<PAGE>   1

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

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                  FORM 10-K/A

(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, 1998

[ ]   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

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

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

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

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:  (914) 620-1212

<TABLE>
<CAPTION>
                                            TITLE OF CLASS          EXCHANGE ON WHICH REGISTERED
                                            --------------          ----------------------------
<S>                                 <C>                             <C>
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
</TABLE>

     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 (sec.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
16,679,746 (as of 3/5/99). The aggregate market value of the voting stock held
by nonaffiliates of the Registrant was approximately $14,225,000 (as of 3/5/99,
based upon a closing price of the Company's Common Stock on the Nasdaq National
Market on such date of $1.8125).

                      DOCUMENTS INCORPORATED BY REFERENCE

None.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   2
                          QUINTEL COMMUNICATIONS, INC.
            INDEX TO AMENDMENT NO. 1 TO ANNUAL REPORT ON FORM 10-K/A
                FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
                   FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1998
                   -------------------------------------------


                              ITEMS IN FORM 10-K/A
                              --------------------
<TABLE>
<CAPTION>


                                                                                                                           Page
                                                                                                                           ----

<S>               <C>               <C>                                                                                    <C>
Facing page

Part I
------

                  Item 1.           Business .............................................................................  None
                  Item 2.           Properties ...........................................................................  None
                  Item 3.           Legal Proceedings ....................................................................  None
                  Item 4.           Submission of Matters to Vote of Security Holders ....................................  None
Part II
-------
                  Item 5.           Market for the Registrant's Common Equity and Related
                                    Stockholder Matters ..................................................................  None
                  Item 6.           Selected Financial Data ..............................................................   1
                  Item 7.           Management's Discussion and Analysis of Financial
                                    Condition and Results of Operations ..................................................  None
                  Item 7A.          Quantitative and Qualitative Disclosures About Market Risk ...........................  None
                  Item 8.           Financial Statements and Supplementary Data ..........................................   2
                  Item 9.           Changes in and Disagreements with Accountants on Accounting
                                    and Financial Disclosure .............................................................  None
Part III
--------
                  Item 10.          Directors and Executive Officers of the Registrant ...................................  None
                  Item 11.          Executive Compensation ...............................................................  None
                  Item 12.          Security Ownership of Certain Beneficial Owners and
                                    Management ...........................................................................  None
                  Item 13.          Certain Relationships and Related Transactions .......................................  None
Part IV
-------
                  Item 14.          Exhibits, Financial Statement Schedules and Reports
                                    on Form 8-K ..........................................................................  None
Signatures

</TABLE>

<PAGE>   3
ITEM 6.  SELECTED FINANCIAL DATA

The following table presents selected historical financial data of the Company
for each of the years in the five year period ended November 30, 1998. The year
ended November 30, 1996 includes the results of operations of New Lauderdale,
L.C. from its acquisition date of September 10, 1996. The financial data set
forth should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the financial statements
of the Company.

STATEMENT OF OPERATIONS DATA:

<TABLE>
<CAPTION>
                                                                            YEAR ENDED NOVEMBER 30,
                                                 -----------------------------------------------------------------------------
                                                      1998            1997            1996            1995            1994
<S>                                              <C>             <C>            <C>             <C>             <C>
Net revenue                                      $ 94,690,251    $191,374,936   $  86,666,768   $  50,501,266   $   22,771,465
Costs of sales                                     80,037,115     149,821,363      64,661,256      36,732,610       17,521,985
Gross profit                                       14,653,136      41,553,573      22,005,512      13,768,656        5,249,480
Selling, general and administrative expenses       34,049,435      18,880,769      10,159,226       3,467,008        3,012,588
                                                 -------------   -------------  --------------  --------------  ---------------
(Loss) income from operations                     (19,396,299)     22,672,804      11,846,286      10,301,648        2,236,892
Interest expense                                    (186,218)        (80,763)       (473,289)       (334,318)        (759,211)
Other income, net                                   2,212,435       1,841,356         760,413         485,250
Equity in earnings of joint venture                                                 4,939,653       2,860,304
                                                 -------------   -------------  --------------  --------------  ---------------
(Loss) income before provision for income         (17,370,082)     24,433,397      17,073,063      13,312,884        1,477,681
     tax
(Benefit) provision for income taxes                (417,464)      10,069,616       4,898,633         220,335           54,842
                                                 -------------   -------------  --------------  --------------  ---------------
Net (loss) income                                $(16,952,618)   $ 14,363,781   $  12,174,430   $  13,092,549   $    1,422,839
                                                 =============   =============  ==============  ==============  ===============

Income before pro forma tax provision                                                           $  13,312,884   $    1,477,681
Pro forma income tax provision                                                                      5,633,116          835,144
                                                                                                --------------  ---------------
Pro forma net income                                                                            $   7,679,768   $      642,537
                                                                                                ==============  ===============
Basic net (loss) income per share                $     (1.00)    $        .77   $         .76
                                                 =============   =============  ==============
Diluted net (loss) income per share              $     (1.00)    $        .76   $         .76
                                                 =============   =============  ==============
Pro forma net income per share-basic                                                            $         .64   $          .05
                                                                                                ==============  ===============
Pro forma net income per share-diluted                                                          $         .64   $          .05
                                                                                                ==============  ===============

Common shares outstanding
    Basic                                          17,034,531      18,560,064      16,145,445      12,000,000       12,000,000
    Diluted                                        17,034,531      18,878,790      16,124,743      12,000,000       12,000,000
</TABLE>

BALANCE SHEET DATA:

<TABLE>
<CAPTION>
                                                 YEAR ENDED NOVEMBER 30,
                        --------------------------------------------------------------------
                            1998            1997          1996          1995         1994
<S>                     <C>            <C>            <C>           <C>           <C>
Working capital         $35,538,243    $ 43,674,688   $25,423,442   $ 3,217,627   $  494,738
Total assets             64,413,144     115,998,775    79,029,547    16,969,956    3,976,881
Total liabilities        27,731,000      52,292,478    31,294,614    10,938,881    3,432,355
Stockholders' equity     36,682,144      63,706,297    47,734,933     6,031,075    5,445,634
</TABLE>


                                      -1-
<PAGE>   4
         The Company hereby amends Item 8, Financial Statements and
Supplementary Data, to its Annual Report on Form 10-K for the fiscal year ended
November 30, 1998 to include certain information, primarily in the footnotes, in
the financial statements included in such Form 10-K, inadvertently omitted from
such original filing.


Item 8.                    Financial Statements and Supplementary Data.


         See Index to Financial Statements on Page F-1 of this Form 10-K/A.


                                      -2-
<PAGE>   5
QUINTEL COMMUNICATIONS, 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, 1998 and 1997            F-2

Consolidated Statements of Operations for the years ended
     November 30, 1998, 1997 and 1996                                   F-3

Consolidated Statements of Shareholders' Equity for the years
     ended November 30, 1998, 1997 and 1996                             F-4

Consolidated Statements of Cash Flows for the years ended
     November 30, 1998, 1997 and 1996                                F-5 - F-6

Notes to Consolidated Financial Statements                           F-7 - F-22

Schedule II - Valuation and Qualifying Accounts and Reserves            S-1
<PAGE>   6
                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Shareholders of
Quintel Communications, Inc.:



In our opinion, the consolidated financial statements listed in the index
appearing under item 14(a)(1) on page 31 present fairly, in all material
respects, the financial position of Quintel Communications, Inc. and
Subsidiaries (the "Company,") previously known as Quintel Entertainment, Inc. at
November 30, 1998 and 1997 and the consolidated results of their operations and
their cash flows for each of the years in the three year period ended November
30, 1998 in conformity with generally accepted accounting principles. 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 generally accepted auditing standards 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 the opinion expressed
above.



                                       PricewaterhouseCoopers LLP



Melville, New York
March 10, 1999



                                      F-1
<PAGE>   7
QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of November 30, 1998 and 1997



<TABLE>
<CAPTION>
                                        ASSETS:                                 1998               1997
<S>                                                                         <C>               <C>
Current assets:
     Cash and cash equivalents                                              $   2,123,630     $  10,063,717
     Marketable securities                                                     15,019,233        24,730,706
     Accounts receivable, trade                                                31,230,579        46,310,960
     Deferred income taxes                                                     11,990,442        10,021,057
     Due from related parties                                                     754,089           237,485
     Prepaid expenses and other current assets                                  2,151,270         4,096,452
                                                                            -------------     -------------
          Total current assets                                                 63,269,243        95,460,377

Property and equipment, at cost, net of accumulated depreciation                1,143,901         1,041,790
Intangible assets, net                                                                           19,496,608
                                                                            -------------     -------------
          Total assets                                                      $  64,413,144     $ 115,998,775
                                                                            =============     =============
                                      LIABILITIES:
Current liabilities:
     Accounts payable                                                       $   4,453,663     $   4,653,862
     Accrued expenses                                                           6,897,246         7,956,308
     Reserve for customer chargebacks                                          15,494,138        38,196,114
     Due to related parties                                                       140,756           979,405
     Income taxes payable                                                         745,197
                                                                            -------------     -------------
          Total current liabilities                                            27,731,000        51,785,689

Deferred income taxes                                                                               506,789
                                                                            -------------     -------------
          Total liabilities                                                    27,731,000        52,292,478
                                                                            -------------     -------------

Commitments and contingencies (Note 7)

                                 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 and
     outstanding 16,679,746 shares and 18,649,347 shares, respectively             16,679            18,649
Additional paid-in capital                                                     38,955,275        39,027,700
Retained earnings (deficit)                                                      (379,292)       24,663,931
Unrealized loss on marketable securities                                          (10,488)           (3,983)
Common stock held in Treasury, at cost, 773,066 shares                         (1,900,030)
                                                                            -------------     -------------
          Total shareholders' equity                                           36,682,144        63,706,297
                                                                            -------------     -------------
          Total liabilities and shareholders' equity                        $  64,413,144     $ 115,998,775
                                                                            =============     =============
</TABLE>


See accompanying notes to consolidated financial statements.


                                      F-2
<PAGE>   8
QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended November 30, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                               1998              1997              1996
<S>                                                       <C>               <C>               <C>
Net revenue                                               $  94,690,251     $ 191,374,936     $  86,666,768
Cost of sales                                                80,037,115       149,821,363        64,661,256
                                                          -------------     -------------     -------------
       Gross profit                                          14,653,136        41,553,573        22,005,512

Selling, general and administrative expenses                 14,356,892        18,880,769        10,159,226
Special charges                                              19,692,543
                                                          -------------     -------------     -------------
       (Loss) income from operations                        (19,396,299)       22,672,804        11,846,286

Interest expense                                               (186,218)          (80,763)         (473,289)
Other income, primarily interest                              2,212,435         1,841,356           760,413
Equity in earnings of joint venture                                                               4,939,653
                                                          -------------     -------------     -------------
       (Loss) income before provision for income taxes      (17,370,082)       24,433,397        17,073,063

(Benefit) provision for income taxes                           (417,464)       10,069,616         4,898,633
                                                          -------------     -------------     -------------

       Net (loss) income                                  $ (16,952,618)       14,363,781     $  12,174,430
                                                          =============     =============     =============

Basic (loss) income per share:
    Net (loss) income                                     $       (1.00)    $         .77     $         .76
                                                          -------------     -------------     -------------
    Weighted average shares outstanding                      17,034,531        18,560,064        15,918,881
                                                          =============     =============     =============

Diluted (loss) income per share
    Net (loss) income                                     $       (1.00)    $         .76     $         .76
                                                          -------------     -------------     -------------
    Weighted average shares outstanding                      17,034,531        18,878,790        16,124,743
                                                          =============     =============     =============
</TABLE>


See accompanying notes to consolidated financial statements.


                                      F-3
<PAGE>   9
QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended November 30, 1998, 1997 and 1996

<TABLE>
<CAPTION>

                                                             COMMON STOCK           ADDITIONAL       RETAINED
                                                        -----------------------      PAID-IN         EARNINGS
                                                          SHARES        AMOUNT       CAPITAL         (DEFICIT)
                                                        ----------    ---------    ------------     -----------
<S>                                                     <C>           <C>          <C>              <C>
Balance, November 30, 1995                              12,000,000    $  12,000    $    441,258     $ 5,597,817
Collections on subscriptions receivable
Distributions to S corporation shareholders                                                          (6,897,097)
Common stock issued:
    Common stock offering                                3,225,000        3,225      13,398,850
    Common stock issued in connection
       with acquisition                                  3,200,000        3,200      22,796,800
    Stock option exercises                                  27,368           27         136,812
Tax benefit from exercise of stock options                                               57,330
Contributed capital                                                                     575,000        (575,000)
Unrealized gains on available for sale  securities
Net income for the year                                                                              12,174,430
                                                        ----------    ---------    ------------     -----------

Balance, November 30, 1996                              18,452,368       18,452      37,406,050      10,300,150

Common stock issued:
    Stock option exercises                                 152,797          153         837,597
    Warrant exercises                                       44,182           44         364,458
Tax benefit from exercise of stock options                                              419,595
Unrealized (losses) on available for sale securities
Net income for the year                                                                              14,363,781
                                                        ----------    ---------    ------------     -----------

Balance, November 30, 1997                              18,649,347       18,649      39,027,700      24,663,931

Unrealized (losses) on available for sale securities

Purchase of common stock, held in treasury, at cost

Retirement of stock held in treasury                    (1,969,601)      (1,970)        (72,425)     (8,090,605)
Net (loss) for the year                                                                             (16,952,618)
                                                        ----------    ---------    ------------     -----------

Balance, November 30, 1998                              16,679,746    $  16,679    $ 38,955,275     $  (379,292)
                                                        ==========    =========    ============     ===========
</TABLE>

<TABLE>
<CAPTION>
                                                                                         UNREALIZED
                                                              TREASURY STOCK           GAINS (LOSSES)                      TOTAL
                                                      -------------------------------  ON MARKETABLE   SUBSCRIPTIONS   SHAREHOLDERS'
                                                         SHARES           AMOUNT        SECURITIES      RECEIVABLE        EQUITY
                                                      ------------   ---------------  --------------  -------------    ------------
<S>                                                   <C>            <C>              <C>             <C>              <C>
Balance, November 30, 1995                                                                             $    (20,000)   $  6,031,075
Collections on subscriptions receivable                                                                      20,000          20,000
Distributions to S corporation shareholders                                                                              (6,897,097)
Common stock issued:
    Common stock offering                                                                                                13,402,075
    Common stock issued in connection
       with acquisition                                                                                                  22,800,000
    Stock option exercises                                                                                                  136,839
Tax benefit from exercise of stock options                                                                                   57,330
Contributed capital
Unrealized gains on available for sale  securities                                       $ 10,281                            10,281
Net income for the year                                                                                                  12,174,430
                                                      ------------   ---------------     --------      ------------    ------------

Balance, November 30, 1996                                                                 10,281                 -      47,734,933

Common stock issued:
    Stock option exercises                                                                                                  837,750
    Warrant exercises                                                                                                       364,502
Tax benefit from exercise of stock options                                                                                  419,595
Unrealized (losses) on available for sale securities                                      (14,264)                          (14,264)
Net income for the year                                                                                                  14,363,781
                                                      ------------   ---------------     --------      ------------    ------------

Balance, November 30, 1997                                                                 (3,983)                -      63,706,297

Unrealized (losses) on available for sale securities                                       (6,505)                           (6,505)

Purchase of common stock, held in treasury, at cost      2,742,667   $(10,065,030)                                      (10,065,030)

Retirement of stock held in treasury                    (1,969,601)     8,165,000
Net (loss) for the year                                                                                                 (16,952,618)
                                                      ------------   ---------------     --------      ------------    ------------

Balance, November 30, 1998                                 773,066   $ (1,900,030)       $(10,488)     $      -        $ 36,682,144
                                                      ============   ===============     ========      ============    ============
</TABLE>


See accompanying notes to consolidated financial statements.


                                      F-4
<PAGE>   10

QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended November 30, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                                                   1998            1997            1996
<S>                                                                            <C>             <C>             <C>
Cash flows from operating activities:
    Net (loss) income                                                          $(16,952,618)   $ 14,363,781    $ 12,174,430
    Adjustments to reconcile net (loss) income to net cash (used in)
       provided by operating activities:
       Depreciation and amortization                                              1,284,039       2,620,146       1,268,166
       Reserve for customer chargebacks                                         (22,701,976)     18,115,211       6,719,018
       Deferred income taxes                                                     (2,471,838)     (2,552,328)     (6,431,212)
       Other                                                                                                       (384,250)
       Special charges                                                           19,692,543
       Equity in net earnings of joint venture, net of dividends received                                          (507,653)
       Changes in assets and liabilities, net of effects from acquisition of
            business:
         Accounts receivable                                                     15,080,381     (28,280,877)     (1,582,937)
         Due from related parties                                                  (516,604)        406,683       3,102,976
         Prepaid expenses and other current assets                                1,729,104      (1,331,703)       (893,712)
         Other assets                                                                                             1,299,169
         Accounts payable                                                          (200,199)      2,088,479         511,786
         Income tax payable                                                         745,197      (4,131,303)      3,894,446
         Accrued expenses                                                        (1,059,062)      4,917,798         362,118
         Due to related parties                                                    (838,649)       (499,110)        565,806
                                                                               ------------    ------------    ------------
           Net cash (used in) provided by operating activities                   (6,209,682)      5,716,777      20,098,151
                                                                               ------------    ------------    ------------

Cash flows from investing activities
    Purchases of securities                                                     (72,275,879)    (65,649,246)    (37,434,414)
    Proceeds from sales of securities                                            81,976,511      55,500,000      23,240,075
    Acquisition, net of cash acquired                                                                               900,040
    Capital expenditures                                                         (1,366,007)       (847,053)       (251,628)
                                                                               ------------    ------------    ------------
           Net cash provided by (used in) investing activities                    8,334,625     (10,996,299)    (13,545,927)
                                                                               ------------    ------------    ------------

Cash flows from financing activities:
    Loans payable, net                                                                                           (2,643,522)
    Proceeds from public offering, less expenses                                                                 13,402,075
    Proceeds from collections on common stock subscriptions                                                          20,000
    Distributions to S corporation shareholders                                                                  (6,897,097)
    Proceeds from stock options exercised                                                           837,750         136,839
    Proceeds from warrants exercised                                                                364,502
    Repurchase of common stock                                                  (10,065,030)
                                                                               ------------    ------------    ------------
           Net cash (used in) provided by financing activities                  (10,065,030)      1,202,252       4,018,295
                                                                               ------------    ------------    ------------

Net (decrease) increase in cash and cash equivalents                             (7,940,087)     (4,077,270)     10,570,519

Cash and cash equivalents, beginning of year                                     10,063,717      14,140,987       3,570,468
                                                                               ------------    ------------    ------------

Cash and cash equivalents, end of year                                         $  2,123,630    $ 10,063,717    $ 14,140,987
                                                                               ============    ============    ============
</TABLE>

CONTINUED


See accompanying notes to consolidated financial statements.


                                      F-5
<PAGE>   11
QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
for the years ended November 30, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                                                   1998           1997            1996
<S>                                                                          <C>             <C>             <C>
Supplemental disclosures:
    Cash paid during the year for:
       Interest                                                              $     186,218   $     80,763    $     473,289
       Income taxes                                                                910,000     13,613,887        6,627,866

Details of acquisition:
    Fair value of assets acquired                                                                            $  36,031,621
    Liabilities assumed                                                                                       (11,731,621)
    Stock issued                                                                                              (22,800,000)
                                                                                                             --------------
           Cash paid                                                                                             1,500,000
    Less: cash acquired                                                                                        (2,400,040)
                                                                                                             --------------
           Net cash received from acquisition                                                                $   (900,040)
                                                                                                             ==============
</TABLE>

During fiscal 1997 and 1996, options and warrants for shares of common stock
were exercised by certain employees, directors and an underwriter. A tax benefit
of $419,595 and $57,330 in fiscal 1997 and 1996, respectively, was recorded as
an increase in additional paid-in capital and a reduction to income taxes
currently payable.


See accompanying notes to consolidated financial statements.


                                      F-6
<PAGE>   12
QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.     SIGNIFICANT ACCOUNTING POLICIES:

       PRINCIPLES OF CONSOLIDATION

       The consolidated financial statements of Quintel Communications, Inc.
       (the "Company"), previously known as Quintel Entertainment, Inc. include
       the accounts of its wholly-owned subsidiaries and its majority-owned and
       controlled joint ventures. On September 10, 1996, the Company acquired
       the remaining interest in New Lauderdale, L.C. ("New Lauderdale") (see
       Note 6). The consolidated financial statements of the Company include the
       accounts of New Lauderdale subsequent to this date. New Lauderdale had
       previously been accounted for by the equity method as a 50% owned joint
       venture. All significant intercompany transactions and balances have been
       eliminated in consolidation.

       NATURE OF BUSINESS

       The Company is engaged in the direct marketing and providing of various
       telecommunications products and services. Additionally, the Company
       utilizes its database to further provide direct marketing services under
       its residential long distance customer acquisition programs. The
       Company's revenues from the aforementioned are generated through the
       direct sale of products and services to consumers and through revenue
       sharing arrangements with its residential long distance customer
       acquisition partners. The telecommunications products and services
       offered by the Company in the fiscal year ended November 30, 1998
       consisted primarily of (i) telephone entertainment services, such as live
       conversation horoscopes and psychic consultations, and memberships in
       theme-related club 900 products; (ii) a residential distributor program
       agreement with a long distance telephone service provider, whereby the
       Company markets their residential long distance products; and (iii)
       various enhanced telephone services, including enhanced voice mail
       services and call-forwarding services.

       Consumers are solicited by the Company through a variety of marketing
       techniques including television commercials and infomercials, print
       advertising, direct mail, telemarketing, and premium gift offerings.
       Customers are also obtained through solicitation by Psychic Readers
       Network, Inc. and Subsidiaries ("PRN") (see Note 6). The Company has
       contracts with a limited number of service bureaus for the purpose of
       call processing, billing and collection. Under these contracts, the
       bureaus process and accumulate call data, summarize the information, and
       forward the data to the local telephone companies and/or long distance
       carriers for the ultimate billing to and collection from the Company's
       customers.


                                      F-7
<PAGE>   13
NOTES TO FINANCIAL STATEMENTS, CONTINUED

       The Company also contracts with numerous organizations, to provide live
       operator services, computer services, telemarketing and other services
       necessary to establish, fulfill and maintain the Company's programs. PRN
       currently provides substantially all of the Company's live psychic
       operations. Certain non-psychic services previously provided by PRN came
       under the direct control of the Company in connection with the
       acquisition of New Lauderdale (see Note 6).

       REVENUE RECOGNITION

       Revenues from all billable platforms are recorded at the time the
       customer initiates a billable transaction, except for customer fees for
       club and Voice Mail and EZ Page products and services ("VM"). New
       customer club and VM product fees are recognized upon approved enrollment
       and when the service is rendered. Continuing club and VM product fees are
       recognized as customers automatically renew each month. These revenues
       are recognized net of an estimated provision for customer chargebacks,
       which include refunds and credits.

       The Company, where applicable, estimates the reserve for customer
       chargebacks monthly based on updated chargeback history, with any
       resulting adjustments being charged against revenues. Chargebacks and
       other provisions for new products and platforms without a history are
       based on experience with similar products and platforms and adjusted as
       further information becomes available. Since reserves are established
       prior to the periods in which chargebacks are actually expended, the
       Company's revenues may be adjusted in later periods in the event that the
       Company's incurred chargebacks vary from the estimated amounts. For the
       years ended November 30, 1998, 1997 and 1996, provisions for chargebacks
       were $56,496,612, $103,597,803 and $46,352,638, respectively.

       Revenues earned under the residential long distance customer acquisition
       program (approximately $24,100,000 in 1998 and $26,500,000 in 1997) are
       recorded upon the achievement of events particular to the program
       offering. Subsequent to the delivery of the initial sales record to the
       respective long distance carrier, the Company may be required to provide
       to the customer certain fulfillment products and services, such as
       prepaid cellular phones (approximately $24,100,000 in 1998 and
       $26,500,000 in 1997) and complimentary airline tickets, estimated and
       accrued in marketing expenses at the time the associated revenues are
       recorded. This estimation is adjusted to actual amounts in subsequent
       periods. There are no chargebacks from such program.

       ACCOUNTS RECEIVABLE

       The Company has maintained agreements with service bureaus that provide
       advances against accounts receivable collections. Under the Company's
       current agreement, interest is calculated at prime plus 3%. Amounts
       advanced under the agreement is on a revolving basis and are primarily
       limited to 50% of a defined borrowing base, net of related service fees
       and costs, as applicable. Certain advances under the agreement are due on
       demand and all are collateralized by the accounts receivable collected by
       the service bureaus. The Company did not use any advances during fiscal
       1998 and 1997. During fiscal 1996, the gross advances and weighted
       average interest rate on the advances received were approximately
       $9,156,355 and 13.17%.


                                      F-8
<PAGE>   14
NOTES TO FINANCIAL STATEMENTS, CONTINUED

       CONCENTRATION OF CREDIT RISK

       Financial instruments that potentially subject the Company to
       concentration of credit risk consist principally of cash and cash
       equivalents, marketable securities and accounts receivable.

       The Company invests a portion of its excess cash in debt instruments and
       has established guidelines relative to diversification that maintain
       safety and liquidity.

       The Company's collections are received primarily through three unrelated,
       unaffiliated service bureaus which process and collect all of the
       Company's billings. In conjunction with servicing the accounts
       receivable, the service bureaus remit amounts based on eligible accounts
       receivable and withhold certain cash receipts as a reserve. As a result,
       the Company's exposure to the concentration of credit risk primarily
       relates to all collections on behalf of the Company by these service
       bureaus.

       Cash balances are held principally at three financial institution 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.

       TRANSACTIONS WITH MAJOR CUSTOMERS

       Revenues from one long distance carrier amounted to 20% of total revenues
       during fiscal 1998 and 14% during 1997 with a different carrier. It is
       anticipated that in fiscal 1999 this arrangement will account for a much
       greater percentage of the Company's revenues. If this occurs, the Company
       would be subject to significant economic dependence on such relationship.
       Accounts receivable from such carriers were approximately $8,728,000 and
       $3,473,000 at November 30, 1998 and 1997, respectively.

       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 accounts for its investments using Statement of Financial
       Accounting Standards No. 115, "Accounting for Certain Investments in Debt
       and Equity Securities." The Company's marketable securities consist of
       government obligations which they intend to hold only for an indefinite
       period of time. At November 30, 1998 and 1997, all securities covered by
       SFAS No. 115 were designated as available for sale. Accordingly, such
       securities are stated at fair value, with unrealized gains and losses,
       net of estimated tax effects, reported as a separate component of
       shareholders' equity, until realized. The contractual maturities of all
       available for sale debt securities at November 30, 1998 and 1997 are
       within one year. The amortized cost of available for sale debt securities
       are $15,036,713 and $24,737,345 at November 30, 1998 and 1997,
       respectively.

       Gross unrealized holding losses were $10,488 and $3,983, respectively,
       net of deferred taxes of $6,992 and $2,656, at November 30, 1998 and
       1997, respectively. Proceeds from the sale of securities classified as
       available for sale for the year ended November 30, 1998 and 1997 were
       approximately $81,977,000 and $55,500,000, respectively.


                                      F-9
<PAGE>   15
NOTES TO FINANCIAL STATEMENTS, CONTINUED

       PROPERTY, PLANT AND EQUIPMENT

       Property, plant and equipment are stated at cost and are depreciated
       using the straight-line method over a five to seven 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.

       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 the
       future cash flows expected to result from the use of the asset and its
       eventual disposition. If the sum of the expected future cash flows
       (undiscounted and without interest charges) is less than the carrying
       amount of the long-lived asset, an impairment loss is recognized. (See
       Note 8.)

       INCOME TAXES

       The Company recognizes deferred tax liabilities and assets for the
       expected future tax consequences of events that have been included in the
       financial statements or tax returns. Deferred tax liabilities and assets
       are determined based on the difference between the financial statement
       and tax bases 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 assets which are not likely to be
       realized.

       ADVERTISING EXPENSES

       The Company expenses advertising costs, which consist primarily of print,
       media, production, telemarketing and direct mail related charges, when
       the related advertising occurs. Total advertising expense for fiscal
       1998, 1997, and 1996 were approximately $57,759,000, $81,576,000 and
       $31,795,000, respectively. Included in prepaid expenses and other current
       assets is approximately $207,000 and $488,000 relating to prepaid
       advertising at November 30, 1998 and 1997, respectively.

       EARNINGS PER SHARE

       In December 1997, the Financial Accounting Standards Board issued
       Statement No. 128 "Earnings per Share" ("SFAS No. 128"). SFAS No. 128
       replaced the calculation of primary and fully diluted earnings per share
       with basic and diluted earnings per share. Earnings per share amounts for
       all periods have been restated to conform to the SFAS No. 128
       requirements.

       RECLASSIFICATIONS

       Certain reclassifications have been made to conform prior year amounts to
       the current year presentation.


                                      F-10
<PAGE>   16
NOTES TO FINANCIAL STATEMENTS, CONTINUED

       NEWLY ISSUED ACCOUNTING STANDARDS

       In June 1997, the FASB issued Statement of Accounting Standard No. 130,
       "Reporting Comprehensive Income," (" SFAS No. 130"), which requires that
       changes in comprehensive income be shown in a financial statement that is
       displayed in the same prominence as other financial statements. SFAS No.
       130 becomes effective in fiscal 1999. Management will comply with the
       additional disclosure provisions of the statement.

       In June 1997, the FASB issued Statement of Accounting Standard No. 131,
       "Disclosures About Segments of an Enterprise and Related Information"
       ("SFAS 131"), which changes the way public companies report information
       about segments. SFAS 131, which is based on the management approach to
       segment reporting, includes requirements to report selected segment
       information quarterly and entity-wide disclosures about products and
       services, major customers, and the material countries in which the entity
       holds and reports revenues. SFAS 131 becomes effective in fiscal 1999.
       The implementation of this new statement will not affect the Company's
       results of operations and financial position, but will have an impact on
       future financial statement disclosure.

       ESTIMATES

       The preparation of financial statements in conformity with generally
       accepted accounting principles 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
       reserve for customer chargebacks, recoverability of long-lived assets,
       the realizability of deferred tax assets and fulfillment accrual for
       customer acquisition costs.



2.     RELATED PARTY TRANSACTIONS:

       The Company purchased various mailing lists and design, copyrighting and
       artistic development services from related entities owned by certain of
       the Company's officers/shareholders. The agreements require the Company
       to pay fees equal to 20% of rental revenues and a management fee of 10%,
       plus any fees in connection with processing and mailing lists. During
       fiscal 1998, 1997 and 1996, costs of approximately $10,000, $267,000 and
       $535,000, respectively, were incurred by the Company for such services.
       During fiscal 1998, the related entities were sold dissolving the related
       party relationship as of November 30, 1998.

       The Company incurred approximately $90,800, $107,000 and $242,000,
       respectively, during fiscal 1998, 1997 and 1996, in accounting fees to a
       firm having a member who is also a director of the Company. In addition,
       the Company incurred approximately $431,000, $372,000 and $334,000,
       respectively, during fiscal 1998, 1997 and 1996, in legal fees to a firm
       having a member who is also a director of the Company.

       In connection with the acquisition of PRN's interest in New Lauderdale
       (see Note 6), a principal shareholder of PRN was elected a director of
       the Company and entered into an employment agreement with the Company
       (see Note 7). The Company incurred approximately $227,000, $206,000 and
       $39,000 in expense relating to this employment agreement in fiscal 1998,
       1997 and


                                      F-11
<PAGE>   17
NOTES TO FINANCIAL STATEMENTS, CONTINUED

       1996, respectively. Such principle shareholder resigned from his position
       of director in January 1999.

       For the years ended November 30, 1998, 1997 and 1996, the Company paid
       aggregate fees of approximately $7,023,000, $24,300,000 and $8,560,000,
       respectively, to PRN for psychic operator services under an agreement
       that extends to fiscal 2001. Since February 1996, PRN has also provided
       certain non-psychic services and facilities to the Company for
       approximately $14,000 per month.

       During fiscal 1998 and 1997, the Company received commissions of
       approximately $685,000 and $830,000, respectively, from PRN for
       purchasing television media time on their behalf. In addition,
       receivables existed for such commissions of approximately $578,000 and
       $73,000 at November 30, 1998 and 1997, respectively.

       During the fourth quarter of fiscal 1997, the Company introduced a new
       club membership program offering premium telephone services to its
       members for a one time payment. In conjunction with the new program, the
       Company executed a contract with PRN who has assumed the responsibility
       and obligation for the fulfillment of all the recurring club services
       under the program. Under certain circumstances, the Company is entitled
       to share in certain revenues, net of expenses generated from additional
       services sold by PRN to the club members. Such amounts were not material
       for fiscal 1998.

       On March 13, 1998, the Company purchased from a director of the Company,
       1,969,601 shares of the Company's common stock for an aggregate purchase
       price of $8,165,000. At the same time, the seller's employment by the
       Company was terminated and she resigned from all directorships and
       offices she had held at the Company or any affiliate thereof. The shares
       reacquired were subsequently retired.


3.     PROPERTY AND EQUIPMENT:

       Property and equipment for the years ended November 30, 1998 and 1997
       consists of the following:

<TABLE>
<CAPTION>
                                                             1998        1997
<S>                                                       <C>         <C>
        Furniture and fixtures                            $  314,536  $  297,445
        Computers and equipment                            1,238,165     861,870
        Telephone and facsimile                               57,582      46,992
        Leasehold improvements                                51,146      51,145
                                                          ----------  ----------
                                                           1,661,429   1,257,452
        Less, accumulated depreciation and amortization      517,528     215,662
                                                          ----------  ----------
                                                          $1,143,901  $1,041,790
                                                          ==========  ==========
</TABLE>

       Depreciation and amortization expense for the years ended November 30,
       1998, 1997 and 1996 was approximately $302,000, $150,000 and $50,000,
       respectively. (See Note 8.)


                                      F-12
<PAGE>   18
NOTES TO FINANCIAL STATEMENTS, CONTINUED

4.     INCOME TAXES:

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

<TABLE>
<CAPTION>
                                                    YEAR ENDED NOVEMBER 30,
                                        ---------------------------------------------
                                            1998             1997            1996
      <S>                               <C>              <C>
      Federal:
         Current                                         $ 10,201,378    $  8,852,749
         Deferred                       $ (2,593,444)      (1,761,002)     (4,723,850)
                                        ------------     ------------     -----------
                                          (2,593,444)       8,440,376       4,128,899
                                        ------------     ------------     -----------
      State:
         Current                             525,000        2,152,177       1,661,946
         Deferred                          1,650,980         (522,937)       (892,212)
                                        ------------     ------------     -----------
                                           2,175,980        1,629,240         769,734
                                        ------------     ------------     -----------
                Total provision         $   (417,464)    $ 10,069,616     $ 4,898,633
                                        ============     ============     ===========
</TABLE>

       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,
                                                    ----------------------------------------
                                                        1998           1997          1996
      <S>                                           <C>             <C>           <C>
      Income tax (benefit) expense at
         federal statutory rate                     $ (6,079,529)   $ 8,551,689   $5,975,572
      State income taxes, net of federal
         income tax benefit                              341,250      1,059,006      500,327
      Deferred benefit arising from conversion to
         C corporation                                                            (1,781,700)
      Goodwill amortization                            3,623,519        179,636
      Valuation allowance                              1,679,082
      Other, individually less than 5%                    18,214        279,285      204,434
                                                    ------------    -----------   ----------
                                                    $   (417,464)   $10,069,616   $4,898,633
                                                    ============    ===========   ==========
</TABLE>

       The components of deferred tax assets are as follows:

<TABLE>
<CAPTION>
                                                                   NOVEMBER 30,
                                                           ---------------------------
                                                               1998           1997
<S>                                                        <C>             <C>
        Deferred tax assets:
           Current:
             Accrued expenses and reserves not currently
                deductible                                 $  3,401,791    $10,219,454
             Fixed assets and intangibles                     2,006,164
             Net operating loss                               8,261,570
             Valuation allowance                             (1,679,082)
                                                           ------------    -----------
                  Total current assets                       11,990,442     10,219,454

        Deferred tax liabilities:
           Current:
             Other                                                            (198,397)
           Noncurrent:
             Intangibles                                                      (506,789)
                                                           ------------    -----------
                  Net deferred tax asset                   $ 11,990,442    $ 9,514,268
                                                           ============    ===========
</TABLE>


                                      F-13
<PAGE>   19
NOTES TO FINANCIAL STATEMENTS, CONTINUED

       A $1,679,082 valuation allowance, primarily for state tax net operating
       losses which can not be carried back by statutes, has reduced the
       deferred tax assets at November 30, 1998 to an amount which the Company
       believes is more likely than not to be realized. The Federal deferred tax
       asset expected to be realized will be through the execution of tax
       planning strategies and the recapture of taxes paid on prior taxable
       income.

       The Company has approximately $21 million of Net Operating Losses
       expiring through 2018 for Federal purposes which will be carried back in
       the Company's 1998 tax return. The Company's tax year ends on December
       31.


5.     REGULATORY ISSUES AND OTHER RISK CONSIDERATIONS:

       During September 1998, the Company was notified by the Federal Trade
       Commission ("FTC") that the FTC was conducting an inquiry into the past
       and present marketing practices of the Company to determine if the
       Company was engaging in unfair or deceptive practices. In connection with
       such inquiry, the Company was requested to submit certain materials and
       information to the FTC relating to the operations of the Company from
       January 1, 1994 to the present. The Company is cooperating fully with the
       FTC in connection with its inquiry. To date, the Company has not been
       subject to any enforcement actions by any regulatory authority and
       management believes that the FTC inquiry will not result in any
       enforcement actions or claims which would have a material adverse effect
       on the Company. However, in the event the Company is found to have failed
       to comply with applicable laws and regulations, the Company could be
       subject to civil remedies, including substantial fines, penalties and
       injunctions, as well as possible criminal sanctions, which would have a
       material adverse effect on the Company.

       The Company's primary contact with its customers is over the telephone
       lines and services of numerous local telephone companies and long
       distance carriers. The Company cannot predict the impact, if any, of
       changes in various regulations affecting the Company, directly, or
       through one of the telephone companies.

       There can be no assurance that the Company will be able, for financial or
       other reasons, to comply with applicable laws and regulations or that
       regulatory authorities will not take action to limit or prevent the
       Company from advertising, marketing or promoting its services and club
       and VM products and services or otherwise require the Company to
       discontinue or substantially modify the content of its services.

       The Company has received requests for information from regulatory
       authorities, regarding investigations of certain of its telemarketing
       activities. Management believes, based on advice from counsel, that their
       investigations will not result in enforcement actions or claims which
       would have a material adverse effect on the financial statements.

       The Company is dependent on service bureaus to process its calls,
       billings and collections. In November 1998, three Local Exchange Carriers
       ("LECs") refused to bill customers for enhanced services provided by the
       Company. This was a result of what the LECs' claim was excessive
       complaints by customers for "cramming" (unauthorized charges billed to a
       customer's phone bill) against the Company and its affiliates. This
       billing cessation effectively prevented the Company


                                      F-14
<PAGE>   20
NOTES TO FINANCIAL STATEMENTS, CONTINUED

       from selling its enhanced services in those areas serviced by such LECs.
       The remaining LECs have not altered their billing practices for the
       Company's services and the Company continues to offer its enhanced
       services in those areas.

       As a result of such LEC imposed billing cessation, in November 1998, the
       primary billing service provider for the Company's enhanced services,
       terminated its arrangement with the Company for providing billing for the
       Company's enhanced services. Such service bureau continues to service all
       data relating to chargebacks relating to amounts billed prior to the
       billing cessation. In December 1998, the Company entered into an
       agreement with an alternate service bureau whereby such service bureau
       provides the billing services previously provided by the Company's
       primary enhanced service billing provider.

       The Company is dependent on its service bureaus to provide quality
       services on a timely basis on favorable terms. While the Company believes
       its service bureau needs could be transferred to alternate providers, if
       necessary, no contracts to cover such a contingency are currently in
       effect. Accordingly, failure by any existing bureaus to provide services,
       such as that experienced at the end of the fourth quarter of fiscal 1998,
       would result in material interruptions in the Company's operations.


6.     NEW LAUDERDALE:

       In December 1994, the Company entered into an agreement with PRN, an
       unrelated entity at that time, to establish a joint venture known as New
       Lauderdale, L.C. New Lauderdale operated "900" entertainment services. On
       September 10, 1996, the Company acquired the remaining 50% interest in
       New Lauderdale for 3,200,000 common shares. PRN subsequently distributed
       such shares to its shareholders. In addition to receiving its share of
       New Lauderdale's earnings through the closing date, PRN received
       approximately $1,500,000 in cash for the deferred tax benefit to New
       Lauderdale resulting from the transaction. The common shares were valued
       at the market price on the date of the letter of intent ($7.125 per
       share). The acquisition was accounted for using the purchase method of
       accounting and, accordingly, the purchase price was allocated to the
       assets purchased based upon the fair values at the date of acquisition.
       As a result, approximately $23,159,000 of the purchase price was
       allocated to goodwill, customer lists and other intangibles which were
       being amortized on a straight line basis over a period from 1 to 15
       years. The operating results of the acquisition have been included in the
       consolidated statement of operations from the date of the acquisition.


                                      F-15
<PAGE>   21
NOTES TO FINANCIAL STATEMENTS, CONTINUED

       The following pro forma information prepared assuming that this
       acquisition had taken place on December 1, 1995 is not necessarily
       indicative of the results of operations as they would have been had the
       transaction been effected on such date. The pro forma information
       includes adjustments for amortization of intangibles arising from the
       transaction.

<TABLE>
<CAPTION>
                                                            NOVEMBER 30,
                                                            ------------
                                                                1996
<S>                                                         <C>
        Net revenues                                        $150,284,451
        Net income                                            12,351,385
        Earnings per share                                           .66

       As of November 30, 1997, the net book value of the intangibles, primarily
       goodwill, was $19,496,608, net of accumulated amortization of $3,695,704.
       Amortization expense was $982,173, $2,470,476 and $1,218,576 for the
       years ended November 30, 1998, 1997 and 1996. During fiscal 1998, the
       Company determined that the intangibles were impaired. (See Note 8 -
       Special Charges.)
</TABLE>


7.     COMMITMENTS AND CONTINGENCIES:

       LEASES

       The Company is obligated under two noncancelable real property operating
       lease agreements that expire in fiscal 2004 and 2006. Future minimum
       rents consist of the following at November 30, 1998:

<TABLE>
<S>                                                           <C>
        1999                                                  $  500,246
        2000                                                     504,912
        2001                                                     542,145
        2002                                                     548,432
        2003                                                     554,927
        Thereafter                                               989,245
                                                              ----------
                                                              $3,639,907
                                                              ==========
</TABLE>

       The leases contain 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 generally accepted accounting principles. Rent expense was
       $522,422, $383,867 and $210,153 for fiscal 1998, 1997 and 1996,
       respectively.

       EMPLOYMENT AGREEMENTS AND CONSULTING

       The Company had executed employment agreements, which expired on November
       30, 1998, with certain executive officers of the Company. In the event
       the Company achieved pre-tax earnings of $10,000,000 or more for any such
       fiscal year, the Company may grant bonuses to such persons, subject to
       approval of the Compensation Committee of the Board of Directors, in an
       aggregate amount not to exceed 5% of pre-tax earnings for such year. Such
       bonuses amounted to approximately $1,305,000 at November 30, 1997. No
       bonuses were granted during fiscal 1998. Each of the individuals have
       agreed to continue to work as employees-at-will until a new agreement is
       approved by the Board of Directors.


                                      F-16
<PAGE>   22
NOTES TO FINANCIAL STATEMENTS, CONTINUED

       The Company had a consulting agreement with a director/shareholder, which
       expired on November 30, 1998. Under the terms of such agreement, the
       director/shareholder provided services in connection with identification
       and engagement of celebrities to endorse the Company's services,
       engagement of independent producers to produce commercials and
       infomercials and the development of new entertainment services. The
       Company incurred approximately $151,000, $137,000 and $125,000 in expense
       relating to this agreement in 1998, 1997 and 1996, respectively. Although
       the consulting agreement has expired, the director/shareholder continues
       to provide the consulting services to the Company and the Company
       compensates the director/shareholder at a rate of $10,417 per month. Such
       arrangements have not been formally agreed to and may be terminated by
       either party at will.

       In connection with the acquisition of PRN's interest in New Lauderdale
       (see Note 6), a principal shareholder of PRN was elected a director of
       the Company and entered into an employment agreement with the Company.
       Minimum future payments under this agreement are as follows:

<TABLE>
<S>                                                              <C>
       1999                                                      $249,562
       2000                                                       274,518
       2001                                                       100,657
                                                                 --------
                                                                 $624,737
                                                                 ========
</TABLE>

       OTHER

       As a result of the acquisition of New Lauderdale (see Note 6), the
       Company has agreements with various celebrities to promote its telephone
       entertainment services. These agreements are generally for a term of one
       year, which may be extended under certain circumstances, and grant
       worldwide rights to use an individual's name and likeness in connection
       with services promoted by advertisements. Compensation varies by
       individual and generally consists of an advance payment and royalties
       based on defined revenues earned by the Company. Total royalty expenses
       incurred for fiscal 1998, 1997 and 1996 were $124,837, $399,395 and
       $261,566, respectively.

       LITIGATION

       On or about May 4, 1998, a complaint entitled "Joseph Chalverus, on
       behalf of himself and all others similarly situated v. Quintel
       Entertainment, Inc., Jeffrey L. Schwartz and Daniel Harvey" was filed in
       the United States District Court for the Southern District of New York;
       subsequently, a complaint entitled "Richard M. Woodward, on behalf of
       himself and all others similarly situated v. Quintel Entertainment, Inc.,
       Jeffrey L. Schwartz and Daniel Harvey" was filed in that same court, as
       was a complaint entitled "Dr. Michael Title, on behalf of himself and all
       others similarly situated v. Jeffrey L. Schwartz, Jay Greenwald, Claudia
       Newman Hirsch, Andrew Stollman, Mark Gutterman, Steven L. Feder, Michael
       G. Miller, Daniel Harvey and Quintel Entertainment, Inc. (collectively,
       the "Complaints"). In addition to the Company, the defendants named in
       the Complaints are present and former officers and directors of the
       Company (the "Individual Defendants"). The plaintiffs seek to bring the
       actions on behalf of a purported class of all persons or entities who
       purchased shares of the Company's Common Stock from July 15, 1997 through
       October 15, 1997 and who were damaged thereby, with certain exclusions.
       The Complaints allege violations of Sections 10(b) and 20 of the
       Securities Exchange Act of 1934, and allege that the defendants made
       misrepresentations and omissions concerning the Company's financial
       results, operations and future prospects, in particular relating to the
       Company's reserves for customer chargebacks and its business relationship


                                      F-17
<PAGE>   23
NOTES TO FINANCIAL STATEMENTS, CONTINUED

       with AT&T. The Complaints allege that the alleged misrepresentations and
       omissions caused the Company's Common Stock to trade at inflated prices,
       thereby damaging plaintiffs and the members of the purported class. The
       amount of damages sought by plaintiffs and the purported class has not
       been specified.

       On September 18, 1998, the District Court ordered that the three actions
       be consolidated, appointed a group of lead plaintiffs in the consolidated
       actions, approved the lead plaintiffs' selection of counsel for the
       purported class in the consolidated actions, and directed the lead
       plaintiffs to file a consolidated complaint. The consolidated and amended
       class action complaint ("Consolidated Complaint") which has been filed
       asserts the same legal claims based on essentially the same factual
       allegations as did the Complaints. On February 19, 1999, the Company and
       the Individual Defendants filed a motion to dismiss the Consolidated
       Complaint. Plaintiffs have served papers in opposition to the motion to
       dismiss. The District Court has not yet ruled on the motion to dismiss.
       The Company believes that the allegations in the Complaints are without
       merit, and intends to vigorously defend the consolidated actions. The
       Company is unable at this time to assess the outcome of the Consolidated
       Complaint or the materiality of the risk of loss in connection therewith,
       given the preliminary stage of the Consolidated Complaint and the fact
       that the Consolidated Complaint does not allege damages with specificity.

       An action was brought by Paramount Advertiser Services on August 13, 1998
       against Access Resource Services, Inc. ("Access") and Quintel Media
       Management, a subsidiary of the Company. The action alleges breach of a
       contract to purchase advertising time as well as breach of a settlement
       agreement resolving earlier disputes, and alleges resulting damages of
       approximately $3,300,000. Access has agreed to indemnify the Company the
       total sum of $2,300,000, of which, as of February 24, 1999, $1,050,000
       has been placed in escrow. The Company believes the claim is without
       merit and intends to vigorously defend against the action.

       A counterclaim action was brought against the Company by a supplier of
       cellular phones alleging damages of $1,030,000 relating to a cancelled
       purchase order. The Company had previously commenced an action against
       the supplier seeking to recover approximately $480,000 from such supplier
       alleging breach of the contract. The Company intends to pursue its claim
       against the supplier and believes the counterclaim is without merit.

       Due to the early stage of the matters referred to in the preceding two
       paragraphs, it is not possible to determine the amount of liability, if
       any, that may result and exceed amounts recoverable under the guarantee.



8.     SPECIAL CHARGES:

       During 1998, the Company experienced increased chargebacks and marketing
       expenditures relating to its "900" entertainment services. As a result,
       this service was not providing positive operating results and cash flow
       and, as such, the Company discontinued marketing such services as an
       independent revenue source. Accordingly, as required by Statement of
       Financial Accounting Standards No. 121, the Company reviewed its
       long-lived assets, including goodwill, for impairment. The Company
       determined that the "900" entertainment service could not be disposed of
       nor was there a predictable estimate of any future cash flows associated
       with any alternative use. The


                                      F-18
<PAGE>   24
NOTES TO FINANCIAL STATEMENTS, CONTINUED

       Company concluded that the intangibles, primarily goodwill, arising from
       the acquisition of the remaining 50% interest in New Lauderdale, L.C.
       were entirely impaired. As such, a non-cash charge of $18,514,435,
       representing the remaining balance of the intangibles, was recorded in
       the second quarter of fiscal 1998.

       In addition, the Company recorded a non cash charge of approximately
       $1,178,000 associated with the writedown of assets relating to the
       decision to abort an Internet telephony program during the fourth quarter
       of fiscal 1998 .


9.     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>
                                                                 YEARS ENDED NOVEMBER 30,
                                                          ------------------------------------
                                                            1998         1997        1996
<S>                                                       <C>          <C>          <C>
        Denominator:
           Denominator for basic earnings per share -
             weighted-average shares                      17,034,531   18,560,064   15,918,881
        Effect of dilutive securities:
           Stock options                                                  257,984      186,033
           Warrants                                                        60,742       19,829
                                                          ----------   ----------   ----------
           Denominator for diluted earnings per share -
             adjusted weighted-average shares             17,034,531   18,878,790   16,124,743
                                                          ==========   ==========   ==========
</TABLE>

       Options and warrants to purchase 1,579,796, 90,000 and 340,000 shares of
       common stock were outstanding for the year end November 30, 1998, 1997
       and 1996, respectively, but were not included in the computation of
       diluted earnings per share because their effect would be anti-dilutive.


10.    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 to the Company. The Stock Option
       Plan was amended in September 1996 and in June 1997 to provide for the
       granting of options to purchase an additional 500,000 and 600,000 shares,
       respectively, of the Company's common stock. After these amendments,
       grants are available under the Stock Option Plan to purchase a total of
       1,850,000 shares of the Company's common stock.


                                      F-19
<PAGE>   25
NOTES TO FINANCIAL STATEMENTS, CONTINUED

       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). The aggregate fair market value
       (determined at the date the option is granted) of shares with respect to
       which Incentive Stock Options are exercisable for the first time by the
       holder of the option during any calendar year shall not exceed $100,000.
       If such amount exceeds $100,000, the Board of Directors or the Committee
       may, when the Options are exercised and the shares transferred to an
       employee, designate those shares that will be treated as Incentive Stock
       Options and those that will be treated as Nonstatutory Stock Options.

       In addition, the Company's Stock Option Plan provides for certain
       automatic grants of options to the Company's non-employee 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
       non-employee 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. During fiscal 1998, the Company granted 143,750 options to the
       non-employee directors. The Company's stock option committee approved the
       granting of an additional 626,390 options to certain employees.

       The stock option committee offered all option holders the right to have
       their options repriced at $1.75 effective September 10, 1998. The
       repricing was calculated based on the percentage of the new option price
       of $1.75 over the original exercise price, applied to the number of
       options elected for repricing. Total options available and elected for
       repricing were 1,415,078 and 878,078, respectively. Total options
       surrendered as a result of the repricing amounted to 587,949. The
       repricing of the options is in compliance with the provisions of the
       Stock Option Plan.

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

<TABLE>
<CAPTION>
                                         1998                          1997                         1996
                               -----------------------------   ---------------------------   ------------------------
                                                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       938,691    $ 4.75 to 15.56    653,850     $ 4.75 to 8.25    394,000    $       5.00
        Granted                 1,129,374       1.75 to 6.75    470,500      7.31 to 15.56    297,250    4.75 to 8.25
        Exercised                                              (152,797)      5.00 to 6.00    (27,368)           5.00
        Cancelled or lapsed*     (764,087)     2.69 to 15.56    (32,862)      5.00 to 6.00    (10,032)           5.00
                               ----------    ---------------   --------    ---------------   --------    ------------
        Options outstanding,
          end of year           1,303,978    $ 1.75 to 15.56    938,691    $ 4.75 to 15.56    653,850    $4.75 to 8.25
                               ==========    ===============   ========    ===============   ========    =============
        Options exercisable,
          end of year             666,563                       645,952                       653,850
                               ==========                      ========                      ========
        Options available for
          grant, end of year      373,307                       731,144                       568,782
                               ==========                      ========                      ========
        Weighted-average fair
          value of options
          granted during the
          year                    $  1.17                       $  5.82                       $  3.93
                               ==========                      ========                      ========
</TABLE>


                                      F-20
<PAGE>   26
NOTES TO FINANCIAL STATEMENTS, CONTINUED

          *Includes 587,949 shares surrendered upon repricing.

       The Company has elected to adopt 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 during the years ended November 30, 1998, 1997 and
       1996, the Company's net income (loss) and earnings (loss) per share would
       have been as follows:

<TABLE>
<CAPTION>
                                            1998           1997           1996
<S>                                     <C>             <C>           <C>
        Net (loss) income as reported   $(16,952,618)   $14,363,781   $ 12,174,430
                                        ============    ===========   ============
        Net (loss) income - pro forma   $(18,369,678)   $13,158,826   $ 11,760,015
                                        ============    ===========   ============
        Basic EPS - as reported         $      (1.00)   $       .77   $        .76
                                        ============    ===========   ============
        Diluted EPS - as reported       $      (1.00)   $       .76   $        .76
                                        ============    ===========   ============
        Basic EPS-Pro forma             $      (1.08)   $       .71   $        .73
                                        ============    ===========   ============
        Diluted EPS-Pro forma           $      (1.08)   $       .70   $        .73
                                        ============    ===========   ============
</TABLE>

       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 65.4% in
       1998 and 58.5% in 1997 and 1996; risk-free interest rate ranging from
       4.67% to 4.80% in 1998 and 6.17% to 6.50% in 1997 and 1996; and expected
       lives of approximately 4.8 years. Weighted averages are used because of
       varying assumed exercise dates.

       The following table summarizes information about stock options
       outstanding at November 30, 1998:

<TABLE>
<CAPTION>
                                        WEIGHTED
                                         AVERAGE      WEIGHTED                    WEIGHTED
            RANGE OF                    REMAINING      AVERAGE                     AVERAGE
            EXERCISE         SHARES    CONTRACTUAL   EXERCISABLE     SHARES      EXERCISABLE
             PRICES       OUTSTANDING     LIFE          PRICE      EXERCISABLE      PRICE
<S>                       <C>          <C>           <C>           <C>           <C>
        $1.75 - $2.63      1,131,478       9.8         $ 1.90        510,729        $ 1.90
        $2.69 - $3.81         37,500       9.7           3.06         20,834          3.36
        $4.75 - $6.00         85,000       7.6           5.18         85,000          5.18
        $9.38 - $11.31        37,500       8.4          10.60         37,500         10.60
        $15.56 - $15.56       12,500       8.6          15.56         12,500         15.56
        ---------------    ---------       ---         ------        -------        ------
        $1.75 - $15.56     1,303,978       9.6         $ 2.53        666,563        $ 3.11
        ===============    =========       ===         ======        =======        ======
</TABLE>

       As of November 30, 1998 and 1997, there were 275,818 warrants outstanding
       to purchase common stock at an exercise price of $8.25 per share. The
       warrants are exercisable through 2000.


                                      F-21
<PAGE>   27
NOTES TO FINANCIAL STATEMENTS, CONTINUED

11.    QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):

       The following is a summary of the unaudited quarterly results of
       operations for fiscal 1998, 1997 and 1996:

<TABLE>
<CAPTION>
                                                                    QUARTER ENDED
                                              ----------------------------------------------------------
                                               NOVEMBER 30,    AUGUST 31,      MAY 31,      FEBRUARY 28,
<S>                                           <C>             <C>           <C>             <C>
        1998:
          Net revenues                        $ 20,285,085    $16,509,577   $ 21,259,988    $36,635,601
          Gross profit                          (1,624,266)     5,070,872      1,380,175     10,499,027
          (Loss) income before income taxes     (5,068,084)     2,055,824    (20,505,128)     6,147,306
          Net (loss) income                     (6,591,590)     1,460,902    (15,510,314)     3,688,384
          Basic (loss) earnings per share             (.41)           .09           (.91)           .20
          Diluted (loss) earnings per share           (.41)           .09           (.91)           .20

        1997:
          Net revenues                        $ 49,302,822    $44,688,568   $ 53,323,734    $44,059,812
          Gross profit                          10,072,085      4,152,170     13,786,298     13,543,020
          Income before income taxes             5,420,442        307,049      9,660,751      9,045,155
          Net income                             2,911,615        184,229      5,832,540      5,435,397
          Basic earnings per share                    0.16           0.01           0.31           0.29
          Diluted earnings per share                  0.15           0.01           0.31           0.29

        1996:
          Net revenues                        $ 39,389,333    $17,493,179   $ 13,765,685    $16,018,571
          Gross profit                          11,288,981      5,737,501      1,638,439      3,340,591
          Income before income taxes             7,080,889      4,918,871      1,142,807      3,930,396
          Net income                             4,165,501      3,111,288        595,452      4,302,189
          Basic earnings per share                    0.23           0.20           0.04           0.29
          Diluted earnings per share                  0.23           0.20           0.04           0.28
</TABLE>

       During the fourth quarter of fiscal 1996, the Company recorded an accrual
       of approximately $1,070,000 relating to compensation.

       The fourth quarter of fiscal 1997 included an increase of approximately
       $200,000 for state income taxes. This increase was attributable to
       increased revenues in the states where the Company is subject to higher
       tax rates.

       During the fourth quarter of fiscal 1998, the Company reduced the benefit
       for income taxes by approximately $2,550,000 due to a change in estimate
       of the amount of permanent differences, primarily goodwill due to its
       accelerated writeoff, and deferred tax asset valuation reserves.


                                      F-22
<PAGE>   28
QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

<TABLE>
<CAPTION>
                   COL. A                         COL. B              COL. C                 COL. D      COL. E
       ------------------------------------    ------------  -------------------------    ------------  ---------
                                                                     ADDITIONS
                                                             -------------------------
                 DESCRIPTION                    BALANCE AT   CHARGED TO    CHARGED TO     DEDUCTIONS -  BALANCE AT
                                                BEGINNING     COSTS AND      OTHER        DESCRIBE(3)     END OF
                                                OF PERIOD     EXPENSES     ACCOUNTS(1)                    PERIOD
<S>                                            <C>                        <C>             <C>          <C>
       YEAR ENDED NOVEMBER 30, 1998
           Reserve for customer chargebacks    $38,196,114                $ 56,496,612    $79,198,588  $15,494,138
                                               ============  ==========   ============    ===========  ============

       YEAR ENDED NOVEMBER 30, 1997
           Reserve for customer chargebacks    $20,080,903                $103,597,803    $85,482,592  $38,196,114
                                               ============  ==========   ============    ===========  ============

       YEAR ENDED NOVEMBER 30, 1996
           Reserve for customer chargebacks    $ 4,025,130                $ 55,689,393(2) $39,633,620  $20,080,903
                                               ============  ==========   ============    ===========  ============
</TABLE>


(1) Charged against revenues

(2) Includes assumed liability in connection with New Lauderdale acquisition of
    $9,336,755 (see Note 6).

(3) Chargebacks refunded during the year.


                                       F-23
<PAGE>   29
                                  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.

Dated: August 4, 1999                           Quintel Communications, Inc.

                                                By:  /s/ Jeffrey L. Schwartz
                                                    ----------------------------
                                                     Jeffrey L. Schwartz
                                                     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                                            August 4, 1999
-----------------------                     Executive Officer (Principal
Jeffrey L. Schwartz                         Executive Officer)

/s/ Jay Greenwald
                                            President, Chief Operating                                    August 4, 1999
-----------------------                     Officer and Director
Jay Greenwald

/s/ Daniel Harvey                           Chief Financial Officer                                       August 4, 1999
-----------------------                     (Principal Financial  and
Daniel Harvey                               Accounting Officer)

/s/ Andrew Stollman                         Senior Vice President                                         August 4, 1999
-----------------------                     and Director
Andrew Stollman

/s/ Michael G. Miller                       Director                                                      August 4, 1999
-----------------------
Michael G. Miller

/s/ Murray L. Skala                         Director                                                      August 4, 1999
-----------------------
Murray L. Skala

/s/ Mark Gutterman                          Director                                                      August 4, 1999
-----------------------
Mark Gutterman

/s/ Lawrence Burstein                       Director                                                      August 4, 1999
-----------------------
Lawrence Burstein
</TABLE>