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**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 February 28, 2006




or




o
            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 a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check
      one).




Large
      accelerated filer o Accelerated
      filer o Non-accelerated
      filer x




Indicate
      by check mark whether the Registrant is a shell company (as determined in Rule
      12b-2 of the Exchange Act.) YES
      o NO
      x




The
      number of shares outstanding of the Registrant's common stock is 14,242,651
      (as
      of 04/11/06).







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**TRAFFIX,
      INC.**


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


**FILED
      WITH THE SECURITIES AND EXCHANGE COMMISSION**


**QUARTER
      ENDED FEBRUARY 28, 2006**




**ITEMS
      IN FORM 10-Q**


**Page****Part
                I****Financial
                Information**Item
                1.
            Financial
                StatementsConsolidated
                Balance Sheets at February 28, 2006 and November
                30, 2005
            2Consolidated
                Statements of Income for the three months ended
                February 28, 2006 and February 28, 2005
            3Consolidated
                Statements of Cash Flows for the three months
                ended February 28, 2006 and February 28, 2005
            4Consolidated
                Statement of Shareholders’ Equity for the three
                months ended February 28, 2006
            5Notes
                to Consolidated Financial
                Statements
            6Item
                2.
            Management's
                Discussion and Analysis of Financial Condition
                and Results of Operations
            19Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            NoneItem
                4.
            Controls
                and Procedures
            37**Part
                II****Other
                Information**Item
                1.
            Legal
                Proceedings
            38Item
                1A.
            Risk
                Factors
            38Item
                1B.
            Unresolved
                Staff Comments
            41Item
                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
            41Item
                6.
            Exhibits
            4142**Signatures**






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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.






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**TRAFFIX,
                  INC. AND SUBSIDIARIES****CONSOLIDATED
                  BALANCE
                  SHEETS**
  **February
                    28,**
                
                **November
                    30,****2006**
                
                **2005****(Unaudited)****Assets**Current
                    assets:Cash
                    and cash equivalents
                
                $
                10,786,783
                
                $
                9,335,723Marketable
                    securities
                
                
                17,020,104
                
                
                18,908,064Accounts
                    receivable, trade, net of allowance for doubtful accountsof
                    $1,109,946 at February 28, 2006 and $1,025,661 at November 30,
                    2005
                
                
                10,287,553
                
                
                11,137,275Deferred
                    income taxes
                
                
                1,371,934
                
                
                1,379,877Prepaid
                    expenses and other current assets
                
                
                719,814
                
                
                1,078,621**Total
                    current assets**
                
                
                40,186,188
                
                
                41,839,560Marketable
                    securities
                
                
                2,681,950
                
                
                2,662,905Property
                    and equipment, net
                
                
                2,238,005
                
                
                2,317,690Goodwill
                
                
                7,834,941
                
                
                6,426,336Other
                    intangibles, net
                
                
                2,179,358
                
                
                2,538,223Deferred
                    income taxes
                
                
                481,642
                
                
                478,050**Total
                    assets**
                
                $
                55,602,084
                
                $
                56,262,764**Liabilities**Current
                    liabilities:Accounts
                    payable
                
                $
                2,817,244
                
                $
                5,426,797Accrued
                    expenses
                
                
                6,229,347
                
                
                4,269,995Reserve
                    for customer chargebacks
                
                
                —
                
                
                302,175Due
                    to related parties
                
                
                134,181
                
                
                110,076Income
                    taxes payable
                
                
                1,518,260
                
                
                1,009,880**Total
                    current liabilities**
                
                
                10,699,032
                
                
                11,118,923Deferred
                    income taxes
                
                
                275,008
                
                
                302,465**Total
                    liabilities**
                
                
                10,974,040
                
                
                11,421,388Minority
                    interest
                
                
                369,732
                
                
                365,637Commitments
                    and contingencies (Notes 2 and 7)**Shareholders'
                    equity**Preferred
                    stock - $.001 par value; 1,000,000 shares authorized;none
                    issued and outstanding
                
                
                —
                
                
                —Common
                    stock - $.001 par value; authorized 50,000,000 shares;
                    issued14,242,651
                    shares and 14,208,486 shares, respectively
                
                
                14,242
                
                
                14,208Additional
                    paid-in capital
                
                
                43,212,454
                
                
                43,584,229Retained
                    earnings
                
                
                —
                
                
                —Accumulated
                    other comprehensive income
                
                
                1,031,616
                
                
                877,302**Total
                    shareholders' equity**
                
                
                44,258,312
                
                
                44,475,739**Total
                    liabilities and shareholders' equity**
                
                $
                55,602,084
                
                $
                56,262,764


See
        acompanying notes to consolidated financial statements.
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**TRAFFIX,
                  INC. AND SUBSIDIARIES****CONSOLIDATED
                  STATEMENTS OF INCOME****(UNAUDITED)**
  **Three
                  Months Ended****February
                  28,**
              
              **February
                  28,****2006**
              
              **2005**Net
                  revenue
              
              $
              17,022,812
              
              $
              12,924,931Cost
                  of sales
              
              
              9,568,640
              
              
              7,286,476**Gross
                  profit**
              
              
              7,454,172
              
              
              5,638,455Selling
                  expenses
              
              
              1,004,009
              
              
              817,175General
                  and administrative expenses (including stock-basedcompensation
                  of $172,240)
              
              
              5,074,083
              
              
              4,263,951Other
                  operating (income) expense
              
              
              24,113
              
              
              (175,805
              )Amortization
                  of intangibles
              
              
              361,975
              
              
              275,162Depreciation
                  expense
              
              
              214,581
              
              
              174,946Bad
                  debt expense
              
              
              84,286
              
              
              85,225**Income
                  from operations**
              
              
              691,125
              
              
              197,801Other
                  income (expense):Interest
                  income and dividends
              
              
              241,992
              
              
              187,823Realized
                  (losses) gains on marketable securities
              
              
              (18,352
              )
              
              585,268Realized
                  gain on sale of subsidiary
              
              
              —
              
              
              195,000Other
                  non-operating income (expense)
              
              
              4,117
              
              
              (8,710
              )Minority
                  interest in income of consolidatedsubsidiary
              
              
              (200,095
              )
              
              (97,645
              )**Income
                  before provision for****income
                  taxes**
              
              
              718,787
              
              
              1,059,537Provision
                  for income taxes
              
              
              296,069
              
              
              436,256**Net
                  income**
              
              $
              422,718
              
              $
              623,281Basic
                  earnings per share (Note 4):Net
                  income
              
              $
              0.03
              
              $
              0.05Weighted
                  average shares outstanding
              
              
              14,259,543
              
              
              13,597,621Diluted
                  earnings per share (Note 4):Net
                  income
              
              $
              0.03
              
              $
              0.04Weighted
                  average shares outstanding
              
              
              14,460,056
              
              
              14,249,901Cash
                  dividend declared per common share
              
              $
              0.08
              
              $
              —


The
        accompanying notes are an integral part of these financial
        statements


Net
      income for the three months ended February 28, 2006 included stock-based
      compensation expense under Statement of Financial Accounting Standards (“SFAS”)
      123(R) of $172,240, with such expense being included with general and
      administrative expenses. The Consolidated Financial Statements do not reflect
      any stock-based compensation expense related to employee stock options and
      non-employee director stock options under SFAS 123(R) in the three months ended
      February 28, 2005 because the Company did not adopt the recognition provisions
      of SFAS 123. Proforma net income was $509,654 for the three months ended
      February 28, 2005, inclusive of $172,162 in pro forma stock-based compensation
      expense, or $0.01 per proforma diluted share after the related pro-forma tax
      effect of $58,535. Prior to December 1, 2005, the proforma stock-based
      compensation disclosure was limited to the notes to the consolidated Financial
      Statements.




The
      provision for income taxes includes the income tax benefit from stock-based
      compensation.




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**TRAFFIX,
                  INC. AND SUBSIDIARIES****CONSOLIDATED
                  STATEMENTS OF CASH
                  FLOWS****(UNAUDITED)**
  **Three
                  Months Ended****February
                  28,**
              
              **February
                  28,****2006**
              
              **2005**Cash
                  flows from operating activities:Net
                  income
              
              $
              422,718
              
              $
              623,281Adjustments
                  to reconcile net income to net cashused
                  in operating activities:Depreciation
                  and amortization
              
              
              576,556
              
              
              450,108Stock-based
                  compensation
              
              
              172,240
              
              
              —Reserve
                  for customer chargebacks
              
              
              —
              
              
              9,805Provision
                  for uncollectible accounts
              
              
              84,286
              
              
              85,225Deferred
                  income taxes
              
              
              (58,040
              )
              
              448,856Net
                  losses(gains) on sale of marketable securities
              
              
              18,352
              
              
              (585,268
              )Gain
                  on sale of subsidiary
              
              
              —
              
              
              (195,000
              )Minority
                  interest
              
              
              200,095
              
              
              97,645Changes
                  in assets and liabilities of business, net of
                  acquisitions:Accounts
                  receivable
              
              
              463,262
              
              
              (1,822,152
              )Prepaid
                  expenses and other current assets
              
              
              358,807
              
              
              (24,296
              )Accounts
                  payable
              
              
              (2,609,553
              )
              
              736,939Income
                  taxes payable
              
              
              508,380
              
              
              (28,988
              )Due
                  to related parties
              
              
              24,105
              
              
              (64,271
              )Other,
                  principally accrued expenses
              
              
              (489,441
              )
              
              (94,703
              )**Net
                  cash used in operating activities**
              
              
              (328,233
              )
              
              (362,819
              )Cash
                  flows from investing activities:Purchases
                  of securities
              
              
              (51,757,965
              )
              
              (56,961,191
              )Proceeds
                  from sales of securities
              
              
              53,716,008
              
              
              58,745,503Proceeds
                  from the sale of a subsidiary
              
              
              —
              
              
              195,000Payment
                  for asset acquisition, net of cash received
              
              
              —
              
              
              (2,832,500
              )Capital
                  expenditures
              
              
              (91,293
              )
              
              (47,774
              )**Net
                  cash provided by (used in) investing activities**
              
              
              1,866,750
              
              
              (900,962
              )Cash
                  flows from financing activities:Distribution
                  to minority interest holder
              
              
              (196,000
              )
              
              —Repayment
                  of capital lease obligation
              
              
              (77,000
              )
              
              —Proceeds
                  from stock options exercised
              
              
              158,401
              
              
              538,827Excess
                  tax benefits from stock-based compensation
              
              
              14,311
              
              
              —**Net
                  cash (used in) provided by financing activities**
              
              
              (100,288
              )
              
              538,827Effect
                  of exchange rate changes on cash and cash equivalents
              
              
              12,831
              
              
              6,701Net
                  increase(decrease) in cash and cash equivalents
              
              
              1,451,060
              
              
              (718,253
              )Cash
                  and cash equivalents, beginning of period
              
              
              9,335,723
              
              
              7,553,285**Cash
                  and cash equivalents, end of period**
              
              $
              10,786,783
              
              $
              6,835,032See
                  Notes (1), (2) and (12) for a summary of noncash investing and
                  financing
                  activities.


The
        accompanying notes are an integral part of these financial
        statements
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            Contents**




**TRAFFIX,
                  INC. AND SUBSIDIARIES****CONSOLIDATED
                  STATEMENT OF SHAREHOLDERS'
                  EQUITY****FOR
                  THE THREE MONTHS ENDED FEBRUARY 28, 2006****(UNAUDITED)**




**Accumulated****Additional**
            
            
            
            **Other**
            
            **Total****Common
                Stock**
            
            **Paid-in**
            
            **Retained**
            
            **Comprehensive**
            
            **Shareholders'****Shares**
            
            **Amounts**
            
            **Capital**
            
            **Earnings**
            
            **Income(Loss)**
            
            **Equity****Balance,
                November 30, 2005**
            
            
            14,208,486
            
            $
            14,208
            
            $
            43,584,229
            
            $
            —
            
            $
            877,302
            
            $
            44,475,739Net
                income for the three monthsended
                February 28, 2006
            
            
            
            
            
            
            
            
            
            
            
            422,718
            
            
            
            
            
            422,718Unrealized
                gains on available-for-sale securities
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            72,546
            
            
            72,546Foreign
                Currency Translation
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            —adjustment
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            81,768
            
            
            81,768Stock-based
                compensation expense
            
            
            
            
            
            
            
            
            172,240
            
            
            
            
            
            
            
            
            172,240Dividends
                declared
            
            
            
            
            
            
            
            
            (716,693
            )
            
            (422,718
            )
            
            
            
            
            (1,139,411
            )Stock
                option exercises
            
            
            34,165
            
            
            34
            
            
            158,367
            
            
            
            
            
            
            
            
            158,401Tax
                benefit from exercise ofstock
                options
            
            
            
            
            
            
            
            
            14,311
            
            
            
            
            
            
            
            
            14,311**Balance,
                February 28, 2006**
            
            
            14,242,651
            
            $
            14,242
            
            $
            43,212,454
            
            $
            —
            
            $
            1,031,616
            
            $
            44,258,312






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**TRAFFIX,
      INC. AND SUBSIDIARIES**




**NOTES
      TO FINANCIAL STATEMENTS (UNAUDITED)**




**1.**
            **GENERAL**




The
      accompanying consolidated financial statements 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 and liabilities and
      disclosure of contingent assets and liabilities at the date of the financial
      statements and revenues and expenses during the interim periods reported. Actual
      results could differ from those estimates.




Principally,
      estimates are used in reserves for uncollectible receivables, 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, 2005. The results of operations
      for the three-month period ended February 28, 2006 are not necessarily
      indicative of the results to be expected for the subsequent quarters or the
      full
      fiscal year ending November 30, 2006.  Certain
      prior year amounts in the unaudited consolidated financial statements have
      been
      reclassified to conform with the current year presentation. Specifically,
      effective December 1, 2005, the Company’s Chief Operating Decision Maker (“CODM”
- a committee based group consisting of Company executive employees and certain
      Audit Committee members), modified the way it assesses the operations and
      performance of the Company’s single operating segment, and the resulting
      allocation of resources, resulting from such assessment, in seeking the optimal
      potential return on those resources. As a result of this modification certain
      elements of the February 28, 2005 (a) financial statements and (b) notes thereto
      were reclassified to correlate to the way the CODM currently receives
      information on the operations of the Company’s On-line Advertising and Media
      Services segment. The income before provision for income taxes, provision for
      income taxes and net income for the three months ended February 28, 2005 were
      not affected by the reclassification resulting from CODM’s segment
      re-assessment. Regarding profitability margins, this reclassification had no
      effect on the Company’s consolidated (a) operating margin percentage or (b) the
      net income margin.




The
      CODM
      had previously considered a portion of the operating expenses of our Canadian
      subsidiary to be an item of cost of sales (“Email marketing and related delivery
      costs”, the non-third party mail-house costs, or $875,912 for the three months
      ended February 28, 2005), and the remaining portion was considered as a single
      item of our general and administrative expenses (“Site development, maintenance
      and modifications”, or $341,308 for the three months ended February 28, 2005).
      The prior year’s subsidiary overhead allocation was percentage based and didn’t
      meet the standard granular operating measurement requirements of the CODM.
      As a
      result of this analysis the CODM reassessed the component items of the Canadian
      subsidiaries operating expenses, and determined that they were all fixed or
      variable overhead accounts, and would provide more clarity is assessing
      operations when grouped as such. Therefore, the prior period statement of income
      was reclassified to conform to the current period presentation, and reflects
      100% of the Canadian subsidiaries operating expenses grouped with the Company’s
      general and administrative overhead/expense account grouping as detailed in
      “Managements’ Discussion and Analysis of Financial Condition and Results of
      Operations”. Additionally, a portion of depreciation and amortization expense
      had previously been grouped with cost of goods sold (portion of Canadian
      subsidiary’s depreciation and amortization) and the balance was grouped with
      general and administrative expenses. The CODM now receives income statements
      with depreciation and amortization expense as separate line items on its face,
      and accordingly the financial statement presentation was modified to agree
      to
      the CODM presentation. Both periods were reclassified for all the items
      described above. See Note 7, “Segment Information”, included herein for more
      information on the segment modification reclassifications.




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During
      the three months ended February 28, 2006 and February 28 2005, options for
      34,165 shares and 126,581 shares of the Company’s common stock, respectively,
      were exercised by its employees and directors. Tax benefits of $14,311 and
      $92,537 in the three months ended February 28, 2006 and February 28, 2005,
      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.




**Recent
      Accounting Pronouncements**




There
      have been no material changes to the recent pronouncements as previously
      reported in the Company’s Annual Report on Form 10-K for the fiscal year ended
      November 30, 2005.




During
      the three months ended February 28, 2006, specifically effective December 1,
      2005, the Company adopted the fair value recognition provisions of Statement
      of
      Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-Based
      Payment” (“SFAS 123R”). See notes 2 and 3 for additional disclosure on SFAS
      123R.




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




The
      Company’s significant accounting policies are included in its Form 10-K for the
      year ended November 30, 2005. As described above in Note 1 and further described
      below in Note 3 to its Consolidated Financial Statements, the Company adopted
      SFAS 123R effective December 1, 2005. During the three months ended February
      28,
      2006, there were no other significant changes in the Company’s accounting
      policies.




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




In
      prior
      fiscal periods the significant portion of the Company’s revenue was dependent on
      a limited number of major customers. The Company has been modifying the
      structure and form of its business methods and practices, and through
      diversification of its revenue drivers, the Company continues to move away
      from
      the significant customer(s) reliance business model. As a result of the
      Company’s business planning and diversification, the three-month periods ended
      February 28, 2006 and February 28, 2005 did not include any single customer
      which equaled or exceeded 10% of the Company’s consolidated net revenue. The
      Company’s five largest customers during the three months ended February 28, 2006
      accounted for 9.2%, 7.6%, 7.3%, 3.2% and 2.7% of consolidated net revenues
      during such period.




During
      the three months ended February 28, 2006, 10.8% of the Company’s revenue was
      derived from its proprietary Personals service, iMatchUp.com., as compared
      to
      14.6% of revenue during the comparable prior year’s period.




**Stock-based
      Compensation**




Effective
      December 1, 2005, the Company adopted the fair value recognition provisions
      of
      Statement of Financial Accounting Standards ("SFAS") No. 123 (revised
      2004), "Share-Based Payment" ("SFAS 123R"), using the modified prospective
      transition method and, therefore, has not restated results for prior periods.
      Under this transition method, stock-based compensation expense for the first
      quarter of Fiscal 2006 included compensation expense for all stock-based
      compensation awards granted prior to, but not yet vested as of December 1,
      2005, based on the grant date fair value estimated in accordance with the
      original provision of SFAS No. 123, "Accounting for Stock-Based
      Compensation" ("SFAS 123"). Stock-based compensation expense for all
      stock-based compensation awards granted after December 1, 2005 is based on
      the
      grant-date fair value estimated in accordance with the provisions of
      SFAS 123R. The Company recognizes these compensation costs on a
      straight-line basis over the requisite service period of the award, which range
      from immediate vesting to vesting over a three year period. Prior to the
      December 1, 2005 adoption of SFAS 123R, the Company recognized stock-based
      compensation expense in accordance with Accounting Principles Board ("APB")
      Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25").
      In March 2005, the Securities and Exchange Commission (the "SEC") issued Staff
      Accounting Bulletin No. 107 ("SAB 107") regarding the SEC's
      interpretation of SFAS 123R and the valuation of share-based payments for
      public companies. The Company has applied the provisions of SAB 107 in its
      adoption of SFAS 123R. See Note 3 to the Unaudited Consolidated
      Financial Statements for a further discussion on stock-based
      compensation.




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**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 as
      amended by SFAS 109. The pronouncements consider 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.




**February
                28,**
            
            **February
                28,****2006**
            
            **2005****Supplemental
                Cash Flow Disclosures**Cash
                paid during the three months ended for:Income
                taxes paid (refunds received), net
            
            
            ($154,112
            )
            $
            11,181





**Non-cash
      Investing and Financing Activities**




Non-cash
      investing and financing activities are excluded from the consolidated statement
      of cash flows. For the three months ended February 28, 2006 and February 28,
      2005, non-cash activities included the following items:




**Investing
      Activities:**




February
                28,
            
            February
                28,**Stock
                Issued in connection with Acquisition (Also see notes 8 and
                9)**
            
            **2006**
            
            **2005**Hot
                Rocket Marketing, Inc. - January 21, 2005
            
            
            
            
            $
            682,280Hot
                Rocket Marketing, Inc. - January 31, 2006 (1)
            
            $
            -0-





(1)
            The
                Company is liable to issue $580,690 in fair market value of Traffix,
                Inc.
                stock, with such amount included in accrued expenses at February
                28, 2006.
                The issuance date is expected to be on, or about April 24,
                2006.






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**3.**
            **Stock-Based
                Compensation**




The
      Company’s shareholder-approved Sixth Amended and Restated 1996 Employee
      Incentive Plan (the “Plan”) provides for the granting of incentive stock
      options, non-qualified stock options and/or the issuance of restricted stock
      for
      up to 6,768,430 shares of our common stock. As of February 28, 2006, all Plan
      activity was for the granting of non-qualified stock options. To date, no
      incentive stock options have been granted and no restricted stock has been
      issued. Certain grants have been issued, prior to adoption; that include
      performance based vesting criteria. No performance based awards have been
      granted during the three months ended February 28, 2006. Options have five
      to
      ten year contractual terms and generally vest based on 0 to 3 years of
      continuous service.




On
      September 21, 2004, the shareholders’ ratified and approved the Company’s Fifth
      Amended and Restated 1996 Stock Option Plan. Such Fifth Amendment canceled
      518,430 options that remained available for grant under the Company’s 1995 Stock
      Option, and increased the number of shares available under the 1996 Plan by
      a
      corresponding 518,430 option shares, and increased the 1996 Plan by an
      additional 900,000 shares. The change was made pursuant to the more advantageous
      provisions included in the Plan with respect to option holders, and the
      treatment alternatives available in the case of changes in
      capitalization.




The
      total
      expense related to this Plan was $172,240 for the three months ended February
      28, 2006. The total related income tax benefit recognized on the income
      statement was $59,408.




Prior
      to
      December 1, 2005, the Company accounted for the Plan under the recognition, measurement and pro forma disclosure provisions
      of
      APB 25, the original provisions of SFAS No. 123, and SFAS No. 148,
“Accounting for Stock-Based Compensation-Transition and Disclosure” (“SFAS
      148”). In accordance with APB 25, the Company generally would have recognized
      compensation expense only when it granted options with a discounted exercise
      price, or modified the terms, and would have recognized the related compensation
      expense ratably over the associated service period, which was generally the
      option vesting term.




Effective
      December 1, 2005, the Company adopted the fair value recognition provisions
      of
      SFAS No. 123R, using the modified prospective transition method and,
      therefore, has not restated results for prior periods. Under this transition
      method, stock-based compensation expense for the first quarter of Fiscal 2006
      included compensation expense for all stock-based compensation awards granted
      prior to, but remained unvested as of, December 1, 2005. Compensation
      expense was based on the grant date fair value estimated in accordance with
      the
      original provision of SFAS No. 123.




Stock-based
      compensation expense for all stock-based compensation awards granted after
      December 1, 2005 is based on the grant-date fair value estimated on that date
      using the Black-Scholes option-pricing model with assumptions noted on the
      following table. The Company recognizes these compensation costs net of a
      forfeiture rate and recognizes the compensation costs for only those shares
      expected to vest on a straight-line basis over the requisite service period
      of
      the award, for which the Company uses the related weighted-average vesting
      term.
      The Company uses an estimated forfeiture rate in the valuation model for the
      first quarter of Fiscal 2006. The estimate is based on historical employee
      option exercise and employee termination experience. The Company has identified
      separate groups of optionees that exhibit similar option exercise behavior
      and
      has considered them as separate groups in the valuation model.




As
      a result of our December 1, 2005 adoption of SFAS 123R, the impact to the
      Company’s Consolidated Financial Statements for the three months ended February
      28, 2006 on income before income taxes and on net income for the three months
      ended February 28, 2006 were reductions of $172,240 and $112,832, respectively,
      when comparing what results would have been if it had continued to account
      for
      stock-based compensation under APB 25. The impact on both basic and diluted
      earnings per share for the three months ended February 28, 2006 was $0.01 per
      share. In addition, prior to the adoption of SFAS 123R, the Company
      presented the tax benefit of stock option exercises as operating cash flows.
      Upon the adoption of SFAS 123R, tax benefits resulting from tax deductions
      in excess of the compensation cost recognized for those options are classified
      as financing cash flows.




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*Pro
      Forma Information under SFAS No, 123*




Pro
      forma
      information regarding the effect on the net income and basic and diluted income
      per share for the three months ended February 28, 2005, had the Company applied
      the fair value recognition provisions of SFAS No. 123, are as
      follows:


**Three
                  months ended****February****28,
                  2005**Net
                  income
              
              $
              623,281Less:
                  Total stock-based compensation expense determinedunder
                  fair value based method, net of related tax effects
              
              
              (113,627
              )Pro
                  forma Net income, as adjusted
              
              $
              509,654Basic
                  net income per share:As
                  reported
              
              $
              0.05Pro
                  forma
              
              $
              0.04Diluted
                  net income per share:As
                  reported
              
              $
              0.04Pro
                  forma
              
              $
              0.04




*Stock
      Option Valuation and Expense Information under SFAS No. 123(R)*




The
      Company calculated the fair value of each option grant on the date of the grant
      using the Black-Scholes option-pricing model as prescribed by SFAS No. 123(R)
      using the following assumptions:


**Three
                  Months Ended****February
                  28,**
              
              **February
                  28,****2006
                  (1)**
              
              **2005**Expected
                  life (years)
              
              
              5.34
              
              
              4.00Risk-free
                  interest rate
              
              
              4.43
              %
              
              3.37
              %Expected
                  volatility
              
              
              112.79
              %
              
              54.00
              %Dividend
                  yield
              
              
              5.84
              %
              
              10.70
              %





(1)
            The
                fair value calculation was based on stock options granted during
                the
                period.




The
      volatility assumption is based on the weighted average for the most recent
      five-year term volatility measures of the Company’s stock. Prior to December 1,
      2005, the Company had used its historical stock price volatility in accordance
      with SFAS No. 123 for purposes of its pro forma information. The risk-free
      interest rate assumption is based upon various short term U.S. Treasury rates,
      as of the month of the grants.




The
      expected life of employee and director stock options represents the weighted
      average of the result of the “simplified” method applied to “plain vanilla”
options granted during the period December 1, 2005 to February 28, 2006, all
      as
      provided for in Staff Accounting Bulletin No. 107 (“SAB 107”).




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The
      stock-based compensation expense recognized in the condensed consolidated
      statement of operations for the three months ended February 28, 2006 is based
      on
      awards ultimately expected to vest, and accordingly has been adjusted by the
      amount of estimated forfeitures. SFAS No. 123(R) requires forfeitures to be
      estimated at the time of grant and revised, if necessary, in subsequent periods
      if actual forfeitures differ from those estimates. Forfeitures were estimated
      based partially on historical experience. In the Company’s pro forma information
      required under SFAS no. 123 for the periods prior to December 1, 2005, the
      Company had established estimates for forfeitures.




During
      the three months ended February 28, 2006, stock-based compensation expense,
      net,
      related to the Plan was allocated as follows:


**Three
                  Months****Ended****February
                  28,****2006**General
                  and administrative expenses
              
              $
              172,240Stock-based
                  compensation expense before income taxes
              
              
              172,240Income
                  tax benefit
              
              
              (59,408
              )Total
                  stock-based compensation expense after income taxes
              
              $
              112,832




*Stock
      Options*




The
      status of the Plan during the quarter ended February 28, 2006 was as
      follows:


**February
                  28, 2006****Average****Weighted**
              
              **Remaining****Average**
              
              **Contractual**
              
              **Average****Number
                  of**
              
              **Exercise**
              
              **Term**
              
              **Intrinsic****Shares**
              
              **Price**
              
              **(in
                  years)**
              
              **Value**Options
                  outstanding, beginning of quarter
              
              
              3,140,359
              
              $
              5.65Granted
              
              
              31,250
              
              
              5.12Exercised
              
              
              (34,165
              )
              
              4.64Forfeited
              
              
              (25,833
              )
              
              5.55Options
                  outstanding, end of quarter
              
              
              3,111,611
              
              
              5.65
              
              
              5.7
              
              $
              1,409,529Vested
                  and expected to vest at February 28, 2006
              
              
              3,105,319
              
              
              5.65
              
              
              5.7
              
              $
              1,406,679Exercisable
                  at February 28, 2006
              
              
              2,678,429
              
              $
              5.49
              
              
              5.7
              
              
              1,393,612




The
      aggregate intrinsic value in the table above represents the total pretax
      intrinsic value (the difference between the Company’s closing stock price on the
      last trading day of the first quarter of Fiscal 2006 (February 28, 2006) and
      the
      exercise price, multiplied by the number of in-the-money options) that would
      have been received by the option holders had all option holders exercised their
      options on February 28, 2006. This amount changes based on the fair market
      value
      of the Company’s stock. Total intrinsic value of options exercised for the three
      months ended February 28, 2006 was $42,093. Total fair value of options vested
      and expensed was $186,361, net of tax, for the three months ended February
      28,
      2006. The
      weighted-average grant-date fair value of options granted during the three
      months ended February 28, 2006 was $3.01.




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A
      summary
      of the status of the Corporation’s nonvested shares as of February 28, 2006, and
      changes during the three months ended February 28, 2006 is set forth
      below:


**February
                  28, 2006****Weighted****Average****Number
                  of**
              
              **Grant-date****Nonvested
                Shares**
              
              **Shares**
              
              **Fair
                  Value**Nonvested
                  Options outstanding, beginning of quarter
              
              
              567,852
              
              $
              1.39Granted
              
              
              31,250
              
              
              3.01Vested
              
              
              (162,918
              )
              
              1.65Forfeited
              
              
              (3,002
              )
              
              1.53Nonvested
                  Options outstanding, end of quarter
              
              
              433,182
              
              
              1.41




As
      of
      February 28, 2006, there was $338,695 of total unrecognized compensation cost
      related to nonvested share-based compensation arrangements granted under the
      Plan. That cost is expected to be recognized over a weighted-average period
      of 9.8 months.




The
      following table summarizes information about the Company’s stock options
      outstanding at February 28, 2006:


**Weighted****Average**
              
              **Weighted**
              
              
              
              **Weighted****Range
                  of**
              
              **Number**
              
              **Remaining**
              
              **Average**
              
              **Number**
              
              **Average****Exercise**
              
              **of
                  shares**
              
              **Contractual**
              
              **Exercise**
              
              **of
                  shares**
              
              **Exercise****Prices**
              
              **Outstanding**
              
              **Life**
              
              **Price**
              
              **Exercisable**
              
              **Price**$1.72-$2.31
              
              
              124,797
              
              
              4.9
              
              $
              2.21
              
              
              124,797
              
              $
              2.21$2.50-$3.35
              
              
              337,333
              
              
              5.6
              
              
              2.89
              
              
              337,333
              
              
              2.89$3.60-$5.26
              
              
              502,580
              
              
              6.7
              
              
              4.70
              
              
              454,245
              
              
              4.68$5.44-$7.74
              
              
              2,078,151
              
              
              5.7
              
              
              6.36
              
              
              1,693,304
              
              
              6.25$9.00-$11.31
              
              
              56,250
              
              
              2.0
              
              
              10.07
              
              
              56,250
              
              
              10.07$15.56-$15.56
              
              
              12,500
              
              
              1.3
              
              
              15.56
              
              
              12,500
              
              
              15.56$1.72-$15.56
              
              
              3,111,611
              
              
              5.7
              
              $
              5.65
              
              
              2,678,429
              
              $
              5.49




The
      fair
      value of each stock option was estimated on the date of grant using the
      Black-Scholes option-pricing model with the weighed average assumptions included
      on the table above, under the header “Stock Based Option Valuation and Expense
      Information under SFAS 123(R)”.




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**4.**
            **Earnings
                Per Share**




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


**Three
                  Months Ended****February
                  28,**
              
              **February
                  28,****2006**
              
              **2005**Denominator:Denominator
                  for basic earnings per share-weighted
                  average shares
              
              
              14,259,543
              
              
              13,597,621Effect
                  of dilutive securities:Stock
                  options
              
              
              200,513
              
              
              652,280Denominator
                  for diluted earnings per share-adjusted
                  weighted average shares
              
              
              14,460,056
              
              
              14,249,901




Options
      to purchase 2,097,401 and 881,250 shares of common stock for the three months
      ended February 28, 2006 and February 28, 2005, respectively, were outstanding
      but were not included in the computation of diluted earnings per share because
      their effect would be anti-dilutive.




**5.**
                **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**
              ********
              ****
              **February
                    28,**
              ****
              **February
                  28,**
              ********
              **2006**
              ****
              **2005**Net
                  income
              
              $
              422,718
              
              $
              623,281Other
                  comprehensive income (loss), net of tax:Foreign
                  currency translation adjustment
              
              
              81,768
              
              
              (95,939
              )Unrealized
                  gain (loss) from available-for-sale securities, arising during
                  the period,
                  net of income taxes of $34,934 for February 28, 2006 and $-0- for
                  February
                  28, 2005
              
              
              72,546
              
              
              (41,614
              )Add:
                  reclassification adjustment for gains realized in net income, net
                  of tax
                  effect of $224,684
              
              
              —
              
              
              (360,584
              )$
              577,032
              
              $
              125,144






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**6.**
            **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 the costs associated with the
      purchase of on-line consumer data (including registered users to the Company’s
      websites) and the costs associated with the transmission of email marketing
      messages by external third-party vendors. During the period July 1, 2004 to
      February 28, 2006, pursuant to the acquisition of SendTraffic.com, Inc., the
      Company included the costs of its search engine marketing optimization
      activities in its advertising and marketing cost accounts. Furthermore, during
      the period January 21, 2005 to February 28, 2006, pursuant to the acquisition
      of
      Hot Rocket Marketing, Inc., the Company included the costs of direct purchases
      of on-line advertising space, which is resold on a performance return basis.
      All
      above referenced 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 search engine marketing optimization liability is incurred, and/or (4)
      at
      the time the on-line advertising space is purchased, respectively, and all
      are
      included as components of the Company’s cost of sale accounts.




Total
      advertising and marketing costs included in cost of sales for the three months
      ended February 28, 2006 and February 28, 2005 were approximately $9.6 million
      and $7.3 million, respectively.




**7.**
            **Segment
                Information**




In
      classifying the financial information for its operating segments, the Company
      relies primarily upon the evaluations of the chief operating decision maker
      (CODM) and executive management 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 operates in one segment,
      On-line Advertising and Media Services. At December 1, 2005, the Company
      realigned the way it views its operations and modified the format that it
      reports such information to the CODM. In accordance with such realignment the
      LEC Billed Products and Services segment, which was principally inactive from
      the period December 1, 2004 to present has been removed from its segment CODM
      reporting and therefore our financial disclosure. For the February 28, 2006
      and
      2005 three-month-periods, the terminated LEC segment’s
      immaterial-operating-activity is included on the Company’s other operating
      (income) expense line item on its unaudited consolidated statements of income
      for both periods presented.




The
      Company sells services and not products and, correspondingly, does not carry
      inventory.




The
      Company had Canadian sourced revenue from its Canadian based subsidiary of
      approximately $212,000 and $72,000 during the three months ended February 28,
      2006 and 2005, respectively. The primary role of the Canadian subsidiary is
      to
      support back office data operations and does not directly contribute significant
      amounts to consolidated net income.




The
      Company evaluates performance based on many factors, with the primary criteria
      being the 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 operating income (expense)
      (vii) other non-operating income, (viii) depreciation, (ix) amortization, (x)
      income taxes, and (xi)minority interest (income).




The
      single segment shares a common workforce and office headquarters and all other
      components of selling, general and administrative expense.




The
      following tables set forth the Company's financial results, by management’s
      performance criteria of its operating segment. All intersegment revenues and
      costs have been eliminated.


***Segment
                Data - Net Revenue******On-line
                Advertising and Media Services*****Three
                  Months Ended****February
                  28,**
              
              **February
                  28,****2006**
              
              **2005**On-line
                  Advertising
              
              $
              10,978,856
              
              $
              9,464,698Search
                  Engine Marketing
              
              
              3,995,353
              
              
              1,454,649Personals
              
              
              1,836,714
              
              
              1,933,514Internet
                  game development
              
              
              211,889
              
              
              72,070**Consolidated
                  totals**
              
              $
              17,022,812
              
              $
              12,924,931






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***Segment
                  Data - EBITDA******On-line
                Advertising and Media Services*****Three
                  Months Ended****February
                  28,**
              
              **February
                  28,****2006**
              
              **2005**EBITDA
              
              $
              1,267,681
              
              $
              647,909**Total
                  EBITDA**
              
              $
              1,267,681
              
              $
              647,909





*
            EBITDA
                is net income excluding 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), depreciation, amortization, income taxes and minority
                interest (income) loss.




***Segment
                Data - Depreciation and Amortization******On-line
                Advertising and Media Services*****Three
                  Months Ended****February
                  28,**
              
              **February
                  28,****2006**
              
              **2005**Depreciation
              
              $
              214,581
              
              $
              174,946Amortization
              
              
              361,975
              
              
              275,162**Total
                  Depreciation and Amortization**
              
              $
              576,556
              
              $
              450,108




**8.**
            **Recent
                Asset Acquisitions**




**Fiscal
      2005 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, as well as providing such services to the sales activities
      of
      the consolidated entity. The Hot Rocket acquisition has broadened the Company’s
      reach into the Internet direct marketing arena, which continues to allow 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
      initial 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. Pursuant to an independent
      third party valuation, the reported purchase price was allocated as follows:
      approximately $2.2 million of goodwill and $1.6 million of identifiable
      intangibles. There were no tangible assets acquired.




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In
      addition to the initial purchase price 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 Company has determined,
      in
      accordance with the terms of the acquisition agreement, that for the period
      February 1, 2005 to January 31, 2006, the Company is liable for a combined
      additional purchase price payment of $1.386 million, and is to be settled as
      follows: cash payment of approximately $0.806 million and shares issued to
      the
      extent of approximately $0.580 million in fair market value at the time of
      issuance (with the issuance anticipated to occur on or about April 17, 2006).
      The approximate 105,200 issuable shares (based on the March 21, 2006 closing
      price of $5.52) were included in our weighted average share calculation as
      if
      issuance occurred on January 31, 2006, the additional purchase-price liability
      measurement date, and prior and future contingent payments made, if any, have
      been and will be treated as additional purchase price and included as an
      addition to goodwill.




At
      February 28, 2006, the Company determined that at the current rate of growth
      recognized by Hot Rocket, it is probable that the second anniversary tier of
      contingent payment will be attained within the first measurement period, which
      ends February 28, 2007. As of February 28, 2006, based on the lack of absolute
      certainty as to the second anniversary additional purchase price liability,
      the
      Company has not recorded any additional contingent payments at this time.




Goodwill
      is not amortized, but it is reviewed for impairment on an annual basis (August
      31 being our annual measurement date, with the possibility of other measurement
      dates arising from specific events directly effecting Goodwill). The
      identifiable intangibles acquired from Hot Rocket consist of non-compete
      covenants within employment agreements and internally developed software, which
      is being 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.




**9.**
                **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 February 28, 2006
              
              As
                  of November 30, 2005Gross
                Carrying
                Amount
              
              Accumulated
                  Amortization
              
              Gross
                Carrying
                Amount
              
              Accumulated
                  AmortizationE-Commerce
                Segment AmortizableIntangible
                Assets:*GroupLotto
                  identifiable intangibles:*GroupLotto
                  Site Brand Recognition
              
              $
              722,922
              
              $
              666,954
              
              $
              722,922
              
              $
              630,808GroupLotto
                  Database
              
              
              433,754
              
              
              400,173
              
              
              433,754
              
              
              378,486Intellectual
                  Property Assets
              
              
              289,169
              
              
              266,782
              
              
              289,169
              
              
              252,323Marketing
                  Right License Fee
              
              
              252,915
              
              
              97,485
              
              
              252,915
              
              
              80,590*Infiknowledge
                  identifiable intangibles:*Internet
                  Game Suite
              
              
              269,973
              
              
              226,823
              
              
              263,241
              
              
              207,717Intellectual
                  Property Assets
              
              
              202,479
              
              
              170,117
              
              
              197,430
              
              
              155,788Market
                  Position Acquired
              
              
              224,977
              
              
              189,019
              
              
              219,367
              
              
              173,098*Thanksmuch
                  identifiable intangibles:*Profiled
                  customer data
              
              
              50,000
              
              
              50,000
              
              
              50,000
              
              
              50,000Restrictive
                  Covenants
              
              
              10,000
              
              
              9,378
              
              
              10,000
              
              
              8,878*SendTraffic
                  identifiable intangibles:*Restrictive
                  Covenants
              
              
              523,109
              
              
              271,859
              
              
              523,109
              
              
              221,609Software
              
              
              963,951
              
              
              494,257
              
              
              963,951
              
              
              420,118*Hot
                  Rocket identifiable intangibles*Restrictive
                  Covenants
              
              
              569,394
              
              
              126,848
              
              
              569,394
              
              
              98,379Software
              
              
              1,012,257
              
              
              375,847
              
              
              1,012,257
              
              
              291,492Total
                  E-Commerce Segmentamortizable
                  intangible assets
              
              $
              5,524,900
              
              $
              3,345,542
              
              $
              5,507,509
              
              $
              2,969,286Unamortized
                  intangible assets:E-Commerce
                  Segment Goodwill
              
              $
              7,757,759
              
              
              
              
              $
              6,426,336




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
      acquisition identifiable intangibles related amortization expense has been
      recorded from the dates of the respective acquisitions.




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




**2006**
              ****
              **2007**
              ****
              **2008**
              ****
              **2009**
              ****
              **2010***GroupLotto
                  Identifiable**Intangible
                  amortization:*Site
                  Brand Recognition
              
              $
              92,114
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              —Database
              
              
              55,268
              
              
              —
              
              
              —
              
              
              —
              
              
              —Intellectual
                  Property Assets
              
              
              36,846
              
              
              —
              
              
              —
              
              
              —
              
              
              —Licenses
              
              
              63,853
              
              
              52,667
              
              
              45,805
              
              
              10,000
              
              
              —*Total
                  Group's amortization*
              
              $
              248,081
              
              $
              52,667
              
              $
              45,805
              
              $
              10,000
              
              $
              —*Infiknowledge
                  Identifiable**Intangible
                  amortization:*Internet
                  Game Suite
              
              $
              54,289
              
              $
              1,522
              
              $
              510
              
              $
              405
              
              $
              —Intellectual
                  Property Assets
              
              
              40,717
              
              
              1,141
              
              
              383
              
              
              304
              
              
              —Market
                  Position Acquired
              
              
              45,241
              
              
              1,268
              
              
              425
              
              
              338
              
              
              —*Total
                  Group's amortization*
              
              $
              140,247
              
              $
              3,931
              
              $
              1,318
              
              $
              1,047
              
              $
              —*ThanksMuch
                  Identifiable**Intangible
                  amortization:*Restrictive
                  Covenants
              
              $
              1,122
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              —*Total
                  Group's amortization*
              
              $
              1,122
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              —*SendTraffic
                  Identifiable**Intangible
                  amortization:*Restrictive
                  Covenants
              
              $
              201,000
              
              $
              100,501
              
              $
              —
              
              $
              —
              
              $
              —Software
              
              
              296,554
              
              
              234,897
              
              
              12,382
              
              
              —
              
              
              —$
              497,554
              
              $
              335,398
              
              $
              12,382
              
              $
              —
              
              $
              —*Hot
                  Rocket Identifiable**Intangible
                  amortization:*Restrictive
                  Covenants
              
              $
              113,879
              
              $
              113,879
              
              $
              113,879
              
              $
              113,879
              
              $
              15,500Software
              
              
              337,419
              
              
              337,419
              
              
              45,927
              
              
              —
              
              
              —$
              451,298
              
              $
              451,298
              
              $
              159,806
              
              $
              113,879
              
              $
              15,500**Summary
                  of Identifiable****Intangibles:***GroupLotto:*
              
              $
              248,081
              
              $
              52,667
              
              $
              45,805
              
              $
              10,000
              
              $
              —*Infiknowledge:*
              
              
              140,247
              
              
              3,931
              
              
              1,318
              
              
              1,047
              
              
              —*ThanksMuch:*
              
              
              1,122
              
              
              —
              
              
              —
              
              
              —
              
              
              —*Hot
                  Rocket:*
              
              
              451,298
              
              
              451,298
              
              
              159,806
              
              
              113,879
              
              
              15,500*SendTraffic:*
              
              
              497,554
              
              
              335,398
              
              
              12,382
              
              
              —
              
              
              —*Totals*
              
              $
              1,338,302
              
              $
              843,294
              
              $
              219,311
              
              $
              124,926
              
              $
              15,500






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**10.**
            **Income
                Taxes**




The
      Company’s income tax provision for the three months ended February 28, 2006 was
      approximately $296,000, which includes $256,000 of expense related to current
      year operations and approximately $40,000 of period expense related to an
      increase in the Company’s estimates related to tax audits.




The
      effective income tax rate for the three months ended February 28, 2006 was
      41.2%. It differs from the Company’s estimated annual effective income tax rate
      of 30.0% as recognized in the prior fiscal year ended November 30, 2005, and
      described below, due primarily from permanent differences between book and
      taxable income and additions to our tax audit reserves during the three months
      ended February 28, 2006. During the fiscal year ended November 30, 2005, the
      Company closed out certain state tax audits, where the final settlement was
      less
      than that which was accrued, and the effective rate for Fiscal 2005 reflected
      such benefit.




*Estimated
      Annual Effective Income Tax Rate.* The
      estimated annual effective income tax rate for 2006 differs from the U.S.
      federal statutory income tax rate of 34% as follows:


**Fiscal Year**
              
              **Fiscal Year****2006 (1)**
              
              **2005 (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
              %
              
              0.6
              %Impact
                  of foreign operations
              
              
              0.5
              %
              
              0.3
              %Increase(decrease)
                  in tax contingencies
              
              
              2.8
              %
              
              -7.7
              %Other,
                  including non-deductible expenses
              
              
              1.7
              %
              
              2.8
              %41.2
              %
              
              30.0
              %





(1)
            Estimated
                annual effective income tax rate for the year ending November 30,
                2006.


(2)
            Annual
                effective income tax rate for the year ended November 30, 2005.





The
      “State income taxes, net of U.S. federal impact” item above primarily reflects
      state income-based taxes, and to a lesser degree 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.




**11.**
            **Litigation**




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.




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There
      have been no material developments to the Company’s legal proceedings,
      lawsuits and/or other claims since the disclosure thereof in the
      Company’s
      Annual Report on Form 10-K for the year ended November 30, 2005.




**12.**
            **Subsequent
                Events**




On
      March
      16, 2006, the Company paid a dividend of $1,139,411 arising from a February
      22, 2006 declaration by its Board of Directors. The record date establishing
      the
      dividend payable was March 6, 2006.




On
      April
      10, 2006, the Company’s Board of Directors declared a dividend of $0.08 per
      share on the outstanding shares of the Company’s common stock for the quarter
      ended February 28, 2006. Such dividend is payable on or about May 3, 2006 to
      holders of record of such shares at the close of business on April 24, 2006.
      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 and projected capital requirements necessary for operations,
      and other pertinent factors. You should not rely on any prior approvals of
      the
      Company’s Board as an indicator of its intent to approve the declaration of any
      dividends in the future.




January
      31, 2006 was the first contingent purchase price adjustment date under the
      Hot
      Rocket Marketing Acquisition Agreement dated January 21, 2005, and we determined
      that additional purchase price of approximately $1.386 million was earned as
      of
      the end of such period. It is anticipated that payment of such amount will
      be
      made April 24, 2006, and will be comprised of $0.806 million in cash, and $0.580
      million in fair market value of our common stock, or approximately 105,000
      shares based on the terms of the agreement and the closing price of the
      Company’s common stock on March 21, 2006.




**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" 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 provides complete end-to-end
      marketing solutions for our clients, which include advertisers, direct
      marketers, and agencies, seeking to increase sales and customer contact through
      on-line marketing channels. The services we offer include the development of
      a
      complete creative promotion used to market our client's product and/or service
      to consumers online, including the use of Search Engine Marketing Optimization.
      In the provision of our client services, we use all major online marketing
      channels, including email promotions to generate new customers for our clients;
      the delivery of data files indicating the results of the email promotions;
      we
      create and host customized websites and/or web pages to facilitate consumer
      transactions for our clients; we generate comprehensive reporting of the website
      activity allowing our clients to analyze the effectiveness of the promotion;
      we
      also provide revenue generating potential for our clients through affiliate
      marketing opportunities. We use this media platform to generate customers,
      sales
      and leads for our own service offers, in addition to our clients. We generate
      revenue for our clients primarily on a performance-based model, under which
      we
      record revenue upon the successful delivery to our client of a qualifying lead,
      customer, survey, completed application, ultimate sale or the delivery of some
      other measurable marketing benefit.




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We
      also
      generate revenue directly from consumers through our “direct-to-consumer”
business, which includes our on-line personals service known as
      iMatchUp.com.




On
      January 21, 2005, we, through our 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, as well as providing such services to the sales activities
      of
      our consolidated entity. The Hot Rocket acquisition has broadened our reach
      into
      the Internet direct marketing arena, which continues to allow for expanded
      client relationships and various other synergistic possibilities, such as adding
      value to our core operations by the enhancement of our current and developing
      marketing programs conducted in our On-Line Advertising and Media Services
      segment.




The
      initial 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 our common stock and
      transaction fees approximating $0.1 million. Pursuant to an independent third
      party valuation, the reported purchase price was allocated as follows:
      approximately $2.2 million of goodwill and $1.6 million of identifiable
      intangibles. There were no tangible assets acquired.




In
      addition to the initial purchase price 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. We have determined, in
      accordance with the terms of the acquisition agreement, that for the period
      February 1, 2005 to January 31, 2006, we are liable for a combined additional
      purchase price payment of $1.386 million, and this obligation is to be settled
      as follows: cash payment of approximately $0.806 million and shares issued
      to
      the extent of approximately $0.580 million in fair market value at the time
      of
      issuance (with the issuance anticipated to occur on or about April 17, 2006).
      The approximate 105,200 issuable shares (based on the March 27, 2006 closing
      price of $5.52) were included in our weighted average share calculation as
      if
      issuance occurred on January 31, 2006, the additional purchase-price liability
      measurement date, and prior and future contingent payments made, if any, have
      been and will be treated as additional purchase price and included as an
      addition to goodwill.




At
      February 28, 2006, the Company determined that at the current rate of growth
      recognized by Hot Rocket, it is probable that the second anniversary tier of
      contingent payment will be attained within the first measurement period, which
      ends February 28, 2007. As of February 28, 2006, based on the lack of absolute
      certainty as to the second anniversary additional purchase price liability,
      the
      Company has not recorded any additional contingent payments at this
      time.




The
      personals component of our “direct-to-consumer” services generated approximately
      $1.8 million, or 11% of our revenue during the three months ended February
      28,
      2006, as compared to approximately $1.9 million, or 15% of our revenue during
      the comparable fiscal period.




We
      made
      one asset acquisition in Fiscal 2004 and 2005. The productive assets acquired
      through these asset acquisitions accounted for approximately $7.4 million of
      our
      On-line Advertising and Media Services segment revenue, and approximated 43%
      of
      consolidated revenues during the three months ended February 28, 2006 when
      compared to $2.3 million during the prior periods comparable 2005 period, which
      approximated 18% of consolidated revenues during such three-month period. Such
      asset acquisitions are described in more detail below, and further described
      in
      the preceding notes to the February 28, 2006 unaudited consolidated financial
      statements included herein.




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**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
      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-effective and scaleable manner via on-line marketing. During December
      1995,
      we completed our initial public offering of common stock, which is publicly
      traded and is reported on the NASDAQ National Market under the symbol “TRFX”.




**On-line
      Advertising and Media Services**




We
      own
      and operate a variety of Internet websites featuring specialized content such
      as
      on-line dating, downloadable music, recipes, greeting cards, automobile
      information, DVD promotions, and other theme based content. We generate traffic
      to our websites from advertising on third-party Internet media (i.e., search
      engines, email, 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 our clients’
products and services.




*On-line
      Advertising - Website Advertising*




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 websites using an algorithm that takes into account a number
      of factors including information supplied by the visitor upon registration
      (e.g., gender, age, zip code), as well as the price paid by our customer to
      serve the advertisement.




The
      websites feature content ranging from music for downloads to sweepstakes. We
      launched EZ-Tracks.com in Fiscal 2004, a site that features over 30,000 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. In Fiscal 2004, we also launched reciperewards.com,
      a website that features thousands of cooking recipes.




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.




We
      own
      and operate several other websites such as Music of Faith.com,
      AtlasCreditGroup.com, TheBargainSpot.com, AltasAutomotiveGroup.com,
      EZGreets.com, GameFiesta.com, PrizeAmerica.com and LoveFreeGames.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.




*On-line
      Advertising - Email Marketing Programs*




Each
      program that we market for our clients can be implemented not only through
      our
      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.




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*Results
      Analysis.* Subsequent to a campaign being fully implemented, we continually analyze the
      marketing results to gauge whether the campaigns are generating 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.




*Affiliate
      Marketing.* Our
      affiliate marketing business commenced in late Fiscal 2005 under the name of
      RocketProfit.com, where publishers and advertisers can make available to
      themselves countless unique and exclusive deals, customized promotions, high
      payouts, detailed tracking capabilities and significant multi-level customer
      support. **




*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.




*On-line
      Advertising - Internet Media Performance Based Sales*




Pursuant
      to our January 21, 2005 acquisition of Hot Rocket Marketing, Inc., we generate
      revenues from the resale, on a performance basis, of fixed price Internet Media
      Advertising space.




*On-line
      Advertising - Data Sales, rentals and list management*




We
      also
      generate revenues from the sales, rentals and management (for use both on-line
      and off-line) of our proprietary, profiled databases. Such revenue is included
      in our On-line Advertising and Media Services segment revenue in the On-line
      Advertising revenue line item component.




*Search
      Engine Marketing*




Our
      search engine marketing company, SendTraffic develops and manages search engine
      marketing (SEM) campaigns for our third party advertising clients, as well
      as
      for our own proprietary websites. Using a proprietary technology called
      Marketing Dashboard, we build, manage and analyze the effectiveness of hundreds
      of thousands of pay per click (PPC) keywords in real time across each of the
      major search engines, like Google, Yahoo and MSN. SendTraffic pays the search
      engines directly for the traffic, and generates revenue by billing search engine
      costs, plus a marketing services fee to the advertising client. We also perform
      search engine optimization (SEO) services, for which advertising clients are
      billed a monthly retainer fee.




*Personals*




We
      introduced several new business units during the past three fiscal years, and
      continued to expand a portion of these new business units in Fiscal 2005,
      specifically our on-line Personals program conducted over the Internet
      ("iMatchup.com"). The Personals business is designed as a monthly recurring
      billing program, with various memberships to our Personals program,
      iMatchUp.com. Revenue from our Personals businesses is generated by directly
      billing consumers.




*Internet
      Game Development*




Our
      Canadian subsidiary, Infiknowledge, ULC, performs work for hire services in
      the
      production of Internet games for third party vendors, and participates in
      royalties related to the development, launch and successful commercialization
      of
      such Internet games.




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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.




**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 Estimates Discussion
      (immediately following {1} previously mentioned) and (3) under the heading
      “Transactions with Major Customers” in Note 1 to the Consolidated Financial
      Statements referred to in the Financial Statements and Supplementary Data
      section hereof and incorporated herein by reference.




**Basis
      of Presentation**




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




**Segment
      Information**




In
      classifying the financial information for our operating segments, we rely
      primarily upon the evaluations of the chief operating decision maker (CODM)
      and
      executive management in deciding how to allocate our resources and assess our
      performance. Disclosure is also required about products and services, geographic
      areas and major customers. We operate in one segment, On-line Advertising and
      Media Services. At December 1, 2005, management realigned the way we view
      operations and modified the format that we distribute reports and information
      to
      the CODM. In accordance with such realignment the LEC Billed Products and
      Services segment, which was principally inactive from the period December 1,
      2004 to present has been removed from its segment CODM reporting and therefore
      our financial disclosure. For the February 28, 2006 and 2005
      three-month-periods, the terminated LEC segment’s immaterial-operating-activity
      is included on the Company’s other operating (income) expense line item on its
      unaudited consolidated statements of income for both periods
      presented.




The
      Company sells services and not products and, correspondingly, does not carry
      inventory.




The
      Company had Canadian sourced revenue from its Canadian based subsidiary of
      approximately $212,000 and $72,000 during the three months ended February 28,
      2006 and 2005, respectively. The primary role of the Canadian subsidiary is
      to
      support back office data operations and does not directly contribute significant
      amounts to consolidated net income. The majority of the Canadian subsidiary’s
      outlays are of an overhead nature; we classify them within the same categories
      as our domestic operations disclose general and administrative
      expenses.




We
      evaluate performance based on many factors, with the primary criteria being
      the
      segment's 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 operating income (expense) (vii) other
      non-operating income, (viii) depreciation, (ix) amortization, (x) income taxes,
      and (xi) minority interest (income).




The
      single segment shares a common workforce and office headquarters and all other
      components of selling, general and administrative expense.




**RESULTS
      OF OPERATIONS**




The
      following is a discussion of our results of operations for the three months
      ended February 28, 2006 and February 28, 2005. It should be read in conjunction
      with our Form 10-K as filed for the year ended November 30, 2005, the notes
      thereto and other financial information included elsewhere in this
      report.




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THREE
      MONTHS ENDED FEBRUARY 28, 2006 AND FEBRUARY 28, 2005




Our
      net
      revenues, and the disclosure of our revenue components, for each of the three
      months ended February 28, 2006 and February 28, 2005, are detailed in the
      following table:


***Segment
                Data - Net Revenue******On-line
                Advertising and Media Services Segment*****Three
                  Months Ended**
              
              **Change**
              
              **Change****February
                  28,**
              
              **February
                  28,**
              
              **Inc(Dec)**
              
              **Inc(Dec)****2006**
              
              **2005**
              
              $$$
              
              %%%On-line
                  Advertising
              
              $
              10,978,856
              
              $
              9,464,698
              
              $
              1,514,158
              
              
              16
              %Search
                  Engine Marketing
              
              
              3,995,353
              
              
              1,454,649
              
              
              2,540,704
              
              
              175
              %Personals
              
              
              1,836,714
              
              
              1,933,514
              
              
              (96,800
              )
              
              -5
              %Internet
                  game development
              
              
              211,889
              
              
              72,070
              
              
              139,819
              
              
              194
              %**Consolidated
                  totals**
              
              $
              17,022,812
              
              $
              12,924,931
              
              $
              4,097,881
              
              
              32
              %




Net
      Revenue increased approximately $4.1 million, or 32%, to $17.0 million for
      the
      three months ended February 28, 2006, from $12.9 million in the prior year’s
      comparable period. The On-line Advertising and Media Services sole segment’s
      core business grew organically, primarily driven by increased revenues from
      Search Engine Marketing Optimization services ($2.5 million, or 175%) and
      increased revenues from On-line Advertising ($1.5 million, or 16%), which
      includes an increase in our resale on a performance basis of Internet Media
      Advertising ($2.5 million, or 293%), offset by a combined decline in our Web
      Advertising, Email Marketing Programs and Data sales and rentals of
      approximately 1.2 million, or 14.3%. Internet Game Development revenues
      approximated $0.2 million, for an approximate $0.1 million increase, or 194%.
      Search Engine Marketing Optimization service revenue increased as a result
      of
      our increased focus on our On-line Advertising and Media revenue source and
      is a
      result of our third quarter Fiscal 2004 acquisition of SendTraffic, Inc. The
      increased revenue from On-line Advertising includes the performance based resale
      of Internet Media, and is the result of our January 2005 acquisition of Hot
      Rocket Marketing, Inc. (“Hot Rocket”) and our post acquisition focus on
      expanding that subsidiary’s contribution to increased consolidated revenues. The
      above referenced increases were offset by declines in: (a) Website advertising
      of $0.7 million, or 12%, as a result of a shift in our client mix and an
      increased emphasis on Search Marketing and Internet Advertising Agency
      activities; (b) Email marketing program revenue, which declined approximately
      $0.3 million, or 14%, resulting from declines in the delivery rates of our
      email
      marketing offers; and (c) Data sale and rental revenue declines of $0.2 million,
      or 58%, which resulted from the shift in our business, where our increased
      reliance on Search Engine Marketing and Internet Advertising Revenue, which
      generates a smaller amount of data that would otherwise become available for
      sale and rental purposes.




Our
      Personals business, the iMatchUp.com dating sites, recognized a revenue decline
      of approximately $0.1 million, or 5%, as a result of declining customer
      enrollments.




The
      increase in Internet game development was attributable to several successful
      games brought to market by our development partners.




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Our
      cost
      of sales during the three months ended February 28, 2006 and February 28, 2005
      were comprised of direct and indirect marketing costs associated with the
      acquisition  and
      retention of consumers for our On-line Advertising and Media Service segment’s
      marketing programs, and includes direct response email marketing costs, website
      registrations costs, the cost of customer profiles, other customer acquisition
      costs, search engine marketing optimization costs, and the related
      contingent-based sweepstakes indemnification expense.




The
      cost
      of sales of our segment, and the disclosure of the components of the segment,
      for each of the three-month periods ended February 28, 2006 and February 28,
      2005, are set forth below:




***Segment
                Data - Cost of Sales******On-line
                Advertising and Media Services*****Three
                  Months Ended**
              
              **Change**
              
              **Change****February
                  28,**
              
              **February
                  28,**
              
              **Inc(Dec)**
              
              **Inc(Dec)****2006**
              
              **2005**
              
              $$$
              
              %%%On-line
                  Advertising
              
              $
              6,014,867
              
              $
              5,051,207
              
              $
              963,660
              
              
              19
              %Search
                  Engine Marketing
              
              
              3,117,815
              
              
              992,972
              
              
              2,124,843
              
              
              214
              %Personals
              
              
              371,624
              
              
              1,220,415
              
              
              (848,791
              )
              
              -70
              %Internet
                  game development
              
              
              64,334
              
              
              21,882
              
              
              42,452
              
              
              194
              %**Consolidated
                  totals**
              
              $
              9,568,640
              
              $
              7,286,476
              
              $
              2,282,164
              
              
              31
              %




Cost
      of
      sales on a consolidated basis increased $2.3 million, or 31%, to $9.6 million
      for the three months ended February 28, 2006, from $7.3 million in the
      comparable prior year period.




The
      significant factor contributing to the increase in consolidated costs of sales
      was related to a net increase of approximately $2.1 million in costs incurred
      in
      the generation of increased Search Engine Marketing Optimization revenues.
      The
      On-line Advertising component recognized a net increase of approximately $1.0
      million, or 19%, and was comprised of: increases in purchases of online
      advertising space of $1.2 million, or 254%, as a result of our January 2005
      acquisition of our Hot Rocket subsidiary (which makes direct purchases of
      on-line advertising space, which is resold on a performance basis), offset
      by
      (a) a decline in website advertising registrations (decrease of $0.1 million
      or,
      2%, and (b) a decline in third party email vendor costs of approximately $0.1
      million, or 25%. In our Personals business, costs incurred in the acquisition
      of
      new customer profiles decreased $0.8 million or, 70%. The 2% decrease in website
      registration cost correlates to our revenue decline of approximately 5% in
      our
      On-line Advertising’s Website advertising sub-component. The decrease in
      customer profile cost correlates to our decreased emphasis on new Personals
      customer enrollment during the three months ended February 28, 2006. Instead,
      we
      focused on maintaining our current customer base for a longer life time-value
      proposition. The increase in Search Engine Marketing Optimization cost
      correlates to our increased focus on growing our search engine marketing
      business, as well as using our in-house search engine marketing firm to generate
      revenues for our Personals business, and our other On-line Advertising and
      Media
      Services segment revenue components.




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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
      February 28, 2006 and February 28, 2005, are set forth below:


***Segment
                Data - Gross Profit******On-line
                Advertising and Media Services*****Three
                  Months Ended**
              
              **Change**
              
              **Change****February
                  28,**
              
              **February
                  28,**
              
              **Inc(Dec)**
              
              **Inc(Dec)****2006**
              
              **2005**
              
              $$$
              
              %%%On-line
                  Advertising
              
              $
              4,963,989
              
              $
              4,413,491
              
              $
              550,498
              
              
              12
              %Search
                  Engine Marketing
              
              
              877,538
              
              
              461,677
              
              
              415,861
              
              
              90
              %Personals
              
              
              1,465,090
              
              
              713,099
              
              
              751,991
              
              
              105
              %Internet
                  game development
              
              
              147,555
              
              
              50,188
              
              
              97,367
              
              
              194
              %**Consolidated
                  totals**
              
              $
              7,454,172
              
              $
              5,638,455
              
              $
              1,815,717
              
              
              32
              %






***Segment
                Data - Gross Profit******On-line
                Advertising and Media Services***
              
              **Absolute**
              
              **Relative****Three
                  Months Ended**
              
              **Change**
              
              **Change****February
                  28,**
              
              **February
                  28,**
              
              **Inc(Dec)**
              
              **Inc(Dec)****2006**
              
              **2005**
              
              $$$
              
              %%%On-line
                  Advertising
              
              
              45.2
              %
              
              46.6
              %
              
              -1.4
              %
              
              -3.0
              %Search
                  Engine Marketing
              
              
              22.0
              %
              
              31.7
              %
              
              -9.8
              %
              
              -30.8
              %Personals
              
              
              79.8
              %
              
              36.9
              %
              
              42.9
              %
              
              116.3
              %Internet
                  game development
              
              
              69.6
              %
              
              69.6
              %
              
              0.0
              %
              
              0.0
              %**Consolidated
                  totals**
              
              
              43.8
              %
              
              43.6
              %
              
              0.2
              %
              
              0.4
              %




Consolidated
      Gross Profit ("gross margin") as a percentage of net revenue was 43.8% during
      the three months ended February 28, 2006, compared to 43.6% in the prior year’s
      comparable period, representing 0.2% absolute improvement and a relative
      improvement of 0.4% when compared to the prior year’s comparable
      period.




The
      relatively stable consolidated gross profit percentage is primarily attributable
      to the increased margins recognized in our Personals businesses, iMatchUp.com
      dating sites, and is based on the reduction of costs related to new Personals
      member acquisitions and our focus on extending the billable life time of our
      current membership base, as well as the offsetting factors relating to
      increasing our efforts in the expansion of our search engine marketing
      optimization and on-line advertising space sales, with slight declines
      recognized in On-line Advertising, and larger declines recognized in the
      building of our Search Engine Marketing Optimization activities.




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Our
      Selling Expenses for each of the three months ended February 28, 2006 and
      February 28, 2005 are presented, on a segmental basis, and with the components
      of the individual segments, in the tables set forth below:


***Segment
                  Data - Selling Expenses******On-line
                  Advertising and Media Services*****Three
                  Months Ended**
              
              **Change**
              
              **Change****February
                  28,**
              
              **February
                  28,**
              
              **Inc(Dec)**
              
              **Inc(Dec)****2006**
              
              **2005**
              
              $$$
              
              %%%Fee
                  share commissions
              
              $
              698,827
              
              $
              467,921
              
              $
              230,906
              
              
              49
              %Selling
                  salaries and related costs
              
              $
              268,200
              
              $
              316,141
              
              
              (47,941
              )
              
              -15
              %Travel,
                  entertainment, shows, other
              
              $
              36,982
              
              $
              33,113
              
              
              3,869
              
              
              12
              %**Consolidated
                  totals**
              
              $
              1,004,009
              
              $
              817,175
              
              $
              186,834
              
              
              23
              %




Selling
      expenses, on a consolidated basis, increased approximately $0.2 million, or
      23%,
      to $1.0 million during the three months ended February 28, 2006 from $0.8
      million during the three months ended February 28, 2005. The increase resulted
      from an approximate $0.2 million increase in fee share commissions correlating
      to our increased use of third-party databases in our acquisition of proprietary
      customers for our on-line dating sites coupled with an increase in the reliance
      in third party databases used to generate our email marketing program revenues.
      We are the primary obligor to the third party list owner and bear the
      responsibility of payment to the list owner regardless of whether our client
      pays us in the case of email marketing program based fee shares arrangements,
      offset by slight declines in selling salaries of $0.1 million as a result of
      some attrition in our sales force, partially offset by increased sales
      commissions earned during the three months ended February 28, 2006 (total
      revenues of $17.0 million) when compared to the three months ended February
      28,
      2005 (total revenues of $ 12.9 million).




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 E-commerce
      segment, and (vi) all other general and miscellaneous overhead expense
      items.




Our
      General and Administrative Expenses for the three months ended February 28,
      2006
      and February 28, 2005 are presented for our segment in the table set forth
      below:


***Segment
                Data - General and Administrative Expenses******On-line
                Advertising and Media Services*****Three
                  Months Ended**
              
              **Change**
              
              **Change****February
                  28,**
              
              **February
                  28,**
              
              **Inc(Dec)**
              
              **Inc(Dec)****2006**
              
              **2005**
              
              $$$
              
              %%%Compensation
                  and related costs
              
              $
              3,678,073
              
              $
              2,660,923
              
              $
              1,017,150
              
              
              38
              %Professional
                  fees
              
              
              325,400
              
              
              465,052
              
              
              (139,652
              )
              
              -30
              %Insurance
                  costs
              
              
              241,905
              
              
              234,135
              
              
              7,770
              
              
              3
              %Website
                  and email hosting
              
              
              133,997
              
              
              277,364
              
              
              (143,367
              )
              
              -52
              %Occupancy
                  and equipment costs
              
              
              130,567
              
              
              151,348
              
              
              (20,781
              )
              
              -14
              %Personals
                  credit card and processing fees
              
              
              85,138
              
              
              98,784
              
              
              (13,646
              )
              
              -14
              %All
                  other miscellanous G&A expenses
              
              
              479,003
              
              
              376,345
              
              
              102,658
              
              
              27
              %**Consolidated
                  totals**
              
              $
              5,074,083
              
              $
              4,263,951
              
              $
              810,132
              
              
              19
              %






-27-
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General
      and Administrative expenses ("G&A") on a consolidated basis increased
      approximately $0.8 million, or 19%, when comparing G&A of $5.1 million for
      the three months ended February 28, 2006 to G&A of $4.3 million incurred
      during the three months ended February 28, 2005. The net increase was
      attributable to combined increases in Compensation costs and miscellaneous
      G&A of approximately $1.1 million or 37%, offset by declines in Professional
      fees ($0.1 million), Website and email hosting ($0.1 million), and immaterial
      declines in Occupancy costs and Personals related credit card processing fees.
      The significant increase in compensation costs were attributable to: (a)
      stock-based compensation costs of approximately $0.17 million resulting from
      our
      December 1, 2005 adoption of SFAS 123R; (b) increases in compensation costs
      and
      related expenses of approximately $0.61 million resulting from increases in
      our
      domestic employee headcount to service the growth of our: (i) search engine
      marketing optimization activities; and (ii) Internet Media Performance Based
      sale activities, both coupled with modest pay increases for a portion of our
      domestic workforce; and (c) increases in our Infiknowledge subsidiary payroll
      expense ($0.2 million) resulting from the required staff increases necessary
      to
      service our increased levels of business activity.




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 $135,000 in legal fees (exclusive of
      disbursements) from FKIWSBR during the three months ended February 28, 2006.
      We
      incurred approximately $245,000 in legal fees (exclusive of disbursements)
      from
      FKIWSBR during the three months ended February 28, 2005, of which $89,000 was
      capitalized in the Hot Rocket acquisition, $23,000 was reimbursed by one of
      our
      insurance providers and $133,000 was expensed in our G&A
      accounts.




***Other
                  Operating (Income)
                  Expense***
  **Three
                  Months Ended**
              
              **Change**
              
              **Change****February
                  28,**
              
              **February
                  28,**
              
              **Inc(Dec)**
              
              **Inc(Dec)****2006**
              
              **2005**
              
              $$$
              
              %%%Other
                  operating(income)
                  expense
              
              $
              24,113
              
              $
              (175,805
              )
              $
              199,918
              
              
              -114
              %**Consolidated
                  totals**
              
              $
              24,113
              
              $
              (175,805
              )
              $
              199,918
              
              
              -114
              %




For
        the
        February 28, 2006 and 2005 three-month-periods, we reassessed the way the
        operations of the Company are analyzed for purposes of the allocation of
        resources. In this reassessment process we terminated the separate disclosure
        of
        our prior year active LEC Billed Service segment based on its dormant position
        over the last 24 months. The terminated LEC segment’s
        immaterial-operating-activity is now included on our other operating (income)
        expense line item on our unaudited consolidated statements of income for
        both
        periods presented.
  LEC
        segment’s revenues were $-0- and $350,885 in the three months ended February 28,
        2006 and 2005, respectively. The LEC segment’s cost of sales were $24,113 and
        $175,080 in the three months ended February 28, 2006 and 2005, respectively.
        The
        combination of these two items for fiscal 2006 and 2005 amounted to $24,113
        and
        $(175,805), respectively, and are included in the table above. It is anticipated
        that future fiscal periods will have immaterial and continued declining amounts
        of other operating (income) expense as the remaining LEC accounts continue
        their
        current rate of attrition.




***Segment
                Data - Amortization of Intangibles******On-line
                Advertising and Media Services*****Three
                  Months Ended**
              
              **Change**
              
              **Change****February
                  28,**
              
              **February
                  28,**
              
              **Inc(Dec)**
              
              **Inc(Dec)****2006**
              
              **2005**
              
              $$$
              
              %%%On-line
                  Advertising and Media Services
              
              $
              361,975
              
              $
              275,162
              
              $
              86,813
              
              
              32
              %**Consolidated
                  totals**
              
              $
              361,975
              
              $
              275,162
              
              $
              86,813
              
              
              32
              %




Amortization
      expense of intangible assets acquired in acquisitions increased $0.087 million,
      or 32% when comparing an expense of $0.362 million for the three months ended
      February 28, 2006 with $0.275 million for the three months ended February 28,
      2005. The principal factor contributing to the current quarter’s increase in
      amortization expense relates to our acquisition of Hot Rocket Marketing, which
      was purchased on January 21, 2005. As such, the Fiscal 2005 quarter included
      amortization expense for the period January 21, 2005 to February 28, 2005,
      or
      approximately 50% of the respective quarter, as compared to a full quarter’s
      amortization expense for the three months ended February 28, 2006.


***Segment
                Data - Depreciation******On-line
                Advertising and Media Services*****Three
                  Months Ended**
              
              **Change**
              
              **Change****February
                  28,**
              
              **February
                  28,**
              
              **Inc(Dec)**
              
              **Inc(Dec)****2006**
              
              **2005**
              
              $$$
              
              %%%On-line
                  Advertising and Media Services
              
              $
              214,581
              
              $
              174,946
              
              $
              39,635
              
              
              23
              %**Consolidated
                  totals**
              
              $
              214,581
              
              $
              174,946
              
              $
              39,635
              
              
              23
              %






-28-
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Depreciation
      expense increased $0.040 million, or 23% when comparing an expense of $0.215
      million for the three months ended February 28, 2006 with $0.175 million for
      the
      three months ended February 28, 2005. The principal factor contributing to
      the
      current quarter’s increase in depreciation expense relates to our acquisition of
      server equipment in the third and fourth quarter’s of Fiscal 2005, which is
      generating depreciation expense that is did not have comparable depreciation
      in
      the three months ended February 28, 2005 to offset the expense growth recognized
      in this quarter.


***Segment
                Data - Bad Debt Expenses******On-line
                Advertising and Media Services*****Three
                  Months Ended**
              
              **Change**
              
              **Change****February
                  28,**
              
              **February
                  28,**
              
              **Inc(Dec)**
              
              **Inc(Dec)****2006**
              
              **2005**
              
              $$$
              
              %%%On-line
                  Advertising
              
              $
              47,818
              
              $
              85,225
              
              $
              (37,407
              )
              
              -44
              %Search
                  Engine Marketing
              
              
              36,468
              
              
              —
              
              
              36,468
              
              
              100
              %Personals
              
              
              —
              
              
              —
              
              
              —
              
              
              0
              %Internet
                  game development
              
              
              —
              
              
              —
              
              
              —
              
              
              0
              %**Consolidated
                  totals**
              
              $
              84,286
              
              $
              85,225
              
              $
              (939
              )
              
              -1
              %




Bad
      Debt
      expense remained flat at approximately $84,000 when comparing the three months
      ended February 28, 2006 with the three months ended February 28, 2005. The
      current quarter’s bad debt expense is attributable to eight specific customers,
      as compared to two specific customers in the prior year’s comparable period. 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. Not all of our customers
      are
      publicly traded, or otherwise make available financial information. Therefore,
      there are limits placed on our ability to draw information from financial
      filings. As a result of our review process, we record adjustments to bad debt
      provisions/(recaptures) to reflect the related accounts receivable 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
      NON-OPERATING INCOME (EXPENSE)**




The
      components of our "Other non-operating income (expense)" are set forth
      below:




***OTHER
                NON-OPERATING INCOME (EXPENSE)*****Three
                  Months Ended**
              
              **Change**
              
              **Change****February
                  28,**
              
              **February
                  28,**
              
              **Inc(Dec)**
              
              **Inc(Dec)****Other
                non-operating income
                (expense):**
              
              **2006**
              
              **2005**
              
              $$$
              
              %%%Interest
                  income and dividends
              
              $
              241,992
              
              $
              187,823
              
              $
              54,169
              
              
              29
              %Realized
                  (losses) gains on sale ofmarketable
                  securities
              
              
              (18,352
              )
              
              585,268
              
              
              (603,620
              )
              
              -103
              %Realized
                  gain on sale of subsidiary
              
              
              —
              
              
              195,000
              
              
              (195,000
              )
              
              -100
              %Other
                  non-operating income:Other
                  miscellaneous income (expense)
              
              
              8,943
              
              
              (39
              )
              
              8,982
              
              
              100
              %Foreign
                  Currency Exchange RateFees
                  and interest expense
              
              
              (4,826
              )
              
              (8,671
              )
              
              3,845
              
              
              -44
              %Minority
                  interest (income)
              
              
              (200,095
              )
              
              (97,645
              )
              
              (102,450
              )
              
              105
              %**Total
                  other non-operating income:**
              
              $
              27,662
              
              $
              861,736
              
              $
              (834,074
              )
              
              -97
              %






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Consolidated
      Other Non-operating Income (Expense) decreased approximately $0.8 million,
      from
      approximately $0.834 million for the three months ended February 28, 2005,
      to
      approximately $28,000 for the three months ended February 28, 2006.




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




(a)
            Interest
                income increased approximately $54,000, or 29%, as the result of
                mare
                favorable rates available during Fiscal 2006 as compared to Fiscal
                2005.




(b)
            Realized
                gains on the sale of marketable securities decreased by $0.6 million
                when
                aligned against the prior year’s comparable three month period. During the
                prior year we had substantial selling activity in the equity based
                portion
                of our marketable security portfolio, resulting from our decision
                to
                recognize unrealized capital gains to take the benefit of utilizing
                expiring capital loss carryforwards.




(c)
            The
                three months ended February 28, 2005 included $0.2 million in installment
                payments from a prior year’s sale of a subsidiary. The final installments
                were collected in the first quarter of Fiscal 2005 and, therefore,
                no such
                collections or income were recognized in the first quarter of Fiscal
                2006.




(d)
            Minority
                Interest resulting from our EZTracks partnership with Madacy Entertainment
                increased from approximately $97,000 in the first quarter of Fiscal
                2005
                to approximately $200,000 in the first quarter of Fiscal
                2006.




**MINORITY
      INTEREST**




During
      the three months ended February 28,2005, we entered into an agreement with
      Madacy Entertainment, through a newly created partnership, EZTracks LP, to
      market and promote EZTracks.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 wholly-owned 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 three months
      ended February 28, 2006, and for the period January 12, 2005 to February 28,
      2005, include the fully consolidated results of EZTracks LP with minority
      interest established to reflect Madacy’s ownership share of the partnership’s
      operating results for such periods.


***The
        following table summarizes the results of EZTracks for the periods indicated
        below:***
  **Three
                  Months**
              
              
              **January
                  12,****Ended**
              
              
              **2005
                  to**
              
              
              **Change**
              
              **Change****February
                  28,**
              
              
              **February
                  28,**
              
              
              **Inc(Dec)**
              
              **Inc(Dec)****2006**
              
              
              **2005**
              
              
              $$$
              
              %%%Net
                  Revenues
              
              $
              3,443,584
              
              
              
              $
              740,122
              
              
              
              $
              2,703,462
              
              
              365
              %Cost
                  of Sales
              
              
              2,984,965
              
              
              
              
              538,542
              
              
              
              
              2,446,423
              
              
              454
              %Gross
                  Profit
              
              
              458,619
              
              
              
              
              201,580
              
              
              
              
              257,039
              
              
              128
              %General
                  andAdministrative
                  Expenses
              
              
              52,745
              
              
              
              
              4,317
              
              
              
              
              48,428
              
              
              1122
              %Net
                  Income
              
              $
              405,874
              
              (1
              )
              $
              197,263
              
              (1
              )
              $
              208,611
              
              
              106
              %Minority
                  interest
              
              $
              200,095
              
              (2
              )
              $
              97,645
              
              (2
              )
              $
              102,450
              
              
              105
              %


(1)
              All
                  items included in the Company's On-line Advertising and Media Services
                  sole segment
 (2)
              Represents
                  Madacy Entertainment's 49.3% minority
                  interest






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**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 as
      amended by SFAS 109. The pronouncements consider 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. Matters raised upon audit may
      involve substantial amounts of tax. Management considers it unlikely that
      resolution of any open audits would have a material adverse effect upon our
      consolidated financial statements.




Our
      income tax provision for the three months ended February 28, 2006 was
      approximately $296,000, which includes $256,000 of tax expense related to
      current year operations and approximately $40,000 of period expense related
      to
      an increase in our estimates related to potential for tax audits.




The
      effective rate relationship of 41.2% differs from our annual effective rate
      of
      30.0% recognized during the year ended November 30, 2005. A portion of the
      effective tax rate variance is attributable to tax benefits recognized during
      Fiscal 2005, from the use of approximately $0.2 million in previously devalued
      capital loss carryover deferred tax assets. Such devalued capital loss deferred
      tax assets were fully utilized in Fiscal 2005, and offset tax expense on Fiscal
      2005’s realized capital gain income. Additionally, in Fiscal 2005 certain state
      tax audits were settled in amounts that were less than the amounts recorded
      to
      cover the initial expected audit outcome. The balance of the rate reconciliation
      is attributable to a permanent difference arising out of the difference between
      the book and tax basis of certain acquired amortizable intangible assets. This
      permanent difference expires during the three months ended August 31, 2006,
      as a
      result of the complete amortization of the related intangible.




**LIQUIDITY
      AND CAPITAL RESOURCES**




As
      of
      February 28, 2006, we had aggregate working capital of $29.5 million, compared
      to aggregate working capital of $30.7 million as of November 30, 2005. We had
      available cash, cash equivalents, equities and readily available marketable
      debt
      securities of $27.8 million as of February 28, 2006, compared to available
      cash,
      cash equivalents, equities and readily available marketable debt securities
      of
      $28.2 million as of November 30, 2005. The equity component of our marketable
      securities was $2.0 million at February 28, 2006, compared to $1.9 million
      at
      November 30, 2005.




Cash
      used
      in operating activities was approximately $0.328 million for the three months
      ended February 28, 2006, compared to approximately $0.363 million used in
      operating activities during the three months ended February 28, 2005,
      representing a negligible change of $0.035 million ($34,586) less cash used
      in
      operating activities. Changes in assets and liabilities of the business, net
      of
      acquisitions, used $0.433 million more in cash when comparing the three months
      ended February 28, 2006 with the three months ended February 28, 2005.
      Offsetting this increased use of cash were combined increases in amortization
      and depreciation of approximately $0.298 million, resulting from (a) the
      December 1, 2005 SFAS 123R adoption and the corresponding stock-based
      compensation charge of $0.172 million, and (b) increased depreciation and
      intangible amortization expense of $0.126 million when comparing the three
      months ended February 28, 2006 to the three months ended February 28,
      2005.




Cash
      provided by investing activities was approximately $1.9 million during the
      three
      months ended February 28, 2006, compared to $0.9 million of cash used in
      investing activities during the prior year’s comparable quarter. The primary use
      of cash in investing activities in the three months ended February 28, 2005
      related to net cash of approximately $2.8 million expended in the asset
      acquisition of Hot Rocket Marketing on January 21, 2005, partially offset by
      net
      proceeds from the sale of securities exceeding cash used in security purchases
      of approximately $1.8 million. In the quarter ended February 28, 2006, net
      proceeds from the sale of securities exceeded cash used in security purchases
      of
      approximately $2.0 million, offset by approximately $0.1 million in cash used
      for capital expenditures.




Cash
      used
      in financing activities was approximately $0.100 million for the three months
      ended February 28, 2006, compared to $0.539 million provided by financing
      activities for the three months ended February 28, 2005. Fiscal 2006 financing
      net cash outflows were attributable to: (a) a distribution of $0.196 million
      to
      a minority interest holder; and (b) $0.077 million in capital lease obligation
      payments, both offset by: (a) $0.158 million in financing proceeds from
      stock option exercises; and (b) $14,311 in excess tax benefits resulting from
      our SFAS 123R adoption. The first quarter of Fiscal 2005 had a single financing
      cash flows of $0.539 million from stock option exercise proceeds. No dividends
      were paid in either quarter.




Our
      days-sales-outstanding ("DSO") in accounts receivable at February 28, 2006
      was
      54 days, compared to 65 days at November 30, 2005, 58 days at August 31 and
      May
      31, 2005, and 44 days at February 28, 2005. The eleven day, or 17% decrease
      in
      the current quarter’s DSO compared to the fourth quarter of the prior fiscal
      year relates to improved rates of collection across the majority of our client
      relationships (with one pre-pay client relationship accounting for 7.2% of
      revenues in the first quarter of Fiscal 2006) offset by the increase of our
      DSO
      from the extended payment terms granted to a client who delivered 9.2% of our
      first quarter Fiscal 2006 revenues. Our DSO may rise above 54 days (as
      recognized during the three months ended February 28, 2006) in future fiscal
      periods as a result of changes in the components of our client mix or other
      potential factors not currently identifiable.




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The
      majority of our customers are extended 30-day credit terms. In limited
      instances, customer credit is extended in ranges exceeding 30 days, and in
      very
      limited circumstances can exceed 180 days. We continually monitor customer
      adherence to credit terms and constantly strive to improve the effectiveness
      of
      our collection efforts with the goal of attaining, and then maintaining a DSO
      in
      the low 40-day range. Future fiscal periods might not reflect this DSO goal,
      and
      might exceed the 54-day DSO recognized in the three-month period ended February
      28, 2006.




Historically,
      our primary cash requirements have been used to fund the cost of advertising
      and
      promotion and test-marketing new 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, organized or acquired during the prior six fiscal
      years.




During
      these prior six fiscal years, we identified our mission and executed on our
      on-line direct marketing strategy implementation. Our future plans and business
      strategy may continue to call for our Internet-based On-line Advertising and
      Media Services segment to be our sole operating focus with such segment
      generating our entire revenue for the three-month periods ended February 28,
      2006 and 2005. Our cash demands for capital expenditures and equipment lease
      obligations have increased to $0.168 million during the three months ended
      February 28, 2006 compared to $0.048 million during the three months ended
      February 28, 2005. Our capital expenditures and capital lease obligation
      payments during the fiscal years ended November 30, 2002 to 2005 were as follows
      (in millions): $1.9, $1.5, $0.141 and $0.519, respectively. The significant
      portion of Fiscal 2005’s capital expenditure was for new email servers that
      substantially reduced our reliance on and related additional costs associated
      with third party email delivery suppliers. All other outlays for capital
      expenditures were also used to support other facets of our On-line Advertising
      and Media Services business.




We
      may,
      in future fiscal periods, be required to invest significant amounts of capital
      into our business. 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) service and/or product
      development costs, (c) site development and maintenance and related technology
      based costs, (d) potential on-line, and/or off-line, business acquisitions,
      or
      (e) costs associated with developing alternative means of email promotion
      delivery.




On
      January 21, 2005, we, through our 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, as well as providing such services to the sales activities
      of
      our consolidated entity. The Hot Rocket acquisition has broadened our reach
      into
      the Internet direct marketing arena, which continues to allow for expanded
      client relationships and various other synergistic possibilities, such as adding
      value to our core operations by the enhancement of our current and developing
      marketing programs conducted in our On-Line Advertising and Media Services
      segment.




The
      initial 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 our common stock and
      transaction fees approximating $0.1 million. Pursuant to an independent third
      party valuation, the reported purchase price was allocated as follows:
      approximately $2.2 million of goodwill and $1.6 million of identifiable
      intangibles. There were no tangible assets acquired.




In
      addition to the initial purchase price 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. We have determined, in
      accordance with the terms of the acquisition agreement, that for the period
      February 1, 2005 to January 31, 2006, we are liable for a combined additional
      purchase price payment of $1.386 million, and this obligation is to be settled
      as follows: cash payment of approximately $0.806 million and shares issued
      to
      the extent of approximately $0.580 million in fair market value at the time
      of
      issuance (with the issuance anticipated to occur on or about April 17, 2006).
      The approximate 105,200 issuable shares (based on the March 21, 2006 closing
      price of $5.52) were included in our weighted average share calculation as
      if
      issuance occurred on January 31, 2006, the additional purchase-price liability
      measurement date, and prior and future contingent payments made, if any, have
      been and will be treated as additional purchase price and included as an
      addition to goodwill.




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At
      February 28, 2006, the Company determined that at the current rate of growth
      recognized by Hot Rocket, it is probable that the second anniversary tier of
      contingent payment will be attained within the first measurement period, which
      ends February 28, 2007. As of February 28, 2006, based on the lack of absolute
      certainty as to the second anniversary additional purchase price liability,
      the
      Company has not recorded any additional contingent payments at this
      time.




The
      shares of common stock issued to Hot Rocket were originally issued by us in
      non-public transactions, which issuances were exempt from the registration
      requirements of the Securities Act pursuant to Section 4(2)
      thereof.




On
      June
      30, 2004, we consummated the acquisition of the assets of SendTraffic.com,
      Inc.
      (“Send”) and its affiliated entity, The Traffic Group, LLC, (“TG”), privately
      held search engine marketing companies based in New York. We purchased the
      assets for approximately $5.0 million, comprised of $3.5 million in cash and
      176,799 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. As
      of
      February 28, 2006, none of the contractual thresholds were attained, and it
      is
      not deemed probable that any remaining threshold will be reached during the
      remainder of the post closing period.




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 On-line Advertising and Media
      Services arena, as well as potentially identify new and other consumer oriented
      services and products, we may use existing cash reserves, enter into long-term
      financing arrangements, acquire the assets or securities of other 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.




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 February 28, 2006, are set forth
      below:


Total
                  ContractualOperating
                  Leases
              
              Employment
                  agreements
              
              Other
              
              ObligationsDomestic
              
              Foreign
              
              Domestic
              
              Foreign
              
              Domestic
              
              Domestic
              
              Foreign2006
              
              $
              406,187
              
              
              —
              
              $
              1,488,877
              
              $
              240,423
              
              
              —
              
              
              1,895,064
              
              
              240,4232007
              
              
              397,685
              
              
              —
              
              
              1,836,445
              
              
              4,054
              
              
              —
              
              
              2,234,130
              
              
              4,0542008
              
              
              400,444
              
              
              —
              
              
              360,382
              
              
              —
              
              
              
              
              
              760,826
              
              
              —2009
              
              
              368,507
              
              
              —
              
              
              212,714
              
              
              —
              
              
              
              
              
              581,221
              
              
              —2010
              
              
              353,001
              
              
              —
              
              
              31,208
              
              
              —
              
              
              —
              
              
              384,209
              
              
              —$
              1,925,824
              
              $
              —
              
              $
              3,929,626
              
              $
              244,477
              
              $
              —
              
              $
              5,855,450
              
              $
              244,477






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**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 $135,000 in legal fees (exclusive of
      disbursements) from FKIWSBR during the three months ended February 28, 2006.
      We
      incurred approximately $245,000 in legal fees (exclusive of disbursements)
      from
      FKIWSBR during the three months ended February 28, 2005, of which $89,000 was
      capitalized in the Hot Rocket acquisition, $23,000 was reimbursed by one of
      our
      insurance providers and $133,000 was expensed in our G&A
      accounts.




**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
      results of operations and cash flows, if general business conditions or
      individual customer financial circumstances change in an adverse way relative
      to
      the policies and estimates used in the attached financial statements or in
      any
      "forward looking" statements contained herein.




**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, 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 no risk and do not provide for loss. 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.




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**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 an estimated sales
      allowance, when applicable. Such sales allowance may include an estimate for
      duplications, invalid addresses, and/or age restrictions that are due from,
      but
      have not yet been reported to us by our customers. These sales allowances are
      recorded as contra-revenue. Our revenues are adjusted in later fiscal periods
      if
      actual sales allowances vary from amounts previously estimated. Historically,
      the variance between actual sales allowances and previously estimated sales
      allowances has been immaterial. If events were to occur that would cause actual
      sales allowances (which are recorded as offsets against gross revenue, as
      contra-revenues, in arriving at reported net revenue) to vary significantly
      from
      those originally estimated and reflected in the financial statements, we could
      suffer material deterioration in future fiscal period gross margins, and,
      therefore, our profitability, cash flows and capital resources could be
      adversely affected.




Certain
      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 three months ended February
      28,
      2006; (d) our contingent-based prize indemnification premiums for
      indemnification coverage increasing due to an increase in the number of prize
      winners at the sites; (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.




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




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




During
      the three month period ended February 28, 2006, we had five customers in our
      On-line Advertising and Media Services segment accounting for approximately
      $6.4
      million or 37.4% of consolidated net revenues and approximately $5.7 million,
      or
      55.3% of consolidated net accounts receivable as of February 28, 2006. The
      five
      customers accounted for 9.2%, 7.6%, 7.3%, 3.2% and 2.7% of consolidated net
      revenue during such period.




During
      the three month period ended February 28, 2005, we had nine customers in our
      E-commerce segment accounting for approximately $3.8 million or 28.5% of
      consolidated net revenue and approximately $2.8 million or 43% of consolidated
      net accounts receivable as of February 28, 2005. The nine customers accounted
      for 7.9%, 3.3%, 3.0%, 2.7%, 2.6%, 2.6%, 2.3%, 2.3% and 2.0% of consolidated
      net
      revenue for that three month period.




In
      the
      three months ended February 28, 2006, 10.8% of our revenue was derived from
      our
      proprietary on-line Personals products compared to 14.6% of our revenue for
      the
      three month period ended February 28, 2005.




**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. We are required to review, at least
      annually goodwill for any asset impairment. If the review of the goodwill
      related to the subsidiaries organized to acquire such assets 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 February 28, 2006 amounted to approximately $2.0 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.




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**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, and communicated to us to allow
      for
      timely decisions regarding required disclosure, and 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.




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**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.




There
      have been no material developments to our legal proceedings, lawsuits
      and/or other claims since the disclosure thereof in our Annual Report
      on Form 10-K for the year ended November 30, 2005.




**Item
      1A. Risk Factors**




From
      time to time, including in this Quarterly Report on Form 10-Q, we publish
      forward-looking statements, as disclosed in our Disclosure Regarding
      Forward-Looking Statements, beginning immediately following the Table of
      Contents of this Quarterly Report. We note that a variety of factors could
      cause
      our actual results and experience to differ materially from the anticipated
      results or other expectations expressed or anticipated in our forward-looking
      statements. The factors listed below are illustrative of the risks and
      uncertainties that may arise and that may be detailed from time to time in
      our
      public announcements and our filings with the Securities and Exchange
      Commission, such as on Forms 8-K, 10-Q and 10-K. We undertake no obligation
      to make any revisions to the forward-looking statements contained in this
      Quarterly Report on Form 10-Q to reflect events or circumstances occurring
      after the date of the filing of this report.




*We
      May Not Continue To Pay Dividends On Our Equity Securities.*




We
      have
      paid a dividend of $0.08 per share of our common stock in each of the last
      eleven fiscal quarters and have declared a dividend payable on or about May
      3,
      2006 to holders of record of our common stock at the close of business on April
      24, 2006. The declaration of each of such dividends was approved by our Board
      of
      Directors upon the conclusion of each quarter. We can give you no assurances
      that our Board will declare any dividends in future fiscal periods. Any further
      declarations will depend upon our performance, the level of our then current
      and
      retained earnings and other pertinent factors relating to our financial
      position. You should not rely on any prior approvals of our Board as an
      indicator of its intent to approve the declaration of any dividends in the
      future.




*Advertisers
      May Be Reluctant To Devote A Portion Of Their Budgets To Internet Advertising
      And Digital Marketing Solutions.*




Companies
      doing business on the Internet must compete with traditional advertising media,
      including television, radio, cable and print, for a share of advertisers' total
      marketing budgets. Potential customers may be reluctant to devote a significant
      portion of their marketing budget to Internet advertising or digital marketing
      if they perceive the Internet to be a limited or ineffective marketing medium.
      Any shift in marketing budgets away from Internet advertising spending or
      digital marketing solutions could materially and adversely affect our business,
      results of operations and financial condition.




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*We
      May Not Be Able To Comply With The Adoption Of Newly Created Laws And
      Governmental Regulation Of The Internet Industry And New Restrictions For
      Internet Use May Increase Our Cost Of Doing Business.*




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, all as more fully described forth in our
      periodic reports filed pursuant to the Securities Exchange Act of 1934 under
      the
      heading “Business - Government Regulation.”




*Demand
      For Our Services May Decline Due To The Proliferation Of "Spam" And Software
      Designed To Prevent Its Delivery.*




Our
      business may be adversely affected by the proliferation of "spam" and other
      unwanted Internet solicitations. In response to such proliferation, Internet
      Service Providers ("ISP's") have been adopting technologies, and individual
      computer users are installing software on their computers that are designed
      to
      prevent the delivery of certain Internet advertising, including legitimate
      solicitations such as those delivered by us. We cannot assure you that the
      number of ISP's and individual computer users who employ these or other similar
      technologies and software will not increase, thereby diminishing the efficacy
      of
      our services. In the case that one or more of these technologies are widely
      adopted or the software widely utilized, demand for our services would decline.




*We
      May Be Unable To Keep Up With The Rapid Technological Changes That May Occur
      In
      The Internet And E-Commerce Arenas Which Would Adversely Affect Our Business
      Operations.*




To
      remain
      competitive, we must enhance and continually improve the responsiveness,
      functionality and features of our services. The Internet and the online commerce
      industry are characterized by rapid technological change, changes in user and
      customer requirements and preferences, frequent new product and service
      introductions embodying new technologies, and the emergence of new industry
      standards and practices that could render existing technology and systems
      obsolete at any time. Our success will depend, in part, on our ability to
      license leading technologies that address the increasingly sophisticated and
      varied needs of prospective consumers, and respond to technological advances
      and
      emerging industry standards and practices on a cost-effective and timely basis.
      The development of a website and other proprietary technology entails
      significant technical and business risks. There can be no assurance that we
      will
      use new technologies effectively or adapt existing websites and operational
      systems to customer requirements or emerging industry standards. If we are
      unable, for technical, legal, financial or other reasons, to adapt in a timely
      manner in response to changing market conditions or customer requirements,
      our
      business, prospects, financial condition and results of operations would be
      materially adversely affected.




*We
      Depend On Third-Party Internet And Telecommunications Providers, Over Whom
      We
      Have No Control, To Operate Our Services. Interruptions In These Services Caused
      By One Of The Providers Could Have An Adverse Effect On Revenue And Securing
      Alternate Sources Of These Services Could Significantly Increase Expenses.*




We
      depend
      heavily on several third-party providers of Internet and related
      telecommunication services, including hosting and co-location facilities, in
      operating our services. These companies may not continue to provide services
      to
      us without disruptions in service, at the current cost or at all. The costs
      associated with any transition to a new service provider would be substantial,
      requiring the reengineering of computer systems and telecommunications
      infrastructure to accommodate a new service provider. This process would be
      both
      expensive and time-consuming. In addition, failure of the Internet and related
      telecommunications providers to provide the data communications capacity in
      the
      time frame required by us could cause interruptions in the services we provide.
      Unanticipated problems affecting our computer and telecommunications systems
      in
      the future could cause interruptions in the delivery of services, causing a
      loss
      of revenue and potential loss of customers.




*We
      Face Intense Competition In The Marketing Of Our Services and Our Clients’
Products.*




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




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*Our
      Success Depends On Our Ability To Continue Forming Relationships With Other
      Internet And Interactive Media Content And Product Providers.*




The
      Internet includes an ever-increasing number of businesses that offer and market
      consumer products and services. These entities offer advertising space on their
      websites, as well as profit sharing arrangements for joint effort marketing
      programs. We expect that with the increasing number of entrants into the
      Internet commerce arena, advertising costs and joint effort marketing programs
      will become extremely competitive. This competitive environment might prevent
      us
      from executing profit generating advertising and joint effort marketing programs
      in the future. This competitive environment may also prevent us from providing
      entertaining content and product and service providers from marketing their
      products and services through our websites. If we fail to continue establishing
      new, and maintain existing, profitable advertising and joint marketing
      arrangements, we may suffer substantial adverse consequences to our financial
      condition and results of operations.




*The
      Outcome Of Litigation In Which We Have Been Named As A Defendant Is
      Unpredictable And A Materially Adverse Decision In Any Such Matter Could Have
      A
      Material Adverse Affect On Our Financial Position And Results Of Operations.*




We
      are
      defendants in litigation matters, as described under "Legal Proceedings" in
      our
      periodic reports filed pursuant to the Securities Exchange Act of 1934. These
      claims may divert financial and management resources that would otherwise be
      used to benefit our operations. Although we believe that we have meritorious
      defenses to the claims made in each and all of the litigation matters to which
      we have been named a party, and intend to contest each lawsuit vigorously,
      no
      assurances can be given that the results of these matters will be favorable
      to
      us. A materially adverse resolution of any of these lawsuits could have a
      material adverse affect on our financial position and results of operations.




*We
      Are Dependent On Our Key Personnel For Managing Our Business Affairs. The Loss
      Of Their Services Could Materially And Adversely Affect The Conduct Of Our
      Business.*




We
      are
      and will be highly dependent upon the efforts of the members of our management
      team, particularly those of our Chief Executive Officer, Jeffrey L. Schwartz,
      and our President, Andrew Stollman. The loss of the services of
      Messrs. Schwartz or Stollman may impede the execution of our business
      strategy and the achievement of our business objectives. We can give you no
      assurance that we will be able to attract and retain the qualified personnel
      necessary for the development of our business. Our failure to recruit key
      personnel or our failure to adequately train, motivate and supervise our
      existing or future personnel will adversely affect our operations.




*Our
      Business Plan Is Subject To Change And Any Expectations We And You May Have
      For
      Its Successful Implementation May Be Unrealized.*




Our
      business plan and strategy may quickly change based upon facts or circumstances
      currently unforeseen by us. Due to the ever changing nature of the e-commerce
      industry and the Internet, we, based upon these unforeseen facts or
      circumstances, may change our business plan at the discretion of our Management
      and Board of Directors with results, adverse or otherwise, that we cannot now
      foresee.




*The
      Concentration Of Ownership Of Our Common Stock Will Discourage Purchases Of
      Our
      Common Stock By Persons Who Might Otherwise Seek To Gain Control Of Traffix.*




Our
      executive officers and directors beneficially own 2,275,615 shares of our
      outstanding common stock representing approximately 16.00% of the total of
      our
      outstanding shares before the exercise of any outstanding options. Accordingly,
      such persons will be able to exercise substantial control in the election of
      our
      directors, increases in our authorized capital, our dissolution or merger,
      or
      sale of our assets, and otherwise influence the control of our affairs. As
      a
      result, potential purchasers may not seek to acquire control of our Company
      through the purchase of common stock which may tend to reduce the market price
      of our common stock. In addition, we are subject to provisions of the General
      Corporation Law of the State of Delaware respecting business combinations which
      could, under certain circumstances, also hinder or delay a change in
      control.




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Item
      1B. Unresolved Staff Comments




NONE




Item
      5.Other
      Information




NONE




**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.






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**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.**Date: April
              14, 2006
            By:
            /s/ Jeffrey
              L. SchwartzName:  
                Jeffrey L. Schwartz
              Title:    
                Chairman and CEO
              (Principal Executive Officer)




Date: April
              14, 2006
            By:
            /s/ Daniel
              HarveyName:  
                Daniel Harvey
              Title:     Chief
                Financial Officer
              (Principal
                Financial Officer)






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**EXHIBIT
      INDEX**


**Exhibit****Number**3.1.1
              Articles
                  of Incorporation of the Company, as amended (1)3.1.2
              Amendment
                  to the Articles of Incorporation of the Company (2)3.2
              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.
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