**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


WASHINGTON,
      D.C. 20549





**FORM
      10-Q**





(Mark
      One)




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




For
      the
      quarterly period ended August 31, 2005


or




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





For
      the
      transition period from ___________ to
      ___________.





Commission
      file number   0-27046




**TRAFFIX,
      INC.**


(Exact
      name of registrant as specified in its charter)


Delaware
            
            22-3322277(State
                or other jurisdiction of incorporation or organization)
            
            (I.R.S.
                Employer Identification No.)One
                Blue Hill PlazaPearl
                River, New York
            
            10965(Address
                of principal executive offices)
            
            (Zip
                Code)





(845)
      620-1212


Registrant’s
      telephone number, including area code:





Indicate
      by check mark whether the Registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the Registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.


Yes x
      No o




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


Yes o 
      No x




The
      number of shares outstanding of the Registrant’s common stock is 14,197,236 (as
      of 10/13/05).


1





**TRAFFIX,
      INC.**


**INDEX
      TO QUARTERLY REPORT ON FORM 10-Q**


**FILED
      WITH THE SECURITIES AND EXCHANGE COMMISSION**


**QUARTER
      ENDED AUGUST 31, 2005**





**ITEMS
      IN FORM 10-Q**





**Page****Part
                I**
            **Financial
                Information**Item
                1.
            Financial
                Statements
            2Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            24Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            NoneItem
                4.
            Controls
                and Procedures
            52**Part
                II**
            **Other
                Information**Item
                1.
            Legal
                Proceedings
            53Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            NoneItem
                3.
            Defaults
                Upon Senior Securities
            NoneItem
                4.
            Submission
                of Matters to a Vote of Security Holders
            NoneItem
                5.
            Other
                Information
            NoneItem
                6.
            Exhibits
            55**Signatures**










2





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 us,
      are intended to identify forward-looking statements. We believe that the
      assumptions and expectations reflected in such forward-looking statements are
      reasonable, based on information available to us in 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 we will take any action that we may
      presently be planning. We are not undertaking to publicly update or revise
      any
      forward-looking statement if we obtain new information or upon the occurrence
      of
      future events or otherwise.





3


**TRAFFIX,
            INC. AND SUBSIDIARIES**
 **CONSOLIDATED
            BALANCE SHEETS**
 
 
 **August
                        31,**
                    
                    **November
                        30,****2005**
                    
                    **2004****(Unaudited)****Assets**Current
                        assets:Cash
                        and cash equivalents
                    
                    $
                    9,219,208
                    
                    $
                    7,553,285Marketable
                        securities
                    
                    
                    22,769,230
                    
                    
                    28,251,348Accounts
                        receivable, trade, net of allowance for doubtful accounts
                        of $817,395 at
                        August 31, 2005 and $691,229 at November 30, 2004
                    
                    
                    9,872,077
                    
                    
                    4,744,220Deferred
                        income taxes
                    
                    
                    981,397
                    
                    
                    1,206,096Prepaid
                        expenses and other current assets
                    
                    
                    655,442
                    
                    
                    923,069**Total
                        current assets**
                    
                    
                    43,497,354
                    
                    
                    42,678,018Property
                        and equipment, net
                    
                    
                    2,367,827
                    
                    
                    2,381,364Goodwill
                    
                    
                    6,410,040
                    
                    
                    4,231,054Other
                        intangibles, net
                    
                    
                    2,895,784
                    
                    
                    2,371,411Deferred
                        income taxes
                    
                    
                    -
                    
                    
                    296,663**Total
                        assets**
                    
                    $
                    55,171,005
                    
                    $
                    51,958,510**Liabilities**Current
                        liabilities:Accounts
                        payable
                    
                    $
                    5,317,532
                    
                    $
                    3,673,789Accrued
                        expenses
                    
                    
                    3,732,932
                    
                    
                    3,450,798Reserve
                        for customer chargebacks
                    
                    
                    306,698
                    
                    
                    377,535Due
                        to related parties
                    
                    
                    542,499
                    
                    
                    311,341Income
                        taxes payable
                    
                    
                    590,723
                    
                    
                    306,333**Total
                        current liabilities**
                    
                    
                    10,490,384
                    
                    
                    8,119,796Deferred
                        income taxes
                    
                    
                    19,616
                    
                    
                    316,279**Total
                        liabilities**
                    
                    
                    10,510,000
                    
                    
                    8,436,075Minority
                        interest
                    
                    
                    245,103
                    
                    
                    -Commitments
                        and contingencies (Notes 2, 7, 10 and 11)**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
                        14,156,903
                        shares and 13,510,605 shares, respectively
                    
                    
                    14,156
                    
                    
                    13,510Additional
                        paid-in capital
                    
                    
                    43,614,911
                    
                    
                    41,309,652Retained
                        earnings
                    
                    
                    -
                    
                    
                    1,052,277Accumulated
                        other comprehensive income
                    
                    
                    786,835
                    
                    
                    1,146,996**Total
                        shareholders’ equity**
                    
                    
                    44,415,902
                    
                    
                    43,522,435**Total
                        liabilities and shareholders’ equity**
                    
                    $
                    55,171,005
                    
                    $
                    51,958,510
 
 The
            accompanying notes are an integral part of these financial
            statements


4


**TRAFFIX,
        INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF INCOME (LOSS)**
 **(UNAUDITED)**
  **Three
                    Months Ended**
                
                **Nine
                    Months Ended****August
                    31,**
                
                **August
                    31,**
                
                **August
                    31,**
                
                **August
                    31,****2005**
                
                **2004**
                
                **2005**
                
                **2004**Net
                    revenue
                
                $
                16,372,442
                
                $
                10,208,548
                
                $
                46,258,827
                
                $
                26,518,697Cost
                    of sales
                
                
                10,757,543
                
                
                6,335,395
                
                
                29,698,662
                
                
                15,278,363**GROSS
                    PROFIT**
                
                
                5,614,899
                
                
                3,873,153
                
                
                16,560,165
                
                
                11,240,334Selling
                    expenses
                
                
                896,697
                
                
                565,222
                
                
                2,687,992
                
                
                1,528,310General
                    and administrative expenses
                
                
                4,224,282
                
                
                3,483,341
                
                
                11,899,661
                
                
                9,490,778Bad
                    debt expense
                
                
                4,634
                
                
                420,041
                
                
                170,241
                
                
                307,928**INCOME
                    (LOSS) FROM OPERATIONS**
                
                
                489,286
                
                
                (595,451
                )
                
                1,802,271
                
                
                (86,682
                )Other
                    income (expense):Interest
                    income and dividends
                
                
                217,901
                
                
                137,572
                
                
                643,238
                
                
                360,293Realized
                    gains on marketable securities
                
                
                -
                
                
                9,478
                
                
                574,050
                
                
                32,148Realized
                    gain on sale of subsidiary
                
                
                -
                
                
                195,000
                
                
                195,000
                
                
                589,900Other
                    non-operating
                
                
                (2,789
                )
                
                (1,577
                )
                
                (9,173
                )
                
                337,310Minority
                    interest in income of subsidiary
                
                
                (125,825
                )
                
                -
                
                
                (373,999
                )
                
                -**INCOME
                    (LOSS) BEFORE PROVISION****(BENEFIT)
                    FOR INCOME TAXES**
                
                
                578,573
                
                
                (254,978
                )
                
                2,831,387
                
                
                1,232,969Provision
                    (benefit) for income taxes
                
                
                261,906
                
                
                (130,657
                )
                
                1,183,755
                
                
                339,607**NET
                    INCOME (LOSS)**
                
                $
                316,667
                
                $
                (124,321
                )
                $
                1,647,632
                
                $
                893,362Basic
                    income (loss) per share (Note 3):Net
                    income (loss)
                
                $
                0.02
                
                $
                (0.01
                )
                $
                0.12
                
                $
                0.07Weighted
                    average shares outstanding
                
                
                14,113,756
                
                
                13,492,677
                
                
                13,900,985
                
                
                13,185,138Diluted
                    income (loss) per share (Note 3):Net
                    income (loss)
                
                $
                0.02
                
                $
                (0.01
                )
                $
                0.12
                
                $
                0.06Weighted
                    average shares outstanding
                
                
                14,447,285
                
                
                13,492,677
                
                
                14,291,794
                
                
                13,853,740Cash
                    dividends per common share
                
                $
                0.08
                
                $
                0.08
                
                $
                0.24
                
                $
                0.24


The
        accompanying notes are an integral part of these financial
        statements







5




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


**Nine
                  Months Ended****August
                  31,**
              
              **August
                  31,****2005**
              
              **2004**Cash
                  flows from operating activities:Net
                  income
              
              $
              1,647,632
              
              $
              893,362Adjustments
                  to reconcile net income to net cash provided by operating
                  activities:Depreciation
                  and amortization
              
              
              1,635,796
              
              
              938,186Reserve
                  for customer chargebacks
              
              
              371,998
              
              
              2,089,412Provision
                  for uncollectible accounts
              
              
              170,241
              
              
              307,928Deferred
                  income taxes
              
              
              449,383
              
              
              (165,914
              )Net
                  gains on sale of marketable securities
              
              
              (574,050
              )
              
              (32,148
              )Gain
                  on sale of subsidiary
              
              
              (195,000
              )
              
              (589,900
              )Minority
                  interest
              
              
              373,999
              
              
              -Changes
                  in assets and liabilities of business, net of assets and liabilities
                  acquired:Accounts
                  receivable
              
              
              (5,298,098
              )
              
              (572,951
              )Prepaid
                  expenses and other current assets
              
              
              267,627
              
              
              684,528Accounts
                  payable
              
              
              1,643,743
              
              
              513,367Reserve
                  for customer chargebacks
              
              
              (442,835
              )
              
              (1,816,162
              )Income
                  taxes payable
              
              
              703,773
              
              
              431,301Due
                  (from)/to related parties
              
              
              231,158
              
              
              32,663Other,
                  principally accrued expenses
              
              
              (10,199
              )
              
              (299,639
              )**Net
                  cash provided by operating activities**
              
              
              975,168
              
              
              2,414,033Cash
                  flows from investing activities:Purchases
                  of securities
              
              
              (172,383,778
              )
              
              (224,143,326
              )Proceeds
                  from sales of securities
              
              
              177,865,416
              
              
              221,683,150Proceeds
                  from the sale of a subsidiary
              
              
              195,000
              
              
              589,900Payment
                  for asset acquisition, net of cash received
              
              
              (3,077,714
              )
              
              (3,475,151
              )Cash
                  payment for intangible asset - license agreement
              
              
              (42,915
              )
              
              (110,000
              )Capital
                  expenditures
              
              
              (244,405
              )
              
              (94,999
              )**Net
                  cash provided by (used in) investing activities**
              
              
              2,311,604
              
              
              (5,550,426
              )Cash
                  flows from financing activities:Dividends
                  paid
              
              
              (3,334,408
              )
              
              (3,179,298
              )Distribution
                  to minority interest holder
              
              
              (128,896
              )
              
              -Proceeds
                  from stock options exercised
              
              
              1,838,740
              
              
              1,628,113**Net
                  cash used in financing activities**
              
              
              (1,624,564
              )
              
              (1,551,185
              )Effect
                  of exchange rate changes on cash and cash equivalents
              
              
              3,715
              
              
              (1,975
              )Net
                  increase (decrease) in cash and cash equivalents
              
              
              1,665,923
              
              
              (4,689,553
              )Cash
                  and cash equivalents, beginning of period
              
              
              7,553,285
              
              
              9,939,657**Cash
                  and cash equivalents, end of period**
              
              $
              9,219,208
              
              $
              5,250,104




See
        Notes
        2 and 7 for a summary of noncash investing activities.
 
 The
        accompanying notes are an integral part of these financial
        statements
   6
  **TRAFFIX,
          INC. AND SUBSIDIARIES**
 **CONSOLIDATED
          STATEMENT OF SHAREHOLDERS’ EQUITY**
 **FOR
          THE NINE MONTHS ENDED AUGUST 31, 2005**
 **(UNAUDITED)**
 **Accumulated****Additional**
                
                
                
                **Other**
                
                **Total****Common
                    Stock**
                
                **Paid-in**
                
                **Retained**
                
                **Comprehensive**
                
                **Shareholders’****Shares**
                
                **Amounts**
                
                **Capital**
                
                **Earnings**
                
                **Income(Loss)**
                
                **Equity****Balance,
                    November 30, 2004**
                
                
                13,510,605
                
                $
                13,510
                
                $
                41,309,652
                
                $
                1,052,277
                
                $
                1,146,996
                
                $
                43,522,435Net
                      income for the nine months ended August 31, 2005
                
                
                
                
                
                
                
                
                
                
                
                1,647,632
                
                
                
                
                
                1,647,632Unrealized
                    losses on available-for-sale securities
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                10,735
                
                
                10,735Reclassification
                    adjustment for gains realized in net income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (360,584
                )
                
                (360,584
                )Foreign
                      Currency Translation adjustment
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (10,312
                )
                
                (10,312
                )Dividends
                    declared
                
                
                
                
                
                
                
                
                (634,499
                )
                
                (2,699,909
                )
                
                
                
                
                (3,334,408
                )Stock
                    option exercises
                
                
                532,477
                
                
                532
                
                
                1,838,208
                
                
                
                
                
                
                
                
                1,838,740Tax
                      benefit from exercise of stock options
                
                
                
                
                
                
                
                
                419,384
                
                
                
                
                
                
                
                
                419,384Common
                      stock issued in connection with asset acquisition
                
                
                113,821
                
                
                114
                
                
                682,166
                
                
                
                
                
                
                
                
                682,280**Balance,
                    August 31, 2005**
                
                
                14,156,903
                
                $
                14,156
                
                $
                43,614,911
                
                $
                -
                
                $
                786,835
                
                $
                44,415,902
   The
        accompanying notes are an integral part of these
        financial statements
  7


**TRAFFIX,
      INC. AND SUBSIDIARIES**


**NOTES
      TO FINANCIAL STATEMENTS (UNAUDITED)**





**1.
      GENERAL**





The
      accompanying consolidated financial statements of Traffix, Inc. and its
      subsidiaries (the “Company”) are unaudited; however, in the opinion of
      management, these financial statements are presented in conformity with
      accounting principles generally accepted in the United States of America. The
      accompanying unaudited consolidated financial statements reflect all 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
      and are of a normal and recurring nature. In the preparation of these financial
      statements, management is required to make estimates and assumptions that affect
      the reported amounts of assets, liabilities, revenues, expenses and disclosures
      at the date of, and for the interim periods presented. Actual results could
      differ from those estimates. Significant estimates include reserves for
      uncollectible receivables, reserves for data qualification allowances,
      recoverability of long-lived assets, and the realizability of deferred tax
      assets. Additionally, the Company has potential exposure resulting from pending
      and/or threatened litigation for which the Company currently does not provide
      a
      loss provision. Management’s estimates and assumptions are continually reviewed
      against actual results with the effects of any revisions being reflected in
      the
      results of operations at that time. The accompanying unaudited consolidated
      financial statements should be read in conjunction with the audited consolidated
      financial statements and notes thereto, together with management’s discussion
      and analysis of financial condition and results of operations, contained in
      the
      Company’s Annual Report on Form 10-K for the fiscal year ended November 30,
      2004. The results of operations for the three and nine month periods ended
      August 31, 2005 are not necessarily indicative of the results to be expected
      for
      the subsequent quarter or the full fiscal year ending November 30,
      2005.  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, 2005 and 2004, options for 532,477 shares
      and
      367,557 shares of the Company’s common stock, respectively, were exercised by
      its employees, officers and directors. Tax benefits of $419,384 and $277,136
      in
      the nine months ended August 31, 2005 and 2004, respectively, resulting from
      the
      exercise of these options, were recorded as an increase to additional paid-in
      capital and a reduction of income taxes currently payable.





8





**Recent
      Accounting Pronouncements**





In
      May
      2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections,
      which replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No.
      3,
      Reporting Accounting Changes in Interim Financial Statements. Opinion No. 20
      had
      required that changes in accounting principles be recognized by including the
      cumulative effect of the change in the period in which the new accounting
      principle was adopted. SFAS No. 154 requires retrospective application of the
      change to prior periods’ financial statements, unless it is impracticable to
      determine the period-specific effects of the change. The FASB identified the
      reason for the issuance of SFAS No. 154 to be part of a broader attempt to
      eliminate differences with the International Accounting Standards Board (IASB).
      The Statement is effective for fiscal years beginning after December 15, 2005.
      The Company does not believe the adoption of this statement will have a material
      impact on its financial statements.




In
      December 2004, the FASB issued SFAS No. 123 (R), Share Based Payments, which
      replaces SFAS 123, Accounting for Stock-Based Compensation, and supersedes
      APB
      Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No.
      95, Statement of Cash Flows. In March of 2005, the SEC issued Staff Accounting
      Bulletin No. 107, Share-Based Payment (SAB 107), regarding its interpretation
      of
      SFAS 123R and provides guidance on varying valuation methods available in the
      computation and guidance on other related matters. The standard requires all
      share-based payments to employees, including grants of employee stock options,
      to be recognized in the income statement based on their grant-date fair values.
      As such, pro forma disclosure in lieu of expensing is no longer an alternative.
      The new standard is effective in the first interim or annual reporting period
      beginning after June 15, 2005 for all registrants other than small business
      issuers. The Company is currently assessing the impact that the Statement may
      have on its financial statements, and due to the uncertainty of the level of
      share-based payments to be granted in the future, no estimates of the impact
      are
      included in the notes to the financial statements.


In
        December 2004, the FASB issued SFAS 153, Exchanges of Nonmonetary Assets,
        which
        amends APB Opinion No. 29. The guidance in APB 29, Accounting for Nonmonetary
        Transactions, is based on the principle that exchanges of nonmonetary assets
        should be measured based on the fair value of the assets exchanged. The
        amendment made by SFAS 153 eliminates the exception for exchanges of similar
        productive assets and replaces it with a broader exception for exchanges
        of
        nonmonetary assets that do not have commercial substance. The provisions
        of the
        statement are effective for exchanges taking place in fiscal periods beginning
        after June 15, 2005. The Company does not believe the adoption of this Statement
        will have a material impact on its financial statements.





**2.** **SIGNIFICANT
      ACCOUNTING** **POLICIES**





**Revenue
      Recognition, Variable Costs, Allowances, Accounts Receivable and Bad Debts**





*Revenue*




The
      Company currently earns the material portion of its revenue from the E-commerce
      segment. This revenue primarily results from marketing agreements with the
      Company’s marketing partners and corporate customers. These marketing agreements
      satisfy the “existence of pervasive evidence of an arrangement” required under
      the current revenue recognition rules under Staff Accounting Bulletin (SAB)104.
      The provisions of each agreement determine the (a) pricing characteristics
      of
      the revenue generating activity, the specific type of revenue activity (i.e.
      on-line dating membership, website advertising activity, email marketing
      promotion and terms of LEC recurring billed products), and (b) the method of
      the
      Company’s delivery obligations to, and acceptance obligations of, its clients
      and customers, with (a) and (b) satisfying the criterion of SAB 104, that “sales
      price is fixed or determinable” and “delivery has occurred”. As a function of
      the Company’s client and customer acceptance process, the Company reviews bank
      and credit references, business financial statements and personal financial
      statements and/or obtains corporate officer guarantees (if appropriate), all
      of
      which satisfy the SAB 104 criteria, “collectibility is reasonably assured”.
      Based on the revenue recognition criterion discussed above, the Company believes
      it recognizes revenue when it is realizable and earned.





9




*Deferred
      Revenue*




The
      Company’s on-line dating service is a membership based arrangement, with
      membership offerings ranging from one month subscriptions to plans with annual
      terms. The one month membership plans form the bulk of the Company’s
      subscription sales. Deferred revenue is recorded net of estimated cancellations
      and is amortized over the life of the membership as it is earned. **




*Contra
      revenue*




At
      the
      time revenue is recognized, the Company provides for an estimate for
      contractually specified data qualification allowances, when required under
      the
      governing marketing agreement. Such data qualification allowances may include
      allowances for data duplications, invalid addresses, age and country of origin
      restrictions, and are recorded in a contra-revenue account.




*Cost
      of Sales*




Certain
      revenue related obligations are recorded at the time revenue is recognized.
      They
      include costs payable to other on-line, as well as off-line, media companies
      for
      generating registered users and consumer data for the Company, database fee
      sharing costs under third-party database use agreements, email message delivery
      costs, contingent-based prize indemnification coverage (i.e., sweepstakes payout
      indemnification), and estimated premium fulfillment costs related to the
      respective promotion (if applicable), representing all other variable costs
      directly associated with completing the Company’s obligations relative to the
      revenue being recognized, all of which satisfy the criteria regarding the
      concept of “other than a perfunctory, or inconsequential ongoing obligation” as
      specified in SAB 104.




*Accounts
      Receivable and Bad Debt Allowances*




Revenue
      recognition is also subject to provisions based on the probability of collection
      of the related trade accounts receivable. The Company continuously evaluates
      the
      potential of the collectibility of trade accounts receivable by reviewing such
      factors as deterioration in the operating results, financial condition, or
      bankruptcy filings of its customers. As a result of this review process, the
      Company records bad debt provisions to adjust the related receivable carrying
      amount to an estimated realizable value. Provisions for bad debts are also
      recorded due to the review of other factors, including the length of time the
      account receivables are past due, historical experience and other factors
      obtained during the conduct of collection efforts. If circumstances change
      regarding the Company’s specific customers on an individual basis, or if demand
      for Internet direct marketing softens, or if the U.S. economy stumbles, the
      Company’s estimates for bad debt provisions could be further increased, which
      could adversely affect its operating margins, profitability, cash flows and
      capital resources.




Accounts
        receivable consist of trade accounts receivable from the Company’s corporate
        customer base, credit card merchants and third party billing companies, with
        extension of credit varying between 30 to 90 days, with the majority at 30
        days,
        and as such, do not bear interest. Corporate customers with credit balances,
        generally resulting from prepayments, are classified as deferred revenue,
        and
        included in “Accrued expenses” on our balance sheets




Accounts
                Receivable by major category consist of the following at August 31,
                2005
                and 2004:





August
                31, 2005
            
            August
                31, 2004Accounts
                Receivable from:Corporate
                Clients
            
            $
            8,914,782
            
            $
            4,087,197Consumers
                via Credit Card Merchant arrangements, Third Party Billing companies
                and
                Local Exchange Carriers (LECs)
            
            
            957,295
            
            
            1,261,974Total
                Accounts Receivable
            
            $
            9,872,077
            
            $
            5,349,171








10




Following
      are the changes in the allowance for doubtful accounts for the nine months
      ended
      August 31, 2005 and 2004:




Beginning
                Balance
            
            Net
                additions (reductions) to allowance
            
            Write-offs
                net of recoveries
            
            Ending
                Balance2005
            
            $
            691,229
            
            
            170,241
            
            
            (44,075
            )
            $
            817,3952004
            
            $
            872,605
            
            
            307,928
            
            
            (52,636
            )
            $
            1,127,897




**Transactions
      with Major Customers and other Revenue Concentrations**





During
      the three and nine month periods ended August 31, 2005, one customer in the
      Company’s E-commerce segment accounted for approximately $2.1 million and $5.4
      million, or 13.2% and 11.7% of consolidated net revenues, respectively. With
      respect to the balance of the Company’s current customer base, no single
      customer had net revenues that equaled or exceeded 6.5% and 4.8% of consolidated
      net revenues for the three and nine month periods ended August 31, 2005,
      respectively. During the three and nine month periods ended August 31, 2004,
      we
      had one customer in our E-commerce segment accounting for approximately $0.9
      and
      $2.9 million, or 8.5% and 11.0% of consolidated net revenues, respectively.




In
      the
      three and nine months ended August 31, 2005, 15.0% and 16.0% of the Company’s
      revenue was derived from its proprietary products, respectively (13.9% and
      14.0%
      from iMatchUp.com, the Company’s online dating site, and 1.1% and 2.0% from its
      LEC Billed Product segment’s proprietary products).





**Goodwill,
      long lived assets and other purchased intangible assets**




Statement
      of Financial Accounting Standards No. 142, “Goodwill and Other Intangible
      Assets” (SFAS 142), requires goodwill to be tested for impairment on an annual
      basis, and more frequently under certain circumstances. Under SFAS 142, the
      Company is required to perform a two step process in its impairment assessment.
      Step one is to test for the potential of goodwill impairment. If the
      potential for impairment is identified by step one, then step two is undertaken
      to measure the amount of impairment loss. The Company conducts
      the tests described above, annually during its quarter ending August 31. During
      the quarter ended August 31, 2005, the Company tested its goodwill and found
      it
      to be free of impairment.




In
      the
      performance of its annual impairment testing, the Company will use estimates
      of
      the fair value of its aggregated goodwill using internal analysis, external
      economic and financial data, external market valuations, all of which
      incorporate valuation applications derived from revenue multiples, capitalized
      earnings and discounted cash flow models, and other comparable market valuations
      methods deemed relevant at that time.





SFAS
      144,
      Accounting for Impairment or Disposal of Long Lived Assets, requires long-lived
      assets to be reviewed for impairment if, or when, events or changes in
      circumstances indicate that their carrying amounts may not be recoverable.
      Determination of long-lived asset recoverability is based on estimated future
      cash flows expected to result from the use of such asset over its remaining
      useful life and the potential cash flows realizable from its possible
      disposition. If the sum of the expected future cash flows (undiscounted and
      without interest charges) is less than the carrying amount of the long-lived
      asset, an impairment loss is measured as a difference between carrying amount
      and the future discounted cash flows.





11




See
      Note
      8, “Goodwill and Identifiable Intangible Assets”.





**Stock-based
      Compensation**





Pursuant
      to Statement of Financial Accounting Standard (“SFAS”) No. 123, Accounting for
      Stock-Based Compensation, as amended by SFAS No. 148, the Company will continue
      to use the intrinsic value method of accounting for its employee and director
      stock-based compensation awards until its adoption of SFAS 123R. Accordingly,
      the Company has not recognized compensation expense for its noncompensatory
      employee and director stock option awards. As recommended by SFAS No. 123,
      the
      fair values of options were estimated using the Black-Scholes option-pricing
      model. Option vesting periods have historically been three years, except for
      grants to non-employee members of the Board of directors, which fully vest
      at
      the time of grant. Additionally, options have been granted to management that
      vest upon the attainment of specified financial performance hurdles. The
      Company’s adjusted net income and adjusted earnings per share had it elected to
      adopt the fair value approach of SFAS No. 123 in the current fiscal year, which
      charges earnings for the estimated difference between the strike price and
      the
      fair value of the stock options, would have been as follows:




**Three
                  Months Ended**
              
              **Nine
                  Months Ended****August
                  31,**
              
              **August
                  31,**
              
              **August
                  31,**
              
              **August
                  31,****2005**
              
              **2004**
              
              **2005**
              
              **2004**Net
                  income:As
                  reported
              
              $
              316,667
              
              $
              (124,321
              )
              $
              1,647,632
              
              $
              893,362Less:
                  Total stock-based compensation expense determined under fair value
                  based
                  method, net of related tax effects
              
              
              (125,539
              )
              
              (148,680
              )
              
              (366,305
              )
              
              (292,307
              )Pro
                  forma net income (loss)
              
              $
              191,128
              
              $
              (273,001
              )
              $
              1,281,327
              
              $
              601,055Basic
                  net income (loss) per share:As
                  reported
              
              $
              0.02
              
              $
              (0.01
              )
              $
              0.12
              
              $
              0.07Pro
                  forma net income (loss)
              
              $
              0.01
              
              $
              (0.02
              )
              $
              0.09
              
              $
              0.05Diluted
                  net income (loss) per share:As
                  reported
              
              $
              0.02
              
              $
              (0.01
              )
              $
              0.12
              
              $
              0.06Pro
                  forma net income (loss)
              
              $
              0.01
              
              $
              (0.02
              )
              $
              0.09
              
              $
              0.04








The
      pro
      forma amounts shown above, regarding stock based compensation, are not
      necessarily representative of the impact on net income in future
      periods.




**Income
      Taxes**




Quarterly
      income taxes are calculated in accordance with the interim financial reporting
      requirements as set forth in the Accounting Principal Board’s Opinion 28. Such
      Opinion considers interim quarterly periods as an integral part of the annual
      period, with interim quarterly tax periods reflecting the estimated annual
      effective tax rate. The Company believes that it has adequately provided for
      tax-related matters. The Company is subject to examination by taxing authorities
      in various jurisdictions. Matters raised upon audit may involve substantial
      amounts. Management considers it unlikely that resolution of any such matters
      would have a material adverse effect upon the Company’s consolidated financial
      statements.





**Non-cash
      Investing and Financing Activities**





Non-cash
      investing and financing activities are excluded from the consolidated statement
      of cash flows. For the nine months ended August 31, 2005 and August 31, 2004,
      non-cash activities included the following items:




**Investing
      Activities:**


**Stock
                    Issued in connection with Acquisitions (Also see notes 7 and
                    8)**
  **2005**
                
                **2004**Hot
                    Rocket Marketing, Inc. - January 21, 2005
                
                $
                682,280Send
                    Traffic, Inc. - June 30, 2004
                
                
                
                
                $
                1,085,453








12




**License
      Acquisitions**




In
      August
      2005, the Company entered into a license agreement with Melissa Data Corp.
      The
      agreement allows for the use of a Melissa product which cleans databases of
      inaccurate, incomplete or undeliverable addresses while verifying, correcting
      and standardizing them. The cost of the license was $14,915 and was fully paid
      at August 31, 2005. The license agreement is being amortized on a straight
      line
      basis over twelve months.





In
      May
      2005, the Company entered into a license agreement with Alliant Cooperative
      Data
      Solutions, LLC. The agreement allows for the use of an Alliant product which
      ranks and scores lists of consumers who register on our websites, allowing
      the
      Company to project the response rate of ordering a product after receiving
      an
      offer and the rate of payment given a response. The total cost of the license
      was $38,000, payable in three installments due in June, July and October 2005.
      The full liability was recognized at August 31, 2005 and $10,000 in payment
      obligations were remaining at that date. The license agreement is being
      amortized on a straight line basis over a three year period.




On
      March
      24, 2004, the Company entered into a license agreement with LiveOnTheNet.com
      Inc. The agreement allows the Company to market to consumers under its own
      brand
      name (Click Help), a software program, which enables home PC users to access
      customer service operators who provide real-time support for questions related
      to their personal computers.




The
      total
      cost of the software license was $200,000, payable by a $35,000 down payment
      and
      eleven monthly installments of $15,000, due on the first of the month,
      commencing April 1, 2004. As of August 31, 2005, the Company has fully satisfied
      its payment obligations under this license agreement, which is being amortized
      on the straight-line basis over a five year period.





**3.
      Earnings Per Share**




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




**Three
                  Months Ended**
              
              **Nine
                  Months Ended****August
                  31,**
              
              **August
                  31,**
              
              **August
                  31,**
              
              **August
                  31,****2005**
              
              **2004**
              
              **2005**
              
              **2004**Denominator:Denominator
                  for basic earnings per share-weighted average shares
              
              
              14,113,756
              
              
              13,492,677
              
              
              13,900,985
              
              
              13,185,138Effect
                  of dilutive securities:Stock
                  options
              
              
              333,529
              
              
              -
              
              
              390,809
              
              
              668,602Denominator
                  for diluted earnings per share-adjusted
                  weighted average shares
              
              
              14,447,285
              
              
              13,492,677
              
              
              14,291,794
              
              
              13,853,740
  Options
      to purchase 2,017,651 and 2,462,917 shares of common stock for the three months
      ended August 31, 2005 and 2004, respectively, and 1,652,101 and 676,017 for
      the
      nine months ended August 31, 2005 and 2004, respectively, were outstanding
      but
      were not included in the computation of diluted earnings per share because
      their
      effect would be anti-dilutive.





13




**4.** **Comprehensive
      Income (Loss)**





The
      Company presents foreign currency translation adjustments and unrealized gains
      and losses on its marketable securities (net of tax, when applicable) as a
      component of “comprehensive income (loss)” and are presented below:




**Three
                  Months Ended**
              
              **Nine
                  Months Ended****August
                  31,**
              
              **August
                  31,**
              
              **August
                  31,**
              
              **August
                  31,****2005**
              
              **2004**
              
              **2005**
              
              **2004**Net
                  income (loss)
              
              $
              316,667
              
              $
              (124,321
              )
              $
              1,647,632
              
              $
              893,362Other
                  comprehensive income (loss) , net of tax:Foreign
                  currency translation adjustment
              
              
              136,779
              
              
              112,029
              
              
              (10,312
              )
              
              (56,683
              )Unrealized
                  gains from available-for-sale securities, arising during the period,
                  net
                  of income taxes of $-0-
              
              
              70,759
              
              
              16,019
              
              
              10,735
              
              
              190,410Add:
                  reclassifiaction adjustment for gains realized in net income, net
                  of tax
                  effect of $224,684
              
              
              -
              
              
              -
              
              
              (360,584
              )
              
              -Comprehensive
                  income
              
              $
              524,205
              
              $
              3,727
              
              $
              1,287,471
              
              $
              1,027,089








**5.
      Advertising and Marketing**





The
      Company’s advertising and marketing costs, incurred in the advertising and
      marketing of the Company’s and its clients’ products, services and promotional
      offers, have historically been comprised of (1) costs associated with the
      transmission of email marketing messages, both from internal sources and
      external third-party vendors , (2)
      costs
      associated with the purchase of on-line consumer data (including registered
      users to the Company’s websites and its clients’ websites), and (3) email and
      website program promotional and creative development costs. During the nine
      months ended August 31, 2005, the Company included the costs of Internet media
      arbitrage purchases resulting from the January 21, 2005 acquisition of Hot
      Rocket Marketing, Inc. During the year ended November 30, 2004, as a result
      of
      the acquisition of SendTraffic.com,Inc., the Company included the costs of
      its
      search engine marketing activities in its advertising and marketing cost
      accounts. During the fiscal periods prior to these acquisitions, the Company
      incurred immaterial search engine marketing costs and did not participate in
      Internet media arbitrage activities.




Advertising
      and marketing costs are charged to operations (1) at the time of the email
      transmission, (2) upon receipt of the qualified consumer data, (3) at the time
      the promotional and creative services are provided, (4) at the time the search
      engine marketing media purchases are incurred, and/or (5) at the time the
      Company purchases the underlying Internet media, respectively, and are included
      as a component of cost of sales.




Total
      advertising and marketing costs included in cost of sales for the three months
      ended August 31, 2005 and 2004 were approximately $10,587,000 and $5,472,000,
      respectively, and for the nine months ended August 31, 2005 and 2004 were
      approximately $29,077,000 and $13,164,000, respectively.





**6.
      Segment Information**





Segments
      are defined as components of an enterprise for which separate financial
      information is available that is evaluated regularly by the chief operating
      decision maker(s) in deciding how to allocate resources and in assessing
      performance. Disclosure is also required about products and services, geographic
      areas and major customers. The Company’s segments operate principally in the
      United States with a presence in Canada. The Canadian presence contributed
      an
      immaterial amount to consolidated net revenue and net income. The Company’s two
      principle operating segments are: (a) E-commerce and (b) LEC Billed Products.
      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 adjusted EBITDA, which is 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) permanent
      impairment charges to long-lived assets, (vi) other non-operating income, (vii)
      minority interest (income)loss, (viii) depreciation, (ix) amortization and
      (x)
      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. The following
      tables set forth the Company’s financial results, by management’s performance
      criteria, by operating segment. All presented revenues are from nonintersegment
      sources, and, therefore no intersegment elimination applies.





14




***Segment
        Data - Net Revenue***
 **Three
                    Months Ended**
                
                **Nine
                    Months Ended****August
                    31,**
                
                **August
                    31,**
                
                **August
                    31,**
                
                **August
                    31,****2005**
                
                **2004**
                
                **2005**
                
                **2004**E-commerce
                
                $
                16,191,862
                
                $
                9,750,567
                
                $
                45,373,905
                
                $
                24,859,773LEC
                    Billed Products
                
                
                180,580
                
                
                457,981
                
                
                884,922
                
                
                1,658,924**Consolidated
                    totals**
                
                $
                16,372,442
                
                $
                10,208,548
                
                $
                46,258,827
                
                $
                26,518,697




***Segment
        Data - Adjusted EBITDA****
 **Three
                    Months Ended**
                
                **Nine
                    Months Ended****August
                    31,**
                
                **August
                    31,**
                
                **August
                    31,**
                
                **August
                    31,****2005**
                
                **2004**
                
                **2005**
                
                **2004**E-commerce
                
                $
                1,836,794
                
                $
                1,184,475
                
                $
                5,808,107
                
                $
                4,168,965LEC
                    Billed Products
                
                
                20,947
                
                
                (426,860
                )
                
                337,012
                
                
                (521,606
                )**Consolidated
                    totals**
                
                $
                1,857,741
                
                $
                757,615
                
                $
                6,145,119
                
                $
                3,647,359


Adjusted
      EBITDA is net income excluding corporate level general and administrative costs
      (including the exclusion of Corporate level depreciation and amortization),
      special charges, interest expense, interest and dividend income, net gains
      (losses) on the sale of marketable securities, realized gains on subsidiary
      sales, permanent impairment charges to long lived assets, other non-operating
      income (expense), minority interest (income) loss, depreciation, amortization
      and income taxes.




15




***Segment
        Data - Depreciation and Amortization***


**Three
                  Months Ended**
              
              **Nine
                  Months Ended****August
                  31,**
              
              **August
                  31,**
              
              **August
                  31,**
              
              **August
                  31,****2005**
              
              **2004**
              
              **2005**
              
              **2004**E-commerce
              
              $
              511,303
              
              $
              263,383
              
              $
              1,547,065
              
              $
              794,115**Consolidated
                  totals**
              
              $
              511,303
              
              $
              263,383
              
              $
              1,547,065
              
              $
              794,115




***Segment
        Data - Reconciliation of Reportable segment’s Adjusted EBITDA
        to***
 ***consolidated
        income (loss) before taxes***
 
 **Three
                  Months Ended**
              
              **Nine
                  Months Ended****August
                  31,**
              
              **August
                  31,**
              
              **August
                  31,**
              
              **August
                  31,****2005**
              
              **2004**
              
              **2005**
              
              **2004*****Adjusted
                  EBITDA - by segment***E-commerce
              
              $
              1,836,794
              
              $
              1,184,475
              
              $
              5,808,107
              
              $
              4,168,965LEC
                  Billed Products
              
              
              20,947
              
              
              (426,860
              )
              
              337,012
              
              
              (521,606
              )**Total
                  Adjusted EBIDTA**
              
              $
              1,857,741
              
              $
              757,615
              
              $
              6,145,119
              
              $
              3,647,359
 
 ***Items
        effecting Adjusted EBITDA in arriving at consolidated income (loss) before
        taxes***
  Corporate
                    (expense)
                
                
                (857,152
                )
                
                (1,089,683
                )
                
                (2,795,783
                )
                
                (2,939,926
                )Depreciation
                    and amortization (expense)
                
                
                (511,303
                )
                
                (263,383
                )
                
                (1,547,065
                )
                
                (794,115
                )Interest
                    income and dividends
                
                
                217,901
                
                
                137,572
                
                
                643,238
                
                
                360,293Realized
                    gains on marketable securities
                
                
                -
                
                
                9,478
                
                
                574,050
                
                
                32,148Realized
                    gain on sale of subsidiary
                
                
                -
                
                
                195,000
                
                
                195,000
                
                
                589,900Other
                    non-operating income(expense)
                
                
                (2,789
                )
                
                (1,577
                )
                
                (9,173
                )
                
                337,310Minority
                    interest in income of subsidiary
                
                
                (125,825
                )
                
                -
                
                
                (373,999
                )
                
                -**Total
                    items effecting****Adjusted
                    EBITDA**
                
                
                (1,279,168
                )
                
                (1,012,593
                )
                
                (3,313,732
                )
                
                (2,414,390
                )Consolidated
                    Income (loss) before taxes
                
                $
                578,573
                
                $
                (254,978
                )
                $
                2,831,387
                
                $
                1,232,969


16


****


**7.
      Asset Acquisitions and Asset Dispositions**





**Acquisition**




On
      January 21, 2005, the Company, through its wholly owned subsidiary, Hot Rocket
      Acquisition Corp., acquired all of the intangible assets of Hot Rocket Marketing
      Inc. and Clockwork Advertising Inc. (collectively “Hot Rocket”), corporations in
      the business of buying and selling performance based on-line advertising space
      for third parties. The acquisition was accounted for in accordance with SFAS
      141, Business Combinations. The Company believes that the Hot Rocket acquisition
      broadens its reach into the Internet direct marketing arena, potentially
      allowing for expanded client relationships and various other synergistic
      possibilities, such as adding value to the Company’s core operations by the
      enhancement of its current and developing marketing programs.




The
      purchase price was approximately $3.8 million and was comprised of $3.1 million
      in cash, $0.7 million (or 113,821 shares) of the Company’s common stock and
      transaction fees approximating $0.1 million. Based on an internal preliminary
      valuation, the reported purchase price includes approximately $2.2 million
      of
      goodwill and $1.6 million of identifiable intangibles. The Company is currently
      having the valuation prepared.




Under
      SFAS No.142, “Goodwill & Intangible Assets”, goodwill is not amortized, but
      it is reviewed for impairment on an annual basis. The identifiable intangibles
      acquired from Hot Rocket consist of employment contracts and internally
      developed software, which will be amortized on a straight-line basis over
      estimated useful lives of five and three years, respectively. It is expected
      that the entire goodwill value will be deductible for tax purposes based on
      the
      nature of the asset acquisition. The entire amount of the identifiable
      intangibles and goodwill are a component of the Company’s E-commerce
      segment.




In
      addition to the initial cost of the acquisition, we agreed to pay Hot Rocket
      a
      contingent purchase price of up to $12.5 million if Hot Rocket generates an
      aggregate of $27 million in EBITDA (as quantified in the Agreement) over the
      four year period following the closing. The contingent purchase price, if any,
      will be accounted for as additional purchase price in accordance with EITF
      95-8,
“Accounting for Contingent Consideration Paid to the Shareholders of an
      Enterprise in a Purchase Business Combination”. At August 31, 2005, the Company
      determined that at the current rate of growth recognized by Hot Rocket, it
      is
      probable that the first tier of contingent payment will be attained within
      the
      first measurement period, which ends February 28, 2006. The first tier
      contingent payment commences upon the attainment of EBITDA of $1.5 million
      for
      the period February 1, 2005 to January 31, 2006, and is capped at $4 million.
      As
      of August 31, 2005, the Company is not liable for any contingent payments,
      based
      on the subsidiary’s EBITDA being less than the first tier $1.5 million minimum
      threshold and therefore has not accrued any additional purchase price at August
      31, 2005. The Company will continue to assess its liability under the Hot Rocket
      contingent payment arrangement in each successive quarter, and will record
      additional purchase price through increased goodwill, if and when a liability
      is
      realized. For any interim period accrual of additional purchase price arising
      out of the contingent arrangement, the Company presently deems that it will
      be
      settled in cash, but retains the right to settle the final payment with a blend
      of cash and stock, with stock not to exceed 50% of the total payment and to
      make
      as much of such payment in cash as is necessary to keep all share issuances
      to
      Hot Rocket at a maximum of 19.9%.of the Company’s outstanding stock.




**Hot
      Rocket Pro Forma Information**




The
      Hot
      Rocket acquisition closed on January 21, 2005 and, as such the results of its
      operations are included in the Company’s consolidated results from that date
      through August 31, 2005. The pro forma disclosure set forth below provides
      the
      details as though the business combination had been completed as of December
      1,
      2004. The pro forma adjustments serve to: (1) eliminate intercompany
      transactions during the pre-acquisition period; (2) record amortization expense
      for the pre-acquisition period; (3) provide for income tax expense at Traffix’s
      marginal tax rate as applicable for the nine-month period ended August
      31,
      2005, applied to Hot Rocket’s adjusted pre tax income; and (4) increase the
      weighted average shares outstanding as if the acquisition shares were issued
      on
      December 1, 2004.





17





**Pro
                  forma****Traffix****12-01-04
                  to****8-31-05**Net
                  revenue
              
              $
              47,523,318Income
                  from operations
              
              
              2,062,663Income
                  before provision for income taxes
              
              
              3,091,779Net
                  income
              
              
              1,809,075Diluted
                  income per share
              
              $
              0.13Diluted
                  weighted average shares outstanding
              
              
              14,356,293





The
      pro
      forma disclosure set forth below provides the details as though the business
      combination had been completed as of the beginning of the nine month period
      commencing January 1, 2004. The Hot Rocket entity had a natural business year
      which ended December 31. Both the month of December 2003, and the period January
      1, 2004 to September 30, 2004, did not include any material, or non-recurring
      items requiring separate disclosure in the pro forma information. The pro forma
      adjustments serve to: (1) eliminate intercompany transactions; (2) record
      amortization expense for the nine months ended August 31, 2004; (3) provide
      for
      income tax expense at Traffix’s marginal tax rate as applicable to the
      nine-month period ended August 31, 2004, applied to Hot Rocket’s adjusted pre
      tax income; and (4) increase the weighted average shares outstanding as if
      the
      acquisition shares were issued on December 1, 2003.





**Proforma****Traffix****12-01-03
                  to****8-31-04**Net
                  revenue
              
              $
              34,108,701Income
                  from operations
              
              
              2,141,242Income
                  before provision for income taxes
              
              
              3,467,097Net
                  income
              
              
              2,278,521Diluted
                  income per share
              
              $
              0.16Diluted
                  weighted average shares outstanding
              
              
              13,967,531


**Fiscal
      year ended November 30, 2004 Asset Acquisitions**




During
      the fiscal year ended November 30, 2004, the Company entered into an Asset
      Acquisition Agreement for the acquisition of the assets of SendTraffic.com,
      Inc.
      (Send Traffic). The acquisition was accounted for in accordance with SFAS 141,
      Business Combinations. Send Traffic warranted that certain financial information
      contained in its unaudited June 30, 2004 balance sheet was accurate, and if
      such
      financial information ultimately proved post-closing to have been inaccurate,
      Send Traffic would return to the Company any shortfall. In order to ensure
      compliance with such warranty, the Company retained in escrow $250,000 of the
      purchase price. On November 24, 2004, the Company signed an Adjustment Agreement
      with the Greg Byrnes and Craig Handelman, the principals of Send Traffic (the
      “ST Stockholders”), regarding the final determination of the June 30, 2004
      balance sheet. In accordance with the Adjustment Agreement’s “Cash Adjustment”
      clause, the Company received $300,000 in cash from the Send Traffic principals,
      $250,000 of which came from the escrow withheld at closing, and an additional
      $50,000 of which was received on November 30, 2004. Additionally, under the
      Adjustment Agreement’s “Share Adjustment” clause, the Send Traffic principals
      returned 57,142 shares to the Company, which served to reduce the total shares
      issued in the asset acquisition to 176,799 shares, as compared to the original
      issuance of 233,941 shares.




Upon
      the
      consummation of the Send Traffic acquisition, each of the ST Stockholders
      entered into five-year employment contracts with the Company’s wholly-owned
      subsidiary.  Included in each of those contracts were restrictive covenants
      prohibiting the ST Stockholders from competing with the Company during the
      term
      of their employment and for a period of time thereafter (the “Restrictive
      Covenants”).





At
      the
      time of the Send Traffic acquisition, the Company allocated $665,000 (of the
      approximately $5.43 million purchase price) to the Restrictive Covenants, which
      the Company amortized over a five-year period, or through June 30, 2009.





On
      April 6, 2005, the employment relationship between the ST Stockholders
      and
      the Company terminated.  The Company maintains that the ST Stockholders
      resigned from their positions voluntarily and without good reason under the
      terms of their respective employment contracts, in which event the contracts
      provide that the Restrictive Covenants would continue in effect until
      June 30, 2007.  Accordingly, the Company is reducing the period
      over
      which it is amortizing the remaining unamortized portion of the purchase price
      allocated to the Restrictive Covenants to the period ending June 30,
      2007.  As a result of shortening the life of the Restrictive Covenants,
      the
      increased risk of competition and the reduced future revenues that may flow
      therefrom, the remaining carrying value of the Restrictive Covenants as of
      May
      31, 2005 (or $539,000) was re-evaluated in accordance with SFAS No. 144 and
      deemed to be impaired by approximately $137,000. This impairment loss is
      included in depreciation and amortization expense in the “administrative
      expense” caption of the Company’s income statement for the nine month period
      ended August 31, 2005. The impairment loss is allocated to the Company’s
      E-commerce segment.




18





The
      ST
      Stockholders have contended that their employment contracts were either
      terminated without Cause (as that term is defined in their respective employment
      contracts) by the Company, or that they were entitled to terminate the
      agreements as a result of actions taken by the Company with respect to the
      scope
      of their duties and responsibilities.  If it were determined that the
      ST
      Stockholders’ employment was terminated by the Company without Cause, then,
      under their employment contracts, each would have been entitled to severance
      of
      not less than 6 months’ and up to 12 months’ base salary (such amount determined
      by the Company in its discretion) and the Restrictive Covenants would have
      continued during the severance period. The remaining unamortized portion of
      the
      purchase price allocated to the Restrictive Covenants would be amortized over
      such period, which would have ended no earlier than November 6, 2005
      and no
      later than April 6, 2006, as determined by the Company, and, in accordance
      with SFAS 144, the remaining carrying value of the Restrictive Covenants would
      be re-evaluated, with the Company taking an impairment loss at the time of
      re-evaluation.  If, however, it were determined that the ST Stockholders
      were entitled to terminate their employment agreements with good reason as
      a
      result of actions taken by the Company, then the Restrictive Covenants would
      have ended on April 6, 2005, the date of termination, and, in accordance
      with SFAS 144, the remaining unamortized portion of the purchase price allocated
      to the Restrictive Covenants would be an expense in the current period. 
      Should it become necessary, the Company will defend its position vigorously
      and
      use whatever means available to enforce the Restrictive Covenants. 
      The
      Company is confident that, notwithstanding the departure of the ST Stockholders,
      the Company’s extensive and experienced workforce will allow it to grow the Send
      Traffic business and expand its contributions to the Company’s overall
      operations.




**Details
                of Acqusition**
            
            **SendTraffic.com**Fair
                Value of assets acquired
            
            $
            6,043,206Liabilities
                assumed
            
            
            (1,240,788
            )Stock
                issued
            
            
            (1,107,953
            )Cash
                paid
            
            $
            3,694,465Less:
                cash acquired
            
            
            (196,812
            )Net
                cash paid for acquisition
            
            $
            3,497,653








19




**8.
      Goodwill and Identifiable Intangibles Assets**




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




As
                of August 31, 2005
            
            As
                of November 30, 2004Gross
            
            
            
            GrossCarrying
            
            Accumulated
            
            Carrying
            
            AccumulatedAmount
            
            Amortization
            
            Amount
            
            AmortizationAmortizable
                intangible assets:*GroupLotto
                identifiable intangibles:*GroupLotto
                Site Brand Recognition
            
            $
            722,922
            
            $
            594,663
            
            $
            722,922
            
            $
            486,225GroupLotto
                Database
            
            
            433,754
            
            
            356,798
            
            
            433,754
            
            
            291,735Intellectual
                Property Assets
            
            
            289,169
            
            
            237,865
            
            
            289,169
            
            
            194,490Marketing
                Right License Fee
            
            
            252,915
            
            
            63,694
            
            
            200,000
            
            
            30,000*Infiknowledge
                identifiable intangibles:*Internet
                Game Suite
            
            
            258,304
            
            
            190,977
            
            
            258,109
            
            
            152,328Intellectual
                Property Assets
            
            
            193,728
            
            
            143,233
            
            
            193,582
            
            
            114,246Market
                Position Acquired
            
            
            215,254
            
            
            159,148
            
            
            215,091
            
            
            126,940-*Thanksmuch
                identifiable intangibles:*Profiled
                customer data
            
            
            50,000
            
            
            50,000
            
            
            50,000
            
            
            44,305Restrictive
                Covenants
            
            
            10,000
            
            
            8,211
            
            
            10,000
            
            
            6,878*SendTraffic
                identifiable intangibles:*Employment
                Contracts
            
            
            660,592
            
            
            308,842
            
            
            660,592
            
            
            55,049Software
            
            
            963,951
            
            
            345,980
            
            
            963,951
            
            
            123,563*Hot
                Rocket identifiable intangibles*Employment
                Contracts
            
            
            569,394
            
            
            69,909
            
            
            -
            
            
            -Software
            
            
            1,012,257
            
            
            207,136
            
            
            -
            
            
            -Total
                amortizable intangible assets
            
            $
            5,632,240
            
            $
            2,736,456
            
            $
            3,997,170
            
            $
            1,625,759Unamortized
                intangible assets:*Goodwill
                - Infiknowledge*
            
            $
            852,782
            
            
            
            
            $
            852,138*Goodwill
                - SendTraffic*
            
            
            3,103,870
            
            
            
            
            
            3,089,180*Goodwill
                - Hot Rocket*
            
            
            2,163,652*Goodwill
                - Thanksmuch*
            
            
            289,736
            
            
            
            
            
            289,736Total
                Goodwill
            
            $
            6,410,040
            
            
            
            
            $
            4,231,054








(1)
            The
                Infiknowledge identifiable intangibles and unamortizable goodwill
                carrying
                value changes as a result of the effects of foreign currency exchange
                translation.





The
      amortizable intangibles listed above are deemed to have a finite life of five
      years, or less, from the date of acquisition, with the weighted average life
      being 4.1 years. The straight-line method of amortization has been applied
      to
      such assets in calculating their respective amortization. The Internet and
      E-commerce industries, within which the Company conducts the majority of its
      business and has extensive experience, are dynamic and constantly evolving
      business arenas.




20





The
      amortization expense related to acquired amortizable identifiable intangibles
      assets have been recorded from the dates of the respective
      acquisitions.




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




**2005**
            
            **2006**
            
            **2007**
            
            **2008**
            
            **2009***GroupLotto
                Identifiable intangible amortization:*GroupLotto
                Site Brand Recognition
            
            $
            143,118
            
            $
            91,162
            
            $
            -
            
            $
            -
            
            $
            -GroupLotto
                Database
            
            
            85,871
            
            
            54,698
            
            
            
            
            
            -Intellectual
                Property Assets
            
            
            57,247
            
            
            36,465
            
            
            
            
            
            -Licenses
            
            
            50,590
            
            
            63,853
            
            
            52,667
            
            
            45,805
            
            
            10,000*Total
                Group’s amortization*
            
            $
            336,826
            
            $
            246,178
            
            $
            52,667
            
            $
            45,805
            
            $
            10,000*Infiknowledge
                Identifiable intangible amortization:*Cost
                allocatedInternet
                Game Suite
            
            $
            51,661
            
            $
            51,661
            
            $
            1,663
            
            $
            488
            
            $
            388Intellectual
                Property Assets
            
            
            38,746
            
            
            38,746
            
            
            1,247
            
            
            366
            
            
            291Market
                Position Acquired
            
            
            43,051
            
            
            43,051
            
            
            1,386
            
            
            407
            
            
            323*Total
                Group’s amortization*
            
            $
            133,458
            
            $
            133,458
            
            $
            4,296
            
            $
            1,261
            
            $
            1,002*ThanksMuch
                Identifiable intangible amortization:*Profiled
                customer data
            
            $
            5,695
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -Restrictive
                Covenants
            
            
            2,000
            
            
            1,122
            
            
            -
            
            
            -
            
            
            -*Total
                Group’s amortization*
            
            $
            7,695
            
            $
            1,122
            
            $
            -
            
            $
            -
            
            $
            -*SendTraffic
                identifiable intangible amortization:*Employment
                Contracts
            
            $
            304,042
            
            $
            201,000
            
            $
            100,501
            
            $
            -
            
            $
            -Software
            
            
            296,554
            
            
            296,554
            
            
            234,897
            
            
            12,382
            
            
            -$
            600,596
            
            $
            497,554
            
            $
            335,398
            
            $
            12,382
            
            $
            -*Hot
                Rocket identifiable intangible amortization*Employment
                Contracts
            
            $
            97,746
            
            $
            113,879
            
            $
            113,879
            
            $
            113,879
            
            $
            113,879Software
            
            
            289,618
            
            
            337,419
            
            
            337,419
            
            
            47,801
            
            
            -$
            387,364
            
            $
            451,298
            
            $
            451,298
            
            $
            161,680
            
            $
            113,879**Summary***GroupLotto
                Identifiable intangibles:*
            
            $
            336,826
            
            $
            246,178
            
            $
            52,667
            
            $
            45,805
            
            $
            10,000*Infiknowledge
                Identifiable intangibles:*
            
            
            133,458
            
            
            133,458
            
            
            4,296
            
            
            1,261
            
            
            1,002*ThanksMuch
                Identifiable intangibles:*
            
            
            7,695
            
            
            1,122
            
            
            -
            
            
            -
            
            
            -*Hot
                Rocket Identifiable intangibles:*
            
            
            387,364
            
            
            451,298
            
            
            451,298
            
            
            161,680
            
            
            113,879*SendTraffic
                identifiable intangibles:*
            
            
            600,596
            
            
            497,554
            
            
            335,398
            
            
            12,382
            
            
            -*Total
                identifiable intangible amortization*
            
            $
            1,465,939
            
            $
            1,329,610
            
            $
            843,659
            
            $
            221,128
            
            $
            124,881







21




**9.
      Income Taxes**




The
      Company’s income tax provision for the three month and nine months ended August
      31, 2005 was approximately $262,000 and $1,184,000, respectively, and includes
      $213,000 and $1,044,000 of expense related to the current year’s three and nine
      month operations and approximately $47,000 and $140,000 of period expenses
      related to an increases in the Company’s estimates related to tax audits.





The
      effective income tax rates for the three and nine months ended August 31, 2005
      were 45.3% and 41.8%, respectively. This differs from the Company’s estimated
      annual effective income tax rate of 41.6% described below, due primarily to
      projected consistent tax liability adjustments included in a quarterly
      fluctuating pre-tax income environment.





*Estimated
      Annual Effective Income Tax Rate.* The
      estimated annual effective income tax rate for 2005 differs from the U.S.
      federal statutory income tax rate of 34% as follows:




**Fiscal Year**
                
                **Fiscal Year****2005 (1)**
                
                **2004 (2)**Income
                    tax expense at U.S. federal statutory rate
                
                
                34.0
                %
                
                34.0
                %State
                    income taxes, net of U.S. federal impact
                
                
                2.2
                
                
                2.2Impact
                    of foreign operations
                
                
                1.3
                
                
                1.2Change
                    in contingent tax liabilities
                
                
                1.4
                
                
                (12.5
                )Other,
                    including non-deductible expenses
                
                
                2.7
                
                
                2.641.6
                %
                
                27.5
                %




(1)
              Estimated
                  annual effective income tax rate for fiscal year 2005.
 (2)
              Projected
                  annual effective income tax rate used for the nine months ended
                  August 31,
                  2004.




The
      “State income taxes, net of U.S. federal impact” item above primarily reflects
      franchise tax and minimum tax expense, net of related federal benefit, which
      the
      Company expects for the year. The Company currently has a significant valuation
      allowance against state net operating loss carryforwards, and a full valuation
      allowance against capital loss carryforwards. The annual estimated effective
      tax
      rate for 2005 does not include any anticipated benefit from additional current
      year state tax losses, nor does it anticipate any benefit from the use of
      capital loss carryovers.




10.
      Litigation




The
      Company is subject to legal proceedings, lawsuits and other claims, brought
      by:
      (1) consumers of the Company’s products and services; (2) the
      Company’s clients; (3) consumers of the Company’s clients’ products and
      services; and (4) others bringing claims that arise in the normal course
      of
      the Company’s business. Legal proceedings are subject to numerous uncertainties
      rendering the prediction of their outcome difficult. As a result of such
      uncertainty, the Company is unable to estimate the ultimate outcome of any
      of
      the subsequently mentioned claims, and, accordingly, no provision for loss
      has
      been recorded. The Company believes that individually, and in the aggregate,
      the
      ultimate settlement of the subsequently mentioned claims should not have a
      material adverse effect on its consolidated financial position, results of
      operations or cash flows.




*Qwest*




Qwest
      Communications, Inc. notified the Company of an indemnification claim
      relating to a class action filed against Qwest in Minnesota, *Bindner
      v. LCI International Telecom Corp. et al.* ,
      District Court of Minnesota, County of Sibley, Case No. C0-00-242 (the
      “Class Action”). In that action, plaintiffs claimed that from
      September 1998 to July 1999, they were misled when they were
      solicited
      to change their long distance carrier to Qwest. They asserted that they were
      not
      told that they would have to stay at certain hotels and pay their regular rates
      as part of a promotion involving free airline tickets. The Company introduced
      the promotion (“Fly Free America”) to Qwest, and was retained by Qwest to
      operate the telemarketing campaign pursuant to an Agreement between Qwest and
      the Company. In or about May 2000, Qwest and the Company entered into
      an
      agreement terminating the Agreement and settling the amount due the Company
      (the
“May 2000 Agreement”). The Agreement and the May 2000 Agreement
      contain language that Qwest claims obligates the Company to indemnify Qwest
      for
      the losses it sustained by reason of this class action. The Company maintains
      that it has no liability in the matter.




22




Fraud
        claims in the Class Action were dismissed, leaving breach of contract
        and
        false advertising claims. The court certified the class and Qwest, without
        the
        Company’s consent, agreed to settle the Class Action. The court approved
        the settlement agreement, stated that there was no finding of any liability
        against Qwest, and approved the attorneys’ fees for plaintiffs’ counsel. No
        appeal was taken so that the Class Action has been concluded.
  In
        November 2002, the Company commenced an arbitration against Qwest
        to
        recover certain amounts held in escrow that were due the Company pursuant
        to the
        May 2000 Agreement. In December 2002, Qwest filed counterclaims
        in the
        arbitration relating to the Fly Free America program. Qwest asserts that
        in
        connection with the Class Action, the Company must indemnify it for
        $3.4 million in Qwest attorneys’ fees; $600,000 in fees for counsel to the
        plaintiffs in the Class Action; and $500,000 in settlement payments
        to
        Class members. Qwest also sought reimbursement of approximately
        $3.1 million it paid the Company pursuant to the May 2000 Agreement.
        Initially, Qwest also sought to recover approximately $1.5 million
        of fines
        and penalties it claimed it paid to various attorneys general; Qwest has
        now
        withdrawn that claim.
  A
        panel
        of arbitrators was appointed in December 2003. The panel established
        a
        schedule for substantive motions and for hearings in June 2004.
        The
        arbitrators also provided for exchanges of information in the arbitration
        subject to Qwest’s right to seek to prevent such exchanges. Qwest moved to
        prevent exchanges of information and this application was granted. Qwest
        moved
        for summary judgment with respect to its indemnification counterclaim. That
        motion was denied. Arbitration hearings on liability were held during the
        week
        of June 20, 2005. The arbitrators reserved decision and bifurcated
        all
        issues of awards of legal fees such that any hearings on legal fees will
        be held
        after a decision on liability has issued.
  *Columbia
        House/Rydel*
  In
        or
        about August 2002, Columbia House, one of the Company’s clients, notified
        it of an indemnification claim relating to a class action filed against Columbia
        House, among others, in Illinois, *Rydel
        v. Comtrad Industries, Inc. et al.* ,
        Circuit
        Court of Cook County, Illinois, No. 02 CH 13269. In that action, plaintiff
        claims to have received unsolicited commercial e-mail from, among others,
        Columbia House, in violation of Illinois law, and asserts two basic claims
        against Columbia House, one for violation of Illinois’ Consumers Fraud Statute,
        the second for violation of Illinois’ Electronic Mail Act. Columbia House
        advised us that it believes that the email in question was not approved by
        Columbia House when it was sent, and asserted a claim for indemnification
        against the Company pursuant to its contract. The Company and Columbia House
        agreed to defer resolution of the indemnification claim (and reserved each
        of
        their respective rights). Columbia House is defending against the class action.
        Its motion to dismiss was granted as to the Consumer Fraud claim, but denied
        as
        to the Electronic Mail Act claim. The plaintiff has appealed the partial
        dismissal.
  In
        or
        about January 2003, the Company was named as a defendant in the *Rydel* class
        action. In an additional count in the complaint, the plaintiff asserted that
        the
        Company violated the Illinois Consumer Fraud and Deceptive Business Practices
        Act by providing to a co-defendant a list of consumers who had consented
        to
        receive commercial e-mails when, the complaint alleges, they had not. The
        complaint sought injunctive relief and unspecified damages. The Company’s motion
        to dismiss the claim as against it was granted in June 2003, and the
        plaintiff filed an appeal.
  In
        late
        2004, the appellate court affirmed the decision below, so that the claim
        against
        the Company is dismissed; the Consumer Fraud claim against Columbia House
        is
        dismissed; and the Electronic Mail Act claim against Columbia House remains.
        The
        plaintiff asked the appellate court to reconsider its decision, and the court
        denied that request on April 14, 2005.
  As
        stated
        above, the Company is unable to determine the ultimate outcomes of any of
        the
        foregoing claims or demands, and, accordingly, no provision for loss has
        been
        recorded.


23





**11.
      Subsequent Events**




On
      October 12, 2 005,
      the
      Company’s Board of Directors declared a dividend from
      the
      Company’s surplus of
      $0.08
      per share on the outstanding shares of the Company’s common stock for the
      quarter ended August 31, 2005. Such dividend is payable on or about November
      1,
      2005 to holders of record of such shares at the close of business on October
      21,
      2005. The Company can give no assurance that its Board will declare any
      dividends in future fiscal periods. Any further declarations will depend upon
      the Company’s performance, the level of its then current and retained earnings,
      if any, available capital surplus and projected capital requirements necessary
      for operations, and other pertinent factors. You should not rely on any prior
      approvals of the Board as an indicator of its intent to approve the declaration
      of any dividends in the future.





**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 contains forward-looking
      statements and information relating to the Company that are based on the current
      beliefs, expectations and estimations of Management, as well as assumptions
      made
      by and information currently available to the Company. When used in this
      Management’s Discussion and Analysis, and elsewhere in this Form 10-Q, the words
“anticipate”, “believe”, “estimate”, “continue”, and “expect”, and variations of
      such words and similar expressions, as they relate to the Company, are intended
      to identify forward-looking statements. Such statements are not guarantees
      of
      future performance, but reflect the current views of the Company’s management
      with respect to future events and are subject to certain risks, uncertainties
      and assumptions, which could cause the actual results to differ materially
      from
      those reflected in the forward-looking statements. These forward-looking
      statements are made pursuant to the safe harbor provisions of the Private
      Securities Litigation Reform Act of 1995.





**Overview**




We
      are a
      leading Internet media and marketing company that uses our on-line media network
      to generate leads and 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. The services we offer include
      the
      development of a complete creative promotion to be used to market the client’s
      product to consumers, broadcasting a promotion on-line in order to generate
      new
      customers for the client, delivery of data files from the results of campaigns,
      creating and hosting the customized websites or web pages necessary to effect
      the consumer transaction that drives the client’s sales and generating
      comprehensive reporting in order for the client to analyze the effectiveness
      of
      a promotion. We use the media of our websites, as well as email, search engines
      and other on-line media to generate the customers, sales and leads for our
      clients, and for our own product and service offers. We are paid by our clients
      primarily on a success-based model, in that we receive a fee for every lead,
      customer or sale generated for the client.




In
      addition to our third party client-based revenue, we generate revenue directly
      from consumers from our own products and services. In Fiscal 2003, we expanded
      our line of direct-to-consumer products and services to include Internet based
      services, such as iMatchUp.com, our on-line dating service, which revenues
      are
      included in our E-commerce segment, and TXNet/WorldWebAccess, our ISP, VOIP
      and
      email products, which comprise our LEC Billed Products segment. During Fiscal
      2004, we introduced Click-Help, an addition to our LEC Billed Product suite
      that
      offers 24/7 technical assistance to the home PC user, under a recurring monthly
      billing plan. We discontinued new customer acquisitions for our LEC Billed
      Products segment during the fourth quarter of Fiscal 2004. We continue to expend
      effort to effectively seek out other products that fit the LEC billing mode
      that
      exhibit the potential for acceptable economic returns. LEC Billed Products
      do
      not have any long-lived assets associated with the segment. These “direct to
      consumer” generated products and services accounted for approximately $2.5
      million and $7.4 million, or 15.0% and 16.0%, respectively, of our revenue
      during the three and nine month periods ended August 31, 2005, as compared
      to
      $2.2 million and $6.4 million, or 21.2% and 24.0% for the three and nine month
      periods ended August 31, 2004.





24





We
      also
      generate revenues from the sales and rentals (for use both on-line and off-line)
      of our proprietary, profiled databases, which are included in our E-commerce
      segment.





**Background**





From
      our
      inception in 1993 (under the name “Quintel Communications, Inc.”) through 1999,
      we generated the bulk of our revenue from direct marketing using the traditional
      media of television, postal mail and telemarketing. In 2000, we repositioned
      our
      direct 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
      arena, we have been able to provide enhanced response-based results in a
      cost-efficient and scaleable manner via on-line marketing.





**On-Line
      Marketing**





We
      own
      and operate a variety of Internet websites featuring specialized content such
      as
      downloadable music, recipes, greeting cards, automobile information, DVD
      promotions, and on-line dating. We generate traffic to our websites from
      advertising on third party Internet media (i.e., search engines, email and
      banner advertisements) and through cross-marketing within our own on-line media.
      Our Web properties and our marketing activities are designed to generate
      real-time response-based marketing results for our corporate clients. When
      visiting our on-line properties, consumers are given the opportunity to
      purchase, sign-up for, ask to be
      contacted regarding, or simply indicate an interest in, hundreds of offers
      for
      various products and services. Specifically, through these interactive Web
      properties we generate a variety of transactional results 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) sales of products and services.





*Websites.* We
      own
      and operate a variety of websites with a broad range of content. Virtually
      all
      of our websites generate revenue from client advertisements. The advertisements
      are served across all of our websites using our internally-developed technology
      that serves ads to website visitors using an algorithm that takes into account
      a
      number of factors, including information supplied by the visitor upon
      registration (e.g, gender, age and zip code), as well as the price paid by
      our
      customer to serve the ad.





The
      websites feature content ranging from music for downloads to sweepstakes. We
      recently launched EZ-Tracks.com, a site that features over thirty thousand
      songs
      available for free and legal downloading, as well as other content such as
      musical greeting cards and a downloadable version of the Bible in audio format.
      We have a games website that offers a variety of free parlor-style games, such
      as backgammon and checkers. We also recently launched a website that features
      thousands of cooking recipes, reciperewards.com.





Our
      PrizeDistributors, Inc. sponsored group of websites offers consumers the
      opportunity to win up to $1 million daily in our free, on-line sweepstakes.
      The
      sweepstakes 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 us and our
      marketing partners.





25




We
      own
      and operate several other websites such as AtlasCreditGroup.com,
      TheBargainSpot.com, AltasAutomotiveGroup.com, Take 1 Entertainment.com,
      prizecade.com and jewelclaimcenter.com. Each of these sites is designed to
      appeal to a specific consumer interest category that we matched with client
      promotions that appeal to such interest category.





*Email
      Marketing.* Each
      program that we market for our clients can be implemented not only through
      the
      websites, but also, and often, through email marketing. We currently market
      to a
      vast database, which includes consumer data that is either owned by us or is
      managed by us under our revenue share arrangements whereby we recognize the
      gross revenue as earned and bear the payment obligation to the list owner,
      irrespective of receipt of payment from our clients.





*Results
      Analysis.* Even
      after campaigns are fully implemented, we continually 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 traditional direct-marketing disciplines that we apply,
      and
      that we believe, distinguish us from many of our competitors in the on-line
      marketing industry.




*Syndication.* After we
      develop a campaign that works efficiently on our own media, we sometimes
“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 other on-line
      media companies. We believe that with syndicated offers we can leverage
      campaigns we have developed so that in future fiscal periods we can generate
      additional revenue with reduced costs and risks associated with such business
      extension.





**PRODUCTS
      AND SERVICES**





We
      introduced several new businesses during Fiscal 2003, and further expanded
      those
      new business units in Fiscal 2004, including an on-line dating program
      (“iMatchup.com”) included in our E-commerce segment, and Internet-based service
      products such as a PC home user technical support service, an ISP service and
      email accounts that are LEC Billed (“Click-Help”, “TxNET” and “WorldWideAccess,
      Inc.”). These new business units are designed as monthly recurring billing
      programs, such as membership to iMatchUp.com. Revenue from these businesses
      is
      generated primarily from billing consumers directly. Imatchup.com became a
      significant source of revenue for us in 2004, and continues to be a significant
      source of revenue as represented by its approximate $2.3 million, or 13.9%
      contribution to consolidated net revenue for the three months ended August
      31,
      2005, as compared to $1.7 million, or 16.7% contribution during the comparable
      prior year fiscal period. During the nine month period ended August 31, 2005
      Imatchup contributed $6.5 million, or 14.1% of consolidated net revenue, as
      compared to $4.7 million, or 17.7% in the comparable prior year fiscal period.




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





26





**GOVERNMENT
      REGULATION**




As
        a
        direct-to-consumer marketing company we are subject to a variety of federal,
        state and local laws and regulations designed to protect consumers that govern
        certain of our marketing practices.
 
 Federal
        legislation was signed into law, effective January 1, 2004, purportedly
        pre-empting existing and pending state e-mail marketing legislation. The
        CAN-SPAM Act of 2003 ("CAN-SPAM") requires that certain "opt-out" procedures,
        including, but not limited to, a functioning return e-mail address, be included
        in commercial e-mail marketing. CAN-SPAM prohibits the sending of e-mail
        containing false, deceptive or misleading subject lines, routing information,
        headers and/or return address information; however, CAN-SPAM does not permit
        consumers to file suit against e-mail marketers for violations of CAN-SPAM.
        We
        believe that this may benefit us, as individuals will be more limited in
        their
        ability to file frivolous suits against us, as they have in the past. If
        any
        subsequent federal regulations are enacted, including, but not limited to,
        those
        implementing regulations promulgated by the FTC that limit our ability to
        market
        our offers, we could potentially realize a material adverse impact in future
        fiscal period net revenue growth, and, therefore, profitability and cash
        flows
        could be adversely affected.
 
 In
        contrast to CAN-SPAM, most state deceptive marketing statutes contain private
        rights of action. Such private right of action lawsuits may have an adverse
        impact in future fiscal period net revenue growth, as individuals may be
        more
        inclined to file frivolous state deceptive marketing suits against us.
 
 Under
        its
        rule-making authority, the Federal Communications Commission ("FCC") in
        August 2004 adopted rules prohibiting sending of unsolicited commercial
        e-mails to wireless phones and pagers. To assist in compliance with the rules,
        the FCC published on February 7, 2005 a list of mail domain names
        associated with wireless devices. Senders were given thirty (30) days
        to
        come into compliance. Thereafter, it became illegal to send unsolicited
        commercial e-mail to a domain address on the list unless the subscriber gave
        prior express authorization. The effect of these rules is to create a "double
        opt-in" requirement for each sender of mail (advertiser and publisher). The
        practical consequence of these requirements on senders of commercial e-mail
        is
        that conducting compliant campaigns will necessitate the suppression of the
        domains listed in the FCC's list of wireless domains. Additionally, since
        domain
        suppression is now required as a practical matter by law, any campaigns that
        have domain suppression lists will have those lists included with the regular
        e-mail suppression lists. Our publishers will be required to suppress the
        domain
        lists associated with each campaign in the same manner that they already
        suppress the e-mail address lists. Although these new regulations do not
        have a
        material adverse impact on our current operations, there can be no assurance
        that they will not have a material adverse impact on our future operations.
 
 Under
        its
        rule-making authority, in May 2005, the Department of Justice adopted
        rules
        that amend the record keeping and inspection requirements for producers of
        sexually explicit performances. Codified in 18 U.S.C. 2257 of the federal
        criminal code, Section 2257, as amended, went into effect on June 23,
        2005 and requires a class referred to as "secondary producers" to comply
        with
        the record keeping and inspection requirements that apply to primary producers.
        At present, The Free Speech Coalition, Inc. has brought litigation
        that
        challenges, among other things, the extent to which webmasters and/or web
        sites
        fall under the definition of "secondary producers" under the new
        Section 2257 regulations. There is the risk that the definition of
        "secondary producers" may be broadly interpreted. At this juncture,
        Section 2257 has had no material effect on our net revenue growth,
        profitability and cash flows. We await a result of the challenge.
 
 The
        states of Michigan and Utah have passed Child Protection Registry laws that
        bar
        the transmission of commercial e-mail to registered state residents under
        the
        age of eighteen (collectively, the "Statutes"). The Statutes contain provisions
        for fines and jail time for violators, and create a private right of action
        for
        aggrieved parties. Under the Statutes, state residents may register any e-mail
        address, fax number, wireless contact information or instant message identifier
        assigned to the account of a minor or one to which a minor has access. Unlike
        other e-mail marketing statutes, there are no opt-in or pre-existing business
        relationship exceptions. The Statutes provide that once an address of a state
        resident is on the registry for thirty (30) days, commercial e-mailers
        are
        prohibited from sending to that address anything containing an advertisement,
        or
        even a link to an advertisement, for a product or service that a minor is
        legally prohibited from accessing. Such products and/or services include,
        but
        are not limited to, alcohol, tobacco, gambling, firearms, automotive, financial,
        prescription drug and adult material. This prohibition remains in force even
        if
        the e-mail or other communication is otherwise solicited. To the extent we
        market these types of products and/or services, we have blocked sending such
        e-mail to Michigan and Utah residents.


27




Legislation
        has been passed in twelve (12) different states that are intended
        to
        regulate "spyware" and, to a limited extent, the use of "cookies." Of particular
        significance is the Revised Utah Spyware Control Act (the "Utah Act") that
        bars
        a person or company from using a context-based trigger mechanism to display
        an
        advertisement that partially or wholly covers paid advertising or other content
        on a website in a way that interferes with the user's ability to view the
        website. The Utah Act also requires purveyors of pop-up advertising to ask
        whether a user is a resident of the state of Utah before downloading "spyware"
        software onto the user's computer and further allows a trademark owner to
        sue
        any person or company who displays a pop-up advertisement in violation of
        a
        specific trademark protection which is set forth in the Utah Act. Similarly,
        the
        State of Alaska has legislation pending that would require such disclosure
        prior
        to downloading "spyware" software onto the user's computer. In practice,
        we do not provide or use "spyware" in our marketing, but if more restrictive
        legislation is adopted, we may be required to develop new technology and/or
        methods to provide our services or discontinue services in some jurisdictions
        altogether. Additionally, there is a risk that state courts will broadly
        interpret the term "spyware" to include legitimate ad-serving software and/or
        cookie technology that is currently provided or used by us.
 
 At
        the
        federal level, competing bills are pending which are also intended to regulate
        "spyware" and, to a limited extent, the use of "cookies." "Spyware" has not
        been
        precisely defined in existing and pending legislation, but is generally
        considered to include software which is installed on consumers' computers
        and
        designed to track consumers' activities and collect and possibly disseminate
        information, including personally identifiable information, about those
        consumers without their knowledge and consent. As stated above, we do not
        provide or use "spyware" in our marketing practices, but there is the risk
        that
        the definition of spyware may be broadly interpreted to include legitimate
        ad-serving software and/or cookie technology that is currently provided or
        used
        by us. Anti-spyware legislation has 1) generally included a limited
        exemption for the use of cookies; and 2) focused on providing consumers
        with notification and the option to accept or decline the installation of
        spyware software. However, there can be no assurance that future legislation
        will not incorporate more burdensome standards by which the use of cookies
        will
        not be exempted and software downloading onto consumers' computers will not
        be
        more strictly enforced. If more restrictive legislation is adopted, we may
        be
        required to develop new technology and/or methods to provide our services
        or
        discontinue services in some jurisdictions altogether.
 
 Legislation
        has also been passed at the state level and competing bills are pending at
        the
        federal level which are intended to require that businesses and institutions
        provide notice to consumers of any potential theft or loss of sensitive consumer
        information then in possession of the applicable business or institution.
        At the
        state level, the State of New York requires companies, governments and private
        organizations to notify customers in cases where confidential information
        has
        been exposed to possible thieves (the "NY law"). Upon taking effect in
        December 2005, the NY law will make customer notification mandatory
        in the
        event that personally identifiable information (including, but not limited
        to,
        social security numbers, driver's license numbers or bank and financial account
        numbers) has been accessed by third parties. To the extent that we collect
        such
        personally identifiable information, the NY law may increase our costs to
        protect such information.
 
 At
        the
        Federal level, the FTC, pursuant to its enforcement authority, filed a complaint
        against BJ's Wholesale Club, Inc. ("BJ's") for violation of the FTC
        Act in
        connection with the theft of consumer credit/debit card information which
        was
        then in BJ's possession. The FTC alleged that BJ's failure to secure customers'
        sensitive information was an unfair practice under the FTC Act because it
        caused
        substantial injury that was not reasonably avoidable by consumers and not
        outweighed by offsetting benefits to consumers or competition. BJ's agreed
        to a
        settlement that requires BJ's to establish and maintain a comprehensive
        information security program that includes administrative, technical and
        physical safeguards. Although we do not anticipate that this interpretation
        of
        the FTC Act, nor the legislation requiring notice of theft or loss of sensitive
        consumer information, will have a material adverse impact on our current
        operations, we could potentially be subject to regulatory proceedings for
        past
        and current practices in connection with the storage and security of sensitive
        consumer information and notice of such sensitive consumer information's
        theft
        or loss. In addition, we may be required to make changes in our future practices
        relating to the storage, security and provision of notice in connection with
        sensitive consumer information.
 
 At
        present, the laws and regulations governing the Internet remain largely
        unsettled, even in areas where there has been legislative and/or regulatory
        action. It is uncertain as to how long it will take to determine the extent
        to
        which existing laws, including, but not limited to, those relating to
        intellectual property, advertising, sweepstakes and privacy, apply to the
        Internet and Internet marketing. Recently, growing public concern regarding
        privacy and the collection, distribution and use of Internet user information
        has led to increased Federal and state scrutiny, as well as regulatory activity
        concerning data collection, record keeping, storage, security, notification
        of
        data theft, and associated use practices. The application of existing laws
        or
        the adoption or modification of laws or regulations in the future, together
        with
        increased regulatory scrutiny, could materially and adversely affect our
        business, prospects, results of operations and financial condition and could
        potentially expose us and/or our clients to fines, litigation, cease and
        desist
        orders and civil and criminal liability.




28


**TRANSACTIONS
      WITH MAJOR CUSTOMERS**





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





**SEGMENT
      INFORMATION**





During
      the three and nine month periods ended August 31, 2005 and 2004, we generated
      revenue from the following segments: E-Commerce and LEC Billed Products. The
      E-Commerce segment currently represents the core of our business operations.
      Revenue in the E-commerce segment is generated primarily from marketing of
      third-party products and services on our websites, through email, and through
      our two recently acquired subsidiaries from search engine optimization services
      and from Internet advertising agency revenue. The LEC Billed Products segment
      consists of our proprietary LEC billed products, marketed under the brands
      Click-Help, TXNet ISP and WorldWebAccess, Inc. These products were introduced
      during Fiscal 2003 and 2004.




Segment
      information is set forth in Note 6 to the Consolidated Financial Statements
      referred to in the Financial Statements and Supplementary Data section included
      herein.





**RESULTS
      OF OPERATIONS**





The
      following is a discussion of our results of operations for the three and nine
      month periods ended August 31, 2005 and 2004. It should be read in conjunction
      with our Form 10-K as filed for the year ended November 30, 2004, the notes
      thereto and other financial information included elsewhere in this
      report.





29





**THREE
      MONTHS ENDED AUGUST 31, 2005 AND 2004**





Our
      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, 2005
      and 2004, are detailed in the following tables:




**SEGMENT
        DATA - NET REVENUES, BY SEGMENT, BY COMPONENT**


**Three
                  Months Ended**
              
              **Change**
              
              **Change****August
                  31,**
              
              **August
                  31,**
              
              **Inc(Dec)**
              
              **Inc(Dec)****2005**
              
              **2004**
              
              **$$$**
              
              **%%%****E-Commerce
                  components**iMatchUp.com
                  dating sites
              
              $
              2,282,112
              
              $
              1,704,276
              
              $
              577,836
              
              
              34
              %Website
                  advertising
              
              
              5,927,020
              
              
              4,564,961
              
              
              1,362,059
              
              
              30
              %Search
                  Engine Marketing
              
              
              2,586,971
              
              
              862,585
              
              
              1,724,386
              
              
              200
              %Internet
                  Advertising Agency
              
              
              2,025,660
              
              
              -
              
              
              2,025,660
              
              
              100
              %Email
                  marketing programs
              
              
              2,237,773
              
              
              1,822,097
              
              
              415,676
              
              
              23
              %Data
                  sales and rentals
              
              
              293,458
              
              
              451,545
              
              
              (158,087
              )
              
              -35
              %Sales
                  of jewelry and gifts
              
              
              7,859
              
              
              45,952
              
              
              (38,093
              )
              
              -83
              %Internet
                  game development and other
              
              
              831,009
              
              
              299,151
              
              
              531,858
              
              
              178
              %**Total
                  E-commerce**
              
              
              16,191,862
              
              
              9,750,567
              
              
              6,441,295
              
              
              66
              %**LEC
                  Billed Product components**Click-Help,
                  WWA and TXNet LEC Products
              
              
              180,580
              
              
              457,981
              
              
              (277,401
              )
              
              -61
              %**Total
                  LEC Billed Products**
              
              
              180,580
              
              
              457,981
              
              
              (277,401
              )
              
              -61
              %**Total
                  Consolidated Net Revenue**
              
              $
              16,372,442
              
              $
              10,208,548
              
              $
              6,163,894
              
              
              60
              %








Net
      Revenue increased approximately $6.2 million, or 60%, to $16.4 million for
      the
      three months ended August 31, 2005, from $10.2 million in the prior year’s
      comparable period. The E-commerce segment’s core business grew organically,
      primarily driven by an expansion in our customer base across the majority of
      our
      revenue components, coupled with revenues generated from a prior year
      acquisition, and accounted for approximately $4.4 million of the consolidated
      revenue increase. Supplementing the core E-commerce growth was $2.0 million
      in
      revenue earned from our January 21, 2005 Hot Rocket acquisition. All
      intersegment sale activity is eliminated from disclosed revenues.





30





Our
      cost
      of sales during the three months ended August 31, 2005 and 2004 were comprised
      of (1) direct and indirect marketing costs associated with the
      acquisition  and
      retention of consumers for our marketing programs, including direct response
      email marketing costs, website registrations, customer profiles, other customer
      acquisition costs, search engine marketing costs, promotional and creative
      costs, and (2) the related contingent-based sweepstakes indemnification expense,
      billing and collection fees and customer service costs.





Our
      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, 2005
      and 2004, are set forth below:




**Consolidated
        Cost of Sales, by Segment, by Component**


**Three
                  Months Ended**
              
              **Change**
              
              **Change****August
                  31,**
              
              **August
                  31,**
              
              **Inc(Dec)**
              
              **Inc(Dec)****2005**
              
              **2004**
              
              **$$$**
              
              **%%%****E-commerce****Advertising,
                  promotion and fulfillment costs**Email
                  marketing and related delivery costs
              
              $
              1,274,875
              
              $
              1,112,735
              
              $
              162,140
              
              
              15
              %Website
                  registrations, customer profiles, search and all other related
                  customer
                  acquisition costs
              
              
              7,887,132
              
              
              4,272,135
              
              
              3,614,997
              
              
              85
              %Promotional,
                  creative and other costs
              
              
              85,491
              
              
              86,859
              
              
              (1,368
              )
              
              -2
              %Purchases
                  of on-line advertising space
              
              
              1,339,958
              
              
              -
              
              
              1,339,958
              
              
              100
              %**Total
                  E-commerce Advertising**
              
              
              10,587,456
              
              
              5,471,729
              
              
              5,115,727
              
              
              93
              %**Service
                  Bureau fees**Contingent
                  based prize indemnification costs
              
              
              33,947
              
              
              90,775
              
              
              (56,828
              )
              
              -63
              %**Total
                  E-commerce Cost of Sales**
              
              
              10,621,403
              
              
              5,562,504
              
              
              5,058,899
              
              
              91
              %**LEC
                  Billed Product Components****Service
                  Bureau fees**Service
                  provision, billing and collection fees
              
              
              136,140
              
              
              772,891
              
              
              (636,751
              )
              
              -82
              %**Total
                  LEC Billed Cost of Sales**
              
              
              136,140
              
              
              772,891
              
              
              (636,751
              )
              
              -82
              %**Consolidated
                  Cost of Sales**
              
              $
              10,757,543
              
              $
              6,335,395
              
              $
              4,422,148
              
              
              70
              %








Cost
      of
      sales on a consolidated basis increased $4.4 million, or 70%, to $10.8 million
      for the three months ended August 31, 2005 from $6.3 million in the comparable
      prior year period.




The
      primary factor contributing to the increase in consolidated costs of sales
      was
      related to a net increase of approximately $5.1 million in costs incurred by
      our
      E-commerce segment in the generation of its increased revenues. The E-commerce
      segment recognized an increase of $3.6 million, or 85% in its media purchases,
      which include website registrations, customer profiles, search engine costs
      and
      all other on-line customer procurement costs. The Company has adjusted its
      marketing emphasis to be more dependent on revenue generation via Search
      traffic, and accordingly incurred approximately $5.1 million on such marketing
      expenditures during the three months ended August 31, 2005, as compared to
      $0.7
      million in similar expenditures during the three months ended August 31, 2004.
      During the three months ended August 31, 2005 cost of revenue also included
      approximately $1.3 million in direct purchases of on-line advertising space,
      which is resold on a performance return basis by our Hot Rocket subsidiary,
      which was acquired on January 21, 2005.





31




The
      increase in E-commerce cost of sales further resulted from an increase of $0.2
      million, or 15%, in email marketing costs (which includes certain operating
      costs necessary to handle the email operations of our Infiknowledge subsidiary)
      to promote the segment’s revenue generating opportunities directly related to
      email promotions and to cause potential (as well as repeat) customers to visit
      the Company’s websites, and, once there, to register and become customer
      profiles available to be marketed in current and future fiscal periods. See
      “-Consolidated Gross Profit, by Segment” for a discussion of anticipated future
      revenue recognition as a result of current period costs incurred.




The
      cost
      of sales related to our LEC Billed Product segment declined approximately $0.6
      million, or 82%, when compared to the prior year’s comparable period. LEC costs
      are principally comprised of billing, collection and customer service costs.
      We
      terminated our marketing efforts during the fourth quarter of Fiscal 2004
      regarding the acquisition of new LEC Billed Product segment customers which
      is
      the reason for the comparative period decline in LEC Billed Product segment
      cost
      of revenues.





Our
      gross
      profit in terms of dollars, on a segmental basis, and our gross profit
      percentage, on a segmental basis, for each of the three-month periods ended
      August 31, 2005 and 2004, are set forth below:





***Consolidated
        Gross Profit, by Segment***


**Three
                  Months Ended**
              
              **Change**
              
              **Change****August
                  31,**
              
              **August
                  31,**
              
              **inc(dec)**
              
              **inc(dec)****2005**
              
              **2004**
              
              **$$$**
              
              **%%%**E-commerce
              
              $
              5,570,459
              
              $
              4,188,063
              
              $
              1,382,396
              
              
              33
              %LEC
                  Billed products and services
              
              
              44,440
              
              
              (314,910
              )
              
              359,350
              
              
              114
              %**CONSOLIDATED
                  TOTALS**
              
              $
              5,614,899
              
              $
              3,873,153
              
              $
              1,741,746
              
              
              45
              %




***Consolidated
        Gross Profit Percentages, by Segment***


**Absolute**
              
              **Relative****Three
                  Months Ended**
              
              **percentage**
              
              **percentage****August
                  31,**
              
              **August
                  31,**
              
              **change**
              
              **change****2005**
              
              **2004**
              
              **Inc
                  (dec)**
              
              **Inc(dec)**E-commerce
              
              
              34.4
              %
              
              43.0
              %
              
              -8.6
              %
              
              -20.0
              %LEC
                  Billed products and services
              
              
              24.6
              %
              
              -68.8
              %
              
              93.4
              %
              
              135.8
              %**CONSOLIDATED
                  GROSS PROFIT PERCENTAGE**
              
              
              34.3
              %
              
              37.9
              %
              
              -3.6
              %
              
              -9.5
              %








Consolidated
      Gross Profit (“Gross Margin”) as a percentage of net revenue was 34.3% during
      the three months ended August 31, 2005, compared to 37.9% in the prior year’s
      comparable period, representing an absolute percentage point decrease of 3.6%,
      or a 9.5% decrease on a relative basis.




32




The
      decline in gross profit percentage is primarily attributable to three factors:




(1)
      The
      impact on gross margin from significant increases in search engine marketing
      expenditures and other third party online customer acquisition costs for our
      web
      advertising destinations, with all such costs being charged to operations when
      incurred, and where such outlays are expected to continue to generate revenue
      in
      future fiscal periods.




(2)
      The
      impact on gross margin from our iMatchUp.com dating sites resulting from our
      expensing of our significant customer acquisition ramp up during the period
      (as
      represented by this category’s 34% revenue increase) in the acquisition of free
      iMatchUp.com membership accounts. The recognition of that revenue is dependent
      upon whether or not the free account converts to a paying membership. The period
      that a free account may convert to a billable account typically ranges from
      one
      week after acquisition to as long as two years, and longer, after its initial
      month of acquisition, based on available historical conversion to billable
      experience. Therefore, predicated on stabilized acquisition costs in future
      fiscal periods, we expect that the future conversions of free membership
      acquisitions to billable members, as well as anticipated renewal revenues from
      such acquired customers, should allow us to report improved gross profit margins
      attributable to such memberships in our E-commerce segment in future fiscal
      periods.




(3)
      The
      impact on gross margin, although to a lesser degree than (1) and (2) above,
      resulting from our shift in resource allocation in response to regulatory
      changes whereby we migrated a portion of our marketing efforts from higher
      margin email revenue to lower margin site based revenue.




Our
      Selling Expenses for each of the three months ended August 31, 2005 and 2004
      are
      presented, on a segmental basis, and with the components of the individual
      segments, in the tables set forth below:




**Segment
        Data - Consolidated Selling Expenses, by segment, by
        component**


**Three
                  Months Ended**
              
              **Change
                  -**
              
              **Change
                  -****August
                  31,**
              
              **August
                  31,**
              
              **Inc(dec)**
              
              **Inc(dec)****2005**
              
              **2004**
              
              **$$$**
              
              **%%%****E-commerce**Fee
                  share commissions
              
              $
              607,587
              
              $
              360,478
              
              $
              247,109
              
              
              69
              %Selling
                  salaries and related expenses
              
              
              251,693
              
              
              165,857
              
              
              85,836
              
              
              52
              %Travel
                  and entertainment
              
              
              37,417
              
              
              38,887
              
              
              (1,470
              )
              
              -4
              %**TOTAL
                  Selling - E-commerce segment**
              
              $
              896,697
              
              $
              565,222
              
              $
              331,475
              
              
              59
              %**Consolidated
                  Totals**
              
              $
              896,697
              
              $
              565,222
              
              $
              331,475
              
              
              59
              %





Selling
      expenses, on a consolidated basis, increased approximately $0.3 million, or
      59%,
      to $0.9 million during the three months ended August 31, 2005 from $0.6 million
      during the three months ended August 31, 2004. The increase resulted from (a)
      an
      approximate $0.2 million increase in fee share commissions and correlates to
      our
      increased email revenue and the related use of third-party databases in our
      email marketing programs to produce a portion of such revenue (as we are the
      primary obligor to the list owner and bear the responsibility of payment to
      the
      list owner regardless of whether our client pays us), and (b) an approximate
      $0.1 million increase in selling salaries, with such increase relating partially
      to the expansion of our sales force, coupled with increased sales commission
      expense resulting from our increased revenue earned during the three months
      ended August 31, 2005 when compared to the three months ended August 31,
      2004.




Our
      general and administrative expenses (“G&A”) are principally comprised of (i)
      compensation costs and related expenses for executive, finance, information
      technology and operation systems, and general administration personnel, (ii)
      professional fees (which include legal; audit, accounting and tax;
      Sarbanes-Oxley compliance costs; public relations; database management and
      consulting; and public company related printing and filing costs), (iii)
      insurance costs, (iv) occupancy and other equipment rental costs, (v) site
      development, maintenance and modification costs related to our various active
      segments, and (vi) all other general and miscellaneous corporate expense
      items.





33





Our
      General and Administrative Expenses for the three months ended August 31, 2005
      and 2004 are presented, on a segmental basis, and with the components of the
      individual segments, in the tables set forth below:





**Consolidated
        General and Administrative Expenses, by segment, by
        component**


**Three
                Months Ended**
            
            **Change
                -**
            
            **Change
                -****August
                31,**
            
            **August
                31,**
            
            **Inc(dec)**
            
            **Inc(dec)****2005**
            
            **2004**
            
            **$$$**
            
            **%%%****E-commerce**Compensation
                costs and related expenses
            
            $
            1,989,035
            
            $
            1,283,150
            
            $
            705,885
            
            
            55
            %Professional
                fees
            
            
            249,771
            
            
            144,834
            
            
            104,937
            
            
            72
            %Insurance
                costs
            
            
            116,443
            
            
            146,603
            
            
            (30,160
            )
            
            -21
            %Occupancy
                and equipment costs
            
            
            100,172
            
            
            79,061
            
            
            21,111
            
            
            27
            %Site
                    development, maintenance and modifications
            
            
            331,968
            
            
            356,266
            
            
            (24,298
            )
            
            -7
            %All
                other G&A expenses
            
            
            556,249
            
            
            271,794
            
            
            284,455
            
            
            105
            %**TOTAL
                G&A - E-commerce segment**
            
            
            3,343,638
            
            
            2,281,708
            
            
            1,061,930
            
            
            47
            %**LEC
                Billed Product Components**Compensation
                costs and related expenses
            
            
            14,313
            
            
            56,562
            
            
            (42,249
            )
            
            -75
            %Insurance
                costs
            
            
            4,129
            
            
            34,035
            
            
            (29,906
            )
            
            -88
            %Occupancy
                and equipment costs
            
            
            2,257
            
            
            13,509
            
            
            (11,252
            )
            
            -83
            %All
                other G&A expenses
            
            
            2,793
            
            
            7,844
            
            
            (5,051
            )
            
            -64
            %**TOTAL
                G&A - LEC segment**
            
            
            23,492
            
            
            111,950
            
            
            (88,458
            )
            
            -79
            %**Corporate**Compensation
                costs and related expenses
            
            
            407,349
            
            
            512,743
            
            
            (105,394
            )
            
            -21
            %Professional
                fees
            
            
            202,338
            
            
            306,314
            
            
            (103,976
            )
            
            -34
            %Insurance
                costs
            
            
            110,601
            
            
            121,577
            
            
            (10,976
            )
            
            -9
            %All
                other G&A expenses
            
            
            136,864
            
            
            149,049
            
            
            (12,185
            )
            
            -8
            %**TOTAL
                G&A - Corporate**
            
            
            857,152
            
            
            1,089,683
            
            
            (232,531
            )
            
            -21
            %**Consolidated
                Totals**
            
            $
            4,224,282
            
            $
            3,483,341
            
            $
            740,941
            
            
            21
            %








34




General
      and Administrative expenses (“G&A”) on a consolidated basis increased
      approximately $0.7 million, or 21%, when comparing G&A of $4.2 million for
      the three months ended August 31, 2005 to G&A of $3.5 million incurred
      during the three months ended August 31, 2004. The net increase was attributable
      to an increase in E-commerce segment ($1.1 million), offset by declines in
      the
      LEC Billed Product segment of ($0.1 million) and a decline in Corporate of
      $0.2
      million. The significant increase in E-commerce expenses was attributable to
      the
      operating overhead incurred from the Company’s two recently acquired
      subsidiaries; in combination, such subsidiaries’ overhead amounted to
      approximately $1.0 million during the three months ended August 31, 2005,
      compared to approximately $0.3 million during the three months ended August
      31,
      2004. Specifically, during the three months ended August 31, 2005, the
      subsidiaries’ combined compensation costs and related expenses amounted to
      approximately $0.7 million, which accounts for the significant portion of the
      increase in E-commerce compensations costs. The subsidiaries also contributed
      to
      E-commerce segment overhead as follows: office rent and related office expense
      of approximately $0.1 and other G&A consisting of approximately $0.2 million
      of amortization expense.




Feder,
      Kaszovitz, Issacson, Weber, Skala, Bass and Rhine LLP (“FKIWSBR”) provides
      general legal services to us in the ordinary course of business and litigation
      services in defense of actions arising from such business activities. Murray
      L.
      Skala, a partner in such firm, has been a member of our Board of Directors
      since
      inception. We incurred approximately $377,000 in legal fees (exclusive of
      disbursements) from FKIWSBR during the three months ended August 31, 2005.
      We
      incurred approximately $342,000 in legal fees (exclusive of disbursements)
      from
      FKIWSBR during the three months ended August 31, 2004.




**Consolidated
        - Bad Debt Expense, by Segment**


**Three
                  Months Ended**
              
              **CHANGE
                  -**
              
              **CHANGE
                  -****August
                  31,**
              
              **August
                  31,**
              
              **INC(DEC)**
              
              **INC(DEC)****2005**
              
              **2004**
              
              **$$$**
              
              **%%%**E-commerce
              
              $
              4,634
              
              $
              420,041
              
              $
              (415,407
              )
              
              -99
              %**Consolidated
                  Totals**
              
              $
              4,634
              
              $
              420,041
              
              $
              (415,407
              )
              
              -99
              %








Bad
      Debt
      expense decreased approximately $0.4 million, or 99%, from bad debt expense
      of
      $420,041 in the three months ended August 31, 2004 to bad debt expense of $4,634
      in the three months ended August 31, 2005. Our allowance for bad debts results
      from our assessment of the risk of collection embedded in our customer base
      as
      described below.




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 adjustments to bad debt provisions/(recaptures) to reflect
      the related receivables’ carrying amount to amounts that estimate their probable
      realizable value. Provisions for bad debts are also recorded resulting from
      the
      review of other factors, including (a) length of time the receivables are past
      due and (b) historical experience and other factors obtained during collection
      efforts. If circumstances related to specific customers change, our estimates
      for bad debt provision/(recaptures) could be further increased or decreased
      in
      future fiscal periods.





35




**OTHER
      INCOME (EXPENSE)**





The
      components of our “Other income (expense)” are set forth below:


**Three
                Months Ended**
            
            **change**
            
            **change****August
                31,**
            
            **August
                31,**
            
            **inc(dec)**
            
            **inc(dec)****2005**
            
            **2004**
            
            **$$$**
            
            **%%%**Interest
                income and dividends
            
            $
            217,901
            
            $
            137,572
            
            $
            80,329
            
            
            58
            %Realized
                gains on sale of marketable securities
            
            
            -
            
            
            9,478
            
            
            (9,478
            )
            
            -100
            %Realized
                gain on sale of subsidiary
            
            
            -
            
            
            195,000
            
            
            (195,000
            )
            
            -100
            %Other
                non-operating income:
            
            
            
            
            
            --Other
                miscellaneous income(expense)
            
            
            (1,041
            )
            
            3,683
            
            
            (4,724
            )
            
            -128
            %Foreign
                Currency Exchange Rate Fees and interest
            
            
            (1,748
            )
            
            (5,260
            )
            
            3,512
            
            
            -67
            %Minority
                interest (income) loss
            
            
            (125,825
            )
            
            -
            
            
            (125,825
            )
            
            100
            %Total
                    Consolidated Other Income (Expense)
            
            $
            89,287
            
            $
            340,473
            
            $
            (251,186
            )
            
            -74
            %








Consolidated
      Other Income (Expense) decreased approximately $251,000, from approximately
      $340,000 for the three months ended August 31, 2004, to approximately $89,000
      for the three months ended August 31, 2005.




The
      material factors contributing to the net decrease as set forth in the above
      table are as follows:




(a)
              The
                  three months ended August 31, 2004 included $195,000 in installment
                  payments from a prior year sale of a subsidiary. The installment
                  payments
                  were completed in the first quarter of the current fiscal year.
                  Therefore,
                  the three months ended August 31, 2005 did not include comparable
                  payments.


(b)
              Interest
                  income increased approximately $80,000 as the result of increased
                  interest
                  rates earned on our short-term
                  investments.


(c)
            Minority
                Interest resulting from our EZ Tracks partnership with Madacy
                Entertainment amounted to $125,000. The partnership agreement was
                entered
                into on January 12, 2005 and, as such, the three month period ended
                August
                31, 2004 included no comparable
                amount.




**Minority
        Interest**
  On
        January 12, 2005, we entered into an agreement with Madacy Entertainment,
        through a newly created partnership, EZ Tracks ULC, to market and promote
        EZ
        Tracks.com, our new web destination consisting of approximately 30,000
        downloadable songs covering a wide array of musical genres. We, through a
        wholly
        owned subsidiary, own 50.7% of the partnership and will be responsible for
        managing the operations of the business, including generating traffic to
        the
        website, as well as selling advertising on the site. Madacy Entertainment,
        through its own subsidiary, owns 49.3% of the partnership and will provide
        its
        inventory of music and an extensive library of music licensed from other
        parties. Madacy will have limited involvement with certain aspects of
        operations. The results of operations for the quarter ended August 31, 2005
        include the fully consolidated results of EZ Tracks ULC with minority interest
        established to reflect Madacy’s ownership share of the partnership’s operating
        results for the period June 1, 2005 to August 31, 2005.
 
 *The
        following table summarizes the results of EZ Tracks for the quarter included
        in
        our consolidated results:*
  Net
                    Revenues
                
                $
                2,267,880Cost
                    of Sales
                
                
                2,010,840Gross
                    Profit
                
                
                257,040General
                    & Administrative Expenses
                
                
                218Net
                    Income
                
                
                256,822
                (1)Minority
                    Interest - Income Statement
                
                
                125,825
                (2)Distributions
                    to Minority Interest
                
                
                50,000
 
 1)
              All
                  items included in our E-Commerce segment
 2)
              Represents
                  Madacy Entertainment’s 49.3% minority interest before current quarter
                  minority interest distributions
  **PROVISION
        FOR INCOME TAXES**





Quarterly
      income taxes are calculated in accordance with the interim financial reporting
      requirements as set forth in the Accounting Principal Board’s Opinion 28. Such
      Opinion considers interim quarterly periods as an integral part of the annual
      period, with interim quarterly tax periods reflecting the estimated annual
      effective tax rate. We believe that we have adequately provided for tax-related
      matters. We are subject to examination by taxing authorities in various
      jurisdictions. Management considers it unlikely that resolution of any open
      audits would have a material adverse effect upon our consolidated financial
      statements.




The
      results for the three months ended August 31, 2005 include a tax expense of
      approximately $262,000 on pre-tax income of $579,000. The effective rate
      relationship of 45.3% differs from our historically recognized effective tax
      rate of approximately 39%. The balance of the rate reconciliation is
      attributable to potential tax liabilities related to examinations by taxing
      authorities.





36





**NINE
      MONTHS ENDED AUGUST 31, 2005 AND MAY 31, 2004**





Our
      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, 2005
      and 2004, are detailed in the following tables:




**SEGMENT
        DATA - NET REVENUES, BY SEGMENT, BY COMPONENT**


**Nine
                  Months Ended**
              
              **Change**
              
              **Change****August
                  31,**
              
              **August
                  31,**
              
              **Inc(Dec)**
              
              **Inc(Dec)****2005**
              
              **2004**
              
              **$$$**
              
              **%%%****E-Commerce
                  components**iMatchUp.com
                  dating sites
              
              $
              6,500,927
              
              $
              4,704,169
              
              $
              1,796,758
              
              
              38
              %Website
                  advertising
              
              
              17,832,462
              
              
              12,502,700
              
              
              5,329,762
              
              
              43
              %Search
                  Engine Marketing
              
              
              6,230,260
              
              
              862,585
              
              
              5,367,675
              
              
              622
              %Internet
                  Advertising Agency
              
              
              4,884,169
              
              
              -
              
              
              4,884,169
              
              
              100
              %Email
                  marketing programs
              
              
              6,864,746
              
              
              4,841,729
              
              
              2,023,017
              
              
              42
              %Data
                  sales and rentals
              
              
              984,351
              
              
              1,143,201
              
              
              (158,850
              )
              
              -14
              %Sales
                  of jewelry and gifts
              
              
              47,065
              
              
              243,512
              
              
              (196,447
              )
              
              -81
              %Internet
                  game development and other
              
              
              2,029,925
              
              
              561,877
              
              
              1,468,048
              
              
              261
              %**Total
                  E-commerce**
              
              
              45,373,905
              
              
              24,859,773
              
              
              20,514,132
              
              
              83
              %**LEC
                  Billed Product components**Click-Help,
                  WWA and TXNet LEC Products
              
              
              884,922
              
              
              1,658,924
              
              
              (774,002
              )
              
              -47
              %**Total
                  LEC Billed Products**
              
              
              884,922
              
              
              1,658,924
              
              
              (774,002
              )
              
              -47
              %**Total
                  Consolidated Net Revenue**
              
              $
              46,258,827
              
              $
              26,518,697
              
              $
              19,740,130
              
              
              74
              %








Net
      Revenue increased approximately $19.7 million, or 74%, to $46.3 million for
      the
      nine months ended August 31, 2005, from $26.5 million in the prior year’s
      comparable period. The E-commerce segment’s core business grew organically,
      primarily driven by an expansion in our customer base across the majority of
      our
      revenue components, coupled with the revenues generated from a prior year
      acquisition, and accounted for approximately $15.6 million of the consolidated
      revenue increase. Supplementing the core E-commerce growth was $4.9 million
      in
      revenue earned from our January 21, 2005 Hot Rocket acquisition. All
      intersegment sale activity is eliminated from disclosed revenues. Sales in
      our
      LEC Billed Product segment decreased by $0.8 million during the nine months
      ended August 31, 2005. The comparable period of 2004 saw increased marketing
      and
      enrollment in our WWA email service and the launch of our Click-Help LEC
      Product. This marketing strategy ended in the fourth quarter of Fiscal 2004
      and
      such change is reflected in the reduced sales for the current nine months when
      compared to the prior year’s nine month period.




Our
      cost
      of sales during the nine months ended August 31, 2005 and 2004 were comprised
      of
      (1) direct and indirect marketing costs associated with the
      acquisition  and
      retention of consumers for our marketing programs, including direct response
      email marketing costs, website registrations, customer profiles, other customer
      acquisition costs , search engine marketing costs, promotional and creative
      costs, and (2) the related contingent-based sweepstakes indemnification expense,
      billing and collection fees and customer service costs.





37





Our
      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, 2005
      and 2004, are set forth below:




**CONSOLIDATED
        COST OF SALES, BY SEGMENT, BY COMPONENT**


**Nine
                Months Ended**
            
            **Change**
            
            **Change****August
                31,**
            
            **August
                31,**
            
            **Inc(Dec)**
            
            **Inc(Dec)****2005**
            
            **2004**
            
            **$$$**
            
            **%%%****E-commerce****Advertising,
                promotion and fulfillment costs**Email
                marketing and related delivery costs
            
            $
            3,797,981
            
            $
            2,974,381
            
            $
            823,600
            
            
            28
            %Website
                  registrations, customer profiles, search and all other related
                  customer acquisition costs
            
            
            21,727,392
            
            
            9,979,755
            
            
            11,747,637
            
            
            118
            %Promotional,
                creative and other costs
            
            
            297,036
            
            
            210,293
            
            
            86,743
            
            
            41
            %Purchases
                of on-line advertising space
            
            
            3,254,768
            
            
            -
            
            
            3,254,768
            
            
            100
            %**Total
                E-commerce Advertising**
            
            
            29,077,177
            
            
            13,164,429
            
            
            15,912,748
            
            
            121
            %**Service
                Bureau fees**Contingent
                based prize indemnification costs
            
            
            146,358
            
            
            237,091
            
            
            (90,733
            )
            
            -38
            %**Total
                E-commerce Cost of Sales**
            
            
            29,223,535
            
            
            13,401,520
            
            
            15,822,015
            
            
            118
            %**LEC
                Billed Products and Services****Service
                Bureau fees**Service
                provision, billing and collection fees
            
            
            475,127
            
            
            1,876,843
            
            
            (1,401,716
            )
            
            -75
            %**Total
                LEC Billed Cost of Sales**
            
            
            475,127
            
            
            1,876,843
            
            
            (1,401,716
            )
            
            -75
            %**Consolidated
                Cost of Sales**
            
            $
            29,698,662
            
            $
            15,278,363
            
            $
            14,420,299
            
            
            94
            %







38




Cost
      of
      sales on a consolidated basis increased $14.4 million, or 94%, to $29.7 million
      for the nine months ended August 31, 2005 from $15.3 million in the comparable
      prior year period.




The
      primary factor contributing to the increase in consolidated costs of sales
      was
      related to a net increase of approximately $15.9 million in costs incurred
      by
      our E-commerce segment in the generation of its increased revenues. The
      E-commerce segment recognized an increase of $11.7 million, or 118% in its
      media
      purchases, which include website registrations, customer profiles, search engine
      costs and all other on-line customer procurement costs. The Company has adjusted
      its marketing emphasis to be more reliant on revenue generation via search
      traffic, and accordingly incurred approximately $11.4 million on such marketing
      expenditures during the nine months ended August 31, 2005, as compared to $0.7
      million in similar expenditures during the nine months ended August 31, 2004.
      During the nine months ended August 31, 2005 cost of revenue also included
      approximately $3.2 million in direct purchases of on-line advertising space,
      which is resold on a performance return basis by our Hot Rocket subsidiary,
      which was acquired on January 21, 2005.




The
      E-commerce segment increase in the cost of sales further resulted from an
      increase of $0.8 million, or 28%, in email marketing costs (which includes
      certain operating costs necessary to handle the email operations of our
      Infiknowledge subsidiary) to promote the segment’s revenue generating
      opportunities directly related to email promotions and to cause potential (as
      well as repeat) customers to visit the Company’s websites, and, once there, to
      register and become customer profiles available to be marketed in current and
      future fiscal periods. See “-Consolidated Gross Profit, by Segment” for a
      discussion of anticipated future revenue recognition as a result of current
      period costs incurred.




The
      cost
      of sales related to our LEC Billed Product segment declined approximately $1.4
      million, or 75%, when compared to the prior year’s comparable period. LEC costs
      are principally comprised of billing, collection and customer service costs.
      We
      terminated our marketing efforts during the fourth quarter of Fiscal 2004
      regarding the acquisition of new LEC Billed Product segment customers,
      which is the reason for the comparative period decline in LEC Billed Product
      segment cost of revenues.




Our
      gross
      profit in terms of dollars, on a segmental basis, and our gross profit
      percentage, on a segmental basis, for each of the nine month periods ended
      August 31, 2005 and 2004, are set forth below:




***Consolidated
        Gross Profit, by Segment***


**For
                the****Nine
                Months Ended**
            
            **Change**
            
            **Change****August
                31,**
            
            **August
                31,**
            
            **Inc(dec)**
            
            **Inc(dec)****2005**
            
            **2004**
            
            **$$$**
            
            **%%%**E-commerce
            
            $
            16,150,370
            
            $
            11,458,253
            
            $
            4,692,117
            
            
            41
            %LEC
                Billed products and services
            
            
            409,795
            
            
            (217,919
            )
            
            627,714
            
            
            -288
            %**CONSOLIDATED
                TOTALS**
            
            $
            16,560,165
            
            $
            11,240,334
            
            $
            5,319,831
            
            
            47
            %


***Consolidated
        Gross Profit Percentages, by Segment***


**For
                the**
            
            **Absolute**
            
            **Relative****Nine
                Months Ended**
            
            **percentage**
            
            **percentage****August
                31,**
            
            **August
                31,**
            
            **change**
            
            **change****2005**
            
            **2004**
            
            **inc(dec)**
            
            **inc(dec)**E-commerce
            
            
            35.6
            %
            
            46.1
            %
            
            -10.5
            %
            
            -22.8
            %LEC
                Billed products and services
            
            
            46.3
            %
            
            -13.1
            %
            
            59.4
            %
            
            453.5
            %**CONSOLIDATED
                GROSS PROFIT PERCENTAGE**
            
            
            35.8
            %
            
            42.4
            %
            
            -6.6
            %
            
            -15.6
            %








39




Consolidated
      Gross Profit (“Gross Margin”) as a percentage of net revenue was 35.8% during
      the nine months ended August 31, 2005, compared to 42.4% in the prior year’s
      comparable period, representing an absolute percentage point decrease of 6.6%,
      or a 15.6% decrease on a relative basis.




The
      decline in gross profit percentage is primarily attributable to three factors:




(1)
      The
      impact on gross margin from significant increases in search engine marketing
      expenditures and other third party online customer costs for our websites,
      with
      all such costs being charged to operations when incurred, with such outlays
      generating revenue in future fiscal periods.




(2)
      The
      impact on gross profit from our iMatchUp.com dating site’s results from our
      expensing of customer acquisition costs during the period we acquire a free
      iMatchUp.com membership account, while the recognition of the revenue is
      dependent upon whether or not the free account converts to a paying membership.
      The period that a free account may convert to a billable account ranges from
      one
      week after acquisition, to as long as two years, and longer, after its initial
      month of acquisition, based on available historical conversion to billable
      experience. Therefore, predicated on stabilized acquisition costs in future
      fiscal periods, we expect that the future conversions of free membership
      acquisitions to billable members, as well as anticipated renewal revenues from
      such acquired customers, should allow us to report improved gross profit margins
      attributable to such memberships in our E-commerce segment in future fiscal
      periods.




(3)
      The
      impact on gross margin, although to a lesser degree than (1) and (2) above,
      resulting from our shift in resource allocation in response to regulatory
      changes whereby we migrated a portion of our marketing efforts from higher
      margin email revenue to lower margin site based revenue.




Our
      Selling Expenses for each of the nine months ended August 31,
      2005
      and 2004 are presented, on a segmental basis, and with the components of the
      individual segments, in the tables set forth below:




**Segment
        Data - Consolidated Selling Expenses, by segment, by
        component**


**Nine
                Months Ended**
            
            **Change
                -**
            
            **Change
                -****August
                31,**
            
            **August
                31,**
            
            **Inc(dec)**
            
            **Inc(dec)****2005**
            
            **2004**
            
            **$$$**
            
            **%%%****E-commerce**Fee
                share commissions
            
            $
            1,643,791
            
            $
            868,694
            
            $
            775,097
            
            
            89
            %Selling
                salaries and related expenses
            
            
            929,662
            
            
            553,549
            
            
            376,113
            
            
            68
            %Travel
                and entertainment
            
            
            114,539
            
            
            106,067
            
            
            8,472
            
            
            8
            %**TOTAL
                Selling - E-commerce segment**
            
            $
            2,687,992
            
            $
            1,528,310
            
            $
            1,159,682
            
            
            76
            %**Consolidated
                Totals**
            
            $
            2,687,992
            
            $
            1,528,310
            
            $
            1,159,682
            
            
            76
            %




Selling
      expenses, on a consolidated basis, increased approximately $1.2 million, or
      76%,
      to $2.7 million during the nine months ended August 31, 2005 from $1.5 million
      during the nine months ended August 31, 2004. The increase resulted from (a)
      an
      approximate $0.8 million increase in fee share commissions and correlates to
      our
      increased email revenue and the related use of third-party databases in our
      email marketing programs to produce a portion of such revenue (we are the
      primary obligor to the list owner and bear the responsibility of payment to
      the
      list owner regardless of whether our client pays us), and (b) an approximate
      $0.4 million increase in selling salaries, with such increase relating partially
      to the expansion of our sales force, coupled with increased sales commission
      expense resulting from our increased revenue earned during the nine months
      ended
      August 31, 2005 when compared to the nine months ended August 31,
      2004.





40




Our
      General and Administrative Expenses for the nine months ended August 31, 2005
      and 2004 are presented, on a segmental basis, and with the components of the
      individual segments, in the tables set forth below:




**Consolidated
        General and Administrative Expenses, by segment, by
        component**


**Nine
                Months Ended**
            
            **Change
                -**
            
            **Change
                -****August
                31,**
            
            **August
                31,**
            
            **inc(dec)**
            
            **inc(dec)****2005**
            
            **2004**
            
            **$$$**
            
            **%%%****E-commerce**Compensation
                costs and related expenses
            
            $
            5,128,403
            
            $
            3,149,957
            
            $
            1,978,446
            
            
            63
            %Professional
                fees
            
            
            567,265
            
            
            661,271
            
            
            (94,006
            )
            
            -14
            %Insurance
                costs
            
            
            351,697
            
            
            425,244
            
            
            (73,547
            )
            
            -17
            %Occupancy
                and equipment costs
            
            
            293,081
            
            
            202,409
            
            
            90,672
            
            
            45
            %Site
                development, maintenance andmodifications
            
            
            1,015,542
            
            
            1,052,755
            
            
            (37,213
            )
            
            -4
            %All
                other G&A expenses
            
            
            1,675,108
            
            
            755,530
            
            
            919,578
            
            
            122
            %**TOTAL
                G&A - E-commerce segment**
            
            
            9,031,096
            
            
            6,247,166
            
            
            2,783,930
            
            
            45
            %**LEC
                Billed Products and Services**Compensation
                costs and related expenses
            
            
            42,938
            
            
            169,687
            
            
            (126,749
            )
            
            -75
            %Professional
                fees
            
            
            14,784
            
            
            70,809
            
            
            (56,025
            )
            
            -79
            %Insurance
                costs
            
            
            6,872
            
            
            41,195
            
            
            (34,323
            )
            
            -83
            %All
                other G&A expenses
            
            
            8,188
            
            
            21,996
            
            
            (13,808
            )
            
            -63
            %**TOTAL
                G&A - LEC segment**
            
            
            72,782
            
            
            303,687
            
            
            (230,905
            )
            
            -76
            %**Corporate**Compensation
                costs and related expenses
            
            
            1,333,401
            
            
            1,513,970
            
            
            (180,569
            )
            
            -12
            %Professional
                fees
            
            
            724,409
            
            
            637,282
            
            
            87,127
            
            
            14
            %Insurance
                costs
            
            
            336,740
            
            
            370,755
            
            
            (34,015
            )
            
            -9
            %All
                other G&A expenses
            
            
            401,233
            
            
            417,918
            
            
            (16,685
            )
            
            -4
            %**TOTAL
                G&A - Corporate**
            
            
            2,795,783
            
            
            2,939,925
            
            
            (144,142
            )
            
            -5
            %**Consolidated
                Totals**
            
            $
            11,899,661
            
            $
            9,490,778
            
            $
            2,408,883
            
            
            25
            %








General
      and Administrative expenses (“G&A”) on a consolidated basis increased
      approximately $2.4 million, or 25%, when comparing G&A of $11.9 million for
      the nine months ended August 31, 2005 to G&A of $9.5 million incurred during
      the nine months ended August 31, 2004. The net increase was attributable to
      an
      increase in E-commerce segment ($2.8 million) offset by declines in Corporate
      ($0.1 million) and in the LEC Billed Product segment of ($0.2 million). The
      significant increase in E-commerce expenses was attributable to the operating
      overhead incurred from the Company’s two recently acquired subsidiaries; in
      combination, such subsidiaries’ overhead amounted to approximately $2.9 million
      during the nine months ended August 31, 2005 compared to approximately $0.3
      million during the nine months ended August 31, 2004. Specifically, during
      the
      nine months ended August 31, 2005, the subsidiaries’ combined compensation costs
      and related expenses amounted to approximately $1.9 million, which accounts
      for
      the significant portion of the increase in E-commerce compensations costs.
      The
      subsidiaries also contributed to E-commerce segment overhead as follows: office
      rent and related office expense of approximately $0.2 and other G&A
      consisting of approximately $0.8 million of amortization expense.


41




Feder,
      Kaszovitz, Issacson, Weber, Skala, Bass and Rhine LLP (“FKIWSBR”) provides
      general legal services to us in the ordinary course of business and litigation
      services in defense of actions arising from such business activities. Murray
      L.
      Skala, a partner in such firm, has been a member of our Board of Directors
      since
      inception. We incurred approximately $768,000 in legal fees (exclusive of
      disbursements) from FKIWSBR during the nine months ended August 31, 2005, of
      which $599,000 was expensed, and $169,000 was capitalized in the Hot Rocket
      acquisition. We incurred approximately $638,000 in legal fees (exclusive of
      disbursements) from FKIWSBR during the nine months ended August 31,
      2004.





**Consolidated
        - Bad Debt Expense, by Segment**


**Nine
                Months Ended**
            
            **Change**
            
            **Change****August
                31,**
            
            **August
                31,**
            
            **Inc(Dec)**
            
            **Inc(Dec)****For
                the periods:**
            
            **2005**
            
            **2004**
            
            **$$$**
            
            **%%%**E-commerce
            
            $
            170,241
            
            $
            307,928
            
            $
            (137,687
            )
            
            -45
            %**Consolidated
                Totals**
            
            $
            170,241
            
            $
            307,928
            
            $
            (137,687
            )
            
            -45
            %








Bad
      Debt
      expense decreased approximately $0.1 million, or 45%, from bad debt expense
      of
      $308,000 in the nine months ended August 31, 2004 to bad debt expense of
      $170,000 in the nine months ended August 31, 2005. Our allowance for bad debts
      results from our assessment of the risk of collection embedded in our customer
      base as described below.




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 adjustments to bad debt provisions/(recaptures) to reflect
      the related receivables’ carrying amount to amounts that estimate their probable
      realizable value. Provisions for bad debts are also recorded resulting from
      the
      review of other factors, including (a) length of time the receivables are past
      due, and (b)historical experience and other factors obtained during collection
      efforts. If circumstances related to specific customers change, our estimates
      for bad debt provision/(recaptures) could be further increased or decreased
      in
      future fiscal periods.




**OTHER
      INCOME (EXPENSE)**





The
      components of our “Other income (expense)” are set forth below:





**Nine
                Months Ended**
            
            **Change**
            
            **Change****August
                31,**
            
            **August
                31,**
            
            **Inc(dec)**
            
            **Inc(dec)****2005**
            
            **2004**
            
            **$$$**
            
            **%%%**Interest
                income and dividends
            
            $
            643,238
            
            $
            360,293
            
            $
            282,945
            
            
            79
            %Realized
                gains on sale of marketable securities
            
            
            574,050
            
            
            32,148
            
            
            541,902
            
            
            1686
            %Realized
                gain on sale of subsidiary
            
            
            195,000
            
            
            589,900
            
            
            (394,900
            )
            
            -67
            %Other
                non-operating income:Other
                miscellaneous income(expense)
            
            
            5,877
            
            
            13,604
            
            
            (7,727
            )
            
            -57
            %Vendor
                settlement on prior year marketing fee
            
            
            -
            
            
            350,000
            
            
            (350,000
            )
            
            100
            %Foreign
                Currency Exchange Rate Fees and interest
            
            
            (15,050
            )
            
            (12,685
            )
            
            (2,365
            )
            
            19
            %Interest
                and penalties - Florida tax settlement
            
            
            -
            
            
            (47,790
            )
            
            47,790
            
            
            -100
            %Reduction
                of prior year’s LEC reserve
            
            
            -
            
            
            34,181
            
            
            (34,181
            )
            
            -100
            %Minority
                interest (income) loss
            
            
            (373,999
            )
            
            -
            
            
            (373,999
            )
            
            100
            %Total
                Consolidated Other Income (Expense)
            
            $
            1,029,116
            
            $
            1,319,651
            
            $
            (290,535
            )
            
            -22
            %








42




Consolidated
      Other Income (Expense) decreased approximately $291,000, from approximately
      $1,320,000 for the nine months ended August 31, 2004, to approximately
      $1,029,000 for the nine months ended August 31, 2005.




The
      material factors contributing to the net increase as set forth in the above
      table are as follows:




(a)
            Realized
                gains on the sale of marketable securities increased by $542,000
                over the
                prior year’s comparable nine month period. This resulted from our decision
                in the first quarter of Fiscal 2005 to recognize unrealized capital
                gains
                on our equity security portfolio enabling us to utilize the federal
                tax
                benefit of capital loss carryforwards.


(b)
            The
                nine months ended August 31, 2005 included $590,000 in installment
                payments from a prior year’s sale of a subsidiary, compared to $195,000 in
                the current nine month period. The decline was the result of the
                installment agreement being completed in February, 2005.


(c)
            The
                prior year’s comparable nine month period included a collection of
                $350,000 in settlement of a prior year’s marketing agreement dispute. No
                comparable amount is reflected in the nine month period ending August
                31,
                2005.


(d)
            Minority
                Interest resulting from our EZ Tracks partnership with Madacy
                Entertainment amounted to $374,000. The partnership agreement was
                entered
                into on January 12, 2005 and, as such, the prior year’s comparable nine
                month period includes no comparable
                amount.




**Minority
        Interest**
  On
        January 12, 2005, we entered into an agreement with Madacy Entertainment,
        through a newly created partnership, EZ Tracks ULC, to market and promote
        EZ
        Tracks.com, our new web destination consisting of approximately 30,000
        downloadable songs covering a wide array of musical genres. We, through a
        wholly
        owned subsidiary, own 50.7% of the partnership and will be responsible for
        managing the operations of the business, including generating traffic to
        the
        website, as well as selling advertising on the site. Madacy Entertainment,
        through its own subsidiary, owns 49.3% of the partnership and will provide
        its
        inventory of music and an extensive library of music licensed from other
        parties. Madacy will have limited involvement with certain aspects of
        operations. The results of operations for the nine months ended August 31,
        2005
        include the fully consolidated results of EZ Tracks ULC with minority interest
        established to reflect Madacy’s ownership share of the partnership’s operating
        results for the period January 12, 2005 to August 31, 2005.
 
 *The
        following table summarizes the results of EZ Tracks for the nine months ended
        August 31, 2005 included in our consolidated results:*
 
 Net
                  Revenues
              
              $
              4,667,710Cost
                  of Sales
              
              
              3,879,090Gross
                  Profit
              
              
              788,620General
                  & Administrative Expenses
              
              
              30,000Net
                  Income
              
              
              758,620
              (1)Minority
                  Interest - Income Statement
              
              
              373,999
              (2)Distributions
                  to Minority Interest
              
              
              128,896Minority
                  Interest - Balance Sheet
              
              $
              245,103
              (3)
 
 1)
              All
                  items included in our E-Commerce segment
 2)
              Represents
                  Madacy Entertainment’s 49.3% minority interest before minority interest
                  distributions
 3)
              Represents Madacy Entertainment’s 49.3% minority interest
                after minority interest
                distributions


**LIQUIDITY
      AND CAPITAL RESOURCES**





As
      of
      August 31, 2005, we had aggregate working capital of $33 million compared to
      aggregate working capital of $34.6 million as of November 30, 2004. We had
      available cash, cash equivalents, equities and readily available marketable
      debt
      securities of $32 million as of August 31, 2005, compared to available cash,
      cash equivalents, equities and readily available marketable debt securities
      of
      $35.8 million as of November 30, 2004. The equity component of our marketable
      securities was $1.8 million at August 31, 2005 and November 30, 2004.




Cash
      provided by operating activities was approximately $1.0 million for the nine
      months ended August 31, 2005, compared to approximately $2.4 million in cash
      provided by operating activities in the nine months ended August 31, 2004,
      representing an approximate $1.4 million decrease in cash provided by operating
      activities. The primary factors giving rise to the decrease in cash provided
      by
      operating activities was attributable to an increase in accounts receivable
      of
      approximately $5.3 million, being partially offset by increases in accounts
      payable and accrued expenses approximating $2.3 million, and the effect of
      net
      income of $1.6 million for the nine months ended August 31, 2005.





43




Cash
      provided by investing activities was approximately $2.3 million during the
      nine
      months ended August 31, 2005, compared to $5.5 million used in investing
      activities during the prior year’s comparable quarter. The primary use of cash
      in investing activities in the nine months ended August 31, 2005 related to
      net
      cash of approximately $3.1 million expended in the Hot Rocket asset acquisition,
      initially acquired on January 21, 2005. This was more than offset by net
      proceeds from sales of securities providing cash of approximately $5.5 million.
      During the nine months ended August 31, 2005 we also expended approximately
      $244,000 for capital expenditures in our investing activities.




Cash
      used
      in financing activities was approximately $1.6 million for the nine months
      ended
      August 31, 2005, compared to $1.6 million cash used in financing activities
      for
      the nine months ended August 31, 2004. Proceeds from stock option exercises
      were
      $1.8 million for the nine months ended August 31, 2005, compared to $1.6 million
      during the comparable prior year period. Dividend payments totaled $3.3 million
      for the nine months ended August 31, 2005 compared to $3.2 million in the
      comparable prior period. During the nine months ended August 31, 2005,
      approximately $0.1 million of distributions were made to a minority
      interest.




Our
      days-sales-outstanding (“DSO”) in accounts receivable at August 31 was 58 days,
      compared to 58 days at May 31, 2005, 44 days at February 28, 2005, 42 days
      at
      November 30, 2004, and 55 days at August 31, 2004. The current quarter’s DSO
      when compared to that of the second quarter remained relatively constant at
      58
      days. The increase in the second and third quarters DSO of Fiscal 2005 when
      compared to the first quarter of Fiscal 2005 and the fourth quarter of the
      prior
      fiscal year relates to the increases in E-commerce accounts receivable, based
      on
      newly acquired subsidiaries and increased core operations coupled with an
      extended collection cycle for certain accounts. These DSO increases were offset
      by reductions in the LEC Billed Product segment accounts receivable.




The
      majority of our customers are extended 30-day credit terms. In limited
      instances, customer credit is extended to ranges exceeding 90 days. Our LEC
      Billed Products segment collection cycle is a function of the terms of the
      billing and collection agreements governing such activity, which collection
      cycles can exceed 90 days. We continually monitor customer adherence to credit
      terms and constantly strive to improve the effectiveness of our collection
      efforts with the goal of achieving a DSO in the 40-day range. Future fiscal
      periods might not reflect this goal of a 40-day DSO, and might exceed the 58-day
      DSO recognized in the three-month period ended August 31, 2005.




Historically,
      our primary cash requirements have been used to fund the cost of advertising
      and
      promotion and test-marketing new products, services and promotions, 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 subsidiaries.




In
      Fiscal
      2000, we executed our on-line direct marketing strategy. Our future plans and
      business strategy may continue to call for our Internet-based E-commerce segment
      to be our primary operating focus with such segment generating the material
      portion of our revenues for the nine and three month periods ended August 31,
      2005. In Fiscal 2002 and 2003, we expended approximately $1.9 and $1.5 million,
      respectively, for capital expenditures to support our E-commerce business.
      In
      Fiscal 2004, capital expenditures declined to approximately $141,000 as a result
      of the prior two years’ capital expenditures, which yielded excess capacity. For
      the nine months ended August 31, 2005, capital expenditures totaled
      approximately $527,000. We believe that our current infrastructure is adequate
      to support our E-commerce growth plan, and therefore do not contemplate
      significant capital expenditure requirements in the near future.





44




If
      our
      operations fail to generate sufficient revenue, we could realize a material
      adverse impact on our capital and liquidity resources resulting from
      expenditures necessary to generate such revenue, including, but not limited
      to,
      expenditures for (a) marketing campaigns, including media costs and other costs
      of customer acquisition information, (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.





On
      January 21, 2005, we acquired the intangible assets of Hot Rocket, a
      privately-held on-line media and marketing agency. The purchase price was
      approximately $3.5 million, comprised of $0.7 million in shares of our common
      stock (or 113,821 shares) and $2.9 million in cash. In addition, we agreed
      to
      pay Hot Rocket a contingent purchase price of up to $12.5 million upon the
      generation of certain EBITDA thresholds over the four year period following
      the
      closing.




On
      June
      30, 2004, we consummated the acquisition of the assets of SendTraffic.com,
      Inc.
      (“Send”) and its affiliated entity, The Traffic Group, LLC, privately held
      search engine marketing companies based in New York. The original purchase
      price
      agreement was for approximately $5.0 million, comprised of $3.5 million in
      cash
      and 233,941 shares of Traffix common stock. The asset acquisition agreement
      calls for contingent earn-out payments based on the post closing attainment
      of
      certain earnings before interest, taxes, depreciation and amortization (EBITDA)
      thresholds during the thirty-six month period following the
      transaction.





Additionally
      in the agreement, Send Traffic warranted that certain financial information
      contained in its unaudited June 30, 2004 balance sheet, which was used to
      determine the original purchase price, was accurate, and if such financial
      information ultimately proved post-closing to have been inaccurate, Send Traffic
      would return to the Company any shortfall. In order to ensure compliance with
      such warranty, the Company retained in escrow $250,000 of the purchase price.
      On
      November 24, 2004, the Company signed an Adjustment Agreement with Greg Byrnes
      and Craig Handelman, the principals of Send Traffic (the “ST Stockholders”),
      regarding the final determination of the June 30, 2004 balance sheet. In
      accordance with the Adjustment Agreement’s “Cash Adjustment” clause, the Company
      received $300,000 in cash from the Send Traffic principals, $250,000 of which
      came from the escrow withheld at closing, and an additional $50,000 of which
      was
      received on November 30, 2004. Additionally, under the Adjustment Agreement’s
“Share Adjustment” clause, the Send Traffic principals returned 57,142 shares to
      the Company, which served to reduce the total shares issued in the asset
      acquisition to 176,799 shares, as compared to the original issuance of 233,941
      shares.





Upon
      the
      consummation of the Send Traffic acquisition, each of the ST Stockholders
      entered into five-year employment contracts with the Company’s wholly-owned
      subsidiary.  Included in each of those contracts were restrictive covenants
      prohibiting the ST Stockholders from competing with the Company during the
      term
      of their employment and for a period of time thereafter (the “Restrictive
      Covenants”).




45




At
      the
      time of the Send Traffic acquisition, the Company allocated $665,000 (of the
      approximately $5.43 million purchase price) to the Restrictive Covenants, which
      the Company amortized over a five-year period, or through June 30, 2009.





On
      April 6, 2005, the employment relationship between the ST Stockholders
      and
      the Company terminated.  The Company maintains that the ST Stockholders
      resigned from their positions voluntarily and without good reason under the
      terms of their respective employment contracts, in which event the contracts
      provide that the Restrictive Covenants would continue in effect until
      June 30, 2007.  Accordingly, the Company is reducing the period
      over
      which it is amortizing the remaining unamortized portion of the purchase price
      allocated to the Restrictive Covenants to the period ending June 30,
      2007.  As a result of shortening the life of the Restrictive Covenants,
      the
      increased risk of competition and the reduced future revenues that may flow
      therefrom, the remaining carrying value of the Restrictive Covenants as of
      May
      31, 2005 (or $539,000) was re-evaluated in accordance with SFAS No. 144 and
      deemed to be impaired by approximately $137,000. This impairment loss is
      included in depreciation and amortization expense in the “administrative
      expense” caption of the Company’s income statement for the nine month period
      ended August 31, 2005. The impairment loss is allocated to the Company’s
      E-commerce segment.





The
      ST
      Stockholders have contended that their employment contracts were either
      terminated without Cause (as that term is defined in their respective employment
      contracts) by the Company, or that they were entitled to terminate the
      agreements as a result of actions taken by the Company with respect to the
      scope
      of their duties and responsibilities.  If it were determined that the
      ST
      Stockholders’ employment was terminated by the Company without Cause, then,
      under their employment contracts, each would have been entitled to severance
      of
      not less than 6 months’ and up to 12 months’ base salary (such amount determined
      by the Company in its discretion) and the Restrictive Covenants would have
      continued during the severance period. The remaining unamortized portion of
      the
      purchase price allocated to the Restrictive Covenants would be amortized over
      such period, which would have ended no earlier than November 6, 2005
      and no
      later than April 6, 2006, as determined by the Company, and, in accordance
      with SFAS 144, the remaining carrying value of the Restrictive Covenants would
      be re-evaluated, with the Company taking an impairment loss at the time of
      re-evaluation.  If, however, it were determined that the ST Stockholders
      were entitled to terminate their employment agreements with good reason as
      a
      result of actions taken by the Company, then the Restrictive Covenants would
      have ended on April 6, 2005, the date of termination, and, in accordance
      with SFAS 144, the remaining unamortized portion of the purchase price allocated
      to the Restrictive Covenants would be an expense in the current period. 
      Should it become necessary, the Company will defend its position vigorously
      and
      use whatever means available to enforce the Restrictive Covenants. 
      The
      Company is confident that, notwithstanding the departure of the ST Stockholders,
      the Company’s extensive and experienced workforce will allow it to grow the Send
      Traffic business and expand its contributions to the Company’s overall
      operations.




On
      April
      1, 2004, we announced that we had acquired an exclusive license for an operating
      platform created by LiveOnTheNet.com, Inc., a privately held company. We had
      announced in February 2004 that we had entered into an agreement to acquire
      all
      of the assets of such entity, but the asset acquisition plans were discarded
      in
      favor of a license agreement resulting from our final stages of due diligence.
      The license agreement called for a total payment of $200,000. A down payment
      of
      $35,000 and the initial $15,000 installment was made at the time of signing
      the
      license, and installments of $15,000 were required on the ten monthly
      anniversary dates following the signing. As of August 31, 2005, all installments
      have been made in accordance with the terms of the license
      agreement.





46




In
      May
      2005, the Company entered into a license agreement with Alliant Cooperative
      Data
      Solutions, LLC. The agreement allows for the use of an Alliant product which
      ranks and scores lists of consumers who register on our websites, allowing
      the
      Company to project the response rate of ordering a product after receiving
      an
      offer and the rate of payment given a response. The total cost of the license
      was $38,000, payable in three installments in June, July and October 2005.
      The
      full liability was recognized at August 31, 2005 and the license agreement
      is
      being amortized on a straight line basis over a three year period.




In
      March
      2003, we sold our 51% majority-owned subsidiary, Montvale Management LLC
      (“Montvale”), to Mortgage Industry Consultants, LLC (“MIC”) for $1.6 million,
      plus our investment. We had obtained our 51% interest in September 1999 through
      an initial investment of approximately $50,000. The terms of the agreement
      included an initial payment of $1 million (received in March 2003) followed
      by
      an additional $600,000 to be paid in 24 monthly installments of $25,000 each.
      As
      of August 31, 2005, all required installments were received and recorded as
      realized gain on sale of subsidiary.




In
      May
      2003, we received approximately $299,000, representing our GAAP basis capital
      account in such majority-owned subsidiary as at November 30, 2002, pursuant
      to
      the terms of the agreement. We also entered into a two-year Media Purchase
      Agreement whereby we agreed to provide certain media lead generation and related
      services to the continuing owners of Montvale for consideration of $40,000
      per
      month over the term of the agreement. As of August 31, 2005, we have collected
      all of the requisite payments specified under the agreement.




Under
      currently proposed operating plans and assumptions, management believes that
      projected cash flows from operations and available cash resources and working
      capital, as described above, will be sufficient to satisfy our anticipated
      cash
      requirements for at least the next twelve months.




Additionally,
      as we seek to further extend our reach into the E-commerce and LEC Billed
      Product arenas, as well as identifying new and other consumer oriented products
      and services in the off-line arena, we may use existing cash reserves, enter
      into long-term financing arrangements, acquire the assets of privately-held
      companies, or employ other means to finance such diversification, none of which
      is specifically identifiable or measurable at this time.





**OBLIGATIONS
      AND COMMITMENTS**




We
      are
      not aware of any specific factors, outside of those described in the following
      table, and those “potential factors” described in the “Critical Accounting
      Policy and Accounting Estimate Discussion” which is set forth below, that are
      reasonably likely to cause a material impact, either positive or negative,
      on
      our liquidity trends. Additionally, we do not have off-balance sheet
      arrangements, other than those described in the following table, and do not
      engage in trading activities involving non-exchange traded contracts.





47




A
      summary
      table of future contractual commitments, for future minimum lease payments
      under
      non-cancelable operating leases and employment contracts, and other
      contractually binding agreements, as of August 31, 2005, are set forth below:




Total
                ContractualOperating
                Leases
            
            Employment
                agreements
            
            Other
            
            ObligationsDomestic
            
            Foreign
            
            Domestic
            
            Foreign
            
            Domestic
            
            Domestic
            
            Foreign2005
            
            
            96,213
            
            
            -
            
            
            466,125
            
            
            75,675
            
            
            -
            
            
            562,338
            
            
            75,6752006
            
            
            262,277
            
            
            -
            
            
            1,268,075
            
            
            327,924
            
            
            -
            
            
            1,530,352
            
            
            327,9242007
            
            
            48,695
            
            
            -
            
            
            1,221,854
            
            
            4,147
            
            
            -
            
            
            1,270,549
            
            
            4,1472008
            
            
            50,156
            
            
            -
            
            
            348,469
            
            
            -
            
            
            -
            
            
            398,625
            
            
            -2009
            
            
            16,883
            
            
            -
            
            
            196,200
            
            
            -
            
            
            -
            
            
            213,083
            
            
            -Thereafter
            
            
            -
            
            
            -
            
            
            28,209
            
            
            -
            
            
            -
            
            
            28,209
            
            
            -$
            474,224
            
            $
            -
            
            $
            3,528,932
            
            $
            407,746
            
            $
            -
            
            $
            4,003,156
            
            $
            407,746








**RELATED
      PARTIES**




Feder,
      Kaszovitz, Issacson, Weber, Skala, Bass and Rhine LLP (“FKIWSBR”) provides
      general legal services to us in the ordinary course of business and litigation
      services in defense of actions arising from such business activities. Murray
      L.
      Skala, a partner in such firm, has been a member of our Board of Directors
      since
      inception. FKIWSBR legal services are billed on an arms length transaction
      basis. We incurred approximately $768,000 in legal fees (exclusive of
      disbursements) from FKIWSBR during the nine months ended August 31, 2005, of
      which $599,000 was expensed, and $169,000 was capitalized in the Hot Rocket
      acquisition. We incurred approximately $683,000 in legal fees (exclusive of
      disbursements) from FKIWSBR during the nine months ended August 31,
      2004.




**CRITICAL
      ACCOUNTING POLICY AND ACCOUNTING ESTIMATE DISCUSSION**





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




48





**Estimates**





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





**FACTORS
      THAT COULD AFFECT FUTURE RESULTS**





**Historically
      High Levels of Volatility in Revenue and Cost Trends**





Our
      revenues and profitability from operations have historically varied. Our
      revenues, cost of providing revenues, profit margins and overhead expenses
      have
      varied historically among segments, as well as on a consolidated basis. The
      revenue allocation among our segments in future periods will most probably
      be
      different than our current revenue allocation due to several factors, including
      consumer tastes, business opportunities, regulatory issues that may exist in
      future periods, and other currently unknown factors that could impact our
      revenue generating cycle or cost structure. Therefore, it is difficult to
      predict revenue and gross margin trends, and their corresponding impact on
      liquidity and capital resources. Actual trends may cause us to adjust our
      operating emphasis, which could result in continued period-to-period
      fluctuations in our results of operations. Historically, we have been able
      to
      rapidly react to changes in the business environment within which we operate.
      Management responds to these changes as deemed appropriate at the time of
      change, and as dictated by the nature of such changes. Management’s reaction to
      such changes could cover a broad range of business-related adjustments, ranging
      from product mix repositioning and staff reductions, to entire business model
      overhauls. Based on our current operations and marketing methods, as well as
      the
      dynamic, ever changing status of the Internet marketing environment, it is
      conceivable that we would institute changes to our business practices in future
      fiscal periods. There can be no assurance that any such potential change would
      be successful in its implementation, and there can be no assurance that any
      such
      implementation would benefit our operating margins, profitability, cash flows
      or
      capital resources.





**Revenue
      Recognition, Variable Costs and Bad Debts**





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





49





Certain
      revenue related obligations are recorded at the time revenue is recognized.
      They
      include costs payable to other on-line, as well as off-line, media companies
      for
      generating registered users and consumer data for us, database fee sharing
      costs
      under third-party database use agreements, email message delivery costs,
      contingent-based prize indemnification coverage (i.e., sweepstakes payout
      indemnification), estimated premium fulfillment costs related to the respective
      promotion (if applicable) and all other variable costs directly associated
      with
      completing our obligations relative to the revenue being recognized. Our actual
      premium fulfillment estimates have varied from that which were accrued at the
      time of recording the related revenue. This is deemed a change in management’s
      estimate, and we take the additional cost, or benefit, on the accrual adjustment
      in the fiscal period that the variance is determinable.





Should
      the Internet operating landscape change resulting in (a) higher costs of
      acquiring consumer data and registered users for our websites; (b) higher costs
      of acquiring data for our marketing partners, compromising such marketing
      partners’ ability to maintain adequate sized databases to allow for continued
      third-party database use agreements; (c) the InfiKnowledge asset acquisition
      failing to maintain a lower cost of our email delivery activities and web
      development and web hosting service costs as compared to our competitors, or
      us
      being required to depend on third-party emailing service bureaus, to a degree
      higher, and/or at a cost in excess of our anticipated internally-generated
      costs, than that currently utilized during the nine months ended August 31,
      2005, or other currently unknown third party influences on our ability to
      deliver email messages to the records in our databases, or the records in our
      marketing affiliates’ databases; (d) our contingent-based prize indemnification
      premiums for indemnification coverage increasing due to an increase in the
      number of prize winners at the sites, or as a result of the insurance industry
      in general, or other currently unknown factors; (e) our accruals for fulfillment
      obligations arising out of promotions proving to be less than the actual
      redemptions processed in subsequent fiscal periods; or (f) unpredictable
      technology changes or commercial technology applications; then, if any one,
      or a
      combination, of the above factors were to materialize we could suffer material
      deterioration in future fiscal period revenue growth and gross margins and,
      therefore, our profitability, cash flows and capital resources could be
      materially adversely affected.





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





50





**Major
      Customers and Disposition of Majority-owned Subsidiary**





During
      the nine month period ended August 31, 2005, we had 7 customers in our
      E-commerce segment accounting for approximately $13.6 million or 29.6% of
      consolidated net revenues and approximately $4.6 million, or 48.1% of
      consolidated net accounts receivable as of August 31, 2005. The 7 customers
      accounted for 11.1%, 4.8%, 3.1%, 2.8%, 2.7%, 2.6% and 2.5% of consolidated
      net
      revenue for that nine month period.




During
      the nine month period ended August 31, 2004, we had 5 customers in our
      E-commerce segment accounting for approximately $6.8 million or 25.8% of
      consolidated net revenue and approximately $0.5 million or 10.7% of consolidated
      net accounts receivable as of August 31, 2004. The 5 customers accounted for
      11.0%, 6.5%, 3.1%, 2.8% and 2.3% of consolidated net revenue for that nine
      month
      period.




Regarding
      the balance of our customer base, no single customer had net revenues that
      equaled or exceeded 2.0% of consolidated net revenues for the nine month period
      ended August 31, 2005 or for the nine month period ended August 31, 2004. During
      the year ended November 30, 2003, our business model caused us to move away
      from
      significant single, or material multiple, customer reliance, and therefore
      minimized the risk regarding singular customer loss.





In
      the
      nine months ended August 31, 2005, 16.0% of our revenue was derived from our
      proprietary products: 14.1% from iMatchUp.com, our online dating sites, and
      1.9%
      from our LEC Billed Product segment’s proprietary products.





**Impairment
      of Goodwill, Other Intangibles and investment Portfolio Could Impact net Income**





We
      carry
      goodwill and other identifiable intangibles on our balance sheet arising from
      current and prior-year acquisitions, with all such Goodwill and other
      identifiable intangibles being aggregated and allocated to our E-commerce
      segment. We are required to review, at least annually goodwill for any asset
      impairment. If the review of the aggregated goodwill related to the E-commerce
      segment determines that such goodwill is impaired, then we will be required
      to
      recognize an impairment charge on such goodwill necessary to reduce the carrying
      value of the goodwill to its net realizable value. Should events occur that
      would give rise to such impairment charge, we would recognize decreased
      profitability to the extent of such adjustment. Cash flows would not be directly
      affected by the impairment charge, but cash flows would, most likely, be
      adversely affected as a result of the facts and circumstances that created
      the
      impairment charge.





**Market
      Fluctuation and Debt Repayment Risk of Marketable Securities Investment
      Portfolio**





We
      maintain an investment portfolio that is managed by prominent financial
      institutions. The portfolio includes high-grade corporate commercial paper
      and
      auction rate securities, and common stock equities, all of which are held for
      varying periods of time, pursuant to maturity dates, market conditions and
      other
      factors. The fair value of our investments in the common stock of publicly
      traded companies as of August 31, 2005 amounted to approximately $1.8 million.
      These investments are subject to market price volatility, in addition to the
      potential for business failure at the company level. Moreover, due to the
      economic downturn and difficulties that may be faced by some of the companies
      in
      which we have investments, our investment portfolio could be further impaired
      by
      the failure of such companies to fulfill their responsibility of adhering to
      the
      repayment of principal upon maturity. Additionally, our cash flows and interest
      income could be negatively impacted by Federal Reserve Bank interest rate
      reductions, if any.





51





**Item
      4.**  **CONTROLS
      AND PROCEDURES**





(a)  Evaluation
      of disclosure controls and procedures.





Our
      Chief
      Executive Officer and Chief Financial Officer, after evaluating the
      effectiveness of our disclosure controls and procedures (as defined in Exchange
      Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this
      Quarterly Report, have concluded that as of that date, our disclosure controls
      and procedures were adequate and effective to ensure that information required
      to be disclosed by us in the reports we file or submit with the Securities
      and
      Exchange Commission is recorded, processed, summarized and reported within
      the
      time periods specified in the Securities and Exchange Commission’s rules and
      forms.





(b)  Changes
      in internal control over financial reporting.





There
      were no changes in our internal control over financial reporting identified
      in
      connection with the evaluation required by Exchange Act Rules 13a-15(d) and
      15d-15 that occurred during the period covered by this Quarterly Report that
      has
      materially affected, or is reasonably likely to materially affect, our internal
      control over financial reporting.





52


**PART
      II**





**OTHER
      INFORMATION**




**Item
        1.** **Legal
        Proceedings**
  We
          are
          subject to legal proceedings, lawsuits and other claims, brought by:
          (1) consumers of our products and services; (2) our clients;
          (3) consumers of our clients’ products and services; and (4) others
          bringing claims that arise in the normal course of our business. Legal
          proceedings are subject to numerous uncertainties rendering the prediction
          of
          their outcome difficult. As a result of such uncertainty, we are unable
          to
          estimate the ultimate outcome of any of the subsequently mentioned claims,
          and,
          accordingly, no provision for loss has been recorded. We believe that
          individually, and in the aggregate, the ultimate settlement of the subsequently
          mentioned claims should not have a material adverse effect on our consolidated
          financial position, results of operations or cash flows.
 
 *Qwest*
 
 Qwest
          Communications, Inc. notified us of an indemnification claim relating
          to a
          class action filed against Qwest in Minnesota, *Bindner
          v. LCI International Telecom Corp. et al.* ,
          District Court of Minnesota, County of Sibley, Case No. C0-00-242
          (the
“Class Action”). In that action, plaintiffs claimed that from
          September 1998 to July 1999, they were misled when they were
          solicited
          to change their long distance carrier to Qwest. They asserted that they
          were not
          told that they would have to stay at certain hotels and pay their regular
          rates
          as part of a promotion involving free airline tickets. We introduced the
          promotion (“Fly Free America”) to Qwest, and were retained by Qwest to operate
          the telemarketing campaign pursuant to our Agreement. In or about May 2000,
          we and Qwest entered into an agreement terminating the Agreement and settling
          the amount due us (the “May 2000 Agreement”). The Agreement and the
          May 2000 Agreement contain language that Qwest claims obligates
          us to
          indemnify Qwest for the losses it sustained by reason of this class action.
          We
          maintain that we have no liability in the matter.
  Fraud
          claims in the Class Action were dismissed, leaving breach of contract
          and
          false advertising claims. The court certified the class and Qwest, without
          our
          consent, agreed to settle the Class Action. The court approved the
          settlement agreement, stated that there was no finding of any liability
          against
          Qwest, and approved the attorneys’ fees for plaintiffs’ counsel. No appeal was
          taken so that the Class Action has been concluded.
 In
          November 2002, we commenced an arbitration against Qwest to recover
          certain
          amounts held in escrow that were due us pursuant to the May 2000
          Agreement.
          In December 2002, Qwest filed counterclaims in the arbitration relating
          to
          the Fly Free America program. Qwest asserts that in connection with the
          Class Action, we must indemnify it for $3.4 million in Qwest
          attorneys’ fees; $600,000 in fees for counsel to the plaintiffs in the
          Class Action; and $500,000 in settlement payments to Class members.
          Qwest also sought reimbursement of approximately $3.1 million it
          paid us
          pursuant to the May 2000 Agreement. Initially, Qwest also sought
          to recover
          approximately $1.5 million of fines and penalties it claimed it
          paid to
          various attorneys general; Qwest has now withdrawn that claim.
 
 A
          panel
          of arbitrators was appointed in December 2003. The panel established
          a
          schedule for substantive motions and for hearings in June 2004.
          The
          arbitrators also provided for exchanges of information in the arbitration
          subject to Qwest’s right to seek to prevent such exchanges. Qwest moved to
          prevent exchanges of information and this application was granted. Qwest
          moved
          for summary judgment with respect to its indemnification counterclaim.
          That
          motion was denied. Arbitration hearings on liability were held during the
          week
          of June 20, 2005. The arbitrators reserved decision and bifurcated
          all
          issues of awards of legal fees such that any hearings on legal fees will
          be held
          after a decision on liability has issued.
 
 *Columbia
          House/Rydel*
 
 In
          or
          about August 2002, Columbia House, one of our clients, notified
          us of an
          indemnification claim relating to a class action filed against Columbia
          House,
          among others, in Illinois, *Rydel
          v. Comtrad Industries, Inc. et al.* ,
          Circuit
          Court of Cook County, Illinois, No. 02 CH 13269. In that action,
          plaintiff
          claims to have received unsolicited commercial e-mail from, among others,
          Columbia House, in violation of Illinois law, and asserts two basic claims
          against Columbia House, one for violation of Illinois’ Consumers Fraud Statute,
          the second for violation of Illinois’ Electronic Mail Act. Columbia House
          advised us that it believes that the email in question was not approved
          by
          Columbia House when it was sent, and asserted a claim for indemnification
          against us pursuant to our contract. We and Columbia House agreed to defer
          resolution of the indemnification claim (and reserved each of our respective
          rights). Columbia House is defending against the class action. Its motion
          to
          dismiss was granted as to the Consumer Fraud claim, but denied as to the
          Electronic Mail Act claim. The plaintiff has appealed the partial
          dismissal.
 
 In
          or
          about January 2003, we were named as a defendant in the *Rydel* class
          action. In an additional count in the complaint, the plaintiff asserted
          that we
          violated the Illinois Consumer Fraud and Deceptive Business Practices Act
          by
          providing to a co-defendant a list of consumers who had consented to receive
          commercial e-mails when, the complaint alleges, they had not. The complaint
          sought injunctive relief and unspecified damages. Our motion to dismiss
          the
          claim as against us was granted in June 2003, and the plaintiff
          filed an
          appeal.
 
 In
          late
          2004, the appellate court affirmed the decision below, so that the claim
          against
          us is dismissed; the Consumer Fraud claim against Columbia House is dismissed;
          and the Electronic Mail Act claim against Columbia House remains. The plaintiff
          asked the appellate court to reconsider its decision, and the court denied
          that
          request on April 14, 2005.
 
 As
          stated
          above, we are unable to determine the ultimate outcomes of any of the foregoing
          claims or demands, and, accordingly, no provision for loss has been recorded
          in
          the financial statements included in this Report.
 53
 
 *Columbia
        House/Rydel*
 
 In
        or
        about August 2002, Columbia House, one of our clients, notified us
        of an
        indemnification claim relating to a class action filed against Columbia House,
        among others, in Illinois, *Rydel
        v. Comtrad Industries, Inc. et al.* ,
        Circuit
        Court of Cook County, Illinois, No. 02 CH 13269. In that action, plaintiff
        claims to have received unsolicited commercial e-mail from, among others,
        Columbia House, in violation of Illinois law, and asserts two basic claims
        against Columbia House, one for violation of Illinois’ Consumers Fraud Statute,
        the second for violation of Illinois’ Electronic Mail Act. Columbia House
        advised us that it believes that the email in question was not approved by
        Columbia House when it was sent, and asserted a claim for indemnification
        against us pursuant to our contract. We and Columbia House agreed to defer
        resolution of the indemnification claim (and reserved each of our respective
        rights). Columbia House is defending against the class action. Its motion
        to
        dismiss was granted as to the Consumer Fraud claim, but denied as to the
        Electronic Mail Act claim. The plaintiff has appealed the partial
        dismissal.
 
 In
        or
        about January 2003, we were named as a defendant in the *Rydel* class
        action. In an additional count in the complaint, the plaintiff asserted that
        we
        violated the Illinois Consumer Fraud and Deceptive Business Practices Act
        by
        providing to a co-defendant a list of consumers who had consented to receive
        commercial e-mails when, the complaint alleges, they had not. The complaint
        sought injunctive relief and unspecified damages. Our motion to dismiss the
        claim as against us was granted in June 2003, and the plaintiff filed
        an
        appeal.
 
 In
        late
        2004, the appellate court affirmed the decision below, so that the claim
        against
        us is dismissed; the Consumer Fraud claim against Columbia House is dismissed;
        and the Electronic Mail Act claim against Columbia House remains. The plaintiff
        asked the appellate court to reconsider its decision, and the court denied
        that
        request on April 14, 2005.
 
 As
        stated
        above, we are unable to determine the ultimate outcomes of any of the foregoing
        claims or demands, and, accordingly, no provision for loss has been recorded
        in
        the financial statements included in this Report.
  54


**Item
      6.** **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)31.1
              Rule
                  13a-14(a)/15d-14(a) Certification of Chief Executive Officer
                  *31.2
              Rule
                  13a-14(a)/15d-14(a) Certification of Chief Financial Officer
                  *32.1
              Section
                  1350 Certification of Chief Executive Officer *32.2
              Section
                  1350 Certification of Chief Financial Officer *





*  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 (the
                “S-1 Registration Statement”), dated September 6, 1995 (File No.
                33-96632), and incorporated herein by
                reference.





55


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. SchwartzDate:
              October 17, 2005
            Jeffrey
                L. Schwartz
              Chairman
                and CEO Chairman and CEO
              (Principal
                Executive Officer)


****By:
              /s/ Daniel
                HarveyDate:
                October 17, 2005
              Daniel
                  Harvey
                Chief
                  Financial Officer
                (Principal
                  Financial Officer)


56




Exhibit Index




Exhibit
Number3.1.1
              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)31.1
              Rule
                  13a-14(a)/15d-14(a) Certification of Chief Executive Officer
                  *31.2
              Rule
                  13a-14(a)/15d-14(a) Certification of Chief Financial Officer
                  *32.1
              Section
                  1350 Certification of Chief Executive Officer *32.2
              Section
                  1350 Certification of Chief Financial Officer *


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 (the
                “S-1 Registration Statement”), dated September 6, 1995 (File No.
                33-96632), and incorporated herein by
                reference.






57