable  value.
Provisions  for bad debts are also recorded  resulting  from the review of other
factors,  including  (a)  length  of time  the  receivables  are past  due,  (b)
historical  experience and (c) other factors obtained during collection efforts.
If circumstances  related to specific  customers  change,  our estimates for bad
debt provisions could be further increased.


                                       22
<PAGE>

OTHER INCOME (EXPENSE)

     The components of "Other income (expense)" for the years ended November 30,
2002 and 2001 are set forth below:

<TABLE>
<CAPTION>
                                                                             CHANGE       CHANGE
                                                                            INC(DEC)     INC(DEC)
YEAR ENDED NOVEMBER 30,                         2002           2001            $             %
-----------------------                     -----------    -----------    -----------    --------
<S>                                         <C>            <C>            <C>            <C>
Other income (expense):
Interest expense ........................   $  (101,385)   $    (5,900)   $   (95,485)   1618%
Interest income and dividends ...........       783,143      1,780,546       (997,403)    (56)%
Realized gains on sale of marketable
   securities ...........................        76,607        387,948       (311,341)    (80)%
Permanent impairment charges ............            --     (4,690,258)     4,690,258    (100)%
Other non-operating income (expense):
   Talk.com Arbitration Settlement ......     2,342,123             --      2,342,123     100%
   P.M. Thomas Arbitration Settlement ...    (2,710,000)            --     (2,710,000)    100%
   Residual loss from terminated Programs            --        (57,344)        57,344    (100)%
   Other miscellaneous income(expense) ..       (11,793)        74,043        (85,835)   (116)%
   Liquidation proceeds on prior year
     impairment loss ....................       125,000             --        125,000     100%
Minority interest (income) loss .........      (402,716)       (69,629)      (333,087)    478%
                                            -----------    -----------    -----------    ----
   TOTAL CONSOLIDATED OTHER
     INCOME (EXPENSE) ...................   $   100,979    $(2,580,594)   $ 2,681,574     204%
                                            -----------    -----------    -----------    ----
</TABLE>

     Consolidated Other Income (Expense)  increased  approximately $2.7 million,
from  approximately  $2.6 million in net expense for the year ended November 30,
2001 to $100,980 of net income for the year ended November 30, 2002.

     The primary factors  contributing to the net increase,  in the order of the
table set forth above, are as follows:

          (a) We  incurrred  a  decrease  in  interest  and  dividend  income of
     approximately  $1  million  resulting  from  significant  decreases  in the
     interest  rates  available on short-term  commercial  paper during the year
     ended  November 30, 2002 when compared with  interest  rates  available for
     short-term investment during the year ended November 30, 2001.

          (b) We  incurred  a  decrease  in  gains  realized  through  sales  of
     marketable securities approximating $311,000 in the year ended November 30,
     2002.

          (c) We had no material  losses in Fiscal 2002 from asset  impairments,
     whereas,  during the year  ended  November  30,  2001 we  realized  losses,
     through a permanent impairment, of approximately $4.1 million on marketable
     securities  resulting  from  significant  declines  in  the  values  of the
     marketable securities held in our investment  portfolio.  These losses were
     deemed to be other  than  temporary.  Additionally,  during  the year ended
     November  30,  2001,  we realized a permanent  impairment  of $500,051 on a
     long-term  investment  in an entity that  discontinued  its  operations  in
     Fiscal 2001. We believe that we have significantly  reduced our exposure to
     market fluctuations in our investment portfolio by limiting the contents of
     such portfolio to  approximately  $13.2 million in high grade,  short term,
     commercial  paper and auction rate  securities  (with  yields  ranging from
     1.44% to 2.04%, with maturities of 28 to 58 days), and  approximately  $1.1
     million in higher risk investments, consisting of common stock equities and
     real estate investment trust equities.

          (d) We realized an increase of $125,000  attributable  to  liquidation
     proceeds received from a long-term investment that was entirely written off
     through an impairment charge in the fiscal year ended November 30, 2000.

          (e) We included in Fiscal  2002 the final  installment  related to the
     Talk.com arbitration victory ($2.3 million) awarded to us in November 2001,
     offset by a $2.7 million award and settlement  paid to the claimants in the
     Phillip Michael Thomas arbitration.


                                       23
<PAGE>

PROVISION FOR INCOME TAXES

     Our  effective  income tax rate is a result of the  combination  of federal
income taxes at  statutory  rates,  and state  taxes,  subject to the effects of
valuation  allowances taken against the  "realizability" of deferred tax assets.
We recorded  income tax expense of  $1,786,894  for the year ended  November 30,
2002 on pre-tax income of  $4,528,284.  This equates to an effective tax rate of
approximately  39.5%.  This  effective  tax rate is similar to our  historically
recognized tax rate. In the year ended November 30, 2002, we realized previously
devalued  deferred  tax  assets  related to  capital  losses  (see Note 8 to the
Financial  Statements for further  details of our income tax  accounts).  We had
recorded  income tax expense of $3,275,200  for the year ended November 30, 2001
on a  pre-tax  profit  of  approximately  $3,692,699.  This  effective  tax rate
relationship is the result of our taking a full valuation  allowance  during the
year ended November 30, 2001 against the future tax benefits attributable to the
loss carryovers arising from permanent impairment charges of $4,690,258 incurred
during  such  period.  This  deferred  tax asset  valuation  allowance  had been
recorded  during  the year  ended  November  30,  2001,  due to the  absence  of
appreciated  capital gain property  (available  for the potential  generation of
capital  gain  income)  to  offset  the  net  capital  losses  generated  by the
impairment charges.

YEAR ENDED NOVEMBER 30, 2001 COMPARED TO YEAR ENDED NOVEMBER 30, 2000

     The Company's net revenues,  on a segmental  basis, and with the components
of the  individual  segments,  for the fiscal years ended  November 30, 2001 and
2000, are set forth in the following tables:

               SEGMENT DATA -- NET REVENUES, BY SEGMENT COMPONENT

<TABLE>
<CAPTION>
                                                                                CHANGE        CHANGE
                                                                               INC(DEC)      INC(DEC)
YEAR ENDED NOVEMBER 30,                              2001          2000           $              %
-----------------------                          -----------   -----------   -----------     --------
<S>                                              <C>           <C>           <C>               <C>
E-COMMERCE COMPONENTS
Long distance customer acquisitions ..........   $ 3,992,147   $ 4,913,703   $  (921,556)      (19)%
GroupLotto and other websites ................     7,082,587     4,825,781     2,256,806        47%
Net branch commission fees ...................       347,416            --       347,416       100%
Email ........................................    14,663,959       758,702    13,905,257      1833%
Data sales and rentals .......................     2,389,116            --     2,389,116       100%
                                                 -----------   -----------   -----------      ----
TOTAL E-COMMERCE .............................    28,475,225    10,498,186    17,977,039       171%
                                                 -----------   -----------   -----------      ----
OFF-LINE CUSTOMER ACQUISITION
  SERVICES COMPONENTS
Long distance customer acquisitions ..........     1,693,453     4,565,435    (2,871,982)      (63)%
Long distance usage commissions ..............            --     4,387,149    (4,387,149)     (100)%
Net branch commission fees ...................       521,123            --       521,123       100%
Other customer acquisition services ..........            --         6,190        (6,190)     (100)%
                                                 -----------   -----------   -----------      ----
  TOTAL OFF-LINE CUSTOMER ACQUISITION SERVICES     2,214,576     8,958,774    (6,744,198)      (75)%
                                                 -----------   -----------   -----------      ----
LEC BILLED PRODUCTS AND SERVICES COMPONENTS
"900" Entertainment Service royalties ........       486,406     3,393,428    (2,907,022)      (86)%
Club 900 Products ............................       148,830        85,417        63,413        74%
Enhanced Services, principally voice mail ....       884,373     3,590,463    (2,706,090)      (75)%
Telephone number list revenue ................            --        65,523       (65,523)     (100)%
                                                 -----------   -----------   -----------      ----
TOTAL LEC BILLED PRODUCTS AND SERVICES .......     1,519,609     7,134,831    (5,615,222)      (79)%
                                                 -----------   -----------   -----------      ----
CORPORATE AND OTHER COMPONENTS
Miscellaneous products, list revenue and other            --        20,072       (20,072)     (100)%
                                                 -----------   -----------   -----------      ----
  CONSOLIDATED NET REVENUES ..................   $32,209,410   $26,611,863   $ 5,597,547        21%
                                                 ===========   ===========   ===========      ====
</TABLE>


                                       24
<PAGE>

     Net Revenue increased $5,597,547, or 21%, to $32,209,410 for the year ended
November 30, 2001 ("Fiscal  2001") when compared to revenues of  $26,611,863  in
the year ended November 30, 2000 ("Fiscal 2000"). This increase was specifically
attributable  to  the  Company's  E-commerce  segment,  which  recognized  a net
increase in revenue of approximately $18 million, offset by combined declines in
net revenue from the Company's legacy segments of  approximately  $12.4 million.
The E-commerce  segment revenue increase resulted from the Company's  increasing
focus on  generating  revenue from its current  core  business,  on-line  direct
marketing.  The  Company  expects  this  segment  to  continue  to  represent  a
substantial  part of the  Company's  revenue  in  future  fiscal  periods.  As a
percentage of consolidated net revenue,  the Company's  on-line direct marketing
activities  constituted  88% of Fiscal 2001 revenues,  compared to 39% in Fiscal
2000.

     The  declines  in the  Company's  Off-line  Customer  Acquisition  Services
Segment  (decrease of $6.7 million) and LEC Billed Products and Services Segment
(decrease of $5.6 million) were attributable to the Company's termination of the
active  marketing of such products and services  during prior fiscal periods and
the Company's  intentional  migration to the Internet for the  generation of the
bulk of its revenue.  The Company's  on-line  revenues are generated on a higher
margin basis when compared to such legacy segments' operating  activities.  This
migration  commenced  at the end of the fiscal  year  ended  November  30,  1999
("Fiscal 1999") and became fully implemented during Fiscal 2000.

     During the year ended  November 30, 2001,  the Company  executed an on-line
customer  acquisition  program for a prominent long distance  service  provider.
Under  such  arrangement,  the  Company  generated  approximately  $2 million of
revenue in Fiscal 2001, specifically during the fourth quarter. This represented
6.2% and 14.2% of  consolidated  net  revenues  for  Fiscal  2001 and the fourth
quarter thereof,  respectively.  The Company's agreement with such long distance
carrier  terminated  during the first quarter of the fiscal year ending November
30, 2002 ("Fiscal 2002").  Although the Company has entered into a new agreement
with such long distance carrier, the Company anticipates that the impact thereof
on fiscal  periods beyond the first quarter of Fiscal 2002 will not be material.
The revenue generated in Fiscal 2001 from the Company's  original agreement with
this long  distance  carrier,  coupled with the on-line  portion of the TALK.com
settlement (more fully described  below) of approximately $2 million,  accounted
for  Fiscal  2001's   $3,992,147  of  "long  distance   customer   acquisitions"
sub-segment  revenue  included  in  the  Company's   E-commerce  segment.   This
represented  a  decline  in such  sub-segment  of  approximately  $922,000  when
compared to Fiscal  2000.  Fiscal  2000's  E-commerce  "long  distance  customer
acquisition"   sub-segment  revenues  were  entirely  attributable  to  TALK.com
customer  acquisition  activity  prior to the October  2000  termination  of the
Company's agreement therewith.

     The  net  growth  in  the  Company's   E-commerce   segment  was  primarily
attributable to an approximate  $13.9 million increase in revenue generated from
the  Company's  E-mail  marketing  programs,  as  compared  to only  $758,702 of
revenues during Fiscal 2000. This substantial  increase of  approximately  1800%
over the prior year was the result of the Company generating  significantly more
on-line  generated  consumer  data and a number of  on-line  contracts  with new
customers during the fiscal year ended November 30, 2001. During the prior year,
the Company had not significantly penetrated this method of revenue generation.

     During the second half of Fiscal  2001,  the Company  began the practice of
marketing E-mail  promotional offers to third party databases on a revenue share
basis.  The Company  becomes  obligated  to pay these third  parties only when a
transaction occurs and payment is made to the Company by the third parties whose
promotion was mailed.  These "fee share basis" revenues provide operating income
at a reduced operating margin when compared to E-mail  promotional offers mailed
to the Company's proprietary database.  The Company reports the fees paid to the
owners of the third party databases as a component of "Selling Expenses".  It is
the  Company's  intent to limit  Fiscal  2002's  "fee share  basis"  expenses to
approximately  10% of consolidated  revenues,  compared to  approximately  7% in
Fiscal 2001.


                                       25
<PAGE>

     The second  material  factor  contributing  to the growth of the  Company's
E-commerce  segment was the approximately $2.4 million in on-line data sales and
rentals  generated in Fiscal 2001 when compared to a negligible amount generated
in Fiscal 2000. The Company  believes it was able to identify itself as a source
of valuable permission based data and nurtured  relationships with third parties
to facilitate the sale and rental of such data.

     The third  material  factor  contributing  to the  growth of the  Company's
E-commerce  segment was the approximately  $2.3 million (or 47% increase) in net
revenues  earned  from the  "GroupLotto  and  other  website"  sub-segment.  The
GroupLotto site has developed  increased  brand  recognition on the Internet and
has  enabled the  Company's  sales  force to  increase  its  revenue  generating
customer base on the site.

     During the year ended  November 30, 2001, the Company was successful in its
legal action against Talk America,  Inc.  ("Talk"),  resulting in an approximate
$6.2 million  arbitration  award.  The award  represented  restitution  for long
distance  customers  delivered  to Talk,  and for lost  profits  suffered by the
Company due to Talk's wrongful  termination of an agreement between the parties.
This wrongful termination occurred during the fourth quarter of Fiscal 2000. The
Company  recognized $3.7 million of revenue (11.5% of  consolidated  Fiscal 2001
revenues;  this represented Talk's acceptance of such delivered customers,  thus
fulfilling  the Company's  revenue  recognition  criteria.)  from the settlement
during the year ended  November 30, 2001,  resulting  from the receipt of Talk's
first of two  installments  due on the total award.  The first  installment  was
comprised  of  approximately  $2 million of  revenue  attributable  to the "long
distance customer acquisition"  sub-segment of the Company's E-commerce segment.
The balance of the first installment,  or approximately $1.7 million of revenue,
was attributable to the Company's Off-line customer acquisition (legacy) segment
(primarily  telemarketing).  The Company recognized an approximate $1.25 million
contingent  telemarketing  cost as a result of this settlement.  This contingent
cost is  discussed  in  further  detail in the  following  "Cost of Goods  Sold"
section. The second, and final,  installment of approximately $2.5 million, plus
interest  at 6%, is due on April 1, 2002.  If the  Company  receives  the second
installment in Fiscal 2002, it will record the revenue at that time. The Company
expects  that the segment  distribution  of such second  installment  will be as
follows:  (a)  approximately  $1.4  million of  E-commerce  revenue  within that
segment's   "long   distance   customer   acquisition"   sub-segment;   and  (b)
approximately  $1.1 million of Off-line  Customer  Acquisition  segment revenue.
Based on the  telecommunications  industry's present weakened state of financial
affairs,  and  specifically  management's  estimation of Talk's  ability to pay,
management  determined that the second  installment of the settlement was a gain
contingency and, as such, will record any related revenue only upon collection.

     During the year ended  November 30, 2001,  revenues  from the Company's 51%
majority owned subsidiary,  Montvale Management LLC,  contributed  approximately
$868,539, or 2.7% of consolidated net revenues. The subsidiary generates revenue
by operating  under net branch  agreements,  whereby it  originates  residential
mortgages  and  refinancings   for  licensed   mortgage  banking  and  brokerage
companies.  The  subsidiary  became  active as a result of reduced  mortgage and
refinance loan interest  rates,  and increased  government  funds for low-income
homebuyers.  The  subsidiary's  revenue was generated  through  on-line  sources
($347,416,   included  in  the  E-commerce  segment)  and  through  conventional
marketing efforts,  consisting of outbound telemarketing,  direct mail and print
media  ($521,123,  included  in  the  off-line  customer  acquisition  segment).
Pursuant  to  a  full  year  of  consolidated   operations,   and   management's
anticipation   that  the  interest  rate  environment  will  remain  stable  and
beneficial to new homebuyers and people  interested in refinancing,  the Company
anticipates that the subsidiary will generate  significantly more revenue in the
fiscal year ending November 30, 2002.

     See  "Transactions   with  Major  Customers  and  Termination  of  Economic
Dependence",  "Prior  Year  Transactions  Impacting  Current  and Future  Fiscal
Periods"  and  "Service  Bureaus  and Local  Exchange  Carriers"  following  the
"Liquidity  and Capital  Resources"  section for a detailed  discussion of other
revenue  decreases  as they  relate  to the  Company's  comparative  and  future
revenues.


                                       26
<PAGE>

     In the fiscal  periods prior to November 30, 1999,  the  Company's  cost of
revenues were offset by net revenue  generated  from certain  premium  offerings
made in conjunction with the Company's marketing of other products and services.
The  Company  terminated  the  marketing  of  these  products  and  services  in
conjunction with the Transaction Agreements,  all as more fully described in "--
Prior Year Transactions  Impacting Current and Future Fiscal Periods".  All such
residual  revenue  from  those  premium  offerings  have been  reflected  in the
Company's other income (expense) section.  For the year ended November 30, 2001,
such  income(expense)  included in "Other nonoperating income" was approximately
($57,000), compared to approximately $1,021,401 for the prior year.

     The Company's cost of sales, on a segmental  basis, and with the components
of the  individual  segments,  for each of the years ended November 30, 2001 and
2000 are set forth below:

              CONSOLIDATED COST OF SALES, BY SEGMENT, BY COMPONENT

<TABLE>
<CAPTION>
                                                                                  CHANGE       CHANGE
                                                                                 INC(DEC)     INC(DEC)
YEAR ENDED NOVEMBER 30,                              2001           2000            $            %
-----------------------                           ----------    -----------    -----------    --------
<S>                                               <C>           <C>            <C>               <C>
E-COMMERCE ADVERTISING, PROMOTION AND
   FULFILLMENT COSTS
Email marketing and related delivery costs ....   $4,046,881    $   631,446    $ 3,415,435       541%
Data purchases and premium costs ..............    3,357,308      3,718,460       (361,152)      (10)%
Promotional and creative development costs ....      115,322        121,417         (6,095)       (5)%
                                                  ----------    -----------    -----------      ----
   TOTAL E-COMMERCE ADVERTISING ...............   $7,519,511    $ 4,471,323    $ 3,048,188        68%
                                                  ----------    -----------    -----------      ----
SERVICE BUREAU FEES
Contingent based prize indemnification costs ..   $  381,525    $ 1,151,758    $  (770,233)      (67)%
                                                  ----------    -----------    -----------      ----
   TOTAL E-COMMERCE COST OF SALES .............   $7,901,036    $ 5,623,081    $ 2,277,955        41%
                                                  ----------    -----------    -----------      ----
OFF-LINE CUSTOMER ACQUISITION SERVICES
   ADVERTISING, PROMOTION AND FULFILLMENT COSTS
Telemarketing and related costs ...............   $1,283,035    $ 4,985,183    $(3,702,148)      (74)%
Premium fulfillment costs .....................      (89,009)    (1,823,449)     1,734,440       (95)%
                                                  ----------    -----------    -----------      ----
   TOTAL OFF-LINE ACQUISITION COST OF SALES ...   $1,194,026    $ 3,161,734    $(1,967,708)      (62)%
                                                  ----------    -----------    -----------      ----
LEC BILLED PRODUCTS AND SERVICES ADVERTISING,
   PROMOTION AND FULFILLMENT COSTS
Telemarketing and related costs ...............   $       --    $   (17,643)   $    17,643      (100)%
Premium fulfillment costs .....................           --          2,286         (2,286)     (100)%
                                                  ----------    -----------    -----------      ----
   TOTAL LEC BILLED ADVERTISING ...............   $       --    $   (15,357)   $    15,357      (100)%
                                                  ----------    -----------    -----------      ----
SERVICE BUREAU FEES
Billing and collection fees ...................   $   57,400    $   287,569       (230,169)      (80)%
                                                  ----------    -----------    -----------      ----
TOTAL LEC BILLED COST OF SALES ................   $   57,400    $   272,212    $  (214,812)      (79)%
                                                  ----------    -----------    -----------      ----
   CONSOLIDATED COST OF SALES .................   $9,152,462    $ 9,057,027    $    95,435         1%
                                                  ----------    -----------    -----------      ----
</TABLE>

     Cost of sales on a consolidated basis remained  relatively stable with a 1%
increase of approximately $95,000 over the fiscal year ended November 30, 2000.

     On a  segmental  level,  the  Company's  E-commerce  segment  cost of sales
increased, on a net basis,  approximately $2.3 million, or 41%, to $7.9 million,
when compared to $5.6 million  incurred in the prior fiscal year.  The Company's
increased focus on generating revenues from direct marketing campaigns delivered
on-line was the primary factor contributing to this increase.  During the course
of the year, the Company  realized  increased costs for e-mailing on an absolute
basis (approximate  increase of $3.4 million over $631,446 for Fiscal 2000), but
recognized decreased costs on a per-unit basis for e-mail services obtained from
third party  e-mailers.  As of the fourth  quarter of Fiscal 2001,  the price of
third  party  e-mail  service  provision  was in the  range of $.75 to $1.00 per
thousand  e-mails  sent.  In prior fiscal  periods,  the Company paid as much as
$1.50 per thousand e-mails sent.


                                       27
<PAGE>

This  per-unit  price  reduction  is the  contributing  factor that  enabled the
Company  to  increase  e-mail  related  revenue   approximately   1800%,   while
recognizing a smaller,  541% increase in e-mail and related  delivery costs over
the comparable  prior year. In December 2001, the Company acquired the assets of
a Canadian-based  technology company and, with the integration of this entity in
Fiscal 2002,  the Company  believes it will further  reduce the unitary costs of
its e-mailing promotions.

     The  Company  uses  the  services  of  an  agency  for  the   provision  of
indemnification  coverage in the event the GroupLotto  site produces a winner in
one of its free on-line lottery games. During the fourth quarter of Fiscal 2000,
the Company  restructured its lottery game prizes and  concurrently  reduced the
costs of the related  premiums for the  indemnification  coverage.  This premium
cost savings was  realized in the year ended  November 30, 2001 and is reflected
by a 67%  indemnification  cost decrease,  compared to a 47% increase in related
revenues generated at the GroupLotto site. In October 2001, the Company had a $1
million winner on its GroupLotto site. The  Indemnification  agency acknowledged
the  winner's  claim,  awarded  payment,  and  the  Company  did not  incur  any
additional  expense  beyond the premiums.  Additionally,  the Company's  premium
costs per game did not increase as a result of the winner's claim.

     The Company's  Off-line  Customer  Acquisition  segment had been  primarily
inactive  for the first nine months of Fiscal 2001.  During the fourth  quarter,
the Company received the first of the two scheduled  installments  from the Talk
arbitration  victory  and  recorded  a portion of the  revenue  in the  Off-line
Customer Acquisition  segment.  Pursuant to the receipt of the first installment
in November  2001,  the Company  recorded its  obligation to make an approximate
$1.25 million  contingent  payment to a telemarketing  vendor for their services
performed for the Company  relating to marketing for Talk.  The Company does not
have  any  other  contingent  liabilities  related  to the  second,  and  final,
settlement  installment  that is  scheduled  for receipt in April  2002.  In the
fourth quarter of Fiscal 2001, the Company  released  approximately  $130,000 in
excess premium accruals from terminated off-line customer acquisition  marketing
programs.

     The Company's gross profit in terms of dollars,  on a segmental  basis, and
the Company's gross profit  percentage,  on a segmental  basis,  for each of the
years ended November 30, 2001 and 2000 are presented below:

                      CONSOLIDATED GROSS PROFIT, BY SEGMENT

<TABLE>
<CAPTION>
                                                                  CHANGE       CHANGE
                                                                 INC(DEC)     INC(DEC)
YEAR ENDED NOVEMBER 30,               2001           2000           $            %
-----------------------            -----------   -----------   -----------    --------
<S>                                <C>           <C>           <C>               <C>
E-commerce .....................   $20,574,189   $ 4,875,105   $15,699,084       322%
Customer Acquisition services ..     1,020,550     5,797,040    (4,776,490)      (82)%
LEC Billed products and services     1,462,209     6,862,619    (5,400,410)      (79)%
Corporate and other ............            --        20,072       (20,072)     (100)%
                                   -----------   -----------   -----------      ----
   CONSOLIDATED GROSS PROFIT ...   $23,056,948   $17,554,836   $ 5,502,112        31%
                                   ===========   ===========   ===========      ====
</TABLE>

                CONSOLIDATED GROSS PROFIT PERCENTAGES, BY SEGMENT

                                                           ABSOLUTE    RELATIVE
                                                          PERCENTAGE  PERCENTAGE
                                                            CHANGE      CHANGE
YEAR ENDED NOVEMBER 30,                   2001     2000    INC(DEC)    INC(DEC)
-----------------------                   ----    -----   ----------  ----------
E-commerce ............................   72.3%    46.4%     25.8%       55.6%
Customer Acquisition services .........   46.1%    64.7%    (18.6)%     (28.8)%
LEC Billed products and services ......   96.2%    96.2%      0.0%        0.0%
Corporate and other ...................    0.0%   100.0%   (100.0)%    (100.0)%
                                          ----    -----     -----       -----
   CONSOLIDATED GROSS PROFIT PERCENTAGE   71.6%    66.0%      5.6%        8.5%
                                          ====    =====     =====       =====


                                       28
<PAGE>

     Consolidated  Gross Profit  Percentage  ("Gross Margin") as a percentage of
net  revenue  was  71.6% in  Fiscal  2001,  compared  to 66.0% in  Fiscal  2000,
representing an absolute percentage point increase of 5.6%, and an 8.5% increase
on a relative basis.

     On a  segmental  basis,  the  Company's  E-commerce  segment  Gross  Margin
increased to 72.3% in Fiscal 2001  compared to 46.4% in Fiscal  2000.  The 25.8%
percentage  point  increase  resulted from (a) the Company  benefiting  from the
cost-free revenue  generating  effect of databases  purchased in the fiscal year
ended  November 30, 2000 (the  databases  were fully expensed in Fiscal 2000 and
the Company  owns and  continues  to use these  databases in Fiscal 2001 without
additional  cost);  (b) decreased costs on a  unitary-basis  associated with the
Company's e-mailing  activities;  and (c) a significant decline in the Company's
free on-line lottery prize indemnification costs.

     The Company's Off-line Customer Acquisition Services segment's Gross Margin
declined to 46.1% in Fiscal 2001,  compared to 64.7% in Fiscal  2000.  The 18.6%
percentage  point  decline  resulted  from the costs of a  contingent  liability
realized  upon  the  settlement  of  the  arbitration  dispute  with  Talk.  The
contingency  was of a higher cost  relationship  to revenues  than  historically
recognized within the segment, due to the fact that the total contingency became
payable as a result of the first  installment.  The second  installment will not
have any contingent  payables if such second  installment is collected in Fiscal
2002.  To the extent  that the  balance of the Talk  settlement  is  received in
Fiscal 2002,  the Company  will report  Gross  Margin in its  Off-line  Customer
Acquisition segment in excess of 90%.

     The Company's  LEC Billed  Products and Services  segment  ("LEC  Segment")
Gross Margin  remained  stable at 96.2%.  See "Service  Bureaus,  Local Exchange
Carriers and Service  Bureau  Bankruptcy"  following the  "Liquidity and Capital
Resources"  section for a detailed  discussion  of the LEC Segment  gross profit
decreases as it relates to the Company's comparative and future operations.

     The Company's Selling Expenses and General and Administrative  Expenses for
each of the years ended November 30, 2001 and 2000 are presented, on a segmental
basis,  and with the  components of the individual  segments,  in the tables set
forth below:

SEGMENT DATA -- SELLING EXPENSES

             CONSOLIDATED SELLING EXPENSES, BY SEGMENT, BY COMPONENT

<TABLE>
<CAPTION>
                                                                     CHANGE        CHANGE
                                                                    INC(DEC)      INC(DEC)
YEAR ENDED NOVEMBER 30,                     2001         2000           $            %
-----------------------                  ----------   ----------   ----------     --------
<S>                                      <C>          <C>          <C>               <C>
E-COMMERCE
Fee share commissions ................   $2,157,921   $  224,109   $1,933,812        863%
Other commissions ....................      356,133           --      356,133        100%
Selling salaries and related expenses     1,372,934      659,747      713,187        108%
Occupancy and equipment costs ........       23,118           --       23,118        100%
Travel, entertainment and other ......      244,913       87,998      156,915        178%
                                         ----------   ----------   ----------       ----
   TOTAL E-COMMERCE SELLING EXPENSE ..   $4,155,019   $  971,854   $3,183,165        328%
                                         ----------   ----------   ----------       ----
OFF-LINE CUSTOMER ACQUISITION SERVICES
Fee share commissions ................   $       --   $  189,139   $ (189,139)      (100)%
Other commissions ....................       87,573           --       87,573        100%
Selling salaries and related expenses       191,211      274,137      (82,926)       (30)%
Travel, entertainment and other ......        3,470       36,565      (33,095)       (91)%
                                         ----------   ----------   ----------       ----
TOTAL OFF-LINE SELLING EXPENSE .......   $  282,254   $  499,841   $ (217,587)       (44)%
                                         ----------   ----------   ----------       ----
Lec billed products and services .....   $       --   $       --   $       --          0
                                         ----------   ----------   ----------       ----
Corporate and other ..................   $       --   $       --   $       --          0
                                         ----------   ----------   ----------       ----
   CONSOLIDATED SELLING EXPENSES .....   $4,437,273   $1,471,695   $2,965,578        202%
                                         ----------   ----------   ----------       ----
</TABLE>


                                       29
<PAGE>

     Selling  expenses  on  a  consolidated  basis  increased  approximately  $3
million,  or 202%,  from $1,471,695 in Fiscal 2000 to $4,437,273 in Fiscal 2001.
The increase was  attributable  to the  Company's  E-commerce  segment,  with an
increase of approximately $3.2 million in selling expenses, offset by a decrease
of $217,588 in the  Company's  selling  expenses  within its  Off-line  Customer
Acquisition Services segment.

     The significant  factors  contributing to the increase in selling  expenses
were (a) increased fee share  commissions  incurred in the Company's  E-commerce
segment of approximately  $1.9 million (see below for a detailed  description of
this expense category); and (b) increased compensation and related selling costs
($713,187  and  $536,166,  respectively)  arising  from  the  expansion  of  the
Company's E-commerce segment's sales force and selling activities.

     Regarding  the  increase  in fee share  commissions,  in the second half of
Fiscal  2001,  the Company  significantly  expanded  the  practice of  marketing
promotional offers on behalf of its marketing clients ("Clients") to third party
databases on a fee share commission basis. The fee share commission relationship
generally  arises after the Company  concludes a contractual  arrangement with a
Client pursuant to which the Company  modifies or develops the copy,  offer form
and promotional  materials for the Client's product or service. The Company then
tests the  promotion,  and agrees to deliver a minimum  level of new  customers,
and/or targeted leads to the Client.  Simultaneously with the execution of these
contractual  arrangements,  the Company  obtains the  exclusive  rights from the
Client to  market  their  promotions  to a list of third  parties  with whom the
Company has marketing  relationships  (the "Third Parties").  The Company enters
into  contracts  with each Third  Party  with whom it  intends to market  Client
promotions. The terms of these agreements generally provide that the Third Party
has the right to (i) approve the creative  materials  for each  promotion,  (ii)
approve the timing of each promotion's mailing,  (iii) terminate the contract on
short notice, and (iv) reject any promotion for any reason.  Each agreement sets
forth the terms of the Third Party's  compensation,  which range from fixed fees
paid for each  customer or lead,  generated  for the Client,  to a revenue share
that is a  percentage  of the revenue  generated  (after  deduction  for certain
direct  costs) by the  Company  for  marketing  that  offer to the  Third  Party
database.  The Company  utilizes unique Universal  Resource  Locater  identifier
links ("URLs") when promotions are mailed to the Third Party database. It is the
unique  URL's  that form the  tracking  mechanism  by which the  Client  reports
results to the Company, and the Company is able to account for revenue generated
under the fee share arrangement with Third Parties.

     Selling  expenses  within  the  Company's  Off-line  Customer   Acquisition
Services  segment  declined  44%, or $217,588 in Fiscal 2001,  when  compared to
Fiscal 2000. The Company expects that in the fiscal year ended November 30, 2002
it will realize an increase in this segment's selling expenses.  The anticipated
increase arises from the Company's  expected  expansion of the operations of its
majority owned  subsidiary,  Montvale  Management  LLC, which conducts  business
off-line,  as well as on-line, as a net branch for licensed mortgage banking and
brokerage companies.


                                       30
<PAGE>

SEGMENT DATA -- GENERAL AND ADMINISTRATIVE EXPENSES

   CONSOLIDATED GENERAL AND ADMINISTRATIVE EXPENSES, BY SEGMENT, BY COMPONENT

<TABLE>
<CAPTION>
                                                                       CHANGE      CHANGE
                                                                      INC(DEC)    INC(DEC)
YEAR ENDED NOVEMBER 30,                      2002         2001           $           %
-----------------------                   ----------   ----------   ----------    --------
<S>                                       <C>          <C>          <C>             <C>
E-COMMERCE
Compensation costs and related expenses   $2,558,010   $  807,412   $1,750,598      217%
Professional fees .....................      853,050      311,193      541,857      174%
Insurance costs .......................      532,901      211,504      321,397      152%
Occupancy and equipment costs .........      284,148       97,490      186,658      191%
Site development, maintenance and
   modifications ......................    1,750,638    2,623,173     (872,535)     (33)%
All other G&A expenses ................      740,883      743,921       (3,038)       0%
                                          ----------   ----------   ----------      ---
TOTAL G&A -- E-COMMERCE SEGMENT .......   $6,719,630   $4,794,693   $1,924,937       40%
                                          ----------   ----------   ----------      ---
OFF-LINE CUSTOMER ACQUISITION SERVICES
Compensation costs and related expenses   $  217,327   $  351,502   $ (134,175)     (38)%
Professional fees .....................      158,821       33,534      125,287      374%
Insurance costs .......................       84,142      205,299     (121,157)     (59)%
Occupancy and equipment costs .........       22,550       97,490      (74,940)     (77)%
All other G&A expenses ................       55,050      309,602     (254,552)     (82)%
                                          ----------   ----------   ----------      ---
TOTAL G&A-- OFF-LINE SEGMENT ..........   $  537,890   $  997,427   $ (459,537)     (46)%
                                          ----------   ----------   ----------      ---

<CAPTION>
                                                                         CHANGE       CHANGE
                                                                        INC(DEC)     INC(DEC)
YEAR ENDED NOVEMBER 30,                       2002          2001           $            %
-----------------------                   -----------   -----------    ----------    --------
<S>                                       <C>           <C>            <C>             <C>
LEC BILLED PRODUCTS AND SERVICES
Compensation costs and related expenses   $   146,200   $   541,646    $ (395,446)     (73)%
Professional fees .....................            --         7,758        (7,758)    (100)%
Insurance costs .......................        84,142       177,506       (93,364)     (53)%
Occupancy and equipment costs .........        22,549        83,956       (61,407)     (73)%
All other G&A expenses ................        15,097      (233,465)      248,562     (106)%
                                          -----------   -----------    ----------     ----
TOTAL G&A -- LEC SEGMENT ...............  $   267,988   $    77,401    $ (309,413)     (54)%
                                          -----------   -----------    ----------     ----
CORPORATE AND OTHER
Compensation costs and related expenses   $ 2,054,173   $ 1,692,637    $  361,536       21%
Professional fees .....................     1,183,800     1,437,860      (254,060)     (18)%
Insurance costs .......................         3,474         2,330         1,144       49%
Occupancy and equipment costs .........            --         7,940        (7,940)    (100)%
All other G&A expenses ................       495,601       580,657       (85,056)     (15)%
                                          -----------   -----------    ----------     ----
TOTAL G&A -- CORPORATE AND OTHER .......  $ 3,737,048   $ 3,721,424    $   15,624        0%
                                          -----------   -----------    ----------     ----
   CONSOLIDATED TOTALS ................   $11,262,556   $10,090,945    $1,171,611       12%
                                          -----------   -----------    ----------     ----
</TABLE>

     General  and  Administrative  expenses  ("G&A")  on  a  consolidated  basis
increased  approximately $1.2 million, or 12%, when comparing G&A of $10,090,945
in Fiscal  2000 to G&A of  $11,262,556  in Fiscal  2001.  The net  increase  was
attributable  to  the  Company's  E-commerce  segment,  with a net  increase  of
approximately  $1.9  million  in such  segment's  G&A  expenses,  offset  by net
declines of $459,537 and $309,413 in G&A within the Company's  Off-line Customer
Acquisition  Services  segment  and LEC Billed  Product  and  Services  segment,
respectively.

     The E-commerce segment's 40% net increase in G&A expenses was the result of
(a)  increased   compensation   expenses   ($1.75  million)  and  (b)  increased
professional  fee,  insurance and occupancy  expenses  (combined at $1,049,912),
with such  increases  necessary  to support the 171%  increase  in net  revenues
reported by the Company's E-commerce segment. These net increases were partially
offset  by a  decline  in the  E-commerce  segment's  costs  ($872,535,  or 33%)
realized in operating, maintaining and modifying the Company's GroupLotto


                                       31
<PAGE>

website.  During the year ended  November  30,  2001,  the  Company  was able to
negotiate more favorable terms with third party hosting facilities  resulting in
the reduced expense.

     The Company's Off-line Customer  Acquisition  Services segment G&A expenses
declined $459,537, or 46%, when compared to the prior fiscal year. The segment's
expense  decreases  directly  correlate  to  the  significant  decline  in  such
segment's activity during the year ended November 30, 2001.

     The  Company's  LEC Billed  Products  and  Services  segment  G&A  expenses
declined $309,413, or 54%, when compared to the prior fiscal year. The segment's
expense  decreases  directly  correlate  to  the  significant  decline  in  such
segment's activity during the year ended November 30, 2001. The Company does not
anticipate conducting business within this segment in future fiscal periods and,
as such,  does not  expect a material  contribution  to G&A  expenses  from this
segment in future fiscal periods. See "Service Bureaus,  Local Exchange Carriers
and Service Bureau  Bankruptcy"  following the "Liquidity and Capital Resources"
section for a detailed  discussion of factors  impacting the LEC Billed Products
and Services segment.

              CONSOLIDATED BAD DEBT EXPENSE (RECOVERY), BY SEGMENT

<TABLE>
<CAPTION>
                                                                CHANGE      CHANGE
                                                               INC(DEC)    INC(DEC)
YEAR ENDED NOVEMBER 30,                 2001         2000         $           %
                                     ----------    --------   ---------    --------
<S>                                  <C>           <C>        <C>            <C>
Segment
E-Commerce .......................   $  301,933    $517,903   $(215,970)     (42%)
Off-line Customer Acquisitions ...           --          --          --        0%
LEC Billed Products and Services .      826,893          --     826,893      100%
Corporate and Other ..............      (45,000)         --     (45,000)    (100%)
                                     ----------    --------   ---------     ----
         CONSOLIDATED NET BAD DEBT
           EXPENSE ...............   $1,083,826    $517,903   $ 565,923      109%
                                     ----------    --------   ---------     ----
</TABLE>

     Bad Debt expense increased $565,923,  or 109%, to $1,083,826 in Fiscal 2001
from  $517,903  in  Fiscal  2000.  The  material  portion  of the  increase  was
attributable  to an $826,893 bad debt  recognized as a result of the  bankruptcy
filing of the Company's  inactive LEC Billed Product  segment's  primary service
bureau.

     The Company  continuously  evaluates the potential of the collectibility of
trade  receivables by reviewing such factors as  deterioration  in the operating
results, financial condition or bankruptcy filings of our customers. As a result
of this  review  process,  we record bad debt  provisions  to adjust the related
receivables'   carrying  amount  to  an  amount  that  reflects  their  probable
realizable value.  Provisions for bad debts are also recorded resulting from the
review of other factors,  including (a) the length of time the  receivables  are
past due,  (b)  historical  experience  and (c) other  factors  obtained  during
collection efforts.  If circumstances  related to specific customers change, our
estimates for bad debt provisions could be further increased.


                                       32
<PAGE>

OTHER INCOME (EXPENSE)

     The  Company's  components of "Other  income(expense)"  for the years ended
November 30, 2001 and 2000 are presented below:

                       CONSOLIDATED OTHER INCOME (EXPENSE)

<TABLE>
<CAPTION>
                                                                            CHANGE      CHANGE
                                                                           INC(DEC)    INC(DEC)
YEAR ENDED NOVEMBER 30,                       2001           2000             $           %
-----------------------                   -----------    -----------    -----------    --------
<S>                                       <C>            <C>                <C>          <C>
Other income (expense):
Interest expense ......................   $    (5,900)   $  (286,655)       280,755      (98%)
Interest income and dividends .........     1,780,546      2,646,622       (866,076)     (33%)
Realized gains on marketable
     securities .......................       387,948        863,384       (475,436)     (55%)
Permanent impairment charges ..........    (4,690,258)    (2,139,315)    (2,550,943)     119%
Gain on nonmonetary cost basis
     exchange .........................            --        565,572       (565,572)    (100%)
Other nonoperating income (expense):
     Sale of telecommunications license
       assets .........................            --        135,000       (135,000)    (100%)
     Residuals from terminated
       programs-revenue (loss) ........       (57,344)     1,021,401     (1,078,745)    (106%)
     Other non-operating ..............        74,043        198,322       (124,279)     (63%)
Minority interest .....................       (69,629)       140,000       (209,629)    (150%)
                                          -----------    -----------    -----------     ----
         TOTAL CONSOLIDATED OTHER

           INCOME (EXPENSE) ...........   $(2,580,594)   $ 3,144,331     (5,724,925)    (182%)
                                          -----------    -----------    -----------     ----
</TABLE>

     Consolidated Other Income (Expense)  decreased  approximately $5.7 million,
from $3.1  million for the year ended  November 30, 2000 to $2.6 million for the
year ended November 30, 2001.

     The primary factors contributing to the decrease, in the order of the table
detailed above, are as follows:

          (a) a  decrease  in  interest  and  dividend  income of  approximately
     $866,000  resulting  from  significant  decreases  in  the  interest  rates
     available on short-term commercial paper during the year ended November 30,
     2001,  coupled with a decreased  amount of cash  available  for  commercial
     paper investment, resulting from an approximate $6 million stock redemption
     and net federal  income tax  payments of  approximately  $6.1 million for a
     settlement of tax audits  relating to the calendar  years 1996 through 1998
     (for which the related  federal tax expense had been charged to  operations
     in prior fiscal periods);

          (b)  a  decrease  in  gains  realized  on  marketable   securities  of
     approximately $475,000 resulting from significant declines in the values of
     marketable equity securities held in the Company's investment portfolio. As
     of the November 30, 2001 balance sheet date, the Company has  significantly
     reduced its exposure to market fluctuations in its investment  portfolio by
     limiting the contents of such portfolio to  approximately  $22.9 million in
     high grade, short term,  commercial paper and auction rate securities (with
     yields ranging from 2.4% to 3.8%, with maturities of 30 to 180 days),  with
     only   approximately   $760,000  in  high  risk   investments,   consisting
     exclusively of real estate investment trust equities;

          (c)  increases in impairment  losses of $2.5 million.  During the year
     ended  November  30,  2001  (specifically  within  the three  months  ended
     February  28,  2001),  the  Company  recognized  losses due to "other  than
     temporary"  declines  in the value of its  marketable  security  portfolio.
     These securities had "mark-to-mar-


                                       33
<PAGE>

     ket" valuation  adjustments  in previous  quarters,  with such  adjustments
     being  classified in "other  comprehensive  income (loss)" (a contra equity
     account   on   the   Company's    balance   sheet)    pursuant   to   their
     "available-for-sale"  classification. Such noncash pretax losses recognized
     during the year ended  November 30, 2001 were  $4,190,207.  During the year
     ended November 30, 2000, the Company recognized  approximately $2.1 million
     in long-term investment impairment charges.  Additionally,  during the year
     ended   November  30,  2001,   the  Company  had  evaluated  its  long-term
     investments  (specifically  within the quarter ended  February 28, 2001 and
     during the period  March 1, 2001 to April 1, 2001) and  determined  that an
     investment  made  in a  privately  held  company  during  Fiscal  2000  was
     impaired.  A  long-lived  asset  impairment  write  down,  related  to this
     continuing evaluation, of $500,051 was charged to the "permanent impairment
     charge" account during the year ended November 30, 2001. During Fiscal 2002
     this entity  effectively  wound down  operations and ceased doing business;
     and

          (d) the  reduction  in the  pre-tax  net  income  attributable  to the
     residual activity related to the Company's  terminated legacy 900 business,
     as such  activity  decreased to a loss of  approximately  $57,000 in Fiscal
     2001,  from income of  approximately  $1 million in the year ended November
     30, 2000.

PROVISION FOR INCOME TAXES

     The Company's  effective  income tax rate is a result of the combination of
federal income taxes at statutory rates, and state taxes, subject to the effects
of  valuation  allowances  taken  against the  "realizability"  of deferred  tax
assets. The Company recorded income tax expense of $3,275,200 for the year ended
November 30, 2001 on pre-tax income of approximately $3,692,699. This equates to
an effective  tax rate of  approximately  88.6% and is the result of the Company
taking a full valuation allowance in Fiscal 2001 against the future tax benefits
attributable  to the Fiscal 2002 capital loss  carryover  arising from permanent
impairment  charges of  $4,690,258,  net of realized  capital gains of $387,948.
This deferred tax asset valuation allowance has been recorded in the fiscal year
ended November 30, 2001 due to the absence of appreciated  capital gain property
(available  for the  potential  generation of capital gain income) to offset the
net capital losses generated by the Fiscal 2001 impairment charges.

     The Company's  effective tax rate was  approximately 40% for the year ended
November 30, 2000. The majority of impairment losses,  recognized in such fiscal
year were related to partnership flow-through  investments and, therefore,  such
impairments  did  not  generate   capital  losses,   subject  to   deductibility
limitations,  deferred tax asset valuations and effective rate distortions.  For
additional  discussion and detail on the Company's tax expense see Note 6 of the
Consolidated Financial Statements that appear elsewhere in this report.

LIQUIDITY AND CAPITAL RESOURCES

     Our financial and liquidity  position  remained  strong as exhibited by our
cash, cash equivalents,  short-term  marketable securities and marketable equity
securities  of  approximately  $37.3  million at November 30, 2002.  Cash,  cash
equivalents,   short-term  marketable  securities  and  equity  securities  were
approximately $38.1 million at November 30, 2001. This decrease of approximately
$0.8 million was the result of cash flows generated from operating activities of
approximately  $4 million,  cash flows  generated from  investing  activities of
approximately $6.8 million,  comprised of net proceeds on sales of securities of
$9.5  million,  capital  expenditures  of  $1.9  million,   payments  for  asset
acquisitions,  net of cash received of $545,500 and  approximately  $2.2 million
used in financing  activities  (comprised  of treasury  stock  purchases of $3.6
million, net of cash collected on (a) option exercises of $1.2 million and (b) a
nonmanagement  Section 16-b settlement of $114,403 net of direct costs and after
related taxes).

     Trade  accounts  receivable  at November 30, 2002,  as a percentage  of net
revenues  earned during the year ended November 30, 2002, was 11.5%, as compared
to 22.8%, at the end of the fiscal year ended November 30,


                                       34
<PAGE>

2001. Our days-sales-outstanding  ("DSO") in accounts receivable at November 30,
2002 was 42 days for the year ended  November 30,  2002,  compared to 83 days at
November 30, 2001. We believe the decrease in the current year's DSO compared to
the prior  year  relates to  shortened  collection  periods  on the  outstanding
accounts  receivables from our customer base, pursuant to our continued emphasis
on receivables analysis and expedited collections efforts.

     The  majority  of our  customers  are  extended  30-day  credit  terms.  We
continually  monitor customer  adherence to such terms and constantly  strive to
improve the effectiveness of our collection efforts with the goal of achieving a
DSO in the 40-day range.  Future fiscal periods might not reflect this goal of a
40-day DSO,  and might  exceed the 42-day DSO  recognized  during the year ended
November 30, 2002.

     Cash used in financing  activities  during the year ended November 30, 2002
amounted to $2.2  million,  and included  cash  outflows of  approximately  $3.6
million for purchases of our common stock, primarily in open market transactions
(with 667,206 shares retired,  and the balance of 548,025 held in treasury).  It
is our intention to retire all treasury  shares in the quarter  ending  February
28, 2003. On June 19, 2002, we announced that our Board of Directors  authorized
a stock  repurchase  plan,  which  allowed  for the buyback of up to two million
shares of our outstanding  common stock.  Under such plan, we acquired 1,215,231
shares for  $3,849,870,  at an average  price of $3.17 per share in open  market
transactions. The above referenced financing cash outflows were partially offset
by cash proceeds  generated by the exercise of stock options,  which amounted to
approximately $1,224,697, and approximately $114,000 in proceeds (net of related
costs and income taxes) related to an insider  trading action brought  against a
former  non-management  insider,  pursuant to which such insider was required to
return to us his deemed insider trading gains.

     Historically, our primary cash requirements have been used to fund the cost
of advertising  and  promotion,  with  additional  funds having been used in the
purchasing of equipment and services in connection with the  commencement of new
business lines,  further  development of businesses  being test marketed and for
the  development of the equipment  infrastructure  of newly formed  subsidiaries
resulting from asset purchases.

     During the fiscal year ended  November 30, 2000,  we commenced  our on-line
direct marketing  strategy.  Our future plans and business  strategy continue to
call for our  Internet  based  E-commerce  segment to be our  primary  operating
focus,  with such segment  generating a material portion of future revenues.  If
our  on-line  activities  fail  to  generate   sufficient   revenue,   then  the
continuation  of our year over year on-line  growth in that segment could have a
material  adverse  impact on our capital  and  liquidity  resources  relating to
possible  expenditures  for (a)  marketing  campaigns,  (b) product  development
costs, (c) site development and maintenance and related  technology based costs,
(d)  potential  on-line,  and/or  off-line,  business  acquisitions,  (e)  costs
associated with developing alternative means of email promotion delivery, or (f)
other unexpected and/or currently  unidentifiable  costs.  During the year ended
November  30,  2002,   we  expended   approximately   $1.9  million  in  capital
expenditures to support our E-commerce activities and administrative activities.
Obsolescence, changes in the Internet operating landscape, government regulation
and/or other  unexpected  events  impacting  Internet direct  marketing,  or the
economy in general, could individually, or in combination have an adverse effect
on the carrying  value of the capital  expenditures  procured in Fiscal 2002, as
well as the carrying value of other asset  acquisitions  made in Fiscal 2002 and
earlier that have not yet been fully depreciated or amortized.

     In December 2001, we acquired the assets of  InfiKnowledge,  a closely held
private  Canadian  based  Internet  technology  company.  We  believe  that this
acquisition  will continue to decrease certain costs relative to our reliance on
third parties in the provision of emailing  services and other Internet  hosting
services.  The  realization  of those  proposed  cost  savings  require  capital
expenditures by the newly formed entity,  with the funding of such  expenditures
being  provided  by us.  To date such  capital  expenditures  approximated  $1.3
million.


                                       35
<PAGE>

     During the  nine-month  period  ended  November 30,  2002,  we  experienced
problems  with the  delivery  of our email  promotional  offers.  Such  problems
reduced revenue and income from the E-Commerce sub-segment.  We believe that the
significant  component of the email delivery problem is attributable to Internet
Service Providers that unilaterally  block commercial emails from reaching their
consumer  subscribers.  We have  addressed the issue by deploying new reinforced
delivery platforms with increased redundancy and expanded  diversification using
both internal and external emailing  resources.  Although we have conceived of a
number of programs to address this specific  problem,  there can be no assurance
that any of these programs will work effectively, or can be timely implemented.

     Any further  changes in the Internet  operating  landscape that  materially
hinders our  ability  and/or cost to deliver  commercial  email  messages to the
consumer records in our databases,  and the consumer records in the databases of
our  affiliates,  could  potentially  cause a material  adverse impact in future
fiscal  period  net  revenue  growth  and  gross  margin,  and,  therefore,  our
profitability and cash flows could be adversely affected. There are a variety of
legislative  proposals at state and Federal levels  regarding  email  marketing.
Certain of these proposals,  if implemented,  could negatively  affect our email
marketing  programs which could cause a material adverse impact in future fiscal
period net revenue, profitability and cash flows.

     Should the business climate,  Internet operating  environment or technology
environment  change  significantly,  we could be faced with  circumstances  that
would limit or prevent our utilization of these capital expenditures.

     We  expended  approximately  $200,000  in cash in  Fiscal  2002 as  partial
consideration for the  Infiknowledge  asset acquisition (net of cash received of
approximately  $63,000).  We also expended an additional $200,000 on December 6,
2002  (Fiscal  2003),  regarding  the  final  cash  installment  related  to the
InfiKnowledge asset acquisition.

     In December 2001, we also acquired the assets of ThanksMuch.com,  a closely
held  private  company  for  approximately  $361,000  (net of cash  received  of
approximately  $74,000).  We do not anticipate that this asset  acquisition will
require significant  capital  expenditures to maintain or improve its operations
and we have not made significant capital  expenditures  regarding such entity to
the date of this filing.

     In  September  2002,  we disbursed  $2,710,000  in final  settlement  of an
arbitration  award.  The total payments made exceeded the award by approximately
$435,000.  The  excess  related  to  an  additional  settlement  agreement  that
precludes the claimants from further  proceeding with the action in civil court.
The total  disbursement  of $2.7  million was made during the three months ended
November  30, 2002,  and is reflected on the income  statement as a component of
"Other non-operating income(expense)" for the year then ended.

     We received final notice  regarding the Internal Revenue Service tax audits
covering  the years 1996 to 1998.  The final notice of  settlement  approximated
$900,000,  was paid in November 2002, and included  unbilled interest expense on
such tax audits.  We had provided for the income statement impact of such outlay
in a prior year and,  therefore,  the outlay has not  impacted  earnings  in the
quarter ended November 30, 2002.

     During the fiscal year ended November 30, 1999, our Internet  business plan
and  strategy  prompted  us to  terminate  the  active  marketing  of our legacy
products and services.  Accordingly, this legacy activity may contribute, but in
a  significantly  decreasing  degree,  to our  cash  flows  and  net  income  in
subsequent  fiscal  periods,  as was the case during the year ended November 30,
2002 when compared to the years ended November 30, 2001 and 2000. This should be
considered when using our historical  results in evaluating  future  operations,
cash flows and  financial  position.  Nevertheless,  we will continue to explore
opportunities to offer other Off-line  Marketing  Services and, for Fiscal 2003,
have reentered the LEC Billed Products and Services market.


                                       36
<PAGE>

     Under current  operating plans and  assumptions,  management  believes that
projected  cash flows from  operations  and  available  cash  resources  will be
sufficient to satisfy our anticipated  cash  requirements  for at least the next
twelve  months.  Currently,  we do not have any material  long-term  obligations
other than those described in the note "Commitments and Contingent  Liabilities"
included in the  financial  statements  included in this  document,  nor have we
identified any long-term  obligations that we contemplate  incurring in the near
future. We are currently  considering the acquisition of a building in Canada to
house our  technology  and email  platforms.  The estimated  price range of such
building,  with  necessary  improvements,  is not  expected to exceed  $725,000.
Additionally,  we  anticipate  that capital  expenditures  will  approximate  $1
million in the upcoming  fiscal year, the majority of which will be for computer
and related peripheral equipment to be used in our E-commerce activities.  As we
seek to further extend our reach into the E-commerce  arena, as well as identify
new and other consumer  oriented products and services in the off-line arena, we
may use existing cash reserves,  long-term financing,  or other means to finance
such diversification.

TRANSACTIONS WITH MAJOR CUSTOMERS

     During the year ended  November 30, 2002,  we had 5 major  customers in our
E-commerce segment, which in combination accounted for approximately $22 million
of consolidated net revenue,  respectively, or 50% of consolidated net revenues.
Approximately $3.4 million, or 68.2% of consolidated net accounts receivable was
attributable  to such major  customer  group as of November 30,  2002.  The five
major customers  referenced above accounted for 21.5%, 8.5%, 7.9%, 7.5% and 4.5%
of consolidated net revenue, respectively, for the year ended November 30, 2002.
Of the remaining approximate 100 active customers in the year ended November 30,
2002, no other single  customer had net revenue that equaled or exceeded 2.7% of
consolidated net revenue.

     We continued to conduct  business with these major  customers as of January
28, 2003, with the exception of the customer that accounted for 21.5% of our net
revenue for the year ended  November 30, 2002.  This customer had notified us in
September 2002 that it was exercising its right to terminate the relationship in
accordance with the terms of the underlying agreement,  and, as such, had phased
out its business with us during the  ninety-day  period ended  December 7, 2002.
See "Year Ended  November 30, 2002 Compared to Year Ended November 30, 2001" for
a more detailed  discussion of the impact of such  termination on our operations
and cash flows.

     During the year ended November 30, 2001, we had six major  customers,  five
within our  E-commerce  segment and one within our Off-line  Marketing  Services
segment,  which,  in  the  aggregate,   accounted  for  approximately  54.9%  of
consolidated  net  revenues  during  the  year  ended  November  30,  2001,  and
approximately  69.1% of consolidated net accounts  receivable as of November 30,
2001.

CRITICAL ACCOUNTING POLICY AND ACCOUNTING ESTIMATE DISCUSSION

     In  accordance   with  the  Securities  and  Exchange   Commission's   (the
"Commission") Release Nos. 33-8040; 34-45149; and FR-60 issued in December 2001,
referencing the Commission's  statement  "regarding the selection and disclosure
by public companies of critical accounting policies and practices",  we have set
forth below what we believe to be the most  pervasive  accounting  policies  and
estimates  that could have a material  effect on our results of  operations  and
cash flows if general  business  conditions  or  individual  customer  financial
circumstances  change in an adverse way relative to the  policies and  estimates
used in the attached financial statements or in any "forward looking" statements
contained herein.


                                       37
<PAGE>

FACTORS THAT COULD EFFECT FUTURE RESULTS

   REVENUE RECOGNITION, VARIABLE COSTS AND BAD DEBTS

     We  currently  earn the most  significant  portion of our revenue  from the
E-commerce segment pursuant to marketing  agreements with marketing partners and
corporate  customers.  The provisions of each  agreement  determine the type and
timing of revenue to be recorded.  We invoice our customers in  accordance  with
the terms of the  underlying  agreement.  Revenue is  recognized at the time the
marketing  activity  is  delivered,  or service is  provided,  net of  estimated
contractually  specified data qualification  allowances,  when applicable.  Such
data qualification  allowances may include duplications,  invalid addresses, age
restrictions  and allowances,  and are recorded as contra revenue.  Our revenues
are  adjusted in later  fiscal  periods if actual  allowances  vary from amounts
previously estimated.  Historically,  the variance between actual allowances and
previously  estimated  allowances has been  immaterial.  If events were to occur
that would cause actual  allowances (which are recorded as offsets against gross
revenue,  as  contra-revenues,  in  arriving at  reported  net  revenue) to vary
significantly  from those  originally  estimated  and reflected in the financial
statements, we could suffer material deterioration in future fiscal period gross
margins,  and,  therefore,  our  profitability and cash flows could be adversely
affected.

     Certain  obligations  are recorded at the time revenue is recognized.  They
include costs payable to other  on-line,  as well as off-line,  advertisers  for
registered  user  acquisitions  and consumer data, fee sharing costs under third
party database use agreements,  email message  delivery costs,  contingent based
prize  indemnification  coverage (for potential free on-line  lottery  winners),
premium  fulfillment  costs  related to the  respective  promotion and all other
variable costs directly  associated with completing our obligations  relative to
the revenue being recognized.

     Should the  Internet  operating  landscape  change  resulting in (a) higher
costs of acquiring  consumer data and  registered  users for our  websites;  (b)
higher costs of acquiring  data for our marketing  partners,  compromising  such
marketing  partners'  ability  to  maintain  adequate  databases  to  allow  for
continued  third party  database use  agreements;  (c) the  InfiKnowledge  asset
acquisition  failing to reduce  the cost of our email  delivery  activities  and
other web hosting  service costs,  or us being required to depend on third party
emailing service bureaus to provide an increased portion of our commercial email
delivery at a cost in excess of anticipated internally generated costs, or other
third party influence on our ability to deliver email messages to the records in
our databases,  or the records in our marketing affiliates'  databases;  (d) our
contingent based prize  indemnification  premiums for  indemnification  coverage
increasing  due to an increase in the number of prize  winners at the site, as a
result of the insurance industry in general, or other currently unknown factors;
(e) our accruals for fulfillment  obligations  arising out of promotions proving
to be less than the actual  redemptions  processed in subsequent fiscal periods;
or (f) unpredictable  technology changes or commercial technology  applications;
then, if any one, or a combination,  of the above factors were to materialize we
could suffer material  deterioration  in future fiscal period revenue growth and
gross  margins,  and,  therefore,  our  profitability  and cash  flows  could be
materially adversely affected.

     Revenue  recognition is also subject to provisions based on the probability
of collection of the related trade accounts receivable. We continuously evaluate
the  potential of the  collectibility  of trade  receivables  by reviewing  such
factors as  deterioration  in the operating  results,  financial  condition,  or
bankruptcy  filings,  of our customers.  As a result of this review process,  we
record bad debt provisions to adjust the related receivables' carrying amount to
an estimated realizable value. Provisions for bad debts are also recorded due to
the review of other factors,  including the length of time the  receivables  are
past due, historical experience and other factors obtained during the conduct of
collection efforts. If circumstances  change regarding our specific customers on
an individual basis, or if demand for Internet direct marketing softens, or if a
continuation of the current global economic downturn prevails, our estimates for
bad debt provisions could be further increased, which could adversely affect our
operating margins, profitability and cash flows.


                                       38
<PAGE>

   CONTINUATION OF MAJOR CUSTOMERS, LOSS OF MAJOR CUSTOMER, AND PROSPECTS OF
   MAJORITY-OWNED SUBSIDIARY

     During the year ended November 30, 2002, we had five major customers in our
E-commerce segment, which in combination accounted for approximately $22 million
of consolidated net revenue, or 50% of consolidated net revenues.  Approximately
$3.4 million, or 56% of consolidated net accounts  receivable,  was attributable
to such major  customers  as of  November  30,  2002.  The five major  customers
referenced above accounted for 21.5%,  8.5%, 8.0%, 7.5% and 4.5% of consolidated
net  revenue,  respectively,  for the  year  ended  November  30,  2002.  Of the
remaining  approximate 100 active customers in the year ended November 30, 2002,
no other  single  customer  had net revenue  that  equaled or  exceeded  2.7% of
consolidated net revenue.

     We continued to conduct  business with all such five major  customers as of
January 28, 2003, with the exception of the customer that accounted for 21.5% of
our net revenue for the year ended November 30, 2002. This customer had notified
us in  September  2002  that  it was  exercising  its  right  to  terminate  the
relationship in accordance with the terms of the underlying  agreement,  and, as
such,  had phased out its business  with us during the  ninety-day  period ended
December 7, 2002. It is our belief that this customer loss will be immaterial at
our operations  level due to the fact that the operating margin earned from such
activity was less than that recognized from our other marketing  activities.  We
believe that we will be able to use our media channels,  creative department and
senior  management's  time, all of which,  we believe,  were  disproportionately
dedicated to this  customer,  more  profitably by improving  results of existing
customer relationships and developing new relationships and proprietary products
and  services.  We expect an  immaterial  decline in future  fiscal  income from
operations related to such termination,  and look to realize improved margins at
both the contribution and operating level.  Additionally,  we anticipate that we
will  recognize  improved  contribution  and operating  margins in future fiscal
quarters  due to the  reduction  in our cost of sales that is  expected to arise
from the  elimination of fulfillment  costs as they relate to the termination of
this contract.

     Should we not be able to continue  conducting  business with the balance of
our  significant  customers,  or maintain  relationships  with such companies on
equivalent, or similarly favorable terms; or replace the loss of the significant
income  generated  by  the  lost  customer   pursuant  to  our   above-discussed
expectations; or replace any of the other significant customers with other third
parties on similar  revenue and gross margin  generating  terms, we could suffer
material  deterioration in future fiscal period revenue growth and gross margins
and,  therefore,  our profitability and cash flows would be adversely  affected.
Our  potential  decreased  profitability  relative to such  possible  failure to
continue  current  relationships,  or our  inability  to  replace  them with new
relationships,  could be partially  mitigated by reductions in our workforce and
other cost reducing measures.  It is not known how rapidly we could respond with
such measures, if at all.

     During the year ended November 30, 2002, our 51% majority-owned subsidiary,
Montvale  Management  LLC,  contributed  approximately  $6.1 million,  or 14% of
consolidated net revenues.  The subsidiary  became active in September 2001. The
subsidiary  generates revenue by operating under net branch agreements,  whereby
it originates  residential  mortgages  and  refinancings  for licensed  mortgage
banking and brokerage companies under such net branch agreement.  The subsidiary
business  activity  increased in Fiscal 2002 as a result of reduced mortgage and
refinance loan interest  rates,  and increased  government  funds for low-income
homebuyers.  Our future business plans and operating assumptions anticipate that
the subsidiary will  contribute an increasing  amount of our revenue in terms of
absolute  dollars,  and in terms of percentage  of total  revenues and operating
income. Such assumptions are subject to the continuation of the current interest
rate market which favors  refinancings,  the continued acceptance by the general
public of off-line and on-line  marketing  promotions  for mortgage and mortgage
related  products,   the  continued   ability  of  the  independently   operated
majority-owned  subsidiary to hire and maintain  competent  staff and management
personnel, trained in the specific field of net branch operations, our continued
equity ownership interest in such  majority-owned  subsidiary,  as well as other
factors  currently  not  identifiable.  We can  make no  assurance  that we will
realize an  increased  contribution  of revenue  and  related  profits  from the
majority owned subsidiary in future fiscal periods.


                                       39
<PAGE>

     Our revenues and profitability  from operations have  historically  varied.
Our revenues,  cost of providing revenues,  profit margins and overhead expenses
have varied historically among segments, as well as on a consolidated basis. The
revenue  allocation  among our segments in future  periods will most probably be
different than our current revenue allocation due to several factors,  including
consumer tastes and potential regulatory issues that may exist in future periods
and other currently  unknown factors that could restrict our revenue  generating
cycle or cost structure. Therefore, it is difficult to predict revenue and gross
margin  trends.  Actual  trends may cause us to adjust our  operating  emphasis,
which could result in continued period-to-period  fluctuations in our results of
operations.  Historically, we have had to react to rapid changes in the business
environment within which we operate. Management responded to these rapid changes
as deemed  appropriate  at the time of change,  and as dictated by the nature of
such  changes.  Management's  reaction to such changes  covered a broad range of
business related  adjustments,  ranging from product mix repositioning and staff
reductions, to entire business model overhauls.  Based on our current operations
and  marketing  methods,  as well as the still  emerging  status of the Internet
marketing   environment,   it  is  possible  that  management   could  institute
significant  changes to our  business  model in  response  to  unforeseen  rapid
changes in future fiscal periods.

   IMPAIRMENT OF GOODWILL, OTHER INTANGIBLES AND INVESTMENT PORTFOLIOS COULD
   IMPACT NET INCOME

     We carry  Goodwill and other  Intangibles on our balance sheet arising from
current and prior year  acquisitions.  We must review,  at least annually,  such
Goodwill and other  Intangibles for any asset  impairment.  If the review of the
Goodwill and Intangibles  related to the subsidiaries  organized to acquire such
assets  determine  that such  assets are  impaired,  then we will be required to
recognize an impairment charge on such Goodwill necessary to reduce the carrying
value of the  Goodwill to its net  realizable  value.  Should  events occur that
would  give  rise  to such  impairment  charge,  we  would  recognize  decreased
profitability to the extent of such adjustment. Cash flows would not be directly
affected  by the  impairment  charge,  but cash flows  would,  most  likely,  be
adversely  affected as a result of the facts and circumstances  that created the
impairment charge.

   MARKET FLUCTUATION AND DEBT REPAYMENT RISK OF MARKETABLE SECURITIES
   INVESTMENT PORTFOLIO

     We maintain an investment  portfolio that is managed by prominent financial
institutions.  The portfolio includes high-grade  corporate commercial paper and
auction rate  securities,  equity  securities of real estate  investment  trusts
("REITs") and common stock  equities,  all of which are held for varying periods
of time,  pursuant to maturity dates,  market conditions and other factors.  The
fair value of our investments in the common stock of publicly traded  companies,
as  of  November  30,  2002  amounted  to  approximately  $1.1  million.   These
investments are subject to market price volatility, in addition to the potential
for  business  failure  at the  company  level.  Moreover,  due to the  economic
downturn and difficulties that may be faced by some of the companies in which we
have  investments,  our investment  portfolio  could be further  impaired by the
failure of such  companies to fulfill  their  responsibility  of adhering to the
repayment of principal upon maturity.  Additionally, our cash flows and interest
income could be negatively impacted from continued Federal Reserve Bank interest
rate reductions.

   POTENTIAL OF FEDERAL, AND/OR STATE ENACTED LEGISLATION

     There are a variety of  legislative  proposals at state and federal  levels
regarding  email  marketing,  as discussed  elsewhere  herein.  Certain of these
proposals, if implemented,  could negatively affect our email marketing programs
which could  cause a material  adverse  impact in net  revenue,  gross  margins,
profitability and cash flows.

RECENT ACCOUNTING PRONOUNCEMENTS

     In July 2001, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standards  ("SFAS") No. 142,  "Goodwill  and
Other Intangible  Assets." SFAS 142 requires that goodwill and intangible assets
with  indefinite  useful lives no longer be amortized  once SFAS 142 is adopted,
which will be in our fiscal year ending November 30, 2003; however, these assets
must be  reviewed at least  annually  for  impairment  subsequent  to  adoption.
Intangible  assets with finite useful lives will  continue to be amortized  over
their respec-


                                       40
<PAGE>

     tive useful lives.  The standard  also  establishes  specific  guidance for
testing for impairment of goodwill and intangible  assets with indefinite useful
lives.  The  provisions of SFAS 142 will be effective for our fiscal year ending
November 30, 2003.  We did not elect earlier  adoption  pursuant to the terms of
SFAS 142.  However,  goodwill and intangible assets acquired after June 30, 2001
are subject immediately to the nonamortization  provisions of SFAS 142. While we
are  currently  in the  process of  evaluating  the  potential  impact  that the
adoption  of SFAS 142  will  have on our  consolidated  financial  position  and
results of operations,  our preliminary  assessment is that the adoption of SFAS
142 will have an immaterial impact on us.

     In  August  2001,  the FASB  issued  SFAS No.  143,  "Accounting  for Asset
Retirement  Obligations".  SFAS 143 sets  forth  the  guidelines  regarding  the
financial   accounting  and  reporting  for  obligations   associated  with  the
retirement  of  tangible  long-lived  assets and any costs  associated  with the
related assets' retirement. The provisions of SFAS 143 will be effective for our
fiscal year ending  November 30, 2003.  Based on the relative  components of our
balance  sheet at November  30,  2002,  we believe that the adoption of SFAS 143
will  have an  immaterial  impact on our  consolidated  financial  position  and
results of operations, if at all.

     In  October  2001,  the FASB  issued  SFAS  No.  144,  "Accounting  for the
Impairment  or  Disposal  of  Long-Lived   Assets."  SFAS  144  amends  existing
accounting  guidance on asset impairment and provides a single  accounting model
for long-lived assets to be disposed of. Among other  provisions,  the new rules
change the criteria for classifying an asset as held-for-sale. The standard also
broadens the scope of businesses to be disposed of that qualify for reporting as
discontinued  operations,  and changes the timing of recognizing  losses on such
operations.  The  provisions  of SFAS 144 will be effective  for our fiscal year
ending November 30, 2003 and will be applied prospectively.  We are currently in
the process of  evaluating  the  potential  impact that the adoption of SFAS 144
will have on our  consolidated  financial  position  and results of  operations.
Based on the  components  of our balance  sheet at November 30, 2002, we believe
that the adoption of SFAS 144 will have an immaterial impact on our consolidated
financial position and results of operations, if any effect at all.

     In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB No. 13, and Technical Corrections". SFAS 145
promulgates rules regarding the financial accounting and reporting requirements,
which include gains and losses  resulting from the  extinguishments  of debt and
the treatment of sale-leaseback transactions. The provisions of SFAS 145 will be
effective for our fiscal year ending November 30, 2003.  Based on the components
of our balance  sheet at November 30, 2002, we believe that the adoption of SFAS
145 will have an immaterial  impact on our consolidated  financial  position and
results of operations, if at all.

     In June  2002,  the  FASB  issued  SFAS  No.  146,  "Accounting  for  Costs
Associated  with  Exit or  Disposal  Activities".  SFAS  146  promulgates  rules
regarding  exit or disposal  activities  that are initiated  after  December 31,
2002. SFAS 146 requires companies to recognize costs associated with the exit or
disposal  activities  when  they  are  incurred  rather  than  at the  date of a
commitment to an exit or disposal plan and nullifies the requirements  under the
"Emerging  Issues  Task Force No.  94-3",  "Liability  Recognition  for  Certain
Employee  Termination  Benefits  and Other Costs to Exit an Activity  (Including
Certain  Costs in a  Restructuring)".  We believe  that the adoption of SFAS 146
will  have an  immaterial  impact on our  consolidated  financial  position  and
results of operations, if at all.

     In November 2002, the FASB issued FASB  Interpretation No. 45, "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees of  Indebtedness  of Others" (FIN 45). This  Interpretation  requires
that,  upon issuance of a guarantee,  a guarantor must recognize a liability for
the fair market value of an obligation assumed under the guarantee.  Disclosures
by the guarantor in the interim and quarterly financial statements,  specific to
obligations  associated with guarantees issued, are also required by FIN 45. The
recognition  requirements of FIN 45 are effective for guarantees that are issued
after December 31, 2002.


                                       41
<PAGE>

     We believe that the adoption of this Interpretation will have an immaterial
impact on our consolidated financial position and results of operations,  if any
effect at all.

     In October  2002,  Statement  of  Financial  Accounting  Standards  No. 147
"Acquisitions  of Certain  Financial  Institutions  ("FAS 147") was issued.  The
statement  addresses the financial  accounting and reporting for the acquisition
of all or a part of a financial institution. Additionally, FAS 147 also provides
guidance on the accounting for the impairment or disposal of acquired  long-term
customer-relationship  intangible  assets. The provisions of this statement will
be effective for  acquisitions on or after October 1, 2002. Based on our initial
review of FAS 147 we believe that its adoption  will have no material  impact on
either our financial position or results of operations.

     In December 2002, the FASB issued SFAS No. 148  "Accounting for Stock-Based
Compensation  -- Transition and Disclosure  ("FAS 148").  This statement  amends
SFAS No. 123 "Accounting for Stock Based  Compensation",  providing  alternative
methods  of  voluntarily  transitioning  to  the  fair  value  based  method  of
accounting  for  stock-based  employee  compensation.   FAS  148  also  requires
disclosure of the method used to account for stock-based  employee  compensation
and the effect of the method in both  annual and interim  financial  statements.
The provisions of this statement related to transition methods are effective for
fiscal  years  ending  after  December  15,  2002  while  provisions  related to
disclosure  requirements are effective in financial  reports for interim periods
beginning  after  December  31,  2002.  We  believe  that the  adoption  of this
statement will have an immaterial impact on our consolidated  financial position
and results of operation.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         Reference  is  made  to the  Financial  Statements  referred  to in the
accompanying  Index,  setting  forth the  consolidated  financial  statements of
Traffix,    Inc.    and    subsidiaries,    together    with   the   report   of
PricewaterhouseCoopers LLP dated February 3, 2003.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS AND EXECUTIVE OFFICERS

     Set forth below are the directors  and  executive  officers of our Company,
their  respective  names  and  ages,  positions  with  our  Company,   principal
occupations and business experiences during at least the past five years and the
dates  of the  commencement  of  each  individual's  term as a  director  and/or
officer.

NAME                     AGE   POSITION
-----                    ---   -------
Jeffrey L. Schwartz ..... 54   Chairman of the Board and Chief Executive Officer
Andrew Stollman ......... 37   President, Secretary and Director
Joshua B. Gillon, Esq. .. 40   Executive Vice President and General Counsel
Daniel Harvey ........... 44   Chief Financial Officer
Richard Wentworth ....... 53   Chief Operating Officer
Gary Salmirs ............ 38   Executive Vice President -- Marketing and Sales
Murray L. Skala ......... 56   Director
Edwin A. Levy ........... 65   Director
Lawrence Burstein ....... 60   Director
Jack Silver ............. 59   Director


                                       42
<PAGE>

   DIRECTORS

     Jeffrey L. Schwartz has been our Chairman and Chief Executive Officer since
January 1995,  Secretary/Treasurer  from  September  1993 to December 1994 and a
director  since our  inception in 1993.  From  January 1979 until May 1998,  Mr.
Schwartz was also Co-President and a director of Jami Marketing Services,  Inc.,
a list brokerage and list management consulting firm, Jami Data Services,  Inc.,
a database  management  consulting  firm,  and Jami Direct,  Inc., a direct mail
graphic and creative design firm (collectively,  the "Jami Companies"). The Jami
Companies were sold by the principals thereof in May 1998.

     Andrew  Stollman has been our  President  since  November  21, 2002,  Chief
Operating Officer from January 1, 2001 to November 21, 2002, and Secretary and a
director since January 1995. From February 2000 until January 2001, Mr. Stollman
was also our Executive Vice President and from January 1995 until February 2000,
he was Senior Vice President. Mr. Stollman was our President from September 1993
to December 1994.

     Murray L. Skala has been a director  since October 1995. Mr. Skala has been
a partner in the law firm of Feder,  Kaszovitz,  Isaacson,  Weber, Skala, Bass &
Rhine,  LLP since 1976. Mr. Skala is also a director of JAKKS  Pacific,  Inc., a
publicly held company in the business of developing,  marketing and distributing
children's toys.

     Edwin A. Levy has been a director  since  November  1995. Mr. Levy has been
the Chairman of the Board of Levy,  Harkins & Co., Inc., an investment  advisor,
since 1979,  and is also a director of Coastcast  Corp., a publicly held company
in the business of manufacturing golf club heads.

     Lawrence  Burstein has been a director since April 1999.  Since March 1996,
Mr. Burstein has been Chairman of the Board and a principal shareholder of Unity
Venture  Capital   Associates,   Ltd.,  a  private  venture  capital  firm.  For
approximately  ten years  prior  thereto,  Mr.  Burstein  was the  President,  a
director and principal  stockholder of Trinity  Capital  Corporation,  a private
investment  banking  concern.  Trinity ceased  operations  upon the formation of
Unity Venture in 1996. Mr. Burstein is a director of several  companies,  being,
respectively,  THQ, Inc.,  engaged in the development and marketing of games for
Sony, Nintendo and Sega game systems; CAS Medical Systems,  Inc., engaged in the
manufacture  and  marketing  of blood  pressure  monitors  and other  disposable
products, principally for the neonatal market; Gender Sciences, Inc., engaged in
the manufacturing and distribution of nutritional supplements;  and I.D. Systems
Inc., engaged in the design, development and production of a wireless monitoring
and tracking system which uses radio frequency technology.

     Jack Silver has been a director  since January 1, 2001. He is the principal
investor  and  manager of SIAR  Capital,  an  independent  investment  fund that
invests  primarily in undervalued,  emerging  growth  companies.  Mr. Silver,  a
certified  public  accountant by  background,  has managed SIAR capital for over
twenty years.

     All directors hold office until the next annual meeting of stockholders and
the election and  qualification of their  successors.  Directors receive no cash
compensation  for serving on the Board of Directors other than  reimbursement of
reasonable  expenses incurred in attending  meetings.  Directors who are not our
employees are compensated for their services and attendance at meetings  through
the grant of options pursuant to our Stock Option Plan.

   EXECUTIVE OFFICERS

     Officers are elected  annually by the Board of  Directors  and serve at the
direction of the Board of Directors.  Two of our executive officers,  Jeffrey L.
Schwartz and Andrew  Stollman,  are also  directors of our Company.  Information
with regard to such persons is set forth above under the heading "Directors."


                                       43
<PAGE>

     The remaining executive officers are Joshua B. Gillon, Esq., Executive Vice
President and General Counsel,  Mr. Daniel Harvey,  Chief Financial Officer, Mr.
Richard Wentworth, Chief Operating Officer, and Mr. Gary Salmirs, Executive Vice
President -- Marketing and Sales.

     Mr. Gillon,  age 40, was appointed our Chief Investment Officer and General
Counsel  in April  2000.  In April  2001,  Mr.  Gillon's  title was  changed  to
Executive Vice President -- Corporate  Affairs and General Counsel.  In November
2002,  Mr.  Gillon's  title was changed to Executive  Vice President and General
Counsel.  From April 1999 through  March 2000,  Mr. Gillon served as the Project
Director for Total Energy, Inc., a home heating oil industry consolidation. From
February  1996 to March  1999,  he was a  partner  at the law  firm of  Schneck,
Weltman & Hashmall,  LLP,  specializing in mergers,  acquisitions and securities
law.  From 1990 to 1996,  he was an associate  with the law firm of Kronish Lieb
Weiner & Hellman,  LLP and from 1988 to 1990,  he was an associate  with the law
firm of Seward & Kissel, LLP. Mr. Gillon is also a director of CRIIMI MAE, Inc.,
a publicly held commercial mortgage company.

     Mr.  Harvey,  age 44, has been our Chief  Financial  Officer  since January
1997. He joined us in September  1996. From November 1991 to August 1996, he was
a Senior Manager with the accounting firm of Feldman, Gutterman,  Meinberg & Co.
Mr. Harvey is a Certified Public Accountant.

     Mr. Wentworth,  age 53, has been our Chief Operating Officer since November
21, 2002. He initially  joined us in 1998,  and had served as our Vice President
of Data Operations since January 2000. From November 1994 to 1999, Mr. Wentworth
was the President and Chief  Operating  Officer of TIAC, a prominent New England
based regional Internet Service Provider.

     Mr.  Salmirs,  age 38, has been  Executive  Vice President -- Marketing and
Sales  since  November  21,  2002.  He joined us in 1994,  and had served as our
Senior Vice President -- Marketing and Sales since  December 1995.  From 1991 to
1994,  Mr.  Salmirs  was the  President,  Chief  Operating  Officer  and primary
shareholder  of GKS  Marketing,  Inc., a direct mail  marketing and  fulfillment
service bureau.

     We haves  obtained "key man" life  insurance in the amount of $1,000,000 on
each of the lives of Jeffrey L. Schwartz and Andrew Stollman.

THE COMMITTEES

     The Board of Directors has an Audit Committee, a Compensation Committee and
a Stock  Option  Committee.  The Board of  Directors  does not have a Nominating
Committee,  and the usual  functions  of such a committee  are  performed by the
entire Board of Directors.

     AUDIT  COMMITTEE.  The functions of the Audit Committee are to recommend to
the Board of Directors the engagement of the independent accountants, review the
audit plan and results of the audit  engagement,  review the independence of the
auditors and review the adequacy of our system of internal accounting  controls.
The current  members of the Audit  Committee  are  Messrs.  Levy,  Burstein  and
Silver.

     COMPENSATION  COMMITTEE.  The function of the Compensation  Committee is to
make  recommendations  to the Board with respect to  compensation  of management
employees.  In  addition,  the  Compensation  Committee  administers  plans  and
programs,  with the  exception of our stock option  plans,  relating to employee
benefits,  incentives and compensation.  The current members of the Compensation
Committee are Messrs. Skala and Burstein.

     STOCK OPTION COMMITTEE.  The Stock Option Committee  determines the persons
to whom options should be granted under our stock option plans and the number of
options to be granted to each  person.  The current  members of the Stock Option
Committee are Messrs. Levy and Burstein.


                                       44
<PAGE>

ATTENDANCE AT MEETINGS

     From  December 1, 2001 through  November 30, 2002,  the Board of Directors,
Stock Option Committee,  Audit Committee and Compensation  Committee each met or
acted without a meeting  pursuant to unanimous  written consent five times,  six
times, one time and one time, respectively.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     To the best of our  knowledge,  during the fiscal year ended  November  30,
2002,  (i) Gary Salmirs and Richard  Wentworth each untimely filed one report on
Form 3; (ii) Lawrence  Burstein,  Joshua B. Gillon,  Daniel Harvey,  Edwin Levy,
Jack Silver and Murray L. Skala each  untimely  filed one report on Form 4, each
reporting one  transaction;  and (iii) Eric Aroesty untimely filed one report on
Form 4  reporting  one  transaction  and  failed  to file one  report  on Form 5
reporting  three  transactions.   These  individuals  were  executive  officers,
directors and/or  beneficial  owners of more than 10% of our Common Stock during
the fiscal year ended November 30, 2002. To the best of our knowledge, all other
Forms 3, 4 and 5 required to be filed during the fiscal year ended  November 30,
2002 were done so on a timely basis.


                                       45
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

     The following table sets forth the executive  compensation  paid during the
three  fiscal years ended  November  30,  2002,  2001 and 2000 for (i) our Chief
Executive  Officer;  (ii) our four most highly  compensated  executive  officers
(other than the Chief Executive  Officer) whose cash compensation for the fiscal
year ended November 30, 2002 exceeded  $100,000;  and (iii) up to two additional
individuals for whom disclosure  would have been provided under the above clause
(ii) but for the fact  that  the  individuals  were  not  serving  as  executive
officers at the end of the last completed fiscal year (the "Named Officers").

<TABLE>
<CAPTION>
                                                                                    LONG TERM COMPENSATION
                                                                        ----------------------------------------------
                                         ANNUAL COMPENSATION                     AWARDS                 PAYOUTS
                               ---------------------------------------  ----------------------  ----------------------
             (A)               (B)       (C)         (D)        (E)        (F)          (G)         (H)          (I)
------------------------------ ----   ---------   ---------  ---------  ----------  ----------  -----------  ---------
                                                               OTHER                SECURITIES               ALL OTHER
                                                              ANNUAL    RESTRICTED  UNDERLYING                COMPEN-
NAME AND                               SALARY       BONUS    COMPENSA-     STOCK      OPTIONS      PLAN       SATION
PRINCIPAL POSITION             YEAR      ($)          ($)     TION ($)     AWARDS        (#)     PAYOUTS ($)     ($)
---------------                ----   ---------   ---------  ---------  ----------  ----------  -----------  ---------
<S>                            <C>    <C>          <C>           <C>         <C>      <C>            <C>         <C>
Jeffrey L. Schwartz .......... 2002   $500,000     $185,707      0           0        105,000        0           0
   Chairman and                2001   $444,000     $200,000      0           0        150,000        0           0
   Chief Executive Officer     2000   $405,000     $185,000      0           0        100,000        0           0

Andrew Stollman .............. 2002   $450,000     $185,707      0           0        105,000        0           0
   President and               2001   $401,000     $200,000      0           0        135,000        0           0
   Secretary                   2000   $367,000     $165,000      0           0        100,000        0           0

Eric Aroesty ................. 2002   $363,377            0      0           0              0        0           0
   Former President (1)        2001   $294,000     $150,000      0           0              0        0           0
                               2000   $185,000            0      0           0              0        0           0

Joshua B. Gillon, Esq. ....... 2002   $244,244     $ 50,000      0           0              0        0           0
   Executive Vice President    2001   $225,000     $ 50,000      0           0        175,000        0           0
   and General Counsel         2000   $133,000(2)  $ 25,000      0           0        100,000        0           0

Daniel Harvey ................ 2002   $196,706     $ 40,000      0           0              0        0           0
   Chief Financial             2001   $184,000     $ 40,000      0           0         79,000        0           0
   Officer                     2000   $177,000     $ 30,000      0           0         29,000        0           0

Gary Salmirs ................. 2002   $240,000     $100,000      0           0              0        0           0
   Executive Vice              2001   $240,000     $117,345      0           0        120,050        0           0
   President -- Marketing and  2000   $240,000            0      0           0              0        0           0
   Sales (3)
</TABLE>

--------------
(1)  Mr. Aroesty resigned as an executive officer,  employee and director of our
     Company on  November  21,  2002.  See  "Certain  Relationships  and Related
     Transactions".

(2)  Mr.  Gillon's  salary during 2000 was $200,000 per annum,  however,  he was
     first employed by us on April 5, 2000.

(3)  Mr.  Salmirs has served as our  employee  since 1995,  but first  became an
     executive  officer in November 2002 upon his  appointment as Executive Vice
     President -- Marketing and Sales.


                                       46
<PAGE>

     The following table sets forth certain  information  regarding the granting
of options to the Named Officers during the fiscal year ended November 30, 2002.

                        OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                                                                             POTENTIAL
                                                                                            REALIZABLE
                                                                                         VALUE AT ASSUMED
                                                                                              ANNUAL
                                                                                          RATES OF STOCK
                                                                                        PRICE APPRECIATION
                                                                                            FOR OPTION
                                                   INDIVIDUAL GRANTS                         TERM (2)
                                   -------------------------------------------------------   -------------------
               (A)                     (B)            (C)             (D)           (E)         (F)        (G)
-------------------------------    -----------  ---------------   -----------   ----------   --------   --------
                                   NUMBER OF
                                   SECURITIES     % OF TOTAL
                                   UNDERLYING   OPTIONS GRANTED   EXERCISE OR
                                     OPTIONS    TO EMPLOYEES IN   BASE PRICE    EXPIRATION
NAME                               GRANTED (#)  FISCAL YEAR (1)    ($/SHARE)       DATE        5%($)     10%($)
-----                              -----------  ---------------   -----------   ----------   --------   --------
<S>                                 <C>             <C>              <C>        <C>          <C>        <C>
Jeffrey L. Schwartz ............    105,000(3)      12.97%           $5.70      12/1/2011    $376,394   $953,855
Andrew Stollman ................    105,000(3)      12.97%            5.70      12/1/2011     376,394    953,855
</TABLE>

-------------
(1)  Options to purchase a total of 809,250  shares of Common Stock were granted
     to our employees and consultants,  including the Named Officers, during the
     fiscal year ended November 30, 2002.

(2)  Based upon the closing price of the Common  Stock,  as listed by the Nasdaq
     National Market, on the date of grant of the respective options.

(3)  One-third (1/3) of these options became  exercisable on their date of grant
     and on the one-year  anniversary thereof, and the remaining one-third (1/3)
     becomes exercisable on the two-year anniversary thereof.

     The  following  table  sets forth  certain  information  regarding  options
exercised and exercisable during the fiscal year ended November 30, 2002 and the
value of the options held as of November 30, 2002 by the Named Officers.

                 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                        AND FISCAL YEAR-END OPTION VALUE

<TABLE>
<CAPTION>
               (A)                      (B)              (C)                     (D)                           (E)
-------------------------------   --------------    ------------  ------------------------------   --------------------------
                                                                       NUMBER OF SECURITIES          VALUE OF UNEXERCISED
                                                                      UNDERLYING UNEXERCISED         IN-THE-MONEY OPTIONS
                                                                  OPTIONS AT FISCAL YEAR-END (#)   AT FISCAL YEAR-END (1)($)
                                                                  ------------------------------   ---------------------------
                                  SHARES ACQUIRED      VALUE
NAME                              ON EXERCISE (#)   REALIZED ($)    EXERCISABLE   UNEXERCISABLE    EXERCISABLE   UNEXERCISABLE
-----                             --------------    ------------    -----------   -------------    -----------   -------------
<S>                                        <C>               <C>      <C>             <C>            <C>                  <C>
Jeffrey L. Schwartz ..........             0                 0        422,245         70,000         $185,611             0
Andrew Stollman ..............             0                 0        375,010         70,000          149,213             0
Eric Aroesty .................       365,789          $281,658              0              0                0             0
Joshua B. Gillon .............             0                 0        183,335         91,665           42,834       $21,416
Daniel Harvey ................        22,000            85,533         39,333         26,332            2,070        14,620
Gary Salmirs .................        17,500            92,603         91,384         16,666           60,834            --
</TABLE>

------------
(1)  The product of (x) the  difference  between $2.91 (the closing price of our
     Common Stock at November 29, 2002,  as reported by Nasdaq) and the exercise
     price  of  the  unexercised  options,  multiplied  by  (y)  the  number  of
     unexercised options.


                                       47
<PAGE>

BOARD COMPENSATION

     As a result of our policy to  compensate  non-employee  directors for their
services,  our 1996 Stock Option Plan,  as amended and  restated  (the  "Plan"),
provides  for an  automatic  one-time  grant to all  non-employee  directors  of
options to purchase  25,000 shares of Common Stock and for additional  automatic
quarterly  grants of options  to  purchase  6,250  shares of Common  Stock.  The
exercise  prices for all of such  non-employee  director  options are the market
value of the Common Stock on their date of grant.

EMPLOYMENT AGREEMENTS

     We have entered into  employment  agreements,  effective  December 1, 2001,
with each of Jeffrey L. Schwartz and Andrew  Stollman,  which expire on November
30, 2004. Pursuant to such agreements,  (i) Mr. Schwartz is employed as Chairman
and Chief  Executive  Officer and Mr.  Stollman  is employed as Chief  Operating
Officer (which title has since been changed to President); (ii) Messrs. Schwartz
and Stollman  were paid $500,000 and $450,000 per annum,  respectively,  for the
fiscal year ended November 30, 2002, and in each subsequent 12 month period will
be paid at a rate to be  determined  by our Board of  Directors,  but that is at
least ten percent (10%) more than the annual rate in the  immediately  preceding
year;  (iii) Messrs.  Schwartz and Stollman  will each receive  bonuses upon our
Company's  achievement  of  certain  pre-tax  income  milestones,   as  well  as
discretionary  bonuses  subject  to  approval  of our Board of  Directors;  (iv)
Messrs.  Schwartz  and  Stollman  were each  issued 10 year  options  to acquire
105,000 shares of our Common Stock at an exercise price of $5.70 per share;  (v)
Messrs. Schwartz and Stollman each agreed not to compete or engage in a business
competitive  with our business during the term of the agreement and for a period
of one year  thereafter;  (vi) if an employee's  employment is terminated  other
than as a result of a "For Cause  Event" (as  defined in the  agreements),  such
employee  shall  be  entitled  to  receive  additional  compensation  and  other
consideration,  all as more fully described in the  agreements;  and (vii) if an
employee's  employment  is  terminated  as a result of a "Change in Control" (as
defined  in the  agreements),  such  employee  shall be  entitled  to  receive a
one-time  payment in an amount equal to 2.99 times his "base amount"  determined
in accordance with the applicable  provisions of the Internal  Revenue Code. The
foregoing is only a summary of the material terms of our  employment  agreements
with the Named Officers.  For a complete description,  copies of such agreements
are annexed hereto in their  entirety as exhibits or are otherwise  incorporated
herein by reference.

COMPENSATION COMMITTEE INTERLOCK AND INSIDER PARTICIPATION

     The Compensation  Committee of our Board of Directors from December 1, 2001
through  November 30, 2002  consisted of Murray L. Skala and Lawrence  Burstein.
See "Certain Relationships and Related Transactions."


                                       48
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth information,  as of February 10, 2003, based
upon  information  obtained from the persons named below,  regarding  beneficial
ownership  of our  Common  Stock  by (i) each  person  who is known by us to own
beneficially  more than 5% of the outstanding  shares of our Common Stock,  (ii)
each  director of our Company,  (iii) each of the Named  Officers,  and (iv) all
executive officers and directors of our Company as a group.

<TABLE>
<CAPTION>
NAME AND ADDRESS OF                                              NUMBER OF SHARES         PERCENT
BENEFICIAL OWNER (1)                                          BENEFICIALLY OWNED (2)   OF CLASS (2)
--------------------                                          ----------------------   ------------
<S>                                                                 <C>                   <C>
Jeffrey L. Schwartz .......................................         2,555,110(3)          17.35%
Jack Silver ...............................................         1,762,450(4)          12.28
   660 Madison Avenue
   New York, NY 10021
Michael G. Miller .........................................         1,645,723             11.53
   5 Sky Drive
   New City, NY 10956
Andrew Stollman ...........................................         1,257,242(5)           8.57
Joshua B. Gillon, Esq .....................................           225,001(6)           1.55
Edwin A. Levy .............................................           200,100(7)           1.39
   570 Lexington Avenue
   New York, NY 10022
Murray L. Skala ...........................................           142,750(8)           *
   750 Lexington Avenue
   New York, NY 10022
Lawrence Burstein .........................................           118,750(9)           *
   245 Fifth Avenue
   New York, NY 10016
Gary Salmirs ..............................................            74,717(10)          *
Eric Aroesty ..............................................            74,000              *
Daniel Harvey .............................................            65,665(11)          *
All executive officers and directors as a group (9 persons)         6,527,452(12)         40.63
</TABLE>

------------
*    Less than 1% of our outstanding shares.

(1)  Unless otherwise provided,  such person's address is c/o Traffix, Inc., One
     Blue Hill Plaza, Pearl River, New York 10965.

(2)  The number of shares of Common Stock  beneficially  owned by each person or
     entity is determined  under the rules  promulgated  by the  Securities  and
     Exchange  Commission  (the  "Commission").  Under  such  rules,  beneficial
     ownership  includes any shares as to which the person or entity has sole or
     shared voting power or investment  power. The percentage of our outstanding
     shares is calculated by including among the shares owned by such person any
     shares which such person or entity has the right to acquire  within 60 days
     after  February  10,  2003.  The  inclusion  herein  of any  shares  deemed
     beneficially owned does not constitute an admission of beneficial ownership
     of such shares.

(3)  Includes  457,245  shares of Common Stock issuable upon exercise of options
     held by Mr. Schwartz.

(4)  Includes (i) 992,300  shares of Common Stock owned by a profit sharing plan
     of which Mr. Silver is a Trustee; (ii) 117,000 shares of Common Stock owned
     by Mr. Silver's  children;  (iii) 148,000 shares of Common Stock owned by a
     pension  plan of which Mr.  Silver is a  Trustee;  (iv)  423,900  shares of
     Common Stock held by


                                       49
<PAGE>

     a trust for the benefit of Mr. Silver's  children,  of which Mr. Silver was
     the donor; and (v) 81,250 shares of Common Stock issuable upon the exercise
     of options held by Mr. Silver.

(5)  Includes  410,010  shares of Common Stock issuable upon exercise of options
     held by Mr. Stollman.

(6)  Represents  shares of Common  Stock  issuable  upon the exercise of options
     held by Mr. Gillon.

(7)  Represents  25,100  shares of Common Stock held by a fund of which Mr. Levy
     is the General  Partner and 175,000  issuable upon exercise of options held
     by Mr. Levy.

(8)  Includes  138,750  shares of Common Stock issuable upon exercise of options
     held by Mr. Skala.

(9)  Represents shares of Common Stock issuable upon exercise of options held by
     Mr. Burstein.

(10) Represents shares of Common Stock issuable upon exercise of options held by
     Mr. Salmirs.

(11) Represents  shares of Common  Stock  issuable  upon the exercise of options
     held by Mr. Harvey.

(12) Includes  1,798,055  shares of Common Stock  issuable  upon the exercise of
     options held by our  executive  officers and  directors.  See footnotes (3)
     through (11), above.

EQUITY COMPENSATION PLAN INFORMATION

     The table below sets forth the following  information as of the fiscal year
ended November 30, 2002 for (i) all compensation  plans  previously  approved by
our stockholders and (ii) all compensation plans not previously  approved by our
stockholders, if any:

          (a) the  number  of  securities  to be  issued  upon the  exercise  of
     outstanding options, warrants and rights;

          (b) the  weighted-average  exercise price of such outstanding options,
     warrants and rights; and

          (c) other  than  securities  to be issued  upon the  exercise  of such
     outstanding  options,   warrants  and  rights,  the  number  of  securities
     remaining available for future issuance under the plans.

<TABLE>
<CAPTION>
                                                                                                   (C)
                                                                                                NUMBER OF
                                                   (A)                                    SECURITIESREMAINING
                                        NUMBER OF SECURITIES TO           (B)             AVAILABLE FOR FUTURE
                                             BE ISSUED UPON        WEIGHTED-AVERAGE       ISSUANCE UNDER EQUITY
                                        EXERCISE OF OUTSTANDING    EXERCISE PRICE OF       COMPENSATION PLANS
                                         OPTIONS, WARRANTS AND    OUTSTANDING OPTIONS,    (EXCLUDING SECURITIES
PLAN CATEGORY(1)                                 RIGHTS           WARRANTS AND RIGHTS    REFLECTED IN COLUMN (A))
---------------                         -----------------------   --------------------   ------------------------
<S>                                             <C>                       <C>                    <C>
Equity Compensation Plans
Approved by Securityholders ...........         2,783,677                 $4.40                  1,282,145

Equity Compensation Plans
Not Approved by Securityholders .......                 0                     0                          0
                                                ---------                 -----                  ---------
     Total ............................         2,783,677                 $4.40                  1,282,145
                                                ---------                 -----                  ---------
</TABLE>

-----------------
(1)  Equity  compensation  plans approved by our  stockholders  include the 1995
     Employee  Stock  Option  Plan and the  Fourth  Amended  and  Restated  1996
     Employee Stock Option Plan. We do not have an equity compensation plan that
     has not been approved by our stockholders.


                                       50
<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     On December 14,  2001,  each of Jeffrey L.  Schwartz  and Andrew  Stollman,
executive  officers of our  Company,  entered into a Purchase  Agreement  with a
group of  investment  funds  unaffiliated  with us,  pursuant  to which  Messrs.
Schwartz and Stollman each sold 200,000 shares of Common Stock  (400,000  shares
in the aggregate),  at a price of $5.75 per share (for proceeds of $1,150,000 to
each of Messrs. Schwartz and Stollman). Such individuals also agreed, that for a
period of six (6) months after such sale,  they would not (with certain  limited
exceptions,  as enumerated in the Purchase  Agreements),  without the consent of
the investment funds, sell, assign, pledge, transfer or otherwise dispose of any
securities of our Company.  In such  Purchase  Agreements,  we provided  several
covenants, including (i) the obligation to register such 400,000 shares with the
Commission  on Form S-3;  (ii) use all  reasonable  best  efforts  to cause such
registration  statement to be declared  effective  within 120 days after filing;
and (iii) cause such  registration  statement to remain  continuously  effective
until December 13, 2003. Such registration  statement was declared  effective by
the Commission on January 31, 2002. We agreed to indemnify the investment  funds
(limited  to the  amount  of the  proceeds  received  by  Messrs.  Schwartz  and
Stollman)  in the event we breach any of the  covenants  we made in the Purchase
Agreements.

     Murray L. Skala, a director of our Company, is a partner in the law firm of
Feder,  Kaszovitz,  Isaacson,  Weber,  Skala,  Bass & Rhine LLP,  our  attorneys
("Feder  Kaszovitz").  We incurred charges of approximately  $798,000 during the
fiscal year ended  November  30,  2002.  Feder  Kaszovitz  continues  to provide
services to us during our current fiscal year.  Its fees are based  primarily on
hourly  rates.  We believe that our  relationship  with such firm is on terms no
less  favorable  to us than could have been  obtained  from  unaffiliated  third
parties.

ITEM 14. CONTROLS AND PROCEDURES

          (a) Evaluation of disclosure controls and procedures.

     Our Chief Executive Officer and Chief Financial  Officer,  after evaluating
the  effectiveness  of our  disclosure  controls and  procedures  (as defined in
Exchange Act Rules  13a-14(c) and  15-d-14(c) as of a date within 90 days of the
filing date of this Annual Report (the "Evaluation Date") have concluded that as
of the Evaluation Date, our disclosure controls and procedures were adequate and
effective  to  ensure  that  material   information   relating  to  us  and  our
consolidated  subsidiaries  would be made known to us and them by others  within
those entities,  particularly  during the period in which this Annual Report was
being prepared.

          (b) Changes in internal controls.

     There were no  significant  changes in our  internal  controls  or in other
factors that could  significantly  affect our disclosure controls and procedures
subsequent to the Evaluation Date, nor any significant  deficiencies or material
weaknesses  in such  disclosure  controls and  procedures  requiring  corrective
actions. As a result, no corrective actions were taken.


                                       51
<PAGE>

                                     PART IV

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

     (A) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.

  (I) FINANCIAL STATEMENTS:

     See Index to Financial Statements.

 (II) FINANCIAL STATEMENT SCHEDULES:

     Schedule of Valuation and Qualifying Accounts and Reserves

     All other financial  statement schedules have been omitted since either (i)
the schedule or  condition  requiring a schedule is not  applicable  or (ii) the
information required by such schedule is contained in the Consolidated Financial
Statements  and Notes  thereto or in  Management's  Discussion  and  Analysis of
Financial Condition and Results of Operation.

     (B) REPORTS ON FORM 8-K.

     On November 26, 2002,  we filed a Current  Report on Form 8-K reporting the
consummation  of  the  transactions   contemplated  by  the  November  20,  2002
Redemption  Agreement  with  Eric  Aroesty,  a  former  principal   stockholder,
executive officer and director of our Company (the "Closing"), including:

     (i) Our redemption  from Mr. Aroesty of 262,243 shares of Common Stock at a
price of $2.52 per share for aggregate consideration of $660,852.

     (ii) Mr. Aroesty's exercise of options to purchase 365,789 shares of Common
Stock at an  exercise  price of $1.75 per  share,  for total  proceeds  to us of
$640,131.

     (iii) Our  redemption of the 365,789  shares  acquired  upon Mr.  Aroesty's
option   exercise  at  a  purchase  price  of  $2.52  per  share  for  aggregate
consideration of $921,788,  and after the transactions described in (i) and (ii)
above,  resulting  in (a) net proceeds to Mr.  Aroesty of $942,510,  and (b) our
redemption of Mr. Aroesty's 623,032 shares of Common Stock.

     (iv) Mr.  Aroesty's  agreement that for a period of 6 months after the date
of the Redemption  Agreement,  he would not sell,  assign,  transfer  (including
without  limitation by gift) or otherwise  dispose of any of our securities,  or
any interest therein or right thereto,  except under certain "change of control"
circumstances.

     (v) Mr. Aroesty's undertaking not to, directly or indirectly,  compete with
us for a period of one year after the Closing.

     (vi) Mr.  Aroesty's  resignation  as our  President  and as a member of our
Board of Directors.

     Other than the foregoing,  we did not file any Current  Reports on Form 8-K
during the quarter ended November 30, 2002.


                                       52
<PAGE>

(C) EXHIBITS.

EXHIBIT
 NUMBER
---------

 3.1.1     Articles of Incorporation of the Company, as amended (1)

 3.1.2     Amendment to the Articles of Incorporation of the Company (2)

 3.2       Bylaws of the Company (3)

10.1       Fourth Amended and Restated 1996 Stock Option Plan (4)

10.2       Lease of the Company's offices at One Blue Hill Plaza, Pearl River,
           New York (5)

10.3.1     December 1, 2001 Employment Agreement by and between the Company and
           Jeffrey L. Schwartz (6)

10.3.2     December 1, 2001 Employment Agreement by and between the Company and
           Andrew Stollman (6)

21*        Subsidiaries of the Company

-------------
*    Filed herewith.

(1)  Filed as an Exhibit to the  Company's  Registration  Statement  on Form 8-A
     dated October 23, 1995 and incorporated herein by reference.

(2)  Filed as an Exhibit to the Company's  Quarterly Report on Form 10-Q for the
     fiscal quarter ended August 31, 1998 and incorporated herein by reference.

(3)  Filed as an Exhibit to the  Company's  Registration  Statement  on Form S-1
     dated  September 6, 1995 (File No.  33-96632)  and  incorporated  herein by
     reference.

(4)  Filed  as an  Exhibit  to the  Company's  Proxy  Statement  filed  with the
     Commission, dated July 17, 2002 and incorporated herein by reference.

(5)  Filed as an  Exhibit  to the  Company's  Current  Report  on Form 8-K dated
     December 26, 2000 and incorporated herein by reference.

(6)  Filed as an Exhibit to the Company's  Form 10-K for the year ended November
     30, 2001 and incorporated herein by reference.


                                       53
<PAGE>

                                   SIGNATURES

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

                                             Traffix, Inc.


                                             By: /s/  Jeffrey L. Schwartz
                                                 -------------------------------
                                                      Jeffrey L. Schwartz
     Dated: February 27, 2003                         CHAIRMAN AND CEO

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

<TABLE>
<CAPTION>
          SIGNATURE                          TITLE                        DATE
          ---------                          ----                         -----
<S>                          <C>                                    <C>
/s/  JEFFREY L. SCHWARTZ     Chairman and Chief Executive Officer   February 27, 2003
--------------------------   (Principal Executive Officer)
     Jeffrey L. Schwartz

/s/    DANIEL HARVEY         Chief Financial Officer (Principal     February 27, 2003
--------------------------   Financial and Accounting Officer)
       Daniel Harvey

/s/   ANDREW STOLLMAN        President, Secretary and Director      February 27, 2003
--------------------------
      Andrew Stollman

/s/   MURRAY L. SKALA        Director                               February 27, 2003
--------------------------
      Murray L. Skala

/s/    EDWIN A. LEVY         Director                               February 27, 2003
--------------------------
       Edwin A. Levy

/s/  LAWRENCE BURSTEIN       Director                               February 27, 2003
--------------------------
     Lawrence Burstein

/s/      JACK SILVER         Director                               February 27, 2003
--------------------------
         Jack Silver
</TABLE>


                                       54
<PAGE>

                                 CERTIFICATIONS

I, Jeffrey L. Schwartz, certify that:

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

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

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

4.  The  registrant's  other  certifying  officer  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 we 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 officer and I have disclosed,  based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
the  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 officer 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: February 27, 2003

                                        By: /s/ JEFFREY L. SCHWARTZ
                                            -------------------
                                            Jeffrey L. Schwartz
                                            Chairman and Chief Operating Officer


                                       55
<PAGE>

I, Daniel Harvey, certify that:

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

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

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

4.  The  registrant's  other  certifying  officer  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 we 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 officer and I have disclosed,  based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
the  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 officer 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: February 27, 2003

                                                     By: /s/ DANIEL HARVEY
                                                         -------------------
                                                         Daniel Harvey
                                                         Chief Financial Officer


                                       56
<PAGE>
                         TRAFFIX, INC. AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                        AND FINANCIAL STATEMENT SCHEDULE

                                                                          PAGE
                                                                          ----
Report of Independent Accountants ......................................   F-1
Consolidated Balance Sheets as of November 30, 2002 and 2001 ...........   F-2
Consolidated  Statements of Operations for the years ended  November 30,
  2002, 2001 and 2000 ..................................................   F-3
Consolidated  Statements of  Shareholders' Equity for the years ended
  November 30, 2002, 2001 and 2000 .....................................   F-4
Consolidated Statements of Cash Flows for the years ended November 30,
  2002, 2001 and 2000 ..................................................   F-5
Notes to Consolidated Financial Statements .............................   F-6
Schedule II -- Valuation and Qualifying Accounts and Reserves ...........  S-1

<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
Traffix, Inc.:

     In  our  opinion,  the  consolidated  financial  statements  listed  in the
accompanying  index  present  fairly,  in all material  respects,  the financial
position of Traffix,  Inc. and its Subsidiaries  (the "Company") at November 30,
2002 and 2001, and the results of their operations and their cash flows for each
of the three years in the period  ended  November  30, 2002 in  conformity  with
accounting  principles  generally  accepted in the United States of America.  In
addition,  in our  opinion,  the  financial  statement  schedule  listed  in the
accompanying  index presents fairly, in all material  respects,  the information
set  forth  therein  when  read in  conjunction  with the  related  consolidated
financial  statements.   These  financial  statements  and  financial  statement
schedule are the responsibility of the Company's management;  our responsibility
is to express an opinion on these financial  statements and financial  statement
schedule  based on our audits.  We conducted  our audits of these  statements in
accordance with auditing  standards  generally  accepted in the United States of
America,  which require that we plan and perform the audit to obtain  reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the  amounts  and  disclosures  in  the  financial  statements,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for our opinion.

RICEWATERHOUSEcOOPERS LLP

Florham Park, New Jersey
February 3, 2003


                                      F-1
<PAGE>

                         TRAFFIX, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                        AS OF NOVEMBER 30, 2002 AND 2001

<TABLE>
<CAPTION>
                                                                                2002            2001
                                                                            ------------    ------------
<S>                                                                         <C>             <C>
ASSETS
Current assets:
   Cash and cash equivalents ............................................   $ 23,136,341    $ 14,458,055
   Marketable securities ................................................     14,249,406      23,677,999
   Accounts receivable, trade, net of allowance for doubtful accounts
     of $326,127 and $383,676 in 2002 and 2001, respectively ............      5,050,218       7,326,032
   Deferred income taxes ................................................      1,524,821       3,242,815
   Due from related parties .............................................         57,548         106,654
   Prepaid income taxes .................................................      1,195,808              --
   Prepaid expenses and other current assets ............................      1,138,362       1,415,836
                                                                            ------------    ------------
          Total current assets ..........................................     46,352,504      50,227,391
Property and equipment, at cost, net of accumulated depreciation ........      2,169,156         951,702
Goodwill and identifiable intangibles, net ..............................      2,619,707       1,362,407
Deferred income taxes ...................................................         49,626         147,084
Other long-term assets ..................................................             --          54,000
                                                                            ------------    ------------
          Total assets ..................................................   $ 51,190,993    $ 52,742,584
                                                                            ============    ============
LIABILITIES
Current liabilities:
   Accounts payable .....................................................   $  2,197,458    $  3,928,418
   Accrued expenses .....................................................      4,457,644       4,098,921
   Due to related parties ...............................................        353,307         469,935
   Income taxes payable .................................................             --       1,672,953
                                                                            ------------    ------------
          Total current liabilities .....................................      7,008,409      10,170,227
Deferred income taxes ...................................................         89,559              --
                                                                            ------------    ------------
          Total liabilities .............................................      7,097,968      10,170,227
                                                                            ------------    ------------
Commitments and contingencies (Note 11)
Minority interest .......................................................        307,017         159,651
                                                                            ------------    ------------
SHAREHOLDERS' EQUITY
Preferred stock--$.001 par value; 1,000,000 shares authorized;
   none issued and outstanding ..........................................             --              --
Common stock--$.001 par value; authorized 50,000,000 shares; issued
   14,216,729 shares and 14,290,491 shares in 2002 and 2001, respectively         14,215          14,289
Common stock issuable--$.001 par value; 78,347 shares ...................        485,758              --
Additional paid-in capital ..............................................     41,692,066      41,395,784
Retained earnings .......................................................      5,948,160       3,206,770
Accumulated other comprehensive income ..................................         33,056          72,577
Common stock held in treasury, at cost, 1,509,428 and 961,403
   shares in 2002 and 2001, respectively ................................     (4,387,247)     (2,276,714)
                                                                            ------------    ------------
          Total shareholders' equity ....................................     43,786,008      42,412,706
                                                                            ------------    ------------
          Total liabilities and shareholders' equity ....................   $ 51,190,993    $ 52,742,584
                                                                            ============    ============
</TABLE>

           See accompanying notes to consolidated financial statements


                                      F-2
<PAGE>

                         TRAFFIX, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED NOVEMBER 30, 2002, 2001 AND 2000

<TABLE>
<CAPTION>
                                                          2002            2001             2000
                                                      ------------    ------------    ------------
<S>                                                   <C>             <C>             <C>
Net revenue .......................................   $ 44,042,925    $ 32,209,410    $ 26,611,863
Cost of sales .....................................     12,243,635       9,152,462       9,057,027
                                                      ------------    ------------    ------------
     Gross profit .................................     31,799,290      23,056,948      17,554,836
Selling expenses ..................................     11,472,688       4,437,273       1,471,695
General and administrative expenses ...............     15,251,422      11,262,556      10,090,945
Bad debt expense ..................................        647,875       1,083,826         517,903
                                                      ------------    ------------    ------------
     Income from operations .......................      4,427,305       6,273,293       5,474,293
Other income (expense):
   Interest expense ...............................       (101,385)         (5,900)       (286,655)
   Interest income and dividends ..................        783,143       1,780,546       2,646,622
   Realized gains on marketable securities ........         76,607         387,948         863,384
   Permanent impairment charges ...................             --      (4,690,258)     (2,139,315)
   Gain on nonmonetary cost basis exchange ........             --              --         565,572
   Other non-operating income (expense) ...........       (254,670)         16,699       1,354,723
   Minority interest in (income) loss of subsidiary       (402,716)        (69,629)        140,000
                                                      ------------    ------------    ------------
     Income before provision for income taxes .....      4,528,284       3,692,699       8,618,624
Provision for income taxes ........................      1,786,894       3,275,200       3,471,754
                                                      ------------    ------------    ------------
     Net income ...................................   $  2,741,390    $    417,499    $  5,146,870
                                                      ============    ============    ============
Basic earnings per share (Note 12):
   Net income .....................................   $       0.21    $       0.03    $       0.35
                                                      ------------    ------------    ------------
   Weighted average shares outstanding ............     13,350,794      14,794,159      14,792,734
                                                      ============    ============    ============
Diluted earnings per share (Note 12):
   Net income .....................................   $       0.19    $       0.03    $       0.33
                                                      ------------    ------------    ------------
   Weighted average shares outstanding ............     14,247,450      15,396,619      15,494,663
                                                      ============    ============    ============
</TABLE>

           See accompanying notes to consolidated financial statements


                                      F-3
<PAGE>

                         TRAFFIX, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
              FOR THE YEARS ENDED NOVEMBER 30, 2002, 2001 AND 2000

<TABLE>
<CAPTION>


                                           COMMON STOCK        COMMON      ADDITIONAL                    TREASURY STOCK
                                      ---------------------    STOCK        PAID-IN       RETAINED    ------------------------
                                        SHARES      AMOUNTS   ISSUABLE      CAPITAL       EARNINGS     SHARES       AMOUNT
                                      ----------   --------   --------   ------------   -----------   ---------   ------------
<S>                                   <C>          <C>        <C>        <C>            <C>           <C>         <C>
BALANCE, NOVEMBER 30, 1999 .......... 15,469,590   $ 15,469              $ 37,482,479   $ 3,544,568   942,853     $ (2,201,900)
Net income for the year .............                                                     5,146,870
Unrealized (losses) on
  available-for-sale securities .....

    Comprehensive income (loss) .....

Stock option exercises ..............    211,526        211                   408,479
Tax benefit from exercise of
  stock options .....................                                         448,880
Common stock issued in connection
  with long-term investment .........    229,862        230                 1,615,976
Purchase and retirement of
  common stock ......................   (229,862)      (230)                 (746,822)
                                      ----------   --------              ------------   -----------   ---------   ------------
BALANCE, NOVEMBER 30, 2000 .......... 15,681,116     15,680        --      39,208,992     8,691,438     942,853     (2,201,900)
Net income for the year .............                                                       417,499
Realized losses on
  available-for-sale securities .....

    Comprehensive income (loss) .....

Stock option exercises ..............    273,132        273                   480,633
Tax benefit from exercise of
  stock options .....................                                         240,265
Compensation expense
  related to options ................                                         116,218
Common stock issued in connection
  with acquisition of minority
  interest ..........................    336,243        336                 1,445,509
Purchase of common stock, held in
  treasury, at cost .................                                                                    18,550        (74,814)
Purchase and retirement of
  common stock ...................... (2,000,000)    (2,000)                  (95,833)   (5,902,167)
                                      ----------   --------              ------------   -----------   ---------   ------------
BALANCE, NOVEMBER 30, 2001 .......... 14,290,491     14,289        --      41,395,784     3,206,770     961,403     (2,276,714)
Net income for the year .............                                                     2,741,390
Unrealized losses on
  available-for-sale securities .....
Foreign Currency
  Translation adjustment ............

  Comprehensive income (loss) .......

Stock option exercises ..............    554,270        554                 1,224,143
Tax benefit from exercise of
  stock options .....................                                         171,909
Common stock issued in
  connection with acquisition .......     39,174         39                   242,840
Net proceeds on non-management
  trading gain disgorgement .........                                         114,402
Common stock issuable in
  connection with acquisition .......               485,758
Purchase of common stock,
  held in treasury, at cost .........                                                                   548,025     (2,110,533)
Purchase and retirement of ..........         --
  common stock ......................   (667,206)      (667)               (1,457,012)           --
                                      ----------   --------   --------   ------------   -----------   ---------   ------------
BALANCE, NOVEMBER 30, 2002 .......... 14,216,729   $ 14,215   $485,758   $ 41,692,066   $ 5,948,160   1,509,428   $ (4,387,247)
                                      ==========   ========   ========   ============   ===========   =========   ============
</TABLE>

                                      ACCUMULATED
                                         OTHER          TOTAL
                                      COMPREHENSIVE      SHARE-
                                         (LOSS)        HOLDERS'
                                         INCOME         EQUITY
                                      -------------  ------------
BALANCE, NOVEMBER 30, 1999 ..........  $ 1,045,662   $ 39,886,278
Net income for the year .............                   5,146,870
Unrealized (losses) on
  available-for-sale securities .....   (5,431,312)    (5,431,312)
                                                     ------------
    Comprehensive income (loss) .....                    (284,442)
                                                     ------------
Stock option exercises ..............                     408,690
Tax benefit from exercise of
  stock options .....................                     448,880
Common stock issued in connection
  with long-term investment .........                   1,616,206
Purchase and retirement of
  common stock ......................                    (747,052)
                                       -----------   ------------
BALANCE, NOVEMBER 30, 2000 ..........   (4,385,650)    41,328,560
Net income for the year .............                     417,499
Realized losses on
  available-for-sale securities .....    4,458,227      4,458,227
                                                     ------------
    Comprehensive income (loss) .....                   4,875,726
                                                     ------------
Stock option exercises ..............                     480,906
Tax benefit from exercise of
  stock options .....................                     240,265
Compensation expense
  related to options ................                     116,218
Common stock issued in connection
  with acquisition of minority
  interest ..........................                   1,445,845
Purchase of common stock, held in
  treasury, at cost .................                     (74,814)
Purchase and retirement of
  common stock ......................                  (6,000,000)
                                       -----------   ------------
BALANCE, NOVEMBER 30, 2001 ..........       72,577     42,412,706
Net income for the year .............                   2,741,390
Unrealized losses on
  available-for-sale securities .....      (40,692)       (40,692)
Foreign Currency
  Translation adjustment ............        1,171          1,171
                                                     ------------
  Comprehensive income (loss) .......                   2,701,869
                                                     ------------
Stock option exercises ..............                   1,224,697
Tax benefit from exercise of
  stock options .....................                     171,909
Common stock issued in
  connection with acquisition .......                     242,879
Net proceeds on non-management
  trading gain disgorgement .........                     114,402
Common stock issuable in
  connection with acquisition .......                     485,758
Purchase of common stock,
  held in treasury, at cost .........                  (2,110,533)
Purchase and retirement of ..........
  common stock ......................                  (1,457,679)
                                       -----------   ------------
BALANCE, NOVEMBER 30, 2002 ..........  $    33,056   $ 43,786,008
                                       ===========   ============

           See accompanying notes to consolidated financial statements


                                      F-4
<PAGE>

                         TRAFFIX, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED NOVEMBER 30, 2002, 2001 AND 2000

<TABLE>
<CAPTION>
                                                                                         2002            2001              2000
                                                                                    -------------    -------------    -------------
<S>                                                                                 <C>              <C>              <C>
Cash flows from operating activities:
   Net income ...................................................................   $   2,741,390    $     417,499    $   5,146,870
   Adjustments to reconcile net income to net cash provided by
    operating activities:
     Depreciation and amortization ..............................................       1,173,123          389,404          263,669
     Reserve for customer chargebacks ...........................................              --       (1,223,562)      (3,393,068)
     Provision for uncollectible accounts .......................................         647,875        1,083,826          517,903
     Deferred income taxes ......................................................       1,905,011       (1,282,347)         653,809
     Compensation expense related to stock options ..............................              --          116,218               --
     Net gains on sale of marketable securities .................................         (76,607)        (390,560)        (863,384)
     Gain on nonmonetary cost basis exchange ....................................              --               --         (565,572)
     Permanent impairment charges ...............................................          54,000        4,750,258        2,139,315
     Equity in net losses of joint ventures .....................................              --               --           11,952
     Amortized discounts and premiums on marketable securities ..................         (54,808)        (362,359)        (330,843)
     Minority interest ..........................................................         402,716          134,649         (140,000)
     Changes in assets and liabilities of business:
       Accounts receivable ......................................................       1,327,939       (4,666,714)       1,450,920
       Due from related parties .................................................          49,106          361,223          121,283
       Prepaid expenses and other current assets ................................         277,474           98,939         (826,461)
       Accounts payable .........................................................      (1,730,960)       1,837,087          297,700
       Income taxes prepaid/payable .............................................      (2,696,851)      (1,521,776)        (281,229)
       Due to related parties ...................................................        (116,628)        (976,684)       1,078,443
       Other, principally accrued expenses ......................................         158,724        1,484,397       (2,935,830)
                                                                                    -------------    -------------    -------------
         NET CASH PROVIDED BY OPERATING ACTIVITIES ..............................       4,061,504          249,498        2,345,477
                                                                                    -------------    -------------    -------------
Cash flows from investing activities:
   Purchases of securities ......................................................    (177,342,682)    (225,810,152)    (333,623,263)
   Proceeds from sales of securities ............................................     186,861,999      241,829,982      329,205,886
   Capital expenditures .........................................................      (1,873,743)        (719,709)        (225,410)
   Distributions to minority interest ...........................................        (255,350)
   Payments for asset acquisitions, net of cash received ........................        (545,500)              --               --
   Purchases of long-term investments ...........................................              --          (49,000)        (892,551)
                                                                                    -------------    -------------    -------------
         NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ....................       6,844,724       15,251,121       (5,535,338)
                                                                                    -------------    -------------    -------------
Cash flows from financing activities:
   Purchases of common stock ....................................................      (3,568,212)      (6,074,814)        (747,052)
   Capital contribution from minority interest ..................................              --               --          140,000
   Proceeds from stock options exercised ........................................       1,224,697          480,906          408,690
   Proceeds-net on settled nonmanagement Section 16-b action ....................         114,402               --               --
                                                                                    -------------    -------------    -------------
         NET CASH USED IN FINANCING ACTIVITIES ..................................      (2,229,113)      (5,593,908)        (198,362)
                                                                                    -------------    -------------    -------------
   Effect of exchange rate changes on cash and cash equivalents .................           1,171               --               --
   Net increase (decrease) in cash and cash equivalents .........................       8,678,286        9,906,711       (3,388,223)
   Cash and cash equivalents, beginning of year .................................      14,458,055        4,551,344        7,939,567
                                                                                    -------------    -------------    -------------
   CASH AND CASH EQUIVALENTS, END OF YEAR .......................................   $  23,136,341    $  14,458,055    $   4,551,344
                                                                                    =============    =============    =============
Supplemental disclosures:
   Cash paid during the year for:
     Interest ...................................................................   $     368,345    $          --    $          --
     Income tax payments net of refunds .........................................   $   2,997,160        6,079,114        3,065,105

Noncash investing activities:
   During the fiscal year ended November 30, 2002, the Company has 117,521 shares of its common stock,  issued and issuable,  valued
   at $728,636, in connection with the purchase of the assets of a closely held, private company (See note 1)

   During the fiscal year ended November 30, 2001, the Company issued 336,243 shares of its common stock,  valued at $1,445,845,  in
   connection with the purchase of a minority interest (See note 6).

   During the fiscal year ended November 30, 2000, the Company issued 229,862 shares of its common stock,  valued  at$1,616,206,  in
   connection with the purchase of a long-term investment (See note 6).

Details of Acquisitions (Note 1): ...............................................   InfiKnowledge      ThanksMuch        Combined
                                                                                    -------------    -------------    -------------
   Fair value of assets acquired ................................................   $   1,379,975    $     559,924    $   1,939,899
   Liabilities assumed ..........................................................        (388,838)        (124,924)        (513,762)
   Stock issued .................................................................        (242,879)              --         (242,879)
   Stock issuable ...............................................................        (485,758)              --         (485,758)
                                                                                    -------------    -------------    -------------
       Cash paid ................................................................         262,500          435,000          697,500
     Less: cash acquired ........................................................         (77,767)         (74,233)        (152,000)
                                                                                    -------------    -------------    -------------
       Net cash paid for acquisitions ...........................................   $     184,733    $     360,767    $     545,500
                                                                                    =============    =============    =============
</TABLE>

           See accompanying notes to consolidated financial statements

                                       F-5
<PAGE>

                         TRAFFIX, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

   NATURE OF BUSINESS

     Traffix, Inc. and its consolidated subsidiaries (collectively, "Traffix" or
the "Company", formerly known as Quintel Communications,  Inc.) provide consumer
targeted direct marketing and customer acquisition services for businesses.  The
Company utilizes its proprietary and affiliate on-line databases to generate its
revenue  from  direct  marketing  activities  delivered  by  the  Internet.  The
Company's  on-line databases grow through on-line marketing and data acquisition
programs.  The Company's  direct  marketing  activities have  historically  been
divided into three  principle  operating  segments:  a) E-commerce,  b) Off-line
Marketing  Services,  and  c)  LEC  Billed  Products  and  Services,   with  (c)
principally  inactive  during the fiscal year ended November 30, 2002. In fiscal
2000, the Company changed its name to Traffix, Inc. This name change was made to
better  reflect the  Company's  business of  generating  and  directing  on-line
consumer traffic for businesses.  The Company's main focus and business strategy
is to create compelling  content as marketing vehicles that generate revenue for
its  corporate  advertisers  and  marketing  affiliates  who seek  access to the
Company's databases, and the databases of its affiliates under management. Prior
to  December  1, 1999,  the  Company  had  relied  exclusively  on  conventional
("off-line")  marketing  channels,   specifically  television  broadcast  media,
telemarketing,  direct-mail,  and print  advertising  to facilitate its consumer
targeted direct marketing activities.

     Our expansion in, and dependence on, our on-line direct marketing  efforts,
coupled with the potential for state and/or federal legislation limiting on-line
marketing's consumer contact capability and the potential for seasonality within
the  E-commerce  marketplace,  should all be  considered  when  referring to our
current fiscal year's results,  as well as prior year's historical  results,  in
evaluating the potential for our future  operations,  cash flows,  and financial
position.

   BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

     It is the  Company's  policy to prepare  its  financial  statements  on the
accrual basis of accounting in conformity with accounting  principles  generally
accepted in the United States of America.

     The consolidated  financial  statements of the Company include the accounts
of its wholly-owned  and  majority-owned  subsidiaries.  Any losses allocated to
minority  interests are limited to contributed  minority interest  capital.  The
Company's  other  investments   (classified  in  the  "Other  long-term  assets"
financial  caption,  See Note 6) that are accounted for under the equity method,
are  immaterial,  with the  majority of its  investments  valued  under the cost
method of accounting. Such cost method investments represent ownership interests
of less than 20%,  with the absence of control and  significant  influence  over
such investments.  All significant  intercompany  accounts and transactions have
been  eliminated in  consolidation.  Certain amounts for prior periods have been
reclassified to conform to current year presentations.

   ESTIMATES

     The  preparation  of financial  statements  in conformity  with  accounting
principles  generally  accepted  in the United  States of America  requires  the
Company's  management to make estimates and assumptions that affect the reported
amounts  of assets and  liabilities  and  disclosure  of  contingent  assets and
liabilities at the date of the financial statements, and the reported amounts of
revenue and expenses  during the reporting  period.  Actual results could differ
from those  estimates.  The Company's most  significant  estimates relate to the
accruals for fulfillment  redemptions,  reserves for uncollectible  receivables,
data  qualification  allowances,  recoverability of long-lived  assets,  and the
realizability  of deferred tax assets.  Additionally,  the Company has potential
exposure  resulting  from pending  and/or  threatened  litigation  for which the
Company currently assesses no risk and does not provide for loss, as well as the
potential  for future  actions  naming the Company as defendant in future fiscal
periods.


                                      F-6
<PAGE>

                         TRAFFIX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

   REVENUE RECOGNITION

     The Company  currently earns the most  significant  portion of revenue from
its E-commerce segment pursuant to marketing  agreements with marketing partners
and corporate customers (collectively, "Corporate Customers"). The provisions of
each  agreement  determine  the type and timing of revenue to be  recorded.  The
Company  generates  its  E-commerce  revenue  from  the  following  eight  basic
categories:  (1)  delivery  of  consumer  traffic to the  websites  and  inbound
telemarketing  call centers of our Corporate  Customers (e.g.,  click-thrus from
the game banners on the  Company's  websites),  (2) delivery of consumer data to
our Corporate  Customers  with respect to the consumers who have  registered for
our Corporate  Customers'  products or services (e.g., a consumer who registered
via the  registration  page of one of the Company's  websites to receive on-line
promotions from our Corporate Customers), (3) delivery of pre-qualified consumer
data to our Corporate Customers as a result of consumers'  responses to targeted
questions and surveys (e.g., do you need a new credit card?),  (4) delivery of a
sale or completed  application for our Corporate Customers' products or services
(e.g.,  a consumer  who  responds to a Traffix  e-mail  promotion on behalf of a
Corporate  Customer and purchases a product with a credit card),  (5) generating
revenue from any of the foregoing categories by placing our Corporate Customers'
offers on the media of third parties with whom we have a marketing  relationship
on a  revenue  share  basis,  (6) sales of  Traffix'  proprietary  products  and
services directly to consumers (e.g.,  jewelry,  dvds, books, etc.), (7) rentals
and sales of copies of specific segments of our databases to Corporate Customers
for their  proprietary  marketing  and database  enhancements,  and (8) customer
acquisition  services,  both on-line and off-line,  under a net branch agreement
with a qualified mortgage banking establishment.

     The Company  invoices its  customers in  accordance  with the terms of each
underlying  agreement.  Revenue is recognized at the time the marketing activity
is delivered,  or service is provided, net of estimated  contractually specified
data  qualification  allowances,   when  applicable.   Such  data  qualification
allowances may include  duplications,  invalid  addresses,  age restrictions and
other allowances, and are recorded as contra revenue. Historically, the variance
between  actual  allowances  and  previously   estimated   allowances  has  been
immaterial.  The Company  records all related  obligations  associated  with the
related net revenue at its point of  recognition.  The  obligations,  previously
mentioned,  include  costs  payable  to  other  on-line,  as well  as  off-line,
advertisers for registered user  acquisitions,  fee sharing costs under database
management   agreements,   email   delivery   costs,   contingent   based  prize
indemnification  coverage (for potential free on-line  lottery  winners) and all
other  variable  costs  directly   associated   with  completing  the  Company's
obligations relative to the revenue recognized. Such revenue recognition is also
subject to provisions based on the probability of collection.  In certain cases,
the Company receives advances prior to fulfilling its obligations. Such advances
are deferred  until the  obligation  is  fulfilled.  At November  30, 2002,  the
Company's  accrued  expenses  included  approximately  $729,000 of advances from
customers  relating  to such  receipts;  at November  30,  2001,  advances  from
customers included in accrued expenses was approximately  $632,000. With respect
to  capitalization  and amortization of marketing costs, the Company's policy is
to expense,  as a cost of sale,  data  acquisition  costs and all other  related
marketing costs, at the time an obligation or expense is incurred.

     Revenues from the Company's  off-line  marketing services segment currently
include  the  revenue  earned  by  Montvale   Management,   LLC,  the  Company's
majority-owned  subsidiary.  Such  revenues are  currently  14% of the Company's
consolidated  net revenues for the year ended November 30, 2002, and result from
Montvale's  provision  of net branch  services  to  mortgage  banking  and other
related financial  institutions.  Approximately  15% of Montvale's  revenues are
derived from on-line sources,  with such portion being included in the Company's
E-commerce  segment.  Montvale recognizes its commission upon the closing of the
loan, with a provision for recessions, where appropriate.


                                      F-7
<PAGE>

                         TRAFFIX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Prior to September 1, 2001,  revenues from the Company's off-line marketing
services consisted of residential long distance customer  acquisition  programs,
and were  recorded  upon the  achievement  of certain  events  particular to the
corresponding program's fulfillment liability. Subsequent to the delivery of the
initial sales record to the respective  long distance  carrier,  the Company may
have been  required to provide to the  customer  certain  products  and services
(fulfillment  liability),  such as  prepaid  cellular  telephones  and/or  other
suitable premiums. These costs were estimated and accrued, based upon historical
redemption  rates,  and actual  fulfillment  costs,  as a component of marketing
expense and included in the cost of sales,  at the time the associated  revenues
were recognized.  The Company's current business, as conducted in its E-commerce
segment,  in certain  cases also  requires  the  provision  of a premium.  These
E-commerce  segment  premiums are estimated and accrued,  based upon  historical
redemptions  rates,  augmented by current  experience.  Such E-commerce  premium
costs are  classified  as a component of  marketing  expense and included in the
cost of sales, at the time the associated  revenues are recognized.  At November
30, 2002 and 2001, accrued expenses,  applicable to such E-commerce  fulfillment
liability,  included  $629,000  and  $158,000 of such costs,  respectively.  Any
variance in the initial  accrual as compared to the actual  experience  is taken
into  operations in the period that the variance is  determinable.  See Note 15,
"Quarterly Results of Operations (Unaudited)."

     Revenue  from the  Company's  LEC Billed  Product and Service  segment (the
Company has not marketed such services  since  November  1998,  but had recorded
residual  revenue from such segment during the years ended November 30, 2001 and
2000),  consisted of various enhanced telephone services,  principally voicemail
services,  and were  recognized  net of an estimated  provision  for refunds and
credits subsequently granted to customers  ("customer  chargebacks").  Since the
provision for customer chargebacks was established prior to the periods in which
chargebacks are actually expended,  the Company's revenues are adjusted in later
periods if the Company's incurred chargebacks varied from the amounts previously
estimated.  The  Company's LEC Billed  Product and Service  segment was inactive
during the year ended November 30, 2002. On December 11, 2001, Federal TransTel,
Inc.  ("FTT"),  the  Company's  sole  operating  service  bureau for billing and
collecting on the LEC segment  activity,  filed for bankruptcy  protection under
Chapter 11 of the United States Bankruptcy Code. In response to FTT's bankruptcy
filing the Company,  as at November 30, 2001,  netted its  chargeback  liability
from FTT  against  its gross  receivable  from  such  company,  resulting  in an
approximate $826,000 bad debt charge in fiscal 2001.

     During the fiscal year ended  November 30,  2000,  based on the fact that a
significant portion of previously offered LEC segment services had reached their
contractual settlement phase, it was determined that certain chargeback reserves
were no longer necessary,  and approximately $1.8 million was credited to income
for the year ended November 30, 2000.  During the fiscal year ended November 30,
2001,  approximately  $148,000 of such reserves were credited to income;  in the
current fiscal year, similar adjustments were immaterial in amount.

   CONCENTRATION OF CREDIT RISK

     Financial instruments that potentially subject the Company to concentration
of  credit  risk  have  historically  consisted  of cash and  cash  equivalents,
marketable securities and accounts receivable. Currently the Company invests the
majority of its excess cash in  high-grade  commercial  paper,  with  maturities
ranging from three months to two years.  Consistent with the above,  the Company
has  historically  invested a portion of its excess cash in debt instruments and
has  maintained  guidelines  relative  to  diversification  yielding  safety and
liquidity;  the bulk of such funds  (approximately  $13 million at November  30,
2002)  are  professionally  managed  by a  major  investment  bank  pursuant  to
guidelines established by the Company's Board of Directors.

     During the prior fiscal years ended November 30, 2000 and 1999, the Company
had invested  approximately  $1.9 and $3.9  million,  respectively,  at cost, in
equity-based  marketable  securities,  with a significant  concentration  in the
Internet  industry.  Such  investments  were made  pursuant  to the  potentially
significant synergistic ben-


                                      F-8
<PAGE>

                         TRAFFIX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

efits to the Company's operations resulting from associated marketing agreements
executed at the time of the, Internet industry based, equity security purchases.
During the prior fiscal year ended  November 30,  2001,  the Company  recognized
losses (through a permanent  impairment  charge) of $4,190,207 on the cost basis
investments  noted above.  The impairment  charge and subsequent  disposition of
these  securities  eliminated their related credit risk as of November 30, 2001.
At November 30, 2000,  the related  cost basis of these  securities  amounted to
approximately $5.6 million (See Note 6).

     Cash and cash equivalent  balances are  principally  held at four financial
institutions and may, at times,  exceed insurable amounts.  The Company believes
it mitigates its risks by investing in or through major financial  institutions.
Recoverability is dependent upon the performance of the institutions.

   ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

     Accounts receivable consist of trade accounts receivable from the Company's
customer base,  with extension of credit varying between 30 to 60 days, with the
majority  at 30 days.  The  Company's  customer  base is  comprised  of domestic
entities with diverse demographics. The allowance for doubtful accounts is based
on management's  evaluation of the  collectibility  of receivables  after giving
consideration  to current  delinquency  data,  historical  loss  experience  and
general  economic  conditions,  both at the  Company  level and  sector/industry
level. The accounts receivable  balances are continually  reviewed by management
and when  situations  dictate,  provisions  for losses are recorded.  Additional
allowances  might be required  if the  original  estimates  for loss prove to be
inadequate.

   MARKETABLE SECURITIES AND LONG-TERM INVESTMENTS, AT COST

     The Company's Long-term  investments,  at cost, have historically  included
investment  interests  of less than 20% in private  companies  without a readily
determinable  market value.  At November 30, 2002, the Company does not hold any
Long-term  investments.  If  circumstances  indicated that the carrying value of
such investments is less than their recoverable  value, the Company assesses the
need to record an impairment  loss.  Key criteria that the Company  considers in
its evaluation of potential  impairment events include,  but are not limited to:
the underlying  investment's failure to meet its operating projections;  failure
of the investment to raise additional capital or acquire debt financing; failure
to obtain  and/or  maintain key  employees or acquire,  or maintain,  a specific
market share;  and the failure of the investments to achieve initial  short-term
goals as defined in their business plans.

   TRANSACTIONS WITH MAJOR CUSTOMERS

     During  the year  ended  November  30,  2002,  the  Company  had five major
customers  in  its  E-commerce  segment,  which  in  combination  accounted  for
approximately $22 million of consolidated net revenue,  respectively,  or 50% of
consolidated net revenues.  Approximately $3.4 million, or 68.2% of consolidated
net accounts  receivable  was  attributable  to such major  customer group as of
November 30, 2002.  The five major  customers  referenced  above  accounted  for
21.5%, 8.5%, 7.9%, 7.5% and 4.5% of consolidated net revenue,  respectively, for
the year ended  November  30,  2002.  Of the  remaining  approximate  100 active
customers in the year ended November 30, 2002, no other single  customer had net
revenue that equaled or exceeded 2.7% of consolidated net revenue.

     The Company  continued to conduct business with these major customers as of
January 28, 2003,  with the exception of the customer,  which accounted for over
21.5% of the  Company's net revenue for the year ended  November 30, 2002.  This
customer had notified the Company in September  2002, that it was exercising its
right  to  terminate  the  relationship  in  accordance  with  the  terms of the
underlying  agreement,  and as such has phased out its business with the Company
during the ninety-day period ending December 7, 2002.


                                      F-9
<PAGE>

                         TRAFFIX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     During  the year  ended  November  30,  2001,  the  Company  had six  major
customers,  five  within its  E-commerce  segment  and one  within its  Off-line
Marketing Services segment, which, in the aggregate, accounted for approximately
54.9% of consolidated  net revenues during the year ended November 30, 2001, and
approximately  69.1% of consolidated net accounts  receivable as of November 30,
2001.

   CASH AND CASH EQUIVALENTS

     All  short-term  investments  with an original  maturity of three months or
less are considered to be cash equivalents.

   MARKETABLE SECURITIES

     The  Company's  marketable   securities  have  historically   consisted  of
corporate commercial paper, auction rate securities,  equity securities and real
estate  investment  trusts  ("REITs"),  all of which  are held for  varying  and
indefinite  periods of time,  pursuant to maturity dates,  market conditions and
other factors. It is the Company's intent to maintain a liquid portfolio to take
advantage of investment opportunities;  therefore, all marketable securities are
considered  to be  available-for-sale  and are  classified  as  current  assets.
Accordingly, such securities are stated at fair value, with unrealized gains and
losses,  net of estimated tax effects,  included in other  comprehensive  income
(loss) as a separate component of shareholders'  equity, until realized.  Actual
sales of  securities  resulting  in  realized  gains and  losses  on  marketable
securities are included in the statement of operations, as a component of "Other
income (expense)" and are derived using the specific  identification  method for
determining the cost of securities.

   PROPERTY AND EQUIPMENT

     Property and  equipment  are stated at cost and are  depreciated  using the
straight-line  method  over a three to five year useful  life  depending  on the
nature of the asset.  Leasehold  improvements are amortized over the life of the
improvement  or the term of the lease,  whichever is shorter.  Expenditures  for
maintenance  and repairs are expensed as incurred while renewals and betterments
are capitalized.

     Upon  retirement  or  disposal,  the  asset  cost and  related  accumulated
depreciation and  amortization  are eliminated from the respective  accounts and
the resulting gain or loss, if any, is included in the results of operations for
the period.

   GOODWILL AND OTHER IDENTIFIABLE INTANGIBLES

     Goodwill  and  other  identifiable  intangibles  represent  the  excess  of
purchase price over the fair value of minority  interest in  GroupLotto,  Inc. a
wholly owned subsidiary. The aggregate amount of such cost was $1,445,845, which
will be amortized on a straight-line basis over five years. Amortization expense
was approximately $533,000 and $108,000, in the fiscal year's ended November 30,
2002 and 2001, respectively.

     Also  included  in  Goodwill  and other  identifiable  intangibles  are the
current years asset acquisitions of $1,499,512 (see notes 1 and 4).

   LONG-LIVED ASSETS

     If events or changes in circumstances  indicate that the carrying amount of
a long-lived asset may not be recoverable, the Company estimates: (a) the future
cash flows  expected  to result  from the use of such  asset over its  remaining
useful  life and (b) the  potential  cash  flows  realizable  from its  possible
disposition. If the sum of the


                                      F-10
<PAGE>

                         TRAFFIX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

expected future cash flows  (undiscounted  and without interest charges) is less
than the carrying amount of the long-lived asset, an impairment loss is measured
as a difference  between  carrying  amount and the future  discounted cash flows
(See Notes 1, 4, 5 and 6).

   INCOME TAXES

     Deferred tax assets and  liabilities  are based on the expected  future tax
consequences  of events that have been included in the  financial  statements or
tax returns.  Deferred tax assets and  liabilities  are determined  based on the
difference  between  the  financial  statement  and  tax  basis  of  assets  and
liabilities  using  enacted  tax  rates in  effect  for the  year in  which  the
differences are expected to reverse.  Valuation  allowances are provided against
deferred tax assets, which are not likely to be realized (see Note 8).

   ADVERTISING AND MARKETING EXPENSES

     The Company's  advertising and marketing costs, incurred in the advertising
and marketing of the products,  services and promotional offers of its marketing
clients,  are comprised of (1) costs  associated with the  transmission of email
marketing messages, both from internal sources and external third party vendors,
(2)  costs  associated  with  on-line  customer   acquisition  data,  (3)  costs
associated  with the  fulfillment  obligations  relating to premiums  offered in
conjunction with the Company's promotions, and (4) email program promotional and
creative development costs. Such costs are charged to operations (1) at the time
of  the  email  transmission,   (2)  upon  receipt  of  the  qualified  customer
acquisition  data,  (3) at the time the premium  obligation  related  revenue is
recorded,  and  (4) at the  time  the  promotional  and  creative  services  are
provided, respectively, and are included as a component of cost of sales.

     Total  advertising and marketing  expenses by segment for fiscal 2002, 2001
and 2000 were as follows:

                                       CONSOLIDATED ADVERTISING AND MARKET COSTS
                                                YEAR ENDED NOVEMBER 30,
                                       -----------------------------------------
                                           2002           2001           2000
                                       -----------    -----------    -----------
E-commerce ........................    $11,278,745    $ 7,519,511    $ 5,611,762
Off-line Marketing Services .......        619,331      1,194,026      3,010,215
                                       -----------    -----------    -----------
      Consolidated totals .........    $11,898,076    $ 8,713,537    $ 8,621,977
                                       ===========    ===========    ===========

   COMPREHENSIVE INCOME (LOSS)

     The  Company  presents  unrealized  gains  and  losses  on  its  marketable
securities  as a component of  "Comprehensive  income  (loss)" and are presented
below:

<TABLE>
<CAPTION>
                                                                 YEAR ENDED NOVEMBER 30,
                                                        -----------------------------------------
                                                            2002           2001           2000
                                                        -----------    -----------    -----------
<S>                                                     <C>            <C>            <C>
Net income ..........................................   $ 2,741,390    $   417,499    $ 5,146,870
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment .............         1,171             --             --
   Unrealized gain (loss) from available-for-sale
     securities, net of income taxes of, $0 for 2002,
     $0 for 2001 and $0 for 2000 ....................       (40,692)       614,561     (5,431,312)
   Less: reclassification adjustment for losses
     realized in net income .........................            --      4,188,957             --
   Add: reclassification adjustment for gains
     realized in net income .........................            --       (345,291)            --
                                                        -----------    -----------    -----------
            Comprehensive income (loss) .............   $ 2,701,869    $ 4,875,726    $  (284,442)
                                                        ===========    ===========    ===========
</TABLE>


                                      F-11
<PAGE>

                         TRAFFIX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

   SEGMENT INFORMATION

     Segments are defined as  components  of an  enterprise  for which  separate
financial  information  is available  that is  evaluated  regularly by the chief
operating  decision  maker(s)  in  deciding  how to  allocate  resources  and in
assessing performance.  Disclosure is also required about products and services,
geographic  areas and major customers.  The Company's three principle  operating
segments are: a) E-commerce,  b) Off-line Marketing Services,  and c) LEC Billed
Products and Services, with the related segment disclosure information presented
in Note 14.

   RECENT ACCOUNTING PRONOUNCEMENTS

     In July 2001, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standards  ("SFAS") No. 142,  "Goodwill  and
Other Intangible  Assets." SFAS 142 requires that goodwill and intangible assets
with indefinite  useful lives no longer be amortized,  once SFAS 142 is adopted,
which will be in our fiscal year ending November 30, 2003; however, these assets
must be  reviewed at least  annually  for  impairment  subsequent  to  adoption.
Intangible  assets with finite useful lives will  continue to be amortized  over
their respective  useful lives. The standard also establishes  specific guidance
for testing for  impairment of goodwill and  intangible  assets with  indefinite
useful lives.  The  provisions of SFAS 142 will be effective for our fiscal year
ending  November  30,  2003;  earlier  adoption  was not  elected by the Company
pursuant  to the terms of SFAS 142.  However,  goodwill  and  intangible  assets
acquired  after June 30, 2001 are  subject  immediately  to the  nonamortization
provisions of SFAS 142.  While we are currently in the process of evaluating the
potential  impact that the  adoption  of SFAS 142 will have on our  consolidated
financial position and results of operations, our preliminary assessment is that
the adoption of SFAS 142 will have an immaterial impact on the Company.

     In  August  2001,  the FASB  issued  SFAS No.  143,  "Accounting  for Asset
Retirement  Obligations".  SFAS 143 sets  forth  the  guidelines  regarding  the
financial   accounting  and  reporting  for  obligations   associated  with  the
retirement  of  tangible  long-lived  assets and any costs  associated  with the
related assets' retirement. The provisions of SFAS 143 will be effective for our
fiscal year ending  November 30, 2003.  Based on the relative  components of our
balance sheet at November 30, 2002 we believe that the adoption of SFAS 143 will
have an immaterial impact on the Company's  consolidated  financial position and
results of operations, if any effect at all.

     In  October  2001,  the FASB  issued  SFAS  No.  144,  "Accounting  for the
Impairment  or  Disposal  of  Long-Lived   Assets."  SFAS  144  amends  existing
accounting  guidance on asset impairment and provides a single  accounting model
for long-lived assets to be disposed of. Among other  provisions,  the new rules
change the criteria for classifying an asset as held-for-sale. The standard also
broadens the scope of businesses to be disposed of that qualify for reporting as
discontinued  operations,  and changes the timing of recognizing  losses on such
operations.  The  provisions  of SFAS 144 will be effective  for our fiscal year
ending November 30, 2003 and will be applied prospectively.  We are currently in
the process of  evaluating  the  potential  impact that the adoption of SFAS 144
will have on our  consolidated  financial  position  and results of  operations.
Based on the relative  components  of our balance  sheet at November 30, 2002 we
believe  that the  adoption  of SFAS 144 will have an  immaterial  impact on the
Company's  consolidated  financial  position and results of  operations,  if any
effect at all.

     In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB No. 13, and Technical Corrections". SFAS 145
promulgates rules regarding the financial accounting and reporting requirements,
which include gains and losses  resulting from the  extinguishments  of debt and
the treatment of sale-leaseback transactions. The provisions of SFAS 145 will be
effective  for our fiscal year ending  November 30, 2003.  Based on the relative
components  of our  balance  sheet at  November  30,  2002 we  believe  that the
adoption  of  SFAS  145  will  have  an  immaterial   impact  on  the  Company's
consolidated financial position and results of operations, if any effect at all.


                                      F-12
<PAGE>

                         TRAFFIX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     In June  2002,  the  FASB  issued  SFAS  No.  146,  "Accounting  for  Costs
Associated  with  Exit or  Disposal  Activities".  SFAS  146  promulgates  rules
regarding  exit or disposal  activities  that are initiated  after  December 31,
2002. SFAS 146 requires companies to recognize costs associated with the exit or
disposal  activities  when  they  are  incurred  rather  than  at the  date of a
commitment to an exit or disposal plan and nullifies the requirements  under the
"Emerging  Issues  Task Force No.  94-3",  "Liability  Recognition  for  Certain
Employee  Termination  Benefits  and Other Costs to Exit an Activity  (Including
Certain Costs in a  Restructuring)".  The Company  believes that the adoption of
SFAS 146 will have an immaterial impact on the Company's  consolidated financial
position and results of operations, if any effect at all.

     In November 2002, the FASB issued FASB  Interpretation No. 45, "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees of  Indebtedness  of Others" (FIN 45). This  Interpretation  requires
that upon issuance of a guarantee,  a guarantor  must  recognize a liability for
the fair market value of an obligation assumed under the guarantee.  Disclosures
by the  guarantor  in its  interim  and  quarterly  financial  statements  about
obligations  associated with guarantees  issued are also required by FIN 45. The
recognition  requirements of FIN 45 are effective for guarantees that are issued
after   December31,   2002.   The  Company  feels  that  the  adoption  of  this
Interpretation  will have little,  if any, effect on the Company's  consolidated
financial position and results of operations.

     In October  2002,  Statement  of  Financial  Accounting  Standards  No. 147
"Acquisitions  of Certain  Financial  Institutions  ("FAS 147") was issued.  The
statement  addresses the financial  accounting and reporting for the acquisition
of all or a part of a financial institution. Additionally, FAS 147 also provides
guidance on the accounting for the impairment or disposal of acquired  long-term
customer-relationship  intangible  assets. The provisions of this statement will
be effective for  acquisitions on or after October 1, 2002. Based on our initial
review of FAS 147 we believe that its adoption  will have no material  impact on
either our financial position or results of operations.

     In December 2002, the FASB issued SFAS No. 148  "Accounting for Stock-Based
Compensation  -- Transition and Disclosure  ("FAS 148").  This statement  amends
SFAS No. 123 "Accounting for Stock Based  Compensation",  providing  alternative
methods  of  voluntarily  transitioning  to  the  fair  value  based  method  of
accounting  for  stock-based  employee  compensation.   FAS  148  also  requires
disclosure of the method used to account for stock-based  employee  compensation
and the effect of the method in both  annual and interim  financial  statements.
The provisions of this statement related to transition methods are effective for
fiscal  years  ending  after  December  15,  2002  while  provisions  related to
disclosure  requirements are effective in financial  reports for interim periods
beginning  after  December 31, 2002.  The company  believes that the adoption of
this  statement  will have an immaterial  impact on the  Company's  consolidated
financial position and results of operation.

   RECLASSIFICATIONS

     Certain reclassifications have been made to prior year balances in order to
conform to the current year presentation.

   ASSET ACQUISITIONS

     In December 2001, the Company  acquired 100% of the assets of the following
two  entities  for a total  cost of  $1,676,682.  The  components  of the  asset
purchase prices are set forth following the descriptions of the assets acquired:

     o    InfiKnowledge, a software development and Internet services firm based
          in New Brunswick,  Canada,  with the key assets purchased including an
          email delivery  system, a suite of over 50 on-line games, as well as a
          team of highly skilled,  interactive  game developers who, the Company
          believes, possess the capa-


                                      F-13
<PAGE>

                         TRAFFIX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

          bilities to enhance,  develop and add support to its on-line marketing
          business and provide the  foundational  assets to allow the Company to
          internalize its email delivery platform through capital  expenditures,
          thereby reducing its reliance on third party email delivery vendors.

     o    ThanksMuch, a Woodmere, New York based company that specializes in the
          on-line  sale of  costume  jewelry  and other  small gift  items.  The
          Company  anticipates  that  the  assets  acquired,  coupled  with  the
          management  team  who  will  continue  to run  the  business,  will be
          utilized  to provide  an  opportunity  for  increased  revenue,  gross
          profits and cash flows in future fiscal periods.

     The  total  purchase  price  for these  two  acquisition  was:  (a) cash of
$897,500,  of which $697,500 was paid  simultaneous  with the  respective  asset
acquisition  closings in December  2001 and  $200,000 of which is payable to the
sellers  of  Infiknowledge  on  December  6,  2002 and  which is  included  as a
component of the  Company's  accrued  expenses as at November 30, 2002;  and (b)
117,521  shares of the Company's  common  stock,  valued at $6.20 per share (the
average  closing prices of the Company's stock for the period December fourth to
December tenth of 2001), which accounted for the additional consideration in the
InfiKnowledge  asset acquisition.  Of the total share  consideration,  39,174 of
such  shares were issued at the  closing of the  InfiKnowledge  acquisition  and
78,347  shares remain  issuable,  with 39,174 shares to be issued on December 6,
2002 and 39,173  shares to be issued on December 6, 2003.  The  issuable  shares
were  considered as outstanding  common shares in the  computation of both basic
and  diluted  weighted  shares  outstanding  for the period  December 6, 2001 to
November  30, 2002.  Goodwill  and other  intangible  assets  recognized  in the
transactions  amounted  to  $1,499,512,  of  which  approximately  90%,  or $1.3
million, is expected to be deductible for income tax purposes.  The goodwill and
other intangibles were assigned to the E-commerce segment.

2. RELATED PARTY TRANSACTIONS

     The  Company  incurred  approximately  $798,000,   $745,000  and  $630,000,
respectively,  during fiscal 2002, 2001 and 2000, in legal fees to a firm having
a member who is also a director of the  Company.  The fees  charged by such firm
were at rates  comparable  to rates  obtainable  from  other  firms for  similar
services.

3. MARKETABLE SECURITIES

     The carrying amount of the Company's marketable  securities is shown in the
table below:

<TABLE>
<CAPTION>
                                                       NOVEMBER 30,
                                 -------------------------------------------------------
                                            2002                        2001
                                 --------------------------   --------------------------
                                    COST       MARKET VALUE      COST       MARKET VALUE
                                 -----------   ------------   -----------   ------------
<S>                              <C>            <C>           <C>            <C>
Available-for-sale securities:
   Equity securities .........   $ 1,067,522    $ 1,099,406   $   759,730    $   812,999
   Corporate commercial paper     13,150,000     13,150,000    22,845,692     22,865,000
                                 -----------    -----------   -----------    -----------
            Total ............   $14,217,522    $14,249,406   $23,605,422    $23,677,999
                                 ===========    ===========   ===========    ===========
</TABLE>

     Marketable  securities  shown in the above table are carried at  historical
cost, net of unamortized discounts of $0 and $54,308 as at November 30, 2002 and
2001,  respectively,  and stated at fair  value;  the cost  basis of  marketable
securities  with  scheduled  maturities  within  one year were  $13,150,000  and
$22,845,692 for fiscal 2002 and fiscal 2001, respectively.


                                      F-14
<PAGE>

                         TRAFFIX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Proceeds,  realized  gains and  realized  losses  from sales of  securities
classified as  available-for-sale  for fiscal year 2002, 2001 and 2000 consisted
of the following:

<TABLE>
<CAPTION>
                                         2002              2001             2000
                                     ------------     ------------     ------------
<S>                                  <C>              <C>              <C>
Proceeds from sales of securities    $186,861,999     $241,829,982     $329,205,886
Gross realized gains ............         103,729          412,115          943,143
Gross realized losses ...........         (27,122)         (24,168)         (79,759)
</TABLE>

4. GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS

     The gross carrying value and accumulated amortization of goodwill and other
intangibles are as follows:

<TABLE>
<CAPTION>
                                          AS OF NOVEMBER 30, 2002     AS OF NOVEMBER 30, 2001
                                         -------------------------   -------------------------
                                           GROSS                       GROSS
                                          CARRYING     ACCUMULATED    CARRYING     ACCUMULATED
                                           AMOUNT     AMORTIZATION     AMOUNT     AMORTIZATION
                                         ----------   ------------   ----------   ------------
<S>                                      <C>          <C>          <C>          <C>
Amortized intangible assets:
   GroupLotto identifiable intangibles   $1,445,845   $  407,246   $1,445,845   $  108,438
   Montvale identifiable intangibles .           --           --       25,000           --
   Infiknowledge identifiable
      intangibles ....................      502,047       98,104           --           --
   Thanksmuch identifiable
      intangibles ....................       60,000       13,850           --           --
   Marketing Right License Fee .......      300,000      106,450           --           --
                                         ----------   ----------   ----------   ----------
      Total amortizable intangible
         assets ......................   $2,307,892   $  625,650   $1,470,845   $  108,438
                                         ==========   ==========   ==========   ==========
Unamortized intangible assets:
   Goodwill-- Infiknowledge ..........   $  647,729                $       --
   Goodwill-- Thanksmuch .............      289,736                        --
                                         ----------                ----------
      Total Goodwill .................   $  937,465                $       --
                                         ==========                ==========
</TABLE>

     The future intangible  amortization  expense for the next five fiscal years
is estimated to be as follows:

  FISCAL YEAR ENDING NOVEMBER 30,
  -------------------------------
  2003 ......................................................   $595,128
  2004 ......................................................    401,578
  2005 ......................................................    401,578
  2006 ......................................................    281,651
  2007 ......................................................      2,305

     The amortizable  intangibles  listed above are deemed to have a finite life
of five years from date of acquisition; the straight-line method of amortization
has been applied to such assets in calculating their respective amortization.

     For the Infiknowledge acquisition indentifiable  intangibles,  amortization
expense has been recorded for the period  December 6, 2001 (date of acquisition)
to November 30, 2002.

     For the  ThanksMuch  acquisition  indentifiable  intangibles,  amortization
expense has been recorded for the period December 14, 2001 (date of acquisition)
to November 30, 2002.


                                      F-15
<PAGE>

                         TRAFFIX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     For the  GroupLotto  acquisition  indentifiable  intangibles,  amortization
expense  has been  recorded  for the  July 23,  2001  (date of  acquisition)  to
November 30, 2002.

     For all of the above referenced acquisition based intangibles, there are no
contingencies  for cash and/or shares,  other than those  described in Note 1 to
the financial statements.

5. PROPERTY AND EQUIPMENT

     Property  and  equipment  for the years  ended  November  30, 2002 and 2001
consists of the following:

                                                        2002         2001
                                                     ----------   ----------
Furniture and fixtures ...........................   $  375,323   $  173,929
Computers and equipment ..........................    3,379,468    1,760,543
Leasehold improvements ...........................       97,538       44,113
                                                     ----------   ----------
                                                      3,852,329    1,978,585
   Less, accumulated depreciation and amortization    1,683,173    1,026,883
                                                     ----------   ----------
                                                     $2,169,156   $  951,702
                                                     ==========   ==========

     Depreciation  and  amortization  expense for the years ended  November  30,
2002,  2001  and  2000  was  approximately  $656,000,   $281,000  and  $264,000,
respectively.

6.  MARKETABLE  SECURITIES  AND LONG-TERM  INVESTMENTS,  AT COST, AND PRIOR YEAR
ACQUISITIONS

     The Company's Long-term investments,  at cost, include investment interests
of less than 20% in  private  companies  without a readily  determinable  market
value.  If  circumstances  exist  that  indicate  the  carrying  value  of  such
investments is less than their recoverable  value, the Company assesses the need
to record an impairment  loss.  Key criteria  that the Company  considers in its
evaluation of potential  impairment events include,  but are not limited to: the
underlying  investment's failure to meet its operating  projections;  failure of
the investment to raise additional capital or acquire debt financing; failure to
obtain and/or maintain key employees or acquire, or maintain,  a specific market
share; and the failure of the investments to achieve initial short-term goals as
defined in their business plans.

   PRIOR YEAR COMPLETED ACQUISITIONS

     In Fiscal 2001, we acquired the minority  interest in  GroupLotto,  Inc., a
majority  owned  subsidiary  prior to such  acquisition,  for  consideration  of
$1,445,845.  The  consideration  consisted  of 336,243  shares of Traffix,  Inc.
common stock issued on July 20, 2001, at a market value of $4.30 per share.  The
transaction was accounted for under the purchase method, and,  accordingly,  the
results of  operations  of the  acquired  minority  interest are included in our
consolidated results of operations from the date of acquisition.

     During the fiscal year ended  November 30,  2000,  the Company had invested
approximately  $500,000 in a private  company,  and carried the investment under
the cost method. After review of such investment, and the investment's continued
failure to achieve  significant  goals set forth in its business  and  financing
plans, such investment fell within the Company's impairment evaluation criteria.
According to the above  analysis,  the Company's  impairment  loss for the prior
fiscal year's first quarter ended February 28, 2001 amounted to $500,051, and is
included as a component of other income (expense) "Permanent impairment charges"
for the year ended  November 30, 2001.  During the prior  fiscal  year's  second
quarter ended May 31, 2001,  this entity  effectively  wound down operations and
ceased doing business.


                                      F-16
<PAGE>

                         TRAFFIX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     During the fiscal year ended  November 30,  1999,  the Company had invested
$2,046,500 of cash into five private  companies,  carried under the cost method.
As of November 30,  2000,  four of those five  private  companies  had failed to
achieve their initial goals, as set forth in their business plans,  and all four
of those  companies  had  events  that fell  within  our  impairment  evaluation
criteria.  This portion of the Company's impairment loss amounted to $1,546,500,
and  is  included  as a  component  of  fiscal  2000's  other  income  (expense)
"Permanent impairment charges."

     The  remaining  investee,  itarget.com,  Inc.  (which  at that  time  was a
privately  held  company that  specialized  in on-line  permission  based e-mail
marketing and consumer data  information  services),  was an entity in which the
Company had originally  invested $500,000 in November 1999. In January 2000, the
Company increased its cost-based investment position through the issuance of its
common stock  pursuant to a stock swap  agreement.  The agreement  required that
229,862  Traffix  common  shares be issued in exchange  for 42,372  newly issued
Series B, convertible  preferred  shares of itarget.com,  Inc. The Traffix share
issuance increased the cost-based  carrying value of the itarget.com  investment
by $1,616,206.  On March 29, 2000, itarget.com merged with Cybergold,  Inc., (at
that time a public company that traded as Nasdaq:CGLD).  Pursuant to the merger,
the Company  received  Cybergold,  Inc. shares in exchange for its  itarget.com,
Inc.  shares.  This merger event  caused the  previously  classified  long-term,
cost-based  investment to be  transferred to the  available-for-sale  marketable
security  classification.  In fiscal 2000, the Company recognized a nonmonetary,
pre-tax  gain of  approximately  $566,000  on the new  accounting  basis  of the
Cybergold, Inc. shares, which is included as a component other income (expense).
On April 17, 2000, MyPoints.com, Inc. (Nasdaq:MYPT) agreed to acquire Cybergold,
Inc. in a tax-free,  stock-for-stock,  fixed share transaction.  The transaction
closed on August 7, 2000,  whereby the Company  received  approximately  117,000
shares  of  MyPoints.com,  Inc.  in return  for its  Cybergold,  Inc.  shares in
accordance  with the terms of the  merger.  During the prior  fiscal  year ended
November  30, 2001,  the Company  recognized  a loss on the  MyPoints.com,  Inc.
shares  (through a permanent  impairment  charge) of $2,553,778.  This permanent
impairment  was  the  result  of the  Company's  evaluation  of  its  marketable
securities,  in terms of measuring risk at the individual  company level coupled
with  risk at the  market  level.  As a result  of this  analysis,  the  Company
determined  that the decline in the related  security was "other than temporary"
and, in response to such determination,  recorded the aforementioned  impairment
charge. On June 4, 2001, an affiliate of UAL Corp.  (NYSE:UAL) announced that it
intended  to acquire  all of the common  stock of  MyPoints.com,  Inc. in a cash
tender offer of $2.60 a share.  The Company  tendered  all of its  MyPoints.com,
Inc.  shares during the third quarter of the fiscal year ended November 30, 2001
and recorded an approximate $224,000 gain at that time.

     During the year ended November 30, 2000, the Company expended an additional
$1,060,051 on cost-based  investments.  As at November 30, 2000, the Company had
evaluated those long-term  investment  purchases and recorded an impairment loss
of $327,500  against the carrying value of such  investments,  and included such
adjustment  as a  component  of other  income  (expense)  "Permanent  impairment
charges" in that year.

7. ACCRUED EXPENSES

     Accrued expenses are comprised of the following at:

                                                             NOVEMBER 30,
                                                    ----------------------------
                                                       2002               2001
                                                    ----------        ----------
Accrued payroll and bonuses ................        $  983,909        $  882,817
Advances from customers ....................           729,202           631,665
Accrued fee share liabilities ..............           805,632           609,596
Other ......................................         1,938,901         1,974,843
                                                    ----------        ----------
   Total accrued liabilities ...............        $4,457,644        $4,098,921
                                                    ==========        ==========


                                      F-17
<PAGE>

                         TRAFFIX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. INCOME TAXES

     The provision (credit) for income taxes consists of the following:

                                                YEAR ENDED NOVEMBER 30,
                                       -----------------------------------------
                                           2002           2001           2000
                                       -----------    -----------    -----------
Current tax provision (credit):
   U.S federal taxes ...............   $    75,262    $ 3,444,673    $ 2,191,023
   Foreign taxes ...................       330,401             --             --
   U.S. state tax ..................       286,173     (1,154,105)       774,953
                                       -----------    -----------    -----------
                                           691,836      2,290,568      2,965,976
                                       -----------    -----------    -----------
Deferred tax provision (credit):
   U.S federal taxes ...............       870,370      1,112,875        426,922
   Foreign taxes ...................       (49,626)            --             --
   U.S. state tax ..................       274,314       (128,243)        78,856
                                       -----------    -----------    -----------
                                         1,095,058        984,632        505,778
                                       -----------    -----------    -----------
            TOTAL PROVISION ........   $ 1,786,894    $ 3,275,200    $ 3,471,754
                                       ===========    ===========    ===========

     The following is a reconciliation  of the income tax expense computed using
the statutory  federal  income tax rate to the actual income tax expense and its
effective income tax rate:

<TABLE>
<CAPTION>
                                                     YEAR ENDED NOVEMBER 30,
                                           -----------------------------------------
                                               2002           2001           2000
                                           -----------    -----------    -----------
<S>                                        <C>            <C>            <C>
Income tax expense computed
   at statutory rate ...................   $ 1,539,617    $ 1,217,170    $ 2,930,332
State income taxes, net of federal
   income tax benefit ..................       369,921        649,857        333,813
Foreign tax statutory rate over
   U.S statutory rate ..................        56,276             --             --
Tax settlements ........................      (220,472)            --             --
Capital losses generating no tax benefit            --      1,456,390             --
Change in valuation allowance ..........       (66,647)      (133,237)      (200,000)
Nondeductible items ....................       108,199         85,020        407,609
                                           -----------    -----------    -----------
                                           $ 1,786,894    $ 3,275,200    $ 3,471,754
                                           ===========    ===========    ===========
</TABLE>


                                      F-18
<PAGE>

                         TRAFFIX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The components of net deferred tax assets are as follows:

<TABLE>
<CAPTION>
                                                               NOVEMBER 30,
                                                        --------------------------
                                                            2002           2001
                                                        -----------    -----------
<S>                                                     <C>            <C>
Deferred tax assets:
   Current:
     Accrued expenses and reserves not currently
       deductible ...................................   $ 1,238,953    $ 2,432,670
     Realized capital losses on marketable securities
       and long term investments ....................     1,598,180      1,641,424
     Valuation allowance on realized capital losses .    (1,598,180)    (1,641,424)
     Intangibles ....................................         9,838        278,675
     Foreign Income Tax Credit carryforward .........       276,030             --
     Net operating loss carryforward ................            --        531,470
                                                        -----------    -----------
         Total current assets .......................     1,524,821      3,242,815
                                                        -----------    -----------
   Non-current:
     Accrued expenses and reserves not currently
       deductible ...................................            --         40,677
     Fixed assets-Canada ............................        49,626
     Fixed assets and intangibles ...................            --         44,000
     State net operating losses .....................            --      1,408,252
     Valuation allowance ............................            --     (1,345,845)
                                                        -----------    -----------
         Total noncurrent assets ....................        49,626        147,084
                                                        -----------    -----------
         Total assets ...............................     1,574,447      3,389,899
                                                        -----------    -----------
Deferred tax liabilities:
     State net operating losses .....................     1,384,849             --
     Valuation allowance ............................    (1,322,442)            --
     Fixed assets and intangibles ...................      (151,966)            --
                                                        -----------    -----------
         Total noncurrent liabilities ...............       (89,559)            --
                                                        -----------    -----------
         Net deferred tax assets ....................   $ 1,484,888    $ 3,389,899
                                                        ===========    ===========
</TABLE>

     At November  30, 2002 and 2001,  valuation  allowances  of  $1,322,442  and
$1,345,845, respectively were established, primarily for state tax net operating
losses,  which can not be carried back by statute, and have reduced the deferred
tax assets to an amount which the Company believes is more likely than not to be
realized.

     During  the  year  ended  November  30,  2001,  a  valuation  allowance  of
$1,641,424 was  established for realized  capital losses.  During the year ended
November 30, 2002, the Company  recognized $43,244 in tax savings related to net
capital gains, which were not taxed, based on the realization of the tax benefit
of the prior year's capital loss valuation allowance.  At November 30, 2002, the
capital loss deferred tax asset and related valuation allowance were reduced for
the current years tax benefit realized. At November 30, 2001 the Company did not
recognize the benefit of an  immaterial  prior year capital gain for purposes of
establishing  carryback value, and the Company did not have specific appreciated
capital gain property to provide  future  carryforward  value,  therefore a full
valuation  allowance  was  taken at  November  30,  2001 to reduce  the  related
deferred tax assets to an amount which the Company believed was more likely than
not to be realized.  At November 30, 2002 the balance of the tax deferred  asset
relating  to  prior  year's  capital  losses  amounted  to  $1,598,980,  with  a
corresponding full valuation allowance of $1,598,980. Such capital losses expire
on November 30, 2006.


                                      F-19
<PAGE>

                         TRAFFIX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The Company has  approximately  $52.5 million of state net operating losses
expiring through 2015.

9. REGULATORY ISSUES AND OTHER RISK CONSIDERATIONS

     Various state laws exist,  and federal  legislation  is currently  pending,
that limit the  Company's  ability  to deliver  commercial  e-mail  messages  to
consumers.  The Federal Trade  Commission  is convening a three-day  workshop to
review  commercial  e-mail  practices.  There are presently no federal laws that
explicitly  regulate sending  unsolicited  e-mail. The pending federal bills and
existing  state laws require that certain  "opt-out"  procedures  be included in
e-mails and  prohibit  "false  routing"  or  "fictitious  address"  information.
Existing state,  and pending  federal,  laws require  functioning  return e-mail
addresses  and that  valid  postal  addresses  be  included  by the  senders  of
commercial  e-mail  messages.  Some states require an "ADV" label in the subject
line, and proscribe false header or misleading subject lines.  Attorneys General
and/or  consumers are given  authority to enforce the state laws.  Over half the
states have enacted legislation affecting the sending of unsolicited  commercial
e-mail. If strict federal legislation is subsequently written into law, with its
terms  specifically  limiting the  Company's  ability to market its offers,  the
Company could  potentially  realize a material  adverse  impact in future fiscal
period net revenue growth, and therefore,  profitability and cash flows could be
adversely affected.

     In November  2002,  the Company  received an inquiry from the Federal Trade
Commission  questioning  whether  the  Company  needed to comply with the Graham
Leach Bliley Act (privacy of consumer  information  for financial  institutions)
arising from Atlas Credit Group, one of the Company's Internet subsidiaries. The
Company  responded  by stating  that the Company need not comply with the Graham
Leach  Bliley Act because  Atlas Credit Group  utilizes  advertising  from other
financial  institutions,  but is not itself a financial  institution  as defined
under the statute.  The Company has not received any further  comments  from the
Federal Trade Commission. ThanksMuch.com, LLC, another of the Company's Internet
subsidiaries,  was served  with a class  action  lawsuit  in State  Court in the
County  of Los  Angeles,  California,  for  damages  associated  with  allegedly
violating  the  State's  Shipping  and  Handling  laws.  This suit was  recently
settled.  The settlement offers a $5.00  certificate to California  consumers on
future  purchases  of  ThanksMuch  products  and  provides a small  payment  for
attorneys' fees.

     The  Pennsylvania  Attorney  General's  Office had requested the Company to
enter into an Assurance of Voluntary Compliance Agreement to resolve allegations
concerning  certain of the  Company's  sales  practices.  The  Attorney  General
alleged  that the Company  Fly Free  telemarketing  program,  as well as certain
pay-per-call  services, did not adequately disclose to the consumer the terms of
the offer being made.  The Agreement also provides for a payment to the State in
an amount  yet to be  determined.  Discussions  with the  Pennsylvania  Attorney
General's Office are on-going.

     Any changes in the Internet operating  landscape that materially hinder the
Company's  current ability and/or cost to deliver  commercial e-mail messages to
the consumer records in the Company's databases, and the consumer records in the
databases of the Company's affiliates, could potentially cause a material impact
on net revenue and gross margin and, therefore,  the Company's profitability and
cash flows could be adversely affected.

10. CESSATION OF 900 PAY-PER-CALL BUSINESS

     In accordance  with the Company's  business  strategy of separating  itself
from the 900  Pay-Per-Call  business  which was  reported as a component  of LEC
Billed products and services (see Note 14), on June 4, 1999, the Company entered
into an agreement with ARS (the "ARS Agreement"),  pursuant to which the Company
agreed to cease conducting,  marketing,  advertising or promoting certain "stand
alone" 900  Pay-Per-Call  Psychic  Services  described in the ARS Agreement (the
"900 Psychic Services") directly or indirectly through any affil


                                      F-20
<PAGE>

                         TRAFFIX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     iate, until January 17, 2001. ARS agreed to assume  responsibility  for the
employees  and for the  lease  of the  premises  used by this  business  in Fort
Lauderdale,  Florida,  to acquire the computer  equipment  and other  furniture,
fixtures and leasehold improvements used by this business.

     In consideration for the Company's agreement to suspend the offering of the
900 Psychic Services,  ARS agreed to pay to the Company certain royalty fees for
each billable minute generated by 900 Pay-Per-Call  Psychic Services on ARS' 900
numbers and on ARS' billings to membership clubs from and after the consummation
of the  transactions  contemplated  by the ARS  Agreement  and until January 17,
2001, all as more fully described in the ARS Agreement.

     The ARS Agreement was effective as of May 31, 1999. During the fiscal years
ended November 30, 2001 and 2000, the Company has recorded royalty revenue under
the  terms  of the  ARS  Agreement  amounting  to  $486,000  and  $3.4  million,
respectively, all of which has been collected.

11. COMMITMENTS AND CONTINGENCIES

   LEASES

     The Company is obligated  under a  noncancelable  real  property  operating
lease agreement that expires in fiscal 2006. Future minimum rents consist of the
following at November 30, 2002:

2003 ...........................................................   $  546,017
2004 ...........................................................      384,759
2005 ...........................................................      348,440
2006 ...........................................................      215,000
Thereafter .....................................................           --
                                                                   ----------
                                                                   $1,494,216
                                                                   ==========

     The lease contains escalation clauses with respect to real estate taxes and
related  operating  costs. The accompanying  financial  statements  reflect rent
expense  on a  straight-line  basis  over the term of the lease as  required  by
accounting  principles generally accepted in the United States of America.  Rent
expense for all leases was $571,000, $352,000 and $279,000 for fiscal 2002, 2001
and 2000, respectively.

   EMPLOYMENT AGREEMENTS

     The Company has entered into employment  agreements,  effective December 1,
2001, with certain executive officers of the Company.  Such agreements expire on
November 30, 2004.  Pursuant to the agreements  said officers are entitled to an
annual  increase of at least ten percent  (10%) more than the annual rate in the
immediately  preceding  year;  said officers will each receive  bonuses upon the
Company's  achievement  of  certain  pre-tax  income  milestones,   as  well  as
discretionary  bonuses  subject to approval of the Company's Board of Directors;
said  officers  were  each  issued  options  to  acquire  105,000  shares of the
Company's  Common  Stock;  said  officers  agreed  not to compete or engage in a
business  competitive  with the  business of the Company  during the term of the
agreement  and for a period  of one year  thereafter;  if an  officer/employee's
employment  is  terminated  other  than as a result of a "For  Cause  Event" (as
defined  in  the  agreements),  he  shall  be  entitled  to  receive  additional
compensation  and  other  consideration,  all as  more  fully  described  in the
agreements;  and, if an  employee's  employment  is  terminated as a result of a
"Change in  Control"  (as  defined in the  agreements),  he shall be entitled to
receive a one-time  payment in an amount  equal to 2.99 times his "base  amount"
determined in accordance with the applicable  provisions of the Internal Revenue
Code.


                                      F-21
<PAGE>

                         TRAFFIX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

   LITIGATION

     NANCY GAREN

     On or about  October 16, 2001,  Nancy  Garen,  author of "Tarot Made Easy",
commenced an action  against a series of defendants,  including the Company,  in
the  United  States  District  Court for the  Central  District  of  California,
entitled  NANCY  GAREN V.  STEVEN  L.  FEDER  ET AL.  (EDCV  01-790  (VAP-SGLx).
Plaintiff  alleged  that  defendants  were liable for a copyright  infringement,
contributory copyright infringement,  vicarious copyright  infringement,  unfair
competition,  contributory  federal unfair  competition  and state statutory and
common law  unfair  competition  and  damages  from  alleged  infringement  of a
copyright.  Pursuant to a settlement with the defendants other than the Company,
the action was dismissed as against the Company,  with prejudice and without any
cost to the Company.

     MAVIES WINGLER

     On or about May 9, 2001,  Mavies Wingler  commenced an action against Group
Lotto,  Inc. ("GLI"),  one of the Company's  wholly-owned  subsidiaries,  in the
Circuit Court of Logan County, West Virginia.  Ms. Wingler claims to have picked
the winning  numbers  entitling her to $10 million.  On June 8, 2001, the action
was  removed to the United  States  District  Court,  Southern  District of West
Virginia, and is entitled WINGLER V. GROUPLOTTO,  INC., Docket Number 2:01 -- CV
-- 518. The action is in the discovery  stage. At the end of 2002, Ms. Wingler's
attorney withdrew, and she is now representing herself. The Company and GLI have
a contract of  indemnification  with SCA Promotions,  Inc. to be indemnified for
prizes paid out to  qualified  winners.  GLI winners are required to produce the
Group Lotto Entry  Notification  form ("GLEN") within a specified period of time
after  matching a drawing's  winning  numbers in order to qualify for receipt of
the appropriate  prize winnings.  The Company does not believe that there is any
merit to Ms.  Wingler's  claim and intends to  vigorously  continue  its defense
thereof.

     DANIEL RODGERS

     In March 2002,  Daniel  Rodgers  commenced an action against the Company in
Supreme Court of the State of New York,  Rockland County.  The complaint alleges
that the Company disseminated false and misleading advertisements through e-mail
advertisements and through the website of GLI. In August 2002, the Company filed
a motion to dismiss the  complaint.  In January 2003,  the court issued an order
dismissing the action. The plaintiff may file an appeal from the decision within
a specified 30-day period, which has not yet expired.

     PLASMANET

     On November 21, 2002,  Plasmanet,  Inc., one of the Company's  competitors,
commenced an action alleging patent  infringement and  misappropriation of trade
secrets.  PLASMANET,  INC. V. APAX PARTNERS,  INC., ET AL., Case No. 02 CIV 9290
(S.D.N.Y.). Plasmanet operates a website, FreeLotto.com, which is similar to one
operated by GLI.  Plasmanet  alleges  that on  September  24, 2002 it obtained a
patent for a "Free Remote  Lottery  System" and that the Company  infringed said
patent.  In  addition,   Plasmanet  asserts  that  the  Company  misappropriated
Plasmanet's trade secrets after it was shown a private  placement  memorandum by
an agent of Plasmanet's investment banker. The complaint seeks injunctive relief
and  unspecified  money damages.  The Company  believes there is no merit to the
claims and intends to vigorously defend against them.


                                      F-22
<PAGE>

                         TRAFFIX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     QWEST COMMUNICATIONS

     Qwest  Communications,  Inc. has notified the Company of an indemnification
claim  relating to a class action filed against  Qwest in Minnesota.  BINDNER V.
LCI INTERNATIONAL  TELECOM CORP. ET AL., District Court of Minnesota,  County of
Sibley,  Case No.  C0-00-242.  Plaintiffs in that action claim that in late 1999
into  mid-2000,  they were misled when they were  solicited to change their long
distance  carrier to Qwest.  They assert that they were not told that they would
have  to  stay at  certain  hotels  and pay  their  regular  rates  as part of a
promotion,  which offered them free airline tickets.  The Company introduced the
promotion  ("Fly Free  America")  to Qwest,  and had been  retained  by Qwest to
operate the telemarketing  campaign.  Fraud claims in the class action have been
dismissed,   leaving  breach  of  contract  and  false  advertising  claims.  An
application for class certification is now pending.  The class could be as large
as 12,000 claimants.

     In or about May 2000,  the  Company  and Qwest  entered  into an  agreement
terminating  their  contract  and  settling the amount due the Company (the "May
2000 Agreement").  The May 2000 Agreement  contained language which Qwest claims
obligates  the Company to indemnify  Qwest for any loss it may sustain by reason
of this class  action.  The Company  maintains  that it has no  liability in the
matter. In November 2002, the Company commenced an arbitration  against Qwest to
recover  certain moneys due it pursuant to the May 2000  Agreement.  In December
2002,  Qwest filed  counterclaims  in the  arbitration  relating to the Fly Free
America program.  Qwest asserts that the Company must indemnify Qwest for, among
other things,  fines and penalties amounting to approximately $1.5 million which
Qwest claims it paid in connection  with a number of consent  decrees it entered
into with various State Attorneys  General,  an unspecified amount of attorneys'
fees, and any and all expenses,  penalties or other amounts Qwest becomes liable
for in  connection  with the class  action.  Qwest also seeks  reimbursement  of
approximately  $3.1  million  it paid  the  Company  pursuant  to the  May  2000
Agreement.  The Company believes that there is no merit to Qwest's counterclaims
and intends vigorously to defend against them, as well as to pursue its claim.

     COLUMBIA HOUSE/RYDEL

     In or about August 2002,  Sony Music  Entertainment,  Inc.,  d/b/a Columbia
House, one of the Company's clients,  notified the Company of an indemnification
claim relating to a class action filed against Columbia House,  among others, in
Illinois.  RYDEL V.  COMTRAD  INDUSTRIES,  INC.  ET AL.,  Circuit  Court of Cook
County, Illinois, No. 02 CH 13269. Plaintiff claims to have received unsolicited
commercial  e-mail from, among others,  Columbia House, in violation of Illinois
law.  Columbia  House  advised  the Company  that it believes  that the email in
question was not approved by Columbia House when it was sent by the Company, and
asserted a claim for  indemnification  against  the  Company  pursuant  to their
contract.  The Company and  Columbia  House  agreed to defer  resolution  of the
indemnification  claim (and reserved each of their respective rights).  Columbia
House is  defending  against the class  action and has filed a motion to dismiss
it. In or about January 2003,  the Company was named as a defendant in the class
action. In an additional count in the complaint,  the plaintiff asserts that the
Company violated the Illinois  Consumer Fraud and Deceptive  Business  Practices
Act by providing to a  co-defendant  a list of  consumers  who had  consented to
receive  commercial  e-mails  when,  the  complaint  alleges,  they had not. The
complaint  seeks  injunctive  relief and  unspecified  damages.  The  Company is
currently  investigating  the claim, and will timely respond to the complaint in
due course.


                                      F-23
<PAGE>

                         TRAFFIX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     SPRINT COMMUNICATIONS, TINA HARRISON, LISA WATTERS (UTAH CLAIMS)

     Sprint  Communications,  one of the Company's former clients,  has notified
the Company of an indemnification claim relating to a class action filed against
Sprint in Utah (GILLMAN V. SPRINT  COMMUNICATIONS  CO. L.P.,  District  Court of
Utah, Third Judicial  District Salt Lake City, Civil No.  020406640).  Plaintiff
claims to have received unsolicited  commercial e-mail in violation of Utah law.
Sprint has advised the Company that it is  defending  the action and has filed a
motion for summary  judgment  dismissing  the claims.  In  addition,  Sprint has
advised the Company that it has received a settlement demand for an amount which
is not material.  In January 2003, the Company received notice of two additional
claims filed in Utah state court: WATTERS V. TRAFFIX,  INC.,  MONGLYPH.COM,  AND
PHILLIP C. WILSON AND JOHN DOES ONE THROUGH TEN, (No. 20413327); and HARRISON V.
TRAFFIX,  INC. AND JOHN DOES ONE THROUGH TEN, (No. 20414190),  District Court of
Utah, Third Judicial  District Salt Lake County,  Sandy  Department.  In each of
these actions,  the plaintiff  claims to represent a class of Utah residents who
received unsolicited  commercial e-mail in violation of Utah law. The Company is
currently  engaged in  discussions  to resolve  these matters for an amount that
would not be material.

     The Company is unable to determine  the ultimate  outcome of the  foregoing
actions,  and,  accordingly,  no provision  has been  recorded in the  financial
statements as of November 30, 2002.

12. EARNINGS PER SHARE

     The following table sets forth the  reconciliation  of the weighted average
shares used for basic and diluted earnings per share:

<TABLE>
<CAPTION>
                                                         YEAR ENDED NOVEMBER 30,
                                                  ------------------------------------
                                                     2002         2001         2000
                                                  ----------   ----------   ----------
<S>                                               <C>          <C>          <C>
Denominator:
   Denominator for basic earnings per
   share -- weighted average shares ...........   13,350,794   14,794,159   14,792,734
Effect of dilutive securities:
   Stock options ..............................      896,656      602,460      701,929
                                                  ----------   ----------   ----------
   Denominator for diluted earnings per share--
     adjusted weighted average shares .........   14,247,450   15,396,619   15,494,663
                                                  ==========   ==========   ==========
</TABLE>

     Options to purchase  919,291,  661,250 and 515,896  shares of common  stock
that were  outstanding at November 30, 2002, 2001 and 2000,  respectively,  were
not included in the  computation  of diluted  earnings per share  because  their
effect  would be  anti-dilutive.  The vesting  period of the options  range from
immediate vesting, to three year, pro-rata vesting, in accordance with the terms
authorized by the option compensation committee.


                                      F-24
<PAGE>

                         TRAFFIX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. STOCK OPTION PLAN AND WARRANTS

     During fiscal 1995, the Company implemented the 1995 Stock Option Plan (the
"Stock  Option  Plan")  effective  as of October  1995.  The Stock  Option  Plan
provides  for the grant of  options  to  purchase  up to  750,000  shares of the
Company's  common stock  either as incentive  stock  options  ("Incentive  Stock
Options")  within  the  meaning of Section  422 of the  United  States  Internal
Revenue  Code or as options that are not  intended to meet the  requirements  of
such section  ("Nonstatutory Stock Options").  Options to purchase shares may be
granted  under the Stock  Option Plan to persons  who, in the case of  Incentive
Stock Options, are employees (including officers) of the Company or, in the case
of Nonstatutory Stock Options, are employees (including  officers),  consultants
or nonemployee directors of the Company. The Stock Option Plan has been amended,
most  recently in August 2002 to provide for the granting of options to purchase
additional shares of the Company's common stock.  After these amendments,  there
were a total of 5,350,000 grants made available to purchase the Company's common
stock under the Stock Option Plans.

     The exercise  price of options  granted under the Stock Option Plan must be
at least equal to the fair market  value of such shares on the date of grant or,
in the case of Incentive Stock Options granted to a holder of 10% or more of the
Company's Common Stock, at least 110% of the fair market value of such shares on
the date of grant. The maximum exercise period for which Incentive Stock Options
may be granted is ten years from the date of grant (five years in the case of an
individual owning more than 10% of the Company's common stock).

     In addition, the Company's Stock Option Plan provides for certain automatic
grants of options to the Company's  nonemployee  directors in consideration  for
their  services  performed  as directors  of the Company and for  attendance  at
meetings.  It provides for a one-time  automatic  grant of an option to purchase
25,000  shares  of  common  stock at market  value to those  directors  who were
serving on the Board of Directors at the  inception of the Stock Option Plan and
also to those  persons who become  nonemployee  directors  of the Company in the
future,  upon their  appointment  or election as directors  of the  Company.  In
addition,  the amended Stock Option Plan  provides for quarterly  grants to each
nonemployee  director of the Company of options to purchase  6,250 shares of the
Company's  common  stock at the  market  value on the  date of each  grant.  The
Company granted 106,250, 187,500 and 81,250 options to the nonemployee directors
during fiscal 2002, 2001 and 2000, respectively.

     A summary of the Company's stock options is as follows:

<TABLE>
<CAPTION>
                                                      2002                  2001                  2000
                                              -------------------   -------------------   -------------------
                                                         WEIGHTED              WEIGHTED              WEIGHTED
                                                          AVERAGE               AVERAGE               AVERAGE
                                                         EXERCISE              EXERCISE              EXERCISE
                                                SHARES      PRICE     SHARES      PRICE     SHARES      PRICE
                                              ---------  --------   ---------  --------   ---------  --------
<S>                                           <C>          <C>      <C>          <C>      <C>          <C>
Options outstanding,
  beginning of year ......................    2,566,958    $3.45    1,636,132    $3.80    1,301,864    $2.48
Granted ..................................      809,250     5.78    1,180,062     2.55      560,250     6.11
Exercised ................................     (554,270)    2.21     (239,517)    1.79     (211,526)    1.96
Cancelled or lapsed ......................      (48,853)    6.20       (9,719)    1.85      (14,456)    1.75
                                              ---------    -----    ---------    -----    ---------    -----
Options outstanding,
  end of year ............................    2,773,085    $4.40    2,566,958    $3.45    1,636,132    $3.80
                                              =========    =====    =========    =====    =========    =====
Options exercisable,
  end of year ............................    2,098,025             2,025,836             1,521,633
                                              =========             =========             =========
Options available for
  grant, end of year .....................    1,282,145             1,569,957             2,741,300
                                              =========             =========             =========
Weighted average fair value of
  options granted during the year ........        $3.27                 $2.55                 $4.60
                                              =========             =========             =========
</TABLE>


                                      F-25
<PAGE>

                         TRAFFIX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The  Company  adopted  the  disclosure-only   provisions  of  Statement  of
Financial   Accounting   Standards   No.   123   "Accounting   for   Stock-Based
Compensation." Accordingly, no compensation cost has been recognized with regard
to options granted under the Plan in the accompanying  financial statements.  If
stock-based  compensation  costs had been recognized based on the estimated fair
values at the dates of grant for options  awarded since 1996,  the Company's net
income and earnings per share would have been as follows:

                                           YEAR ENDED NOVEMBER 30,
                                    ------------------------------------
                                       2002         2001         2000
                                    ----------   ---------    ----------
Net income-- as reported ........   $2,741,390   $ 417,499    $5,146,870
Net income (loss)-- pro forma ...   $1,694,502   $(565,967)   $3,653,723
Basic EPS-- as reported .........   $     0.21   $    0.03    $     0.35
Diluted EPS-- as reported .......   $     0.19   $    0.03    $     0.33
Basic EPS-- pro forma ...........   $     0.13   $   (0.04)   $     0.25
Diluted EPS-- pro forma .........   $     0.12   $   (0.04)   $     0.24

     The weighted  average  fair value of each option has been  estimated on the
date of grant using the  Black-Scholes  options pricing model with the following
weighted  average  assumptions  used for all grants of:  volatility  of 71.5% in
2002,  80.0% in 2001 and 96.5% in 2000;  risk-free  interest  rate  ranging from
2.64% to 4.38% in 2002,  3.94% to 5.31% in 2001 and 5.87% to 6.53% in 2000;  and
expected lives of approximately 4.0 to 4.8 years.

     The following table summarizes  information about stock options outstanding
at November 30, 2002:

<TABLE>
<CAPTION>
                       WEIGHTED
                        AVERAGE      WEIGHTED     WEIGHTED
                       REMAINING      AVERAGE      AVERAGE
   RANGE OF           CONTRACTUAL   EXERCISABLE    SHARES     EXERCISABLE
EXERCISE PRICE        OUTSTANDING      LIFE         PRICE     EXERCISABLE     PRICE
---------------       -----------   -----------   ---------   ------------   ------
<S>                      <C>            <C>         <C>          <C>         <C>
$ 1.50 -- $ 2.06         681,180        3.6         $ 1.87       622,512     $ 1.88
$ 2.28 -- $ 3.35         470,916        8.5           2.74       413,918       2.73
$ 3.65 -- $ 5.44         508,748        7.8           4.35       349,084       4.47
$ 5.69 -- $ 7.74       1,043,491        8.4           6.33       643,761       6.47
$ 9.00 -- $11.31          56,250        5.3          10.07        56,250      10.07
$15.56 -- $15.56          12,500        4.6          15.56        12,500      15.56
----------------       ---------        ---         ------     ---------     ------
$ 1.50 -- $15.56       2,773,085        7.1         $ 4.40     2,098,025     $ 4.19
================       =========        ===         ======     =========     ======
</TABLE>

     As of  November  30,  2000,  there were  275,818  warrants  outstanding  to
purchase  common  stock at an exercise  price of $8.25 per share.  The  warrants
expired in December 2000.

     During  fiscal  2002,  2001 and 2000,  options for shares of the  Company's
common stock were exercised by certain employees and directors. A tax benefit of
$171,909,  $240,265 and $448,880 in fiscal  2002,  2001 and 2000,  respectively,
were  recorded as an increase to additional  paid-in  capital and a reduction of
income taxes currently payable.

     During  fiscal  2002,  an   officer/director   of  the  Company   exercised
approximately  336,000 options.  Subsequent to such exercise,  and less than six
months from said exercise, the Company repurchased the shares acquired under the
exercise from the officer/director.  In accordance with Financial Interpretation
Number 44,  paragraph  14(a),  such  repurchase  required to Company to record a
compensation  charge of  approximately  $281,000 in the fourth quarter of fiscal
2002.

     During  fiscal 2001,  the vesting  period of an employees  stock option was
accelerated, such acceleration yielded an approximate $116,000 noncash charge to
operations.


                                      F-26
<PAGE>

                         TRAFFIX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

14. SEGMENT INFORMATION

     The  Company's  segments  operate  principally  in the United States with a
presence in Canada;  the Canadian  presence  contributed an immaterial amount to
consolidated net revenues and consolidated net income.  The accounting  policies
of the Company's segments are the same as those detailed in Note 1.

     The  Company's   reportable  operating  segments  are  aligned  into  three
fundamental  areas:  (1)  Internet  Commerce  billed  directly to the  Company's
marketing partners and corporate customers,  as well as consumers  (E-commerce),
(2)  Off-line  Marketing  Services  billed  directly to the  Company's  off-line
corporate  customers,  including  long  distance  carriers,  wireless  carriers,
financial   institutions  and  other  service  providing   businesses  (Off-line
Marketing  Services) and (3) Products and Services  billed to consumers by Local
Exchange  Carriers (LEC Billed products and  services-inactive  in fiscal 2002).
The balance of the  Company's  operations,  individually  immaterial  and in the
aggregate  are included as part of Corporate and other.  This  business  segment
delineation is consistent with the Company's  management and financial reporting
structure  based on products and  services.  The Company  evaluates  performance
based on many factors,  with the primary criteria being each segment's (a) gross
profit and (b) net income excluding (i) special charges,  (ii) interest expense,
(iii)  interest  and  dividend  income,  (iv) net gains  (losses) on the sale of
marketable  securities,  (v) permanent  impairment charges to long-lived assets,
(vi) gains on nonmonetary cost basis exchanges, (vii) other nonoperating income,
(viii) minority interest income (loss), (ix) depreciation,  (x) amortization and
(xi)  income  taxes.   The  Company   shares  a  common   workforce  and  office
headquarters, which precludes an allocation of all overhead components. Overhead
items that are specifically  identifiable to a particular segment are applied to
such segment and all other  overhead  costs are included in Corporate and other.
The following tables set forth the Company's  financial  results,  by management
performance   criteria,   by   operating   segment.   All   revenues   are  from
nonintersegment sources; therefore no intersegment elimination applies.

     Corporate  assets of  approximately  $20.9  million at November  30,  2002,
consist principally of cash, cash equivalents and marketable securities.

   SEGMENT DATA -- NET REVENUES

                                                 YEAR ENDED NOVEMBER 30,
                                         ---------------------------------------
                                             2002          2001          2000
                                         -----------   -----------   -----------
E-commerce ...........................   $38,807,119   $28,475,225   $10,498,186
Off-line Marketing Services ..........     5,235,806     2,214,576     8,958,774
LEC Billed Products and Services .....            --     1,519,609     7,134,831
Corporate and other ..................            --            --        20,072
                                         -----------   -----------   -----------
         Consolidated totals .........   $44,042,925   $32,209,410   $26,611,863
                                         ===========   ===========   ===========

   SEGMENT DATA -- GROSS PROFIT

                                                 YEAR ENDED NOVEMBER 30,
                                         ---------------------------------------
                                             2002          2001          2000
                                         -----------   -----------   -----------
E-commerce ...........................   $27,182,815   $20,574,189   $ 4,875,105
Off-line Marketing Services ..........     4,616,475     1,020,550     5,797,040
LEC Billed Products and Services .....            --     1,462,209     6,862,619
Corporate and other ..................            --            --        20,072
                                         -----------   -----------   -----------
         Consolidated totals .........   $31,799,290   $23,056,948   $17,554,836
                                         ===========   ===========   ===========


                                      F-27
<PAGE>

                         TRAFFIX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

   SEGMENT DATA -- EBITDA*

                                                 YEAR ENDED NOVEMBER 30,
                                      -----------------------------------------
                                           2002           2001           2000
                                      -----------    -----------    -----------
E-commerce ........................   $ 8,826,506    $ 9,554,829    $(1,341,711)
Off-line Marketing Services .......       743,040        200,406      4,299,772
LEC Billed Products and Services ..            --        367,328      6,285,218
Corporate and other ...............    (3,969,118)    (3,459,866)    (3,505,317)
                                      -----------    -----------    -----------
         Consolidated totals ......   $ 5,600,428    $ 6,662,697    $ 5,737,962
                                      ===========    ===========    ===========

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

* EBITDA is net income  before  interest  expense,  income  taxes,  interest and
dividend income,  realized gains on marketable securities,  permanent impairment
charges,  gains on nonmonetary cost basis exchanges,  other nonoperating  income
(expense), minority interest (income) loss, depreciation and amortization.

   SEGMENT DATA -- DEPRECIATION AND AMORTIZATION

                                                 YEAR ENDED NOVEMBER 30,
                                          --------------------------------------
                                             2002          2001          2000
                                          ----------    ----------    ----------
E-commerce ...........................    $  876,976    $  157,222    $   67,634
Off-line Marketing Services ..........        20,349            --            --
LEC Billed Products and Services .....            --            --            --
Corporate and other ..................       275,798       232,182       196,035
                                          ----------    ----------    ----------
         Consolidated totals .........    $1,173,123    $  389,404    $  263,669
                                          ==========    ==========    ==========

   SEGMENT DATA -- LONG-LIVED ASSETS

                                                 YEAR ENDED NOVEMBER 30,
                                          --------------------------------------
                                             2002          2001          2000
                                          ----------    ----------    ----------
E-commerce ...........................    $4,200,376    $1,868,627    $   65,232
Off-line Marketing services ..........        32,038            --            --
LEC Billed products and services .....            --            --            --
Corporate and other ..................       556,449       499,482       447,726
                                          ----------    ----------    ----------
         Consolidated totals .........    $4,788,863    $2,368,109    $  512,958
                                          ==========    ==========    ==========

   SEGMENT DATA -- TOTAL ASSETS

                                                 YEAR ENDED NOVEMBER 30,
                                         ---------------------------------------
                                             2002          2001          2000
                                         -----------   -----------   -----------
E-commerce ...........................   $29,101,906   $23,087,920   $ 4,536,473
Off-line Marketing services ..........       910,617     1,057,530       856,567
LEC Billed products and services .....       317,541     1,321,192     3,120,889
Corporate and other ..................    20,860,929    27,275,942    43,684,914
                                         -----------   -----------   -----------
         Consolidated totals .........   $51,190,993   $52,742,584   $52,198,843
                                         ===========   ===========   ===========


                                      F-28
<PAGE>

                         TRAFFIX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

     The following is a summary of the unaudited quarterly results of operations
for fiscal 2002, 2001 and 2000:

<TABLE>
<CAPTION>
                                                        QUARTER ENDED
                                    -----------------------------------------------------
                                    NOVEMBER 30,   AUGUST 31,      MAY 31,    FEBRUARY 28,
                                    -----------   -----------   -----------   -----------
<S>                                 <C>           <C>           <C>           <C>
2002:
Net revenues ....................   $10,203,244   $10,664,246   $10,804,538   $12,370,897
Gross profit ....................     7,939,584     7,446,086     7,421,334     8,992,286
Income before income taxes ......       882,199       177,615     1,182,583     2,285,887
Net income ......................       516,550       108,380       713,043     1,403,417
Basic income per share ..........   $      0.04   $      0.01   $      0.05   $      0.10
Diluted income per share ........   $      0.04   $      0.01   $      0.05   $      0.10
2001:
Net revenues ....................   $14,050,493   $ 7,404,820   $ 5,828,543   $ 4,925,554
Gross profit ....................     9,805,348     5,123,105     4,180,806     3,947,689
Income (loss) before income taxes     2,875,971     2,260,304     1,695,865    (3,139,441)
Net income (loss) ...............     1,709,882     1,462,992     1,015,484    (3,770,859)
Basic income (loss) per share ...   $      0.13   $      0.10   $      0.07   $     (0.26)
Diluted income (loss) per share .   $      0.12   $      0.10   $      0.07   $     (0.26)
2000:
Net revenues ....................   $ 8,829,967   $ 7,862,386   $ 7,220,864   $ 2,698,646
Gross profit ....................     3,878,148     5,480,259     5,856,759     2,399,670
Income before income taxes ......       853,284     2,616,751     3,210,748     1,937,841
Net income ......................       516,705     1,561,600     1,906,859     1,161,706
Basic income per share ..........   $      0.03   $      0.11   $      0.13   $      0.08
Diluted income per share ........   $      0.03   $      0.10   $      0.12   $      0.07
</TABLE>

     During the fourth  quarter of fiscal  2002,  the Company  adjusted  certain
accrued expenses related to fulfillment  accruals,  such adjustment  effectively
reduced cost of sales by approximately $500,000 in such quarter.

     During the fourth quarter of fiscal 2001, the Company recorded $3.7 million
in revenue related to an arbitration  award granted to the Company regarding the
settlement of a dispute brought against  Talk.com  (NASDAQ:TALK).  The Company's
total  award was  approximately  $6.2  million  with $3.7  million  having  been
collected  in November  2001 and recorded as revenue at the time of the receipt.
The  balance of the award was  treated  as a gain  contingency  pursuant  to the
overall financial condition of the  telecommunications  sector at that time, and
management's estimation of Talk.com's ability to pay. As a result of the award's
collection,  the Company  recognized  a $1.25  million  liability  in the fourth
quarter of fiscal 2001  relative to  telemarketing  costs  incurred in the prior
fiscal year. The collection of the Talk.com award  triggered the  recognition of
the  liability.  There  are no  other  contingencies  related  to the  potential
collection  of the balance of the award,  which was collected in fiscal 2002 and
included as other nonoperating income.

     During the fourth quarter of fiscal 2001, the Company charged approximately
$826,000 to bad debt expense related to the bankruptcy of its LEC Billed Product
and Service segment's billing and collection service bureau.

     During the fourth  quarter of fiscal  2000,  the Company  adjusted  certain
accrued  expenses  related to  fulfillment  accruals  ($1,007,237),  and accrued
annual bonuses ($260,060),  the combined effect of which increased fiscal 2000's
fourth quarter  pre-tax income by $1,267,297.  The fourth quarter of fiscal 2000
was negatively impacted by long-lived asset impairment charges of $602,500.  The
combined  effect of these  fourth  quarter  fiscal  2000  adjustments  increased
pre-tax income by $664,797.


                                      F-29
<PAGE>

          SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

<TABLE>
<CAPTION>
           COL. A                 COL. B             COL. C                  COL. D         COL. E
        -----------             ----------   -----------------------      -----------     ----------
                                                   ADDITIONS
                                             -----------------------
                                BALANCE AT   CHARGED TO   CHARGED TO                      BALANCE AT
                                BEGINNING    COSTS AND      OTHER         DEDUCTIONS-       END OF
        DESCRIPTION             OF PERIOD     EXPENSES     ACCOUNTS        DESCRIBE         PERIOD
        -----------             ----------   ----------   ----------      -----------     ----------
<S>                             <C>            <C>                  <C>   <C>             <C>
YEAR ENDED NOVEMBER 30, 2002
Reserve for customer
   chargebacks ..............   $    1,478     $  --                (1)   $    1,478(3)   $       --
                                ----------     ------     ----------      ----------      ----------
Reserve for fulfillment costs   $  763,443     $  --      $2,020,297(2)   $1,550,442(7)   $1,233,298
                                ----------     ------     ----------      ----------      ----------
Allowance for doubtful
   accounts .................   $  383,676     $  --      $  643,453(4)   $  701,002(5)   $  326,127
                                ----------     ------     ----------      ----------      ----------
YEAR ENDED NOVEMBER 30, 2001
Reserve for customer
   chargebacks ..............   $1,225,040     $  --      $  574,969(1)   $1,798,531(8)   $    1,478
                                ----------     ------     ----------      ----------      ----------
Reserve for fulfillment costs   $  746,415     $  --      $  158,228      $  141,200(9)   $  763,443
                                ----------     ------     ----------      ----------      ----------
Allowance for doubtful
   accounts .................   $  795,024     $  --      $8,369,011(4)   $8,780,359(5)   $  383,676
                                ----------     ------     ----------      ----------      ----------
YEAR ENDED NOVEMBER 30, 2000
Reserve for customer
   chargebacks ..............   $4,618,108     $  --      $  988,669(1)   $4,381,737(6)   $1,225,040
                                ----------     ------     ----------      ----------      ----------
Reserve for fulfillment costs   $4,132,809     $  --      $  518,335(2)   $3,904,729      $  746,415
                                ----------     ------     ----------      ----------      ----------
Allowance for doubtful
   accounts .................   $       --     $  --      $3,885,656(4)   $3,090,635(5)   $  795,021
                                ----------     ------     ----------      ----------      ----------
</TABLE>

-------------
(1)  Charges against revenues.
(2)  Charges against cost of sales.
(3)  Chargebacks refunded to consumers.
(4)  Charges to allowance
(5)  Charges against the allowance

(6)  Chargebacks refunded to consumers ...............  $2,556,119
     Prior year chargebacks credited to income .......  $1,825,618   $4,381,737
                                                        -----------------------
(7)  Payments made to fulfillment vendors ............  $1,050,937
     Prior year accrual reversals reducing costs .....  $        0
     Current year (4th qtr.) accrual reversals .......  $  499,505   $1,550,442
                                                        -----------------------
(8)  Reserves written off with corresponding
       receivables-- FTT bankruptcy ..................  $1,384,483
     Reserves written off because of immaterial
       chargeback activity-- West ....................  $   60,535
     Chargebacks refuded to customers ................  $   353,513  $1,798,531
                                                        -----------------------
(9)  Payments made to fulfillment vendors ............  $   10,317
     Prior year accrual exceeded actual redemptions ..  $   130,883  $  141,200
                                                        -----------------------


                                       S-1
<PAGE>

EXHIBITS.

EXHIBIT
NUMBER

-------
  3.1.1    Articles of Incorporation of the Company, as amended. (1)
  3.1.2    Amendment to the Articles of Incorporation of the Company. (2)
  3.2      Bylaws of the Company. (3)
 10.1      Fourth Amended and Restated 1996 Stock Option Plan. (4)
 10.2      Lease of the Company's offices at One Blue Hill Plaza, Pearl River,
           New York. (5)
 10.3.1    December 1, 2001 Employment Agreement by and between the Company and
           Jeffrey L. Schwartz (6)
 10.3.2    December 1, 2001 Employment Agreement by and between the Company and
           Andrew Stollman (6)
 21*       Subsidiaries of the Company

-----------

*    Filed herewith.

(1)  Filed as an Exhibit to the  Company's  Registration  Statement  on Form 8-A
     dated October 23, 1995 and incorporated herein by reference.

(2)  Filed as an Exhibit to the Company's  Quarterly Report on Form 10-Q for the
     fiscal quarter ended August 31, 1998 and incorporated herein by reference.

(3)  Filed as an Exhibit to the  Company's  Registration  Statement  on Form S-1
     dated  September 6, 1995 (File No.  33-96632)  and  incorporated  herein by
     reference.

(4)  Filed  as an  Exhibit  to the  Company's  Proxy  Statement  filed  with the
     Commission, dated July 17, 2002 and incorporated herein by reference.

(5)  Filed as an  Exhibit  to the  Company's  Current  Report  on Form 8-K dated
     December 26, 2000 and  incorporated  herein by  reference.  (6) Filed as an
     Exhibit to the Company's Form 10-K for the year ended November 30, 2001 and
     incorporated herein by reference