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 May 31, 2003

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

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


                         Commission file number 0-27046


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


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

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

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


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

                                Yes   X      No
                                    -----       -----

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


                                Yes          No   X
                                    -----       -----

         The number of shares outstanding of the Registrant's common stock is
14,274,403 (as of 07/15/03).

<PAGE>

                                  TRAFFIX, INC.
                     INDEX TO QUARTERLY REPORT ON FORM 10-Q
                FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
                           QUARTER ENDED MAY 31, 2003

                               ITEMS IN FORM 10-Q

                                                                          PAGE
                                                                          ----
PART I          FINANCIAL INFORMATION

Item 1.         Financial Statements (Unaudited)                             2

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

Item 3.         Quantitative and Qualitative
                  Disclosures About Market Risk                           None

Item 4.         Controls and Procedures                                     80


PART II         OTHER INFORMATION

Item 1.         Legal Proceedings                                           81

Item 2.         Changes in Securities
                  and Use of Proceeds                                     None

Item 3.         Defaults Upon Senior Securities                           None

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

Item 5.         Other Information                                           84

Item 6.         Exhibits and Reports on Form 8-K                            85

SIGNATURES



<PAGE>

                         TRAFFIX, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                          MAY 31,       NOVEMBER 30,
                                                                           2003             2002
                                                                       ------------    ------------
                                                                        (UNAUDITED)
<S>                                                                    <C>             <C>
ASSETS
Current assets:
Cash and cash equivalents                                              $  7,199,547    $ 23,136,341
Marketable securities                                                    29,185,832      14,249,406
Accounts receivable, trade, net of allowance for doubtful accounts
  of $796,816 at May 31, 2003 and $326,127 at November 30, 2002           4,864,030       5,050,218
Deferred income taxes                                                     2,595,705       1,524,821
Due from related parties                                                         --          57,548
Prepaid income taxes                                                             --       1,195,808
Prepaid expenses and other current assets                                   415,571       1,138,362
                                                                       ------------    ------------
     TOTAL CURRENT ASSETS                                                44,260,685      46,352,504

   Property and equipment, at cost, net of accumulated depreciation       2,994,811       2,169,156
   Goodwill                                                               1,029,391         937,465
   Other intangibles, net                                                 1,329,952       1,682,242
   Deferred income taxes                                                     49,626          49,626
                                                                       ------------    ------------
        TOTAL ASSETS                                                   $ 49,664,465    $ 51,190,993
                                                                       ============    ============

LIABILITIES
   Current liabilities:
   Accounts payable                                                    $  2,829,153    $  2,197,458
   Accrued expenses                                                       3,046,717       4,457,644
   Reserve for customer chargebacks                                         349,045              --
   Due to related parties                                                   154,256         353,307
   Income taxes payable                                                     256,945              --
                                                                       ------------    ------------
        TOTAL CURRENT LIABILITIES                                         6,636,116       7,008,409

Deferred income taxes                                                        89,559          89,559
                                                                       ------------    ------------
        TOTAL LIABILITIES                                                 6,725,675       7,097,968
                                                                       ============    ============
Minority interest                                                                --         307,017
                                                                       ------------    ------------

SHAREHOLDERS' EQUITY

Preferred stock - $.001 par value; 1,000,000 shares authorized;
  none issued and outstanding                                                    --              --
Common stock - $.001 par value; authorized 50,000,000 shares; issued
  14,272,403 shares and 14,216,729 shares, respectively                      14,272          14,215
Common stock issuable - $.001 par value; 39,174 and
  78,347 shares, respectively                                               242,879         485,758
Additional paid-in capital                                               41,975,630      41,692,066
Retained earnings                                                         4,827,109       5,948,160
Accumulated other comprehensive income                                      276,953          33,056
Common stock held in treasury, at cost, 1,513,028 and
 1,509,428 shares, respectively                                          (4,398,053)     (4,387,247)
                                                                       ------------    ------------
        TOTAL SHAREHOLDERS' EQUITY                                       42,938,790      43,786,008
                                                                       ------------    ------------
        TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                     $ 49,664,465    $ 51,190,993
                                                                       ============    ============
</TABLE>

    The acompanying notes are an integral part of these financial statements



                                                                               2
<PAGE>


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

<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED              SIX MONTHS ENDED
                                                      ----------------------------    ----------------------------
                                                         MAY 31,         MAY 31,        MAY 31,         MAY 31,
                                                          2003            2002            2003            2002
                                                      ------------    ------------    ------------    ------------
<S>                                                   <C>             <C>             <C>             <C>
Net revenue                                           $  7,422,604    $ 10,804,538    $ 16,539,833    $ 23,175,435
Cost of sales                                            3,959,347       3,383,204       6,205,277       6,761,815
                                                      ------------    ------------    ------------    ------------
        GROSS PROFIT                                     3,463,257       7,421,334      10,334,556      16,413,620

Selling expenses                                         1,777,890       2,370,775       4,097,449       5,517,314
General and administrative expenses                      3,978,704       3,949,851       8,184,741       7,550,471
Bad Debt expense                                           153,860         109,172         490,048         438,506
                                                      ------------    ------------    ------------    ------------
        (LOSS) INCOME FROM OPERATIONS                   (2,447,197)        991,536      (2,437,682)      2,907,329

Other income (expense):
   Interest expense                                         (7,850)         (9,266)        (15,191)        (19,768)
   Interest income and dividends                           111,455         183,386         266,056         393,599
   Realized gains on marketable securities                   3,330          20,564           4,068          83,157
   Realized gain on sale of subsidiary                   1,075,000              --       1,075,000              --
   Other non-operating income (expense)                    (39,741)        100,665         (46,438)        235,102
   Minority interest in (income) loss of subsidiary        (17,239)       (104,303)       (137,567)       (130,949)
                                                      ------------    ------------    ------------    ------------

        (LOSS) INCOME BEFORE (BENEFIT) PROVISION
          FOR INCOME TAXES                              (1,322,242)      1,182,583      (1,291,754)      3,468,470

(Benefit) provision for income taxes                       230,297         469,540        (170,703)      1,352,010
                                                      ------------    ------------    ------------    ------------

        NET (LOSS) INCOME                             $ (1,552,539)   $    713,043    $ (1,121,051)   $  2,116,460
                                                      ============    ============    ============    ============

Basic (loss) income per share (Note 3):
   Net (loss) income                                  $      (0.12)   $       0.05    $      (0.09)   $       0.16
                                                      ------------    ------------    ------------    ------------
   Weighted average shares outstanding                  12,758,349      13,508,056      12,754,342      13,512,487
                                                      ============    ============    ============    ============

Diluted (loss) income per share (Note 3):
   Net (loss) income                                  $      (0.12)   $       0.05    $      (0.09)   $       0.14
                                                      ------------    ------------    ------------    ------------
   Weighted average shares outstanding                  12,758,349      14,830,315      12,754,342      14,789,936
                                                      ============    ============    ============    ============
</TABLE>


   The accompanying notes are an integral part of these financial statements



                                                                               3
<PAGE>

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

<TABLE>
<CAPTION>
                                                                         SIX MONTHS ENDED
                                                                  ------------------------------
                                                                     May 31,          May 31,
                                                                      2003              2002
                                                                  -------------    -------------
<S>                                                               <C>              <C>
Cash flows from operating activities:
   Net (loss) income                                              $  (1,121,051)   $   2,116,460
   Adjustments to reconcile net (loss) income to net cash
     (used in) provided by operating activities:
   Depreciation and amortization                                        820,558          482,436
   Reserve for customer chargebacks                                     349,045               --
   Provision for uncollectible accounts                                 490,048          438,506
   Deferred income taxes                                             (1,070,884)       1,509,533
   Net (gains) on sale of marketable securities                          (4,068)         (83,182)
   Gain on sale of subsidiary                                        (1,075,000)              --
   Amortized discounts and premiums on marketable securities                 --          (39,114)
   Minority interest                                                   (307,017)         117,274
   Changes in assets and liabilities of business:
     Accounts receivable                                               (303,860)        (570,961)
     Prepaid expenses and other current assets                          747,791          621,399
     Accounts payable                                                   631,695       (1,420,596)
     Prepaid income taxes                                             1,459,166       (1,086,964)
     Due from/to related parties                                       (141,503)        (237,466)
     Other, principally accrued expenses                             (1,410,926)       2,814,444
                                                                  -------------    -------------
     NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES               (936,006)       4,661,769
                                                                  -------------    -------------

Cash flows from investing activities:
   Purchases of securities                                         (164,774,190)     (96,468,324)
   Proceeds from sales of securities                                149,996,126       97,226,217
   Proceeds from the sale of a subsidiary                             1,050,000               --
   Capital expenditures                                              (1,276,322)      (1,190,098)
   Payments for asset acquisitions, net of cash received                     --         (548,482)
                                                                  -------------    -------------
        NET CASH USED IN INVESTING ACTIVITIES                       (15,004,386)        (980,687)
                                                                  -------------    -------------

Cash flows from financing activities:
   Purchases of common stock                                            (10,806)              --
   Proceeds from stock options exercised                                 34,329          580,003
   Proceeds-net on settled Section 16-b action                               --          114,403
                                                                  -------------    -------------
        NET CASH PROVIDED BY FINANCING ACTIVITIES                        23,523          694,406
                                                                  -------------    -------------
   Effect of exchange rate changes on cash and cash equivalents         (19,925)         (20,788)
                                                                  -------------    -------------
   Net (decrease) increase in cash and cash equivalents             (15,936,794)       4,354,700
   Cash and cash equivalents, beginning of period                    23,136,341       14,458,055
                                                                  -------------    -------------
   CASH AND CASH EQUIVALENTS, END OF PERIOD                       $   7,199,547    $  18,812,755
                                                                  =============    =============
</TABLE>

During the six months ended May 31, 2002, the Company issued 117,521 shares of
common stock, valued at $728,636, in the purchase of the assets of a closely
held, private company (See note 8).

During the six months ended May 31, 2002, the Company collected approximately
$114,403, after related costs and income tax expense of $185,597, from a Section
16-b violation brought against a former non-management "insider" shareholder.



The accompanying notes are an integral part of these financial statements



                                                                               4
<PAGE>


                         TRAFFIX, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                      FOR THE SIX MONTHS ENDED MAY 31, 2003
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                             COMMON STOCK            COMMON         ADDITIONAL
                                       -------------------------      STOCK          PAID-IN         RETAINED
                                          SHARES       AMOUNTS       ISSUABLE        CAPITAL         EARNINGS
                                       -------------  ----------    ----------     ------------     -----------
<S>                                     <C>            <C>          <C>            <C>              <C>
BALANCE, NOVEMBER 30, 2002              14,216,729     $ 14,215     $ 485,758      $ 41,692,066     $ 5,948,160

Net (Loss) for the six months
    ended May 31, 2003                                                                               (1,121,051)
Unrealized losses on
    available-for-sale securities
Foreign Currency Translation
    adjustment
    Comprehensive income (loss)
Stock option exercises                      16,500           18                          34,311
Tax benefit from exercise of
    stock options                                                                         6,413
Purchase of common stock,
    held in treasury, at cost
Common stock issued in
    connection with acquisition             39,174           39      (242,879)          242,840
                                        ----------     --------     ---------      ------------     -----------
Balance, May 31, 2003                   14,272,403     $ 14,272     $ 242,879      $ 41,975,630     $ 4,827,109
                                        ==========     ========     =========      ============     ===========
</TABLE>


                                ACCUMULATED
        TREASURY STOCK             OTHER                TOTAL
 ---------------------------   COMPREHENSIVE        SHAREHOLDERS'
    SHARES         AMOUNT       INCOME(LOSS)           EQUITY
 -----------    ------------  -----------------   ------------------

   1,509,428    $ (4,387,247)          $ 33,056         $ 43,786,008


                                                          (1,121,051)

                                        154,294              154,294

                                         89,603               89,603
                                                          ----------
                                                            (877,154)
                                                          ----------
                                                              34,329

                                                               6,413

       3,600     $   (10,806)                                (10,806)

                                                                  --
   ---------    ------------           --------         ------------
   1,513,028     $(4,398,053)          $276,953         $ 42,938,790
   =========     ===========           ========         ============








The accompanying notes are an integral part of these financial statements
<PAGE>


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

1. GENERAL

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



                                                                               5
<PAGE>

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

The accompanying unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes
thereto, together with management's discussion and analysis of financial
condition and results of operations, contained in the Company's Annual Report on
Form 10-K for the fiscal year ended November 30, 2002. The results of operations
for the three and six month periods ended May 31, 2003 are not necessarily
indicative of the results to be expected for the subsequent quarters or the
entire fiscal year ending November 30, 2003. Certain prior year amounts in the
unaudited consolidated financial statements have been reclassified to conform
with the current year presentation.

During the six months ended May 31, 2003 and 2002, options for 16,500 shares and
186,481 shares of the Company's common stock, respectively, were exercised by
certain employees and directors. Tax benefits of $6,413 and $307,876 in the six
months ended May 31, 2003 and 2002, respectively, were recorded as an increase
to additional paid-in capital and a reduction of income taxes currently payable.

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 142, "Goodwill



                                                                               6
<PAGE>

and Other Intangible Assets." SFAS 142 requires that goodwill and intangible
assets with indefinite useful lives no longer be amortized, however, these
assets must be reviewed at least annually for impairment subsequent to adoption.
Intangible assets with finite useful lives will continue to be amortized over
their respective useful lives. The standard also establishes specific guidance
for testing for impairment of goodwill and intangible assets with indefinite
useful lives. The Company has adopted SFAS 142 as of December 1, 2002. The
Company has adopted SFAS 142 as of December 1, 2002. Prior to December 1, 2002,
goodwill was amortized on a straight-line basis over 5 years. In accordance with
SFAS 142, the Company has performed a transitional impairment test as of
December 1, 2002 for its unamortized goodwill. As a result of the impairment
test performed, no impairment was noted.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 promulgates rules
regarding exit or disposal activities that are initiated after December 31,
2002. SFAS 146 requires companies to recognize costs associated with the exit or
disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan and nullifies the requirements under the
"Emerging Issues Task Force No. 94-3", "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (Including
Certain Costs in a Restructuring)". The adoption of SFAS 146 did not have a
material impact on the Company's consolidated financial position and results of
operations.

In October 2002, Statement of Financial Accounting Standards No. 147
"Acquisitions of Certain Financial Institutions ("SFAS 147") was issued. The
statement addresses the financial accounting and reporting for the acquisition
of all or a part of a financial institution. Additionally, SFAS 147 also
provides guidance on the accounting for the



                                                                               7
<PAGE>

impairment or disposal of acquired long-term customer-relationship intangible
assets. The provisions of this statement are effective for acquisitions on or
after October 1, 2002. The adoption of SFAS 147 did not have a material impact
on either the Company's financial position or results of operations.

In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). This Interpretation requires
that, upon issuance of a guarantee, a guarantor must recognize a liability for
the fair market value of an obligation assumed under the guarantee. Disclosures
by the guarantor in its interim and quarterly financial statements about
obligations associated with guarantees issued are also required by FIN 45. The
recognition requirements of FIN 45 are effective for guarantees that are issued
after December 31, 2002. The adoption of this Interpretation did not have a
material impact on the Company's consolidated financial position and results of
operations.

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



                                                                               8
<PAGE>

use the intrinsic value method, and has complied with the disclosure provisions
as outlined in the accounting standard beginning with the quarter ended May 31,
2003.

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

2. SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION

The Company currently earns the most significant portion of revenue from its
E-Commerce segment pursuant to marketing agreements with marketing partners and
corporate customers (collectively, "Corporate Customers"). The provisions of
each agreement determine the type and timing of revenue to be recorded. The
Company generates its E-Commerce revenue from the following nine basic
categories: (1) delivery of consumer traffic to the websites and inbound
telemarketing call centers of its Corporate Customers (e.g., click-thrus from
the game banners on the Company's websites), (2) delivery of consumer data to
Corporate Customers with respect to the consumers who have registered for
Corporate Customers' products or services (e.g., a consumer who registered via



                                                                               9
<PAGE>

the registration page of one of the Company's websites to receive on-line
promotions from Corporate Customers), (3) delivery of pre-qualified consumer
data to Corporate Customers as a result of consumers' responses to targeted
questions and surveys (e.g., receiving free gifts for your children), (4)
delivery of a sale or completed application for a Corporate Customer's product
or service (e.g., a consumer who responds to a Traffix email promotion on behalf
of a Corporate Customer by completing an on-line application for a credit card
or subscribing for a cellular phone service), (5) generating revenue from any of
the foregoing categories by placing Corporate Customers' offers on the media of
third parties with whom the Company has a marketing relationship on a revenue
share basis, (6) sales of inexpensive gift items directly to consumers, (7)
rentals and sales of copies of specific segments of the Company's databases to
Corporate Customers for their proprietary marketing and database enhancements,
(8) sales of memberships to the Company's online dating service, iMatchUp.com,
and (9) customer acquisition services, both on-line and off-line, under a net
branch agreement with a qualified mortgage banking establishment. Regarding the
Company's net branch agreement revenues, see Note 10 "Sale of Majority Owned
Subsidiary" for a discussion of the disposition of the Company's majority owned
subsidiary that generated such revenue.

During the six months ended May 31, 2003, the Company introduced two additional
revenue sources to its product and service suite. Such revenue sources include a
proprietary on-line dating service (referenced above as item (8)) and a
proprietary ISP service offer (included in the LEC Billed Products and Services
segment, referenced above as item 4). The combination of the two newly
introduced revenue sources accounted for approximately 19% and 12% of the
Company's revenue for the three and six-month periods ended May 31, 2003,
respectively.

The Company invoices its customers in accordance with the terms of their



                                                                              10
<PAGE>

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

Membership revenue on the Company's online dating service is billed to members
in one-month, three-month and annual terms. The monthly memberships are
recognized as revenue in the month billed (which is the same month as the
services are provided). Three month and annual memberships are deferred and
recognized over the subscription term.

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



                                                                              11
<PAGE>

operations when facts and circumstances allow for their measurement.

The Company's current business, as conducted in its E-Commerce segment, also may
require the provision of a premium. These E-Commerce segment premiums are
estimated and accrued, based upon historical and current experience. Such
E-Commerce premium costs are classified as a component of marketing expense and
are included in the cost of sales at the time the associated revenues are
recognized. Any variance in the initial accrual, as compared to the actual
experience, is included in the financial statements for the period that the
variance is determinable. The six months ended May 31, 2003 included a reduction
to fulfillment expense of approximately $510,000 relating to the estimated
fulfillment expense adjustment resulting from the termination of the fulfillment
liability associated with a former major customer.

Revenue from the Company's LEC Billed Product and Service segment, which resumed
activity during the six months ended May 31, 2003, consists of a Local Exchange
Carrier ("LEC") billed Internet Service Provider ("ISP"). The revenue from such
service is recognized net of an estimated provision for refunds, credits and
adjustments subsequently granted to customers ("customer chargebacks"). Customer
chargebacks are reflected as a contra-revenue account within the Company's
statement of operations. Since the provision for customer chargebacks is
established prior to the periods in which chargebacks are actually expended, the
Company's revenues are adjusted in later periods if the Company's incurred
chargebacks vary from the amounts previously estimated.

Revenues from the Company's off-line marketing services segment during the six
months ended May 31, 2003 included the revenue earned by Montvale Management,
LLC, the Company's majority-owned subsidiary. The Company sold its interest in
such subsidiary to the other member thereof on March 7, 2003. See Note 10 "Sale
of Majority Owned Subsidiary". Such revenues represented approximately



                                                                              12
<PAGE>

$161,000 and $2.4 million, or 2% and 14%, respectively, of the Company's
consolidated net revenues for the three and six-month periods ended May 31,
2003, compared to $1.4 million and $2.3 million, or 13% and 10%, respectively,
of the Company's consolidated net revenues for the three and six-month periods
ended May 31, 2002. Such revenue resulted from Montvale's commission earned for
the provision of net branch services to a mortgage banking institution. Under
such arrangement Montvale managed the branch offices and loan origination
business of a single third party licensed mortgage banker. Approximately 15% of
Montvale's revenues were derived from on-line sources, with such portion then
being included in the Company's E-Commerce segment. Montvale recognizes its
commission upon the closing of the loan, with a provision for mortgage refinance
rescissions applicable to mortgage refinances consummated within the last 3
business days of the quarter (as all refinancings are subject to a federally
mandated 3-day right of rescission). Actual experience regarding rescissions
indicates that the historical variance between rescission provisions and the
actual rescissions have been immaterial.

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

ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

Accounts receivable consist of trade accounts receivable from the Company's
customer base, with extension of credit varying between 30 to 60 days, with the
majority at 30 days. The Company's customer base is comprised of domestic
entities with diverse demographics. The allowance for doubtful accounts is based
on management's evaluation of the collectibility of receivables after giving
consideration to current delinquency data, historical loss experience and
general economic



                                                                              13
<PAGE>

conditions, both at the Company level and sector/industry level. The Company's
accounts receivable balances are continually reviewed by management, and when
situations dictate, provisions for losses are recorded. Additional allowances
might be required if the original estimates for loss prove to be inadequate.

TRANSACTIONS WITH MAJOR CUSTOMERS

During the three and six months ended May 31, 2003, the Company had four and
five customers, respectively, in its E-Commerce segment which, in combination,
accounted for approximately $1.9 million and $4.7 million of consolidated net
revenue, respectively, or 25% and 28% of consolidated net revenues.
Approximately $1.9 million, or 38% of consolidated net accounts receivable, was
attributable to such major customer group as of May 31, 2003. Such major
customers accounted for 8%, 8%, 6% and 3% of consolidated net revenue for the
three months ended May 31, 2003, and 8%, 8%, 5%, 4% and 3% of consolidated net
revenue for the six months ended May 31, 2003. Regarding the balance of the
Company's customer base, no single customer had net revenues that equaled, or
exceeded, 3% of consolidated net revenues for the three and six-month periods
ended May 31, 2003.

The Company continued to conduct business with all such four major customers as
of July 15, 2003. The customer that accounted for 3% of the Company's net
revenues for the six months ended May 31, 2003 filed for bankruptcy protection
in June 2003. The Company charged approximately $300,000 of such customer's
accounts receivable to bad debt allowance. After the application of the bad debt
allowance increase, the Company has completely reserved the customer's entire
accounts receivable balance. In the three and six months ended May 31, 2002, the



                                                                              14
<PAGE>

Company had five customers in its E-Commerce segment which, in combination,
accounted for approximately $5.5 million and $12.9 million of consolidated net
revenues, respectively, or 51% and 56% of consolidated net revenues,
respectively, and approximately $5.1 million, or 69% of consolidated accounts
receivable as of May 31, 2002.

STOCK-BASED COMPENSATION

Pursuant to Statement of Financial Accounting Standard ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," as amended by SFAS No. 148, the
Company will continue to use the intrinsic value method of accounting for our
employee and director stock-based compensation awards. Accordingly, the Company
has not recognized compensation expense for its noncompensatory employee and
director stock option awards. As recommended by SFAS No. 123, the fair values of
options were estimated using the Black-Scholes option-pricing model. The
Company's adjusted net income and adjusted earnings per share had it elected to
adopt the fair value approach of SFAS No. 123, which charges earnings for the
estimated fair value of stock options, would have been as follows:

<TABLE>
<CAPTION>
                                               THREE MONTHS ENDED             SIX MONTHS ENDED
                                              MAY 31,       MAY 31,        MAY 31,         MAY 31,
                                               2003          2002           2003            2002
                                            -----------    ---------     -----------     ----------
<S>                                         <C>            <C>           <C>             <C>
Net (loss) income:
As reported                                 $(1,552,539)   $ 713,043     $(1,121,051)    $2,116,460

Less: Total stock-based compensation
expense determined under fair value
based method, net of related tax effects       (153,889)    (261,722)    $  (413,460)      (523,444)
                                            -----------    ---------     -----------     ----------
Pro forma                                   $(1,706,428)   $ 451,321     $(1,534,511)    $1,593,016

Basic net (loss) income per share:

As reported                                 $     (0.12)   $    0.05     $     (0.09)    $     0.16

Pro forma                                   $     (0.13)   $    0.03     $     (0.12)    $     0.12

Diluted net (loss) income per share:

As reported                                 $     (0.12)   $    0.05     $     (0.09)    $     0.14

Pro forma                                   $     (0.13)   $    0.03     $     (0.12)    $     0.11
</TABLE>

For purposes of computing pro forma net (loss) income, the Company estimates the
fair value of each option grant on the date of grant using the Black-Scholes
option-pricing model. The assumptions used to value the option grants are set
forth below:

<TABLE>
<CAPTION>
                                               THREE MONTHS ENDED            SIX MONTHS ENDED
                                              MAY 31,       MAY 31,       MAY 31,          MAY 31,
                                               2003          2002          2003             2002
                                            -----------    ---------    -----------      ----------
<S>                                           <C>           <C>           <C>              <C>
Expected life of options (in years)             4.0           4.8           4.0              4.8
Volatility                                    61.00%        71.50%        61.00%           71.50%
Risk free interest rate                        2.56%         3.51%         2.56%            3.51%
Dividend yield                                 0.00%         0.00%         0.00%            0.00%
</TABLE>


Options granted typically vest over a three-year period and new option grants
are made periodically each year. Therefore, the pro forma information shown
above may not be representative of the pro forma effect on reported net (loss)
income in future fiscal periods.


<PAGE>


3. EARNINGS PER SHARE

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

<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED        SIX MONTHS ENDED
                                                        -----------------------   -----------------------
                                                          MAY 31,      MAY 31,      MAY 31,      MAY 31,
                                                           2003         2002         2003         2002
                                                        ----------   ----------   ----------   ----------
<S>                                                     <C>          <C>          <C>          <C>
Denominator:
   Denominator for basic earnings per share--
     weighted average shares                            12,758,349   13,508,056   12,754,342   13,512,487
Effect of dilutive securities:
   Stock options                                                --    1,322,259           --    1,277,449
                                                        ----------   ----------   ----------   ----------
   Denominator for diluted earnings per share--
     adjusted weighted average shares                   12,758,349   14,830,315   12,754,342   14,789,936
                                                        ==========   ==========   ==========   ==========
</TABLE>



Options to purchase 1,043,096 and 150,000 shares of common stock for the three
months ended May 31, 2003 and 2002, respectively, and 1,043,096 and 275,000 for
the six months ended May 31, 2003 and 2002, respectively, were outstanding but
were not included in the computation of diluted earnings per share because their
effect would be anti-dilutive.

4. COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) is defined as "the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources." Excluding net income, the Company's primary sources of
comprehensive income (loss) would ordinarily include the



                                                                              15
<PAGE>

after-tax net unrealized gains and (losses) on available-for-sale securities,
and the equity adjustment from foreign currency translation. Based on prior
fiscal year unrealized capital losses in excess of the current years three and
six month period's unrealized gains, a full credit has been taken against the
estimated deferred tax liability attributable to the unrealized gains arising in
the three and six month periods ended May 31, 2003. At November 30, 2001, full
valuation allowances were taken against the estimated deferred tax assets
attributable to the unrealized losses based on the absence of other appreciated
capital gain property. The components of comprehensive income (loss) are
presented below:

<TABLE>
<CAPTION>
                                                                 THREE MONTHS ENDED                 SIX MONTHS ENDED
                                                            ------------------------------     ---------------------------
                                                              MAY 31,           MAY 31,          MAY 31,         MAY 31,
                                                               2003              2002             2003            2002
                                                            ------------      ------------     -----------      ----------

<S>                                                         <C>               <C>              <C>              <C>
     Net (loss) income ...........................          $ (1,552,539)     $    713,043     $(1,121,051)     $2,116,460

Other comprehensive income (loss) , net of tax:
Foreign currency translation adjustment                           63,350           (21,057)         89,603         (20,788)
Unrealized gains from available-for-sale
securities, arising during the period, net of
income taxes of $-0-                                             207,660            47,723         154,294          29,736

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

Comprehensive (loss) income.......................          $ (1,281,529)     $    739,709     $  (966,757)     $2,125,408
                                                            ============      ============     ===========      ==========
</TABLE>


5. ADVERTISING AND MARKETING COSTS

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



                                                                              16
<PAGE>

services are provided, respectively, and are included as a component of cost of
sales.

Total advertising and marketing costs included in cost of sales for the three
months ended May 31, 2003 and 2002 were approximately $3,528,000 and $3,288,000,
respectively, and for the six months ended May 31, 2003 and 2002 were
approximately $5,566,000 and $6,576,000, respectively.

6. MARKETABLE SECURITIES AND LONG TERM INVESTMENTS, AT COST

            During the three and six months ended May 31, 2003, the Company did
not have any material events regarding its marketable securities. As of November
30, 2002, the Company had disposed of all of its long-term, cost-based
investments.

7. SEGMENT INFORMATION

Historically, the Company's reportable operating segments are aligned into three
fundamental areas: (1) Internet Commerce billed directly to the Company's
marketing partners and corporate customers, as well as consumers (E-Commerce),
(2) Off-line Marketing services (such as telemarketing and postal mail), billed
directly to licensed mortgage bankers, long distance carriers, wireless carriers
and other service providing businesses (Off-line Marketing services) and (3)
Products and Services billed to consumers by Local Exchange Carriers. The
Company reintroduced the LEC Billed products and services activities during the
six months ended May 31, 2003. Such segment was inactive in fiscal 2002. The
balance of the Company's operations, immaterial individually and in the
aggregate, are included as part of Corporate and other. This business segment
delineation is consistent with the Company's management and financial reporting
structure based on products and services. The Company evaluates performance
based on many factors, with the primary



                                                                              17
<PAGE>

criteria being each segment's gross profit, pre-tax income and EBITDA, which the
Company has defined as net income excluding (i) special charges, (ii) interest
expense, (iii) interest and dividend income, (iv) net gains (losses) on the sale
of marketable securities, (v) long-lived asset impairment charges, (vi) gains on
non-monetary cost basis exchanges, (vii) other non-operating income, (viii)
minority interest (income)loss, (ix) depreciation, (x) amortization and (xi)
income taxes. The Company shares a common workforce and office headquarters,
which precludes an allocation of all overhead components. Overhead items that
are specifically identifiable to a particular segment are applied to such
segment and all other overhead costs are included in Corporate and other. The
following tables set forth the Company's financial results by operating segment.
All revenues are from non-intersegment sources and, therefore, no intersegment
elimination applies.


SEGMENT DATA - NET REVENUE

<TABLE>
<CAPTION>
                                       THREE MONTHS ENDED            SIX MONTHS ENDED
                                      MAY 31,        MAY 31,       MAY 31,        MAY 31,
                                       2003           2002          2003           2002
                                   -----------   ------------   ------------   ------------
<S>                                <C>           <C>            <C>            <C>
E-Commerce                         $ 6,698,718   $  9,549,917   $ 13,741,647   $ 21,184,367
Off-line Marketing Services            137,254      1,254,621      2,017,225      1,991,068
LEC Billed Products and Services       586,632             --        780,961             --
Corporate and other                         --             --             --             --
                                   -----------   ------------   ------------   ------------

     CONSOLIDATED TOTALS           $ 7,422,604   $ 10,804,538   $ 16,539,833   $ 23,175,435
                                   ===========   ============   ============   ============
</TABLE>



                                                                              18
<PAGE>

SEGMENT DATA - GROSS PROFIT

<TABLE>
<CAPTION>
                                       THREE MONTHS ENDED            SIX MONTHS ENDED
                                      MAY 31,        MAY 31,       MAY 31,        MAY 31,
                                       2003           2002          2003           2002
                                   -----------   ------------   ------------   ------------
<S>                                <C>           <C>            <C>            <C>
E-Commerce                         $ 3,135,079   $ 6,282,821    $  8,258,607   $ 14,603,882
Off-line Marketing Services             63,508     1,138,513       1,755,439      1,809,738
LEC Billed Products and Services       264,670            --         320,510             --
Corporate and other                         --            --              --             --
                                   -----------   ------------   ------------   ------------

     CONSOLIDATED TOTALS           $ 3,463,257   $ 7,421,334    $ 10,334,556   $ 16,413,620
                                   ===========   ===========    ============   ============
</TABLE>



SEGMENT DATA - EBITDA

<TABLE>
<CAPTION>
                                       THREE MONTHS ENDED            SIX MONTHS ENDED
                                      MAY 31,        MAY 31,        MAY 31,        MAY 31,
                                       2003           2002           2003           2002
                                   -----------    ------------   ------------   ------------
<S>                                <C>            <C>            <C>            <C>
E-Commerce                         $  (779,439)   $ 1,945,829    $    360,021    $ 5,145,354
Off-line Marketing Services             29,901        254,311         203,094        291,681
LEC Billed Products and Services       (15,115)            --          40,725             --
Corporate and other                 (1,230,734)      (959,863)     (2,220,964)    (2,047,270)
                                   -----------    ------------   ------------   ------------

     CONSOLIDATED TOTALS           $(1,995,387)   $ 1,240,277    $ (1,617,124)   $ 3,389,765
                                   ===========    ===========    ============   ============
</TABLE>






                                                                              19
<PAGE>


SEGMENT DATA - DEPRECIATION AND AMORTIZATION

<TABLE>
<CAPTION>
                                       THREE MONTHS ENDED            SIX MONTHS ENDED
                                      MAY 31,        MAY 31,        MAY 31,        MAY 31,
                                       2003           2002           2003           2002
                                   -----------    ------------   ------------   ------------
<S>                                <C>            <C>            <C>            <C>
E-Commerce                         $  380,077     $  173,864     $  668,770     $  338,545
Off-line Marketing Services                --          6,484          6,877         10,987
LEC Billed Products and Services           --             --             --             --
Corporate and other                    71,733         68,393        144,911        132,904
                                   ----------     ----------     ----------     ----------

     CONSOLIDATED TOTALS           $  451,810     $  248,741     $  820,558     $  482,436
                                   ==========     ==========     ==========     ==========
</TABLE>










                                                                              20
<PAGE>

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

<TABLE>
<CAPTION>
                                                             THREE MONTHS ENDED            SIX MONTHS ENDED
                                                            MAY 31,       MAY 31,        MAY 31,        MAY 31,
                                                             2003          2002           2003           2002
                                                         -----------    -----------    -----------    -----------
<S>                                                      <C>            <C>            <C>            <C>
EBITDA - BY SEGMENT
   E-Commerce                                            $  (779,439)   $ 1,945,829    $   360,021    $ 5,145,354
   Off-line Marketing Services                                29,901        254,311        203,094        291,681
   LEC Billed Products and Services                          (15,115)            --         40,725             --
   Corporate and other                                    (1,230,734)      (959,863)    (2,220,964)    (2,047,270)
                                                         -----------    -----------    -----------    -----------

        TOTAL EBIDTA                                     $(1,995,387)   $ 1,240,277    $(1,617,124)   $ 3,389,765
                                                         -----------    -----------    -----------    -----------

ITEMS EFFECTING EBITDA IN ARRIVING AT CONSOLIDATED (LOSS) INCOME BEFORE TAXES
   Depreciation and amortization (expense)               $  (451,810)   $  (248,741)   $  (820,558)   $  (482,436)
   Interest (expense)                                         (7,850)        (9,266)       (15,191)       (19,768)
   Interest income and dividends                             111,455        183,386        266,056        393,599
   Realized gains on marketable securities                     3,330         20,564          4,068         83,157
   Realized gain on sale of subsidiary                     1,075,000             --      1,075,000             --
   Other non-operating income (expense)                      (39,741)       100,665        (46,438)       235,102
   Minority interest in income of
     subsidiary                                              (17,239)      (104,303)      (137,567)      (130,949)
                                                         -----------    -----------    -----------    -----------

        TOTAL ITEMS EFFECTING EBITDA                     $   673,145    $   (57,694)   $   325,370    $    78,705
                                                         -----------    -----------    -----------    -----------

CONSOLIDATED (LOSS) INCOME BEFORE TAXES                  $(1,322,242)   $ 1,182,583    $(1,291,754)   $ 3,468,470
                                                         -----------    -----------    -----------    -----------
</TABLE>

8. Asset Acquisitions

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

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



                                                                              21
<PAGE>


                  add support to its on-line marketing business and provide
                  economies for the Company's email delivery platform.

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

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


                                                                              22
<PAGE>


9. GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS

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

<TABLE>
<CAPTION>
                                                 As of May 31, 2003        As of November 30, 2002
                                            -------------------------     -------------------------
                                              Gross                         Gross
                                             Carrying     Accumulated      Carrying     Accumulated
                                              Amount      Amortization      Amount      Amortization
                                            ----------    ------------    ----------    ------------

<S>                                         <C>            <C>            <C>            <C>
           Amortized intangible assets:

   GROUPLOTTO IDENTIFIABLE INTANGIBLES:

      GroupLotto Site Brand Recognition     $  722,922     $  278,325     $  722,922     $  240,974
                    GroupLotto Database        433,754        166,995        433,754        144,584
           Intellectual Property Assets        289,169        111,330        289,169         96,390
            Marketing Right License Fee        300,000        300,000        300,000        106,450

INFIKNOWLEDGE IDENTIFIABLE INTANGIBLES:

                    Internet Game Suite        218,786         64,632        191,595         37,440
           Intellectual Property Assets        164,089         48,473        143,696         28,079
               Market Position Acquired        190,422         56,252        166,756         32,585


   THANKSMUCH IDENTIFIABLE INTANGIBLES:

                 Profiled customer data         50,000         19,875         50,000         11,542
                  Restrictive Covenants         10,000          3,308         10,000          2,308
                                            ----------     ----------     ----------     ----------

    Total amortizable intangible assets     $2,379,142     $1,049,190     $2,307,892     $  700,352
                                            ==========     ==========     ==========     ==========

         Unamortized intangible assets:

               GOODWILL - INFIKNOWLEDGE     $  739,655                    $  647,729


                  GOODWILL - THANKSMUCH        289,736                       289,736
                                            ----------                    ----------
                         Total Goodwill     $1,029,391                    $  937,465
                                            ==========                    ==========
</TABLE>




                                                                              23
<PAGE>


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

<TABLE>
<CAPTION>
                                                       2003         2004         2005         2006         2007
                                                     --------     --------     --------     --------     --------

<S>                                                  <C>          <C>          <C>          <C>          <C>
GROUPLOTTO IDENTIFIABLE INTANGIBLE AMORTIZATION:

               GroupLotto Site Brand Recognition     $144,594     $144,594     $144,594     $ 84,621
                             GroupLotto Database       86,757       86,757       86,757       50,773
                    Intellectual Property Assets       57,838       57,838       57,838       33,848
                     Marketing Right License Fee      193,530
                                                     --------     --------     --------     --------     --------
                      TOTAL GROUP'S AMORTIZATION     $482,719     $289,189     $289,189     $169,242     $     --
                                                     --------     --------     --------     --------     --------

         INFIKNOWLEDGE IDENTIFIABLE INTANGIBLES:

                             Internet Game Suite     $ 38,319     $ 38,319     $ 38,319     $ 38,319     $    880
                    Intellectual Property Assets       28,739       28,739       28,739       28,739          660
                        Market Position Acquired       33,351       33,351       33,351       33,351          766
                                                     --------     --------     --------     --------     --------
                      TOTAL GROUP'S AMORTIZATION     $100,409     $100,409     $100,409     $100,409     $  2,306
                                                     --------     --------     --------     --------     --------

            THANKSMUCH IDENTIFIABLE INTANGIBLES:

                          Profiled customer data     $ 10,000     $ 10,000     $ 10,000     $ 10,000     $    230
                           Restrictive Covenants        2,000        2,000        2,000        2,000           46

                                                     --------     --------     --------     --------     --------
                      TOTAL GROUP'S AMORTIZATION     $ 12,000     $ 12,000     $ 12,000     $ 12,000     $    276
                                                     --------     --------     --------     --------     --------

                                         SUMMARY

            GROUPLOTTO IDENTIFIABLE INTANGIBLES:     $482,719     $289,189     $289,189     $169,242     $     --
         INFIKNOWLEDGE IDENTIFIABLE INTANGIBLES:      100,409      100,409      100,409      100,409        2,306
            THANKSMUCH IDENTIFIABLE INTANGIBLES:       12,000       12,000       12,000       12,000          276
                                                     --------     --------     --------     --------     --------

      TOTAL IDENTIFIABLE INTANGIBLE AMORTIZATION     $595,128     $401,598     $401,598     $281,651     $  2,582
                                                     --------     --------     --------     --------     --------
</TABLE>

10. Sale of Majority Owned Subsidiary

In March 2003, the Company sold its majority owned subsidiary, Montvale
Management LLC ("Montvale") to Mortgage Industry Consultants, LLC ("MIC") for
$1.6 million, plus its investment. The terms of the agreement included an
initial payment of $1 million (received in March 2003) followed by an additional
$600,000 to be paid in 24 monthly installments of $25,000 each. As of July 8,
2003, three installments were received. In May 2003, the Company received
approximately $299,000, representing its GAAP basis capital account in such
majority owned subsidiary as at November 30, 2002. Traffix had obtained its 51%
interest in September of 1999 through an initial investment of approximately
$50,000. Based on management's assessment of Montvale's future cash flows, after
taking into consideration Montvale's increased


                                                                              24
<PAGE>


obligations with respect to the note obligations due the Company, the Company
has deemed it prudent to defer recognition of income on the unpaid portion of
the note. Recognition will take place in future periods under the cost recovery
method.

In addition to the components of the transaction described above, the Company
will receive a $40,000 monthly fee for services rendered under its marketing
agreement with Montvale in which the Company will generate targeted leads and
provide other services related to Montvale's residential mortgage business. To
the extent that the fair market value of the services rendered by Traffix on a
monthly basis is less than the $40,000 fee payment, that portion above the fair
market value will be recorded as additional consideration on the sale.
Consistent with the recognition principal used for the balance of the
installment note, the Company will record the payments under the cost recovery
method.


                                                                              25
<PAGE>


11. LITIGATION

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

         MAVIES WINGLER - On or about May 9, 2001, Mavies Wingler commenced an
action against Group Lotto, Inc. ("GLI"), one of our wholly owned subsidiaries,
in the Circuit Court of Logan County, West Virginia. Ms. Wingler claims to have
picked the winning numbers entitling her to $10 million. On June 8, 2001, the
action was removed to the United States District Court, Southern District of
West Virginia, and is entitled WINGLER V. GROUPLOTTO, INC., Docket Number 2:01
-- CV -- 518. At the end of 2002, Ms. Wingler's attorney withdrew, and she is
now representing herself. Discovery has been completed and we have made a motion
for summary judgment. We and GLI have a contract of indemnification with SCA
Promotions, Inc. to be indemnified for prizes paid out to qualified winners. GLI
winners are required to produce the Group Lotto Entry Notification form ("GLEN")
within a specified period of time after matching a drawing's


                                                                              26
<PAGE>


winning numbers in order to qualify for receipt of the appropriate prize
winnings. We do not believe that there is any merit to Ms. Wingler's claim and
intend to vigorously continue our defense thereof.

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

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


                                                                              27
<PAGE>


claims. The court has recently certified the class and Qwest is defending the
action.

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

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

         In or about January 2003, we were named as a defendant in the RYDEL
class action. In an additional count in the complaint, the plaintiff asserts
that we violated the Illinois Consumer Fraud and Deceptive Business Practices
Act by providing to a co-



                                                                              28
<PAGE>


defendant a list of consumers who had consented to receive commercial e-mails
when, the complaint alleges, they had not. The complaint seeks injunctive relief
and unspecified damages. Our motion to dismiss the complaint was granted in June
2003, and the plaintiff has filed an appeal. We believe that there is no merit
to the claim, and, in the event the dismissal of the claim is reversed on
appeal, we intend to vigorously defend against it.

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

         As stated above, we are unable to determine the ultimate outcomes of
any of the foregoing claims, and, accordingly, no provision for loss has been
recorded in the unaudited financial statements included in this Report.

12. Subsequent Event

On July 11, 2003, the Company's Board of Directors declared a dividend out of
the Company's surplus of $0.08 per share on the outstanding shares of the
Company's common stock for the quarter ended May 31, 2003. Such dividend is
payable on or about August 10, 2003 to holders of record of such shares at the
close of business on August 1, 2003. The



                                                                              29
<PAGE>


Board further agreed to declare a dividend during each of the quarters ending
August 31, 2003, November 30, 2003 and February 29, 2004, in amounts and as of
record dates as the Board then deems appropriate.


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

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

OVERVIEW

We are a leading on-line database marketing company that uses our on-line media
network to generate leads, customers and sales for our proprietary product and
service offers, and our corporate clients' product and service offers. We
provide complete end-to-end marketing solutions for companies seeking to
increase sales and customers through on-line marketing programs,


                                                                              30
<PAGE>


and database development and enhancement programs. The services we offer include
the development of a complete creative promotion to be used to market the
client's product to consumers, broadcasting a promotion on-line in order to
generate new customers for the client, delivery of data files from the results
of campaigns, creating and hosting the customized





                                                                              31
<PAGE>


websites or web pages necessary to effect the consumer transaction that drives
the client's sales and generating comprehensive reporting in order for the
client to analyze the effectiveness of a promotion. We use our websites,
interactive games, email marketing and database of permission-based, profiled
records (and the on-line media of third parties) to generate the customers,
sales and leads for our clients, as well as our own product and service offers.
We are paid by our clients primarily on a success-based model, in that we
receive a fee for every lead, customer or sale generated for the client. In
addition to our third party client-based revenue, we generate revenue from our
own products and services, such as retail gift items, which accounted for
approximately 3.5% and 3.0% of our revenue during the three and six-month
periods ended May 31, 2003 and 2002, respectively. In Fiscal 2003, our own
products and services have been expanded, and include an ISP service (LEC Billed
Products and Services) and iMatchUp.com (E-Commerce), our on-line dating
service. The combination of the revenue generated from such services introduced
in Fiscal 2003 was approximately $1.4 million, or 19% of our revenue during the
three months ended May 31, 2003, as compared to $578,000, or 6% of our revenue
during the quarter ended February 28, 2003. Such products and services did not
contribute to Fiscal 2002 revenue.

We also generate revenues from the sales and rentals (for use both on-line and
off-line) of our proprietary, profiled databases.

                                   BACKGROUND

From our inception in 1993 (under the name "Quintel Communications, Inc.")
through 1999, we generated the bulk of our revenue from database marketing using
the traditional media of television, postal mail and telemarketing. In 2000, we
repositioned our database marketing business to the on-line media of the Web.
Applying the direct marketing disciplines honed from our years of operating in
the "off-line" media, we believe we are able to provide enhanced


                                                                              32
<PAGE>


response-based results in a more cost-efficient and scaleable manner via on-line
marketing. In addition, as a result of our direct marketing background, we
believe we are able to design on-line marketing programs to cost-effectively
generate traffic and leads for traditional direct marketing media channels, such
as inbound and outbound telemarketing and direct mail.

                                ON-LINE MARKETING

We own and operate multiple on-line properties, such as GroupLotto.com, our free
on-line lottery, AtlasCreditGroup.com, PrizeAmerica.com and iMatchup.com, our
premier on-line dating service which commenced operations during the six months
ended May 31, 2003, as well as a number of interactive games (such as Direct
Deposit Promotions and Scratch&Win), all supplemented by our affiliates' other
web sites providing services on the Web. These activities are designed to
generate real-time response-based marketing results for our corporate clients,
as well as for our own offers. When visiting our on-line properties, consumers
are given the opportunity to purchase, sign-up for, ask to be contacted
regarding, or simply indicate an interest in, hundreds of offers for various
products and services. Specifically, through these interactive Web properties we
generate a variety of transactional results for our products, and our corporate
clients ranging from (a) Web traffic, (b) inbound telemarketing calls, (c)
outbound telemarketing leads, (d) demographically/psychographically profiled
lists of consumers, (e) highly-targeted customized response-based leads, (f)
completed applications for products, and (g) actual sales of products and
services.

WEBSITES. The GroupLotto website offers consumers the opportunity to win up to
$10 million daily in a free, on-line lottery. The lottery prizes are indemnified
by an independent, third-party agency. In order to play, each consumer must
provide complete and accurate registration information and agree to receive
("opt-in") marketing messages from GroupLotto and our marketing


                                                                              33
<PAGE>


partners. The interactive media on this website includes registration pages,
game banners, and "pop-ups", the purpose of which is to generate web traffic,
leads and sales. Revenue is generated at this website from sales of our own
products and our corporate clients who pay for such traffic, leads and sales. We
generate the bulk of our consumer traffic to this website through proprietary
and third party permission-based email marketing programs, banner advertisements
and other online media.

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





                                                                              34
<PAGE>


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

We own and operate several other websites such as AtlasCreditGroup.com,
PrizeAmerica.com, TheBargainSpot.com, prizecade.com and jewelclaimcenter.com.
Additionally, during the six months ended May 31, 2003, we launched
AtlasAutomotiveGroup.com. a website that enables its visitors to read reviews
and request price quotes to purchase automobiles on-line. Such websites are
deployed to generate revenue for our clients in a similar manner as the
GroupLotto model described above. Each of these sites is designed to appeal to a
specific consumer interest category that we matched with product promotions that
appeal to such interest category.

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

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



                                                                              35
<PAGE>


AND LEGAL DEVELOPMENTS REGARDING THIS E-COMMERCE COMPONENT, AND EVENTS IMPACTING
EMAIL MARKETING, SEE "- CRITICAL ACCOUNTING POLICY AND ACCOUNTING ESTIMATE
DISCUSSION - FACTORS THAT COULD AFFECT FUTURE RESULTS."

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

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

SYNDICATION. We expend a significant portion of our email resources to generate
sales for our own products and services and for traffic to our websites. After
we develop a campaign that works efficiently on our own media, we often
"syndicate" the program to third-party media. Typically, we have expended time,
media and other costs in developing certain campaigns. In exchange for this
invested effort, we obtain the right to market those campaigns to a list of
other on-line media companies. We enter into agreements



                                                                              36
<PAGE>


with these other on-line media companies to run the campaigns, generally on a
fee-share arrangement. We believe such media companies obtain a benefit from
receiving an immediately marketable, fully-packaged and tested marketing
program. As a result, we believe we maintain the ability to leverage campaigns
we have developed (including our own products and services) so that in future
fiscal periods we can generate additional revenue with diminished costs and
risks associated with such business extension.





                                                                              37
<PAGE>


TRAFFIX'S PRODUCTS AND SERVICES

Several new business units, which we introduced during the six months ended May
31, 2003, include a dating/personal program conducted over the Internet
("iMatchup.com") and a LEC Billed dial-up modem ISP service ("TxNET-ISP").
During the six months ended May 31, 2002, we introduced the on-line marketing of
our own products and services through the Thanksmuch.com website which sells
gift items (such as DVD's, CD's and inexpensive jewelry) directly to consumers.
When a consumer selects a gift item and tenders his credit card, he is given the
opportunity to purchase other, more valuable products and services at special
discounts. One of the additional benefits that is derived from the credit card
billed portion of these programs, is our ability to accumulate consumer credit
card data, which allows for the subsequent use of our marketing concept of
"just-one-click" credit card billing, making on-line purchases easier for the
consumer, and allowing us to more easily process additional sales and services
in the future. In addition, certain of these services are designed as monthly
recurring revenue sources, such as our dating and ISP services.

No assurances can be given, however, that these new sources of revenue will
contribute material revenues and/or income from operations in future fiscal
periods, if at all. During the three and six-month periods ended May 31, 2003,
the combination of all such newly introduced services generated approximately
$1.7 million and $2.4 million, respectively, or approximately 22% and 15%,
respectively, of consolidated net revenue.

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
the results for the three and six-month periods ended May 31, 2003, as well as
prior year historical results, in evaluating the potential for our future



                                                                              38
<PAGE>


fiscal period operations, cash flows, and financial position.

TRANSACTIONS WITH MAJOR CUSTOMERS

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

SEGMENT INFORMATION

During the three and six-month periods ended May 31, 2003, we generated revenue
from the following segments: E-Commerce, Off-line Marketing and LEC Billed
products and services. The E-Commerce segment currently represents the core of
our business operations. Revenue in the E-Commerce segment is generated
primarily from marketing of third party products and services on our websites
and through email promotions. The Off-line Marketing services segment consists
of revenue generated by us through off-line direct marketing channels. LEC
Billed products and services consist of our proprietary LEC billed ISP product,
known as TXNet ISP. This product was introduced during the six months ended
May 31, 2003. During the three and six-month periods ended May 31, 2002, we
generated revenue only from the segments E-Commerce and Off-line Marketing.
Historically, the Off-line Marketing service segment's activities consisted of
telemarketing services used for the acquisition of long distance and wireless
phone customers for various phone service providers. In Fiscal 2002, this
segment consisted exclusively of our majority owned subsidiary, Montvale
Management, LLC, and the revenues and expenses of Montvale's net branch services
provided to qualified mortgage banking and lending institutions. During March
2003, we disposed of our interest in Montvale, all as more fully


                                                                              39
<PAGE>


described in Note 10 included in the attached financial statements.

Historically, the LEC Billed products and services segment represented
telecommunications- related products and services marketed by us directly to
consumers who were billed by local exchange carriers (LECs) on the consumer's
telephone bill. This segment was inactive during the entire Fiscal 2002 year.
Segment information is set forth in Note 7 to the Consolidated Financial
Statements referred to in the Financial Statements and Supplementary Data
section hereof and incorporated herein by reference.


RESULTS OF OPERATIONS

The following is a discussion of the financial condition and results of
operations of the Company for the three and six-month periods ended May 31, 2003
and May 31, 2002, respectively. It should be read in conjunction with the
Company's Form 10-K as filed for the year ended November 30, 2002, the Notes
thereto and other financial information included elsewhere in this report.

THREE MONTHS ENDED MAY 31, 2003 AND MAY 31, 2002

The Company's net revenues, on a segmental basis, and with disclosure of the
components of the individual segments, for each of the three month periods ended
May 31, 2003 and May 31, 2002, are detailed in the following tables:



                                                                              40
<PAGE>


SEGMENT DATA - NET REVENUES, BY SEGMENT COMPONENT

<TABLE>
<CAPTION>
                                                          THREE MONTHS ENDED             CHANGE           CHANGE
                                                       MAY 31,         MAY 31,          INC(DEC)         INC(DEC)
                                                        2003            2002               $$$              %%%
                                                   ------------     ------------      ------------       --------

<S>                                                <C>              <C>               <C>                   <C>
E-COMMERCE COMPONENTS

iMatchUp.com and other web sites                   $  3,255,852     $  1,802,829      $  1,453,023           81%
Net branch commission fees                               24,221          202,248          (178,027)         -88%
Email marketing programs                              2,313,287        5,548,049        (3,234,762)         -58%
Data sales and rentals                                  431,443        1,329,542          (898,099)         -68%
Sales of jewelry and gifts                              257,145          622,459          (365,314)         -59%
Internet game development and other                     416,770           44,790           371,980          830%
                                                   ------------     ------------      ------------         -----
TOTAL E-COMMERCE                                      6,698,718        9,549,917        (2,851,199)         -30%
                                                   ------------     ------------      ------------         -----

OFF-LINE MARKETING SERVICE COMPONENTS
Net branch commission fees                              137,254        1,185,682        (1,048,428)         -88%
Other off-line marketing                                     --           68,939           (68,939)        -100%
                                                   ------------     ------------      ------------         -----

TOTAL OFF-LINE MARKETING SERVICE                        137,254        1,254,621        (1,117,367)         -89%
                                                   ------------     ------------      ------------         -----

LEC BILLED PRODUCTS AND SERVICES COMPONENTS
TXNet ISP Product                                       586,632               --           586,632          100%
                                                   ------------     ------------      ------------         -----

TOTAL LEC BILLED PRODUCTS AND SERVICES                  586,632               --           586,632          100%
                                                   ------------     ------------      ------------         -----

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

TOTAL CONSOLIDATED NET REVENUE                     $  7,422,604     $ 10,804,538      $ (3,381,934)         -31%
                                                   ------------     ------------      ------------         -----
</TABLE>


            Net Revenue decreased approximately $3.4 million, or 31%, to $7.4
million for the three months ended May 31, 2003 from $10.8 million in the
comparable prior year period. Three significant factors contributed to the
decline in net revenue: (1) the Company's loss of one of its significant
customers in the fourth quarter of Fiscal 2002, which customer accounted for
approximately $2.3 million, or 22% of the Company's revenue during the three
months ended May 31, 2002, and which customer did not contribute to revenue
during the comparable 2003 quarter; (2) the Company's sale of a majority-owned
subsidiary (Montvale Management, LLC) during the first week of the quarter ended
May 31, 2003, which subsidiary accounted for approximately $1.4 million, or 13%
of the Company's revenue during the three months ended May 31, 2002,


                                                                              41
<PAGE>


compared to $137,254 in the quarter ended May 31, 2003 prior to its disposition
on March 6, 2003; and (3) the Company's complete cessation of recognizing
revenue from one of its major customers in the quarter ended May 31, 2003 based
on the absence of collection probability. Such customer, a public company,
accounted for approximately $1.0 million, or 9% of the Company's revenue during
the three months ended May 31, 2002. The Company made its collection assessment
based on such customer's publicly filed information. This assessment included
the consideration of AMEX's May 23, 2003 trading halt of the customer's
securities, and its eventual filing for bankruptcy protection on June 16, 2003.
See "- Bad Debt Expense".

         Additionally, turnover recognized in the balance of the Company's
customer base, coupled with decreased returns on its email marketing programs
accounted for other decreases in net revenue, which approximated $.2 million
when compared with the prior year's comparable quarter.

         Offsetting the net revenue declines in the quarter were increases in
net revenue attributable to the Company's recently launched online dating
service, iMatchup.com, which accounted for $810,000, or 11% of consolidated net
revenues for the three months ended May 31, 2003, and the Company's recently
launched LEC Billed Products and Services segment, which accounted for
approximately $587,000, or 8% of consolidated net revenues for the three months
ended May 31, 2003. Both iMatchup.com and the LEC Billed Products and Services
segment were inactive in the comparable Fiscal 2002 period.

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

         The Company's cost of sales during the three months ended May 31, 2003
and May 31, 2002 were comprised of (1) direct and indirect marketing costs



                                                                              42
<PAGE>


associated with the procurement and retention of consumers for its databases,
including direct response email marketing costs, data and customer profile
purchases, promotional costs and premium fulfillment costs, and (2) the related
contingent-based sweepstakes indemnification expense, service provision costs,
billing and collection fees and customer service costs.

The Company's cost of sales, on a segmental basis, and with disclosure of the
components of the individual segments, for each of the three month periods ended
May 31, 2003 and May 31, 2002 are set forth below:

CONSOLIDATED COST OF SALES, BY SEGMENT, BY COMPONENT

<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED
                                                   -------------------------       CHANGE         CHANGE
                                                     MAY 31,        MAY 31,       INC(DEC)       INC(DEC)
                                                      2003           2002           $$$            %%%
                                                   ----------     ----------     ----------      -------
<S>                                                <C>            <C>            <C>                <C>
E-COMMERCE

ADVERTISING, PROMOTION AND FULFILLMENT COSTS
Email marketing and related delivery costs         $1,300,659     $1,141,215     $  159,444          14%
Data and profile purchases, and premium costs       2,074,112      1,960,386        113,726           6%
Promotional, creative and other costs                  79,703         69,959          9,744          14%
                                                   ----------     ----------     ----------       ------

                  TOTAL E-COMMERCE ADVERTISING     $3,454,474     $3,171,560     $  282,914           9%
                                                   ----------     ----------     ----------       ------

SERVICE BUREAU FEES

Contingent based prize indemnification costs       $  109,165     $   95,536         13,629          14%
                                                   ----------     ----------     ----------       ------

                TOTAL E-COMMERCE COST OF SALES     $3,563,639     $3,267,096     $  296,543           9%
                                                   ----------     ----------     ----------       ------

OFF-LINE MARKETING SERVICES

ADVERTISING, PROMOTION AND FULFILLMENT COSTS
Telemarketing, direct mail and related costs       $   73,746     $  116,108     $  (42,362)        -36%
                                                   ----------     ----------     ----------       ------

        TOTAL OFF-LINE MARKETING COST OF SALES     $   73,746     $  116,108     $  (42,362)        -36%
                                                   ----------     ----------     ----------       ------

LEC BILLED PRODUCTS AND SERVICES

SERVICE BUREAU FEES

Service provision, billing and collection fees     $  321,962     $       --        321,962         100%
                                                   ----------     ----------     ----------       ------

                TOTAL LEC BILLED COST OF SALES     $  321,962     $       --     $  321,962         100%
                                                   ----------     ----------     ----------       ------

                    CONSOLIDATED COST OF SALES     $3,959,347     $3,383,204     $  576,143          17%
                                                   ----------     ----------     ----------       ------
</TABLE>


                                                                              43
<PAGE>

         Cost of sales on a consolidated basis increased $.6 million, or 17%, to
$3.9 million for the three months ended May 31, 2003 from $3.4 million in the
comparable prior year period.

         The significant factors contributing to the increase in cost of sales
were: (a) an approximate $160,000, or 14%, increase in email-based direct
marketing costs incurred by the Company when compared to the prior year's
comparable period, arising from an increased volume of marketing undertaken by
the Company in the promotion of its products and services; (b) an approximate
$113,000, or 6%, increase in the costs incurred in the acquisition of data, and
customer profiles related to the Company's on-line dating service, iMatchUp.com,
as well as increased volume of acquisitions of registrants for the Company's
other websites, with all such increases being offset by a decrease in the actual
volume of data acquired; and (c) approximately $322,000 in costs incurred in the
Company's LEC Billed Products and Services segment, which segment was inactive
in the prior year's comparable period. Such costs were associated with the
provision of the ISP service marketed by the Company, as well as the costs
incurred in the billing and collection of the fees generated by the ISP service.
LEC's are the Local Exchange Carriers (local phone companies) that bill the
Company's customers for their use of the Company's ISP (Internet Service
Provider) service, Txnet, Inc.

         The Company's gross profit in terms of dollars, on a segmental basis,
and the Company's gross profit percentage, on a segmental basis, for each of the
three month periods ended May 31, 2003 and 2002 are set forth below:


                                                                              44
<PAGE>


CONSOLIDATED GROSS PROFIT, BY SEGMENT

<TABLE>
<CAPTION>
                                               FOR THE
                                          THREE MONTHS ENDED            CHANGE         CHANGE
                                        MAY 31,         MAY 31,        INC(DEC)       INC(DEC)
                                         2003            2002            $$$             %%%
                                     -----------     -----------     -----------      --------
<S>                                  <C>             <C>             <C>                  <C>
E-Commerce                           $ 3,135,079     $ 6,282,821     $(3,147,742)         -50%
Off-line Marketing services               63,508       1,138,513      (1,075,005)          94%
LEC Billed products and services         264,670              --         264,670          100%
                                     -----------     -----------     -----------      --------
CONSOLIDATED TOTALS                  $ 3,463,257     $ 7,421,334     $(3,958,077)         -53%
                                     ===========     ===========     ===========      ========
</TABLE>

CONSOLIDATED GROSS PROFIT PERCENTAGES, BY SEGMENT

<TABLE>
<CAPTION>
                                                    FOR THE               ABSOLUTE       RELATIVE
                                               THREE MONTHS ENDED        PERCENTAGE     PERCENTAGE
                                             MAY 31,       MAY 31,         CHANGE         CHANGE
                                              2003          2002          INC(DEC)       INC(DEC)
                                             -------       ------        ----------     ----------
<S>                                           <C>           <C>            <C>            <C>
E-Commerce                                    46.8%         68.9%          -22.1%         -32.1%
Off-line Marketing services                   46.3%         90.9%          -44.6%         -49.1%
LEC Billed products and services              45.1%          0.0%           45.1%         100.0%
                                             -----         -----           -----          -----
CONSOLIDATED GROSS PROFIT PERCENTAGE          46.7%         68.7%          -22.0%         -32.1%
                                             =====         =====           =====          =====
</TABLE>


         Consolidated Gross Profit Percentage ("Gross Margin") as a percentage
of net revenue was 46.7% during the three months ended May 31, 2003, compared to
68.7% in the prior year's comparable fiscal period, representing an absolute
percentage point decrease of 22%, or a 32.1% decrease on a relative basis. The
decline in gross profit is primarily attributable to increased emailing costs
due to an increase in volume mailed, coupled with a reduction in response rates,
the addition of profile acquisition costs for its iMatchUp.com on-line dating
site and the reintroduction of the LEC Billed Products and Services segment
activity, which has a gross profit lower than the Company's historical gross
profit. The impact on gross profit from the iMatchUp.com service results from
the expensing of the customer acquisition cost during the current period, with
the corresponding revenue being deferred, based on the



                                                                              45
<PAGE>


terms of the enrolled member (i.e., one month, three month or annual
memberships). The iMatchUp.com profiles that convert to billable members
generally do so over a period subsequent to their month of acquisition.
Therefore, we expect that these future conversions of profiles to billable
members, coupled with the amortization of the revenue deferred at May 31, 2003,
as well as the anticipated renewal revenues from such acquired customers, should
allow the Company to report improved consolidated gross profit relationships in
future fiscal quarters.

         The Company's Selling Expenses for each of the three months ended May
31, 2003 and May 31, 2002 are presented, on a segmental basis, and with the
components of the individual segments, in the tables set forth below:

<TABLE>
<CAPTION>
                                              THREE MONTHS ENDED         CHANGE -      CHANGE -
                                            MAY 31,        MAY 31,       INC(DEC)      INC(DEC)
                                             2003           2002           $$$           %%%
                                          ----------     ----------     ----------     --------

<S>                                       <C>            <C>            <C>             <C>
E-COMMERCE

Fee share commissions                     $1,337,276     $  900,173     $  437,103        49%
Other commissions                                 --        473,223       (473,223)     -100%
Selling salaries and related expenses        378,404        417,868        (39,464)       -9%
Occupancy and equipment costs                     --          4,515         (4,515)     -100%
Travel and entertainment                      28,603         59,648        (31,045)      -52%
                                          ----------     ----------     ----------      -----
TOTAL SELLING - E-COMMERCE SEGMENT        $1,744,283     $1,855,427     $ (111,144)       -6%
                                          ----------     ----------     ----------      -----


OFF-LINE MARKETING SERVICES

Fee share commissions                     $       --     $       --             --
Other commissions                                 --             --             --
Selling salaries and related expenses         33,607        458,335       (424,728)      -93%
Occupancy and equipment costs                     --         45,889        (45,889)     -100%
Travel and entertainment                          --         11,124        (11,124)     -100%
                                          ----------     ----------     ----------      -----
TOTAL SELLING - OFF-LINE SEGMENT          $   33,607     $  515,348     $ (481,741)      -93%
                                          ----------     ----------     ----------      -----

CONSOLIDATED TOTALS                       $1,777,890     $2,370,775     $ (592,885)      -25%
                                          ----------     ----------     ----------      -----
</TABLE>

         Selling expenses, on a consolidated basis, decreased approximately
$593,000, or 25%, from $2.4 million during the three months ended May 31, 2002,
to $1.8 million during the three months ended May 31, 2003. The decrease


                                                                              46
<PAGE>


was primarily related to an approximate $482,000 reduction in selling expenses
attributable to the sale of the Company's majority owned subsidiary, Montvale
Management, LLC, on March 6, 2003. Such majority owned subsidiary was active for
the entire three months ended May 31, 2002. Additionally, the Company's
E-Commerce segment's selling expense decreased approximately $111,000, resulting
from decreased employee-based and other selling commissions on reduced revenues,
and partially offset by an increase in database fee share commissions. In the
prior fiscal year, the Company significantly expanded the practice of marketing
promotional offers on behalf of its marketing clients ("Clients") to third party
databases on a fee share commission basis. The fee share commission relationship
generally arises after the Company concludes a contractual arrangement with a
Client pursuant to which the Company modifies or develops the copy, offer form,
and promotional materials for the Client's product or service. Simultaneously
with the execution of these contractual arrangements, the Company sometimes
obtains the right from the Client to market promotions to a list of third
parties with whom the Company has marketing relationships (the "Third Parties"),
including databases managed in-house by the Company for email marketing. The
Company's agreements with each Third Party with whom it markets Client
promotions provides that the Third Party has the right to (i) approve the
creative materials for each promotion, (ii) approve the timing of each
promotion's mailing, (iii) terminate the contract on short notice, and (iv)
reject any promotion for any reason. Each agreement also restricts the Third
Party from doing business with the Client other than through the Company for the
period of time covered by the agreement, and sets forth the terms of the Third
Party's compensation. Payments are performance-based only and are either fixed
fees paid for each customer or lead generated for the Client, or a revenue share
that is a percentage of the revenue generated (after deduction for certain
direct costs) by the Company for marketing that offer to the Third Party
database. The Company utilizes unique Universal Resource Locater identifier
links ("URLs")


                                                                              47
<PAGE>


when promotions are mailed to the Third Party database as a tracking mechanism
by which the Company is able to account for revenue generated under the fee
share arrangement with Third Parties.

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

The Company's General and Administrative Expenses for each of the three months
ended May 31, 2003 and May 31, 2002 are presented, on a segmental basis, and
with the components of the individual segments, in the tables set forth below:

CONSOLIDATED GENERAL AND ADMINISTRATIVE EXPENSES, BY SEGMENT, BY COMPONENT

<TABLE>
<CAPTION>
                                                 THREE MONTHS ENDED          CHANGE -      CHANGE -
                                              MAY 31,         MAY 31,        INC(DEC)      INC(DEC)
                                               2003            2002            $$$           %%%
                                            ----------      ----------      ----------     --------

<S>                                         <C>             <C>             <C>             <C>
E-COMMERCE

Compensation costs and related expenses     $  942,248      $1,133,945      $ (191,697)      -17%
Professional fees                              249,799         474,195        (224,396)      -47%
Insurance costs                                122,594         119,718           2,876         2%
Occupancy and equipment costs                   70,077          77,179          (7,102)       -9%
Site development, maintenance and
   Modifications                               665,016         287,133         377,883       132%
All other G&A expenses                         346,718         454,084        (107,366)      -24%
                                            ----------      ----------      ----------       ----
TOTAL G&A - E-COMMERCE SEGMENT              $2,396,452      $2,546,254      $ (149,802)       -6%
                                            ----------      ----------      ----------       ----
</TABLE>


                                                                              48
<PAGE>


OFF-LINE MARKETING SERVICES

<TABLE>
<S>                                         <C>             <C>             <C>             <C>
Compensation costs and related expenses     $       --      $       --      $       --         0%
Professional fees                                   --          20,284         (20,284)     -100%
Insurance costs                                     --           1,260          (1,260)     -100%
Occupancy and equipment costs                       --              --              --         0%
All other G&A expenses                              --         375,823        (375,823)     -100%
                                            ----------      ----------      ----------       ----
TOTAL G&A - OFF-LINE SEGMENT                $       --      $  397,367      $ (397,367)     -100%
                                            ----------      ----------      ----------       ----

LEC BILLED PRODUCTS AND SERVICES

Compensation costs and related expenses     $  177,715      $       --      $  177,715         0%
Insurance costs                                 22,165              --          22,165         0%
Occupancy and equipment costs                   13,634              --          13,634         0%
All other G&A expenses                          66,271              --          66,271         0%
                                            ----------      ----------      ----------       ----
TOTAL G&A - LEC SEGMENT                     $  279,785      $       --      $  279,785         0%
                                            ----------      ----------      ----------       ----

CORPORATE AND OTHER

Compensation costs and related expenses     $  814,447      $  515,909      $  298,538        58%
Professional fees                              191,221         226,306         (35,085)      -16%
Insurance costs                                144,437         121,025          23,412        19%
All other G&A expenses                         152,362         142,990           9,372         7%
                                            ----------      ----------      ----------       ----
TOTAL G&A - CORPORATE AND OTHER             $1,302,467      $1,006,230      $  296,237        29%
                                            ----------      ----------      ----------       ----

CONSOLIDATED TOTALS                         $3,978,704      $3,949,851      $   28,853         1%
                                            ----------      ----------      ----------       ----
</TABLE>

         General and Administrative expenses ("G&A") on a consolidated basis
increased approximately $29,000, or 1%, when comparing G&A of $3.95 million from
the three months ended May 31, 2002 to G&A of $3.98 million incurred during the
three months ended May 31, 2003. The increase was attributable to increases in
the Company's (a) LEC Billed Products and Services segment ($279,785) and (b)
Corporate and other segment ($296,237), offset by decreases in the Company's
E-Commerce ($149,802) and Off-line Marketing Services ($397,367) segments. G&A
increases in the LEC Billed Products and Services segment resulted from the
reintroduction of such segment's activity in Fiscal 2003. Such segment was
inactive during Fiscal 2002. G&A increases in the Corporate and Other segment
resulted from an increase in the number of reporting officers (who were
previously included in other segments prior to their appointment as officers)
employed by the Company in Fiscal 2003, when compared to Fiscal 2002. The
decreases in the Company's E-Commerce segment resulted from


                                                                              49
<PAGE>


decreases in compensation costs pursuant to the Company's decline in revenue,
professional fee decreases based on a smaller litigation defense demand, and
decreases in other miscellaneous G&A, all offset within the segment from
increased Web Site development, maintenance and modification costs incurred to
support the Company's additional websites, including iMatchUp.com.

         Feder, Kaszovitz, Issacson, Weber, Skala, Bass and Rhine LLP
("FKIWSBR") provides general legal services to the Company in the ordinary
course of business and litigation services in defense of actions arising from
such business activities. A FKIWSBR partner has been a member of our Board of
Directors since inception. The Company incurred approximately $196,000 in legal
fees from FKIWSBR during the three months ended May 31, 2003.

CONSOLIDATED - BAD DEBT EXPENSE, BY SEGMENT

<TABLE>
<CAPTION>
                                             THREE MONTHS ENDED       CHANGE       CHANGE
                                            MAY 31,      MAY 31,     INC(DEC)     INC(DEC)
                                             2003         2002         $$$           %%%
                                           --------     --------     --------     --------
<S>                                        <C>          <C>          <C>              <C>
E-Commerce                                 $153,860     $109,172     $ 44,688         41%

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

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

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

CONSOLIDATED TOTALS                        $153,860     $109,172     $ 44,688         41%
                                           --------     --------     --------     -------
</TABLE>

Bad Debt expense increased approximately $45,000, or 41%, when comparing the
three months ended May 31, 2003 with the three months ended May 31, 2002. The
increase in bad debt expense resulted from the Company's assessment of the risk
of collection embedded in its customer base as a product of the processes
described below.

The Company continuously evaluates the potential of the collectibility of




                                                                              50
<PAGE>


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

During the three months ended May 31, 2003, one of the Company's major customers
filed for bankruptcy protection. The Company charged approximately $300,000 of
such customer's accounts receivable to the allowance for bad debt. The current
quarter's bad debt expense relates to the risk of collection from bad debts as
it relates to the balance of the Company's customer base.





                                                                              51
<PAGE>


OTHER INCOME (EXPENSE)

The Company's components of "Other income(expense)" for the three months ended
May 31, 2003 and 2002 are set forth below:

<TABLE>
<CAPTION>
                                                         THREE MONTHS ENDED            CHANGE         CHANGE
                                                      MAY 31,           MAY 31,        INC(DEC)       INC(DEC)
                                                       2003              2002            $$$            %%%
                                                    -----------      -----------      -----------     --------

<S>                                                 <C>              <C>              <C>               <C>
Other income (expense):

Interest expense                                    $    (7,850)     $    (9,266)     $     1,416        -15%
Interest income and dividends                           111,455          183,386      $   (71,931)       -39%
Realized gains on sale of marketable securities           3,330           20,564          (17,234)       -84%
Realized gain on sale of subsidiary                   1,075,000               --        1,075,000        100%
Other non-operating income:

        Other miscellaneous income (expense)            (39,741)          62,126         (101,867)      -164%
        Talk.com Arbitration Settlement                      --        2,314,121       (2,314,121)      -100%
        P.M. Thomas Arbitration Settlement                   --       (2,275,582)       2,275,582       -100%

Minority interest (income) loss                         (17,239)        (104,303)          87,064        -83%
                                                    -----------      -----------      -----------       -----
Total Consolidated Other
        Income (Expense)                            $ 1,124,955      $   191,046          933,909        489%
                                                    -----------      -----------      -----------       -----
</TABLE>

         Consolidated Other Income (Expense) increased approximately $934,000,
from approximately $191,000 for the three months ended May 31, 2002, to
approximately $1.1 million for the three months ended May 31, 2003.

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

(a) a decrease in interest and dividend income of approximately $72,000
resulting from decreases in the interest rates available on short-term
commercial paper during the three months ended May 31, 2003 when compared to the
three months ended May 31, 2002;

(b) a decrease in gains realized through sales of marketable securities
approximating $17,000 in the three months ended May 31, 2003 when compared to
the three months ended May 31, 2002;

(c) an increase in realized gains of approximately $1.1 million arising from
the sale of Montvale Management, LLC (see Note 10 to the attached financial
statements); and

(d) a decrease in other non-operating income (expense) of approximately
$140,000. The significant portion of this decrease was attributable to a
decrease in other miscellaneous income arising out of residual payments received
by the Company from prior years' terminated revenue streams.



                                                                              52
<PAGE>


PROVISION FOR INCOME TAXES

The Company's effective income tax rate is a result of the combination of
federal income taxes at statutory rates, and state taxes, subject to the effects
of valuation allowances taken against the "realizability" of deferred tax
assets, as well as reductions to valuation allowances taken in prior fiscal
periods when available evidence indicates such adjustments are necessary. For
the three months ended May 31, 2003, the Company reported tax expense of
approximately $230,000 on a pre-tax loss of approximately $1.3 million. The tax
expense recognized in the three months ended May 31, 2003 resulted from the
Company's state and foreign income taxes which did not benefit from the
Company's consolidated pre-tax loss.

         The Company had recorded income tax expense of $469,540 for the three
months ended May 31, 2002 on a pre-tax income of approximately $1,183,000. This
equated to an effective tax rate of approximately 39.7%.

SIX MONTHS ENDED MAY 31, 2003 AND MAY 31, 2002

The Company's net revenues, on a segmental basis, and with disclosure of the
components of the individual segments, for each of the six month periods ended
May 31, 2003 and May 31, 2002, are detailed in the following tables:



                                                                              53
<PAGE>

SEGMENT DATA - NET REVENUES, BY SEGMENT COMPONENT

<TABLE>
<CAPTION>
                                                          SIX MONTHS ENDED           CHANGE            CHANGE
                                                      MAY 31,         MAY 31,       INC(DEC)          INC(DEC)
                                                       2003            2002           $$$               %%%
                                                   -----------     -----------     -----------      -----------

<S>                                                <C>             <C>             <C>                  <C>
E-COMMERCE COMPONENTS

iMatchUp.com and other web sites                   $ 6,322,891     $ 4,239,862     $ 2,083,029           49%
Net branch commission fees                             355,981         332,209          23,772            7%
Email marketing programs                             4,530,945      13,462,033      (8,931,088)         -66%
Data sales and rentals                               1,366,592       2,064,018        (697,426)         -34%
Sales of jewelry and gifts                             502,607         821,137        (318,530)         -39%
Internet game development and other                    662,631         265,108         397,523          150%
                                                   -----------     -----------     -----------        ------
TOTAL E-COMMERCE                                    13,741,647      21,184,367      (7,442,720)         -35%
                                                   -----------     -----------     -----------        ------

OFF-LINE MARKETING SERVICE COMPONENTS

Net branch commission fees                           2,017,225       1,922,129          95,096            5%
Other off-line marketing                                    --          68,939         (68,939)        -100%
                                                   -----------     -----------     -----------        ------

TOTAL OFF-LINE MARKETING SERVICE                     2,017,225       1,991,068          26,157            1%
                                                   -----------     -----------     -----------        ------

LEC BILLED PRODUCTS AND SERVICES COMPONENTS

TXNet ISP Product                                      780,961              --         780,961          100%
                                                   -----------     -----------     -----------        ------

TOTAL LEC BILLED PRODUCTS AND SERVICES                 780,961              --         780,961          100%
                                                   -----------     -----------     -----------        ------

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

TOTAL CONSOLIDATED NET REVENUE                     $16,539,833     $23,175,435     $(6,635,602)         -29%
                                                   -----------     -----------     -----------        ------
</TABLE>


Net Revenue decreased approximately $6.6 million, or 29%, to $16.5 million for
the six months ended May 31, 2003 from $23.2 million in the comparable prior
year period. Two significant factors contributed to the decline in net revenue:
(1) the Company's loss of one of its significant customers in the fourth quarter
of Fiscal 2002, which customer accounted for approximately $5.9 million, or 26%
of the Company's revenue during the six months ended May 31, 2002, and which
customer contributed $24,000 to Fiscal 2003 revenue; and (2) the Company's
complete cessation of recognizing revenue from one of its major customers in the
quarter ended May 31, 2003 based on the absence



                                                                              54
<PAGE>


of collection probability. Such customer, a public company, accounted for
approximately $2.3 million, or 10% of the Company's revenue during the six
months ended May 31, 2002, compared to approximately $529,000, or 3% of the
Company's revenue during the six months ended May 31, 2003. The Company made its
collection assessment based on such customer's publicly filed information. This
assessment included the consideration of AMEX's May 23, 2003 trading halt of the
customer's securities, and its eventual filing for bankruptcy protection on June
16, 2003. See "- Bad Debt Expense".

         Additionally, turnover recognized in the balance of the Company's
customer base, coupled with decreased returns on its email marketing programs,
accounted for other decreases in net revenue, which approximated $.4 million
when compared with the prior year's comparable quarter.

         Offsetting the net revenue declines recognized during the six months
ended May 31, 2003 were increases in net revenue attributable to the Company's
recently launched online dating service, iMatchup.com, which accounted for $1.1
million, or 7% of consolidated net revenues for the six months ended May 31,
2003, and the Company's recently launched LEC Billed Products and Services
segment, which accounted for approximately $844,000, or 5% of consolidated net
revenues for the six months ended May 31, 2003. Both iMatchup.com and the LEC
Billed Products and Services segment were inactive in the comparable Fiscal 2002
period.

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

         The Company's cost of sales during the six months ended May 31, 2003
and May 31, 2002 were comprised of (1) direct and indirect marketing costs



                                                                              55
<PAGE>


associated with the procurement and retention of consumers for its databases,
including direct response email marketing costs, data purchases, promotional
costs and premium fulfillment costs, and (2) the related contingent-based
sweepstakes indemnification expense, billing fees, collection fees and customer
service costs.

The Company's cost of sales, on a segmental basis, and with disclosure of the
components of the individual segments, for each of the six month periods ended
May 31, 2003 and May 31, 2002 are set forth below:

CONSOLIDATED COST OF SALES, BY SEGMENT, BY COMPONENT

<TABLE>
<CAPTION>
                                                           SIX MONTHS ENDED
                                                    ---------------------------        CHANGE           CHANGE
                                                       MAY 31,        MAY 31,         INC(DEC)         INC(DEC)
                                                        2003           2002             $$$              %%%
                                                    -----------     -----------     -----------        --------
<S>                                                 <C>             <C>             <C>                   <C>
E-COMMERCE

ADVERTISING, PROMOTION AND FULFILLMENT COSTS
Email marketing and related delivery costs          $ 2,700,592     $ 2,587,026     $   113,566             4%
Data and profile purchases, and premium costs         2,398,068       3,723,449      (1,325,381)          -36%
Promotional, creative and other costs                   205,620          84,619         121,001           143%
                                                    -----------     -----------     -----------        -------

                   TOTAL E-COMMERCE ADVERTISING     $ 5,304,280     $ 6,395,094     $(1,090,814)          -17%
                                                    -----------     -----------     -----------        -------

SERVICE BUREAU FEES

Contingent based prize indemnification costs        $   178,760     $   185,391          (6,631)           -4%
                                                    -----------     -----------     -----------        -------

                 TOTAL E-COMMERCE COST OF SALES     $ 5,483,040     $ 6,580,485     $(1,097,445)          -17%
                                                    -----------     -----------     -----------        -------

OFF-LINE MARKETING SERVICES

ADVERTISING, PROMOTION AND FULFILLMENT COSTS
Telemarketing, direct mail and related costs        $   261,786     $   181,330     $    80,456            44%
                                                    -----------     -----------     -----------        -------

         TOTAL OFF-LINE MARKETING COST OF SALES     $   261,786     $   181,330     $    80,456            44%
                                                    -----------     -----------     -----------        -------


LEC BILLED PRODUCTS AND SERVICES

SERVICE BUREAU FEES

Service provision, billing and collection fees      $   460,451     $        --         460,451           100%
                                                    -----------     -----------     -----------        -------

                 TOTAL LEC BILLED COST OF SALES     $   460,451     $        --     $   460,451           100%
                                                    -----------     -----------     -----------        -------

                     CONSOLIDATED COST OF SALES     $ 6,205,277     $ 6,761,815     $  (556,538)           -8%
                                                    -----------     -----------     -----------        -------
</TABLE>


                                                                              56
<PAGE>

            Cost of sales on a consolidated basis decreased $.6 million, or 8%,
to $6.2 million for the six months ended May 31, 2003 from $6.8 million in the
comparable prior year period.

         The significant factors contributing to the decrease in cost of sales
were an approximate $1.1 million decrease in premium fulfillment costs and a
decrease of approximately $200,000 in data purchases. Offsetting such decreases
were increases in email marketing and related delivery costs and increased costs
associated with the reintroduction of the Company's LEC Billed Products and
Services segment. The decrease in premium fulfillment costs related to the
cessation of costs associated with a significant customer, as compared to the
prior year's comparable fiscal period. The Company did not transact business
with such customer during the six months ended May 31, 2003.

         The Company's gross profit in terms of dollars, on a segmental basis,
and the Company's gross profit percentage, on a segmental basis, for each of the
six month periods ended May 31, 2003 and 2002 are set forth below:

CONSOLIDATED GROSS PROFIT, BY SEGMENT

<TABLE>
<CAPTION>
                                               FOR THE
                                           SIX MONTHS ENDED             CHANGE         CHANGE
                                        MAY 31,        MAY 31,         INC(DEC)       INC(DEC)
                                         2003           2002             $$$             %%%
                                     -----------     -----------     -----------      --------
<S>                                  <C>             <C>             <C>              <C>
E-Commerce                           $ 8,258,607     $14,603,882     $(6,345,275)        -43%

Off-line Marketing services            1,755,439       1,809,738         (54,299)          3%

LEC Billed products and services         320,510              --         320,510         100%

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

CONSOLIDATED TOTALS                  $10,334,556     $16,413,620     $(6,079,064)        -37%
                                     ===========     ===========     ===========      =======
</TABLE>



                                                                              57
<PAGE>


CONSOLIDATED GROSS PROFIT PERCENTAGES, BY SEGMENT

<TABLE>
<CAPTION>
                                                          FOR THE                 ABSOLUTE       RELATIVE
                                                      SIX MONTHS ENDED           PERCENTAGE     PERCENTAGE
                                                  MAY 31,          MAY 31,         CHANGE         CHANGE
                                                   2003             2002          INC(DEC)       INC(DEC)
                                                  -------          -------        --------       --------
<S>                                                <C>              <C>             <C>           <C>
E-Commerce                                         60.1%            68.9%           -8.8%         -12.8%

Off-line Marketing services                        87.0%            90.9%           -3.9%          -4.3%

LEC Billed products and services                   41.0%             0.0%           41.0%         100.0%

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

CONSOLIDATED GROSS PROFIT PERCENTAGE               62.5%            70.8%           -8.3%         -11.8%
                                                  =====            =====           =====          =====
</TABLE>


         Consolidated Gross Profit Percentage ("Gross Margin") as a percentage
of net revenue was 62.5% during the six months ended May 31, 2003, compared to
70.8% in the prior year's comparable fiscal period, representing an absolute
percentage point decrease of 8.3%, or a 11.8% decrease on a relative basis. The
decline in gross profit is primarily attributable to increased mailing costs due
to an increase in volume mailed, coupled with a reduction in response rates, the
addition of profile acquisition costs for its iMatchUp.com on-line dating site
and the reintroduction of the LEC Billed Products and Services segment activity,
which has a gross profit lower than the Company's historical gross profit. The
impact on gross profit from the iMatchUp.com service results from the expensing
of the customer acquisition during the current period, with the corresponding
revenue being deferred, based on the terms of the enrolled member (i.e., one
month, three month or annual memberships). The iMatchUp.com profiles that
convert to billable members generally do so over a period subsequent to their
month of acquisition. Therefore, we expect that these future conversions of
profiles to billable members, coupled with the amortization of the revenue
deferred at May 31,


                                                                              58
<PAGE>


2003, as well as the anticipated renewal revenues from such acquired customers,
should allow the Company to report improved consolidated gross profit
relationships in future fiscal quarters.

         The Company's Selling Expenses for each of the six months ended May 31,
2003 and May 31, 2002 are presented, on a segmental basis, and with the
components of the individual segments, in the tables set forth below:

<TABLE>
<CAPTION>
                                                FOR THE PERIODS:
                                                SIX MONTHS ENDED            CHANGE -      CHANGE -
                                             MAY 31,         MAY 31,        INC(DEC)      INC(DEC)
                                              2003            2002            $$$           %%%
                                          -----------     -----------     -----------     --------

<S>                                       <C>             <C>             <C>              <C>
E-COMMERCE

Fee share commissions                     $ 2,390,892     $ 2,649,369     ($  258,477)      -10%
Other commissions                                  --         954,105        (954,105)     -100%
Selling salaries and related expenses         771,928         824,367         (52,439)       -6%
Occupancy and equipment costs
Travel and entertainment                       87,987         166,890         (78,903)      -47%
                                          -----------     -----------     -----------      -----
TOTAL SELLING - E-COMMERCE SEGMENT        $ 3,250,807     $ 4,606,446     ($1,355,639)      -29%
                                          -----------     -----------     -----------      -----

OFF-LINE MARKETING SERVICES
Fee share commissions                     $        --     $        --              --
Other commissions                                  --              --              --
Selling salaries and related expenses         796,014         847,120         (51,106)       -6%
Occupancy and equipment costs                  45,623          45,889            (266)       -1%
Travel and entertainment                        5,005          17,859         (12,854)      -72%
                                          -----------     -----------     -----------      -----
TOTAL SELLING - OFF-LINE SEGMENT          $   846,642     $   910,868     ($   64,226)       -7%
                                          -----------     -----------     -----------      -----

CONSOLIDATED TOTALS                       $ 4,097,449     $ 5,517,314     ($1,419,865)      -26%
                                          -----------     -----------     -----------      -----
</TABLE>

         Selling expenses on a consolidated basis decreased approximately $1.4
million, or 26%, from $5.5 million during the six months ended May 31, 2002, to
$1.4 million during the six months ended May 31, 2003. The decrease was
primarily attributable to an approximate $1.4 million decrease in fee share
commission and other sales based commissions. Such selling expense item
decreases were related to the business conducted by the Company with a
significant customer during the six months ended May 31, 2002. This significant
customer relationship ended in the fourth quarter of Fiscal 2002.



                                                                              59
<PAGE>


The Company did not transact business with such customer during the six and
three-month periods ended May 31, 2003 and, accordingly, did not incur the
related selling expenses.

         In the prior fiscal year, the Company significantly expanded the
practice of marketing promotional offers on behalf of its marketing clients
("Clients") to third party databases on a fee share commission basis. The fee
share commission relationship generally arises after the Company concludes a
contractual arrangement with a Client pursuant to which the Company modifies or
develops the copy, offer form and promotional materials for the Client's product
or service. Simultaneously with the execution of these contractual arrangements,
the Company sometimes obtains the right from the Client to market promotions to
a list of third parties with whom the Company has marketing relationships (the
"Third Parties"), including databases managed in-house by the Company for email
marketing. The Company's agreements with each Third Party with whom it markets
Client promotions provides that the Third Party has the right to (i) approve the
creative materials for each promotion, (ii) approve the timing of each
promotion's mailing, (iii) terminate the contract on short notice, and (iv)
reject any promotion for any reason. Each agreement also restricts the Third
Party from doing business with the Client other than through the Company for the
period of time covered by the agreement, and sets forth the terms of the Third
Party's compensation. Payments are performance-based only and are either fixed
fees paid for each customer or lead generated for the Client, or a revenue share
that is a percentage of the revenue generated (after deduction for certain
direct costs) by the Company for marketing that offer to the Third Party
database. The Company utilizes unique Universal Resource Locater identifier
links ("URLs") when promotions are mailed to the Third Party database as a
tracking mechanism by which the Company is able to account for revenue generated
under the fee share arrangement with Third Parties.



                                                                              60
<PAGE>


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

The Company's General and Administrative Expenses for each of the six-month
periods ended May 31, 2003 and May 31, 2002 are presented, on a segmental basis,
and with the components of the individual segments, in the tables set forth
below:

CONSOLIDATED GENERAL AND ADMINISTRATIVE EXPENSES, BY SEGMENT, BY COMPONENT

<TABLE>
<CAPTION>
                                                 FOR THE PERIODS:
                                                 SIX MONTHS ENDED          CHANGE -          CHANGE -
                                              MAY 31,        MAY 31,       INC(DEC)          INC(DEC)
                                               2003           2002           $$$               %%%
                                            ----------     ----------     ----------         -------

<S>                                         <C>            <C>            <C>                   <C>
E-COMMERCE

Compensation costs and related expenses     $2,070,892     $2,249,340     $ (178,448)            -8%
Professional fees                              759,336        832,257        (72,921)            -9%
Insurance costs                                258,281        231,861         26,420             11%
Occupancy and equipment costs                  158,882        150,099          8,783              6%
Site development, maintenance and
     Modifications                             806,858        507,179        299,679             59%
All other G&A expenses                         772,252        781,385         (9,133)            -1%
                                            ----------     ----------     ----------         -------
TOTAL G&A - E-COMMERCE SEGMENT              $4,826,501     $4,752,121     $   74,380              2%
                                            ----------     ----------     ----------         -------

OFF-LINE MARKETING SERVICES

Compensation costs and related expenses     $       --     $       --     $       --              0%
Professional fees                               21,229         23,404         (2,175)            -9%
Insurance costs                                     --          2,355         (2,355)          -100%
Occupancy and equipment costs                       --             --             --              0%
All other G&A expenses                         691,351        592,417         98,934             17%
                                            ----------     ----------     ----------         -------
TOTAL G&A - OFF-LINE SEGMENT                $  712,580     $  618,176     $   94,404             15%
                                            ----------     ----------     ----------         -------
</TABLE>



                                                                              61
<PAGE>


<TABLE>
<S>                                         <C>            <C>            <C>                   <C>
LEC BILLED PRODUCTS AND SERVICES

Compensation costs and related expenses     $  177,715     $       --     $  177,715              0%
Insurance costs                                 22,165             --         22,165              0%
Occupancy and equipment costs                   13,634             --         13,634              0%

All other G&A expenses                          66,271             --         66,271              0%
                                            ----------     ----------     ----------         -------
TOTAL G&A - LEC SEGMENT                     $  279,785     $       --     $  279,785              0%
                                            ----------     ----------     ----------         -------

CORPORATE AND OTHER

Compensation costs and related expenses     $1,360,268     $1,095,754     $  264,514             24%
Professional fees                              419,443        498,973        (79,530)           -16%
Insurance costs                                274,770        235,384         39,386             17%
All other G&A expenses                         311,394        350,063        (38,669)           -11%
                                            ----------     ----------     ----------         -------
TOTAL G&A - CORPORATE AND OTHER             $2,365,875     $2,180,174     $  185,701              9%
                                            ----------     ----------     ----------         -------

CONSOLIDATED TOTALS                         $8,184,741     $7,550,471     $  634,270              8%
                                            ----------     ----------     ----------         -------
</TABLE>

         General and Administrative expenses ("G&A") on a consolidated basis
increased approximately $634,000, or 8%, when comparing G&A of $7.6 million from
the six months ended May 31, 2002 to G&A of $8.2 million incurred during the six
months ended May 31, 2003. The increase was attributable to increases in the
Company's: (a) E-Commerce segment of approximately $74,000, primarily
attributable to increases in the costs of the development, maintenance and
modifications to the Company's websites; (b) Off-line Marketing Services segment
of approximately $94,000, attributable to the growth of such segment, on a
comparable basis with the previous fiscal year's comparable period, prior to the
March 6, 2003 sale of its revenue generating majority owned subsidiary, Montvale
Management, LLC; (c) G&A costs associated with the LEC Billed Products and
Services segment of approximately $280,000, which segment was inactive in Fiscal
2002; and (d) Corporate and other segment, with such increase being primarily
attributable to increases in the number of executive staff employed.

         Feder, Kaszovitz, Issacson, Weber, Skala, Bass and Rhine LLP
("FKIWSBR") provides general legal services to the Company in the ordinary
course of



                                                                              62
<PAGE>


business and litigation services in defense of actions arising from
such business activities. A FKIWSBR partner has been a member of our Board of
Directors since inception. The Company incurred approximately $501,000 in legal
fees from FKIWSBR during the six months ended May 31, 2003.

CONSOLIDATED - BAD DEBT EXPENSE, BY SEGMENT

<TABLE>
<CAPTION>
                                              FOR THE PERIODS:
                                              SIX MONTHS ENDED       CHANGE       CHANGE
                                            MAY 31,      MAY 31,     INC(DEC)     INC(DEC)
                                             2003         2002         $$$           %%%
                                           --------     --------     --------     --------
<S>                                        <C>          <C>          <C>               <C>
E-Commerce                                 $490,048     $438,506     $ 51,542          12%

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

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

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

CONSOLIDATED TOTALS                        $490,048     $438,506     $ 51,542          12%
                                           --------     --------     --------     --------
</TABLE>

Bad Debt expense increased approximately $51,000, or 12% when comparing the six
months ended May 31, 2003 with the six months ended May 31, 2002. The increase
in bad debt expense resulted from the Company's assessment of the risk of
collection embedded in its customer base as a product of the processes described
below.

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



                                                                              63
<PAGE>


During the six months ended May 31, 2003, one of the Company's major customers
filed for bankruptcy protection. The Company charged approximately $300,000 of
such customer's accounts receivable to the allowance for bad debt. The Company
had recognized $322,000 in bad debt expense for such customer during the three
months ended February 28, 2003. The current six-month period's bad debt expense
relates to the risk of collection from bad debts as it relates to the balance of
the Company's customer base.


OTHER INCOME(EXPENSE)

The Company's components of "Other income(expense)" for the six months ended May
31, 2003 and 2002 are set forth below:

<TABLE>
<CAPTION>
                                                                     FOR THE PERIODS:
                                                                     SIX MONTHS ENDED              CHANGE        CHANGE
                                                                  MAY 31,          MAY 31,         INC(DEC)      INC(DEC)
                                                                   2003             2002             $$$          %%%
                                                               -----------      -----------      -----------     --------

<S>                                                            <C>              <C>              <C>               <C>
Other income (expense):
Interest expense                                               $   (15,191)     $   (19,768)     $     4,577       -23%
Interest income and dividends                                      266,056          393,599      $  (127,543)      -32%
Realized gains on sale of marketable securities                      4,068           83,157          (79,089)      -95%

Realized gain on sale of subsidiary                              1,075,000               --        1,075,000       100%
Other non-operating income:

        Other miscellaneous income (expense)                       (46,438)          71,563         (118,001)     -165%
        Talk.com Arbitration Settlement                                 --        2,314,121       (2,314,121)     -100%
        P.M. Thomas Arbitration Settlement                              --       (2,275,582)       2,275,582      -100%
        Liquidation proceeds on prior year impairment loss              --          125,000         (125,000)     -100%

Minority interest (income) loss                                   (137,567)        (130,949)          (6,618)        5%
                                                               -----------      -----------      -----------      -----
Total Consolidated Other
        Income (Expense)                                       $ 1,145,928      $   561,141          584,787       104%
                                                               -----------      -----------      -----------      -----
</TABLE>



                                                                              64
<PAGE>


         Consolidated Other Income (Expense) increased approximately $585,000,
from approximately $561,000 for the six months ended May 31, 2002, to
approximately $1.1 million for the six months ended May 31, 2003.

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

(a) a decrease in interest and dividend income of approximately $128,000
resulting from continuing decreases in the interest rates available on
short-term commercial paper during the six months ended May 31, 2003 when
compared to the six months ended May 31, 2002;

(b) a decrease in gains realized through sales of marketable securities
approximating $79,000 in the six months ended May 31, 2003 when compared to
realized gains in the six months ended May 31, 2002;

(c) an increase in realized gains from the sale of a subsidiary of approximately
$1.1 million arising form the sale of Montvale Management, LLC (see Note 10 to
the attached financial statements); and

(d) a decrease in other non-operating income (expense) of approximately
$282,000. The two components relating to this decrease are attributable to (i) a
decrease in other miscellaneous income arising out of residual payments received
by the Company from prior years' terminated revenue streams, and (ii) $125,000
of liquidation proceeds recognized in the six months ended May 31, 2002. The six
months ended May 31, 2003 did not include other income relating to the receipt
of liquidation proceeds.



                                                                              65
<PAGE>


PROVISION FOR INCOME TAXES

The Company's effective income tax rate is a result of the combination of
federal income taxes at statutory rates, and state taxes, subject to the effects
of valuation allowances taken against the "realizability" of deferred tax
assets, as well as reductions to valuation allowances taken in prior fiscal
periods when available evidence indicates such adjustments are necessary. For
the six months ended May 31, 2003, the Company recorded a net income tax benefit
of approximately $171,000. This represented an effective income tax rate of
13.2% and resulted from the tax expense at the state and foreign levels that did
not benefit from the Company's consolidated pre-tax loss.

         The Company had recorded income tax expense of approximately $1.4
million for the six months ended May 31, 2002 on a pre-tax income of
approximately $3.5 million. This equated to an effective tax rate of
approximately 38.9%.

LIQUIDITY AND CAPITAL RESOURCES

         As of May 31, 2003, the Company had aggregate working capital of $37.6
million compared to aggregate working capital of $39.3 million as of November
30, 2002. The Company had available cash, cash equivalents and readily available
marketable debt securities of $36.4 million as of May 31, 2003 compared to
available cash, cash equivalents and readily available marketable debt
securities of $37.4 million as of November 30, 2002. The approximate $1



                                                                              66
<PAGE>


million decrease in cash, cash equivalents and readily available marketable
debt securities is primarily the result of $936,006 used in operating
activities and $1,276,322 used in the purchase of capital expenditures (which
included the purchase of a building, located in Moncton, New Brunswick, Canada,
for approximately $606,000) during the six months ending May 31, 2003, offset by
$1,050,000 in proceeds collected from the sale of a subsidiary and $34,329
received from employee stock option exercises during the six months ended May
31, 2003.

         The Company's days-sales-outstanding ("DSO") in accounts receivable at
May 31, 2003 was 53 days, compared to 52 days at February 28, 2003 and 45 days
in the fourth quarter of Fiscal 2002, and 59 days in the prior year's comparable
period. The increase in the current quarter's DSO compared to the first quarter
and fourth quarter of the prior fiscal year relates to the longer collection
cycle attributable to the Company's recently reinstated LEC Billed Products and
Services segment activities. The Company's DSO may rise above 53 days in future
fiscal periods primarily in the event of growth in revenues from the Company's
LEC Billed Products and Services segment.

         The majority of the Company's customers are extended 30-day credit
terms. The Company continually monitors customer adherence to such terms and
constantly strives to improve the effectiveness of its collection efforts with
the goal of achieving a DSO in the 40-day range. Future fiscal periods might not
reflect this goal of a 40-day DSO, and might exceed the 53-day DSO recognized in
the six month period ended May 31, 2003.

         Historically, the Company's primary cash requirements have been used to
fund the cost of advertising and promotion, with additional funds having been
used in the purchasing of equipment and services in connection with the
commencement of new business lines, further development of businesses being test
marketed and for the development of the equipment infrastructure of subsidiaries
organized in Fiscal 2002.

         In a prior fiscal year (Fiscal 2000) the Company executed its on-line



                                                                              67
<PAGE>


direct marketing strategy. The Company's future plans and business strategy
continue to call for its Internet based E-Commerce segment to be its primary
operating focus, with such segment generating the material portion of the
Company's revenues for the six months ended May 31, 2003. The Company continues
to invest considerable capital into its E-Commerce segment. If the E-Commerce
segment's activities fail to generate sufficient revenue, the Company could
realize a material adverse impact on its capital and liquidity resources
resulting from expenditures necessary to generate such revenue, including, but
not limited to expenditures for (a) marketing campaigns, (b) product development
costs, (c) site development and maintenance and related technology based costs,
(d) potential on-line, and/or off-line, business acquisitions, (e) costs
associated with developing alternative means of email promotion delivery, or (f)
other unexpected and/or currently unidentifiable costs. During the six months
ended May 31, 2003, the Company expended approximately $1.3 million in capital
expenditures to support its E-Commerce activities. Such expenditures included
the purchase of property located in New Brunswick, Canada, through a wholly
owned subsidiary, to house the business activities of such subsidiary. The
purchase price for the land and building was $606,000 (US) and was settled in
cash at closing on March 6, 2003. Such subsidiary was formed in December 2001,
using the assets of a Canadian based Internet technology company acquired by the
Company at such time, which purchased the property previously mentioned. The
Company believes this prior year acquisition will continue to decrease certain
costs incurred by the Company relative to its reliance on third parties in the
provision of emailing services and other Internet hosting services and data
maintenance costs. Since the date of such asset acquisition, the Company has
recognized certain cost savings due to this wholly owned



                                                                              68
<PAGE>


subsidiary. The continued realization of these cost savings will require
continued capital expenditures by the wholly owned subsidiary. Should the
business climate, Internet operating environment or technology environment
change significantly, the Company could be faced with circumstances that would
limit or prevent its utilization of these capital expenditures, which could
subject the Company to non-cash asset impairment charges at that time. The
Company continues to be obligated under operating leases on rental space in
Canada through April 2005, for a total lease commitment of approximately
$143,000. The Company intends to continue to occupy such property for the term
of said leases.

In March 2003, the Company sold its majority owned subsidiary, Montvale
Management LLC ("Montvale") to Mortgage Industry Consultants, LLC ("MIC") for
$1.6 million, plus its investment. The terms of the agreement included an
initial payment of $1 million (received in March 2003) followed by an additional
$600,000 to be paid in 24 monthly installments of $25,000 each. As of July 15,
2003, three installments were received. In May 2003, the Company received
approximately $299,000, representing its GAAP basis capital account in such
majority owned subsidiary as at November 30, 2002. Traffix had obtained its 51%
interest in September of 1999 through an initial investment of approximately
$50,000. Based on management's assessment of Montvale's future cash flows, after
taking into consideration Montvale's increased obligations with respect to the
note obligations due the Company, the Company has deemed it prudent to defer
recognition of income on the unpaid portion of the note. Recognition will take
place in future periods under the cost recovery method.

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



                                                                              69
<PAGE>


Montvale described above, and expects to expand its activities within its LEC
Billed Products and Services segment.

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

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

         OBLIGATIONS AND COMMITMENTS

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

A summary table of future contractual obligations is set forth below:



                                                                              70
<PAGE>


<TABLE>
<CAPTION>
                                                                  Payments Due by Period
                                               ------------------------------------------------------------
                                                                Less than        1 to 3           4 to 5
                                                                1 year -         years -          years -
                                                                 June 1,       December 1,      December 1,
                                                                 2003 to         2003 to          2006 to
             Contractual                                        November        November         November
             Obligations                          Total         30, 2003        30, 2006         30, 2008
                                               ----------      ----------      ----------       -----------

<S>                                            <C>             <C>             <C>                <C>
Long-term Debt Obligations:                    $       --      $       --      $       --         $   --

Capital Lease Obligations:                             --              --              --             --

Operating Leases:
                            Domestic            1,024,720         164,720         860,000             --
                    Foreign (Canada)              126,037          33,226          92,811             --

Unconditional Purchase Obligations:
                               None

Other Long-term Obligations:                           --              --              --             --
                                               ----------      ----------      ----------         ------
Total Contractual Cash Obligations             $1,150,757      $  197,946      $  952,811             --
                                               ----------      ----------      ----------         ------
</TABLE>


         RELATED PARTIES

         Feder, Kaszovitz, Issacson, Weber, Skala, Bass and Rhine LLP
("FKIWSBR") provides general legal services to the Company in the ordinary
course of business and litigation services in defense of actions arising from
such business activities. A FKIWSBR partner has been a member of our Board of
Directors since inception. FKIWSBR legal services are billed on an arms length
transaction basis. The Company incurred approximately $196,000 and $501,000,
respectively, in legal fees from FKIWSBR during the three and six-month periods
ended May 31, 2003.

TRANSACTIONS WITH MAJOR CUSTOMERS

During the three and six months ended May 31, 2003, the Company had four and
five customers, respectively, in its E-Commerce segment which, in combination,



                                                                              71
<PAGE>


accounted for approximately $1.9 million and $4.7 million of consolidated net
revenue, respectively, or 25% and 28% of consolidated net revenues.
Approximately $1.9 million, or 38% of consolidated net accounts receivable, was
attributable to such major customer group as of May 31, 2003. Such major
customers accounted for 8%, 8%, 6% and 3% of consolidated net revenue for the
three months ended May 31, 2003, and 8%, 8%, 5%, 4% and 3% of consolidated net
revenue for the six months ended May 31, 2003. Regarding the balance of the
Company's customer base, no single customer had net revenues that equaled, or
exceeded, 3% of consolidated net revenues for the three and six-month periods
ended May 31, 2003.

The Company continued to conduct business with all such four major customers as
of July 15, 2003. The customer that accounted for 3% of the Company's net
revenues for the six months ended May 31, 2003 filed for bankruptcy protection
in June 2003. The Company charged approximately $300,000 of such customer's
accounts receivable to bad debt allowance. After the application of the bad debt
allowance increase, the Company has completely reserved the customer's entire
accounts receivable balance. In the three and six months ended May 31, 2002, the
Company had five customers in its E-Commerce segment which, in combination,
accounted for approximately $5.5 million and $12.9 million of consolidated net
revenues, respectively, or 51% and 56% of consolidated net revenues,
respectively, and approximately $5.1 million, or 69% of consolidated accounts
receivable as of May 31, 2002.

CRITICAL ACCOUNTING POLICY AND ACCOUNTING ESTIMATE DISCUSSION

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



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<PAGE>


the selection and disclosure by public companies of critical accounting policies
and practices", the Company has set forth below what it believes to be the most
pervasive accounting policies and estimates that could have a material effect on
the Company's results of operations and cash flows, if general business
conditions or individual customer financial circumstances change in an adverse
way relative to the policies and estimates used in the attached financial
statements or in any "forward looking" statements contained herewith.

FACTORS THAT COULD EFFECT FUTURE RESULTS

  CONTINUATION OF TREND RELATIVE TO DECREASING REVENUES AND INCREASING OVERHEAD

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

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

                                                         % CHANGE
    QUARTERLY                                         FROM PREVIOUS
   PERIOD ENDED                NET REVENUE               QUARTER
------------------            ------------            -------------
November 30, 2001             $ 14,050,493
February 28, 2002               12,370,897               -11.95%
May 31, 2002                    10,804,538               -12.66%
August 31, 2002                 10,664,246                -1.30%
November 30, 2002               10,203,244                -4.32%
February 28, 2003                9,117,229               -10.64%
May 31, 2003                     7,422,604               -18.59%


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

   QUARTERLY              SELLING         G&A         BAD DEBT          TOTAL
  PERIOD ENDED            EXPENSE       EXPENSE        EXPENSE         OVERHEAD
-----------------       ----------     ----------    -----------     -----------
November 30, 2001       $2,783,638     $3,185,320    $ 1,083,826     $ 7,052,784
February 28, 2002        3,168,568      3,578,591        329,334       7,076,493
May 31, 2002             2,370,775      3,949,851        109,172       6,429,798
August 31, 2002          3,133,682      3,665,681         48,941       6,848,304
November 30, 2002        2,799,663      4,057,299        106,428       6,963,390
February 28, 2003        2,319,559      4,206,037        336,188       6,861,784
May 31, 2003             1,777,890      3,978,704        153,860       5,910,454



                                                                              73
<PAGE>


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

                REVENUE RECOGNITION, VARIABLE COSTS AND BAD DEBTS

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

Certain obligations are recorded at the time revenue is recognized. They include
costs payable to other on-line, as well as off-line, advertisers for



                                                                              74
<PAGE>


registered user acquisitions and consumer data, fee sharing costs under third
party database use agreements, email message delivery costs, contingent based
prize indemnification coverage (for potential free on-line lottery winners),
estimated premium fulfillment costs related to the respective promotion and all
other variable costs directly associated with completing our obligations
relative to the revenue being recognized. The Company's actual premium
fulfillment estimates have varied from that which were accrued at the time of
recording the related revenue. The Company treats this as a change in
management's estimate, and takes the additional cost, or benefit, on the accrual
adjustment in the quarter that the variance is determined. The six months ended
May 31, 2003 included a benefit of approximately $507,000 on the adjustment of
the premium fulfillment from November 30, 2002.

Should the Internet operating landscape change resulting in (a) higher costs of
acquiring consumer data and registered users for our websites; (b) higher costs
of acquiring data for our marketing partners, compromising such marketing
partners' ability to maintain adequate databases to allow for continued third
party database use agreements; (c) the InfiKnowledge asset acquisition failing
to reduce the cost of our email delivery activities and web development and web
hosting service costs, or us being required to depend on third party emailing
service bureaus, to a degree higher than that currently recognized, to provide
an increased portion of our commercial email delivery at a cost in excess of
anticipated internally generated costs, or other third party influence on our
ability to deliver email messages to the records in our databases, or the
records in our marketing affiliates' databases; (d) our contingent based prize
indemnification premiums for indemnification coverage increasing due to an
increase in the number of prize winners at the site, as a result of the
insurance industry in general, or other currently unknown factors; (e) our
accruals for fulfillment obligations arising out of promotions proving to be
less than the actual redemptions



                                                                              75
<PAGE>


processed in subsequent fiscal periods; or (f) unpredictable technology changes
or commercial technology applications; then, if any one, or a combination, of
the above factors were to materialize we could suffer material deterioration in
future fiscal period revenue growth and gross margins, and, therefore, our
profitability, cash flows and capital resources could be materially adversely
affected.

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





                                                                              76
<PAGE>


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

During the six months ended May 31, 2003, the Company had five customers in its
E-Commerce segment which, in combination, accounted for approximately $4.7
million, or 28% of consolidated net revenues during the period, and
approximately $1.9 million, or 38% of consolidated net accounts receivable as of
May 31, 2003. The five major customers accounted for 8%, 8%, 5%, 4% and 3% of
consolidated net revenue, respectively. Regarding the balance of the Company's
customer base, no single customer had net revenues that equaled, or exceeded, 3%
of consolidated net revenues for the six months ended May 31, 2003.

The Company continued to conduct business with four of the five major customers
as of July 14, 2003. The customer who accounted for 3% of the Company's net
revenues for the six months ended May 31, 2003 filed for bankruptcy protection
in June 2003. Pursuant to the filing, the Company fully reserved the major
customer's accounts receivable.

In March 2003, the Company sold its interest in its majority owned subsidiary,
Montvale Management LLC, for $1.6 million, plus its investment. Pursuant to the
terms of the sale, the Company received $1 million in cash at closing on March
7, 2003. Additionally, the Company received a note from the Purchaser for
$600,000, payable in 24 monthly installments of $25,000. The Company has also
received approximately $299,000, representing its GAAP basis capital account in
such majority subsidiary as at November 30, 2002. The Company also entered into
a two year Media Purchase Agreement whereby the Company agreed to provide
certain media lead generation and related services to the continuing owners of
"Montvale" for consideration of $40,000 per month over the term of the
agreement. The Company estimates that the cash flow from the Media Purchase
agreement will equal or exceed the cash flows surrendered



                                                                              77
<PAGE>


pursuant to the disposition of the majority owned subsidiary.

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 responded to these changes as deemed appropriate at the time of
change, and as dictated by the nature of such changes. Management's reaction to
such changes covered a broad range of business related adjustments, ranging from
product mix repositioning and staff reductions, to entire business model
overhauls. Based on our current operations and marketing methods, as well as the
still emerging status of the Internet marketing environment, it is conceivable
that management would institute changes to our business practices in response to
the potential of unforeseen changes in future fiscal periods.

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

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



                                                                              78
<PAGE>


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

       MARKET FLUCTUATION AND DEBT REPAYMENT RISK OF MARKETABLE SECURITIES
                              INVESTMENT PORTFOLIO

We maintain an investment portfolio that is managed by prominent financial
institutions. The portfolio includes high-grade corporate commercial paper and
auction rate securities, equity securities of real estate investment trusts
("REITs") and common stock equities, all of which are held for varying periods
of time, pursuant to maturity dates, market conditions and other factors. The
fair value of our investments in the common stock of publicly traded companies
as of May 31, 2003 amounted to approximately $1.3 million. These investments are
subject to market price volatility, in addition to the potential for business
failure at the company level. Moreover, due to the economic downturn and
difficulties that may be faced by some of the companies in which we have
investments, our investment portfolio could be further impaired by the failure
of such companies to fulfill their responsibility of adhering to the repayment
of principal upon maturity. Additionally, our cash flows and interest income
could be negatively impacted from continued Federal Reserve Bank interest rate
reductions.

             POTENTIAL OF FEDERAL, AND/OR STATE ENACTED LEGISLATION

There are a variety of legislative proposals at state and federal levels
regarding email marketing. Certain of these proposals, if implemented, could
negatively affect our email marketing programs which could cause a material



                                                                              79
<PAGE>


adverse impact in net revenue, gross margins, profitability, cash flows and
capital resources.

ITEM 4. CONTROLS AND PROCEDURES

         (a) Evaluation of disclosure controls and procedures.

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

         (b) Changes in internal controls.

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





                                                                              80
<PAGE>


                                     PART II

                                OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

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

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



                                                                              81
<PAGE>


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

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

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



                                                                              82
<PAGE>


claims obligates us to indemnify Qwest for any loss it may sustain by reason of
this class action. We maintain that we have no liability in the matter. Fraud
claims in the class action have been dismissed, leaving breach of contract and
false advertising claims. The court has recently certified the class and Qwest
is defending the action.

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

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



                                                                              83
<PAGE>


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

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

         As stated above, we are unable to determine the ultimate outcomes of
any of the foregoing claims, and, accordingly, no provision for loss has been
recorded in the unaudited financial statements included in this Report.

Item 5.  Other Information

         On July 11, 2003, the Company's Board of Directors declared a dividend
out of the Company's surplus of $0.08 per share on the outstanding shares of the
Company's common stock for the quarter ended



                                                                              84
<PAGE>


May 31, 2003. Such dividend is payable on or about August 10, 2003 to holders of
record of such shares at the close of business on August 1, 2003. The Board
further agreed to declare a dividend during each of the quarters ending August
31, 2003, November 30, 2003 and February 29, 2004, in amounts and as of record
dates as the Board then deems appropriate.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(A)      EXHIBITS.

EXHIBIT
NUMBER
-------

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

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

3.2      By-Laws of the Company (3)

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

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


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

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

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



                                                                              85
<PAGE>


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

(B)      REPORTS ON FORM 8-K.

         On March 19, 2003, the Company filed a current report on Form 8-K
reporting the Company's sale of its interest in Montvale Management, LLC. On
April 16, 2003, the Company filed a Current Report on Form 8-K incorporating the
Company's fiscal quarter's earnings release. Other than the foregoing, the
Company did not file any reports on Form 8-K during the second quarter of the
fiscal year ending November 30, 2003.


                           FORWARD LOOKING INFORMATION

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





                                                                              86
<PAGE>


                                   SIGNATURES


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

                                             TRAFFIX, INC.


                                             By: /s/ JEFFREY L. SCHWARTZ
                                                 ------------------------
                                             Jeffrey L. Schwartz
Date:  July 17, 2003                         Chairman and CEO




                                             By: /s/ DANIEL HARVEY
                                                 ------------------------
                                             Daniel Harvey
                                             Chief Financial Officer
Date:  July 17, 2003                         (Principal Financial Officer)



                                                                              87


<PAGE>


                                 CERTIFICATIONS

I, Jeffrey L. Schwartz, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: July 17, 2003

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


                                                                              88
<PAGE>


I, Daniel Harvey, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: July 17, 2003

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


                                                                              89

<PAGE>


Exhibit Index

EXHIBIT
NUMBER
-------

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

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

3.3      By-Laws of the Company (3)

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

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


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

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

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

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


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