SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q

(Mark One)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

                    For the quarterly period ended February 28 , 2003

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

For the transition period from                 to
                                --------------    -------------


                         Commission file number 0-27046

                                  TRAFFIX, INC.
             (Exact name of registrant as specified in its charter)

     Delaware                                         22-3322277
     (State or other jurisdiction of                  (I.R.S. Employer
     incorporation or organization)                   Identification No.)

     One Blue Hill Plaza
     Pearl River, New York                            10965
     (Address of principal executive offices)         (Zip Code)

                           (845) 620-1212 Registrant's
                     telephone number, including area code:

          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 whether the Registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).  Yes __   No _X_

          The number of shares outstanding of the Registrant's common stock is
14,269,403 (as of 04/14/03).

                                                                               1
<PAGE>


                                  TRAFFIX, INC.
                     INDEX TO QUARTERLY REPORT ON FORM 10-Q
                FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
                         QUARTER ENDED FEBRUARY 28, 2003

                               ITEMS IN FORM 10-Q

                                                                            Page

PART I            FINANCIAL INFORMATION

Item 1.           Financial Statements (Unaudited)                            2


Item 2.           Management's Discussion and Analysis
                    of Financial Condition and
                    Results of Operations                                    30

Item 3.           Quantitative and Qualitative
                    Disclosures About Market Risk                          None

Item 4.           Controls and Procedures                                    70


PART II           OTHER INFORMATION

Item 1.           Legal Proceedings                                          71

Item 2.           Changes in Securities
                    and Use of Proceeds                                    None

Item 3.           Defaults Upon Senior Securities                          None

Item 4.           Submission of Matters to
                    a Vote of Security Holders                               __

Item 5.           Other Information                                        None

Item 6.           Exhibits and Reports on Form 8-K                           73

SIGNATURES

                                                                               2
<PAGE>


                         TRAFFIX, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                                                    FEBRUARY 28,   NOVEMBER 30,
                                                        2003           2002
                                                    ------------   ------------
                                                    (UNAUDITED)
ASSETS
Current assets:
  Cash and cash equivalents                         $  8,315,026   $ 23,136,341
  Marketable securities                               28,488,942     14,249,406
  Accounts receivable, trade, net of allowance
    for doubtful accounts of $648,127 at
    February 28, 2003 and $326,127 at
    November 30, 2002                                  5,299,658      5,050,218
  Deferred income taxes                                1,885,612      1,524,821
  Due from related parties                               166,144         57,548
  Prepaid income taxes                                   677,946      1,195,808
  Prepaid expenses and other current assets              989,622      1,138,362
                                                    ------------   ------------
       TOTAL CURRENT ASSETS                           45,822,950     46,352,504

Property and equipment, at cost, net of
  accumulated depreciation                             2,159,679      2,169,156
Goodwill and other intangibles, net                    2,510,845      2,619,707
Deferred income taxes                                     49,626         49,626
                                                    ------------   ------------
       TOTAL ASSETS                                 $ 50,543,100   $ 51,190,993
                                                    ============   ============
LIABILITIES

Current liabilities:
  Accounts payable                                  $  2,606,744   $  2,197,458
  Accrued expenses                                     2,494,833      4,457,644
  Reserve for customer chargebacks                       209,277             --
  Due to related parties                                 515,166        353,307
                                                    ------------   ------------
       TOTAL CURRENT LIABILITIES                       5,826,020      7,008,409

Deferred income taxes                                     89,559         89,559
                                                    ------------   ------------
       TOTAL LIABILITIES                               5,915,579      7,097,968
                                                    ============   ============

Minority interest                                        405,794        307,017
                                                    ------------   ------------
SHAREHOLDERS' EQUITY

Preferred stock - $.001 par value;
  1,000,000 shares authorized;
  none issued and outstanding                                 --             --
Common stock - $.001 par value;
  authorized 50,000,000 shares; issued
  14,268,403 shares and 14,216,729 shares,
  respectively                                            14,268         14,215
Common stock issuable - $.001 par value;
  39,174 and 78,347 shares, respectively                 242,879        485,758
Additional paid-in capital                            41,966,236     41,692,066
Retained earnings                                      6,379,648      5,948,160
Accumulated other comprehensive income                     5,943         33,056
Common stock held in treasury, at cost,
  1,509,428 shares                                    (4,387,247)    (4,387,247)
                                                    ------------   ------------

       TOTAL SHAREHOLDERS' EQUITY                     44,221,727     43,786,008
                                                    ------------   ------------
       TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $ 50,543,100   $ 51,190,993
                                                    ============   ============

    The acompanying notes are an intergal part of these financial statements

                                                                               3
<PAGE>


                         TRAFFIX, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)

                                                         THREE MONTHS ENDED
                                                    ---------------------------
                                                    FEBRUARY 28,   FEBRUARY 28,
                                                        2003           2002
                                                    ------------   ------------

Net revenue                                         $  9,117,229   $ 12,370,897
Cost of sales                                          2,245,930      3,378,611
                                                    ------------   ------------
             GROSS PROFIT                              6,871,299      8,992,286

Selling expenses                                       2,319,559      3,168,568
General and administrative expenses                    4,206,037      3,578,591
Bad debt expense                                         336,188        329,334
                                                    ------------   ------------
             INCOME FROM OPERATIONS                        9,515      1,915,793

Other income (expense):
  Interest expense                                        (7,341)       (10,502)
  Interest income and dividends                          154,601        210,213
  Realized gains on  marketable securities                   738         62,593
  Other non-operating income(expense)                     (6,697)       134,437
  Minority interest in income of subsidiary             (120,328)       (26,647)
                                                    ------------   ------------

           INCOME BEFORE PROVISION (BENEFIT)
             FOR INCOME TAXES                             30,488      2,285,887

(Benefit) provision for income taxes                    (401,000)       882,470
                                                    ------------   ------------

             NET INCOME                             $    431,488   $  1,403,417
                                                    ============   ============

Basic income per share (Note 3):
  Net income                                        $       0.03   $       0.10
                                                    ------------   ------------
  Weighted average shares outstanding                 12,750,247     13,452,943
                                                    ============   ============

Diluted income per share (Note 3):
  Net income                                        $       0.03   $       0.10
                                                    ------------   ------------
  Weighted average shares outstanding                 13,096,590     14,675,395
                                                    ============   ============

    The accompanying notes are an integral part of these financial statements

                                                                               4
<PAGE>


                         TRAFFIX, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

                                                         THREE MONTHS ENDED
                                                    ---------------------------
                                                    FEBRUARY 28,   FEBRUARY 28,
                                                        2003           2002
                                                    ------------   ------------

Cash flows from operating activities:
  Net income                                        $    431,488   $  1,403,417
  Adjustments to reconcile net income to net cash
    used in operating activities:
      Depreciation and amortization                      368,748        233,695
      Reserve for customer chargebacks                   209,277             --
      Provision for uncollectible accounts               336,188        263,350
      Deferred income taxes                             (360,791)       465,293
      Net (gains) on sale of marketable securities          (738)       (62,593)
      Amortized discounts and premiums on
        marketable securities                                 --        (27,368)
      Minority interest                                   98,777         24,809
      Changes in assets and liabilities of business:
        Accounts receivable                             (585,628)    (2,495,636)
        Prepaid expenses and other current assets        148,740        (60,599)
        Accounts payable                                 409,286     (2,391,972)
        Prepaid income taxes                             522,939        493,445
        Due from/to related parties                       53,263        (42,443)
        Other, principally accrued expenses           (1,962,809)       247,491
                                                    ------------   ------------
        NET CASH USED IN OPERATING ACTIVITIES           (331,260)    (1,949,111)
                                                    ------------   ------------

Cash flows from investing activities:
  Purchases of securities                            (83,294,642)   (55,428,671)
  Proceeds from sales of securities                   69,002,477     56,130,507
  Capital expenditures                                  (206,675)      (490,011)
  Payments for asset acquisitions, net of
    cash received                                             --       (548,482)

                                                    ------------   ------------
        NET CASH USED IN INVESTING ACTIVITIES        (14,498,840)      (336,657)
                                                    ------------   ------------

Cash flows from financing activities:
  Proceeds from stock options exercised                   26,267        201,876
  Proceeds-net on settled Section 16-b action                 --        114,403
                                                    ------------   ------------
        NET CASH PROVIDED BY FINANCING ACTIVITIES         26,267        316,279
                                                    ------------   ------------

  Effect of exchange rate changes on cash and
    cash equivalents                                     (17,482)           269
                                                    ------------   ------------
  Net decrease in cash and cash equivalents          (14,821,315)    (1,969,220)

  Cash and cash equivalents, beginning of period      23,136,341     14,458,055
                                                    ------------   ------------

  CASH AND CASH EQUIVALENTS, END OF PERIOD          $  8,315,026   $ 12,488,835
                                                    ------------   ------------

During the three months ended February 28, 2002, the Company issued 117,521
shares of common stock, valued at $728,636, in the purchase of the assets of a
closely held, private company (See note 8)

During the three months ended February 28, 2002, the Company collected
approximately $114,403, after related costs and income tax expense of $185,597,
from a Section 16-b violation brought against a former non-management "insider"
shareholder.

    The accompanying notes are an integral part of these financial statements

                                                                               5
<PAGE>

TRAFFIX CONFIDENTIAL

<TABLE>
<CAPTION>
                                                                                                           Accumulated     Total
                              Common Stock      Common    Additional                  Treasury Stock          Other        Share-
                          -------------------    Stock     Paid-in     Retained   ----------------------  Comprehensive   holders'
                            Shares    Amounts  Issuable    Capital     Earnings    Shares      Amount     Income(Loss)     Equity
                          ----------  -------  --------  -----------  ----------  ---------  -----------  ------------  -----------
<S>                       <C>         <C>      <C>       <C>          <C>         <C>        <C>          <C>           <C>
BALANCE,
  NOVEMBER 30, 2002       14,216,729  $14,215  $485,758  $41,692,066  $5,948,160  1,509,428  $(4,387,247) $     33,056  $43,786,008

Net income for the
  three months ended
  February 28, 2003                                                      431,488                                            431,488
Unrealized losses on
  available-for-sale
  securities                                                                                                   (53,366)     (53,366)
Foreign Currency
  Translation adjustment                                                                                        26,253       26,253
                                                                                                                        -----------
  Comprehensive
    income (loss)                                                                                                           404,375
                                                                                                                        -----------
Stock option exercises        12,500       14                             26,253                                             26,267
Tax benefit from exercise
  of stock options                                                         5,077                                              5,077
Common stock issued in
  connection with
  acquisition                 39,174       39  (242,879)     242,840                                                             --


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

BALANCE,
  FEBRUARY 28, 2003       14,268,403  $14,268  $242,879  $41,966,236  $6,379,648  1,509,428  $(4,387,247) $      5,943  $44,221,727
                          ==========  =======  ========  ===========  ==========  =========  ===========  ============  ===========
</TABLE>

                                                                               6
<PAGE>


                         TRAFFIX, INC. AND SUBSIDIARIES
                    NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

1.   GENERAL

          The accompanying unaudited consolidated financial statements of the
Company have been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, the unaudited
consolidated financial statements do not include certain information and note
disclosures normally required by generally accepted accounting principles. The
accompanying unaudited consolidated financial statements reflect all
adjustments (consisting only of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of the financial
position and operating results for the interim periods presented. In the
preparation of these financial statements, management is required to make

                                                                               7
<PAGE>


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 revenues and expenses during the interim periods
reported. Actual results could differ from those estimates. Principally,
estimates are used in accounting for bad debts, data qualification allowances
and sales allowances, depreciation and amortization, income taxes and
contingencies. Management's estimates and assumptions are continually reviewed
against actual results with the effects of any revisions being reflected in the
results of operations at that time.

The accompanying unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes
thereto, together with management's discussion and analysis of financial
condition and results of operations, contained in the Company's Annual Report on
Form 10-K for the fiscal year ended November 30, 2002. The results of operations
for the three months ended February 28, 2003 are not necessarily indicative of
the results to be expected for the subsequent quarters or the entire fiscal year
ending November 30, 2003. Certain prior year amounts in the unaudited
consolidated financial statements have been reclassified to conform with the
current year presentation.

During the three months ended February 28, 2003 and 2002, options for 12,500
shares and 80,007 shares of the Company's common stock, respectively, were
exercised by certain employees and directors. Tax benefits of $5,077 and
$122,435 in the three months ended February 28, 2003 and 2002, respectively,
were recorded as an increase to additional paid-in capital and a reduction of
income taxes currently payable.

     RECENT ACCOUNTING PRONOUNCEMENTS

     In July 2001, the Financial Accounting Standards Board ("FASB") issued
     Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and
     Other Intangible Assets." SFAS 142 requires that goodwill and
                                                                               8
<PAGE>


     intangible assets with indefinite useful lives no longer be amortized,
     however, these assets must be reviewed at least annually for impairment
     subsequent to adoption. Intangible assets with finite useful lives will
     continue to be amortized over their respective useful lives. The standard
     also establishes specific guidance for testing for impairment of goodwill
     and intangible assets with indefinite useful lives. The Company has adopted
     SFAS 142 as of December 1, 2002. Such adoption had no material impact on
     the Company's financial statements.

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

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

                                                                               9
<PAGE>

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

          In December 2002, the FASB issued SFAS No. 148 "Accounting for
     Stock-Based Compensation - Transition and Disclosure ("FAS 148"). This
     statement amends SFAS No. 123 "Accounting for Stock Based Compensation",
     providing alternative methods of voluntarily transitioning to the fair
     value based method of accounting for stock-based employee compensation. FAS
     148 also requires disclosure of the method used to account for stock-based
     employee compensation and the effect of the method in both annual and
     interim financial statements. The provisions of this statement related to
     transition methods are effective for fiscal years ending after December 15,
     2002, while provisions related to disclosure requirements are effective in
     financial reports for interim periods beginning after December 31, 2002. As
     permitted under FAS 148, the Company will not adopt the fair value
     approach, and will continue to use the intrinsic value method, and will
     comply with the disclosure provisions as outlined in the accounting
     standard beginning with the Company's third quarter of Fiscal 2003.

     In January 2003, the FASB issued interpretation No. 46, "Consolidation

                                                                              10
<PAGE>


     of Variable Interest Entities" ("FIN 46"). FIN 46 clarifies the application
     of Accounting Research Bulletin No. 51 and applies immediately to any
     variable interest entities created after January 31, 2003 and to variable
     interest entities in which an interest is obtained after that date. For
     variable interest entities created or acquired prior to February 1, 2003,
     the provisions of FIN 46 must be applied for the first interim or annual
     period beginning after June 15, 2003. The Company believes that the
     adoption of FIN 46 will have no material impact on the Company's
     consolidated financial position and results of operation.


2.   SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION

The Company currently earns the most significant portion of revenue from its
E-commerce segment pursuant to marketing agreements with marketing partners and
corporate customers (collectively, "Corporate Customers"). The provisions of
each agreement determine the type and timing of revenue to be recorded. The
Company generates its E-commerce revenue from the following eight basic
categories: (1) delivery of consumer traffic to the websites and inbound
telemarketing call centers of our Corporate Customers (e.g., click-thrus from
the game banners on the Company's websites), (2) delivery of consumer data to
our Corporate Customers with respect to the consumers who have registered for
our Corporate Customers' products or services (e.g., a consumer who registered
via the registration page of one of the Company's websites to receive on-line
promotions from our Corporate Customers), (3) delivery of pre-qualified consumer
data to our Corporate Customers as a result of consumers' responses to targeted
questions and surveys (e.g., receiving free gifts for your children), (4)
delivery of a sale or completed application for our Corporate

                                                                              11
<PAGE>


Customer's products or services (e.g., a consumer who responds to a Traffix
e-mail promotion on behalf of a Corporate Customer by completing an on-line
application for a credit card or subscribing for a cellular phone service), (5)
generating revenue from any of the foregoing categories by placing our Corporate
Customers' offers on the media of third parties with whom we have a marketing
relationship on a revenue share basis, (6) sales of inexpensive gift items
directly to consumers, (7) rentals and sales of copies of specific segments of
our databases to Corporate Customers for their proprietary marketing and
database enhancements, and (8) customer acquisition services, both on-line and
off-line, under a net branch agreement with a qualified mortgage banking
establishment. Regarding the Company's net branch agreement revenues, see Note
10 "Subsequent Events" for a discussion of the disposition of the Company's
majority owned subsidiary that generated such revenue. During the three months
ended February 28, 2003, the Company introduced three additional revenue sources
to its product and service suite. Such revenue sources include a proprietary
on-line dating service, a proprietary ISP service offer, and a long-distance
telecom service. The combination of the three newly introduced revenue sources
accounted for approximately 6% of the Company's revenue for the three months
ended February 28, 2003. The Company's future plans and operating strategies
call for the newly introduced revenue sources to grow to be a significant
portion of consolidated net revenue.

The Company invoices its customers in accordance with the terms of the
underlying agreement. Revenue is recognized at the time the marketing activity
is delivered, or service is provided (normally, either daily or weekly), net of
estimated contractually specified data qualification allowances, when
applicable. Such data qualification allowances may include duplications, invalid
addresses, age restrictions and other allowances. Historically, the variance
between actual allowances and previously estimated allowances has been
immaterial. The Company records all related obligations

                                                                              12
<PAGE>


associated with the related net revenue at its point of recognition. Revenues
from the Company's off-line customer acquisition services historically consisted
of residential long distance customer acquisition programs, and were recorded
upon the achievement of certain events particular to the corresponding program's
fulfillment liability. For example, subsequent to the delivery of the initial
sales record to the respective long distance carrier, the Company may have been
required to provide to the customer certain products and services (fulfillment
liability), such as cellular phones and/or other premiums. These costs were
estimated and accrued, based upon historical fulfillment costs, as a component
of marketing expense and included in the cost of sales at the time the
associated revenues were recognized. Historically, the Company has recognized
variances between actual fulfillment experience, when comparing such experience
to previously estimated fulfillment accruals. This variance is attributable to
significant variations in consumers' redemption behavior as accumulated on a
premium-by-premium basis. The variance in these estimates are reflected in
current operations when facts and circumstances allow for their measurement.

The Company's current business, as conducted in its E-commerce segment, also may
require the provision of a premium. These E-commerce segment premiums are
estimated and accrued, based upon historical and current experience. Such
E-commerce premium costs are classified as a component of marketing expense and
included in the cost of sales at the time the associated revenues are
recognized. Any variance in the initial accrual, as compared to the actual
experience, is included in the financial statement for the period that the
variance is determinable. The three months ended February 28, 2003, included a
reduction to fulfillment expense of approximately $425,000 relating to the
estimated fulfillment expense adjustment.

Revenue from the Company's LEC Billed Product and Service segment, which resumed
activity during the three months ended February 28, 2003, consists of

                                                                              13
<PAGE>


a Local Exchange Carrier ("LEC") billed Internet Service Provider ("ISP"). The
revenue from such service is recognized net of an estimated provision for
refunds, credits and adjustments subsequently granted to customers ("customer
chargebacks"). Customer chargebacks are reflected as a contra-revenue account
within the Company's statement of operations. Since the provision for customer
chargebacks is established prior to the periods in which chargebacks are
actually expended, the Company's revenues are adjusted in later periods if the
Company's incurred chargebacks vary from the amounts previously estimated.
Revenues from the Company's off-line marketing services segment during the
quarter ended February 28, 2003 included the revenue earned by Montvale
Management, LLC, the Company's majority-owned subsidiary. The Company sold its
interest in such subsidiary to the other member thereof on March 7, 2003. See
Note 10 "Subsequent Events". Such revenues represented $2.2 million, or 24% of
the Company's consolidated net revenues for the three months ended February 28,
2003, compared to $866,408, or 7% of the Company's consolidated net revenues for
the three months ended February 28, 2002. Such revenue resulted from Montvale's
provision of net branch services to a mortgage banking institution. Under such
arrangement Montvale managed the branch offices and loan origination business of
a single third party licensed mortgage banker. Approximately 15% of Montvale's
revenues were derived from on-line sources, with such portion then being
included in the Company's E-commerce segment. Montvale recognizes its commission
upon the closing of the loan, with a provision for mortgage refinance
rescissions applicable to mortgage refinances consummated within the last 3
business days of the quarter (as all refinancings are subject to a federally
mandated 3-day right of rescission). Actual experience regarding rescissions
indicates that the historical variance between rescission provisions and the
actual rescissions have been immaterial.

     With respect to capitalization and amortization of marketing costs, the
     Company's policy is to expense, as a cost of sale, database acquisition

                                                                              14
<PAGE>


     costs and all other related marketing costs, at the time an obligation or
     expense is incurred.

     ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

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


TRANSACTIONS WITH MAJOR CUSTOMERS

During the three months ended February 28, 2003, the Company had five customers
in its E-commerce segment which, in combination, accounted for approximately
$2.8 million, or 31% of consolidated net revenues during the period, and
approximately $2.9 million, or 54% of consolidated net accounts receivable as of
February 28, 2003. Such five major customers accounted for respectively 8%, 7%,
6%, 5% and 5% of consolidated net revenue. Regarding the balance of the
Company's customer base, no single customer had net revenues that equaled, or
exceeded, 5% of consolidated net revenues for the three months ended February
28, 2003.

                                                                              15
<PAGE>


The Company continued to conduct business with all such five major customers as
of April 18, 2003. The customer that accounted for 6% of the Company's net
revenues for the three months ended February 28, 2003 was recently issued a
qualified "going concern" opinion from its independent accountants. In response
to such event, the Company specifically increased its allowance for bad debt in
the current quarter by approximately $320,000. After the application of the
allowance increase, the Company continues to consider $527,000, or 10% of
consolidated accounts receivable, fully collectible from such customer, as of
February 28, 2003. The Company has collected approximately $89,000 from such
client subsequent to the balance sheet date of February 28, 2003, and continues
to do business with this customer.

Under two separate agreements with this customer, the Company is entitled to use
the customer's media assets in the generation of revenue from the Company's
clients. The Company retains all cash collected from such revenue generation.
The portion of such collection that would normally be remitted to the customer
in consideration for the use of its media assets is retained by the Company and
applied against the outstanding accounts receivable of such major customer. The
Company believes that these media asset agreements should allow it to collect
the net receivable balance from such customer.

In the prior year's three months ended February 28, 2002, the Company had five
customers in its E-commerce segment which, in combination, accounted for
approximately $7.4 million, or 60% of consolidated net revenues during the
period, and approximately $7 million, or 73% of consolidated accounts receivable
as of February 28, 2002. For the three months ended February 28, 2002, three of
the five customers referenced above had related net revenues that equaled or
exceeded 10% of the Company's consolidated net revenue for such period.
Regarding the balance of the Company's customer base, no single


                                       16
<PAGE>


customer had net revenues that equaled or exceeded 10% of consolidated
net revenues for the three months ended February 28, 2002.


3.   EARNINGS PER SHARE

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

                                                         THREE MONTHS ENDED
                                                     ---------------------------
                                                     FEBRUARY 28,   FEBRUARY 28,
                                                         2003           2002
                                                     ------------   ------------

Denominator:
  Denominator for basic earnings per share--
    weighted average shares                            12,750,247     13,452,943
Effect of dilutive securities:
  Stock Options                                           346,343      1,222,452
                                                     ------------   ------------
  Denominator for diluted earnings per share--
    adjusted weighted average shares                   13,096,590     14,675,395
                                                     ============   ============


Options to purchase 1,687,831 and 400,000 shares of common stock for the three
months ended February 28, 2003 and 2002, respectively, were outstanding but were
not included in the computation of diluted earnings per share because their
effect would be anti-dilutive.


4.   COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) is defined as "the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources." Excluding net income, the Company's primary sources of
comprehensive income (loss) would ordinarily include the after-tax net
unrealized gains and (losses) on available-for-sale securities, and the equity
adjustment from foreign currency translation. Based on prior fiscal year
unrealized capital losses in excess of the current three month period's
unrealized gains, a full credit has been taken against the estimated deferred
tax liability attributable to the unrealized gains arising in the

                                                                              17
<PAGE>


three month period ended February 28, 2003. In a prior fiscal year, full
valuation allowances were taken against the estimated deferred tax assets
attributable to the unrealized losses based on the absence of other appreciated
capital gain property. However, see Note 10 regarding the sale of Montvale
Management LLC in March 2003. The components of comprehensive income (loss) are
presented below:

                                                         THREE MONTHS ENDED
                                                    ---------------------------
                                                    FEBRUARY 28,   FEBRUARY 28,
                                                        2003           2002
                                                    ------------   ------------

     Net income ..................................  $    431,488   $  1,403,417

Other comprehensive income (loss) , net of tax:
Foreign currency translation adjustment                   26,253            269
Unrealized loss from available-for-sale
securities, arising during the period, net of
income taxes of $-0-                                     (53,366)       (17,986)

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

Comprehensive income                                $    404,375   $  1,385,700
                                                    ============   ============


5.   ADVERTISING AND MARKETING COSTS

Currently, substantially all of the Company's advertising and marketing costs
are comprised of (1) costs associated with the transmission of email marketing
messages, both from internal sources and external third party vendors, (2) costs
associated with the purchase of on-line consumer data, and (3) email program
promotional and creative development costs. Such costs are charged to operations
(1) at the time of the email transmission, (2) upon receipt of the qualified
consumer data, and (3) at the time the promotional and creative services are
provided, respectively, and are included as a component of cost of sales.

Total advertising and marketing costs included in cost of sales, for the three
months ended February 28, 2003 and 2002 were approximately $2,038,000 and
$3,289,000, respectively.

                                                                              18
<PAGE>

6.   MARKETABLE SECURITIES AND LONG TERM INVESTMENTS, AT COST

          During the quarter ended February 28, 2003 the Company did not have
any material events regarding its marketable securities. As of November 30,
2002, the Company had disposed of all of its long-term, cost-based investments.


7.   SEGMENT INFORMATION

Historically, the Company's reportable operating segments are aligned into three
fundamental areas: (1) Internet Commerce billed directly to the Company's
marketing partners and corporate customers, as well as consumers (E-commerce),
(2) Off-line Marketing services (such as telemarketing and postal mail), billed
directly to licensed mortgage bankers, long distance carriers, wireless carriers
and other service providing businesses (Off-line Marketing services) and (3)
Products and Services billed to consumers by Local Exchange Carriers. The
Company reintroduced the LEC Billed products and services activities during the
three months ended February 28, 2003. Such segment was inactive in fiscal 2002.
The balance of the Company's operations, immaterial individually and in the
aggregate, are included as part of Corporate and other. This business segment
delineation is consistent with the Company's management and financial reporting
structure based on products and services. The Company evaluates performance
based on many factors, with the primary criteria being each segment's gross
profit, pre-tax income and EBITDA, which the Company has defined as net income
excluding (i) special charges, (ii) interest expense, (iii) interest and
dividend income, (iv) net gains (losses) on the sale of marketable securities,
(v) long-lived asset impairment charges, (vi) gains on non-monetary cost basis
exchanges, (vii) other non-operating income, (viii) minority interest
(income)loss, (ix) depreciation, (x) amortization and (xi) income taxes. The
Company shares a common workforce and

                                                                              19
<PAGE>


office headquarters, which precludes an allocation of all overhead components.
Overhead items that are specifically identifiable to a particular segment are
applied to such segment and all other overhead costs are included in Corporate
and other. The following tables set forth the Company's financial results by
operating segment. All revenues are from non-intersegment sources; and therefore
no intersegment elimination applies.

SEGMENT DATA - NET REVENUE

                                                     FEBRUARY 28,   FEBRUARY 28,
                                                         2003           2002
                                                     ------------   ------------

For the three months ended:
    E-commerce                                       $  7,042,929   $ 11,634,450
    Off-line Marketing Services                         1,879,971        736,447
    LEC Billed Products and Services                      194,329             --
    Corporate and other                                        --             --
                                                     ------------   ------------

           CONSOLIDATED TOTALS                       $  9,117,229   $ 12,370,897
                                                     ------------   ------------

SEGMENT DATA - GROSS PROFIT

                                                     FEBRUARY 28,   FEBRUARY 28,
                                                         2003           2002
                                                     ------------   ------------
For the three months ended:
   E-commerce                                        $  5,123,528   $  8,321,061
   Off-line Marketing Services                          1,691,931        671,225
   LEC Billed Products and Services                        55,840             --
   Corporate and other                                         --             --
                                                     ------------   ------------

         CONSOLIDATED TOTALS                         $  6,871,299   $  8,992,286
                                                     ------------   ------------

                                                                              20
<PAGE>


    SEGMENT DATA - EBITDA

                                                    FEBRUARY 28,   FEBRUARY 28,
                                                        2003           2002
                                                    ------------   ------------

For the three months ended:
    E-commerce                                      $  1,139,460   $  3,199,525
    Off-line Marketing Services                          173,193         37,370
    LEC Billed Products and Services                      55,840             --
    Corporate and other                                 (990,230)    (1,087,407)
                                                    ------------   ------------

           CONSOLIDATED TOTALS                      $    378,263   $  2,149,488
                                                    ------------   ------------


SEGMENT DATA - DEPRECIATION AND AMORTIZATION

                                                    FEBRUARY 28,   FEBRUARY 28,
                                                        2003           2002
                                                    ------------   ------------

For the three months ended:
    E-commerce                                      $    288,693   $    164,684
    Off-line Marketing Services                            6,877          4,503
    LEC Billed Products and Services                          --             --
    Corporate and other                                   73,178         64,508
                                                    ------------   ------------

           CONSOLIDATED TOTALS                      $    368,748   $    233,695
                                                    ------------   ------------

                                                                              21
<PAGE>


SEGMENT DATA - RECONCILIATION OF REPORTABLE SEGMENT'S EBITDA
  TO CONSOLIDATED INCOME BEFORE TAXES

                                                    FEBRUARY 28,   FEBRUARY 28,
                                                        2003           2002
                                                    ------------   ------------
For the three months ended:
EBITDA - BY SEGMENT
    E-commerce                                      $  1,139,460   $  3,199,525
    Off-line Marketing Services                          173,193         37,370
    LEC Billed Products and Services                      55,840             --
    Corporate and other                                 (990,230)    (1,087,407)
                                                    ------------   ------------

           TOTAL EBIDTA                             $    378,263   $  2,149,488
                                                    ------------   ------------

ITEMS EFFECTING EBITDA IN ARRIVING AT CONSOLIDATED INCOME BEFORE TAXES
    Depreciation and amortization (expense)         $   (368,748)  $   (233,695)
    Interest (expense)                                    (7,341)       (10,502)
    Interest income and dividends                        154,601        210,213
    Realized gains on  marketable securities                 738         62,593
    Other non-operating income(expense)                   (6,697)       134,437
    Minority interest in income of subsidiary           (120,328)       (26,647)
                                                    ------------   ------------

        TOTAL ITEMS EFFECTING EBITDA                $   (347,775)  $    136,399
                                                    ------------   ------------

        CONSOLIDATED INCOME BEFORE TAXES            $     30,488   $  2,285,887
                                                    ------------   ------------


8. Asset Acquisitions

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

     >>   InfiKnowledge, a software development and Internet services firm based
          in New Brunswick, Canada, with the key assets purchased including an
          email delivery system, a suite of over 50 on-line games as well as a
          team of highly skilled, interactive game developers who the Company
          continues to believe possess the capabilities to enhance, develop and
          add support to its on-line marketing business and provide economies
          for the Company's email delivery platform.

                                                                              22
<PAGE>


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

The total purchase price components are as follows: (a) cash of $897,500, of
which $697,500 was paid simultaneously with the asset acquisition closings, both
of which occurred in December 2001 and the balance of $200,000 paid on December
6, 2002, and which is included as a component of the Company's accrued expenses
as at November 30, 2002 and (b) 117,521 shares of the Company's common stock,
valued at $6.20 per share (the average closing prices of the Company's stock for
the period December 4 to December 10, 2001), which accounted for the additional
consideration in the InfiKnowledge asset acquisition. Of the total share
consideration, 39,174 of such shares were issued at closing, 39,174 shares were
issued on December 6, 2002, with the balance of 39,173 shares issuable on
December 6, 2003. The issuable shares were considered as outstanding common
shares in the computation of both basic and diluted weighted shares outstanding
for all periods subsequent to December 6, 2001. Goodwill and other intangible
assets recognized as a result of these transactions amounted to approximately
$1,477,000, of which approximately 90%, or $1.3 million, is expected to be
deductible for income tax purposes. The goodwill and other intangibles were
assigned to the E-commerce segment. The purchase price allocation to Goodwill
and identifiable intangibles is set forth in Note 9 to the financial statements.

                                                                              23
<PAGE>


9. GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS

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

<TABLE>
<CAPTION>
                                            As of February 28, 2003       As of November 30, 2002
                                          ---------------------------   ---------------------------
                                             Gross                          Gross
                                            Carrying      Accumulated     Carrying     Accumulated
                                             Amount      Amortization      Amount      Amortization
                                          ------------   ------------   ------------   ------------
<S>                                       <C>            <C>            <C>            <C>
           Amortized intangible assets:
   GROUPLOTTO IDENTIFIABLE INTANGIBLES:
      GroupLotto Site Brand Recognition   $    722,922   $    240,974   $    722,922   $    203,623
                    GroupLotto Database        433,754        144,585        433,754        122,174
           Intellectual Property Assets        289,169         96,390        289,169         81,449
            Marketing Right License Fee        300,000        164,515        300,000        106,450

INFIKNOWLEDGE IDENTIFIABLE INTANGIBLES:
                    Internet Game Suite        198,764         47,197        191,595         37,440
           Intellectual Property Assets        149,073         35,397        143,696         28,079
               Market Position Acquired        172,996         41,078        166,756         32,585

   THANKSMUCH IDENTIFIABLE INTANGIBLES:
                 Profiled customer data         50,000         15,709         50,000         11,542
                  Restrictive Covenants         10,000          2,808         10,000          2,308
                                          ------------   ------------   ------------   ------------

    Total amortizable intangible assets   $  2,326,678   $    788,652   $  2,307,892   $    625,650
                                          ============   ============   ============   ============
         Unamortized intangible assets:
               GOODWILL - INFIKNOWLEDGE   $    683,083                  $    647,729

                  GOODWILL - THANKSMUCH        289,736                       289,736

                                          ------------                  ------------
                         Total Goodwill   $    972,819                  $    937,465
                                          ============                  ============
</TABLE>


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

                                                                              24
<PAGE>


<TABLE>
<CAPTION>
                                                     2003       2004       2005       2006       2007
                                                   --------   --------   --------   --------   --------
<S>                                                <C>        <C>        <C>        <C>        <C>
GROUPLOTTO IDENTIFIABLE INTANGIBLE AMORTIZATION:
               GroupLotto Site Brand Recognition   $144,594   $144,594   $144,594   $ 84,621
                             GroupLotto Database     86,757     86,757     86,757     50,773
                    Intellectual Property Assets     57,838     57,838     57,838     33,848
                     Marketing Right License Fee    193,530         --         --         --         --
                                                   --------   --------   --------   --------   --------
                      TOTAL GROUP'S AMORTIZATION   $482,719   $289,189   $289,189   $169,242   $     --
                                                   --------   --------   --------   --------   --------

         INFIKNOWLEDGE IDENTIFIABLE INTANGIBLES:

                             Internet Game Suite   $ 38,319   $ 38,319   $ 38,319   $ 38,319   $    880
                    Intellectual Property Assets     28,739     28,739     28,739     28,739        660
                        Market Position Acquired     33,351     33,351     33,351     33,351        766
                                                   --------   --------   --------   --------   --------
                      TOTAL GROUP'S AMORTIZATION   $100,409   $100,409   $100,409   $100,409   $  2,305
                                                   --------   --------   --------   --------   --------

            THANKSMUCH IDENTIFIABLE INTANGIBLES:
                          Profiled customer data   $ 10,000   $ 10,000   $ 10,000   $ 10,000   $    230
                           Restrictive Covenants      2,000      2,000      2,000      2,000         46
                                                   --------   --------   --------   --------   --------
                      TOTAL GROUP'S AMORTIZATION   $ 12,000   $ 12,000   $ 12,000   $ 12,000   $    276
                                                   --------   --------   --------   --------   --------

                                         Summary
            GROUPLOTTO IDENTIFIABLE INTANGIBLES:   $482,719   $289,189   $289,189   $169,242   $     --
         INFIKNOWLEDGE IDENTIFIABLE INTANGIBLES:    100,409    100,409    100,409    100,409      2,305
            THANKSMUCH IDENTIFIABLE INTANGIBLES:     12,000     12,000     12,000     12,000
                                                   --------   --------   --------   --------   --------

      TOTAL IDENTIFIABLE INTANGIBLE AMORTIZATION   $595,128   $401,598   $401,598   $281,651   $  2,305
                                                   --------   --------   --------   --------   --------
</TABLE>


10. Subsequent events

In March 2003, the Company sold its majority owned subsidiary, Montvale
Management LLC ("Montvale") to Mortgage Industry Consultants, LLC ("MIC") for
$1.6 million, plus its investment. Pursuant to the terms of the sale agreement,
the Company received an initial payment of $1 million in cash at closing on
March 7, 2003. Additionally, the Company received a $600,000 note from the
purchaser, payable in 24 monthly installments of $25,000 each. The Company is
also entitled to receive, prior to May 15, 2003, approximately $299,000,
representing its GAAP basis capital account in such majority subsidiary as at
November 30, 2002. The Company anticipates a tax saving on the transaction
resulting from the offset of potential capital gains on the sale against capital
losses incurred in prior years. The Company acquired its 51% interest in
September of 1999 through an initial investment of approximately $50,000.

                                                                              25
<PAGE>


     The Company recognized a tax benefit of approximately $416,500 in the
quarter ending February 28, 2003 as a result of the closing, which took place on
March 7, 2003. Previously, the Company had applied valuation allowances against
its deferred tax assets due to the lack of appreciated capital gain property.
The Montvale sale produced approximately $1.25 million in capital gains and the
tax benefit of $416,500 referenced above. Concurrent with the sale, the Company
entered into a two-year marketing agreement with Montvale in which the Company
will continue to generate targeted leads and provide other services related to
Montvale's residential mortgage business.

     In March 2003, the Company purchased property in New Brunswick, Canada,
through a wholly owned subsidiary, to house the business activities of such
Canadian based, wholly owned subsidiary. The purchase price for the land and
building was $565,000 (US) and was settled in cash at closing on March 6, 2003.
The Company continues to be obligated under operating leases on rental space in
Canada through April 2005, for a total lease commitment of approximately
$143,000. The Company currently intends to continue to occupy such property for
the term of said leases.


     11.  LITIGATION

          MAVIES WINGLER - On or about May 9, 2001, Mavies Wingler commenced an
action against Group Lotto, Inc. ("GLI"), one of our wholly-owned subsidiaries,
in the Circuit Court of Logan County, West Virginia. Ms. Wingler claims to have
picked the winning numbers entitling her to $10 million. On June 8, 2001, the
action was removed to the United States District Court, Southern District of
West Virginia, and is entitled WINGLER V. GROUPLOTTO, INC., Docket Number 2:01
-- CV -- 518. At the end of 2002, Ms. Wingler's attorney withdrew, and she is
now

                                                                              26
<PAGE>


representing herself. Discovery has been completed and we have made a motion for
summary judgment. We and GLI have a contract of indemnification with SCA
Promotions, Inc. to be indemnified for prizes paid out to qualified winners. GLI
winners are required to produce the Group Lotto Entry Notification form ("GLEN")
within a specified period of time after matching a drawing's winning numbers in
order to qualify for receipt of the appropriate prize winnings. We do not
believe that there is any merit to Ms. Wingler's claim and intend to vigorously
continue our defense thereof.

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

         QWEST COMMUNICATIONS - Qwest Communications, Inc. has notified us of an
indemnification claim relating to a class action filed against Qwest in
Minnesota. BINDNER V.LCI INTERNATIONAL TELECOM CORP. ET AL., District Court of
Minnesota, County of Sibley, Case No. C0-00-242. Plaintiffs claim that in late
1999 into mid-2000, they were misled when they were

                                                                              27
<PAGE>


solicited to change their long distance carrier to Qwest. They assert that they
were not told that they would have to stay at certain hotels and pay their
regular rates as part of a promotion, which offered them free airline tickets.
We introduced the promotion ("Fly Free America") to Qwest, and had been retained
by Qwest to operate the telemarketing campaign. In or about May 2000, we and
Qwest entered into an agreement terminating our contract and settling the amount
due us (the "May 2000 Agreement"). The May 2000 Agreement contained language
which Qwest claims obligates us to indemnify Qwest for any loss it may sustain
by reason of this class action. We maintain that we have no liability in the
matter. Fraud claims in the class action have been dismissed, leaving breach of
contract and false advertising claims. The court has recently certified the
class and Qwest is defending the action.

In November 2002, we commenced an arbitration against Qwest to recover certain
amounts due us pursuant to the May 2000 Agreement. In December 2002, Qwest filed
counterclaims in the arbitration relating to the Fly Free America program. Qwest
asserts that we must indemnify Qwest for, among other things, fines and
penalties amounting to approximately $1.5 million which Qwest claims it paid in
connection with a number of consent decrees it entered into with various state
attorneys general, an unspecified amount of attorneys' fees, and any and all
expenses, penalties or other amounts Qwest becomes liable for in connection with
the class action. Qwest also seeks reimbursement of approximately $3.1 million
it paid us pursuant to the May 2000 Agreement. We believe that there is no merit
to Qwest's counterclaims and intend vigorously to defend against them, as well
as to pursue our claim.

                                                                              28
<PAGE>


     COLUMBIA HOUSE/RYDEL - In or about August 2002, Columbia House, one of our
clients, notified us of an indemnification claim relating to a class action
filed against Columbia House, among others, in Illinois. RYDEL V. COMTRAD
INDUSTRIES, INC. ET AL., Circuit Court of Cook County, Illinois, No. 02 CH
13269. Plaintiff claims to have received unsolicited commercial e-mail from,
among others, Columbia House, in violation of Illinois law. Columbia House
advised us that it believes that the email in question was not approved by
Columbia House when it was sent, and asserted a claim for indemnification
against us pursuant to our contract. We and Columbia House agreed to defer
resolution of the indemnification claim (and reserved each of our respective
rights). Columbia House is defending against the class action and has filed a
motion to dismiss it.

     In or about January 2003, we were named as a defendant in the RYDEL class
action. In an additional count in the complaint, the plaintiff asserts that we
violated the Illinois Consumer Fraud and Deceptive Business Practices Act by
providing to a co-defendant a list of consumers who had consented to receive
commercial e-mails when, the complaint alleges, they had not. The complaint
seeks injunctive relief and unspecified damages. We have filed a motion to
dismiss the complaint. We believe that there is no merit to the claim, and, in
the event the claim is not dismissed as requested in the application before the
court, we intend to vigorously defend against it.

     TINA HARRISON, LISA WATTERS (Utah Claims) - In January 2003, we received
notice of two claims filed in Utah state court: WATTERS V. TRAFFIX, INC.,
MONGLYPH.COM, AND PHILLIP C. WILSON

                                                                              29
<PAGE>


AND JOHN DOES ONE THROUGH TEN, (No. 20413327); and HARRISON V. TRAFFIX, INC. AND
JOHN DOES ONE THROUGH TEN, (No. 20414190), District Court of Utah, Third
Judicial District Salt Lake County, Sandy Department. In each of these actions,
the plaintiff claims to represent a class of Utah residents who received
unsolicited commercial e-mail in violation of Utah law. We are currently engaged
in discussions to resolve these matters for an amount that would not be material
to the results of operations, cash flows or financial position of the Company.


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The matters discussed in the following Management's Discussion and Analysis of
Financial Condition and Results of Operations may contain forward-looking
statements and information relating to the Company that are based on the current
beliefs and expectations of Management, as well as assumptions made by and
information currently available to the Company. When used in this Management's
Discussion and Analysis, and elsewhere in this Form 10-Q, the words
"anticipate", "believe", "estimate", "continue", and "expect" and similar
expressions, as they relate to the Company are intended to identify
forward-looking statements. Such statements reflect the current views of the
Company's management, with respect to future events and are subject to certain
risks, uncertainties and assumptions, which could cause the actual results to
differ materially from those reflected in the forward-looking statements. These
forward-looking statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995.

OVERVIEW

We are a leading on-line database marketing company that uses our on-line media
network to generate leads, customers and sales for our proprietary

                                                                              30
<PAGE>


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


                                                                              31
<PAGE>



websites or web pages necessary to effect the consumer transaction that drives
the client's sales and generating comprehensive reporting in order for the
client to analyze the effectiveness of a promotion. We use our websites,
interactive games, email marketing and database of permission-based, profiled
records (and the on-line media of third parties) to generate the customers,
sales and leads for our clients, as well as our own product and service offers.
We are paid by our clients primarily on a success-based model, in that we
receive a fee for every lead, customer or sale generated for the client. In
addition to our third party client-based revenue, we generate revenue from our
own products and services, such as retail gift items, which accounted for
approximately 3.0% of our revenue during the three months ended February 28,
2003. In Fiscal 2003, these products and services have been expanded, and
include an ISP service, a long-distance telecom service, and on-line dating. The
combination of the revenue generated from these services introduced in Fiscal
2003 were approximately $578,000, or 6.0% of our revenue during the three months
ended February 28, 2003. We also generate revenues from the sales and rentals
(for use both on-line and off-line) of our proprietary, profiled databases.

                                   BACKGROUND

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

                                                                              32
<PAGE>


channels, such as inbound and outbound telemarketing and direct mail.

                                ON-LINE MARKETING

We own and operate multiple on-line properties, such as GroupLotto.com, the free
on-line lottery, and AtlasCreditGroup.com, PrizeAmerica.com and iMatchup.com
(iMatchup.com commenced operations during the three months ended February 28,
2003), as well as a number of interactive games (such as Direct Deposit
Promotions and Scratch&Win), all supplemented by other web sites and services
provided on the Web. These activities are designed to generate real-time
response-based marketing results for our corporate clients, as well as for our
own offers. When visiting our on-line properties, consumers are given the
opportunity to purchase, sign-up for, ask to be contacted regarding, or simply
indicate an interest in, hundreds of offers for various products and services
provided by our corporate clients and marketing partners. Specifically, through
these interactive Web properties we generate a variety of transactional results
for our corporate clients ranging from (a) Web traffic, (b) inbound
telemarketing calls, (c) outbound telemarketing leads, (d)
demographically/psychographically profiled lists of consumers, (e)
highly-targeted customized response-based leads, (f) completed applications for
products, and (g) actual sales of products and services.

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

                                       33
<PAGE>


consumer traffic to this website through proprietary and third party email
marketing programs, emailed to lists of consumers who have indicated an interest
in our product and service offers by opting in to receive information on such
offers.

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

                                                                              34
<PAGE>


market product and services that can be purchased on-line with a credit card
through our "Direct Deposit" sweepstakes game (patent pending), whereby a
consumer can win up to $5,000 instantly if a portion of his or her credit card
number matches a pre-selected winning number.

We own and operate several other websites such as AtlasCreditGroup.com,
PrizeAmerica.com, TheBargainSpot.com, prizecade.com and jewelclaimcenter.com.
Additionally, during the three months ended February 28, 2003, we launched
AtlasAutomotiveGroup.com. a website that enables its visitors to read reviews
and request price quotes to purchase automobiles on-line. Such websites are
deployed to generate revenue for our clients in a similar manner as the
GroupLotto model described above. Each of these sites is designed to appeal to a
specific consumer interest category that we matched with product promotions that
appeal to such interest category.

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

Compared to postal marketing and telemarketing, email marketing is significantly
less expensive, offers much faster response times, and, we believe, provides for
a more interactive consumer media experience. We now own an email delivery
system (acquired in December 2001 through the acquisition of the assets of
Infiknowledge.com, a privately held Canadian technology company), which reduces
our dependence on third party vendors and has created economies associated with
our commercial email delivery, as well as our site maintenance and development
costs. FOR A FURTHER DISCUSSION OF RECENT BUSINESS

                                                                              35
<PAGE>


AND LEGAL DEVELOPMENTS REGARDING THIS E-COMMERCE COMPONENT, AND EVENTS IMPACTING
EMAIL MARKETING, SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION'S SECTION TITLED `CRITICAL ACCOUNTING POLICY
AND ACCOUNTING ESTIMATE DISCUSSION - FACTORS THAT COULD EFFECT FUTURE RESULTS'."

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

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

SYNDICATION. We expend a significant portion of our email resources to generate
sales for our own products and services and for traffic to our websites. After
we develop a campaign that works efficiently on our own media, we often
"syndicate" the program to third-party media. Typically, we have expended time,
media and other costs in developing certain campaigns. In

                                                                              36
<PAGE>


exchange for this invested effort, we obtain the right to market those campaigns
to a list of other on-line media companies. We enter into agreements with these
other on-line media companies to run the campaigns, generally on a fee-share
arrangement. We believe such media companies benefit from receiving an
immediately marketable, fully-packaged and tested marketing program. As a
result, we believe we are able to leverage campaigns we have developed
(including our own products and services) so that we can generate additional
revenue with virtually no costs or risks associated with such business
extension.

                                                                              37
<PAGE>


TRAFFIX'S PRODUCTS AND SERVICES

Several new business units, which we introduced during the three months ended
February 28, 2003, include credit card billed products in the "Voice Over
Internet Protocol" area ("TxNET-LD"), dial-up modem ISP ("TxNET-ISP"), and
dating/personal programs conducted over the Internet ("iMatchup.com"). During
the three months ended February 28, 2002, we introduced the on-line marketing of
our own products and services through the Thanksmuch.com website which sells
gift items (such as DVDs, CD's and inexpensive jewelry) directly to consumers.
When a consumer selects a gift item and tenders his credit card, he is given the
opportunity to purchase other, more valuable products and services at special
discounts. One of the additional benefits that is derived from the credit card
billed portion of these programs, is our ability to accumulate consumer credit
card data, which allows for the subsequent use of our marketing concept of
"just-one-click" credit card billing, making on-line purchases easier for the
consumer, and allowing us to more easily process additional sales and services
in the future. In addition, certain of these services are designed as monthly
recurring revenue sources, such as our dating and long-distance service.

No assurances can be given, however, that these new sources of revenue will
contribute material revenues and/or income from operations in future fiscal
periods, if at all. During the three months ended February 28, 2003, the
combination of all such new services generated approximately $824,000, or
approximately 9.0% of consolidated net revenue, with an approximate $251,000
contribution to consolidated income from operations for such period.

Our expansion in, and dependence on, our on-line direct marketing efforts,
coupled with the potential for state and/or federal legislation limiting our
ability to contact consumers on-line should all be considered when referring

                                                                              38
<PAGE>


to our current fiscal year's first quarter results, as well as prior year
historical results, in evaluating the potential for our future fiscal period
operations, cash flows, and financial position.


TRANSACTIONS WITH MAJOR CUSTOMERS

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


SEGMENT INFORMATION

During the three months ended February 28, 2003, we generated revenue from the
following segments: E-Commerce, Off-line Marketing and LEC Billed products. The
E-Commerce segment currently represents the core of our business operations.
Revenue in the E-commerce segment is generated primarily from marketing of third
party products and services on our websites and through email promotions. The
Off-Line Marketing services segment consists of revenue generated by us through
off-line direct marketing channels. LEC Billed products consist of our
proprietary LEC billed ISP product, known as TXNet ISP. This product was
introduced during the three months ended February 28, 2003. During the three
months ended February 28, 2002, we generated revenue from the following
segments: E-Commerce and Off-line Marketing. Historically, the Off-line
Marketing service segment's activities consisted of telemarketing services used
for the acquisition of long distance and wireless phone customers for various
phone service providers. In Fiscal 2002, this segment consisted exclusively of
our majority owned subsidiary, Montvale Management, LLC, and the revenues and
expenses of Montvale's net branch services provided

                                                                              39
<PAGE>


to qualified mortgage banking and lending institutions. During March 2003, we
disposed of our interest in Montvale, all as more fully described Note 10
included in the attached financial statements. Historically, the LEC Billed
Products segment represented telecommunications-related products and services
marketed by us directly to consumers who were

                                                                              40
<PAGE>


billed by local exchange carriers (LECs) on the consumer's telephone bill. This
segment was inactive during the first three months of Fiscal 2002. Segment
information is set forth in Note 7 to the Consolidated Financial Statements
referred to in the Financial Statements and Supplementary Data section hereof
and incorporated herein by reference.


RESULTS OF OPERATIONS

The following is a discussion of the financial condition and results of
operations of the Company for the three-month periods ended February 28, 2003
and February 28, 2002, respectively. It should be read in conjunction with the
Company's Form 10-K as filed for the year ended November 30, 2002, the Notes
thereto and other financial information included elsewhere in this report.


THREE MONTHS ENDED FEBRUARY 28, 2003 AND FEBRUARY 28, 2002


The Company's net revenues, on a segmental basis, and with disclosure of the
components of the individual segments, for each of the three month periods ended
February 28, 2003 and February 28, 2002, are detailed in the following tables:

                                                                              41
<PAGE>


SEGMENT DATA - NET REVENUES, BY SEGMENT COMPONENT

<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED            CHANGE         CHANGE
                                                  FEBRUARY 28,    FEBRUARY 28,      INC(DEC)       INC(DEC)
                                                      2003            2002            $$$            %%%
                                                  ------------    ------------    ------------     --------
<S>                                               <C>             <C>             <C>                <C>
E-COMMERCE COMPONENTS
GroupLotto and other web sites                    $  3,067,039    $  2,437,033    $    630,006        26%
Net branch commission fees                             331,760         129,961         201,799       155%
Email marketing programs                             2,217,658       7,913,984      (5,696,326)      -72%
Data sales and rentals                                 935,149         734,476         200,673        27%
Sales of jewelry and gifts                             245,462         198,678          46,784        24%
Internet game development and other                    245,861         220,318          25,543        12%
                                                  ------------    ------------    ------------     --------

TOTAL E-COMMERCE                                     7,042,929      11,634,450      (4,591,521)      -39%
                                                  ------------    ------------    ------------     --------

OFF-LINE MARKETING SERVICE COMPONENTS
Net branch commission fees                           1,879,971         736,447       1,143,524       155%
                                                  ------------    ------------    ------------     --------

TOTAL OFF-LINE MARKETING SERVICE                     1,879,971         736,447       1,143,524       155%
                                                  ------------    ------------    ------------     --------

LEC BILLED PRODUCTS AND SERVICES COMPONENTS
TXNet ISP Product                                      194,329              --         194,329       100%


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

TOTAL LEC BILLED PRODUCTS AND SERVICES                 194,329              --         194,329       100%
                                                  ------------    ------------    ------------     --------

CORPORATE AND OTHER COMPONENTS
Miscellaneous products, list revenue and other              --              --              --         0%
                                                  ------------    ------------    ------------     --------

TOTAL CONSOLIDATED NET REVENUE                    $  9,117,229    $ 12,370,897    $ (3,253,668)      -26%
                                                  ------------    ------------    ------------     --------
</TABLE>

     Net Revenue decreased approximately $3.3 million, or 26%, to $9.1 million
for the three months ended February 28, 2003 from $12.4 million in the
comparable prior year period. The primary component of the decrease relates to
the Company's loss of one of its significant customers in the fourth quarter of
Fiscal 2002. Such customer was responsible for $3.6 million, or 29%, of the
Company's revenue during the three months ended February 28, 2002. The three
months ended February 28, 2003 included a final billing to such significant
customer that was less than $25,000, or 0.2% of net revenue for the period.
Turnover recognized in the balance of the Company's customer base, decreased
returns on its email programs and decreased rates of successful email delivery
accounted for additional decreases in net revenue, which approximated $2 million
when compared with the prior quarter. Offsetting the above mentioned declines in
net revenue were increases of $1.3 million in revenues from the Company's then
majority owned subsidiary, Montvale Management LLC (see Note 10 to the financial
statements for a further discussion of the Company's

                                                                              42
<PAGE>


disposition of its interest in Montvale in March 2003) and increases in revenue
attributable to the Company's own websites, consisting primarily of (a)
iMatchup.com and (b) AtlasCreditGroup.com. In combination, (a) and (b) accounted
for approximately $1 million, or 11% of net revenue during the three months
ended February 28, 2003. In fiscal 2002's comparable period, such websites were
inactive. The Company's LEC Billed Product and Services segment also offset the
decline in revenue from the prior year's comparable quarter by approximately
$190,000.

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

     The Company's cost of revenues during the three months ended February 28,
2003 and February 28, 2002 were comprised of (1) direct and indirect marketing
costs associated with the procurement and retention of consumers for its
databases, including direct response email marketing costs, data purchases,
promotional costs and premium fulfillment costs, and (2) the related
contingent-based prize indemnification expense, billing fees, collection fees,
and customer service costs.

The Company's cost of sales, on a segmental basis, and with disclosure of the
components of the individual segments, for each of the three month periods ended
February 28, 2003 and February 28, 2002 are set forth below:

                                                                              43
<PAGE>


CONSOLIDATED COST OF SALES, BY SEGMENT, BY COMPONENT

<TABLE>
<CAPTION>
                                                      FOR THE PERIODS
                                                    THREE MONTHS ENDED
                                                --------------------------     CHANGE        CHANGE
                                                FEBRUARY 28,  FEBRUARY 28,    INC(DEC)      INC(DEC)
                                                    2003          2002          $$$           %%%
                                                ------------  ------------  ------------    --------
<S>                                             <C>           <C>           <C>               <C>
E-COMMERCE
ADVERTISING, PROMOTION AND FULFILLMENT COSTS
Email marketing and related delivery costs      $  1,399,933  $  1,445,811  $    (45,878)      -3%
Data purchases and premium costs                     323,956     1,763,063    (1,439,107)     -82%
Promotional, creative and other costs                125,917        14,660       111,257      759%

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

                TOTAL E-COMMERCE ADVERTISING    $  1,849,806  $  3,223,534  $ (1,373,728)     -43%
                                                ------------  ------------  ------------    --------

SERVICE BUREAU FEES
Contingent based prize indemnification costs    $     69,595  $     89,855       (20,260)     -23%
                                                ------------  ------------  ------------    --------

              TOTAL E-COMMERCE COST OF SALES    $  1,919,401  $  3,313,389  $ (1,393,988)     -42%
                                                ------------  ------------  ------------    --------

OFF-LINE MARKETING SERVICES
ADVERTISING, PROMOTION AND FULFILLMENT COSTS
Telemarketing, direct mail and related costs    $    188,040  $     65,222  $    122,818      188%

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

      TOTAL OFF-LINE MARKETING COST OF SALES    $    188,040  $     65,222  $    122,818      188%
                                                ------------  ------------  ------------    --------


LEC BILLED PRODUCTS AND SERVICES

SERVICE BUREAU FEES
Billing and collection fees                     $    138,489  $         --       138,489      100%
                                                ------------  ------------  ------------    --------

              TOTAL LEC BILLED COST OF SALES    $    138,489  $         --  $    138,489      100%
                                                ------------  ------------  ------------    --------

                  CONSOLIDATED COST OF SALES    $  2,245,930  $  3,378,611  $ (1,132,681)     -34%
                                                ------------  ------------  ------------    --------
</TABLE>

     Cost of sales on a consolidated basis decreased $1.1 million, or 34%, to
$2.2 million for the three months ended February 28, 2003 from $3.4 million in
the comparable prior year period.

     The significant factors contributing to the decrease in cost of sales
relate to: (a) an approximate $700,000 decrease in marketing data purchases; and
(b) an approximate $740,000 decrease in premium fulfillment costs. Additionally,
email marketing and related delivery costs, and contingent based prized
indemnification costs decreased, in combination, by approximately $66,000 when
compared to the prior year's comparable period.

     The Company's decreased cost of sales referenced above resulted from: (i)
the realization of the residual benefit in the current quarter of marketing data
purchased in prior fiscal periods, with the associated costs

                                                                              44
<PAGE>


having been expensed in the prior period of such purchase; and (ii) the
decreased marketing and customer acquisition commitment demands; and (iii) the
decreased related premium fulfillment costs on acquired customers, that were
attributable to a significant customer in the prior year's comparable fiscal
period. The Company did not transact business with such customer during the
three months ended February 28, 2003. The Company had obtained additional
experience during February 2003 and March 2003 that indicated redemptions had
declined significantly when compared to redemption information available to the
Company at November 30, 2002. The Company estimates and accrues its fulfillment
costs, based upon available historical experience regarding premium redemptions.
Historically, the Company has recognized variances between actual fulfillment
experience, when comparing such experience to previously estimated fulfillment
accruals. This variance is attributable to significant variations in consumer's
redemption behavior as accumulated on a premium-by-premium basis. The variance
in such estimates are included in current operations when facts and
circumstances allow for their measurement. The three months ended February 28,
2003 included an approximate $425,000 benefit resulting from such adjustments to
a fulfillment premium accrual.

     The decreases in cost of sales discussed above were offset by increased
costs of sales recognized in the Company's Off-line Marketing segment of
approximately $122,000, resulting from increased activity in such segment, and
an increase in LEC Billed segment costs of $138,489 resulting from the
reactivation of operations within such segment.

     The Company's gross profit in terms of dollars, on a segmental basis, and
the Company's gross profit percentage, on a segmental basis, for each of the
three month periods ended February 28, 2003 and 2002 are set forth below:

                                                                              45
<PAGE>


CONSOLIDATED GROSS PROFIT, BY SEGMENT

<TABLE>
<CAPTION>
                                             FOR THE PERIODS:
                                            THREE MONTHS ENDED           CHANGE        CHANGE
                                        FEBRUARY 28,  FEBRUARY 28,      INC(DEC)      INC(DEC)
                                            2003          2002            $$$            %%%
                                        ------------   ------------   ------------    --------
<S>                                     <C>            <C>            <C>              <C>
E-commerce                              $  5,123,528   $  8,321,061   $ (3,197,533)     -38%

Off-line Marketing services                1,691,931        671,225      1,020,706     -152%

LEC Billed products and services              55,840             --         55,840     #DIV/0!
                                        ------------   ------------   ------------    --------

CONSOLIDATED TOTALS                     $  6,871,299   $  8,992,286   $ (2,120,987)     -24%
                                        ============   ============   ============    ========


CONSOLIDATED GROSS PROFIT PERCENTAGES, BY SEGMENT

<CAPTION>
                                             FOR THE PERIODS:           ABSOLUTE      RELATIVE
                                            THREE MONTHS ENDED         PERCENTAGE    PERCENTAGE
                                        FEBRUARY 28,   FEBRUARY 28,      CHANGE        CHANGE
                                            2003           2002         INC(DEC)      INC(DEC)
                                        ------------   ------------   ------------   ----------
<S>                                     <C>            <C>            <C>              <C>
E-commerce                                   72.7%         71.5%           1.2%          1.7%

Off-line Marketing service                   90.0%         91.1%          -1.1%         -1.3%

LEC Billed products and services             28.7%          0.0%          28.7%        100.0%
                                        ------------   ------------   ------------    --------
CONSOLIDATED GROSS PROFIT PERCENTAGE         75.4%         72.7%           2.7%          3.7%
                                        ============   ============   ============    ========
</TABLE>

     Consolidated Gross Profit Percentage ("Gross Margin") as a percentage of
net revenue was 75.4% during the three months ended February 28, 2003, compared
to 72.7% in the prior year's comparable fiscal period, representing an absolute
percentage point increase of 2.7%, or a 3.7% increase on a relative basis.

After adjusting the gross margin for the approximate $425,000 fulfillment
accrual reversal benefit referenced in the cost of sales discussion above, the

                                                                              46
<PAGE>


Company's adjusted gross profit percentage was approximately 70.1%. This
adjusted margin represents an absolute percentage decline from the prior year's
comparable period of 2.6%. This decline resulted from decreased conversions of
its email promotions and lower revenue generating offers on the Company's email
marketing programs and costs incurred in the Company's LEC Billed product and
service segment (which has a gross profit percentage that is lower than the
Company's historically recognized gross profit percentage) when compared with
the prior year's comparable quarter.

     The Company's Selling Expenses for each of the three months ended February
28, 2003 and February 28, 2002 are presented, on a segmental basis, and with the
components of the individual segments, in the tables set forth below:

<TABLE>
<CAPTION>
                                             FOR THE PERIODS:
                                            THREE MONTHS ENDED          CHANGE -      CHANGE -
                                        FEBRUARY 28,   FEBRUARY 28,     INC(DEC)      INC(DEC)
                                            2003           2002            $$$          %%%
                                        ------------   ------------   ------------    --------
<S>                                     <C>            <C>            <C>              <C>
E-COMMERCE
Fee share commissions                   $  1,053,616   $  1,749,196   ($   695,580)     -40%
Other commissions                                 --        480,882       (480,882)    -100%
Selling salaries and related expenses        393,524        406,499        (12,975)      -3%
Occupancy and equipment costs                     --          7,200         (7,200)    -100%
Travel and entertainment                      59,384        107,242        (47,858)     -45%
                                        ------------   ------------   ------------    --------
TOTAL SELLING - E-COMMERCE SEGMENT      $  1,506,524   $  2,751,019   ($ 1,244,495)     -45%
                                        ------------   ------------   ------------    --------

OFF-LINE MARKETING SERVICES
Fee share commissions                   $         --   $         --             --
Other commissions                                 --             --             --
Selling salaries and related expenses        762,407        388,785        373,622       96%
Occupancy and equipment costs                 45,623         22,029         23,594      107%
Travel and entertainment                       5,005        6,735.0         (1,730)     -26%
                                        ------------   ------------   ------------    --------
TOTAL SELLING - OFF-LINE SEGMENT        $    813,035   $    417,549   $    395,486       95%
                                        ------------   ------------   ------------    --------


CONSOLIDATED TOTALS                     $  2,319,559   $  3,168,568   ($   849,009)     -27%
                                        ------------   ------------   ------------    --------
</TABLE>

                                                                              47
<PAGE>

     Selling expenses on a consolidated basis decreased approximately $849,000,
or 27%, from $3.2 million during the three months ended February 28, 2002, to
$2.3 million during the three months ended February 28, 2003. The decrease was
primarily attributable to an approximate $1.2 million decrease in fee share
commission and other sales based commissions. Such selling expense item
decreases were related to the business conducted by the Company with a
significant customer during the three months ended February 28, 2002. This
significant customer relationship ended in the fourth quarter of Fiscal 2002.
The Company did not transact business with such customer during the three months
ended February 28, 2003 and, accordingly, did not incur the related selling
expenses. The $1.2 million decrease in selling expenses discussed above was
offset by increases in selling expenses attributable to the Company's Off-line
Marketing Services segment of approximately $395,000. This increase resulted
from the Company's increased activity in the three months ended February 28,
2003 when compared to the three months ended February 28, 2002. The Off-line
Marketing Service segments revenues increased 155% when comparing the three
months ended February 28, 2003 with the comparable prior year's period.

     Regarding fee share commissions, in the prior fiscal year, the Company
significantly expanded the practice of marketing promotional offers on behalf of
its marketing clients ("Clients") to third party databases on a fee share
commission basis. The fee share commission relationship generally arises after
the Company concludes a contractual arrangement with a Client pursuant to which
the Company modifies or develops the copy, offer form and promotional materials
for the Client's product or service. The Company then tests the promotion, and
agrees to deliver a minimum level of new customers, and/or targeted leads to the
Client. Simultaneously with the execution of these contractual arrangements, the
Company sometimes obtains the rights from the Client to market their promotions
to a list of third parties with whom the Company has marketing relationships
(the "Third Parties"). The Company enters into contracts with each Third Party
with whom it intends to market Client

                                                                              48
<PAGE>


promotions. The terms of these agreements generally provide that the Third Party
has the right to (i) approve the creative materials for each promotion, (ii)
approve the timing of each promotion's mailing, (iii) terminate the contract on
short notice, and (iv) reject any promotion for any reason. Each agreement also
restricts the Third Party from doing business with the Client other than through
the Company for the period of time covered by the agreement, and sets forth the
terms of the Third Party's compensation. Payments are performance based only and
are either fixed fees paid for each customer or lead generated for the Client,
or a revenue share that is a percentage of the revenue generated (after
deduction for certain direct costs) by the Company for marketing that offer to
the Third Party database. The Company utilizes unique Universal Resource Locater
identifier links ("URLs") when promotions are mailed to the Third Party
database. It is the unique URL's that form the tracking mechanism by which the
Client reports results to the Company, and the Company is able to account for
revenue generated under the fee share arrangement with Third Parties.


     The Company's general and administrative expenses ("G&A") are principally
comprised of (i) compensation costs and related expenses for executive, finance,
information and operation systems, and general administration personnel, (ii)
professional fees (which include legal; audit, accounting and tax; public
relations; database management and consulting; and public company related
printing costs), (iii) insurance costs, (iv) occupancy and other equipment
rental costs, (v) site development, maintenance and modification costs related
to the Company's E-commerce segment, and (vi) all other general and
miscellaneous corporate expense items.

The Company's General and Administrative Expenses for each of the three months
ended February 28, 2003 and February 28, 2002 are presented, on a segmental


                                       49
<PAGE>


basis, and with the components of the individual segments, in the tables set
forth below:

CONSOLIDATED GENERAL AND ADMINISTRATIVE EXPENSES, BY SEGMENT, BY COMPONENT

<TABLE>
<CAPTION>
                                               FOR THE PERIODS:
                                              THREE MONTHS ENDED          CHANGE -      CHANGE -
                                          FEBRUARY 28,   FEBRUARY 28,     INC(DEC)      INC(DEC)
                                              2003           2002            $$$           %%%
                                          ------------   ------------   ------------    --------
<S>                                       <C>            <C>            <C>               <C>
E-COMMERCE
Compensation costs and related expenses   $  1,128,644   $  1,115,395   $     13,249        1%
Professional fees                              509,537        358,062        151,475       42%
Insurance costs                                135,687        112,143         23,544       21%
Occupancy and equipment costs                   88,805         72,920         15,885       22%
Site development, maintenance and
  modifications                                141,842        220,046        (78,204)     -36%
All other G&A expenses                         425,534        327,301         98,233       30%
                                          ------------   ------------   ------------    --------
TOTAL G&A - E-COMMERCE SEGMENT            $  2,430,049   $  2,205,867   $    224,182       10%
                                          ------------   ------------   ------------    --------

OFF-LINE MARKETING SERVICES
Compensation costs and related expenses   $         --   $         --   $         --        0%
Professional fees                               21,229          3,120         18,109      580%
Insurance costs                                     --          1,095         (1,095)    -100%
Occupancy and equipment costs                       --             --             --        0%
All other G&A expenses                         691,351        216,594        474,757      219%
                                          ------------   ------------   ------------    --------
TOTAL G&A - OFF-LINE SEGMENT              $    712,580   $    220,809   $    491,771      223%
                                          ------------   ------------   ------------    --------
LEC BILLED PRODUCTS AND SERVICES
Compensation costs and related expenses   $         --   $         --   $         --        0%
Insurance costs                                     --             --             --        0%
Occupancy and equipment costs                       --             --             --        0%
All other G&A expenses                              --             --             --        0%
                                          ------------   ------------   ------------    --------
TOTAL G&A - LEC SEGMENT                   $         --   $         --   $         --        0%
                                          ------------   ------------   ------------    --------
CORPORATE AND OTHER
Compensation costs and related expenses   $    545,821   $    579,845   $    (34,024)      -6%
Professional fees                              228,222        272,667        (44,445)     -16%
Insurance costs                                130,333        114,359         15,974       14%
All other G&A expenses                         159,032        185,044        (26,012)     -14%
                                          ------------   ------------   ------------    --------
TOTAL G&A - CORPORATE AND OTHER           $  1,063,408   $  1,151,915   $    (88,507)      -8%
                                          ------------   ------------   ------------    --------

CONSOLIDATED TOTALS                       $  4,206,037   $  3,578,591   $    627,446       18%
                                          ------------   ------------   ------------    --------
</TABLE>

                                                                              50
<PAGE>


     General and Administrative expenses ("G&A") on a consolidated basis
increased approximately $627,000, or 18%, when comparing G&A of $3.6 million
from the three months ended February 28, 2002 to G&A of $4.2 million incurred
during the three months ended February 28, 2003. The increase was attributable
to increases in the Company's E-commerce segment of approximately $224,000 and
increases in the Company's Off-line Marketing Services segment of approximately
$492,000. Both of such increases resulted from increased costs associated with
supporting: (i) the new businesses introduced during the current quarter; (ii)
the company's previously existing revenue generating activities; and (iii) the
operational and human resource costs of database management inherent in our
business.

     Feder, Kaszovitz, Issacson, Weber, Skala, Bass and Rhine LLP ("FKIWSBR")
provides general legal services to the Company in the ordinary course of
business and litigation services in defense of actions arising from such
business activities. A FKIWSBR partner has been a member of our Board of
Directors since inception. FKIWSBR legal services are billed on an arms length
transaction basis. The Company incurred approximately $305,000 in legal fees
from FKIWSBR during the three months ended February 28, 2003.

CONSOLIDATED - BAD DEBT EXPENSE, BY SEGMENT

<TABLE>
<CAPTION>
                                             FOR THE PERIODS:
                                            THREE MONTHS ENDED         CHANGE          CHANGE
                                        FEBRUARY 28,   FEBRUARY 28,   INC(DEC)        INC(DEC)
                                            2003           2002          $$$             %%%
                                        ------------   ------------   ------------    --------
<S>                                     <C>            <C>            <C>                <C>
E-commerce                              $    336,188   $    329,334   $      6,854       2%
                                        ------------   ------------   ------------    --------

Off-line Customer Acquisition Services            --             --             --       0%

LEC Billed Products and Services                  --             --             --       0%

Corporate and other                               --             --             --       0%
                                        ------------   ------------   ------------    --------

CONSOLIDATED TOTALS                     $    336,188   $    329,334   $      6,854       2%
                                        ------------   ------------   ------------    --------
</TABLE>


                                                                              51
<PAGE>


Bad Debt expense remained relatively constant when comparing the three months
ended February 28, 2003 with 2002. The 2% increase in bad debt expense resulted
from the Company's processes described below.

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

                                                                              52
<PAGE>


OTHER INCOME(EXPENSE)

The Company's components of "Other income(expense)" for the three months ended
February 28, 2003 and 2002 are set forth below:

<TABLE>
<CAPTION>
                                                              FOR THE PERIODS:
                                                             THREE MONTHS ENDED             CHANGE        CHANGE
                                                         FEBRUARY 28,    FEBRUARY 28,      INC(DEC)      INC(DEC)
                                                             2003            2002             $$$          %%%
                                                         ------------    ------------    ------------    --------
<S>                                                      <C>             <C>             <C>              <C>
Other income (expense):
Interest expense                                         $     (7,341)   $    (10,502)   $      3,161      -30%
Interest income and dividends                                 154,601         210,213         (55,612)     -26%
Realized gains on sale of marketable securities                   738          62,593         (61,855)     -99%
Other non-operating income:

    Other miscellaneous income(expense)                        (6,697)          9,437         (16,134)    -171%
    Liquidation proceeds on prior year impairment loss             --         125,000        (125,000)    -100%
Minority interest (income) loss                              (120,328)        (26,647)        (93,681)     352%
                                                         ------------    ------------    ------------    --------
Total Consolidated Other
    Income (Expense)                                     $     20,973    $    370,094    $   (349,121)     -94%
                                                         ------------    ------------    ------------    --------
</TABLE>

     Consolidated Other Income (Expense) decreased approximately $349,000, from
approximately $370,000 for the three months ended February 28, 2002 to
approximately $21,000 for the three months ended February 28, 2003.

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

     (a) a decrease in interest and dividend income of approximately $56,000
resulting from continuing decreases in the interest rates available on
short-term commercial paper during the three months ended February 28, 2003;

(b) a decrease in gains realized through sales of marketable securities
approximating $62,000 in the three months ended February 28, 2003 when compared
to realized gains in the three months ended February 28, 2002;

(c) a decrease in other non-operating income (expense) of approximately
$141,000. The significant portion of this decrease was attributable to
liquidation proceeds received from a long-term investment (written off in Fiscal
2001) in the three months ended February 28, 2002. The underlying long-term
investment had been entirely written off through an impairment charge in a prior
year.

PROVISION FOR INCOME TAXES

     The Company's effective income tax rate is a result of the combination of

                                                                              53
<PAGE>


federal income taxes at statutory rates, and state taxes, subject to the effects
of valuation allowances taken against the "realizability" of deferred tax
assets, as well as reductions to valuation allowances taken in prior fiscal
periods when available evidence indicate such adjustments are necessary. For the
three months ended February 28, 2003, the Company recorded a net income tax
benefit of $401,000. In the quarter ended February 28, 2003, the Company
recognized a tax benefit of approximately $416,500 relating to the measurement
and resulting valuation adjustment to the Company's deferred tax assets relating
to capital loss carryovers. The Company had applied a valuation allowance
against such deferred tax assets in fiscal 2001 because there was no appreciated
capital gain property held by the Company at such time. In the quarter ending
May 31, 2003, the Company disposed of an interest in a majority-owned subsidiary
and such disposition yielded capital gain income of approximately $1.25 million.
It is this discrete event that caused the Company to re-evaluate its deferred
tax assets during the quarter ended February 28, 2003, and to correspondingly
recognize a tax benefit of $416,500 within such quarter.

     In the prior comparable period the Company had recorded income tax expense
of $882,470 for the three months ended February 28, 2002 on a pre-tax income of
approximately $2,285,887. This equated to an effective tax rate of approximately
38.6%.

LIQUIDITY AND CAPITAL RESOURCES

         As of February 28, 2003, the Company had aggregate working capital of
$40.0 million compared to aggregate working capital of $39.3 million as of
November 30, 2002. The Company had available cash, cash equivalents and readily
available marketable debt securities of $36.8 million as of February 28, 2003
compared to available cash, cash equivalents and readily available marketable
debt securities of $37.4 million as of November 30, 2002. The $581,779 decrease
in cash, cash equivalents and readily available marketable

                                                                              54
<PAGE>


debt securities is primarily the result of $331,000 used in operating activities
and $207,000 used for capital expenditures during the three months ended
February 28, 2003.

The Company's days-sales-outstanding ("DSO") in accounts receivable at February
28, 2003 was 52 days, compared to 45 days in the fourth quarter of Fiscal 2002,
and 70 days in the prior year's comparable period. The increase in the current
quarter's DSO compared to the fourth quarter of the prior fiscal year relates to
extended payment terms given to one of the Company's significant customers and
the longer collection cycle attributable to the Company's LEC Billed Products
and Services segment activities (which segment was inactive during such fourth
quarter. The Company's DSO may rise above 52 days in future fiscal periods
primarily in the event of growth in revenues from the Company's LEC Billed
Products and Services segment.

     The majority of the Company's customers are extended 30-day credit terms.
The Company continually monitors customer adherence to such terms and constantly
strives to improve the effectiveness of its collection efforts with the goal of
achieving a DSO in the 40-day range. Future fiscal periods might not reflect
this goal of a 40-day DSO, and might exceed the 52-day DSO recognized in the
three month period ended February 28, 2003.

Historically, the Company's primary cash requirements have been used to fund the
cost of advertising and promotion, with additional funds having been used in the
purchasing of equipment and services in connection with the commencement of new
business lines, further development of businesses being test marketed and for
the development of the equipment infrastructure of recently organized
subsidiaries.

     In a prior fiscal year (Fiscal 2000) the Company executed its on-line
direct marketing strategy. The Company's future plans and business strategy
continue to call for its Internet based E-commerce segment to be its primary
operating focus, with such segment generating the material portion of the
Company's revenues for the three months ended February 28, 2003.

                                                                              55
<PAGE>


The Company continues to invest considerable capital into its E-commerce
segment. If the E-commerce segment's activities fail to generate sufficient
revenue, the Company could realize a material adverse impact on its capital and
liquidity resources resulting from possible expenditures necessary to generate
such revenue, including, but not limited to expenditures for (a) marketing
campaigns, (b) product development costs, (c) site development and maintenance
and related technology based costs, (d) potential on-line, and/or off-line,
business acquisitions, (e) costs associated with developing alternative means of
email promotion delivery, or (f) other unexpected and/or currently
unidentifiable costs. During the three months ended February 28, 2003, the
Company expended approximately $207,000 in capital expenditures to support its
E-commerce activities. In March 2003, the Company purchased property in New
Brunswick, Canada, through a wholly owned subsidiary, to house the business
activities of such Canadian based, wholly owned subsidiary. The purchase price
for the land and building was $565,000 (US) and was settled in cash at closing
on March 6, 2003. The Company continues to be obligated under operating leases
on rental space in Canada through April 2005, for a total lease commitment of
approximately $143,000. The Company currently intends to continue to occupy such
property for the term of said leases. Such subsidiary was formed in December
2001 using the assets of a Canadian based Internet technology company acquired
by the Company at such time, which purchased the property previously mentioned.
The Company believes this prior year acquisition will continue to decrease
certain costs incurred by the Company relative to its reliance on third parties
in the provision of emailing services and other Internet hosting services and
data maintenance costs. From the date of such asset acquisition to the present
time, the Company has recognized economies and certain cost savings due to this
wholly owned subsidiary. The continued realization of these cost savings will
require continued capital expenditures by the wholly owned subsidiary. Should
the


                                                                              56
<PAGE>


business climate, Internet operating environment or technology environment
change significantly, the Company could be faced with circumstances that would
limit or prevent its utilization of these capital expenditures. Any failure or
limitation in the utilization of such assets could subject the Company to
non-cash asset impairment charges at that time.

     In March 2003, the Company sold its interest in its majority owned
subsidiary, Montvale Management LLC, for $1.6 million, plus its investment.
Pursuant to the terms of the sale agreements, the Company received $1 million in
cash at closing on March 7, 2003. Additionally, the Company received a note from
the Purchaser for $600,000, payable in 24 monthly installments of $25,000 each.
The Company is also entitled to receive, prior to May 15, 2003, approximately
$299,000, representing its GAAP basis capital account in such majority
subsidiary as at November 30, 2002. The Company also entered into a two year
Media Purchase Agreement whereby the Company agreed to provide certain media
lead generation and related services to the continuing owners of "Montvale" for
consideration of $40,000 per month over the term of the agreement. Additionally,
the disposition of the subsidiary generated capital gain income, which made
prior year capital loss carryovers available to reduce income taxes that would
have otherwise been payable on the sale.

     The Company's Internet business plan and strategy prompted the Company to
terminate the active marketing of its legacy products and services in the fiscal
year ended November 30, 1999. Accordingly, this legacy activity has contributed
in a significantly decreasing degree, to the Company's cash flows and results of
operations for the three-year fiscal period, December 1, 1999 to November 30,
2002. This should be considered when using the Company's historical results in
evaluating future operations, cash flows and financial position. Nevertheless,
the Company will continue to explore opportunities to offer other Off-line
marketing services, subsequent to its disposition of Montvale described above,
and expects to expand its activities within its LEC Billed Products and Services
segment.

                                                                              57
<PAGE>


     Under currently proposed operating plans and assumptions, management
believes that projected cash flows from operations and available cash resources
and working capital described above, will be sufficient to satisfy the Company's
anticipated cash requirements for at least the next twelve months. The Company's
known identifiable short-term and long-term obligations are described below in
the "Obligations and Commitments" disclosure as required by the Securities and
Exchange Commission's (the "Commission") Release Nos. 33-8056 and; 34-45321 and
FR-61 issued on January 22, 2002, referencing the Commission's statement "about
Management's Discussion and Analysis of Financial Condition...".

     Additionally, as the Company seeks to further extend its reach into the
E-commerce and LEC Billed product and service arena, as well as identifying new
and other consumer oriented products and services in the off-line arena, the
Company may use existing cash reserves, enter into long-term financing
arrangements, or employ other means to finance such diversification, none of
which is specifically identifiable, or measurable at this time.


     OBLIGATIONS AND COMMITMENTS

The Company is not aware of any specific factors, outside of those described in
the following table, and those "potential factors" described in the "Critical
Accounting Policy and Accounting Estimate Discussion" which follows the
Liquidity and Capital Resource discussion, that are reasonably likely to cause a
material impact, either positive or negative, on the Company's Liquidity trends.
Additionally, the Company does not have off-balance sheet arrangements, other
than those described in the following table, and does not engage in trading
activities involving non-exchange traded contracts.
A summary table of future contractual obligations is set forth below:

                                                                              58
<PAGE>


<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
                                                          Payments Due by Period
                                       ---------------------------------------------------------
                                                       Less than       1 to 3         4 to 5
                                                        1 year -       years -        years -
                                                        March 1,     December 1,    December 1,
                                                        2003 to        2003 to        2006 to
            Contractual                               November 30,   November 30,   November 30,
            Obligations                   Total           2003           2006           2008
                                       -----------    -----------    -----------    -----------
<S>                                    <C>            <C>            <C>            <C>
Long-term Debt Obligations:            $        --    $        --    $        --    $        --
Capital Lease Obligations:                      --             --             --             --
Operating Leases:
                           Domestic      1,107,075        247,075        860,000             --
                   Foreign (Canada)        142,650         49,839         92,811             --
Unconditional Purchase Obligations:
Canadian land and building purchase        565,000        565,000
Other Long-term Obligations:                    --             --             --             --
                                       -----------    -----------    -----------    -----------

Total Contractual Cash Obligations     $ 1,814,725    $   861,914    $   952,811             --
                                       -----------    -----------    -----------    -----------
------------------------------------------------------------------------------------------------
</TABLE>

     RELATED PARTIES

     Feder, Kaszovitz, Issacson, Weber, Skala, Bass and Rhine LLP ("FKIWSBR")
provides general legal services to the Company in the ordinary course of
business and litigation services in defense of actions arising from such
business activities. A FKIWSBR partner has been a member of our Board of
Directors since inception. FKIWSBR legal services are billed on an arms length
transaction basis. The Company incurred approximately $305,000 in legal fees
from FKIWSBR during the three months ended February 28, 2003.


TRANSACTIONS WITH MAJOR CUSTOMERS

During the three months ended February 28, 2003, the Company had five customers
in its E-commerce segment which, in combination, accounted for approximately
$2.8 million, or 31% of consolidated net revenues during the period, and
approximately $2.9 million, or 54% of consolidated net accounts receivable as of
February 28, 2003. The five major customers accounted for 8%,

                                                                              59
<PAGE>


7%, 6%, 5% and 5% of consolidated net revenue, respectively. Regarding the
balance of the Company's customer base, no single customer had net revenues that
equaled, or exceeded, 5% of consolidated net revenues for the three months ended
February 28, 2003.

The Company continued to conduct business with all such five major customers as
of April 18, 2003. The customer which accounted for 6% of the Company's net
revenues for the three months ended February 28, 2003 was recently issued a
qualified "going concern" opinion from its independent accountants. In response
to such filing the Company specifically increased its allowance for bad debt in
the current quarter by approximately $320,000. After the application of the
allowance increase, the Company continues to consider $527,000, or 10% of
consolidated accounts receivable, fully collectible from such customer, as of
February 28, 2003. The Company has collected approximately $89,000 from such
client subsequent to the balance sheet date of February 28, 2003, and has
conducted approximately $175,000 of additional business through March 31, 2003,
effectively increasing its customer related loss exposure to approximately
$613,000 at the date of this filing. Under two separate agreements with this
customer, the Company is entitled to use the customer's media assets in the
generation of revenue from its (the Company's) clients. The Company retains all
cash collected from such revenue generation. The portion of such collection that
would normally be remitted to the customer in consideration for the use of its
media assets is retained by the Company and applied against the outstanding
accounts receivable of such major customer. The Company believes that these
media asset agreements should allow it to collect the net receivable balance
from such customer.

In the three months ended February 28, 2002, the Company had five customers in
its E-commerce segment which, in combination, accounted for approximately $7.4
million, or 60% of consolidated net revenues during the

                                                                              60
<PAGE>


period, and approximately $7 million, or 73% of consolidated accounts receivable
as of February 28, 2002. For the three months ended February 28, 2002, three of
the five customers referenced above had related net revenues that equaled or
exceeded 10% of the Company's consolidated net revenue for such period.
Regarding the balance of the Company's customer base, no single customer had net
revenues that equaled or exceeded 10% of consolidated net revenues for the three
months ended February 28, 2002.


CRITICAL ACCOUNTING POLICY AND ACCOUNTING ESTIMATE DISCUSSION

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


FACTORS THAT COULD EFFECT FUTURE RESULTS

  CONTINUATION OF TREND RELATIVE TO DECREASING REVENUES AND INCREASING OVERHEAD

The following chart and subsequent discussion provide the details of a known
trend in revenue deterioration, and the effect of the potential continuation of
such trend.

The Company's quarterly net revenues for the prior six quarterly periods are set
forth in the table below:

                                       61
<PAGE>


                                          % CHANGE
     QUARTERLY                         FROM PREVIOUS
   PERIOD ENDED        NET REVENUE        QUARTER
-----------------    --------------    -------------
November 30, 2001    $  14,050,493
February 28, 2002       12,370,897       -11.95%
May 31, 2002            10,804,538       -12.66%
August 31, 2002         10,664,246        -1.30%
November 30, 2002       10,203,244        -4.32%
February 28, 2003        9,117,229       -10.64%

The Company's quarterly overhead, which is the combination of selling expenses,
general and administrative expenses, and bad debt expense, for the prior six
quarterly periods are set forth in the table below:

  QUARTERLY             SELLING          G&A         BAD DEBT         TOTAL
 PERIOD ENDED           EXPENSE        EXPENSE        EXPENSE       OVERHEAD
-----------------     ----------     ----------     ----------     ----------
November 30, 2001     $2,783,638     $3,185,320     $1,083,826     $7,052,784
February 28, 2002      3,168,568      3,578,591        329,334      7,076,493
May 31, 2002           2,370,775      3,949,851        109,172      6,429,798
August 31, 2002        3,133,682      3,665,681         48,941      6,848,304
November 30, 2002      2,799,663      4,057,299        106,428      6,963,390
February 28, 2003      2,319,559      4,206,037        336,188      6,861,784

Should the trend of quarterly decreases in net revenue continue into future
quarterly fiscal periods, and the corresponding overhead environment remain
stable, or be subject to increases necessary to generate such revenues, the
Company's Liquidity trends could reverse and the Company's Capital Resources
could be adversely affected.

                REVENUE RECOGNITION, VARIABLE COSTS AND BAD DEBTS

We currently earn the most significant portion of our revenue from the
E-commerce segment pursuant to marketing agreements with marketing partners and
corporate customers. The provisions of each agreement determine the type and
timing of revenue to be recorded. We invoice our customers in accordance with
the terms of the underlying agreement. Revenue is recognized at the time the
marketing activity is delivered, or service is provided, net of estimated
contractually specified data qualification allowances, when applicable. Such
data qualification allowances may include duplications, invalid addresses, and

                                                                              62
<PAGE>


age restrictions, and are recorded as contra revenue. Our revenues are adjusted
in later fiscal periods if actual allowances vary from amounts previously
estimated. Historically, the variance between actual allowances and previously
estimated allowances has been immaterial. If events were to occur that would
cause actual allowances (which are recorded as offsets against gross revenue, as
contra-revenues, in arriving at reported net revenue) to vary significantly from
those originally estimated and reflected in the financial statements, we could
suffer material deterioration in future fiscal period gross margins, and,
therefore, our profitability, cash flows and capital resources could be
adversely affected.

Certain obligations are recorded at the time revenue is recognized. They include
costs payable to other on-line, as well as off-line, advertisers for registered
user acquisitions and consumer data, fee sharing costs under third party
database use agreements, email message delivery costs, contingent based prize
indemnification coverage (for potential free on-line lottery winners), estimated
premium fulfillment costs related to the respective promotion and all other
variable costs directly associated with completing our obligations relative to
the revenue being recognized. The Company's actual premium fulfillment estimates
have varied from that which were accrued at the time of recording the related
revenue. The Company treats this as a change in management's estimate, and takes
the additional cost, or benefit, on the accrual adjustment in the quarter that
the variance is determined. The quarter ended February 28, 2003 included a
benefit of approximately $425,000 on the adjustment of the premium fulfillment
from November 30, 2002.

Should the Internet operating landscape change resulting in (a) higher costs of
acquiring consumer data and registered users for our websites; (b) higher costs
of acquiring data for our marketing partners, compromising such marketing
partners' ability to maintain adequate databases to allow for

                                                                              63
<PAGE>


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

Revenue recognition is also subject to provisions based on the probability of
collection of the related trade accounts receivable. We continuously evaluate
the potential of the collectibility of trade receivables by reviewing such
factors as deterioration in the operating results, financial condition, or
bankruptcy filings, of our customers. As a result of this review process, we
record bad debt provisions to adjust the related receivables' carrying amount to
an estimated realizable value. Provisions for bad debts are also recorded due to
the review of other factors, including the length of time the receivables are
past due, historical experience and other factors obtained during the conduct of
collection efforts. If circumstances change regarding

                                                                              64
<PAGE>


our specific customers on an individual basis, or if demand for Internet direct
marketing softens, or if a continuation of the current global economic downturn
prevails, our estimates for bad debt provisions could be further increased,
which could adversely affect our operating margins, profitability, cash flows
and capital resources.

                                                                              65
<PAGE>


         CONTINUATION OF MAJOR CUSTOMERS, MAJOR CUSTOMER IMPAIRMENT, AND
                    DISPOSITION OF MAJORITY-OWNED SUBSIDIARY

During the three months ended February 28, 2003, the Company had five customers
in its E-commerce segment which, in combination, accounted for approximately
$2.8 million, or 31% of consolidated net revenues during the period, and
approximately $2.9 million, or 54% of consolidated net accounts receivable as of
February 28, 2003. The five major customers accounted for 8%, 7%, 6%, 5% and 5%
of consolidated net revenue, respectively. Regarding the balance of the
Company's customer base, no single customer had net revenues that equaled, or
exceeded, 5% of consolidated net revenues for the three months ended February
28, 2003.

The Company continued to conduct business with all such five major customers as
of April 18, 2003. The customer which accounted for 6% of the Company's net
revenues for the three months ended February 28, 2003 was recently issued a
qualified "going concern" opinion from its independent accountants. In response
to such filing the Company specifically increased its allowance for bad debt in
the current quarter by approximately $320,000. After the application of the
allowance increase, the Company continues to consider $527,000, or 10% of
consolidated accounts receivable, fully collectible from such customer, as of
February 28, 2003. The Company has collected approximately $89,000 from such
client subsequent to the balance sheet date of February 28, 2003, and has
conducted approximately $175,000 of additional business through March 31, 2003,
effectively increasing its customer related loss exposure to approximately
$613,000 at the date of this filing. Under two separate agreements with this
customer, the Company is entitled to use the customer's media assets in the
generation of revenue from its (the Company's) clients. The Company retains all
cash collected from such revenue generation. The portion of such collection that
would normally be remitted to the customer in consideration for the use of its
media assets is retained by

                                                                              66
<PAGE>


the Company and applied against the outstanding accounts receivable of such
major customer. The Company believes that these media asset agreements should
allow it to collect the net receivable balance from such customer. Should
events, or circumstances render the Company unable to enforce the two agreements
referenced above, the Company would be required to incur additional bad debt
expense and the corresponding inability to collect such receivables could
adversely affect our operating margins, profitability, cash flows and capital
resources.

In March 2003, the Company sold its interest in its majority owned subsidiary,
Montvale Management LLC, for $1.6 million, plus its investment. Pursuant to the
terms of the sale agreement, the Company received $1 million in cash at closing
on March 7, 2003. Additionally, the Company received a note from the Purchaser
for $600,000, payable in 24 monthly installments of $25,000 each. The Company is
also entitled to receive, prior to May 15, 2003, approximately $299,000,
representing its GAAP basis capital account in such majority subsidiary as at
November 30, 2002. The Company also entered into a two year Media Purchase
Agreement whereby the Company agreed to provide certain media lead generation
and related services to the continuing owners of "Montvale" for consideration of
$40,000 per month over the term of the agreement. The Company estimates that the
cash flow from the Media Purchase agreement will equal or exceed the cash flows
surrendered pursuant to the disposition of the majority owned subsidiary.
Additionally, the disposition of the subsidiary generated capital gain income,
which made prior year capital loss carryovers available to reduce income taxes
that would have otherwise been payable on the sale. If circumstances arise that
prevent the disposed entity from meeting its payment obligations to the Company
under the installment agreement or the Media Purchase Agreement, or if the
Company were to realize taxable losses preventing the utilization of the above
referenced tax benefit recognized on the sale, the Company could be adversely
affected, with a corresponding

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<PAGE>


negative impact to its liquidity and capital resources.

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

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

We carry Goodwill and other Identifiable Intangibles on our balance sheet
arising from prior year acquisitions. We are required to review, at least
annually, such Goodwill and other Identifiable Intangibles for any asset

                                                                              68
<PAGE>


impairment. If the review of the Goodwill and Identifiable Intangibles related
to the subsidiaries organized to acquire such assets determines that such assets
are impaired, then we will be required to recognize an impairment charge on such
Goodwill necessary to reduce the carrying value of the Goodwill to its net
realizable value. Should events occur that would give rise to such impairment
charge, we would recognize decreased profitability to the extent of such
adjustment. Cash flows would not be directly affected by the impairment charge,
but cash flows would, most likely, be adversely affected as a result of the
facts and circumstances that created the impairment charge.

       MARKET FLUCTUATION AND DEBT REPAYMENT RISK OF MARKETABLE SECURITIES
                              INVESTMENT PORTFOLIO

We maintain an investment portfolio that is managed by prominent financial
institutions. The portfolio includes high-grade corporate commercial paper and
auction rate securities, equity securities of real estate investment trusts
("REITs") and common stock equities, all of which are held for varying periods
of time, pursuant to maturity dates, market conditions and other factors. The
fair value of our investments in the common stock of publicly traded companies
as of February 28, 2003 amounted to approximately $1.1 million. These
investments are subject to market price volatility, in addition to the potential
for business failure at the company level. Moreover, due to the economic
downturn and difficulties that may be faced by some of the companies in which we
have investments, our investment portfolio could be further impaired by the
failure of such companies to fulfill their responsibility of adhering to the
repayment of principal upon maturity. Additionally, our cash flows and interest
income could be negatively impacted from continued Federal Reserve Bank interest
rate reductions.

             POTENTIAL OF FEDERAL, AND/OR STATE ENACTED LEGISLATION

There are a variety of legislative proposals at state and federal levels
regarding email marketing. Certain of these proposals, if implemented, could

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<PAGE>


negatively affect our email marketing programs which could cause a material
adverse impact in net revenue, gross margins, profitability, cash flows and
capital resources.


ITEM 4. CONTROLS AND PROCEDURES

     (a) Evaluation of disclosure controls and procedures.

     The Company's chief executive officer and its chief financial officer,
after evaluating the effectiveness of the Company's disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14(c) and 15-d-14(c) as of a
date within 90 days of the filing date of the quarterly report (the "Evaluation
Date") have concluded that as of the Evaluation Date, the Company's disclosure
controls and procedures were adequate and effective to ensure that material
information relating to the Company and its consolidated subsidiaries would be
made known to them by others within those entities, particularly during the
period in which this quarterly report was being prepared.

     (b) Changes in internal controls.

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

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<PAGE>


                                     PART II

                                OTHER INFORMATION


ITEM 1.   LEGAL PROCEEDINGS

          The Securities Exchange Act of 1934, as amended (the "Exchange Act"),
requires us to describe briefly any material pending legal proceedings to which
we are a party or of which any of our property is subject. The Exchange Act
further provides that no information need be given with respect to any
proceeding that involves primarily a claim for damages if the amount involved,
exclusive of interest and costs, does not exceed 10 percent of our current
assets. We believe that all of the claims made against us to date are either
without merit or will ultimately result in a judgment against us (if at all) in
an amount less than 10% of our current assets. Nevertheless, as the plaintiff in
the WINGLER action is seeking damages in excess of 10% of our current assets,
and as the majority of the remaining legal claims made against us fail to
specify an amount of damages being sought by the plaintiff, and as there is a
potential that the ultimate damages awarded in a claim could exceed such 10%
threshold, in compliance with the Exchange Act, we listed below the WINGLER
action, as well as all legal claims made against us for which no amount of
damages has been specified. The QWEST action seeks damages against us in an
amount slightly less than 10% of our current assets.

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

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

                                                                              71
<PAGE>


     QWEST COMMUNICATIONS - Qwest Communications, Inc. has notified us of an
indemnification claim relating to a class action filed against Qwest in
Minnesota. BINDNER V.LCI INTERNATIONAL TELECOM CORP. ET AL., District Court of
Minnesota, County of Sibley, Case No. C0-00-242. Plaintiffs claim that in late
1999 into mid-2000, they were misled when they were solicited to change their
long distance carrier to Qwest. They assert that they were not told that they
would have to stay at certain hotels and pay their regular rates as part of a
promotion, which offered them free airline tickets. We introduced the promotion
("Fly Free America") to Qwest, and had been retained by Qwest to operate the
telemarketing campaign. In or about May 2000, we and Qwest entered into an
agreement terminating our contract and settling the amount due us (the "May 2000
Agreement"). The May 2000 Agreement contained language which Qwest claims
obligates us to indemnify Qwest for any loss it may sustain by reason of this
class action. We maintain that we have no liability in the matter. Fraud claims
in the class action have been dismissed, leaving breach of contract and false
advertising claims. The court has recently certified the class and Qwest is
defending the action.

     In November 2002, we commenced an arbitration against Qwest to recover
certain moneys due us pursuant to the May 2000 Agreement. In December 2002,
Qwest filed counterclaims in the arbitration relating to the Fly Free America
program. Qwest asserts that we must indemnify Qwest for, among other things,
fines and penalties amounting to approximately $1.5 million which Qwest claims
it paid in connection with a number of consent decrees it entered into with
various state attorneys general, an unspecified amount of attorneys' fees, and
any and all expenses, penalties or other amounts Qwest becomes liable for in
connection with the class action. Qwest also seeks reimbursement of
approximately $3.1 million it paid us pursuant to the May 2000 Agreement. We
believe that there is no merit to Qwest's counterclaims and intend vigorously to
defend against them, as well as to pursue our claim.

     COLUMBIA HOUSE/RYDEL - In or about August 2002, Columbia House, one of our
clients, notified us of an indemnification claim relating to a class action
filed against Columbia House, among others, in Illinois. RYDEL V. COMTRAD
INDUSTRIES, INC. ET AL., Circuit Court of Cook County, Illinois, No. 02 CH
13269. Plaintiff claims to have received unsolicited commercial e-mail from,
among others, Columbia House, in violation of Illinois law. Columbia House
advised us that it believes that the email in question was not approved by
Columbia House when it was sent, and asserted a claim for indemnification
against us pursuant to our contract. We and Columbia House agreed to defer
resolution of the indemnification claim (and reserved each of our

                                                                              72
<PAGE>


respective rights). Columbia House is defending against the class action and has
filed a motion to dismiss it.

     In or about January 2003, we were named as a defendant in the class action.
In an additional count in the complaint, the plaintiff asserts that we violated
the Illinois Consumer Fraud and Deceptive Business Practices Act by providing to
a co-defendant a list of consumers who had consented to receive commercial
e-mails when, the complaint alleges, they had not. The complaint seeks
injunctive relief and unspecified damages. We have filed a motion to dismiss the
complaint. We believe that there is no merit to the claim, and, in the event the
claim is not dismissed as requested in the application before the court, we
intend to vigorously defend against it.

     TINA HARRISON, LISA WATTERS (Utah Claims) - In January 2003, we received
notice of two claims filed in Utah state court: WATTERS V. TRAFFIX, INC.,
MONGLYPH.COM, AND PHILLIP C. WILSON AND JOHN DOES ONE THROUGH TEN, (No.
20413327); and HARRISON V. TRAFFIX, INC. AND JOHN DOES ONE THROUGH TEN, (No.
20414190), District Court of Utah, Third Judicial District Salt Lake County,
Sandy Department. In each of these actions, the plaintiff claims to represent a
class of Utah residents who received unsolicited commercial e-mail in violation
of Utah law. We are currently engaged in discussions to resolve these matters
for an amount that would not be material.


ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

(A)       EXHIBITS.

EXHIBIT
NUMBER

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

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

3.2       By-Laws of the Company (3)

99.1      Written Statement of the Chief Executive Officer, Pursuant to 18
          U.S.C. Section 1350*

99.2      Written Statement of the Chief Financial Officer, Pursuant to 18
          U.S.C. Section 1350*

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

                                                                              73
<PAGE>


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

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

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

(B)  REPORTS ON FORM 8-K.

     The Company did not file any reports on Form 8-K during the first quarter
of the fiscal year ending November 30, 2003.


                           FORWARD LOOKING INFORMATION

     This Quarterly Report on Form 10-Q includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. When used herein, words like "intend",
"anticipate", "believe", " estimate", "plan" or "expect", as they relate to the
Company, are intended to identify forward-looking statements. The Company
believes that the assumptions and expectations reflected in such forward-looking
statements are reasonable, based on information available to it on the date of
this Quarterly Report, but no assurances can be given that these assumptions and
expectations will prove to have been correct or that the Company will take any
action that it may presently be planning. The Company is not undertaking to
publicly update or revise any forward-looking statement if it obtains new
information or upon the occurrence of future events or otherwise.

                                                                              74
<PAGE>


                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                            TRAFFIX, INC.


                                            By:/s/ JEFFREY L. SCHWARTZ
                                            Jeffrey L. Schwartz
Date: April 21, 2003                        Chairman and CEO





                                            By: /s/ DANIEL HARVEY
                                            Daniel Harvey
                                            Chief Financial Officer
Date: April 21, 2003                        (Principal Financial Officer)

                                                                              75
<PAGE>


                                 CERTIFICATIONS

I, Jeffrey L. Schwartz, certify that:

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

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

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

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

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

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

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

5.   The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of the registrant's board of directors:

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

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

6.   The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: April 21, 2003

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


A signed original of this written statement required by Section 906 has been
provided to Traffix, Inc. and will be retained by Traffix, Inc. and furnished to
the Securities and Exchange Commission or its staff upon request.

                                                                              76
<PAGE>


I, Daniel Harvey, certify that:

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

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

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

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

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

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

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

5.   The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of the registrant's board of directors:

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

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

6.   The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: April 21, 2003

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

A signed original of this written statement required by Section 906 has been
provided to Traffix, Inc. and will be retained by Traffix, Inc. and furnished to
the Securities and Exchange Commission or its staff upon request.

                                                                              77
<PAGE>


Exhibit Index

EXHIBIT
NUMBER

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

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

3.3       By-Laws of the Company (3)

99.1      Written Statement of the Chief Executive Officer, Pursuant to 18
          U.S.C. Section 1350*

99.2      Written Statement of the Chief Financial Officer, Pursuant to 18
          U.S.C. Section 1350*

----------

*         Filed herewith.

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

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

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

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