================================================================================
                       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 QUARTER ENDED AUGUST 31, 2002

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

                     FOR THE TRANSITION PERIOD FROM      TO

                         COMMISSION FILE NUMBER 0-27046

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

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

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

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

     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 [ ]

     The  number of  shares  outstanding  of the  Registrant's  common  stock is
14,478,972 (as of 10/11/02).

================================================================================
<PAGE>

                                  TRAFFIX, INC.

                     INDEX TO QUARTERLY REPORT ON FORM 10-Q
                FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
                          QUARTER ENDED AUGUST 31, 2002

                               ITEMS IN FORM 10-Q
<TABLE>
<CAPTION>
                                                                                            PAGE
                                                                                            ----
<S>        <C>                                                                              <C>
PART I      FINANCIAL INFORMATION
   Item 1.  Financial Statements .......................................................        2
   Item 2.  Management's Discussion and Analysis of Financial Condition and
               Results of Operations ...................................................       15
   Item 3.  Quantitative and Qualitative Disclosures About Market Risk .................     None
   Item 4.  Controls and Procedures ....................................................       43
PART II     OTHER INFORMATION
   Item 1.  Legal Proceedings ..........................................................       44
   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 ........................       44
   Item 5.  Other Information ..........................................................     None
   Item 6.  Exhibits and Reports on Form 8-K ...........................................       45
SIGNATURES .............................................................................       46
</TABLE>



                                       1
<PAGE>


                         TRAFFIX, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                  AUGUST 31,   NOVEMBER 30,
                                                                                     2002          2001
                                                                                 ------------  ------------
                                                                                  (UNAUDITED)
<S>                                                                              <C>            <C>
ASSETS
Current assets:
   Cash and cash equivalents ................................................    $20,123,520    $14,458,055
   Marketable securities ....................................................     19,480,871     23,677,999
   Accounts receivable, trade, net of allowance for doubtful accounts
     of $274,850 at August 31, 2002 and $383,676 at November 30, 2001 .......      6,894,648      7,326,032
   Deferred income taxes ....................................................      1,733,282      3,242,815
   Due from related parties .................................................        180,567        106,654
   Prepaid expenses and other current assets ................................      1,679,541      1,415,836
                                                                                 -----------    -----------
          TOTAL CURRENT ASSETS ..............................................     50,092,429     50,227,391
Property and equipment, at cost, net of accumulated depreciation ............      1,918,987        951,702
Goodwill and other intangibles, net .........................................      2,971,638      1,362,407
Deferred income taxes .......................................................        147,084        147,084
Other .......................................................................         54,000         54,000
                                                                                 -----------    -----------
          TOTAL ASSETS ......................................................    $55,184,138    $52,742,584
                                                                                 ===========    ===========

LIABILITIES
Current liabilities:
   Accounts payable .........................................................    $ 2,098,230    $ 3,928,418
   Accrued expenses .........................................................      7,769,882      4,098,921
   Due to related parties ...................................................        587,026        469,935
   Income taxes payable .....................................................             --      1,672,953
                                                                                 -----------    -----------
          TOTAL CURRENT LIABILITIES .........................................     10,455,138     10,170,227
                                                                                 -----------    -----------
Minority interest ...........................................................        423,869        159,651
                                                                                 -----------    -----------

SHAREHOLDERS' EQUITY

Preferred stock-- $.001 par value; 1,000,000 shares authorized;
   none issued and outstanding ..............................................             --             --
Common stock-- $.001 par value; authorized 50,000,000 shares; issued
   14,518,146 shares and 14,290,491 shares, respectively ....................         14,518         14,289
Common stock issuable-- $.001 par value; 78,347 shares ......................        485,758             --
Additional paid-in capital ..................................................     42,646,569     41,395,784
Retained earnings ...........................................................      5,431,610      3,206,770
Accumulated other comprehensive income ......................................         18,051         72,577
Common stock held in treasury, at cost, 1,474,777 and 961,403
   shares, respectively .....................................................     (4,291,375)    (2,276,714)
                                                                                 -----------    -----------
          TOTAL SHAREHOLDERS' EQUITY ........................................     44,305,131     42,412,706
                                                                                 -----------    -----------
          TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ........................    $55,184,138    $52,742,584
                                                                                 ===========    ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                       2
<PAGE>

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

<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED              NINE MONTHS ENDED
                                                   ---------------------------     --------------------------
                                                    AUGUST 31,     AUGUST 31,       AUGUST 31,    AUGUST 31,
                                                       2002           2001             2002          2001
                                                   ------------   ------------     -----------   ------------

<S>                                                 <C>            <C>             <C>            <C>
Net revenue ......................................  $10,664,246    $ 7,404,820     $33,839,681    $18,158,917
Cost of sales ....................................    3,218,160      2,281,715       9,979,975      4,907,317
                                                    -----------    -----------     -----------    -----------
     GROSS PROFIT ................................    7,446,086      5,123,105      23,859,706     13,251,600
Selling expenses .................................    3,133,682        663,549       8,650,996      1,653,635
General and administrative expenses ..............    3,665,681      2,954,674      11,216,152      8,077,236
Bad Debt expense .................................       48,941             --         487,447             --
                                                    -----------    -----------     -----------    -----------
     INCOME FROM OPERATIONS ......................      597,782      1,504,882       3,505,111      3,520,729
Other income (expense):
   Interest expense ..............................       (7,865)            --         (27,633)            --
   Interest income and dividends .................      190,805        353,645         584,404      1,497,906
   Realized gains on marketable securities .......        2,664        405,837          85,821        404,061
   Permanent impairment charges ..................           --             --              --     (4,690,258)
   Other non-operating income (expense) ..........     (456,989)        (4,060)       (221,887)        84,290
   Minority interest in (income)
     loss of subsidiary ..........................     (148,782)            --        (279,731)            --
                                                    -----------    -----------     -----------    -----------
     INCOME BEFORE PROVISION
     FOR INCOME TAXES ............................      177,615      2,260,304       3,646,085        816,728
Provision for income taxes .......................       69,235        797,312       1,421,245      2,109,111
                                                    -----------    -----------     -----------    -----------
     NET INCOME (LOSS) ...........................  $   108,380    $ 1,462,992     $ 2,224,840    $(1,292,383)
                                                    ===========    ===========     ===========    ===========
Basic income (loss) per share (Note 3):

   Net income (loss) .............................  $      0.01    $      0.10     $      0.17    $     (0.09)
                                                    -----------    -----------     -----------    -----------
   Weighted average shares outstanding ...........   13,168,407     13,966,939      13,454,093     14,497,515
                                                    ===========    ===========     ===========    ===========
Diluted income (loss) per share (Note 3):

   Net income (loss) .............................  $      0.01    $      0.10     $      0.15    $     (0.09)
                                                    -----------    -----------     -----------    -----------
   Weighted average shares outstanding ...........   13,895,370     14,729,475      14,548,047     14,497,515
                                                    ===========    ===========     ===========    ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       3
<PAGE>

                         TRAFFIX, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                    FOR THE NINE MONTHS ENDED AUGUST 31, 2002
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                         COMMON STOCK                       ADDITIONAL                     TREASURY STOCK
                                    -----------------------  COMMON STOCK    PAID-IN      RETAINED      ---------------------
                                      SHARES       AMOUNTS     ISSUABLE      CAPITAL      EARNINGS       SHARES       AMOUNT
                                    -----------   ---------   ----------    ---------    ----------     ---------    --------
<S>                                  <C>           <C>         <C>         <C>           <C>             <C>       <C>
BALANCE, NOVEMBER 30, 2001 ........  14,290,491    $ 14,289    $      --   $41,395,784   $3,206,770      961,403   $(2,276,714)
Unrealized (losses) on available
   for sale securities.............
Stock option exercises ............     188,481         189                    584,377
Tax benefit from exercise of
   stock options ..................                                            309,166
Common stock issued in
   connection with acquisition ....      39,174          40                    242,840
Common stock issuable in
   connection with acquisition ....                              485,758
Net proceeds on non-management
   trading gain disgorgement ......                                            114,402
Foreign Currency Translation
   adjustment......................
Purchase of common stock,
   held in treasury, at cost ......                                                                      513,374   $(2,014,661)
Net income for the nine months
   ended August 31, 2002 ..........                                                       2,224,840
                                     ----------    --------    ---------   -----------   ----------    ---------   -----------
BALANCE, AUGUST 31, 2002             14,518,146    $ 14,518    $ 485,758   $42,646,569   $5,431,610    1,474,777   $(4,291,375)
                                     ==========    ========    =========   ===========   ==========    =========   ===========

<CAPTION>

  ACCUMULATED
      OTHER         TOTAL
  COMPREHENSIVE  SHAREHOLDERS'
  (LOSS) INCOME     EQUITY
 --------------- -------------
     <S>         <C>
     $ 72,577    $42,412,706

      (53,819)       (53,819)
                     584,566

                     309,166

                     242,880

                     485,758

                     114,402


         (707)          (707)

                  (2,014,661)

                   2,224,840
     --------    -----------
     $ 18,051    $44,305,131
     ========    ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       4
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                    NINE MONTHS ENDED
                                                                             ------------------------------
                                                                               AUGUST 31,      AUGUST 31,
                                                                                  2002            2001
                                                                             --------------   -------------
<S>                                                                             <C>            <C>
Cash flows from operating activities:
   Net income (loss) .......................................................    $ 2,224,840    $ (1,292,383)
   Adjustments to reconcile net income (loss) to net cash used in
     operating activities:
     Depreciation and amortization .........................................        804,241         272,916
     Reserve for customer chargebacks ......................................             --          15,081
     Provision for uncollectible accounts ..................................        487,447       1,038,481
     Deferred income taxes .................................................      1,509,533      (2,971,500)
     Compensation expense related to stock options .........................             --         116,218
     Net (gains) on sale of marketable securities ..........................        (85,846)       (404,061)
     Permanent impairment charges ..........................................             --       4,690,258
     Amortized discounts and premiums on marketable securities .............        (50,664)       (302,995)
     Minority interest .....................................................        264,218              --
     Changes in assets and liabilities of business:
        Accounts receivable ................................................        (56,062)     (3,983,670)
        Prepaid expenses and other current assets ..........................       (263,705)        380,413
        Accounts payable ...................................................     (1,830,188)       (681,514)
        Income taxes payable ...............................................     (1,363,786)       (534,856)
        Due from/to related parties ........................................         43,178        (859,608)
        Other, principally accrued expenses ................................      3,185,682         278,498
                                                                                -----------     -----------
          NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ..............      4,868,888      (4,238,722)
                                                                                -----------     -----------
Cash flows from investing activities:
   Purchases of securities .................................................   (142,524,298)   (173,426,992)
   Proceeds from sales of securities .......................................    146,804,117     187,993,483
   Capital expenditures ....................................................     (1,618,362)       (546,968)
   Payments for asset acquisitions, net of cash received ...................       (548,482)             --
   Purchases of long-term investments ......................................             --         (49,000)
                                                                                -----------     -----------
          NET CASH PROVIDED BY INVESTING ACTIVITIES ........................      2,112,975      13,970,523
                                                                                -----------     -----------
Cash flows from financing activities:
   Purchases of common stock ...............................................     (2,014,661)     (6,048,662)
   Proceeds from stock options exercised ...................................        584,567         200,933
   Proceeds-net on settled Section 16-b action .............................        114,403              --
                                                                                -----------     -----------
          NET CASH USED IN FINANCING ACTIVITIES ............................     (1,315,691)     (5,847,729)
                                                                                -----------     -----------
   Effect of exchange rate changes on cash and cash equivalents ............           (707)             --
   Net increase in cash and cash equivalents ...............................      5,665,465       3,884,072
   Cash and cash equivalents, beginning of period ..........................     14,458,055       4,551,344
                                                                                -----------     -----------
   CASH AND CASH EQUIVALENTS, END OF PERIOD ................................    $20,123,520     $ 8,435,416
                                                                                ===========     ===========
</TABLE>

   During the nine months ended August 31, 2002,  the Company has 117,521 shares
of common stock issued and  issuable,  valued at $728,636 in the purchase of the
assets of a closely held, private company (See note 9.)


   The accompanying notes are an integral part of these financial statements.

                                       5
<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 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 and
sales allowances, depreciation and amortization, income taxes and contingencies.
Managements'  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,  2001.  The
results of operations for the three and nine month periods ended August 31, 2002
are not necessarily  indicative of the results to be expected for the subsequent
quarter or the entire fiscal year ending  November 30, 2002.  Certain prior year
amounts  in  the  unaudited   consolidated   financial   statements   have  been
reclassified to conform with the current year presentation.

     During the nine months ended August 31, 2002 and 2001,  options for 188,481
shares and 122,651  shares of the  Company's  common stock,  respectively,  were
exercised  by certain  employees  and  directors.  Tax  benefits of $309,166 and
$89,040 in nine  months  ended  August  31,  2002 and 2001,  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.  141,  "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS 141
requires that all business  combinations be accounted for by the purchase method
of accounting  and changes the criteria for  recognition  of  intangible  assets
acquired  in a business  combination.  The  provisions  of SFAS 141 apply to all
business  combinations  initiated after June 30, 2001. We do not expect that the
adoption of SFAS 141 will have a material effect on our  consolidated  financial
position  or  results  of  operations.  SFAS  142  requires  that  goodwill  and
intangible assets with indefinite useful lives no longer be amortized, once SFAS
142 is  adopted,  which will be in our fiscal  year ending  November  30,  2003;
however,  these  assets  must be  reviewed  at  least  annually  for  impairment
subsequent to adoption. Intangible assets with finite useful lives will continue
to  be  amortized  over  their  respective   useful  lives.  The  standard  also
establishes  specific  guidance  for testing  for  impairment  of  goodwill  and
intangible  assets with indefinite useful lives. The provisions of SFAS 142 will
be effective for our fiscal year ending November 30, 2003,  earlier adoption was
not elected by the Company pursuant to the terms of SFAS 142. However,  goodwill
and intangible  assets  acquired after June 30, 2001 are subject  immediately to
the  non-amortization  provisions  of SFAS 142.  While we are  currently  in the
process of evaluating  the  potential  impact that the adoption of SFAS 142 will
have on our  consolidated  financial  position  and results of  operations,  our
preliminary  assessment is that the adoption of SFAS 142 will have an immaterial
impact on the Company.

     In  August  2001,  the FASB  issued  SFAS No.  143,  "Accounting  for Asset
Retirement  Obligations".  SFAS 143 sets  forth  the  guidelines  regarding  the
financial   accounting  and  reporting  for  obligations   associated  with  the
retirement  of  tangible  long-lived  assets and any costs  associated  with the
related assets' retirement. The provisions


                                       6
<PAGE>

                         TRAFFIX, INC. AND SUBSIDIARIES

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
                                   (UNAUDITED)

of SFAS 143 will be  effective  for our fiscal year ending  November  30,  2003.
Based on the  relative  components  of our  balance  sheet at August 31, 2002 we
believe  that the  adoption  of SFAS 143 will have an  immaterial  impact on the
Company's  consolidated  financial  position and results of  operations,  if any
effect at all.

     In  October  2001,  the FASB  issued  SFAS  No.  144,  "Accounting  for the
Impairment  or  Disposal  of  Long-Lived   Assets."  SFAS  144  amends  existing
accounting  guidance on asset impairment and provides a single  accounting model
for long-lived assets to be disposed of. Among other  provisions,  the new rules
change the criteria for classifying an asset as held-for-sale. The standard also
broadens the scope of businesses to be disposed of that qualify for reporting as
discontinued  operations,  and changes the timing of recognizing  losses on such
operations.  The  provisions  of SFAS 144 will be effective  for our fiscal year
ending November 30, 2003 and will be applied prospectively.  We are currently in
the process of  evaluating  the  potential  impact that the adoption of SFAS 144
will have on our  consolidated  financial  position  and results of  operations.
Based on the  relative  components  of our  balance  sheet at August 31, 2002 we
believe  that the  adoption  of SFAS 144 will have an  immaterial  impact on the
Company's  consolidated  financial  position and results of  operations,  if any
effect at all.

     In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB No. 13, and Technical Corrections". SFAS 145
promulgates rules regarding the financial accounting and reporting requirements,
which include gains and losses  resulting from the  extinguishments  of debt and
the treatment of sale-leaseback transactions. The provisions of SFAS 145 will be
effective  for our fiscal year ending  November 30, 2003.  Based on the relative
components  of our balance sheet at August 31, 2002 we believe that the adoption
of SFAS  145  will  have an  immaterial  impact  on the  Company's  consolidated
financial position and results of operations, if any effect at all.

     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.

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., do you need a new credit card?),  (4) delivery of a
sale or completed  application for our Corporate Customers' products or services
(e.g.,  a consumer  who  responds to a Traffix  e-mail  promotion on behalf of a
Corporate  Customer and purchases a product with a credit card),  (5) generating
revenue from any of the foregoing categories by placing our Corporate Customers'
offers on the

                                       7
<PAGE>

                         TRAFFIX, INC. AND SUBSIDIARIES

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
                                   (UNAUDITED)

media of third parties with whom we have a marketing  relationship  on a revenue
share basis, (6) sales of Traffix's  proprietary  products and services directly
to consumers (e.g., jewelry,  voicemail, dvd's and books), (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 qualified
mortgage banking establishments.

     The Company  invoices its  customers in  accordance  with the terms of each
underlying  agreement.  Revenue is recognized at the time the marketing activity
is delivered,  or service is provided, net of estimated  contractually specified
data  qualification  allowances,   when  applicable.   Such  data  qualification
allowances may include  duplications,  invalid  addresses,  age restrictions and
other allowances, and are recorded as contra revenue. Historically, the variance
between  actual  allowances  and  previously   estimated   allowances  has  been
immaterial. In accordance with revenue recognition pronouncements,  specifically
Staff Accounting  Bulletin 101,  "Revenue  Recognition in Financial  Statements"
("SAB 101")  issued in  December  1999,  and in  accordance  with the  Company's
historical accounting policies and reporting practices,  the Company records all
related  obligations  associated  with the  related  net revenue at its point of
recognition.  The Company  adopted SAB 101 during the first three  months of the
fiscal year ended November 30, 2001. Such adoption did not materially impact our
financial position or results of operations at that time.

     Revenues from the Company's off-line customer  acquisition services segment
currently include the revenue earned by Montvale Management,  LLC, the Company's
majority  owned  subsidiary.  Such  revenues are  currently 12% of the Company's
consolidated  net revenues for the nine months ended August 31, 2002, and result
from Montvale's  provision of net branch services to mortgage  banking and other
related financial  institutions.  Approximately  15% of Montvale's  revenues are
derived from on-line sources,  with such portion being included in the Company's
E-commerce  segment.  Montvale recognizes income in accordance with Statement of
Financial  Accounting  Standards ("SFAS") No. 91, "Accounting for Non Refundable
Fees and Costs Associated with Originating or Acquiring Loans". Pursuant to SFAS
No.  91,  Montvale  recognizes  its  commission  upon the  disbursement  of loan
proceeds.

     Prior to September 1, 2001,  revenues from the Company's  off-line customer
acquisition services consisted of residential long distance customer acquisition
programs, and were recorded upon the achievement of certain events particular to
the corresponding program's fulfillment liability. Subsequent to the delivery of
the initial sales record to the respective  long distance  carrier,  the Company
may have been required to provide to the customer  certain products and services
(fulfillment  liability),  such as  prepaid  cellular  telephones  and/or  other
suitable premiums. These costs were estimated and accrued, based upon historical
rates and costs, as a component of marketing expense and included in the cost of
sales,  at the time the  associated  revenues  were  recognized.  The  Company's
current business,  as conducted in its E-commerce segment, in certain cases also
requires  the  provision of a premium.  These  E-commerce  segment  premiums are
estimated  and  accrued,  based upon  historical  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  taken  into  operations  in the  period  that  the  variance  is
determinable.

     Revenue  from the  Company's  LEC Billed  Product and Service  segment (the
Company has not marketed such services  since  November  1998,  but had recorded
residual  revenue  from such  segment  during the three  months ended August 31,
2002), consisted of various enhanced telephone services,  principally voice mail
services,  and were  recognized  net of an estimated  provision  for refunds and
credits subsequently granted to customers  ("customer  chargebacks").  Since the
provision for customer chargebacks was established prior to the periods in which
chargebacks are actually expended,  the Company's revenues are adjusted in later
periods if the Company's incurred

                                       8
<PAGE>

                         TRAFFIX, INC. AND SUBSIDIARIES

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
                                   (UNAUDITED)

chargebacks  varied from the amounts  previously  estimated.  The  Company's LEC
Billed  Product and Service  segment was  inactive  during the nine months ended
August 31, 2002.

     With respect to  capitalization  and  amortization of marketing  costs, the
Company's policy is to expense,  as a cost of sale, data  acquisition  costs and
all other  related  marketing  costs,  at the time an  obligation  or expense is
incurred.

   TRANSACTIONS WITH MAJOR CUSTOMERS

     During the three and nine months  ended  August 31,  2002,  the Company had
five major customers in its E-commerce segment,  which in combination  accounted
for  approximately  $5.2  million and $18 million of  consolidated  net revenue,
respectively,  or  49%  and  53% of  consolidated  net  revenues,  respectively.
Approximately $4.5 million,  or 65% of consolidated net accounts  receivable was
attributable  to such major  customer group as of August 31, 2002. For the three
and nine months ended August 31, 2002, one of these customers  accounted for net
revenues that equaled or exceeded 10% of the Company's  consolidated net revenue
for such period.  The five major customers  accounted for 24%, 7%, 7%, 6% and 5%
of consolidated net revenue, respectively, for the three months ended August 31,
2002, and 25%, 8%, 8%, 7% and 5% of consolidated net revenue,  respectively, for
the nine months ended August 31, 2002. Of the remaining  approximate  100 active
customers in the three and nine months  ended  August 31, 2002,  no other single
customer  had net  revenue  that  equaled or  exceeded  2% of  consolidated  net
revenue.

     The  Company  continued  to  conduct  business  with  all such  five  major
customers as of October 8, 2002.  The customer  which  accounted  for 25% of the
Company's  net  revenues  for the nine months ended August 31, 2002 has notified
the Company that it is exercising  its right to terminate its agreement with the
Company,  and, as such,  will phase out its  business  with the  Company  over a
ninety day period ending December 7, 2002.

     During the three and nine months  ended  August 31,  2001,  the Company had
four customers in its E-commerce  segment which, in  combination,  accounted for
approximately  50.6% and 47.4% of consolidated net revenues,  respectively,  and
approximately  30.8% of  consolidated  net accounts  receivable as of August 31,
2001.

3. EARNINGS PER SHARE

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

<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED            NINE MONTHS ENDED
                                                    --------------------------   --------------------------
                                                     AUGUST 31,     AUGUST 31,     AUGUST 31,    AUGUST 31,
                                                        2002           2001           2002          2001
                                                    -----------    -----------   -----------    -----------
<S>                                                  <C>            <C>           <C>            <C>
   Denominator:
     Denominator for basic earnings per share--
     weighted average shares .....................   13,168,407     13,966,939    13,454,093     14,497,515
   Effect of dilutive securities:
     Stock options ...............................      726,963        762,536     1,093,954             --
                                                   ------------    -----------   -----------    -----------
     Denominator for diluted earnings
     per share-- adjusted weighted
     average shares ..............................   13,895,370     14,729,475    14,548,047     14,497,515
                                                   ============    ===========   ===========    ===========
</TABLE>

     Options to purchase  1,429,333  and 881,500  shares of common stock for the
three  months  ended  August 31,  2002 and 2001,  respectively,  and 659,778 and
858,613 for the nine months ended August 31, 2002 and 2001,  respectively,  were
outstanding  but were not included in the  computation  of diluted  earnings per
share because their effect would be anti-dilutive.

                                       9
<PAGE>

                         TRAFFIX, INC. AND SUBSIDIARIES

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
                                   (UNAUDITED)

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 year's three and
nine 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 three and nine month  periods  ended August 31, 2002.  At November 30, 2001,
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.  The  components  of  comprehensive  income  (loss) are
presented below:

<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED            NINE MONTHS ENDED
                                                    --------------------------   --------------------------
                                                     AUGUST 31,     AUGUST 31,     AUGUST 31,    AUGUST 31,
                                                        2002           2001           2002          2001
                                                    -----------    -----------   -----------    -----------
<S>                                                    <C>          <C>           <C>           <C>
     Net income (loss) ..............................  $108,380     $1,462,992    $2,224,840    $(1,292,383)
   Other comprehensive income (loss), net of tax:
   Foreign currency translation adjustments .........    20,081             --          (707)            --
   Unrealized gain(loss) from available-for-sale
     securities, arising during the period,
     net of income taxes of $-0- ....................   (83,555)        17,874       (53,819)       241,150
   Less: reclassification adjustment for loss
     realized in net income .........................        --             --            --      4,190,207
   Add: reclassification adjustment for gain
     realized in net income .........................        --       (405,837)                    (404,061)
                                                       --------     ----------    ----------    -----------
   Comprehensive income .............................  $ 44,906     $1,075,029    $2,170,314    $ 2,734,913
                                                       ========     ==========    ==========    ===========
</TABLE>

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 e-mail
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.

     In certain cases where the Company makes payment for consumer data, on-line
media, or prepays for commercial  email  delivery,  in advance of the receipt or
provision of such items, the Company expenses such prepayments  ratably over the
shorter of the  contract  period or to the extent of actual  fulfillment.  Total
advertising and marketing  costs,  included in the cost of sales,  for the three
months  ended  August  31,  2002  and 2001  were  approximately  $3,127,000  and
$2,192,000, respectively, and for the nine months ended August 31, 2002 and 2001
were approximately $9,703,000 and $4,611,000, respectively.

     Included in prepaid  expenses and other  current  assets at August 31, 2002
and November 30, 2001, were  approximately  $43,000 and $324,000,  respectively,
relating  to  the  unamortized  portion  of  prepayments  related  to  marketing
arrangements.

                                       10
<PAGE>

                         TRAFFIX, INC. AND SUBSIDIARIES

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
                                   (UNAUDITED)

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

     During the three and nine months ended August 31, 2002, the Company did not
have any material  events  regarding  its  marketable  securities  or long-term,
cost-based investments.

     During  the  three-month  period  ended  February  28,  2001,  the  Company
recognized  losses  (through a permanent  impairment  charge) of  $4,190,207  on
certain  of  its  available-for-sale   marketable  securities.   The  underlying
securities'  historical  carrying  values were reduced to their related  closing
prices at  February  28,  2001,  giving  effect to the  prior  year's  permanent
impairment charge.  The Company had continually  evaluated the carrying value of
such investments,  and in terms of risk at the individual  company level coupled
with risk at the market level,  the Company's  prior year  evaluation  indicated
that the  decline in the related  securities  was  "other-than-temporary".  As a
result  of this  analysis,  the  Company  adjusted  the  "cost  basis"  of these
securities,  effective February 28, 2001, to the closing prices on that date and
realized the corresponding loss during the three-month period ended February 28,
2001. This loss is included in the Company's other income (expense),  "Permanent
impairment charges" for the nine months ended August 31, 2001.

     During the fiscal year ended  November 30,  2000,  the Company had invested
approximately  $500,000 in a private  company,  and carried the investment under
the cost method. After continued review of such investment, and the investment's
consistent  failure to achieve  significant  goals set forth in its business and
financing plans, such investment fell within the Company's impairment evaluation
criteria. According to the above analysis, the Company's impairment loss for the
nine months  ended August 31, 2001  amounted to  $500,051,  and is included as a
component of other income (expense) "Permanent  impairment charges" for the nine
months ended August 31, 2001.

7. TALK AMERICA, INC. ARBITRATION AWARD

     During the year ended  November 30, 2001, the Company was successful in its
legal action against Talk America,  Inc.  ("Talk"),  resulting in an approximate
$6.2 million  arbitration  award.  The award  represented  restitution  for long
distance  customers  delivered  to Talk,  and for lost  profits  suffered by the
Company due to Talk's wrongful  termination of an agreement between the parties.
During the year  ended  November  30,  2001,  the  Company  collected  the first
installment of $3.7 million  resulting  from the  arbitration  award.  The first
installment  was  included  as revenue in the  Company's  fourth  quarter of the
fiscal  year ended  November  30,  2001,  as it was deemed to relate to the lost
profit  portion of the  arbitration  settlement.  During the nine  months  ended
August 31, 2002, the Company received the final installment, with interest, from
Talk  in  the  sum  of  approximately  $2.54  million.   The  final  installment
represented  approximately  $227,000 in lost profits for long distance customers
delivered  to Talk and, as such was  included as revenue  during the nine months
ended  August 31,  2002.  The  balance of the second and final  installment,  or
approximately $2.3 million represented liquidated damages. The liquidated damage
portion  of  the  final   installment  is  included  in  the  Company's   "Other
income(expense)"  income statement caption, and is grouped within that caption's
"Other  non-operating  income(expense)"  sub-set.  The  balance  of  the  second
installment,   or  $227,000,  is  included  in  the  Company's  revenues,   with
approximately  $158,000 included in the Company's  E-commerce  segment,  and the
balance of  approximately  $70,000  included in the Company  Off-line  Marketing
Services segment.

8. 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  long  distance  carriers,  wireless  carriers  and  other  service
providing businesses (Off-line Marketing services) and (3) Products

                                       11
<PAGE>

                         TRAFFIX, INC. AND SUBSIDIARIES

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
                                   (UNAUDITED)

and Services billed to consumers by Local Exchange Carriers (LEC Billed products
and  services-inactive  during the three and nine month periods ended August 31,
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 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 office headquarters, which precludes an allocation
of all overhead components. Overhead items that are specifically identifiable to
a particular  segment are applied to such segment and all other  overhead  costs
are  included  in  Corporate  and  other.  The  following  tables  set forth the
Company's financial results, by management  performance  criteria,  by operating
segment.  All  revenues  are  from   non-intersegment   sources;   therefore  no
intersegment elimination applies.

   SEGMENT DATA -- NET REVENUE

<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED            NINE MONTHS ENDED
                                                   ---------------------------   --------------------------
                                                    AUGUST 31,     AUGUST 31,     AUGUST 31,    AUGUST 31,
                                                       2002           2001           2002          2001
                                                   ------------   ------------   -----------    -----------
<S>                                                 <C>             <C>          <C>            <C>
For the periods:
   E-commerce ..................................    $ 9,069,588     $7,203,452   $30,253,955    $16,834,124
   Off-line Marketing Services .................      1,594,658             --     3,585,726             --
   LEC Billed Products and Services ............             --        201,368            --      1,324,793
   Corporate and other .........................             --             --            --             --
                                                    -----------     ----------   -----------    -----------
     CONSOLIDATED TOTALS .......................    $10,664,246     $7,404,820   $33,839,681    $18,158,917
                                                    ===========     ==========   ===========    ===========
</TABLE>

   SEGMENT DATA -- GROSS PROFIT
<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED            NINE MONTHS ENDED
                                                   ---------------------------   --------------------------
                                                    AUGUST 31,     AUGUST 31,     AUGUST 31,    AUGUST 31,
                                                       2002           2001           2002          2001
                                                   ------------   ------------   -----------    -----------
<S>                                                  <C>            <C>          <C>            <C>
For the periods:
   E-commerce ..................................     $6,057,474     $4,965,555   $20,661,356    $12,111,583
   Off-line Marketing Services .................      1,388,612             41     3,198,350        (29,262)
   LEC Billed Products and Services ............             --        157,509            --      1,169,279
   Corporate and other .........................             --             --            --             --
                                                     ----------     ----------   -----------    -----------
     CONSOLIDATED TOTALS .......................     $7,446,086     $5,123,105   $23,859,706    $13,251,600
                                                     ==========     ==========   ===========    ===========
</TABLE>

   SEGMENT DATA -- EBITDA
<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED            NINE MONTHS ENDED
                                                   ---------------------------   --------------------------
                                                    AUGUST 31,     AUGUST 31,     AUGUST 31,    AUGUST 31,
                                                       2002           2001           2002          2001
                                                   ------------   ------------   -----------    -----------
<S>                                                  <C>            <C>          <C>            <C>
For the periods:
   E-commerce ..................................     $1,576,942     $2,798,129    $6,722,296     $5,920,916
   Off-line Marketing Services .................        261,973        (62,212)      553,654       (300,161)
   LEC Billed Products and Services ............             --        100,279            --        934,260
   Corporate and other .........................       (919,328)    (1,199,295)   (2,966,598)    (2,761,370)
                                                     ----------     ----------   -----------    -----------
     CONSOLIDATED TOTALS .......................     $  919,587     $1,636,901   $ 4,309,352    $ 3,793,645
                                                     ==========     ==========   ===========    ===========
</TABLE>


                                       12
<PAGE>

                         TRAFFIX, INC. AND SUBSIDIARIES

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
                                   (UNAUDITED)

   SEGMENT DATA -- DEPRECIATION AND AMORTIZATION
<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED            NINE MONTHS ENDED
                                                   ---------------------------   --------------------------
                                                    AUGUST 31,     AUGUST 31,     AUGUST 31,    AUGUST 31,
                                                       2002           2001           2002          2001
                                                   ------------   ------------   -----------    -----------
<S>                                                  <C>            <C>           <C>            <C>
For the periods:
   E-commerce ...................................    $249,107       $ 74,495      $587,649       $100,432
   Off-line Marketing Services ..................       4,278             --        15,265             --
   LEC Billed Products and Services .............          --             --            --             --
   Corporate and other ..........................      68,423         57,524       201,327        172,484
                                                     --------      ---------      --------       --------
     CONSOLIDATED TOTALS ........................    $321,808       $132,019      $804,241       $272,916
                                                     ========      =========      ========       ========
</TABLE>

9. 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:

     o  InfiKnowledge,  a software  development and Internet services firm based
        in New Brunswick,  Canada,  with the key assets  purchased  including an
        email delivery  system,  a suite of over 50 on-line games,  as well as a
        team of highly  skilled,  interactive  game  developers who, the Company
        believes,  possess the capabilities to enhance,  develop and add support
        to its on-line marketing business and provide the foundational assets to
        allow the Company to  internalize  its email delivery  platform  through
        capital expenditures, thereby reducing its reliance on third party email
        delivery vendors.

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

     The  total  purchase  price  for these  two  acquisition  was:  (a) cash of
$897,500,  of which $697,500 was paid  simultaneous  with the  respective  asset
acquisition  closings in December  2001 and  $200,000 of which is payable to the
sellers  of  Infiknowledge  on  December  6,  2002 and  which is  included  as a
component  of the  Company's  accrued  expenses as at August 31,  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 the  closing of the  InfiKnowledge  acquisition  and
78,347  shares remain  issuable,  with 39,174 shares to be issued on December 6,
2002 and 39,173  shares to be issued on December 6, 2003.  The  issuable  shares
were  considered as outstanding  common shares in the  computation of both basic
and  diluted  weighted  shares  outstanding  for the period  December 6, 2001 to
August  31,  2002.  Goodwill  and  other  intangible  assets  recognized  in the
transactions  amounted  to  $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 has yet to be finalized pending the review of certain items regarding
identifiable  intangibles and goodwill. It is estimated that this review will be
completed in the  Company's  fourth  quarter  ending  November 30, 2002 and such
final  allocation  is  anticipated  to have an  immaterial  impact,  if any,  on
amortization expense.

                                       13
<PAGE>

                         TRAFFIX, INC. AND SUBSIDIARIES

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
                                   (UNAUDITED)

10. LITIGATION

     1. NANCY  GAREN-- On or about  October 16,  2001,  Nancy  Garen,  author of
"Tarot Made Easy", commenced an action against a series of defendants, including
the Company,  in the United States  District  Court for the Central  District of
California,  entitled NANCY GAREN V. STEVEN L. FEDER, PETER L. STOLZ,  THOMAS H.
LINDSEY,  GALACTIC TELCOM, INC., ACCESS RESOURCE SERVICES, INC., PSYCHIC READERS
NETWORK,  INC. D/B/A MISS CLEO, OSHUN 5  COMMUNICATIONS,  INC., CIRCLE OF LIGHT,
INC.,  CENTRAL  TALK  MANAGEMENT,   INC.,   TRAFFIX,   INC.,  WEKARE  READERS  &
INTERPRETERS,  INC.,  WEST  CORPORATION,  AND DOES 1  THROUGH  10  (EDCV  01-790
(VAP-SGLx)).  Plaintiff  alleges  that  defendants  are liable  for a  copyright
infringement,   contributory   copyright   infringement,   vicarious   copyright
infringement,  unfair competition,  contributory  federal unfair competition and
state  statutory  and common  law unfair  competition,  and  further  requests a
constructive  trust,  a temporary  restraining  order,  and damages from alleged
infringement of a copyright or, alternatively, statutory damages for each act of
infringement  in "an amount provided by law in excess of  $250,000,000",  all as
the same may have arisen from the  defendants'  marketing  of tarot card reading
and other psychic services. The Company does not believe that there is any merit
to Ms.  Garen's  claims as they relate to the Company,  has denied the claims in
its answer to the  complaint,  and  intends  vigorously  to defend  against  the
claims.

     2. MAVIES WINGLER -- On or about May 9, 2001,  Mavies Wingler  commenced an
action  against Group Lotto,  Inc.  ("GLI"),  a  wholly-owned  subsidiary of the
Company, in the Circuit Court of Logan County, West Virginia. Ms. Wingler claims
to have picked the winning  numbers  entitling  her to $10  million.  On June 8,
2001,  the action was  removed to the United  States  District  Court,  Southern
District of West Virginia,  and is entitled Wingler v. GroupLotto,  Inc., Docket
Number 2:01 -- CV -- 518. The action is in the discovery stage. The Company does
noT  believe  that  there  is any  merit to Ms.  Wingler's  claim,  and  intends
vigorously  to  defend  against  it.  The  Company  and GLI have a  contract  of
indemnification with SCA Promotions,  Inc. to be indemnified for prizes paid out
to qualified winners.  GLI winners are required to produce the Group Lotto Entry
Notification  form ("GLEN")  within a specified  period of time after matching a
drawing's  winning  numbers in order to qualify for  receipt of the  appropriate
prize winnings.

     3. DANIEL RODGERS -- In March,  2002,  Daniel  Rodgers  commenced an action
against the Company in Supreme Court of the State of New York,  Rockland County.
The  complaint  alleges  that the  Company  disseminated  false  and  misleading
advertisements  through  email  advertisements  and  through  the website of its
subsidiary, GroupLotto.com. Mr. Rodgers purports to represent a class consisting
of those who, during the period January 1, 2001 to March 5, 2002, provided their
name, address,  email address and other biographical  information in response to
the  email  advertisements  or in  response  to the  GroupLotto  web  page.  The
Complaint  purports  to allege  claims of common law fraud,  deceptive  acts and
practices,  and  false  and  misleading  advertising  under  New York  law.  The
Complaint seeks injunctive relief,  unspecified monetary damages, and attorney's
fees.  The Company  believes  that there is no merit to the claims,  has filed a
motion to dismiss the complaint,  which motion is pending before the court,  and
otherwise intends vigorously to defend against the claims.

11. SUBSEQUENT EVENTS

     On June 3, 2002, the American Arbitration  Association rendered an award in
the sum of  approximately  $2.3 million  (inclusive of interest) in favor of the
Claimants,  in the arbitration  entitled PHILIP MICHAEL THOMAS,  PMT PRODUCTIONS
INC., KAYE PORTER MANAGEMENT,  RMI ENTERTAINMENT,  INC.,  MILLENNIUM  TELEMEDIA,
INC.,  CLAIMANTS V. NEW LAUDERDALE,  LLC D/B/A CALLING CARD CO., PSYCHIC READERS
NETWORK, INC. D/B/A PRN  TELECOMMUNICATIONS,  AND QUINTEL  ENTERTAINMENT,  INC.,
RESPONDENTS  (NO.  131400004900).  The award  consists  of  approximately  $1.48
million in damages,  plus interest at nine percent (9%) from January 1, 1996 and
January 1, 1997, or  approximately  $785,000.  The award also denied  Claimants'
punitive damages and all other claims asserted in the arbitration.


                                       14
<PAGE>

     The Claimants in the  arbitration  then filed a motion in an action pending
in the Circuit Court,  Broward County,  Florida (Thomas et al v. New Lauderdale,
LLC et al, Case No. 98-12259-07) (the "Action"),  to confirm the award, and also
sought to be relieved from a stay of those proceedings in order to pursue claims
against the  defendants  in the Action which they contend have not been resolved
by the arbitration, including claims for punitive damages against the Company as
well as the individual defendants. The Respondents in the arbitration have filed
a motion to vacate  and/or  modify the award.  The Company has  indemnified  the
individual defendants in the Action.

     In  order  to  avoid  the  uncertainties  of  further  litigation  and  the
possibility  of further  awards in the  Action,  the Company  agreed  settle the
claims in the Action for approximately $435,000 and to pay the arbitration award
in exchange  for full  releases  from the  claimants.  In  September  2002,  the
combined total of $2,710,000  representing the Arbitration Award, plus interest,
and the settlement was disbursed to the claimants.

     The Company had accrued and recorded the total  September 2002 payment as a
non-operating  expense at August 31, 2002,  and for the nine months ended August
31, 2002, as it results from a segment of the Company's  business in which it is
no longer active.

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", 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.

OVERVIEW

     We are a leading on-line database marketing company that acquires customers
for, drives consumer traffic to, and generates sales for our corporate  clients.
We provide  complete  end-to-end  marketing  solutions for companies  seeking to
increase sales and customers  through on-line marketing  programs,  and 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  the promotion  on-line in order to generate
new  customers  for the  client,  delivery  of data  files  from the  results of
campaigns,  creating and hosting the customized  websites or web pages necessary
to effect the consumer transaction that drives the clients' sales and generating
comprehensive  reporting in order for the client to analyze the effectiveness of
the promotion. We use the proprietary on-line media of our websites, interactive
games,  email marketing and database of  permission-based,  profiled  records to
generate the customers,  sales and/or leads for our clients.  We are paid by our
clients  primarily on a success-based  model, in that we receive a fee for every
lead,  customer or sale generated for the client. In addition to our third party
client-based  revenue,  during fiscal 2002 we began generating  revenue from our
proprietary  products and services (e.g.,  costume jewelry and inexpensive  gift
items) and 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,   our  management   believes  it  is  able  to  provide
significantly  enhanced  response-based  results  in a more  cost-efficient  and
scaleable manner via on-line marketing.  In addition,  as a result of our direct
marketing  background,  we  believe  we are  able to  design  on-line  marketing
programs to  cost-effectively  generate traffic and leads for traditional direct
marketing media channels,  such as inbound and outbound telemarketing and direct
mail.

                                       15
<PAGE>

                                ON-LINE MARKETING

     We own the free  on-line  lottery,  www.grouplotto.com,  and other  on-line
properties such as AtlasCreditGroup.com,  AtlasEducationGroup.com,  as well as a
number of interactive games (such as Direct Deposit Promotions and Scratch&Win),
vertical web sites and  services on the Web.  These  properties  are designed to
generate   real-time   response-based   marketing.   Consumers   are  given  the
opportunity,  while  on-line,  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.

     GROUPLOTTO.COM.  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 our bulk consumer traffic
to this website through email marketing to lists of consumers who have indicated
an interest in our marketing programs by opting in to receive 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 instantly
find out if they have won any number of prizes.  The consumer  plays the game by
"scratching"  with the mouse  certain  parts of the entry  ticket to uncover the
results. These games can also be "pushed" to consumers by delivering them to the
player's  email  inbox.  We also market  credit card offers  through our "Direct
Deposit"  sweepstakes  game (patent  pending),  whereby a consumer can win up to
$5,000 instantly if his or her credit card number matches a pre-selected winning
number.

     We own and operate  several other  websites  such as  AtlasCreditGroup.com,
AtlasEducationGroup.com,       prizecade.com,      jewelclaimcenter.com      and
games-to-win.com.  We use these sites to generate  revenue from our clients in a
similar manner as the GroupLotto  model. We believe these sites could also offer
other new revenue opportunities,  such as brand marketing.  For the three months
ended August 31, 2002, these sites contributed  approximately $745,000, or 7% of
the Company's net revenue during such period.

     EMAIL  MARKETING.  Direct  marketing  via  email  remains  one of our  most
important revenue sources accounting for 42% and 53% of the Company's revenue in
the three and  nine-month  periods  ended  August 31, 2002,  respectively.  Each
program that we market for our clients can be  implemented  not only through the
website,  interactive  games and "pop-ups"  discussed above, but also, and often
primarily,  through  email  marketing.  We  currently  market  to as many as 100
million permission-based records, which are under management, or which have been
acquired by the Company under a number of affinity group based brands.

     Compared  to  postal  marketing  and  telemarketing,   email  marketing  is
significantly  less  expensive,  offers  much  faster  response  times,  and, we
believe, provides for a more rich consumer media experience. We now own an email
delivery system, which reduces our dependence on third party vendors and further
reduces the expenses  associated  with delivering our monthly  commercial  email
messages.  FOR A FURTHER  DISCUSSION OF RECENT  BUSINESS AND LEGAL  DEVELOPMENTS
REGARDING THIS E-COMMERCE  COMPONENT AND EVENTS IMPACTING EMAIL  MARKETING,  SEE
"-- RESULTS OF OPERATIONS."

     One of the attractive features for clients,  and, we believe, a significant
competitive advantage,  is our ability to create and test a variety of marketing
campaigns for prospective and existing corporate clients at no risk to

                                       16
<PAGE>

the client.  Since we own,  and have access to,  extensive  databases,  manage a
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 applied  together with our  proprietary  databases,  and
other  databases  at our  disposal,  delivery  systems  and  reporting  systems,
distinguish us from our competitors in the on-line marketing industry.

     SYNDICATION.  After we develop a campaign  that  works  efficiently  on our
proprietary  media,  we often  "syndicate"  the  program to  third-party  media.
Typically,  we have expended time,  media and other costs in developing  certain
campaigns.  In exchange for this invested effort,  we obtain the right to market
those  campaigns  to a list of other  on-line  media  companies.  We enter  into
agreements  with  these  other  on-line  media  companies  to run the  campaigns
generally on a fee-share  arrangement.  We believe these media companies benefit
by 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  proprietary  products  and  services) so that we can
generate  additional  revenue with virtually no costs or risks  associated  with
such business extension.

                        PROPRIETARY PRODUCTS AND SERVICES

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

     No assurances  can be given,  however,  that these  anticipated  sources of
revenue will generate any significant  income to our operations in future fiscal
periods,  if at all.  During  the  three  months  ended  August  31,  2002,  the
Thanksmuch.com website generated  approximately $351,000, or approximately 3% of
net revenue,  with an approximate $60,000 contribution to income from operations
from such revenue.

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

BASIS OF PRESENTATION

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

                                       17
<PAGE>

SEGMENT INFORMATION

     Segments are defined as  components  of an  enterprise  for which  separate
financial  information  is available  that is  evaluated  regularly by the chief
operating  decision  maker(s)  in  deciding  how to  allocate  resources  and in
assessing performance.  Disclosure is also required about products and services,
geographic areas and major customers.

     During the three and nine month  periods ended August 31, 2002 and 2001, we
generated revenue from the following  segments:  E-Commerce,  Off-line Marketing
and for fiscal 2001 only, LEC Billed Products.  The E-Commerce  segment realized
significant  growth  during the nine months ended August 31, 2002 and the fiscal
year ended November 30, 2001, when compared to the prior comparable periods, and
currently  represents  the  core  of our  business  operations.  Revenue  in the
E-commerce segment is generated primarily from marketing of third party products
and  services  on our  websites  and through  e-mail  promotions.  The  Off-Line
Marketing  services segment consists of revenue generated by us through off-line
direct  marketing  channels.   Historically,   this  segment's  activities  were
primarily  telemarketing for the acquisition of long distance and wireless phone
customers for the  respective  carriers.  Currently,  this segment also includes
Montvale  Management,  LLC and its provision of net branch services to qualified
mortgage  banking  and lending  institutions.  The LEC Billed  Products  segment
represented  telecommunications-related  products  and  services  marketed by us
directly  to  consumers  who were  billed  by  local  exchange  carriers  on the
consumer's  telephone  bill.  This segment was  inactive  during the nine months
ended August 31, 2002.

     The Company evaluates  performance based on many factors,  with the primary
criteria  being each  segment's  gross  profit and  EBITDA,  which is net income
excluding  (i) special  charges,  (ii)  interest  expense,  (iii)  interest  and
dividend income, (iv) realized net (losses) gains on marketable securities,  (v)
permanent  impairment  charges,  (vi) gains on nonmonetary cost basis exchanges,
(vii) other nonoperating income (loss),  (viii) minority interest income (loss),
(ix) depreciation,  (x) amortization and (xi) income taxes. The Company shares a
common workforce and office  headquarters,  which precludes an allocation of all
overhead  components.  Overhead items that are  specifically  identifiable  to a
particular  segment are applied to such segment and all other overhead costs are
included in Corporate and other.

RESULTS OF OPERATIONS

     The  following is a discussion  of the  financial  condition and results of
operations of the Company for the three and nine-month  periods ended August 31,
2002 and August 31, 2001,  respectively.  It should be read in conjunction  with
the Company's Form 10-K as filed for the year ended November 30, 2001, the Notes
thereto and other financial information included elsewhere in this report.


                                       18
<PAGE>

THREE MONTHS ENDED AUGUST 31, 2002 AND AUGUST 31, 2001

     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 August 31, 2002 and August 31, 2001, are detailed in the following tables:

   SEGMENT DATA -- NET REVENUES, BY SEGMENT COMPONENT

<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED
                                                    --------------------------       CHANGE        CHANGE
                                                    AUGUST 31,      AUGUST 31,      INC (DEC)     INC (DEC)
                                                       2002           2001            $$$           %%%
                                                    -----------    -----------     ----------     --------
<S>                                                 <C>             <C>            <C>               <C>
E-COMMERCE COMPONENTS
GroupLotto and other web sites ..................   $ 3,375,023     $2,449,358     $ 925,665         38%
Net branch commission fees ......................       281,411             --       281,411        100%
Email marketing programs ........................     4,526,228      4,335,949       190,279          4%
Data sales and rentals ..........................       485,154        418,145        67,009         16%
Sales of jewelry and gifts ......................       351,290             --       351,290        100%
Internet game development and other .............        50,482             --        50,482        100%
                                                    -----------     ----------    ----------      -----
TOTAL E-COMMERCE ................................     9,069,588      7,203,452     1,866,136         26%
                                                    -----------     ----------    ----------      -----
OFF-LINE MARKETING SERVICE COMPONENTS
Net branch commission fees ......................     1,594,658             --     1,594,658        100%
Other off-line marketing ........................            --             --            --
                                                    -----------     ----------    ----------      -----
TOTAL OFF-LINE MARKETING SERVICE ................     1,594,658             --     1,594,658        100%
                                                    -----------     ----------    ----------      -----
LEC BILLED PRODUCTS AND SERVICES COMPONENTS
Enhanced Services, principally voice mail .......            --        201,368      (201,368)      -100%
                                                    -----------     ----------    ----------      -----
TOTAL LEC BILLED PRODUCTS AND SERVICES ..........            --        201,368      (201,368)      -100%
                                                    -----------     ----------    ----------      -----
CORPORATE AND OTHER COMPONENTS
Miscellaneous products, list revenue and other ..            --             --            --          0%
                                                    -----------     ----------    ----------      -----
TOTAL CONSOLIDATED NET REVENUE ..................   $10,664,246     $7,404,820    $3,259,426         44%
                                                    ===========     ==========    ==========      =====
</TABLE>

     Net Revenue  increased  $3,259,426,  or 44%, to  $10,664,246  for the three
months  ended  August 31,  2002 from  $7,404,820  in the  comparable  prior year
period. The primary component of the increase was attributable to an approximate
$1.9 million increase in the Company's E-commerce segment net revenues, combined
with an increase of approximately $1.6 million in net revenue from the Company's
Off-line Marketing  services segment.  Such increases were partially offset by a
decrease of $201,368 in the  Company's  LEC Billed  Product and Services  legacy
segment.  The E-commerce  segment revenue  increase  resulted from the Company's
increasing focus on generating  revenue from its current core business,  on-line
direct marketing.  The Company expects this segment to continue to represent the
substantial   part  of  the  Company's   revenue  in  future   fiscal   periods.
Nevertheless,  the Company  continues  to assess the  potential  of an increased
emphasis of revenue  generation  from off-line,  conventional  direct  marketing
activities  and will  implement  the  strategy,  beyond the  bounds of  Montvale
Management, LLC (see below), if deemed beneficial for the Company.

     Additionally,  the Company is using its on-line  databases to enhance third
party off-line databases through the application of overlay technology,  whereby
the  Company's  databases  are  appended  to the  databases  of  third  parties,
effectively  increasing  the depth of consumer  related  information  within the
appended database.

     The growth in the Company's  E-commerce segment was primarily  attributable
to  approximately   $3.4  million  in  revenue   generated  from  the  segment's
"GroupLotto  and  other web  site"  sub-set.  This  represented  an  approximate
$926,000  increase over the prior year's $2.4 million in revenue  generated from
such segment's sub-set. This increase of approximately 38% over the prior year's
comparable period was the result of the Company's use of its websites to acquire
a portion of the subscribers for one of the Company's customers. The Company did
not conduct business

                                       19
<PAGE>

with such  customer  during the  comparable  three months ended August 31, 2001.
Such customer accounted for approximately 25% of the Company's nine month August
31, 2002  revenue.  The Company has been  notified by the customer  that it will
exercise its right to terminate  its agreement  with the Company,  and, as such,
will phase out its  business  relationship  with the  Company  over a ninety day
period ending December 7, 2002. This customer loss has been deemed immaterial at
the Company's  operations level due to the fact that the operating margin earned
from such  activity  was less  than that  recognized  from the  Company's  other
marketing  activities  and the Company  believes that it will be able to use its
media channels,  creative department and senior management's time, all of which,
it believes, was disproportionately  dedicated to this customer, more profitably
by generating  additional sales for other current  customers with large demands,
improving  results  of  existing  customer   relationships  and  developing  new
relationships  and  proprietary  products and services.  The Company  expects an
immaterial decline in future fiscal period revenues related to such termination,
and looks to realize  improved  margins at both the  contribution  and operating
level.  Pursuant to the terms of the Company's  agreement with this  terminating
customer,  during the 90-day phase out period,  the customer is only required to
accept certain levels of sales generated by the Company on its behalf,  based on
a percentage of sales recorded in the thirty day period prior to the delivery of
the termination notice. Therefore, the Company will recognize revenue under this
terminated agreement during the quarter ending November 30, 2002.

     The Company generates a significant  portion of its site traffic from email
marketing.  SEE THE  FOLLOWING  PARAGRAPHS  FOR A FURTHER  DISCUSSION  OF RECENT
BUSINESS AND LEGAL DEVELOPMENTS AFFECTING EMAIL MARKETING.

     Additional   increases   in  the   Company's   consolidated   revenues  are
attributable  to new sub-sets added to the  E-commerce  segment during the three
months ended August 31, 2002 when  compared to the three months ended August 31,
2001. The combined revenue  resulting from the new sub-sets amounted to $683,183
and is  detailed  as  follows:  (a)  $281,411  of such  increase  relates to the
Company's  majority-owned  subsidiary,  Montvale  Management  LLC, that provides
services  under a net  branch  agreement  with  licensed  mortgage  banking  and
brokerage  companies in the  acquisition of candidates for new mortgages and the
refinancing of existing debt,  which  subsidiary also conducts the same services
off-line and is the sole component of the Company's  Off-line Marketing Services
segment  revenue of  $1,594,658;  (b) $351,290 of such  increase  relates to the
on-line  sales of jewelry  and gifts by the  Company's  subsidiary,  ThanksMuch,
Inc.,  which was formed with the assets  acquired  from a closely  held  private
company on  December  14,  2001,  all as more fully  described  in Note 8 to the
financial  statements;  and (c) $50,482 of such increase relates to the Internet
game development revenues generated by the Company's  subsidiary,  InfiKnowledge
ULC,  which was formed  with the assets  acquired  from a closely  held  private
Canadian  company on December 6, 2001, all as more fully  described in Note 8 to
the financial statements.

     The  Company's   E-Commerce  Email  Marketing  sub-set  revenues  increased
$190,279,  or 4%, to $4,526,228,  during the three months ended August 31, 2002,
when compared to $4,335,949 during the prior year's comparable  period.  See the
following  paragraph for a description  of items  impacting the Company's  Email
Marketing programs.

     During  the  three  months  ended May 31,  2002,  the  Company  experienced
problems with the delivery of its email promotional offers,  which problems have
continued  into the three months ended August 31, 2002.  Such  problems  reduced
revenue and income from the E-Commerce  sub-segment on a sequential basis during
the first nine months of fiscal 2002. The Company  continues to believe that the
significant  component of the email delivery problem is attributable to Internet
Service Providers that unilaterally  block commercial emails from reaching their
consumer  subscribers.  The Company has  addressed  the issue by  deploying  new
reinforced   delivery   platforms   with   increased   redundancy  and  expanded
diversification using both internal and external emailing resources. The Company
has also  increased the quality of data it is acquiring  (at an increased  cost)
and is  simultaneously  striving to eliminate  poorly  responding  data from its
databases.  The Company  believes that over the long term,  this  improvement in
data quality,  while more  expensive,  will yield greater  stability and revenue
results and facilitate  improved E-mail delivery  results.  Although the Company
has  conceived of a number of programs to address this specific  problem,  there
can be no assurance that any of these programs will work effectively,  or can be
timely implemented,  and all such program implementations have had an immaterial
impact on  improving  the  delivery  rate of email during the three months ended
August 31, 2002.

                                       20
<PAGE>

     Any further  changes in the Internet  operating  landscape that  materially
hinders the Company's  current ability and/or cost to deliver  commercial  email
messages to the consumer  records in its databases,  and the consumer records in
the databases of its affiliates,  could  potentially  cause a material impact on
net revenue and gross margin and,  therefore,  its  profitability and cash flows
could be adversely  affected.  Various state laws exist, and federal legislation
is currently  pending,  that limit the Company's  ability to deliver  commercial
e-mail messages to consumers.  There are presently no federal laws that regulate
sending  unsolicited  email.  The pending  federal bills and existing state laws
require that  certain  "opt-out"  procedures  be included in emails and prohibit
"false routing" or "fictitious address" information. Existing state, and pending
federal,  laws require functioning return e-mail addresses and that valid postal
addresses be included by the senders of commercial  email messages.  Some states
require an "ADV"  label in the  subject  line,  and  proscribe  false  header or
misleading subject lines. Attorneys General and/or consumers are given authority
to enforce the state  laws.  States with  legislation  affecting  the sending of
unsolicited   commercial   email  include:   Arkansas,   California,   Colorado,
Connecticut,  Delaware,  Idaho, Illinois, Iowa, Louisiana,  Maryland,  Missouri,
Nevada,  North  Carolina,  Ohio,  Oklahoma,  Pennsylvania,  Rhode Island,  South
Dakota, Tennessee, Utah, Virginia,  Washington,  West Virginia and Wisconsin. If
strict  federal  legislation  is  subsequently  written into law, with its terms
specifically  limiting the Company's  ability to market its offers,  the Company
could potentially  realize a material adverse impact in future fiscal period net
revenue growth,  and therefore,  profitability and cash flows could be adversely
affected.

     The  increases  in  revenues  from the  Company's  E-commerce  segment  and
Off-line  Marketing  Services  segment  were  partially  offset by a decrease of
$201,368  in  revenues  from the  Company's  LEC Billed  Products  and  Services
segment.  Such decrease resulted from the Company's elimination of billing voice
mail  services  under its  contract  with the  service  bureau  known as Federal
Transtel, Inc. ("FTT") in October 2001. FTT has since filed for protection under
the United States Bankruptcy Code.

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

     The  Company's  cost of revenues  during the three  months ended August 31,
2002 and August 31, 2001 are  comprised of direct and indirect  marketing  costs
associated  with the (1) costs of email  delivery,  (2)  acquisition of consumer
data, (3) premium fulfillment costs, (4) creative costs and (5) contingent-based
prize indemnification expense, billing and 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 August 31, 2002 and August 31, 2001 are set forth below:


                                       21
<PAGE>

   CONSOLIDATED COST OF SALES, BY SEGMENT, BY COMPONENT

<TABLE>
<CAPTION>
                                                   FOR THE THREE MONTHS ENDED
                                                    -------------------------       CHANGE        CHANGE
                                                    AUGUST 31,     AUGUST 31,      INC (DEC)     INC (DEC)
                                                       2002           2001            $$$           %%%
                                                    -----------    ----------     ----------     --------
<S>                                                  <C>            <C>             <C>               <C>
E-COMMERCE
ADVERTISING, PROMOTION AND FULFILLMENT COSTS
Email marketing and related delivery costs .......   $1,164,606     $1,142,357      $ 22,249          2%
Data purchases and premium costs .................    1,706,127        966,658       739,469         76%
Promotional, creative and other costs ............       50,253         39,354        10,899         28%
                                                     ----------     ----------     ---------      -----
     TOTAL E-COMMERCE ADVERTISING ................   $2,920,986     $2,148,369      $772,617         36%
                                                     ----------     ----------     ---------      -----
SERVICE BUREAU FEES
Contingent based prize indemnification costs .....   $   91,128     $   89,528         1,600          2%
                                                     ----------     ----------     ---------      -----
     TOTAL E-COMMERCE COST OF SALES ..............   $3,012,114     $2,237,897     $ 774,217         35%
                                                     ----------     ----------     ---------      -----
OFF-LINE MARKETING SERVICES
ADVERTISING, PROMOTION AND FULFILLMENT COSTS
Telemarketing, direct mail and related costs .....   $  206,046     $      (41)    $ 206,087        100%
                                                     ----------     ----------     ---------      -----
     TOTAL OFF-LINE MARKETING COST OF SALES ......   $  206,046     $      (41)    $ 206,087        100%
                                                     ----------     ----------     ---------      -----
LEC BILLED PRODUCTS AND SERVICES
SERVICE BUREAU FEES
Billing and collection fees ......................   $       --     $   43,859     $ (43,859)      -100%
                                                     ----------     ----------     ---------      -----
     TOTAL LEC BILLED COST OF SALES ..............   $       --     $   43,859     $ (43,859)      -100%
                                                     ----------     ----------     ---------      -----
          TOTAL COST OF SALES ....................   $3,218,160     $2,281,715     $ 936,445         41%
                                                     ----------     ----------     ---------      -----
</TABLE>

     Cost of  sales on a  consolidated  basis  increased  $936,445,  or 41%,  to
$3,218,160  for the three months ended  August 31, 2002 from  $2,281,715  in the
comparable prior year period.

     On a  segmental  level,  the  Company's  E-commerce  segment  cost of sales
increased,  on a net basis,  approximately  $773,000,  or 36%,  to $2.9  million
during the three months ended  August 31,  2002,  when  compared to $2.1 million
incurred  in the  prior  year's  comparable  period.  The  Company's  continuing
strategy  of  generating  revenues  primarily  from direct  marketing  campaigns
delivered on-line was the significant factor contributing to this increase.  The
Company  realized  marketing  costs for email  delivery  of  approximately  $1.1
million in the fiscal  quarters ended August 31, 2002 and August 31, 2001.  This
apparently  stable cost environment  resulted from two offsetting  factors.  One
factor,  which contributes to a decrease in email delivery cost, is the December
2001  acquisition  of  the  assets  of  a  Canadian-based   technology   company
(InfiKnowledge).  The Company's  integration of the acquired assets,  technology
and human resources into its operations and email delivery platform has, and, we
believe,  will continue to reduce the unitary costs of its email  promotions and
serve to preserve and/or improve  operating  margins.  The second factor,  which
contributes to an offsetting  increase in email  delivery  cost,  relates to the
increased number of email messages sent on a comparable  quarterly  basis.  This
increased email delivery volume generated approximately the same amount of email
marketing  revenue on a comparable  quarterly  basis,  detailed as follows:  the
Company  delivered email pieces in the three months ended August 31, 2002, which
were 6.5 times  greater in volume  than the volume of email  pieces  sent in the
prior year's three months ended August 31, 2001. As discussed in the net revenue
section,  email  revenue  increased  only 4% when compared to a 650% increase in
email pieces  delivered.  SEE THE PRECEDING "NET REVENUE"  SECTION FOR A FURTHER
DISCUSSION OF RECENT BUSINESS AND LEGAL DEVELOPMENTS AFFECTING EMAIL MARKETING.

         The  Company  realized  costs of  approximately  $1.1  million for data
purchases necessary to build and maintain its marketing databases.  In addition,
the Company realized costs of  approximately  $599,000 for premium costs related
to redemption obligations for certain of its marketing program offers. Together,
these costs  represent  an  increase of  approximately  $739,000,  or 76%,  over
similar costs of $966,658 incurred during the three

                                       22
<PAGE>

months ended August 31, 2001. In the prior fiscal year's comparable  period, the
Company had immaterial costs relative to premium redemption obligations.  Within
the three and nine months  ended  August 31, 2002,  the  redemption  obligations
arose  primarily  from  operations  performed  on  behalf of the  customer  that
terminated its relationship with the Company in September 2002, all as discussed
above. The Company anticipates that it will recognize improved margins in future
fiscal  quarters due to the absence of  fulfillment  costs  associated  with the
termination  of  this  customer  relationship.   See  "Transactions  with  Major
Customers" and the Securities and Exchange  Commission's  ("SEC") mandated FR-60
disclosures  following  the  "Liquidity  and  Capital  Resources"  section for a
further  discussion  of  the  significant  customer   concentrations,   loss  of
significant  customer,  critical  accounting  policies and estimates,  and other
factors that could affect future results.

     The  Company  uses  the  services  of  an  agency  for  the   provision  of
indemnification  coverage in the event the GroupLotto  site produces a winner in
one of its free on-line lottery games.  The costs  attributable to the provision
of such  indemnification  coverage increased  approximately  $1,600, or 2%, when
compared with the fiscal period ended August 31, 2001. The indemnification  cost
and players visiting the site remained relatively constant at the GroupLotto.com
website during the three months ended August 31, 2002 and 2001.

     The Company's Off-line Marketing Services segment's cost of sales increased
$206,087,  or 100%,  when  compared to $-0- during the three months ended August
31,  2001.  The  increase  was  attributable  to  the  Company's  majority-owned
subsidiary (Montvale Management LLC), which was inactive during the three months
ended August 31, 2001.

     The  balance of the  decreases  in cost of goods sold,  offsetting  the net
increase, relate to the LEC Billed Product and Service segment and amounted to a
reduction of $43,859.  This reduction resulted from the Company's elimination of
billing voice mail services  under its contract with the service  bureau Federal
Transtel, Inc. ("FTT") in October 2001. FTT has since filed for protection under
the United States Bankruptcy Code.

     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 August 31, 2002 and 2001 are set forth below:

   CONSOLIDATED GROSS PROFIT, BY SEGMENT

<TABLE>
<CAPTION>
                                                        FOR THE PERIODS:
                                                       THREE MONTHS ENDED
                                                    -------------------------       CHANGE        CHANGE
                                                    AUGUST 31,     AUGUST 31,      INC (DEC)     INC (DEC)
                                                       2002           2001            $$$           %%%
                                                    -----------    ----------     ----------     --------
<S>                                                  <C>            <C>           <C>                <C>
   E-commerce ....................................   $6,057,473     $4,965,555    $1,091,918         22%
   Off-line Marketing services ...................    1,388,613             41     1,388,572        100%
   LEC Billed products and services ..............           --        157,509      (157,509)      -100%
                                                     ----------     ----------    ----------      -----
          CONSOLIDATED TOTALS ....................   $7,446,086     $5,123,105    $2,322,981         45%
                                                     ==========     ==========    ==========      =====
</TABLE>

   CONSOLIDATED GROSS PROFIT PERCENTAGES, BY SEGMENT

<TABLE>
<CAPTION>
                                                        FOR THE PERIODS:
                                                       THREE MONTHS ENDED          ABSOLUTE      RELATIVE
                                                    -------------------------     PERCENTAGE    PERCENTAGE
                                                    AUGUST 31,     AUGUST 31,       CHANGE        CHANGE
                                                       2002           2001         INC (DEC)     INC (DEC)
                                                    -----------    ----------     ----------    ----------
<S>                                                     <C>           <C>          <C>           <C>
   E-commerce ....................................      66.8%         68.9%         -2.1%          -3.1%
   Customer Acquisition services .................      87.1%          0.0%         87.1%         100.0%
   LEC Billed products and services ..............       0.0%         78.2%        -78.2%        -100.0%
                                                        ----          ----         -----         ------
          CONSOLIDATED GROSS PROFIT PERCENTAGE ...      69.8%         69.2%          0.6%           0.9%
                                                        ====          ====         =====         ======
</TABLE>


                                       23
<PAGE>

     Consolidated  Gross Profit  Percentage  ("Gross Margin") as a percentage of
net revenue was 69.8% during the three months ended August 31, 2002, compared to
69.2% in the prior year's  comparable  fiscal period,  representing  an absolute
percentage point increase of less than 1%, or a 1% increase on a relative basis.
On a segmental basis, the Company's  E-commerce segment recognized a decrease in
gross margin when compared to the prior year's  comparable  fiscal  period.  The
2.1% absolute  percentage point decrease  resulted from the Company's  increased
costs  associated with data  purchases,  which are fully expensed at the time of
the data's receipt.  The Company  anticipates  that this expensing  policy could
provide a margin  improvement  benefit  in future  fiscal  periods  through  the
continued  marketing to such acquired data. An additional  factor offsetting the
net increase in the gross profit margin  percentage is attributable to the costs
of fulfillment  obligations related to the Company's marketing program conducted
for  a  long  distance  service  provider,   which  terminated  its  contractual
relationship  with the Company.  SEE THE "NET REVENUE"  DISCUSSION,  SUPRA,  FOR
ADDITIONAL INFORMATION ABOUT SUCH CUSTOMER.  Such costs approximated $599,000 in
the current  quarter ended August 31, 2002.  During the prior year's  comparable
period, the Company did not have a marketing program that generated  significant
fulfillment  costs.  Increase in the gross margins  generated from the Company's
Off-line  Marketing  Services  segment  more than  offset  decreases  in the LEC
Product and Services segment, and accounted for the net increase in gross margin
percentage. See the previous discussions of net revenues and cost of sales for a
detailed discussion of such segments.

     The  Company's  Selling  Expenses for each of the three months ended August
31, 2002 and August 31, 2001 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
                                                    AUGUST 31,     AUGUST 31,      INC (DEC)     INC (DEC)
                                                       2002           2001            $$$           %%%
                                                    -----------    ----------     ----------     --------
<S>                                                  <C>              <C>         <C>              <C>
E-COMMERCE
Fee share commissions ...........................    $1,571,906       $293,609    $1,278,297       435%
Other commissions ...............................       453,117             --       453,117       100%
Selling salaries and related expenses ...........       421,722        284,679       137,043        48%
Occupancy and equipment costs ...................        11,000          7,692         3,308        43%
Travel and entertainment ........................        41,753         77,569       (35,816)      -46%
                                                     ----------       --------    ----------       ---
     TOTAL SELLING-- E-COMMERCE SEGMENT .........    $2,499,498       $663,549    $1,835,949       277%
                                                     ----------       --------    ----------       ---
OFF-LINE MARKETING SERVICES
Fee share commissions ...........................    $       --       $     --            --         0%
Other commissions ...............................            --             --            --         0%
Selling salaries and related expenses ...........       575,751             --       575,751       100%
Occupancy and equipment costs ...................        51,635             --        51,635       100%
Travel and entertainment ........................         6,798             --         6,798       100%
                                                     ----------       --------    ----------       ---
     TOTAL SELLING-- OFF-LINE SEGMENT ...........    $  634,184       $      0    $  634,184       100%
                                                     ----------       --------    ----------       ---
          CONSOLIDATED TOTALS ...................    $3,133,682       $663,549    $2,470,133       372%
                                                     ==========       ========    ==========       ===
</TABLE>

     Selling  expenses on a  consolidated  basis  increased  approximately  $2.5
million, or 372%, from $663,549 during the three months ended August 31, 2001 to
$3,133,682  during the three  months  ended  August 31,  2002.  The increase was
primarily  attributable to the Company's E-commerce segment, with an increase of
approximately $1.8 million, and increases of $634,184 in selling expenses in the
Company's Off-line Marketing Services segment.

     The significant  factors  contributing to the increase in selling  expenses
were (a) increased fee share  commissions  ($1,278,297)  and other sales related
commissions  ($453,117) incurred in the Company's  E-commerce  segment;  and (b)
increased  selling-based base compensation and salesmen commissions of $137,043,
arising from the expansion of the E-commerce  segment's  sales force and selling
activities.

                                       24
<PAGE>

     Regarding  the  increase in fee share  commissions,  during the fiscal year
ended  November 30,  2001,  the Company  significantly  expanded the practice of
marketing  promotional offers on behalf of its marketing clients  ("Clients") to
third party databases on a fee share commission  basis. The fee share commission
relationship   generally  arises  after  the  Company  concludes  a  contractual
arrangement  with a Client  pursuant to which the  Company  modifies or develops
the:(i) copy, (ii) offer form and (iii)  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
often  obtains the rights from the Client to market its  promotions to a list of
third  parties  with whom the Company has  marketing  relationships  (the "Third
Parties").  The Company enters into contracts with each Third Party with whom it
intends to market Client  promotions.  The terms of these  agreements  generally
provide that the Third Party has the right to (i) approve the creative materials
for each promotion,  (ii) approve the timing of each promotion's mailing,  (iii)
terminate  the contract on short  notice,  and (iv) reject any promotion for any
reason.  Each  agreement 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.  In addition,  the Company  manages Third Party  databases on a revenue
share  basis.  Amounts  payable to the Third  Parties  under these  programs are
captured in the "fee share commission" category of selling expense.

     Selling expenses within the Company's  Off-line  Marketing Services segment
increased  $634,184,  or 100%,  when  compared  to the prior  year's  comparable
period.  The  Company  expects  that in the  balance of the fiscal  year  ending
November  30,  2002 it will  continue  to realize  increases  in this  segment's
selling  expenses  based on the  anticipated  expansion of the operations of its
majority owned  subsidiary,  Montvale  Management  LLC, which conducts  business
off-line,  as well as on-line, as a net branch for licensed mortgage banking and
brokerage companies.

     The Company's general and  administrative  expenses ("G&A") are principally
comprised of (i) compensation costs and related expenses for executive, finance,
information 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.


                                       25
<PAGE>

   CONSOLIDATED GENERAL AND ADMINISTRATIVE EXPENSES, BY SEGMENT, BY COMPONENT

<TABLE>
<CAPTION>
                                                          FOR THE PERIODS:
                                                         THREE MONTHS ENDED
                                                     ---------------------------     CHANGE        CHANGE
                                                      AUGUST 31,      AUGUST 31,    INC (DEC)     INC (DEC)
                                                        2002            2001           $$$           %%%
                                                     ----------      -----------    ---------     --------
<S>                                                  <C>             <C>            <C>              <C>
E-COMMERCE
Compensation costs and related expenses ..........   $1,147,353      $  527,717     $ 619,636        117%
Professional fees ................................      294,776         309,413       (14,637)        -5%
Insurance costs ..................................      113,584         148,888       (35,304)       -24%
Occupancy and equipment costs ....................       88,153          57,433        30,720         53%
Site development, maintenance and modifications ..      199,748         317,845      (118,097)       -37%
All other G&A expenses ...........................      337,583         217,076       120,507         56%
                                                     ----------      ----------     ---------      -----
TOTAL G&A-- E-COMMERCE SEGMENT ...................   $2,181,197      $1,578,372      $602,825         38%
                                                     ----------      ----------     ---------      -----
OFF-LINE MARKETING SERVICES
Compensation costs and related expenses ..........   $       --      $   36,758     $ (36,758)      -100%
Professional fees ................................        2,210              --         2,210        100%
Insurance costs ..................................           --           8,499        (8,499)      -100%
Occupancy and equipment costs ....................           --           7,179        (7,179)      -100%
All other G&A expenses ...........................      494,523           9,817       484,706       4937%
                                                     ----------      ----------     ---------      -----
TOTAL G&A-- OFF-LINE SEGMENT .....................   $  496,733      $   62,253      $434,480        698%
                                                     ----------      ----------     ---------      -----
LEC BILLED PRODUCTS AND SERVICES
Compensation costs and related expenses ..........   $       --      $   36,602     $ (36,602)      -100%
Insurance costs ..................................           --           8,499        (8,499)      -100%
Occupancy and equipment costs ....................           --           7,179        (7,179)      -100%
All other G&A expenses ...........................           --           4,950        (4,950)      -100%
                                                     ----------      ----------     ---------      -----
TOTAL G&A-- LEC SEGMENT ..........................   $       --      $   57,230     $ (57,230)      -100%
                                                     ----------      ----------     ---------      -----
CORPORATE AND OTHER
Compensation costs and related expenses ..........   $  522,763      $  669,738     $(146,975)       -22%
Professional fees ................................      205,121         397,654      (192,533)       -48%
Insurance costs ..................................      110,408             916       109,492        100%
All other G&A expenses ...........................      149,459         188,511       (39,052)       -21%
                                                     ----------      ----------     ---------      -----
TOTAL G&A-- CORPORATE AND OTHER ..................   $  987,751      $1,256,819     $(269,068)       -21%
                                                     ----------      ----------     ---------      -----
CONSOLIDATED TOTALS ..............................   $3,665,681      $2,954,674     $ 711,007         24%
                                                     ==========      ==========     =========      =====
</TABLE>

     General  and  Administrative  expenses  ("G&A")  on  a  consolidated  basis
increased  approximately  $711,000,  or 24%, when comparing G&A of approximately
$2.9 million from the three months ended August 31, 2001 to G&A of approximately
$3.7 million  incurred  during the three  months ended August 31, 2002.  The net
increase was attributable to (a) the Company's E-commerce segment (approximately
$603,000, or 85% of the total increase), with such increase related to increased
compensation  costs and other G&A expenses,  offset by declines in  professional
fees,  insurance costs and maintenance  costs  associated with the Company's web
sites,  all required to support the 26%  increase in revenues  generated by such
segment  during the three months ended  August 31,  2002;  and by (b)  increases
attributable to the Company's Off-line Marketing Services Segment (approximately
$434,000, or 61% of total increase), with such increase related to G&A necessary
to support the  segment's  growth in revenues  from $ -0- in fiscal 2001's third
quarter to  approximately  $1.6 million during the three months ended August 31,
2002; with all the above increases being offset by a decrease in other corporate
overhead  of   approximately   $269,000  in  expense   items  not   specifically
identifiable  to the  Company's  operating  segments,  with such  cost  increase
including (i) directors and officers liability insurance, (ii) professional fees
incurred in the defense of actions  arising  from legacy  operations,  and (iii)
other  non-allocable G&A expenses.  An additional offset to the net G&A overhead
increase was an approximate $57,000 decrease in G&A overhead attributable to the
Company's currently inactive LEC Billed Product and Services segment.


                                       26
<PAGE>


OTHER INCOME (EXPENSE)

     The Company's  components of "Other income  (expense)" for the three months
ended August 31, 2002 and 2001 are set forth below:

<TABLE>
<CAPTION>
                                                        FOR THE PERIODS:
                                                       THREE MONTHS ENDED
                                                    -------------------------       CHANGE        CHANGE
                                                     AUGUST 31,     AUGUST 31,     INC (DEC)     INC (DEC)
                                                       2002           2001            $$$           %%%
                                                    -----------    ----------     ----------     --------
<S>                                                   <C>            <C>         <C>                <C>
Other income (expense):
Interest expense ..................................   $  (7,865)     $      --   $   (7,865)        100%
Interest income and dividends .....................     190,805        353,645      (162,840)       -46%
Realized gains (losses) on sale of
   marketable securities ..........................       2,664        405,837      (403,173)       -99%
Other non-operating income:
   P.M.Thomas Arbitration Settlement ..............    (434,418)                    (434,418)       100%
   Residual revenues from terminated
     Programs .....................................          --         (4,060)        4,060       -100%
   Other miscellaneous income (expense) ...........     (22,571)            --       (22,571)       100%
Minority interest (income) loss ...................    (148,782)            --      (148,782)       100%
                                                      ---------      ---------   -----------      -----
TOTAL CONSOLIDATED OTHER INCOME (EXPENSE) .........   $(420,167)     $ 755,422   $(1,175,589)      -156%
                                                      =========      =========   ===========      =====
</TABLE>
     Consolidated Other Income (Expense)  decreased  approximately $1.2 million,
from income of approximately $755,000 for the three months ended August 31, 2001
to (expense) of  approximately  ($420,000) for the three months ended August 31,
2002.

     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  $163,000
resulting  from  significant  decreases  in  the  interest  rates  available  on
short-term  commercial  paper during the three months ended August 31, 2002 when
compared with interest  rates  available for  short-term  investment  during the
three months ended August 31, 2001; and

     (b) a decrease in gains  realized  through sales of  marketable  securities
approximating  $403,000 in the quarter  ended August 31, 2002,  when compared to
the  quarter  ended  August 31,  2001,  which  included  gains of  approximately
$406,000.

     Additionally,  the three months  ended August 31, 2002,  included the final
settlement  liability of  approximately  $434,000 related to the Phillip Michael
Thomas arbitration.

PROVISION FOR INCOME TAXES

     The Company's  effective  income tax rate is a result of the combination of
federal income taxes at statutory rates, and state taxes, subject to the effects
of  valuation  allowances  taken  against the  "realizability"  of deferred  tax
assets.  The Company recorded income tax expense of $69,235 for the three months
ended  August  31,  2002 on  pre-tax  income of  $177,615.  This  equates  to an
effective tax rate of approximately  38.9%. This effective tax rate is less than
the Company's historically recognized tax rate due to the partial realization in
the three  months  ended  August 31, 2002 of  previously  devalued  deferred tax
assets related to capital losses,  coupled with the effect of interim period tax
allocation.  In the prior comparable period, the Company had recorded income tax
expense  of  $797,312  on a pre-tax  profit of  approximately  $2,260,304.  This
represented an effective tax rate of 35.3%.

     Such  prior  quarter  also  benefited  from  the  partial   realization  of
previously devalued deferred tax assets related to capital losses.

                                       27
<PAGE>


NINE MONTHS ENDED AUGUST 31, 2002 AND AUGUST 31, 2001

     The Company's net revenues,  on a segmental  basis,  and with disclosure of
the  components of the individual  segments,  for each of the nine month periods
ended August 31, 2002 and August 31, 2001, are detailed in the following tables:

   SEGMENT DATA -- NET REVENUES, BY SEGMENT COMPONENT
<TABLE>
<CAPTION>
                                                        NINE MONTHS ENDED
                                                    -------------------------       CHANGE        CHANGE
                                                     AUGUST 31,     AUGUST 31,     INC (DEC)     INC (DEC)
                                                       2002           2001            $$$           %%%
                                                    -----------    ----------     ----------     --------
<S>                                                 <C>            <C>           <C>                 <C>
E-COMMERCE COMPONENTS
GroupLotto and other web sites ..................   $ 7,614,885    $ 4,941,285   $ 2,673,600         54%
Net branch commission fees ......................       613,620             --       613,620        100%
Email marketing programs ........................    17,988,261      9,892,382     8,095,879         82%
Data sales and rentals ..........................     2,549,172      2,000,457       548,715         27%
Sales of jewelry and gifts ......................     1,172,427             --     1,172,427        100%
Internet game development and other .............       315,590             --       315,590        100%
                                                    -----------    -----------   -----------      -----
TOTAL E-COMMERCE ................................    30,253,955     16,834,124    13,419,831         80%
                                                    -----------    -----------   -----------      -----
OFF-LINE MARKETING SERVICE COMPONENTS
Net branch commission fees ......................     3,516,787             --     3,516,787        100%
Other off-line marketing ........................        68,939             --        68,939        100%
                                                    -----------    -----------   -----------      -----
TOTAL OFF-LINE MARKETING SERVICE ................     3,585,726             --     3,585,726        100%
                                                    -----------    -----------   -----------      -----
LEC BILLED PRODUCTS AND SERVICES COMPONENTS
"900" Entertainment Service royalties ...........                      486,406      (486,406)      -100%
Enhanced Services, principally voice mail .......            --        838,387      (838,387)      -100%
                                                    -----------    -----------   -----------      -----
TOTAL LEC BILLED PRODUCTS AND SERVICES ..........            --      1,324,793    (1,324,793)      -100%
                                                    -----------    -----------   -----------      -----
CORPORATE AND OTHER COMPONENTS
Miscellaneous products, list revenue and other ..                           --            --          0%
                                                    -----------    -----------   -----------      -----
TOTAL CONSOLIDATED NET REVENUE ..................   $33,839,681    $18,158,917   $15,680,764         86%
                                                    ===========    ===========   ===========      =====
</TABLE>

     Net Revenue  increased  $15,680,764,  or 86%, to  $33,839,681  for the nine
months  ended  August 31, 2002 from  $18,158,917  in the  comparable  prior year
period. The primary component of the increase was attributable to an approximate
$13.4  million  increase  in the  Company's  E-commerce  segment  net  revenues,
combined with an increase of approximately  $3.6 million in net revenue from the
Company's  Off-line  Marketing  services segment.  Such increases were partially
offset by a decrease of $1.3  million in the  Company's  LEC Billed  Product and
Services legacy segment.  The E-commerce  segment revenue increase resulted from
the  Company's  increasing  focus on  generating  revenue  from its current core
business, on-line direct marketing. The Company expects this segment to continue
to represent  the  substantial  part of the  Company's  revenue in future fiscal
periods.  Nevertheless,  the Company  continues  to assess the  potential  of an
increased  emphasis on revenue  generation  from off-line,  conventional  direct
marketing  activities and will  implement the strategy if deemed  beneficial for
the Company.  Currently,  the Company is using its on-line  databases to enhance
third party off-line  databases  through the application of overlay  technology,
whereby databases are appended to one another,  effectively increasing the depth
of consumer related information within the appended database.

     The growth in the Company's  E-commerce segment was primarily  attributable
to  approximately  $18 million in revenue  generated  from the segment's  E-mail
marketing  program  sub-set.  This represented an $8.1 million increase over the
prior year's $9.9 million in revenue generated from such segment's sub-set. This
substantial  increase  of  approximately  82% over the prior  year's  comparable
period was  primarily  the result of the Company's  acquisition  of  significant
volumes of permission-based email records, extension of the quantity and quality
of third  party  (client)  offers  being  emailed to the  databases  and greater
efficiencies  in the  Company's  email  delivery  programs.  In the prior year's
comparable period,  specifically the first three months of the fiscal year ended
November

                                       28
<PAGE>


30, 2001,  the Company had been in the early stages of  developing  and carrying
out its  online  strategy.  The  sub-set  of E-mail  marketing  program  revenue
represented  approximately 53% of the Company's consolidated net revenue for the
nine months ended August 31, 2002.

     During the nine  months  ended  August 31,  2002,  specifically  within the
period March 1, 2002 to August 31, 2002, the Company  experienced  problems with
the delivery of its email promotional  offers. Such problems reduced revenue and
income from the E-Commerce  sub-segment.  The Company  continues to believe that
the  significant  component of the email  delivery  problem is  attributable  to
Internet  Service  Providers  that  unilaterally  block  commercial  emails from
reaching  their  consumer  subscribers.  The Company has  addressed the issue by
deploying new  reinforced  delivery  platforms  with  increased  redundancy  and
expanded  diversification  using both internal and external emailing  resources.
The  Company  has also  increased  the  quality of data it is  acquiring  (at an
increased cost) and is  simultaneously  striving to eliminate poorly  responding
data from its  databases.  The Company  believes  that over the long term,  this
improvement in data quality, while more expensive,  will yield greater stability
and revenue results and facilitate  improved E-mail delivery  results.  Although
the Company has  conceived  of a number of  programs  to address  this  specific
problem,  there  can be no  assurance  that  any of  these  programs  will  work
effectively, or can be timely implemented,  and all such program implementations
have had an immaterial impact on improving the delivery rate of email during the
three months ended August 31, 2002.

     Any further  changes in the Internet  operating  landscape that  materially
hinders the Company's  current ability and/or cost to deliver  commercial  email
messages to the consumer  records in its databases,  and the consumer records in
the databases of its affiliates,  could  potentially  cause a material impact on
net revenue and gross margin and,  therefore,  its  profitability and cash flows
could be adversely  affected.  Various state laws exist, and federal legislation
is currently  pending,  that limit the Company's  ability to deliver  commercial
e-mail messages to consumers.  There are presently no federal laws that regulate
sending  unsolicited  email.  The pending  federal bills and existing state laws
require that  certain  "opt-out"  procedures  be included in emails and prohibit
"false routing" or "fictitious address" information. Existing state, and pending
federal,  laws require functioning return e-mail addresses and that valid postal
addresses be included by the senders of commercial  email messages.  Some states
require an "ADV"  label in the  subject  line,  and  proscribe  false  header or
misleading subject lines. Attorneys General and/or consumers are given authority
to enforce the state  laws.  States with  legislation  affecting  the sending of
unsolicited   commercial   email  include:   Arkansas,   California,   Colorado,
Connecticut,  Delaware,  Idaho, Illinois, Iowa, Louisiana,  Maryland,  Missouri,
Nevada,  North  Carolina,  Ohio,  Oklahoma,  Pennsylvania,  Rhode Island,  South
Dakota, Tennessee, Utah, Virginia,  Washington,  West Virginia and Wisconsin. If
strict  federal  legislation  is  subsequently  written into law, with its terms
specifically  limiting the Company's  ability to market its offers,  the Company
could potentially  realize a material adverse impact in future fiscal period net
revenue growth,  and therefore,  profitability and cash flows could be adversely
affected.

     The Company's E-commerce segment's "GroupLotto and other web sites" sub-set
realized an increase in revenues of $2.7  million,  or 54%,  when  comparing the
current  nine months ended  August 31, 2002 ($7.6  million in revenue)  with the
nine months ended August 31, 2001 ($4.9  million in revenue).  This  increase is
the result of the  Company's  shift from low priced "click  through"  revenue to
higher revenue  generating  registration,  lead generation and on-line  customer
acquisition based revenue.  The Company  generates a significant  portion of its
site traffic from email  marketing.  SEE THE  PRECEDING  PARAGRAPH FOR A FURTHER
DISCUSSION OF RECENT BUSINESS AND LEGAL DEVELOPMENTS EFFECTING EMAIL MARKETING.

     Additional   increases  in  the   Company's   consolidated   revenues  were
attributable  to new sub-sets  added to the  E-commerce  segment during the nine
months ended  August 31, 2002 when  compared to the nine months ended August 31,
2001.  The  combined  revenue  resulting  from  the  new  sub-sets  amounted  to
approximately  $2.1  million and is detailed  as follows;  (a)  $613,620 of such
increase relates to the Company's majority-owned subsidiary (Montvale Management
LLC) that provides  services under a net branch agreement with licensed mortgage
banking  and  brokerage  companies  in the  acquisition  of  candidates  for new
mortgages and the refinancing of existing debt,  which  subsidiary also conducts
the same services  off-line and recorded  approximately  $3.5 million within its
Off-line Marketing  Services segment;  (b) $1.2 million of such increase relates
to the  on-line  sales of jewelry  and gifts by the  Company's  new  subsidiary,
ThanksMuch,  Inc., which was formed with the assets acquired from a closely held
private  company on December 14, 2001, all as more fully  described in Note 8 to
the financial statements;

                                       29
<PAGE>


(c) $215,590 of such increase relates to the Internet game development  revenues
generated by the Company's new subsidiary,  InfiKnowledge  ULC, which was formed
with the  assets  acquired  from a closely  held  private  Canadian  company  on
December  6,  2001,  all as more  fully  described  in  Note 8 to the  financial
statements;  and (d) the balance of such increase, or $100,000, was attributable
to a web marketing,  design and development  contract  executed and completed by
the Company during the three months ended February 28, 2002.

     The  increases  in  revenues  from the  Company's  E-commerce  segment  and
Off-line  Marketing  Services  segment  were  partially  offset by a decrease of
$1,324,793  in revenues  from the  Company's  LEC Billed  Products  and Services
segment. A portion of the decrease, or $486,406, resulted from the expiration in
the prior year's three months  ended  February 28, 2001,  of certain  agreements
pursuant to which the Company  had been paid a royalty  fee (with  virtually  no
corresponding  costs) to refrain  from  conducting,  marketing,  advertising  or
promoting certain LEC Billed Products and Services. The nine months ended August
31, 2002, did not include any revenue  related to these services and the Company
does not anticipate  re-entering that market. The balance of the decrease in LEC
Billed  Product and Service  segment  revenue,  or $838,387,  resulted  from the
Company's elimination of billing voice mail services under its contract with the
service bureau  Federal  Transtel,  Inc.  ("FTT") in October 2001. FTT has since
filed for protection under the United States Bankruptcy Code.

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

     The Company's cost of revenues during the nine months ended August 31, 2002
and August 31, 2001 are  comprised  of (1) direct and indirect  marketing  costs
associated with the (a) contact and identification  strategies,  (b) procurement
and (c)  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, and
LEC segment related billing and 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 nine month periods
ended August 31, 2002 and August 31, 2001 are set forth below:

   CONSOLIDATED COST OF SALES, BY SEGMENT, BY COMPONENT
<TABLE>
<CAPTION>
                                                    FOR THE NINE MONTHS ENDED
                                                    -------------------------       CHANGE        CHANGE
                                                     AUGUST 31,     AUGUST 31,     INC (DEC)     INC (DEC)
                                                       2002           2001            $$$           %%%
                                                    -----------    ----------     ----------     --------
<S>                                                  <C>            <C>           <C>                <C>
E-COMMERCE
ADVERTISING, PROMOTION AND FULFILLMENT COSTS
Email marketing and related delivery costs ......    $3,751,632     $2,269,214    $1,482,418         65%
Data purchases and premium costs ................     5,429,576      2,067,665     3,361,911        163%
Promotional, creative and other costs ...........       134,872         89,508        45,364         51%
                                                     ----------     ----------    ----------      -----
TOTAL E-COMMERCE ADVERTISING ....................    $9,316,080     $4,426,387    $4,889,693        110%
                                                     ----------     ----------    ----------      -----
SERVICE BUREAU FEES
Contingent based prize indemnification costs ....    $  276,519     $  296,154    $  (19,635)        -7%
                                                     ----------     ----------    ----------      -----
TOTAL E-COMMERCE COST OF SALES ..................    $9,592,599     $4,722,541    $4,870,058        103%
                                                     ----------     ----------    ----------      -----
OFF-LINE MARKETING SERVICES
ADVERTISING, PROMOTION AND FULFILLMENT COSTS
Telemarketing, direct mail and related costs ....    $  387,376     $   21,698    $  365,678        100%
Premium fulfillment costs .......................            --          7,564        (7,564)      -100%
                                                     ----------     ----------    ----------      -----
TOTAL OFF-LINE MARKETING COST OF SALES ..........    $  387,376     $   29,262    $  358,114       1224%
                                                     ----------     ----------    ----------      -----
                                                                                    (CONTINUED ON NEXT PAGE)
</TABLE>

                                       30
<PAGE>

(CONTINUED FROM PREVIOUS PAGE)

<TABLE>
<S>                                                  <C>            <C>           <C>                <C>

LEC BILLED PRODUCTS AND SERVICES
SERVICE BUREAU FEES
Billing and collection fees ......................   $       --     $  155,514    $ (155,514)      -100%
                                                     ----------     ----------    ----------      -----
TOTAL LEC BILLED COST OF SALES ...................   $       --     $  155,514    $ (155,514)      -100%
                                                     ----------     ----------    ----------      -----
TOTAL COST OF SALES ..............................   $9,979,975     $4,907,317    $5,072,658        103%
                                                     ==========     ==========    ==========      =====
</TABLE>

     Cost of sales on a consolidated  basis  increased  $5,072,658,  or 103%, to
$9,979,975  for the nine months  ended  August 31, 2002 from  $4,907,317  in the
comparable prior year period.

     On a  segmental  level,  the  Company's  E-commerce  segment  cost of sales
increased, on a net basis,  approximately $4.9 million, or 110%, to $9.3 million
during the nine months  ended  August 31,  2002,  when  compared to $4.4 million
incurred  in the  prior  year's  comparable  period.  The  Company's  continuing
strategy  of  generating  revenues  primarily  from direct  marketing  campaigns
delivered on-line was the significant factor contributing to this increase.  The
Company  realized  marketing  costs for email  delivery  of  approximately  $3.7
million in the nine months ended August 31,  2002,  representing  an increase of
$1.5  million,  or 65%,  when  compared to  approximately  $2.3 million in email
delivery costs incurred in the prior year's comparable period. In December 2001,
the  Company  acquired  the  assets  of  a  Canadian-based   technology  company
(InfiKnowledge).   The  Company   continues  to  believe  and  expect  that  the
integration  of the acquired  assets,  technology  and human  resources into its
operations and email delivery platform will continue to reduce the unitary costs
of its email promotions and serve to preserve and/or improve operating  margins.
SEE THE  PRECEDING  "NET  REVENUE"  SECTION FOR A FURTHER  DISCUSSION  OF RECENT
BUSINESS AND LEGAL DEVELOPMENTS ATTRIBUTABLE TO EMAIL MARKETING.

     The Company realized costs of approximately $3.6 million for data purchases
necessary to build and maintain its marketing  databases and approximately  $1.8
million for premium costs related to premium redemption  obligations for certain
of  its  marketing  program  offers.   These  costs  represent  an  increase  of
approximately  $3.4 million,  or 163%,  over data purchase costs of $2.1 million
during  the nine  months  ended  August 31,  2001.  In the prior  fiscal  year's
comparable  period,  the Company had  immaterial  costs  relative to  redemption
obligations.

     The  Company  uses  the  services  of  an  agency  for  the   provision  of
indemnification  coverage in the event the GroupLotto  site produces a winner in
one of its free on-line lottery games.  The costs  attributable to the provision
of such indemnification  coverage decreased  approximately  $20,000, or 7%, when
compared with the prior fiscal period ended August 31, 2001. The reason for this
decrease  was due to a slight  decrease  in the games  played  at the  Company's
GroupLotto.com  website  during  the nine  months  ended  August  31,  2002 when
compared to the prior year's comparable period.

     The Company's Off-line Marketing Services segment's cost of sales increased
$358,114, or 1224%, to $387,376, when compared to $29,262 during the nine months
ended  August  31,  2001.  The  increase  was   attributable  to  the  Company's
majority-owned-subsidiary  (Montvale  Management LLC), which was inactive during
the nine months ended August 31, 2001.

     The balance of the decrease in cost of goods sold relates to the LEC Billed
Product and Service  segment and  amounted  to a  reduction  of  $155,514.  This
reduction resulted from the Company's elimination of billing voice mail services
under its contract with the service bureau  Federal  Transtel,  Inc.  ("FTT") in
October  2001.  FTT has since  filed for  protection  under  the  United  States
Bankruptcy Code.

     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
nine month periods ended August 31, 2002 and 2001 are set forth below:


                                       31
<PAGE>


   CONSOLIDATED GROSS PROFIT, BY SEGMENT
<TABLE>
<CAPTION>
                                                        FOR THE PERIODS:
                                                        NINE MONTHS ENDED
                                                    -------------------------       CHANGE        CHANGE
                                                    AUGUST 31,     AUGUST 31,      INC (DEC)     INC (DEC)
                                                       2002           2001            $$$           %%%
                                                    -----------    ----------     ----------     --------
<S>                                                 <C>            <C>           <C>                 <C>
   E-commerce ...................................   $20,661,356    $12,111,583   $ 8,549,773         71%
   Off-line Marketing services ..................     3,198,350        (29,262)    3,227,612        100%
   LEC Billed products and services .............            --      1,169,279    (1,169,279)      -100%
                                                    -----------    -----------   -----------      -----
     CONSOLIDATED TOTALS ........................   $23,859,706    $13,251,600   $10,608,106         80%
                                                    ===========    ===========   ===========      =====
</TABLE>

   CONSOLIDATED GROSS PROFIT PERCENTAGES, BY SEGMENT
<TABLE>
<CAPTION>
                                                         FOR THE PERIODS:
                                                        NINE MONTHS ENDED          ABSOLUTE      RELATIVE
                                                    -------------------------     PERCENTAGE    PERCENTAGE
                                                     AUGUST 31,     AUGUST 31,      CHANGE        CHANGE
                                                       2002           2001         INC (DEC)     INC (DEC)
                                                    -----------    ----------     ----------    ----------
<S>                                                    <C>           <C>            <C>            <C>
   E-commerce ...................................      68.3%         71.9%         -3.7%          -5.1%
   Customer Acquisition services ................      89.2%          0.0%         89.2%         100.0%
   LEC Billed products and services .............       0.0%         88.3%        -88.3%        -100.0%
                                                       ----          ----         -----         ------
     CONSOLIDATED GROSS PROFIT PERCENTAGE .......      70.5%         73.0%         -2.5%          -3.4%
                                                       ====          ====         =====         ======
</TABLE>

     Consolidated  Gross Profit  Percentage  ("Gross Margin") as a percentage of
net revenue was 70.5% during the nine months ended August 31, 2002,  compared to
73.0% in the prior year's  comparable  fiscal period,  representing  an absolute
percentage  point decrease of 2.5%, or a 3.4% decline on a relative  basis. On a
segmental basis, the Company's  E-commerce segment accounted for the majority of
the decrease in margin when compared to the comparable prior fiscal period.  The
3.7% absolute  percentage point decrease  resulted from the Company's  increased
costs  associated with data  purchases,  which are fully expensed at the time of
receipt.  The Company  anticipates  that this  expensing  policy could provide a
margin  improvement  benefit in future  fiscal  periods  through  the  continued
marketing to such acquired data. An additional factor contributing to the slight
decline  in  the  gross  margin  percentage  is  attributable  to the  costs  of
fulfillment  obligations  related  to the  Company's  marketing  program  offers
conducted for a long distance service  provider.  Such costs  approximated  $1.8
million in the nine  months  ended  August  31,  2002.  During the prior  year's
comparable  period,  the Company did not have a marketing program that generated
significant  fulfillment costs.  Changes in the gross margins generated from the
Company's  Off-line  Marketing  Services  segment and LEC  Product and  Services
segment  primarily  offset each other in terms of  percentage  changes.  See the
previous  discussions  of net  revenues  and cost of sales in the three and nine
month sections for a more detailed discussion of such segments.

     The Company's Selling Expenses and General and Administrative  Expenses for
each of the nine months ended August 31, 2002 and August 31, 2001 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:
                                                        NINE MONTHS ENDED
                                                    -------------------------       CHANGE        CHANGE
                                                    AUGUST 31,     AUGUST 31,      INC (DEC)     INC (DEC)
                                                       2002           2001            $$$           %%%
                                                    -----------    ----------     ----------     --------
<S>                                                  <C>             <C>          <C>               <C>
E-COMMERCE
Fee share commissions ...........................    $4,221,275     $  703,244    $3,518,031        500%
Other commissions ...............................     1,407,222             --     1,407,222        100%
Selling salaries and related expenses ...........     1,246,089        745,692       500,397         67%
Occupancy and equipment costs ...................        22,715         18,797         3,918         21%
Travel and entertainment ........................       208,643        185,902        22,741         12%
                                                     ----------     ----------    ----------       ----
TOTAL SELLING-- E-COMMERCE SEGMENT ..............    $7,105,944     $1,653,635    $5,452,309        330%
                                                     ----------     ----------    ----------       ----
                                                                                     (CONTINUED ON NEXT PAGE)
</TABLE>


                                       32
<PAGE>


(CONTINUED FROM PREVIOUS PAGE)
<TABLE>
<S>                                                  <C>            <C>           <C>               <C>
OFF-LINE MARKETING SERVICES
Fee share commissions ............................   $       --     $       --            --          0%
Other commissions ................................           --             --            --          0%
Selling salaries and related expenses ............    1,422,871             --     1,422,871        100%
Occupancy and equipment costs ....................       97,524             --        97,524        100%
Travel and entertainment .........................       24,657                       24,657        100%
                                                     ----------     ----------    ----------       ----
TOTAL SELLING-- OFF-LINE SEGMENT .................   $1,545,052     $       --    $1,545,052        100%
                                                     ----------     ----------    ----------       ----
CONSOLIDATED TOTALS ..............................   $8,650,996     $1,653,635    $6,997,361        423%
                                                     ==========     ==========    ==========       ====
</TABLE>

     Selling  expenses  on  a  consolidated  basis  increased  approximately  $7
million, or 423%, from $1.7 million during the nine months ended August 31, 2001
to $8.6 million  during the nine months ended August 31, 2002.  The increase was
primarily  attributable to the Company's E-commerce segment, with an increase of
approximately  $5.5  million,  and  increases of  approximately  $1.5 million in
selling expenses in the Company's Off-line Marketing Services segment.

     The significant  factors  contributing to the increase in selling  expenses
were (a) increased fee share  commissions  incurred in the Company's  E-commerce
segment  of  approximately  $3.5  million;   and  (b)  increased   selling-based
commissions,  compensation  and  other  related  selling  costs  combined  ($1.4
million,  $500,397 and $22,741,  respectively) arising from the expansion of the
E-commerce segment's sales force and selling activities.

     Regarding  the  increase in fee share  commissions,  during the fiscal year
ended  November 30,  2001,  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:(i) copy, (ii) offer form and (iii)  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
often  obtains the rights from the Client to market its  promotions to a list of
third  parties  with whom the Company has  marketing  relationships  (the "Third
Parties").  The Company enters into contracts with each Third Party with whom it
intends to market Client  promotions.  The terms of these  agreements  generally
provide that the Third Party has the right to (i) approve the creative materials
for each promotion,  (ii) approve the timing of each promotion's mailing,  (iii)
terminate  the contract on short  notice,  and (iv) reject any promotion for any
reason.  Each  agreement 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.

     Selling expenses within the Company's  Off-line  Marketing Services segment
increased approximately $1.5 million, or 100%, when compared to the prior year's
comparable  period.  The Company  expects that in the  remaining  quarter of the
fiscal  year  ending  November  30,  2002,  it will  realize an increase in this
segment's selling expenses based on the anticipated  expansion of the operations
of its majority  owned  subsidiary,  Montvale  Management  LLC,  which  conducts
business  off-line,  as well as on-line,  as a net branch for licensed  mortgage
banking and brokerage companies.


                                       33
<PAGE>

   CONSOLIDATED GENERAL AND ADMINISTRATIVE EXPENSES, BY SEGMENT, BY COMPONENT
<TABLE>
<CAPTION>
                                                        FOR THE PERIODS:
                                                        NINE MONTHS ENDED
                                                    -------------------------       CHANGE        CHANGE
                                                    AUGUST 31,     AUGUST 31,      INC (DEC)     INC (DEC)
                                                       2002           2001            $$$           %%%
                                                    -----------    ----------     ----------     --------
<S>                                                 <C>             <C>           <C>                <C>
E-COMMERCE
Compensation costs and related expenses .........   $ 3,396,693     $1,708,412    $1,688,281         99%
Professional fees ...............................     1,127,033        629,003       498,030         79%
Insurance costs .................................       345,445        345,496           (51)         0%
Occupancy and equipment costs ...................       238,252        172,105        66,147         38%
Site development, maintenance and
   modifications ................................       706,927      1,340,148      (633,221)       -47%
All other G&A expenses ..........................     1,118,968        442,300       676,668        153%
                                                    -----------     ----------    ----------      -----
TOTAL G&A-- E-COMMERCE SEGMENT ..................   $ 6,933,318     $4,637,464    $2,295,854         50%
                                                    -----------     ----------    ----------      -----
OFF-LINE MARKETING SERVICES
Compensation costs and related expenses .........   $        --     $  125,929    $ (125,929)      -100%
Professional fees ...............................        25,614             --        25,614        100%
Insurance costs .................................         2,355         74,035       (71,680)       -97%
Occupancy and equipment costs ...................            --         21,513       (21,513)      -100%
All other G&A expenses ..........................     1,086,940         49,422     1,037,518       2099%
                                                    -----------     ----------    ----------      -----
TOTAL G&A-- OFF-LINE SEGMENT ....................   $ 1,114,909     $  270,899    $  844,010        312%
                                                    -----------     ----------    ----------      -----
LEC BILLED PRODUCTS AND SERVICES
Compensation costs and related expenses .........   $        --     $  125,498    $ (125,498)      -100%
Insurance costs .................................            --         74,035       (74,035)      -100%
Occupancy and equipment costs ...................            --         21,513       (21,513)      -100%
All other G&A expenses ..........................            --         13,973       (13,973)      -100%
                                                    -----------     ----------    ----------      -----
TOTAL G&A-- LEC SEGMENT .........................   $        --     $  235,019    $ (235,019)      -100%
                                                    -----------     ----------    ----------      -----
CORPORATE AND OTHER
Compensation costs and related expenses .........   $ 1,618,517     $1,600,292    $   18,225          1%
Professional fees ...............................       704,094        943,251      (239,157)       -25%
Insurance costs .................................       345,792          2,214       343,578        100%
All other G&A expenses ..........................       499,522        388,097       111,425         29%
                                                    -----------     ----------    ----------      -----
TOTAL G&A-- CORPORATE AND OTHER .................   $ 3,167,925     $2,933,854    $  234,071          8%
                                                    -----------     ----------    ----------      -----
CONSOLIDATED TOTALS .............................   $11,216,152     $8,077,236    $3,138,916         39%
                                                    ===========     ==========    ==========      =====
</TABLE>

     General  and  Administrative  expenses  ("G&A")  on  a  consolidated  basis
increased approximately $3.1 million, or 39%, when comparing G&A of $8.1 million
from the nine  months  ended  August 31, 2001 to G&A of $11.2  million  incurred
during the nine months ended August 31, 2002. The net increase was  attributable
to (a) the Company's  E-commerce segment  (approximately $2.3 million, or 73% of
total  increase),  with such increase related to increased  compensation  costs,
professional  fees and  other  G&A,  offset by a decline  in  maintenance  costs
associated  with the  Company's  web sites,  all  required  to  support  the 80%
increase in revenues  generated  by such  segment  during the nine months  ended
August  31,  2002,  (b)  the  Company's   Off-line  Marketing  Services  Segment
(approximately  $844,010, or 27% of total increase),  with such increase related
to G&A necessary to support the segments growth in revenues from $ -0- in fiscal
2001 to approximately $3.5 million during the nine months ended August 31, 2002,
and by (c) other  corporate  overhead  (approximately  $234,071,  or 7% of total
increase) not  specifically  identifiable to the Company's  operating  segments,
with  such  cost  increase   including  (i)  directors  and  officers  liability
insurance,  (ii)  professional  fees incurred in the defense of actions  arising
from  legacy  operations,  and (iii) other  non-allocable  G&A.  These  overhead
increases were partially offset by an approximate  $235,019 decrease in overhead
attributable to the Company's currently inactive LEC Billed Product and Services
segment.

                                       34
<PAGE>


BAD DEBT EXPENSE

     The  Company's  bad debt  expense for the nine months ended August 31, 2002
was $487,447.  The Company did not incur bad debt expense during the nine months
ended August 31, 2001.  During the quarter ended  November 30, 2001,  the credit
profiles of the Company's customer base changed due to the significant  downturn
in the  Internet  advertising  and  marketing  arena,  and the  inability of the
customers within that arena to procure equity and debt financing to fund deficit
operations.  Pursuant  to such  change in the credit  profile  of the  Company's
customer  base, as well as the  bankruptcy  filing of the Company's  significant
service  bureau/billing  and collection  agent,  the Company began recording bad
debt expense,  and  reserving  for bad debt exposure at November 30, 2001,  and,
accordingly,  began to reflect bad debt  expense as a separate  line item within
the Company's consolidated statement of income during the quarter ended November
30, 2001.

OTHER INCOME (EXPENSE)

     The Company's  components of "Other income  (expense)"  for the nine months
ended August 31, 2002 and 2001 are set forth below:
<TABLE>
<CAPTION>
                                                        FOR THE PERIODS:
                                                        NINE MONTHS ENDED
                                                    -------------------------       CHANGE        CHANGE
                                                     AUGUST 31,     AUGUST 31,     INC (DEC)     INC (DEC)
                                                       2002           2001            $$$           %%%
                                                    -----------    ----------     ----------     --------
<S>                                                 <C>            <C>           <C>                <C>
OTHER INCOME (EXPENSE):
Interest expense .................................  $   (27,633)   $        --   $   (27,633)       100%
Interest income and dividends ....................      584,404      1,497,906      (913,502)       -61%
Realized gains (losses) on sale of marketable
   securities ....................................       85,821        404,061      (318,240)       100%
Permanent impairment charges .....................           --     (4,690,258)    4,690,258       -100%
Other non-operating income:
   Talk.com Arbitration Settlement ...............    2,314,121             --     2,314,121        100%
   P.M.Thomas Arbitration Settlement .............   (2,710,000)            --    (2,710,000)       100%
   Residual revenues from terminated
     Programs ....................................           --         84,290       (84,290)      -100%
   Other miscellaneous income (expense) ..........       48,992             --        48,992        100%
   Liquidation proceeds on prior year
     impairment loss .............................      125,000             --       125,000        100%
Minority interest (income) loss ..................     (279,731)            --      (279,731)      -100%
                                                    -----------    -----------   -----------      -----
TOTAL CONSOLIDATED OTHER INCOME (EXPENSE) ........  $   140,974    $(2,704,001)  $ 2,844,975       -105%
                                                    ===========    ===========   ===========      =====
</TABLE>

     Consolidated Other  Income(Expense)  increased  approximately $2.8 million,
from  approximately $2.7 million in expense for the nine months ended August 31,
2001 to $140,974 of income for the nine months ended August 31, 2002.

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

     (a) a decrease in interest and dividend  income of  approximately  $914,000
resulting  from  significant  decreases  in  the  interest  rates  available  on
short-term  commercial  paper  during the nine  months  ended May 31,  2002 when
compared with interest rates available for short-term investment during the nine
months ended August 31, 2001;

     (b) a decrease in gains  realized  through sales of  marketable  securities
approximating $318,000 in the nine months ended August 31, 2002;

                                       35
<PAGE>


     (c) during the nine months  ended August 31, 2002 the Company did not incur
losses from asset impairments.  During the nine months ended August 31, 2001 the
Company realized losses,  through a permanent impairment,  of approximately $4.1
million on marketable  securities  resulting  from  significant  declines in the
values of such marketable  equity  securities  held in the Company's  investment
portfolio,  these losses were deemed to be other than  temporary.  Additionally,
during the nine months ended August 31, 2001,  the Company  realized a permanent
impairment of $500,051 on a long-term investment that subsequently  discontinued
its  operations  in the third  quarter of fiscal 2001. As of the August 31, 2002
balance sheet date, the Company has significantly reduced its exposure to market
fluctuations  in its  investment  portfolio  by  limiting  the  contents of such
portfolio to approximately  $18.3 million in high grade, short term,  commercial
paper and auction rate securities (with yields ranging from 1.80% to 2.56%, with
maturities  of 30 to 365  days),  and  approximately  $1.1  million in high risk
investments,  consisting  of common stock  equities  and real estate  investment
trust equities; and

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

     Additionally,  the nine months ended  August 31,  2002,  included the final
installment  related to the Talk.com  arbitration victory ($2.3 million) awarded
to the  Company in  November  2001.  Offsetting  the  Talk.com  award was a $2.3
million  award  granted  to  the  claimants  in  the  Phillip   Michael   Thomas
arbitration,  with an  additional  payment of $434,418  subsequently  negotiated
relating to the award's final release and the  discontinuance  for the potential
of further civil proceedings.

PROVISION FOR INCOME TAXES

     The Company's  effective  income tax rate is a result of the combination of
federal income taxes at statutory rates, and state taxes, subject to the effects
of  valuation  allowances  taken  against the  "realizability"  of deferred  tax
assets.  The  Company  recorded  income tax expense of  $1,421,245  for the nine
months ended August 31, 2002 on pre-tax income of $3,646,085. This equates to an
effective tax rate of  approximately  39%. This  effective tax rate is less than
the Company's  historically  recognized  tax rate due to the  realization in the
nine months ended August 31, 2002,  of previously  devalued  deferred tax assets
related  to  capital  losses,  coupled  with the  effect of  interim  period tax
allocation.  In the prior comparable  period the Company had recorded income tax
expense of  $2,109,111  for the nine months  ended  August 31, 2001 on a pre-tax
profit of approximately  $816,728.  This effective tax rate  relationship is the
result of the Company taking a full valuation  allowance  during the nine months
ended August 31, 2001, against the future tax benefits  attributable to the loss
carryovers  arising from  permanent  impairment  charges of $4,690,258  incurred
during  such  period.  This  deferred  tax asset  valuation  allowance  has been
recorded  during the nine months of the fiscal year ended November 30, 2001, due
to the absence of appreciated capital gain property (available for the potential
generation of capital gain income) to offset the net capital losses generated by
the impairment charges.

LIQUIDITY AND CAPITAL RESOURCES

     The Company's financial and liquidity position remained strong as exhibited
by the Company's cash, cash equivalents,  short-term  marketable  securities and
marketable equity securities of approximately  $39.6 million at August 31, 2002.
Cash, cash equivalents,  short-term  marketable securities and equity securities
were  approximately  $38.1  million at  November  30,  2001.  This  increase  of
approximately  $1.5  million  was the  result  of the  Company's  collection  of
approximately   $2.5  million  from  the  final   installment  on  the  Talk.com
arbitration  award  coupled with other cash flows  generated  from the Company's
operating activities in the approximate aggregate total of $4.9 million,  offset
by (1)  approximately  $2.2 million used in investing  activities  (comprised of
capital  expenditures of $1,618,362 and payments for asset acquisitions,  net of
cash received of $548,482); and (2) approximately $1.3 million used in financing
activities  (comprised of treasury stock  purchases of  $2,014,661,  net of cash
collected on (a) option exercises of $584,567 and (b) a  non-management  Section
16-b settlement of $114,403 net of direct costs and after related taxes).

                                       36
<PAGE>


     Trade  accounts  receivable  at August 31,  2002,  as a  percentage  of net
revenues  earned  during the three months  ended  August 31,  2002,  was 64%, as
compared to 69%, 77%, and 52% at the end of the  comparable  three month periods
ended May 31, 2002, February 28, 2002 and November 30, 2001,  respectively.  The
Company's  days-sales-outstanding  ("DSO") in accounts  receivable at August 31,
2002 were 59 and 56 days for the three and nine month  periods  ended August 31,
2002,  respectively,  compared  to 91 and  110  days  during  the  prior  year's
comparable  periods,  respectively.  The  decrease  in the  current  three-month
periods DSO compared to the prior year's comparable periods relates to shortened
collection  periods on the outstanding  accounts  receivables from the Company's
significant  customers,  as well as the balance of its customer base pursuant to
the  Company's   continued  emphasis  on  receivables   analysis  and  expedited
collections efforts.

     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 59 and 56-day DSO's  recognized
during the three and nine-month operating periods ended August 31, 2002.

     Cash used in financing  activities  during the nine months ended August 31,
2002  amounted to  $1,315,691,  and included  cash  outflows of  $2,014,661  for
purchases of the Company's common stock,  primarily in open market  transactions
and  currently  held in treasury.  It is the  Company's  intention to retire all
treasury shares in the quarter ending November 30, 2002. Such  repurchases  were
made in accordance with the Company's stock repurchase  plan,  pursuant to which
the Board,  on June 19, 2002,  authorized  the Company to  repurchase  up to two
million  shares of its  outstanding  common stock.  Under such plan, the Company
acquired  474,200 shares for $1,857,965,  at an average price of $3.92 per share
in open market  transactions.  Subsequent  to the August 31, 2002 balance  sheet
date,  the Company  acquired an additional  83,050 shares at an average price of
approximately  $3.48 per share,  for a total outlay of $289,366.  An  additional
39,174  shares were  purchased for  $156,696,  or $4 per share,  from the former
owners of  Infiknowledge,  acquired by the Company in December  2001.  The above
referenced  financing  cash  outflows  were  partially  offset by cash  proceeds
generated by the exercise of the  Company's  stock  options,  which  amounted to
approximately  $585,000,  and approximately $114,000 in proceeds (net of related
costs and income taxes) related to an insider  trading action brought  against a
former  non-management  insider,  pursuant to which such insider was required to
return his deemed insider trading gains to the Company.

     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 newly formed
subsidiaries resulting from asset purchases.

     During the fiscal year ended  November 30, 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 a material  portion of
future revenues. If the Company's on-line activities fail to generate sufficient
revenue,  then the  continuation  of the Company's year over year on-line growth
could have a material  adverse  impact on the  Company's  capital and  liquidity
resources  relating to possible  expenditures for (a) marketing  campaigns,  (b)
product  development  costs,  (c) site  development  and maintenance and related
technology  based  costs,  (d)  potential  on-line,  and/or  off-line,  business
acquisitions,  (e) costs associated with developing  alternative  means of email
promotion  delivery,  or (f) other unexpected  and/or  currently  unidentifiable
costs.  During the nine months  ended  August 31,  2002,  the  Company  expended
approximately  $1.6 million in capital  expenditures  to support its  E-commerce
activities.   Obsolescence,   changes  in  the  Internet  operating   landscape,
government  regulation and/or other unexpected events impacting  Internet direct
marketing, or the economy in general, could individually, or in combination have
an adverse effect on the carrying value of the capital expenditures  procured in
fiscal 2002, as well as the carrying value of other asset  acquisitions  made in
fiscal 2002 and earlier that have not yet been fully depreciated or amortized.

                                       37
<PAGE>


     In December  2001,  the Company  acquired  the assets of  InfiKnowledge,  a
closely held private  Canadian based Internet  technology  company.  The Company
continues to believe that this  acquisition will decrease certain costs relative
to its reliance on third parties in the provision of emailing services and other
Internet  hosting  services.  The  realization  of those  proposed  cost savings
require  capital  expenditures  by the newly formed entity,  with the funding of
such  expenditures  being  provided  by  the  Company.   To  date  such  capital
expenditures approximated $1.2 million.

     During the six-month period,  March 1, 2002 to August 31, 2002, the Company
experienced  problems with the delivery of its email  promotional  offers.  Such
problems reduced revenue and income from the E-Commerce sub-segment. The Company
has addressed  the issue by deploying new  reinforced  delivery  platforms  with
increased  redundancy  and  expanded  diversification  using both  internal  and
external emailing resources. The Company currently believes that the significant
component of the email  delivery  problem is  attributable  to Internet  Service
Providers that unilaterally block commercial emails from reaching their consumer
subscribers.  Although  the  Company  has  conceived  of a number of programs to
address  this  specific  problem,  there can be no  assurance  that any of these
programs will work effectively, or can be timely implemented.

     Any further  changes in the Internet  operating  landscape that  materially
hinders the Company's  current ability and/or cost to deliver  commercial  email
messages to the consumer  records in its databases,  and the consumer records in
the databases of its affiliates,  could  potentially  cause a material impact on
net revenue and gross margin and,  therefore,  its  profitability and cash flows
could be adversely  affected.  Various state laws exist, and federal legislation
is currently  pending,  that limit the Company's  ability to deliver  commercial
e-mail messages to consumers.  There are presently no federal laws that regulate
sending  unsolicited  email.  The pending  federal bills and existing state laws
require that  certain  "opt-out"  procedures  be included in emails and prohibit
"false routing" or "fictitious address" information. Existing state, and pending
federal,  laws require functioning return e-mail addresses and that valid postal
addresses be included by the senders of commercial  email messages.  Some states
require an "ADV"  label in the  subject  line,  and  proscribe  false  header or
misleading subject lines. Attorneys General and/or consumers are given authority
to enforce the state  laws.  States with  legislation  affecting  the sending of
unsolicited   commercial   email  include:   Arkansas,   California,   Colorado,
Connecticut,  Delaware,  Idaho, Illinois, Iowa, Louisiana,  Maryland,  Missouri,
Nevada,  North  Carolina,  Ohio,  Oklahoma,  Pennsylvania,  Rhode Island,  South
Dakota, Tennessee, Utah, Virginia,  Washington,  West Virginia and Wisconsin. If
strict  federal  legislation  is  subsequently  written into law, with its terms
specifically  limiting the Company's  ability to market its offers,  the Company
could potentially  realize a material adverse impact in future fiscal period net
revenue growth,  and therefore,  profitability and cash flows could be adversely
affected.

     Should the 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.

     The Company expended  approximately  $200,000 in cash for the Infiknowledge
asset acquisition (net of cash received of approximately  $63,000).  The Company
is also required to expend an additional $200,000 on December 6, 2002, regarding
the final cash installment related to the InfiKnowledge asset acquisition.

     In December 2001, the Company also acquired the assets of ThanksMuch.com, a
closely held private company for approximately $361,000 (net of cash received of
approximately  $74,000).  The  Company  does  not  anticipate  that  this  asset
acquisition  will require  significant  capital  expenditures  to  maintain,  or
improve its operations.

     In September 2002, the Company disbursed  $2,710,000 in final settlement of
an   arbitration   award.   The  total  payments  made  exceeded  the  award  by
approximately $435,000. The excess related to an additional settlement agreement
that  precludes the claimants from further  proceeding  with the action in civil
court.  The total  disbursement  of $2.7 million was accrued at August 31, 2002,
and  reflected on the income  statement  as a component of "Other  non-operating
income(expense)"  for the nine months ended  August 31,  2002.  The civil action
settlement  portion was included as a component of "Other  non-operating  income
(expense)" during the three months ended August 31, 2002. The arbitration award,
including  related  interest  expense,  was included in the three and  six-month
periods ended May 31, 2002.

                                       38
<PAGE>


     The Company has received  tentative  notice  regarding the final payment to
the Internal Revenue Service for tax audits covering the years 1996 to 1998. The
tentative  notice  of  final  settlement  approximates  $900,000,  and  includes
unbilled  interest expense on such tax audits.  The Company had provided for the
income  statement  impact of such outlay in a prior year and therefore  does not
expect the payment,  which is planed to be made in the quarter  ending  November
30, 2002, to impact earnings.

     During the fiscal year ended  November 30,  1999,  the  Company's  Internet
business  plan and  strategy  prompted  the  Company  to  terminate  the  active
marketing of its legacy products and services. Accordingly, this legacy activity
may contribute,  but in a significantly decreasing degree, to the Company's cash
flows and net income in subsequent  fiscal  periods,  as was the case during the
year ended  November 30, 2001 when compared to the years ended November 30, 2000
and 1999. 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 and LEC Billed Products and Services in the future.

     Under current  operating plans and  assumptions,  management  believes that
projected  cash flows from  operations  and  available  cash  resources  will be
sufficient to satisfy the Company's  anticipated cash  requirements for at least
the next  twelve  months.  Currently,  the  Company  does not have any  material
long-term  obligations  other than those described in the note  "Commitments and
Contingent  Liabilities" included in the Company's financial statements included
in this document,  nor has the Company identified any long-term obligations that
it  contemplates  incurring in the near future.  As the Company seeks to further
extend its reach into the  E-commerce  arena,  as well as identify new and other
consumer  oriented  products and services in the off-line arena, the Company may
use existing cash reserves,  long-term financing, or other means to finance such
diversification.

TRANSACTIONS WITH MAJOR CUSTOMERS

     During the three and nine months  ended  August 31,  2002,  the Company had
five major customers in its E-commerce segment,  which in combination  accounted
for  approximately  $5.2  million and $18 million of  consolidated  net revenue,
respectively,  or  49%  and  53% of  consolidated  net  revenues,  respectively.
Approximately $4.5 million,  or 65% of consolidated net accounts  receivable was
attributable  to such major  customer group as of August 31, 2002. For the three
and nine months  ended  August 31, 2002,  one 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.  The five major customers  referenced
above  accounted  for  24%,  7%,  7%,  6% and 5% of  consolidated  net  revenue,
respectively,  for the three months  ended August 31, 2002,  and 25%, 8%, 8%, 7%
and 5% of  consolidated  net  revenue,  respectively,  for the nine months ended
August 31, 2002. Of the remaining  approximate 100 active customers in the three
and nine months ended August 31, 2002, no other single  customer had net revenue
that equaled or exceeded 2% of consolidated net revenue.

     The  Company  continued  to  conduct  business  with  all such  five  major
customers  as of  October  8,  2002.  The  customer  which  occupied  25% of the
Company's net revenue for the nine months ended August 31, 2002 has notified the
Company that it is  exercising  its right to terminate  its  agreement  with the
Company and, as such, will phase out its business with the Company over a ninety
day period ending  December 7, 2002.  See "-- Three Months Ended August 31, 2002
and August 31,  2001 -- Net  Revenues"  for a more  detailed  discussion  of the
impact of such termination on the Company's operations and cash flows.

     During the three and nine months  ended  August 31,  2001,  the Company had
four customers in its E-commerce  segment which, in  combination,  accounted for
approximately  50.6% and 47.4% of consolidated net revenues,  respectively,  and
approximately  30.8% of  consolidated  net accounts  receivable as of August 31,
2001.

CRITICAL ACCOUNTING POLICY AND ACCOUNTING ESTIMATE DISCUSSION

     In  accordance   with  the  Securities  and  Exchange   Commission's   (the
"Commission") Release Nos. 33-8040; 34-45149; and FR-60 issued in December 2001,
referencing the Commission's statement "regarding the selection


                                       39
<PAGE>


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 herein.

FACTORS THAT COULD EFFECT FUTURE RESULTS

   REVENUE RECOGNITION, VARIABLE COSTS AND BAD DEBTS

     The Company  currently  earns the most  significant  portion of its revenue
from the  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 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, net of estimated  contractually specified
data  qualification  allowances,   when  applicable.   Such  data  qualification
allowances may include  duplications,  invalid  addresses,  age restrictions and
allowances,  and are  recorded as contra  revenue.  The  Company's  revenues are
adjusted in later fiscal periods if the Company's  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 the  Company's  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,  the  Company  could  suffer  material
deterioration  in future  fiscal  period  gross  margins,  and,  therefore,  our
profitability and cash flows could be adversely affected.

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

     Should the Internet  operating  landscape  affecting the Company  adversely
change  resulting in (a) higher costs of acquiring  consumer data and registered
users for the  Company's  websites;  (b) higher costs of acquiring  data for our
marketing  partners,  compromising such marketing  partners' ability to maintain
adequate  databases to allow for continued  third party database use agreements;
(c) the Company's fiscal 2002 InfiKnowledge  asset acquisition failing to reduce
the cost of the  Company's  email  delivery  activities  and other  web  hosting
service  costs,  or the Company being required to depend on third party emailing
service bureaus to provide an increased portion of its commercial email delivery
at a cost in excess of anticipated  internally  generated  costs, or other third
party  influence  on the  Company's  ability to deliver  email  messages  to the
records in its databases, or the records in its marketing affiliates' databases;
(d)  the  Company's   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)  the  Company's   accruals  for  fulfillment
obligations  arising  out of its  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  in  subsequent  fiscal
periods, the Company could suffer material deterioration in future fiscal period
revenue growth and gross  margins,  and therefore,  our  profitability  and cash
flows could be materially adversely affected.

     Revenue  recognition is also subject to provisions based on the probability
of collection of the related trade accounts receivable. We continuously evaluate
the  potential of the  collectibility  of trade  receivables  by reviewing  such
factors as  deterioration  in the operating  results,  financial  condition,  or
bankruptcy  filings,  of our customers.  As a result of this review process,  we
record bad debt provisions to adjust the related receivables' carrying amount

                                       40
<PAGE>


to an estimated realizable value. Provisions for bad debts are also recorded due
to the review of other factors, including (a) the length of time the receivables
are past due, (b) historical  experience,  and (c) other factors obtained during
the  conduct of  collection  efforts.  If  circumstances  change  regarding  our
specific  customers on an  individual  basis,  or if demand for Internet  direct
marketing softens,  or if a continuation of the current global economic downturn
prevails,  our estimates  for bad debt  provisions  could be further  increased,
which could adversely affect our operating  margins,  our  profitability and our
cash flows.

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

     During the three and nine months  ended  August 31,  2002,  the Company had
five major customers in its E-commerce segment,  which in combination  accounted
for  approximately  $5.2  million and $18 million of  consolidated  net revenue,
respectively,  or  49%  and  53% of  consolidated  net  revenues,  respectively.
Approximately $4.5 million,  or 65% of consolidated net accounts  receivable was
attributable  to such major  customers as of August 31, 2002.  For the three and
nine months ended August 31, 2002,  one 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.  The five major customers  referenced
above  accounted  for  24%,  7%,  7%,  6% and 5% of  consolidated  net  revenue,
respectively,  for the three months  ended August 31, 2002,  and 25%, 8%, 8%, 7%
and 5% of  consolidated  net  revenue,  respectively,  for the nine months ended
August 31, 2002. Of the remaining  approximate 100 active customers in the three
and nine months ended August 31, 2002, no other single  customer had net revenue
that equaled or exceeded 2% of consolidated net revenue.

     The  Company  continued  to  conduct  business  with  all such  five  major
customers  as of  October  8,  2002.  The  customer  which  occupied  25% of the
Company's net revenue for the nine months ended August 31, 2002 has notified the
Company that it is  exercising  its right to terminate  its  agreement  with the
Company,  and, as such,  will phase out its  business  with the  Company  over a
ninety day period  ending  December 7, 2002.  This customer loss has been deemed
immaterial at the Company's  operations level due to the fact that the operating
margin  earned  from  such  activity  was less  than  that  recognized  from the
Company's  other marketing  activities and the Company  believes that it will be
able to use its media  channels,  creative  department  and senior  management's
time,  all of which,  it  believes,  was  disproportionately  dedicated  to this
customer,  more  profitably  by  generating  additional  sales for other current
customers  with  large   demands,   improving   results  of  existing   customer
relationships  and developing new  relationships  and  proprietary  products and
services.  The Company  expects an  immaterial  decline in future  fiscal period
revenues related to such  termination,  and looks to realize improved margins at
both the contribution and operating level. Additionally, the Company anticipates
that it will recognize  improved  contribution  and operating  margins in future
fiscal  quarters  due to the  reduction in the  Company's  cost of sales that is
expected to arise from the  elimination of  fulfillment  costs as they relate to
the  termination  of this  contract.  Pursuant  to the  terms  of the  Company's
agreement with this  terminating  customer,  during the 90-day phase out period,
the customer is only required to accept certain levels of sales generated by the
Company on its behalf, based on a percentage of sales recorded in the thirty day
period prior to the delivery of the termination notice.  Therefore,  the Company
will recognize revenue under this terminated agreement during the quarter ending
November 30, 2002.

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

                                       41
<PAGE>


     During the three and  nine-month  periods ended May 31, 2002, the Company's
51%   majority-owned   subsidiary,    Montvale   Management   LLC,   contributed
approximately  $1.4 and $2.2  million,  or 17.6%  and  12.2%,  respectively,  of
consolidated net revenues.  The subsidiary  became active in Fiscal 2001 (in the
Company's fourth quarter).  The subsidiary  generates revenue by operating under
net  branch  agreements,   whereby  it  originates   residential  mortgages  and
refinancings for licensed  mortgage  banking and brokerage  companies under such
net branch agreement.  The subsidiary business activity increased in Fiscal 2001
as a result of reduced mortgage and refinance loan interest rates, and increased
government funds for low-income homebuyers.  The Company's future business plans
and operating  assumptions  anticipate  that the subsidiary  will  contribute an
increasing amount of revenue to the Company in terms of absolute dollars, and in
terms of percentage of total  revenues and  operating  income,  during the final
quarter of the fiscal  year ending  November  30,  2002.  Such  assumptions  are
subject to the  continuation  of the current  interest  rate market which favors
refinancings,  the continued  acceptance  by the general  public of off-line and
on-line  marketing  promotions for mortgage and mortgage related  products,  the
continued ability of the  independently  operated  majority-owned  subsidiary to
hire and  maintain  competent  staff and  management  personnel,  trained in the
specific field of net branch operations,  as well as other factors currently not
identifiable.  The  Company  can  make no  assurance  that it  will  realize  an
increased  contribution  of revenue and related  profits from the majority owned
subsidiary in future fiscal periods.

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

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

     The Company  carries  Goodwill and other  Intangibles  on its balance sheet
arising from current and prior year  acquisitions.  The Company must review,  at
least annually, such Goodwill and other Intangibles for any asset impairment. If
the review of the Company's Goodwill and Intangibles related to the subsidiaries
organized to acquire such assets  determine that such assets are impaired,  then
the Company 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, the
Company  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

     The Company maintains 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 values of our  investments in the common stock of  publicly-traded
companies,  which as of August 31, 2002 amounted to approximately  $1.1 million,
and are  subject to  significant  market  price  volatility,  in addition to the
potential for business failure at the company level.

                                       42
<PAGE>


     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 in fulfilling  their
responsibility of adhering to the repayment of principal upon maturity.

     Additionally,  the  Company's  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

     Any further  changes in the Internet  operating  landscape that  materially
hinders the Company's  current ability and/or cost to deliver  commercial  email
messages to the consumer  records in its databases,  and the consumer records in
the databases of its affiliates,  could  potentially  cause a material impact on
net revenue and gross margin and,  therefore,  its  profitability and cash flows
could be adversely  affected.  Various state laws exist, and federal legislation
is currently  pending,  that limit the Company's  ability to deliver  commercial
e-mail messages to consumers.  There are presently no federal laws that regulate
sending  unsolicited  email.  The pending  federal bills and existing state laws
require that  certain  "opt-out"  procedures  be included in emails and prohibit
"false routing" or "fictitious address" information. Existing state, and pending
federal,  laws require functioning return e-mail addresses and that valid postal
addresses be included by the senders of commercial  email messages.  Some states
require an "ADV"  label in the  subject  line,  and  proscribe  false  header or
misleading subject lines. Attorneys General and/or consumers are given authority
to enforce the state  laws.  States with  legislation  affecting  the sending of
unsolicited   commercial   email  include:   Arkansas,   California,   Colorado,
Connecticut,  Delaware,  Idaho, Illinois, Iowa, Louisiana,  Maryland,  Missouri,
Nevada,  North  Carolina,  Ohio,  Oklahoma,  Pennsylvania,  Rhode Island,  South
Dakota, Tennessee, Utah, Virginia,  Washington,  West Virginia and Wisconsin. If
strict  federal  legislation  is  subsequently  written into law, with its terms
specifically  limiting the Company's  ability to market its offers,  the Company
could potentially  realize a material adverse impact in future fiscal period net
revenue growth,  and therefore,  profitability and cash flows could be adversely
affected.

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.








                                       43
<PAGE>


                                     PART II

                                OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     1. NANCY  GAREN-- On or about  October 16,  2001,  Nancy  Garen,  author of
"Tarot Made Easy", commenced an action against a series of defendants, including
the Company,  in the United States  District  Court for the Central  District of
California,  entitled NANCY GAREN V. STEVEN L. FEDER, PETER L. STOLZ,  THOMAS H.
LINDSEY,  GALACTIC TELCOM, INC., ACCESS RESOURCE SERVICES, INC., PSYCHIC READERS
NETWORK,  INC. D/B/A MISS CLEO, OSHUN 5  COMMUNICATIONS,  INC., CIRCLE OF LIGHT,
INC.,  CENTRAL  TALK  MANAGEMENT,   INC.,   TRAFFIX,   INC.,  WEKARE  READERS  &
INTERPRETERS,  INC.,  WEST  CORPORATION,  AND DOES 1  THROUGH  10  (EDCV  01-790
(VAP-SGLx)).  Plaintiff  alleges  that  defendants  are liable  for a  copyright
infringement,   contributory   copyright   infringement,   vicarious   copyright
infringement,  unfair competition,  contributory  federal unfair competition and
state  statutory  and common  law unfair  competition,  and  further  requests a
constructive  trust,  a temporary  restraining  order,  and damages from alleged
infringement of a copyright or, alternatively, statutory damages for each act of
infringement  in "an amount provided by law in excess of  $250,000,000",  all as
the same may have arisen from the  defendants'  marketing  of tarot card reading
and other psychic services. The Company does not believe that there is any merit
to Ms.  Garen's  claims as they relate to the Company,  has denied the claims in
its answer to the  complaint,  and  intends  vigorously  to defend  against  the
claims.

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

     3. DANIEL RODGERS -- In March,  2002,  Daniel  Rodgers  commenced an action
against the Company in Supreme Court of the State of New York,  Rockland County.
The  complaint  alleges  that the  Company  disseminated  false  and  misleading
advertisements  through  email  advertisements  and  through  the website of its
subsidiary, GroupLotto.com. Mr. Rodgers purports to represent a class consisting
of those who, during the period January 1, 2001 to March 5, 2002, provided their
name, address,  email address and other biographical  information in response to
the  email  advertisements  or in  response  to the  GroupLotto  web  page.  The
Complaint  purports  to allege  claims of common law fraud,  deceptive  acts and
practices,  and  false  and  misleading  advertising  under  New York  law.  The
Complaint seeks injunctive relief,  unspecified monetary damages, and attorney's
fees.  The Company  believes  that there is no merit to the claims,  has filed a
motion to dismiss the complaint,  which motion is pending before the court,  and
otherwise intends vigorously to defend against the claims.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

     A Proxy  Statement was mailed on or about July 17, 2002 to  shareholders of
record of the Company as of July 9, 2002 in connection  with the Company's  2002
Annual  Meeting  of  Shareholders,  which  was held on  August  15,  2002 at the
Company's executive offices,  One Blue Hill Plaza, Pearl River, New York. At the
Meeting, the shareholders voted on three matters, all of which were approved.





                                       44
<PAGE>



     The first matter was the election of the members of the Board of Directors.
The seven directors  elected and the tabulation of the votes (both in person and
by proxy) were as follows:

NOMINEES FOR DIRECTORS             FOR               AGAINST            WITHHELD
----------------------             ---               -------            --------
Jeffrey L. Schwartz            11,371,907            539,803               0
Andrew Stollman                11,371,907            539,803               0
Eric Aroesty                   11,371,907            539,803               0
Murray L. Skala                11,371,907            539,803               0
Edwin Levy                     11,371,907            539,803               0
Lawrence Burstein              11,371,907            539,803               0
Jack Silver                    11,371,907            539,803               0

     There were no broker held non-voted shares  represented at the Meeting with
respect to this matter.

     The second  matter upon which the  shareholders  voted was the  proposal to
ratify the appointment by the Board of Directors of  PricewaterhouseCoopers  LLP
as  independent  certified  public  accountants  for the Company  for 2002.  The
tabulation of the votes (both in person and by proxy) was as follows:

                                   FOR               AGAINST        ABSTENTIONS
                                   ---               -------        -----------
                               11,904,812             3,553         3,345,0003

     There were no broker held non-voted shares  represented at the Meeting with
respect to this matter.

     The third  matter  upon which the  shareholders  voted was the  proposal to
ratify and approve the Company's  Fourth  Amended and Restated 1996 Stock Option
Plan,  amending the Company's  Third  Amended and Restated  Stock Option Plan by
increasing the maximum number of shares of the Company's  Common Stock for which
stock options may be granted  thereunder from 4,850,000 to 5,350,000 shares. The
tabulation of the votes (both in person and by proxy) was as follows:

                                    FOR               AGAINST        ABSTENTIONS
                                    ---               -------        -----------
                                 9,914,525           1,687,280         309,905

     There were no broker held non-voted shares  represented at the Meeting with
respect to this matter.

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.
(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.

                                       45
<PAGE>


(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 third  quarter
of the fiscal year ending November 30, 2002.

                           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.

                                   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
                                                        Chairman and CEO

Date: October 15, 2002

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

Date: October 15, 2002








                                       46
<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: October 15, 2002

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







                                       47
<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: October 15, 2002

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






                                       48
<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    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.
(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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