<PAGE>   1

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

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
                                   FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934
                       FOR THE QUARTER ENDED MAY 31, 2000
[ ] 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

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

<TABLE>
<S>                                            <C>
                   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)
</TABLE>

                                 (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 [ ]
                            ------------------------
     The number of shares outstanding of the Registrant's common stock is
15,864,164 (as of 7/13/00)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   2

                          QUINTEL COMMUNICATIONS, INC.

                     INDEX TO QUARTERLY REPORT ON FORM 10-Q
               FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
                           QUARTER ENDED MAY 31, 2000

                               ITEMS IN FORM 10-Q

<TABLE>
<CAPTION>
                                                                        PAGE
                                                                        ----
<S>       <C>                                                           <C>
PART I    FINANCIAL INFORMATION
Item 1.   Financial Statements........................................   2
Item 2.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations...................................   11
Item 3.   Quantitative and Qualitative Disclosures About Market
          Risk........................................................  None
PART II   OTHER INFORMATION
Item 1.   Legal Proceedings...........................................   24
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.........  None
Item 5.   Other Information...........................................  None
Item 6.   Exhibits and Reports on Form 8-K............................   24

SIGNATURES
</TABLE>

                                        1
<PAGE>   3

                 QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                MAY 31,      NOVEMBER 30,
                                                                 2000            1999
                                                              -----------    ------------
                                                              (UNAUDITED)
<S>                                                           <C>            <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................  $ 3,830,712    $ 7,939,567
  Marketable securities.....................................   37,685,242     36,511,925
  Accounts receivable, trade................................    6,731,144      5,711,967
  Deferred income taxes.....................................    3,095,405      2,778,329
  Due from related parties..................................      312,540        550,112
  Prepaid expenses and other current assets.................      333,044        688,314
                                                              -----------    -----------
     Total current assets...................................   51,988,087     54,180,214
Property and equipment, at cost, net of accumulated
  depreciation..............................................      485,139        816,533
Long-term investments, at cost..............................    1,552,551      2,097,500
Deferred income taxes.......................................      183,032        183,032
                                                              -----------    -----------
     TOTAL ASSETS...........................................  $54,208,809    $57,277,279
                                                              ===========    ===========
LIABILITIES
Current liabilities:
  Accounts payable..........................................  $   990,242    $ 1,793,631
  Accrued expenses..........................................    4,707,674      5,548,876
  Reserve for customer chargebacks..........................    2,103,911      4,618,108
  Due to related parties....................................      143,778        368,176
  Income taxes payable......................................    4,114,290      4,365,104
  Deferred income taxes.....................................           --        697,106
                                                              -----------    -----------
     TOTAL CURRENT LIABILITIES..............................   12,059,895     17,391,001
                                                              -----------    -----------
STOCKHOLDERS' 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 and outstanding 15,864,164 shares and
     15,469,590 shares, respectively........................       15,864         15,469
  Additional paid-in capital................................   39,420,025     37,482,479
  Retained earnings.........................................    6,613,135      3,544,568
  Accumulated other comprehensive (loss) income.............   (1,698,210)     1,045,662
  Common stock held in Treasury, at cost, 942,853 shares....   (2,201,900)    (2,201,900)
                                                              -----------    -----------
     TOTAL STOCKHOLDERS' EQUITY.............................   42,148,914     39,886,278
                                                              -----------    -----------
     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............  $54,208,809    $57,277,279
                                                              ===========    ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                        2
<PAGE>   4

                 QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

<TABLE>
<CAPTION>
                                            THREE MONTHS ENDED             SIX MONTHS ENDED
                                        --------------------------    --------------------------
                                          MAY 31,        MAY 31,        MAY 31,        MAY 31,
                                           2000           1999           2000           1999
                                        -----------    -----------    -----------    -----------
<S>                                     <C>            <C>            <C>            <C>
Net revenue...........................  $ 7,220,864    $10,423,942    $ 9,919,510    $30,229,543
Cost of sales.........................    1,196,075      6,367,636      1,481,950     23,121,007
                                        -----------    -----------    -----------    -----------
  Gross profit........................    6,024,789      4,056,306      8,437,560      7,108,536
Selling, general and administrative
  expenses............................    2,903,128      3,149,906      5,259,119      6,138,959
                                        -----------    -----------    -----------    -----------
  Income from operations..............    3,121,661        906,400      3,178,441        969,577
Other income, net.....................       89,087         19,873      1,970,151        628,811
                                        -----------    -----------    -----------    -----------
                                          3,210,748        926,273      5,148,592      1,598,388
Provision for income taxes............    1,303,889        370,984      2,080,025        641,791
                                        -----------    -----------    -----------    -----------
  Net income..........................  $ 1,906,859    $   555,289    $ 3,068,567    $   956,597
                                        ===========    ===========    ===========    ===========
Basic income per share (note 3):
  Net income..........................  $      0.13    $      0.03    $      0.21    $      0.06
Average shares outstanding............   14,918,656     15,736,893     14,806,436     15,613,354
Diluted income per share (note 3):
  Net income..........................  $      0.12    $      0.03    $      0.20    $      0.06
Average shares outstanding............   15,682,441     15,748,399     15,658,748     15,651,795
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                        3
<PAGE>   5

                 QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES

               CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

<TABLE>
<CAPTION>
                                                                    SIX MONTHS ENDED
                                                              -----------------------------
                                                                 MAY 31,         MAY 31,
                                                                  2000             1999
                                                              -------------    ------------
<S>                                                           <C>              <C>
Cash flows from operating activities:
  Net income................................................  $   3,068,567    $    956,597
Adjustments to reconcile net income to net cash (used in)
  provided by operating activities:
  Depreciation and amortization.............................        147,435         153,909
  Reserve for customer chargebacks..........................     (2,514,197)     (7,074,783)
  Gain on non-monetary cost-basis exchange..................       (565,572)             --
  Impairment charges........................................      1,345,734              --
  Deferred income taxes.....................................        814,935        (345,252)
  Other, net................................................       (117,832)             --
Changes in assets and liabilities:
  Accounts receivable.......................................     (1,019,177)     14,940,096
  Prepaid expenses and other current assets.................        355,270       1,417,845
  Accounts payable..........................................       (803,389)     (2,364,043)
  Income tax payable........................................       (250,814)       (350,208)
  Due from/to related parties...............................         13,174         614,622
  Other, principally accrued expenses.......................       (841,202)     (2,215,484)
                                                              -------------    ------------
     Net cash (used in) provided by operating activities....       (367,068)      5,733,299
                                                              -------------    ------------
Cash flows from investing activities:
  Purchases of securities...................................   (141,878,148)    (23,273,221)
  Proceeds from sales of securities.........................    138,931,452      19,052,672
  Purchase of long term investments.........................     (1,060,051)             --
  Other, principally capital expenditures...................        (56,775)             --
                                                              -------------    ------------
     Net cash used in investing activities..................     (4,063,522)     (4,220,549)
                                                              -------------    ------------
Cash flows from financing activities:
  Proceeds from stock options exercised.....................        321,735              --
  Purchase of common stock..................................             --        (301,870)
  Cash held in escrow.......................................             --      (1,765,500)
                                                              -------------    ------------
     Net cash provided by (used in) financing activities....        321,735      (2,067,370)
                                                              -------------    ------------
Net (decrease) in cash and cash equivalents.................     (4,108,855)       (554,620)
Cash and cash equivalents, beginning of year................      7,939,567       2,123,630
                                                              -------------    ------------
Cash and cash equivalents, end of year......................  $   3,830,712    $  1,569,010
                                                              =============    ============
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                        4
<PAGE>   6

                 QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES

                   NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

1. GENERAL

     The consolidated financial statements for the three and six month periods
ended May 31, 2000 and May 31, 1999 are unaudited and 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. 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, 1999. The
results of operations for the three and six months ended May 31, 2000 are not
necessarily indicative of the results to be expected for the subsequent quarter
ending August 31, 2000, or the entire fiscal year ending November 30, 2000.

2. SIGNIFICANT ACCOUNTING POLICIES

  Revenue Recognition

     The Company currently earns revenue in its E-commerce segment from
corporate advertisers, pursuant to advertising sale agreements. The provisions
of each agreement determine the type and timing of revenue to be recorded, which
fall into three basic categories: (1) registration revenue generated from the
delivery of qualified registrants to corporate advertisers and marketing
partners, (2) "click" revenue for the delivery of "click through" marketing
opportunities to corporate advertisers and marketing partners, and (3)
transmission of e-mail advertisements to the Company's registered members. The
Company invoices its customer's bi-weekly in accordance with the advertising
activity delivered and/or advertising service provided. Revenue is recognized at
the time the advertising activity is delivered, or service is provided to the
respective clientele (normally, either daily or weekly), net of contractually
determined data qualification allowances. Such data qualification allowances are
provided for delivered registrants who are pre-existing in the partner's
database, undeliverable e-mails and other. Simultaneous with the recognition of
revenue, the Company records all related obligations associated with the net
revenues recognized. These obligations include costs payable to other on-line
advertisers for registered user acquisitions, message delivery costs, insurance
coverage and all other variable direct costs associated with completing the
Company's obligations relative to the revenue transaction. Such revenue
recognition is also subject to provisions based on the probability of
collection.

     In the normal course of operations within the Company's E-commerce segment,
and in accordance with standard industry practice, the Company trades the
contents of its e-mail database with the contents of the e-mail databases of its
corporate advertising clients and marketing partners. Revenues include barter
transactions that are recorded at their fair market values when the database
contents are sent to advertising clients, as revenue, and expense is recognized
when database contents are received from advertising clients, and shown as a
cost of revenue. Barter net revenue and barter related cost of revenue
represented less than 5% of total net revenues, respectively, for the three
months ended May 31, 2000. The three months ended February 29, 2000, and the
three and six month periods in fiscal 1999, did not include net revenue or cost
of revenue from bartered transactions.

     Revenue from the Company's LEC Billed Product and Service segment, which
are no longer actively marketed, consisted of various enhanced telephone
services, principally voice mail services and are recognized, net of an
estimated provision for customer chargebacks (which include refunds and credits)
as the related customers automatically renew their monthly memberships.
Estimates for the reserve for customer chargebacks are reviewed monthly, based
on updated chargeback history, with any resulting adjustments being

                                        5
<PAGE>   7
                 QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES

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

charged against revenues. Since the provision for customer chargebacks are
established prior to the periods in which chargebacks are actually expended, the
Company's revenues may be adjusted in later periods in the event that the
Company's incurred chargebacks vary from the amounts previously estimated.
Pursuant to the fact that a significant portion of these previously offered LEC
segment services have reached their contractual settlement phase, certain of the
applicable reserves are no longer deemed necessary, with approximately $1.3 and
$1.4 million being credited to income for the three and six months ended May 31,
2000, respectively.

     The Company's customer acquisition services segment, which principally
consists of residential long distance customer acquisition programs are recorded
upon the achievement of certain events particular to the corresponding program's
fulfillment liability. Subsequent to the delivery of the initial sales record to
the respective long distance carrier, the Company has historically provided
certain products and services (fulfillment liability), such as prepaid cellular
telephones and/or complimentary airline ticket redemption vouchers as
inducements to the customers. The fulfillment liability costs are estimated and
accrued, as a component of marketing expense, at the time the associated
revenues are recorded. This estimation is adjusted to actual amounts redeemed in
subsequent periods. During the three and six month periods ended May 31, 2000
the Company recorded approximately $650,000 as reductions to cost of revenues
related to expired fulfillment obligations. There are no chargebacks associated
with the Customer Acquisition services segment.

  Accounting for the Impairment of Long-Lived Assets

     The Company accounts for impairment of long-lived assets in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets". In accordance with SFAS 121 the Company
reviews events or changes in circumstances that impact the carrying amount of
long-lived assets, including long-term investments carried at cost and
capitalized software costs. When it is determined that the carrying value of
such long-lived assets may not be recoverable, the Company estimates: (a) the
future cash flows expected to result from the use of such assets over their
remaining useful life and (b) the potential cash flows realizable from their
possible disposition. If the sum of the expected future cash flows (undiscounted
and without interest charges) is less than the carrying amounts of the long-
lived assets, an impairment loss is recognized as the difference between the
carrying amount and the future discounted cash flow. During the six months ended
May 31, 2000 the Company reviewed its long-term investments, carried at cost, as
well as its capitalized software costs and determined that certain of these
long-lived assets were impaired. Based on the Company's current expectations of
future undiscounted net cash flow generated by these long-lived assets, such
assets were written down to their realizable value, and a charge of
approximately $1,346,000 (Long-term investments of approximately $1.1 million
and capitalized software of approximately $241,000) was reported as a component
of other income, net during the quarter ended May 31, 2000.

  Transactions with Major Customers and Termination of Economic Dependence

     Revenues from the Company's primary long distance customer acquisition
partner amounted to approximately 52% of total revenues during the three months
ended May 31, 2000 and, approximately 47% of total revenues during the six
months ended May 31, 2000. Such revenue included approximately $3.5 million
resulting from the settlement, termination and release of both parties under the
existing Residential Distributor Program Agreement. Pursuant to the terms of the
agreement, such long distance carrier purchased all future royalty streams that
would have been recognized by the Company in future periods, on a discounted
basis, related to the customers delivered by the Company to such carrier prior
to the agreement's termination. In accordance with the payment terms of the
agreement the Company received approximately $2.9 million on June 12, 2000, with
the remaining balance of $800,000 being held in escrow for quarterly payments
through April 2001. Accounts receivable from such carrier was approximately
$3,731,000 and $1,020,000 at May 31, 2000 and November 30, 1999, respectively.

                                        6
<PAGE>   8
                 QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES

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

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,
                                               2000          1999          2000          1999
               DENOMINATOR:                 ----------    ----------    ----------    ----------
<S>                                         <C>           <C>           <C>           <C>
  Denominator for basic earnings per
     Share -- weighted-average shares.....  14,918,656    15,736,893    14,806,436    15,613,354
  Effect of dilutive securities:
     Stock options........................     763,785        11,506       852,312        38,441
                                            ----------    ----------    ----------    ----------
  Dilutive potential common shares:
     Denominator for diluted earnings per
       share -- adjusted weighted-average
       shares and assumed conversion......  15,682,441    15,748,399    15,658,748    15,651,795
                                            ==========    ==========    ==========    ==========
</TABLE>

     Options and warrants to purchase 353,146 and 872,818 shares of common stock
for the three months ended May 31, 2000 and 1999, and 247,233 and 1,661,609 for
the six months ended May 31, 2000 and 1999, 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

     As of December 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130").
The adoption of SFAS No. 130 had no impact on the Company's net income or
stockholders' equity. SFAS No. 130 requires unrealized gains and losses on the
Company's marketable securities to be reported in comprehensive income (loss)
and accumulated other comprehensive (loss) income. Prior to adoption of this
statement, such gains and losses were reported separately in stockholders'
equity. Prior year financial statements have been reclassified to conform to the
requirements of SFAS No. 130. Comprehensive income as defined by SFAS No. 130 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 source of comprehensive income is the after
tax net unrealized gains and (losses) on available-for-sale securities. The
components of comprehensive income are presented below:

<TABLE>
<CAPTION>
                                                 THREE MONTHS ENDED          SIX MONTHS ENDED
                                               -----------------------    -----------------------
                                                 MAY 31,      MAY 31,       MAY 31,      MAY 31,
                                                  2000         1999          2000         1999
                                               -----------   ---------    -----------   ---------
<S>                                            <C>           <C>          <C>           <C>
Net income...................................  $ 1,906,859   $ 555,289    $ 3,068,567   $ 956,597
Other comprehensive (loss) income, net of
  tax:
Unrealized (loss) gain from available for
  sale securities net of income taxes of
  $1,000,828, $102,471, $1,829,248 and
  $140,312, respectively.....................   (1,501,242)   (153,707)    (2,743,872)   (210,468)
                                               -----------   ---------    -----------   ---------
Comprehensive Income.........................  $   405,617   $ 401,582    $   324,695   $ 746,129
                                               ===========   =========    ===========   =========
</TABLE>

5. ADVERTISING EXPENSES

     The Company's advertising expenses have historically consisted of
television broadcast media and related production costs, telemarketing,
direct-mail, and print media, with all such costs being charged to operations

                                        7
<PAGE>   9
                 QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES

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

at the time the related advertising and marketing occurred. During the six
months ended May 31, 2000 the Company began to incur advertising and marketing
costs related to customer acquisition fees payable for registered users
delivered via e-mail and other on-line channels, as well as costs associated
with the procurement of e-mail database marketing information. These marketing
costs are expensed at the time registered users are delivered by third parties,
or when the database marketing information is received. Total advertising and
marketing expenses for the three months ended May 31, 2000 and 1999 were
approximately $1,089,000 and $3,936,000, respectively, and the six months ended
May 31, 2000 and 1999 were approximately $1,207,000 and $16,979,000,
respectively.

6. ADOPTION OF SFAS 131, "DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND
RELATED INFORMATION"

     The Financial Accounting Standards Board recently issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which was
adopted by the Company as of November 30, 1999. This statement establishes
standards for reporting of information about operating segments in annual and
interim financial statements. Operating segments are defined as components of an
enterprise for which separate financial information is available that is
evaluated regularly by the chief operating decision maker(s) in deciding how to
allocate resources and in assessing performance. SFAS No. 131 also requires
disclosures about products and services, geographic areas and major customers.
The adoption of SFAS No. 131 did not affect the results of operations or
financial position but did affect the disclosure of segment information as
presented in Note 8.

7. INVESTMENTS AND NON-MONETARY GAIN RECOGNITION

     In January 2000, the Company increased its equity position to 15.9% of
itarget.com, Inc., a privately held on-line permission based e-mail marketing
and consumer data information company. The Company acquired the additional
approximate 12.2% equity interest pursuant to a stock swap agreement. The
agreement required that 229,862 of the Company's common shares be issued in
exchange for 42,372 newly issued Series B, convertible preferred shares of
itarget.com, Inc. The total investment was valued at approximately $1.6 million
based on the Company's share price on the date of the closing. The Company had
carried the itarget.com, Inc. investment at cost and included such investment in
the non-current Long-term investment category. On March 29, 2000, itarget.com,
Inc. merged with Cybergold, Inc. (Nasdaq:CGLD), with the Company receiving
Cybergold, Inc. shares in exchange for its itarget.com, Inc. shares.

     The Company recognized a non-monetary, pre-tax, gain of approximately
$566,000 on the new accounting basis of the Cybergold, Inc. shares, which is
included in the Company's Other Income for the three months ended May 31, 2000.
The non-monetary exchange gain was recognized on March 30, 2000, the effective
date of the merger. Subsequent to the merger, the Company classified the
Cybergold, Inc. shares as "available for sale securities". At May 31, 2000, the
Company reflected an unrealized pre tax loss of approximately $1,524,000 in
"other comprehensive (loss) income" in accordance with SFAS 130, previously
discussed in Note 6. above. On April 17, 2000 MyPoints.com, Inc.(Nasdaq:MYPT)
agreed to acquire Cybergold, Inc. in a tax-free stock-for-stock, fixed-share
transaction, the transaction is expected to close in the third calendar quarter
of the current year.

     During the three months ended February 29, 2000, the Company sold 240,000
shares of its investment in SkyMall, Inc.(Nasdaq:SKYM) at an average price of
$9.17, yielding total proceeds to the Company of approximately $2.2 million, for
a profit of approximately $941,000, which is included in the Company's Other
Income, net for the six months ended May 31, 2000. The SkyMall, Inc. shares are
carried as "available for sale securities" in accordance with SFAS 130. During
the three month period ended May 31, 2000 and the six month period ended May 31,
2000 the Company included an approximate $1,100,000 and $3,200,000 unrealized
pre-tax loss, respectively, in "other comprehensive (loss) income" related to
the SkyMall, Inc. shares and warrants held.

                                        8
<PAGE>   10
                 QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES

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

8. SEGMENT INFORMATION

     The Company's activities are classified into three primary operating
segments: (1) Products and Services billed to consumers by Local Exchange
Carriers (LEC Billed products and services), (2) Customer Acquisition Services
billed directly to long distance carriers, including post acquisition
commissions from long distance usage (Customer Acquisition services) and (3)
Internet Commerce billed directly to corporate advertisers and marketing
partners (E-commerce). The balance of the Company's operations are immaterial
individually and in the aggregate, and 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.
Summarized financial information by business segment is as follows:

SEGMENT DATA -- NET REVENUE

<TABLE>
<CAPTION>
                                                THREE MONTHS ENDED          SIX MONTHS ENDED
                                             ------------------------   ------------------------
                                              MAY 31,       MAY 31,      MAY 31,       MAY 31,
FOR THE PERIODS:                                2000         1999          2000         1999
----------------                             ----------   -----------   ----------   -----------
<S>                                          <C>          <C>           <C>          <C>
LEC Billed products and services...........  $2,296,562   $   795,381   $4,006,037   $ 5,687,948
Customer Acquisition services..............   3,759,941     9,609,446    4,679,723    24,522,558
E-commerce.................................   1,164,361            --    1,213,678            --
Corporate and other........................          --        19,115       20,072        19,037
                                             ----------   -----------   ----------   -----------
  CONSOLIDATED TOTALS......................  $7,220,864   $10,423,942   $9,919,510   $30,229,543
                                             ==========   ===========   ==========   ===========
</TABLE>

SEGMENT DATA -- GROSS PROFIT

<TABLE>
<CAPTION>
                                                 THREE MONTHS ENDED         SIX MONTHS ENDED
                                               -----------------------   -----------------------
                                                MAY 31,      MAY 31,      MAY 31,      MAY 31,
FOR THE PERIODS:                                  2000         1999         2000         1999
----------------                               ----------   ----------   ----------   ----------
<S>                                            <C>          <C>          <C>          <C>
LEC Billed products and services.............  $2,248,251   $ (160,639)  $3,864,578   $3,674,788
Customer Acquisition services................   4,402,927    4,207,947    5,239,195    3,414,711
E-commerce...................................    (619,721)          --     (686,285)          --
Corporate and other..........................      (6,668)       8,998       20,072       19,037
                                               ----------   ----------   ----------   ----------
  CONSOLIDATED TOTALS........................  $6,024,789   $4,056,306   $8,437,560   $7,108,536
                                               ==========   ==========   ==========   ==========
</TABLE>

SEGMENT DATA -- EBITDA

<TABLE>
<CAPTION>
                                               THREE MONTHS ENDED          SIX MONTHS ENDED
                                            ------------------------   -------------------------
                                              MAY 31,      MAY 31,       MAY 31,       MAY 31,
FOR THE PERIODS:                               2000          1999         2000          1999
----------------                            -----------   ----------   -----------   -----------
<S>                                         <C>           <C>          <C>           <C>
LEC Billed products and services..........  $ 1,853,645   $ (698,076)  $ 3,373,096   $ 2,499,696
Customer Acquisition services.............    4,435,016    2,331,524     4,887,107        19,039
E-commerce................................   (2,371,377)          --    (3,374,142)           --
Corporate and other.......................     (721,587)    (647,150)   (1,560,185)   (1,395,249)
                                            -----------   ----------   -----------   -----------
  CONSOLIDATED TOTALS.....................  $ 3,195,697   $  986,298   $ 3,325,876   $ 1,123,486
                                            ===========   ==========   ===========   ===========
</TABLE>

                                        9
<PAGE>   11
                 QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES

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

SEGMENT DATA -- DEPRECIATION AND AMORTIZATION

<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED     SIX MONTHS ENDED
                                                       -------------------   -------------------
                                                       MAY 31,    MAY 31,    MAY 31,    MAY 31,
FOR THE PERIODS:                                         2000       1999       2000       1999
----------------                                       --------   --------   --------   --------
<S>                                                    <C>        <C>        <C>        <C>
LEC Billed products and services.....................  $    --    $    --    $     --   $     --
Customer Acquisition services........................       --         --          --         --
E-commerce...........................................   28,149         --      55,662         --
Corporate and other..................................   45,887     79,898      91,773    153,909
                                                       -------    -------    --------   --------
  CONSOLIDATED TOTALS................................  $74,036    $79,898    $147,435   $153,909
                                                       =======    =======    ========   ========
</TABLE>

9. LITIGATION

     On or about May 4, 1998, a complaint entitled "Joseph Chalverus, on behalf
of himself and all others similarly situated v. Quintel Entertainment, Inc.,
Jeffrey L. Schwartz and Daniel Harvey" was filed in the United States District
Court for the Southern District of New York; subsequently, a complaint entitled
"Richard M. Woodward, on behalf of himself and all others similarly situated v.
Quintel Entertainment, Inc., Jeffrey L. Schwartz and Daniel Harvey" was filed in
that same court, as was a complaint entitled "Dr. Michael Title, on behalf of
himself and all others similarly situated v. Jeffrey L. Schwartz, Jay Greenwald,
Claudia Newman Hirsch, Andrew Stollman, Mark Gutterman, Steven L. Feder, Michael
G. Miller, Daniel Harvey and Quintel Entertainment, Inc." (collectively, the
"Complaints"). In addition to the Company, the defendants named in the
Complaints are present and former officers and directors of the Company (the
"Individual Defendants"). The plaintiffs seek to bring the actions on behalf of
a purported class of all persons or entities who purchased shares of the
Company's Common Stock from July 15, 1997 through October 15, 1997 and who were
damaged thereby, with certain exclusions. The Complaints allege violations of
Sections 10(b) and 20 of the Securities Exchange Act of 1934, and allege that
the defendants made misrepresentations and omissions concerning the Company's
financial results, operations and future prospects, in particular, relating to
the Company's reserves for customer chargebacks and its business relationship
with AT&T. The Complaints allege that the alleged misrepresentations and
omissions caused the Company's Common Stock to trade at inflated prices, thereby
damaging plaintiffs and the members of the purported class. The amount of
damages sought by plaintiffs and the purported class has not been specified.

     On September 18, 1998, the District Court ordered that the three actions be
consolidated, appointed a group of lead plaintiffs in the consolidated actions,
approved the lead plaintiffs' selection of counsel for the purported class in
the consolidated actions, and directed the lead plaintiffs to file a
consolidated complaint. The consolidated and amended class action complaint
("Consolidated Complaint") which has been filed asserts the same legal claims
based on essentially the same factual allegations as did the Complaints. On
February 19, 1999, the Company and the Individual Defendants filed a motion to
dismiss the Consolidated Complaint. The District Court has denied the motion to
dismiss. The Company and the Individual Defendants have answered the
Consolidated Complaint, denying all liability and raising various affirmative
defenses. Discovery has commenced. The Company believes that the allegations in
the Complaints are without merit, and intends to vigorously defend the
consolidated actions. The Company maintains Directors, Officers and Corporate
liability insurance which, the Company believes, should adequately cover
damages, if any, that may arise under the Complaints. No assurance can be given,
however, that the outcome of the consolidated actions will not have a materially
adverse impact upon the results of operations and financial condition of the
Company.

                                       10
<PAGE>   12

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

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

OVERVIEW

     Quintel Communications, Inc., and its consolidated subsidiaries
(collectively the "Company"), is a database marketing and management company
that utilizes its proprietary database, as well as the databases of our
affiliates, which contain in excess of 6 million permission based, on-line
consumers in the aggregate. The Company's main focus is to create compelling
content as marketing vehicles that generate revenue from its corporate
advertisers and marketing affiliates who seek access to the consumers in the
Company's and its affiliates' databases. Previously, the Company had relied on
conventional marketing channels, specifically television broadcast media,
telemarketing, direct-mail, and print advertising to facilitate the marketing of
its consumer based services and products. The Company had previously recognized
revenues through the offering of consumer services and products, as marketed
through the aforementioned conventional channels. The Company will continue to
market such consumer based services and products, with the majority of such
activities now being conducted on-line via the Internet. Such conventional
marketing efforts and their attendant residual net revenues are primarily
responsible for the Company's net income for the three and six-month periods
ended May 31, 2000. Such periods' net income was also benefited by adjustments
to prior period legacy business estimates for revenue reserves and fulfillment
obligations. These adjustments increased net revenue and reduced cost of sales,
with a combined pre-tax effect of approximately $1.95 million and $2.1 million
for the three and six-month periods ended May 31, 2000 respectively. The
Company's significant change in its marketing emphasis to the Internet, the
unproven reliability and profitability of the e-commerce marketplace and the
initial operating losses incurred by the Company's E-commerce segment, should
all be considered when referring to the Company's current three and six month
results, as well as its prior historical results, in evaluating the Company's
future operations, cash flows, and financial position.

     In the execution of the Company's shift to the Internet, it commenced the
formation of the "Quintel Network" in the second half of the fiscal year ended
November 30, 1999. The Quintel Network is the Company's portfolio of strategic
marketing investments and marketing partnerships with Internet-based marketing
companies, E-commerce retailers and management service providers. Together, the
companies that comprise the Quintel Network market a wide variety of products
and services aimed at the consumer audience, as well as commercial users. See
"-- Quintel Network."

BASIS OF PRESENTATION

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

SEGMENT INFORMATION

     The Company adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, as of November 30, 1999. The adoption of
SFAS No. 131 did not affect the results of operations or financial position of
the Company, but did require the Company to disclose its "management" approach
determined segments and present comparatively prepared data for the three and
six-month periods ended May 31, 1999. The Company's segments operate exclusively
in the United States with an immaterial portion

                                       11
<PAGE>   13

of revenue earned in Canada during the six months ended May 31, 1999. See
"Adoption of Segmental Reporting".

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, 2000
and May 31, 1999, respectively. It should be read in conjunction with the
Company's Form 10-K as filed for the year ended November 30, 1999, the Notes
thereto and other financial information included elsewhere in this report.

THREE MONTHS ENDED MAY 31, 2000 AND MAY 31, 1999

     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, 2000 and May 31, 1999, are detailed in the following tables:

NET REVENUES, BY SEGMENT

<TABLE>
<CAPTION>
                                                    MAY 31,             CHANGE-INC     CHANGE-INC
                                           -------------------------       (DEC)         (DEC)
                                              2000          1999            $$$           %%%
FOR THE THREE MONTHS ENDED:                ----------    -----------    -----------    ----------
<S>                                        <C>           <C>            <C>            <C>
LEC Billed products and service
  components
"900" Entertainment Service termination
  royalties..............................  $  728,096    $    83,585    $   644,511        771%
Club 900 Products........................    (257,423)       366,978       (624,401)      (170)%
Enhanced Services, principally voice
  mail...................................   1,767,035        311,874      1,455,161        467%
Telephone number lists rentals...........      58,854         32,944      1,048,218         79%
                                           ----------    -----------    -----------       ----
TOTAL LEC BILLED PRODUCTS AND SERVICES...  $2,296,562    $   795,381      1,501,181        189%
                                           ----------    -----------    -----------       ----
CUSTOMER ACQUISITION SERVICE COMPONENTS
Qwest Long distance customer
  acquisitions...........................  $  245,787    $ 6,503,892    $(6,258,105)       (96)%
Qwest Long distance usage commissions....   3,509,813      3,105,554        404,259         13%
CellStar Dish customer acquisitions......       4,341             --          4,341        100%
                                           ----------    -----------    -----------       ----
TOTAL CUSTOMER ACQUISITION SERVICES......  $3,759,941    $ 9,609,446     (5,849,505)       (61)%
                                           ----------    -----------    -----------       ----
E-COMMERCE
QTEL Network -- e-mails and co-reg's.....  $  107,153    $        --    $   107,153        100%
GroupLotto -- co-reg, lottery and
  e-mail.................................     697,208             --        697,208        100%
GroupLotto -- barter on e-mail
  database...............................     360,000             --        360,000        100%
                                           ----------    -----------    -----------       ----
TOTAL E-COMMERCE.........................  $1,164,361    $        --      1,164,361        100%
                                           ----------    -----------    -----------       ----
CORPORATE AND OTHER COMPONENTS
Miscellaneous products, list revenue and
  other..................................  $       --    $    19,115        (19,115)       100%
                                           ----------    -----------    -----------       ----
  CONSOLIDATED TOTALS....................  $7,220,864    $10,423,942    $(3,203,078)       (31)%
                                           ==========    ===========    ===========       ====
</TABLE>

     Net Revenue for the three months ended May 31, 2000 decreased $3,203,078,
or 31%, when compared to the three months ended May 31, 1999. The primary
component of the decrease in net revenues, or approximately $5.9 million (61%),
was attributable to the Company's Customer Acquisition services segment. See
"Transactions with Major Customer and Termination of Economic Dependence"
following the "Liquidity and Capital Resources" section for a detailed
discussion of this decrease.

     The decrease in Customer Acquisition segment net revenues was offset by
increases in net revenues from the Company's LEC Billed products and services
segment of approximately $1.5 million when compared to the comparable prior
year's period. The LEC segment increase resulted from increased revenues
attributable to the Company's 900 entertainment service termination royalties,
increased net revenue from Enhanced

                                       12
<PAGE>   14

Services, primarily attributable to current quarter adjustments of chargeback
estimates from prior fiscal periods, and increased list rental revenue, with all
such increases being offset by a decrease in the Company's Club 900 Products
revenue. For further discussion of prior year events effecting current year LEC
segment net revenues, see "Prior Year Transactions Impacting Current and Future
Fiscal Periods" and "Service Bureaus and Local Exchange Carriers" following the
"Liquidity and Capital Resources" section.

     The Customer Acquisition segment net revenue decrease was further offset by
an increase of approximately $1,164,000 in net revenues from the Company's
E-commerce segment during the three months ended May 31, 2000. The majority of
the E-commerce revenues were the result of fees earned from corporate
advertisers and transmission of e-mail advertisements to the Company's
registered users. The Company commenced its Internet initiative in the third
quarter of the fiscal year ended November 30, 1999, and, therefore, the quarter
ended May 31, 1999 did not include revenue from E-commerce activities.

     Historically, the Company's reported net revenues have been a product of
the gross revenues generated within each reporting period less the provision for
chargebacks (refunds and allowances) for the related reporting period, which is
recorded as a direct reduction from such gross revenues. Revenues generated from
royalties and long distance customer acquisition commissions are not subject to
provision for consumer chargebacks. Revenues from the Company's E-commerce
activities are recorded net of an allowance for uncollectible amounts, which
provides for collection adjustments to gross billings for data qualification
issues. Data qualification issues are contractually determined and consist of
undeliverable e-mail address adjustments, pre-existing registrant adjustments
and other.

     The Company's gross revenues, on a segmental basis, for the three months
ended May 31, 2000 and May 31, 1999, are presented below:

GROSS REVENUES -- BY SEGMENT

<TABLE>
<CAPTION>
                                                    MAY 31,             CHANGE-INC     CHANGE-INC
                                           -------------------------       (DEC)         (DEC)
       FOR THE THREE MONTHS ENDED:            2000          1999            $$$           %%%
       ---------------------------         ----------    -----------    -----------    ----------
<S>                                        <C>           <C>            <C>            <C>
LEC Billed products and services.........  $1,531,677    $ 5,562,648    $(4,030,971)       (72)%
Customer Acquisition services............   3,759,941      9,609,446     (5,849,505)       (61)%
E-commerce...............................   1,410,485             --      1,410,485        100%
Corporate and other......................          --         18,624        (18,624)      (100)%
                                           ----------    -----------    -----------       ----
TOTAL....................................  $6,702,103    $15,190,718    $(8,488,615)       (56)%
                                           ==========    ===========    ===========       ====
</TABLE>

     The factors listed in the net revenue section describing the reasons for
the changes in net revenues for the three months ended May 31, 2000, as compared
to the three months ended May 31, 1999, are also directly applicable to gross
revenues.

     The provisions for chargebacks, where applicable, for the Company's four
segments are presented below, for the three months ended May 31, 2000 and May
31, 1999:

CHARGEBACKS -- BY SEGMENT

<TABLE>
<CAPTION>
                                                    MAY 31,            CHANGE-INC     CHANGE-INC
                                            -----------------------       (DEC)         (DEC)
       FOR THE THREE MONTHS ENDED:            2000          1999           $$$           %%%
       ---------------------------          ---------    ----------    -----------    ----------
<S>                                         <C>          <C>           <C>            <C>
LEC Billed products and services..........  $(764,885)   $4,767,267    $(5,532,152)      (116)%
Customer Acquisition services.............  $      --    $       --             --         --%
E-commerce................................  $ 246,124    $       --        246,124        100%
Corporate and other.......................         --          (491)           491       (100)%
                                            ---------    ----------    -----------       ----
TOTAL.....................................  $(518,761)   $4,766,776    $(5,285,537)      (111)%
                                            =========    ==========    ===========       ====
</TABLE>

     The decrease in the provision for chargebacks is directly related to the
decrease in the Company's gross revenues, specifically the LEC Billed products
and services segment revenues from enhanced services and the

                                       13
<PAGE>   15

Club 900 product. These products and services were subject to chargeback
allowances, and with the Company's transition away from these revenue streams,
the corresponding effect was a decrease in chargeback allowances in absolute
dollars. Actual chargebacks incurred for services and programs that are no
longer being marketed are charged against the previously established reserves,
with any adjustment being reflected currently. Certain of the previously offered
services have reached their contractual settlement phase, with applicable
reserves no longer deemed necessary (approximately $1.3 million) being credited
to income. Such chargeback adjustments are attributable to the LEC Billed
product and service chargeback (revenue) listed in the segment table above.

     The Company's cost of revenues during the three months ended May 31, 2000
and May 31, 1999 were comprised of (1) marketing costs directly associated with
the procurement and retention of customers, including direct response
advertising costs, promotional costs and premium fulfillment costs, and (2) the
related billing, collection and customer service costs. During the three months
ended May 31, 1999, the Company's cost of revenues were offset by net revenue
generated from certain premium offerings made in conjunction with the Company's
marketing of other products and services. All residual revenues from such
premium offerings have been reflected in the Company's other income section for
the three months ended May 31, 2000 pursuant to the termination of long distance
customer acquisition marketing at November 30, 1999.

     The Company's cost of revenues for the three months ended May 31, 2000 and
May 31, 1999 are presented below:

SEGMENT DATA -- COST OF SALES

<TABLE>
<CAPTION>
                                                    MAY 31,             CHANGE-INC     CHANGE-INC
                                            ------------------------        DEC           DEC
FOR THE THREE MONTHS ENDED:                    2000          1999           $$$           %%%
---------------------------                 ----------    ----------    -----------    ----------
<S>                                         <C>           <C>           <C>            <C>
LEC Billed products and services..........  $   54,980    $  966,137    $  (911,157)       (94)%
Customer Acquisition services.............    (642,986)    5,401,499     (6,044,485)      (112)%
E-commerce................................   1,784,081            --      1,784,081        100%
Corporate and other.......................          --            --             --         --
                                            ----------    ----------    -----------       ----
TOTAL.....................................  $1,196,075    $6,367,636    $(5,171,561)       (81)%
                                            ==========    ==========    ===========       ====
</TABLE>

CONSOLIDATED COST OF SALES, BY COMPONENT

<TABLE>
<CAPTION>
                                                    MAY 31,             CHANGE-INC     CHANGE-INC
                                           -------------------------        DEC           DEC
FOR THE THREE MONTHS ENDED:                   2000          1999            $$$           %%%
---------------------------                ----------    -----------    -----------    ----------
<S>                                        <C>           <C>            <C>            <C>
Advertising, promotion and fulfillment
  costs..................................  $1,088,744    $ 8,066,608    $(6,977,864)       (87)%
Service Bureau fees, including customer
  service and psychic operators..........     107,331      2,431,751     (2,324,420)       (96)%
"900" Pay-per-call Premium net revenue...          --     (4,130,723)     4,130,723       (100)%
                                           ----------    -----------    -----------       ----
TOTAL....................................  $1,196,075    $ 6,367,636    $(5,171,561)       (81)%
                                           ==========    ===========    ===========       ====
</TABLE>

     The decrease in cost of revenues is directly attributable to the Company's
significantly reduced marketing efforts and related expenditures during the
three months ended May 31, 2000, when compared to the three months ended May 31,
1999. The primary factor contributing to the reduction in these costs resulted
from the Company's termination of the marketing of its residential long distance
customer acquisition activities, effective November 30, 1999. See "Transactions
with Major Customers and Termination of Economic Dependence". Decreases in the
cost of revenues were also attributable to the cessation of the Company's active
marketing of its "900" pay per call services as a premium to potential and
acquired long distance customers and the cessation of the marketing of the Club
900 product. See "Prior Year Transactions Impacting Current and Future Fiscal
Periods." The advertising, promotion and fulfillment costs decreased by
approximately $7.0 million(including reduction of reserves for fulfillment costs
of $650,000 relating to expired

                                       14
<PAGE>   16

fulfillment obligations), or 87%, when compared with the prior year's three
month period. Service bureau fees decreased by approximately $2.3 million, or
96%, when compared to the three months ended May 31, 1999. The reductions in
service bureau fees were directly attributable to the cessation of the Company's
billing of the Club 900 product and the significantly reduced billing and
collection costs associated with its declining residual enhanced service member
base. These reductions in cost of sales were partially offset by the costs of
revenues incurred in the Company's E-commerce segment, which commenced
operations in the third quarter of fiscal 1999.

     The Company's selling, general and administrative expenses ("SG&A") are
primarily comprised of (i) compensation costs and related expenses for
executive, sales, finance, information systems and general administration
personnel, (ii) professional fees, (iii) insurance costs, (iv) occupancy and
other equipment rental costs, (v) site development and modification costs
related to the Company's E-commerce segment, and (vi) all other general and
miscellaneous corporate expense items.

     The Company's SG&A expenses for the three months ended May 31, 2000 and May
31, 1999 are presented on a segmental basis, below:

CONSOLIDATED -- SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

<TABLE>
<CAPTION>
                                                    MAY 31,             CHANGE-INC     CHANGE-INC
                                            ------------------------       (DEC)         (DEC)
FOR THE THREE MONTHS ENDED:                    2000          1999           $$$           %%%
---------------------------                 ----------    ----------    -----------    ----------
<S>                                         <C>           <C>           <C>            <C>
LEC Billed products and services..........  $  394,606    $  537,437    $  (142,831)       (27)%
Customer Acquisition services.............     (32,089)    1,876,423     (1,908,512)      (102)%
E-commerce................................   1,779,805            --      1,779,805        100%
Corporate and other.......................     760,806       736,046         24,760          3%
                                            ----------    ----------    -----------       ----
CONSOLIDATED TOTALS.......................  $2,903,128    $3,149,906    $  (246,778)        (8)%
                                            ==========    ==========    ===========       ====
</TABLE>

     The decrease in SG&A expense in the three months ended May 31, 2000,
compared to the three months ended May 31, 1999, is primarily attributable to
the Company's reduction in personnel utilized in its legacy businesses (and all
associated costs of insurance, payroll taxes and overhead utilization), offset
by increases in human resources and development costs associated with the
Company's recently launched E-commerce segment and Internet initiative.
Additional reductions in SG&A are attributable to the terms of an agreement
entered into by the Company in the third quarter of the fiscal year ended
November 30, 1999, pursuant to which the Company (i) eliminated its media buying
operation, which included a staff of approximately twenty-one employees, (ii)
was released from a continuing rent expense obligation under an assignment of a
lease for the office space occupied by such media department, and (iii) disposed
of all the media operation's property and equipment. The costs associated with
these items were a component of total SG&A expenses for the three months ended
May 31, 1999, and amounted to approximately $603,000. See "Transactions
Impacting Current and Future Fiscal Periods."

     The Company's other income, net for the three months ended May 31, 2000
consists of interest and dividend income earned on the Company's marketable
securities of approximately $670,000, approximately $103,000 of other income
related to payments received by the Company from residual premium offering based
revenues previously associated with the Company's customer acquisition services,
approximately $135,000 in proceeds from the sale of the Company's
telecommunication license assets and a non-monetary gain on a cost basis
investment exchange of approximately $566,000. The above mentioned other income,
net items were offset by impairment write-downs of long-term investments of
approximately $1,105,000 and capitalized software costs of approximately
$241,000, and realized capital losses of approximately $38,000. Total other
income, net for the three months ended May 31, 2000 amounted to $89,087,
compared with $19,873 for the three months ended May 31, 1999, for an increase
of $69,214.

     The Company's effective income tax rate is a result of the combination of
federal income taxes at statutory rates, and state taxes. The combined effective
rate was approximately 40% for the three-month periods ended May 31, 2000 and
May 31, 1999.

                                       15
<PAGE>   17

SIX MONTHS ENDED MAY 31, 2000 AND MAY 31, 1999

     The Company's net revenues, on a segmental basis, and with disclosure of
the components of individual segments, for each of the six month periods ended
May 31, 2000 and May 31, 1999, are detailed in the following tables:

NET REVENUES, BY SEGMENT

<TABLE>
<CAPTION>
                                                     MAY 31,             CHANGE-INC    CHANGE-INC
                                             ------------------------      (DEC)         (DEC)
FOR THE SIX MONTHS ENDED:                       2000         1999           $$$           %%%
-------------------------                    ----------   -----------   ------------   ----------
<S>                                          <C>          <C>           <C>            <C>
LEC BILLED PRODUCTS AND SERVICE COMPONENTS
"900" Entertainment Service termination
  royalties................................  $1,488,196   $   401,404   $  1,086,792       271%
Club 900 Products..........................    (105,734)    2,128,638     (2,234,372)     (105)%
Enhanced Services, principally voice
  mail.....................................   2,558,052     3,099,962       (541,910)      (17)%
Telephone number lists rentals.............      65,523        57,944          7,579        13%
                                             ----------   -----------   ------------      ----
TOTAL LEC BILLED PRODUCTS AND SERVICES.....  $4,006,037   $ 5,687,948   $ (1,681,911)      (30)%
                                             ----------   -----------   ------------      ----
CUSTOMER ACQUISITION SERVICE COMPONENTS
Qwest Long distance customer
  acquisitions.............................  $  288,233   $19,395,126   $(19,106,893)      (99)%
Qwest Long distance usage commissions......   4,387,149     5,127,432       (740,283)      (14)%
CellStar Dish customer acquisitions........       4,341            --          4,341       100%
                                             ----------   -----------   ------------      ----
TOTAL CUSTOMER ACQUISITION SERVICES........  $4,679,723   $24,522,558   $(19,842,835)      (81)%
                                             ----------   -----------   ------------      ----
E -- COMMERCE
QTEL Network -- e-mails and co-reg's.......  $  107,153   $        --   $    107,153       100%
GroupLotto -- co-reg, lottery and e-mail...     746,525            --        746,525       100%
GroupLotto -- barter on e-mail database....     360,000            --        360,000       100%
                                             ----------   -----------   ------------      ----
TOTAL E-COMMERCE...........................  $1,213,678   $        --   $  1,213,678       100%
                                             ----------   -----------   ------------      ----
CORPORATE AND OTHER COMPONENTS
Miscellaneous products, list revenue and
  other....................................  $   20,072   $    19,037   $      1,035       100%
                                             ----------   -----------   ------------      ----
  CONSOLIDATED TOTALS......................  $9,919,510   $30,229,543   $(20,310,033)      (67)%
                                             ==========   ===========   ============      ====
</TABLE>

     Net Revenue for the six months ended May 31, 2000 decreased $20,310,033, or
67%, when compared to the six months ended May 31, 1999. The primary component
of the decrease in net revenues, or approximately $19.8 million (81%), was
attributable to the Company's Customer Acquisition services segment. See
"Transactions with Major Customer and Termination of Economic Dependence"
following the "Liquidity and Capital Resources" section for a detailed
discussion of this decrease. Additional decreases were attributable to
reductions in the LEC Billed product and service segment net revenue of
approximately $1.7 million, or 30% when compared with the prior year's
comparable period. For further discussion of prior year events effecting current
year LEC segment net revenues, see "Prior Year Transactions Impacting Current
and Future Fiscal Periods" and "Service Bureaus and Local Exchange Carriers"
following the "Liquidity and Capital Resources" section. The above referenced
decreases in net revenues were offset by net revenues from the Company's
E-commerce segment of approximately $1.2 million during the three months ended
May 31, 2000. The majority of the E-commerce revenues were the result of fees
earned from corporate advertisers and transmission of e-mail advertisements to
the Company's registered users. The Company commenced its Internet initiative in
the third quarter of the fiscal year ended November 30, 1999, and, therefore,
the six months ended May 31, 1999 did not include revenue from E-commerce
activities.

     Historically, the Company's reported net revenues have been a product of
the gross revenues generated within each reporting period less the provision for
chargebacks (refunds and allowances) for the related reporting period, which is
recorded as a direct reduction from such gross revenues. Revenues generated from

                                       16
<PAGE>   18

royalties and long distance customer acquisition commissions are not subject to
provision for consumer chargebacks. Revenues from the Company's E-commerce
activities are recorded net of an allowance for uncollectible amounts, which
provides for collection adjustments to gross billings for data qualification
issues. Data qualification issues are contractually determined and consist of
undeliverable e-mail addresses adjustments, pre-existing registrant adjustments
and other.

     The Company's gross revenues, on a segmental basis, for the six months
ended May 31, 2000 and May 31, 1999, are presented below:

GROSS REVENUES -- BY SEGMENT

<TABLE>
<CAPTION>
                                                     MAY 31,             CHANGE-INC    CHANGE-INC
                                             ------------------------      (DEC)         (DEC)
FOR THE SIX MONTHS ENDED:                       2000         1999           $$$           %%%
-------------------------                    ----------   -----------   ------------   ----------
<S>                                          <C>          <C>           <C>            <C>
LEC Billed products and services...........  $3,224,510   $15,087,797   $(11,863,287)     (79)%
Customer Acquisition services..............   4,679,723    24,522,558    (19,842,835)     (81)%
E-commerce.................................   1,504,202            --      1,504,202      100%
Corporate and other........................      20,072        18,624          1,448        1%
                                             ----------   -----------   ------------      ---
TOTAL......................................  $9,428,507   $39,628,979   $(30,200,472)     (76)%
                                             ==========   ===========   ============      ===
</TABLE>

     The factors listed in the net revenue section describing the reasons for
the changes in net revenues for the six months ended May 31, 2000, as compared
to the six months ended May 31, 1999, are also directly applicable to gross
revenues.

     The provisions for chargebacks, where applicable, for the Company's four
segments are presented below, for the six months ended May 31, 2000 and May 31,
1999:

CHARGEBACKS -- BY SEGMENT

<TABLE>
<CAPTION>
                                                     MAY 31,            CHANGE-INC    CHANGE-INC
                                              ----------------------      (DEC)         (DEC)
FOR THE SIX MONTHS ENDED:                       2000         1999          $$$           %%%
-------------------------                     ---------   ----------   ------------   ----------
<S>                                           <C>         <C>          <C>            <C>
LEC Billed products and services............  $(781,527)  $9,399,849   $(10,181,376)     (108)%
Customer Acquisition services...............         --           --             --         0%
E-commerce..................................    290,524           --        290,524       100%
Corporate and other.........................         --         (413)           413      (100)%
                                              ---------   ----------   ------------      ----
TOTAL.......................................  $(491,003)  $9,399,436   $ (9,890,439)     (105)%
                                              =========   ==========   ============      ====
</TABLE>

     The decrease in the provision for chargebacks is directly related to the
decrease in the Company's gross revenues, specifically the LEC Billed products
and services segment revenues from enhanced services and the Club 900 product.
These products and services were subject to chargeback allowances, and with the
Company's transition away from these revenue streams, the corresponding effect
was a decrease in chargeback allowances in absolute dollars. Actual chargebacks
incurred for services and programs that are no longer being marketed are charged
against the previously established reserves, with any adjustment being reflected
currently. Certain of the previously offered services have reached their
contractual settlement phase, with applicable reserves no longer deemed
necessary (approximately $1.4 million) being credited to income. Such chargeback
adjustments are attributable to the LEC Billed product and service chargeback
(revenue) listed in the segment table above.

     The Company's cost of revenues during the six months ended May 31, 2000 and
May 31, 1999 were comprised of (1) marketing costs directly associated with the
procurement and retention of customers, including direct response advertising
costs, promotional costs and premium fulfillment costs, and (2) the related
billing, collection and customer service costs. During the six months ended May
31, 1999, the Company's cost of revenues were offset by net revenue generated
from certain premium offerings made in conjunction with the Company's marketing
of other products and services. All residual revenues from such

                                       17
<PAGE>   19

premium offerings have been reflected in the Company's other income section for
the six months ended May 31, 2000 pursuant to the termination of long distance
customer acquisition marketing at November 30, 1999.

     The Company's cost of revenues for the six months ended May 31, 2000 and
May 31, 1999 are presented below:

SEGMENT DATA -- COST OF SALES

<TABLE>
<CAPTION>
                                                   MAY 31,              CHANGE-INC     CHANGE-INC
                                          -------------------------        DEC            DEC
FOR THE SIX MONTHS ENDED:                    2000          1999            $$$            %%%
-------------------------                 ----------    -----------    ------------    ----------
<S>                                       <C>           <C>            <C>             <C>
LEC Billed products and services........  $  141,459    $ 2,013,160    $ (1,871,701)       (93)%
Customer Acquisition services...........    (559,472)    21,107,847     (21,667,319)      (103)%
E-commerce..............................   1,899,963             --       1,899,963        100%
Corporate and other.....................          --             --              --         --
                                          ----------    -----------    ------------       ----
TOTAL...................................  $1,481,950    $23,121,007    $(21,639,057)       (94)%
                                          ----------    -----------    ------------       ----
</TABLE>

CONSOLIDATED COST OF SALES, BY COMPONENT

<TABLE>
<CAPTION>
                                                   MAY 31,              CHANGE-INC     CHANGE-INC
                                          -------------------------        DEC            DEC
FOR THE SIX MONTHS ENDED:                    2000          1999            $$$            %%%
-------------------------                 ----------    -----------    ------------    ----------
<S>                                       <C>           <C>            <C>             <C>
Advertising, promotion and fulfillment
  costs.................................  $1,207,029    $25,476,098    $(24,269,069)       (95)%
Service Bureau fees, including customer
  service and psychic operators.........     274,921      6,142,189      (5,867,268)       (96)%
"900" Pay-per-call Premium net
  revenue...............................          --     (8,497,280)      8,497,280       (100)%
                                          ----------    -----------    ------------       ----
TOTAL...................................  $1,481,950    $23,121,007    $(21,639,057)       (94)%
                                          ==========    ===========    ============       ====
</TABLE>

     The decrease in cost of revenues is directly attributable to the Company's
significantly reduced marketing efforts and related expenditures during the six
months ended May 31, 2000, when compared to the six months ended May 31, 1999.
The primary factor contributing to the reduction in these costs resulted from
the Company's termination of the marketing of its residential long distance
customer acquisition activities, effective November 30, 1999. See "Transactions
with Major Customers and Termination of Economic Dependence". Decreases in the
cost of revenues were also attributable to the cessation of the Company's active
marketing of its "900" pay per call services as a premium to potential and
acquired long distance customers and the cessation of the marketing of the Club
900 product. See "Prior Year Transactions Impacting the Current and Future
Fiscal Periods." The advertising, promotion and fulfillment costs decreased by
approximately $24.3 million (including reduction of reserves for fulfillment
costs of $650,000 relating to expired fulfillment obligations), or 95%, when
compared with the prior year's six-month period. Service bureau fees decreased
by approximately $5.9 million, or 96%, when compared to the six months ended May
31, 1999. The reductions in service bureau fees were directly attributable to
the cessation of the Company's billing of the Club 900 product and the
significantly reduced billing and collection costs associated with its declining
residual enhanced service member base. These reductions in cost of sales were
partially offset by the costs of revenues incurred in the Company's E-commerce
segment, which commenced operations in the third quarter of fiscal 1999. Such
costs amounted to approximately $1.9 million during the six months ended May 31,
2000.

     The Company's selling, general and administrative expenses ("SG&A") are
primarily comprised of (i) compensation costs and related expenses for
executive, sales, finance, information systems and general administration
personnel, (ii) professional fees, (iii) insurance costs, (iv) occupancy and
other equipment rental costs, (v) site development and modification costs
related to the Company's E-commerce segment, and (vi) all other general and
miscellaneous corporate expense items.

                                       18
<PAGE>   20

     The Company's SG&A expenses for the six months ended May 31, 2000 and May
31, 1999 are presented on a segmental basis, below:

CONSOLIDATED -- SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

<TABLE>
<CAPTION>
                                                    MAY 31,             CHANGE-INC     CHANGE-INC
                                            ------------------------        DEC           DEC
FOR THE SIX MONTHS ENDED:                      2000          1999           $$$           %%%
-------------------------                   ----------    ----------    -----------    ----------
<S>                                         <C>           <C>           <C>            <C>
LEC Billed products and services..........  $  491,482    $1,175,092    $  (683,610)      (58)%
Customer Acquisition services.............     352,088     3,395,672     (3,043,584)      (90)%
E-commerce................................   2,743,519            --      2,743,519       100%
Corporate and other.......................   1,672,030     1,568,195        103,835         7%
                                            ----------    ----------    -----------       ---
CONSOLIDATED TOTALS.......................  $5,259,119    $6,138,959    $  (879,840)      (14)%
                                            ----------    ----------    -----------       ---
</TABLE>

     The decrease in SG&A expense in the six months ended May 31, 2000, compared
to the six months ended May 31, 1999, is primarily attributable to the Company's
reduction in personnel utilized in its legacy businesses (and all associated
costs of insurance, payroll taxes and overhead utilization), offset by increases
in human resources and development costs associated with the Company's recently
launched E-commerce segment and Internet initiative. Additional reductions in
SG&A are attributable to the terms of an agreement entered into by the Company
in the third quarter of the fiscal year ended November 30, 1999, pursuant to
which the Company (i) eliminated its media buying operation, which included a
staff of approximately twenty-one employees, (ii) was released from a continuing
rent expense obligation under an assignment of a lease for the office space
occupied by such media department, and (iii) disposed of all the media
operation's property and equipment. The costs associated with these items were a
component of total SG&A expenses for the six months ended May 31, 1999, and
amounted to approximately $1,212,000. See "Prior Year Transactions Impacting
Current and Future Fiscal Periods."

     The Company's other income, net for the six months ended May 31, 2000
consists of interest and dividend income earned on the Company's marketable
securities of approximately $1,202,000, approximately $606,000 of other income
related to payments received by the Company from residual premium offering based
revenues previously associated with the Company's customer acquisition services,
approximately $135,000 in proceeds from the sale of the Company's
telecommunication license assets, a non-monetary gain on a cost basis investment
exchange of approximately $566,000 and net realized capital gains of
approximately $902,000. The above mentioned other income, net items were offset
by impairment write-downs of long-term investments of approximately $1,105,000
and capitalized software costs of approximately $241,000. Total other income,
net for the six months ended May 31, 2000 amounted to $1,970,151, compared with
$628,811 for the six months ended May 31, 1999, for an increase of $1,341,340.

     The Company's effective income tax rate is a result of the combination of
federal income taxes at statutory rates, and state taxes. The combined effective
rate was approximately 40% for the six-month periods ended May 31, 2000 and May
31, 1999.

LIQUIDITY AND CAPITAL RESOURCES

     At May 31, 2000, the Company had cash and cash equivalents of approximately
$3.8 million, reflecting a decrease of approximately $4.1 million, when compared
to the $7.9 million in cash and cash equivalents held at November 30, 1999.

     During the six months ended May 31, 2000, net cash used in operating
activities was approximately $367,100. The significant components resulting in
this use of cash were from: (i) increases in accounts receivable, primarily
attributable to the settlement agreement reached with the Company's primary long
distance customer acquisition partner, (ii) payments of corporate income taxes,
and (iii) payments on trade payables, with such uses offset by decreases in
prepaid expenses and other current assets.

     During the six months ended May 31, 2000 approximately $4.1 million of net
cash was used in investing activities, with (a) an approximate net $6.7 million
used for investment in short term, high-grade commercial

                                       19
<PAGE>   21

paper, with the Company's commercial paper position increasing to approximately
$35.2 million as at May 31, 2000, when compared to approximately $28.5 million
at November 30, 1999, (b) approximately $1.1 million used for strategic long
term investments which are carried at cost and (c) approximately $57,000 used
for capital expenditures, offset by proceeds of approximately $4.8 million from
the sale of marketable securities ($2.2 million) and the maturity of U.S.
Treasury bill investments ($2.6 million).

     Cash provided by financing investing activities during the six months ended
May 31, 2000 amounted to $321,735, all of which was provided by the exercise of
the Company's employee and director held stock options.

     Historically, the Company's primary cash requirements have been to fund the
cost of advertising and promotion. Additional funds have been used in the
purchasing of equipment and services in connection with the commencement of new
business lines and further development of businesses being test marketed. During
the fiscal year ended November 30, 1999, the Company began the process or
redefining itself as an on-line direct marketing provider of consumer services
and products, within the Internet industry. The Company's future plans and
business strategy call for its Internet based E-commerce segment to be its
primary operating focus, and a significant source of all future revenues. This
Internet initiative may have a significant impact on the Company's capital and
liquidity resources relating to the E-commerce segment's possible expenditures
for (i) marketing and advertising campaigns, (ii) the cost of additional
personnel required to occupy executive, operational and administrative
positions, (iii) product development costs, (iv) technology based costs, and (v)
other miscellaneous costs. The Company's Internet initiative, and its underlying
business plan and strategy, has caused the Company to terminate the marketing of
its legacy products and services. Accordingly, these services will no longer
contribute significantly to the Company's cash flows in subsequent fiscal
periods. This Company wide redefinition should be considered when using the
Company's historical results in evaluating future operations, cash flows and
financial position.

     Under currently proposed operating plans and assumptions (including the
substantial costs potentially attributable to the Company's Internet
initiative), management believes that projected cash flows from operations and
available cash resources will be sufficient to satisfy the Company's anticipated
cash requirements for at least the next twelve months. Currently, the Company
does not have any long-term obligations and does not intend to incur any
long-term obligations in the near future. As the Company seeks to extend its
reach into the E-commerce arena, as well as identify new and other consumer and
non-consumer services and products, the Company may use existing cash reserves,
long-term financing or other means to finance such diversification. See "Forward
Looking Information May Prove Inaccurate".

ADOPTION OF SEGMENTAL REPORTING

     The Company adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, effective November 30, 1999. The adoption of
SFAS No. 131 did not affect the results of operations or financial position of
the Company, but did require the Company to disclose its "management" approach
determined segments. The Company's segments operate exclusively in the United
States with an immaterial portion of revenue earned in Canada during the six
months ended May 31, 1999.

     The Company's reportable operating segments are aligned into three
fundamental areas: (1) Products and Services billed to consumers by Local
Exchange Carriers (LEC Billed products and services), (2) Customer Acquisition
Services billed directly to long distance carriers (Customer Acquisition
services) and (3) Internet Commerce billed directly to corporate advertisers,
marketing partners and consumers (E-commerce). The balance of the Company's
operations are immaterial individually and in the aggregate, and 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's LEC Billed product and service segment, which historically
included revenues from voice mail services and telephone entertainment services
(principally comprised of psychic related 900 pay-per-call and club products and
services), are billed and collected through the use of service bureaus, which
act as conduits for the Local and Long Distance Exchange Carriers. The Company's
Customer Acquisition services segment, which has historically included revenues
from residential long distance customer acquisi-
                                       20
<PAGE>   22

tions and related usage royalties, as well as prepaid and conventional cellular
phone customer acquisition services, were billed to and collected directly from
the parties to the agreements, and did not require service bureau intervention.
Historically, the services offered by the Company have evolved based on changing
consumer tastes, as well as the impact of telephone company billing practices,
governmental regulation, and most recently, the Internet.

     Revenue from the Company's LEC Billed product and service segment's voice
mail and club product components have historically been recognized, net of an
estimated provision for customer chargebacks (which include refunds and
credits), as customers automatically renewed their monthly subscriptions. In
regard to the Company's LEC billed product and service segment's telephone
entertainment services component, which consisted principally of the 900
pay-per-call activities, up to and including May 31, 1998, the Company
recognized revenues from the telephone entertainment services at the time the
customer initiated a billable transaction, net of an estimated provision for
customer chargebacks. Subsequent to May 31, 1998 through November 30, 1999 these
900 pay-per-call revenues were offered as a premium to the Company's acquired
long distance customers. For periods ending after November 30, 1999, such
revenues are included in other income and amounted to approximately $103,000 and
$606,000 for the three and six months ended May 31, 2000, respectively.

     In the case of its legacy revenues earned within its LEC Billed product and
service segment, the Company historically estimated the reserve for customer
chargebacks monthly, based on updated chargeback history, with any resulting
adjustments being charged against current revenue. The Company estimated
chargebacks and other provisions for new products and services without a
previous operating history, on currently available experience with similar
products and services, and adjusted such estimates as further information became
available. Since reserves were established prior to the periods in which
chargebacks were actually expended, the Company's revenues may be adjusted in
later periods in the event that the Company's incurred chargebacks vary from the
estimated amounts.

     Revenue from the Company's Customer Acquisition services segment were
recorded upon the achievement of certain events particular to the corresponding
program's fulfillment liability. Subsequent to the delivery of the initial sales
record to the respective long distance carrier, the Company may have been
required to provide to the customer certain products and services (fulfillment
liability), such as prepaid cellular telephones and/or complimentary airline
ticket redemption vouchers. These costs were estimated and accrued, as a
component of marketing expense, at the time the associated revenues were
recorded. This estimation is adjusted to actual amounts in subsequent periods.
There were no chargebacks from the Company's long distance acquisition programs.

     Revenues from the Company's E-commerce segment for the six months ended May
31, 2000 amounted to $1,213,678. Revenues from such segment are expected to
comprise the majority of the Company's future period revenues. E-commerce
revenues are recognized upon the completion of the performance of all of the
Company's obligations to the corporate advertiser, marketing partner or
consumer, dependent upon the type of revenue transaction. These obligations
include the delivery of the database information of qualified registrants,
"click throughs" and/or e-mail message transmission. Simultaneous with this
recognition of revenue the Company records all related obligations associated
with the net revenues recognized. These obligations include costs payable to
other on-line advertisers for registered user acquisitions, message delivery
costs, insurance coverage and all other variable direct costs associated with
completing the Company's obligations relative to the revenue transaction. Such
revenue recognition is also subject to provisions based on the probability of
collection.

TRANSACTION WITH MAJOR CUSTOMER AND TERMINATION OF ECONOMIC DEPENDENCE

     During the six months ended May 31, 2000 and May 31, 1999, revenues from
the Company's Customer Acquisition service segment were earned primarily from
the Residential Distributor Program Agreement with Qwest. Such revenues
accounted for approximately $4.7 million, or 47% of the Company's total revenue
during the six months ended May 31, 2000, and $24.5 million, or 81% of the
Company's total revenue during the six months ended May 31, 1999. During
November 1999, Qwest informed the Company that the

                                       21
<PAGE>   23

customers being acquired for it by the Company were not remaining Qwest
customers long enough to justify the acquisition costs Qwest was required to pay
the Company, and, accordingly, the Company should no longer solicit customers on
Qwest's behalf. Therefore, the Company terminated its marketing efforts
regarding the Qwest customer acquisition program in November 1999. This
termination of the Qwest program marketing is the primary factor for the
decrease in the Company's Customer Acquisition services segment revenue for the
three and six month periods ended May 31, 2000. During the three months ended
May 31, 2000, the Company executed a Settlement, Termination and Release
Agreement with Qwest regarding the Residential Acquisition Program Agreement.
This Agreement formally terminated the continuing customer usage payments
required to be made by Qwest to the Company in consideration for a one-time
settlement payment of approximately $3.5 million. The settlement was segregated
into two components, (a) an approximate $2.9 million lump-sum payment, which the
Company received on June 12, 2000, and (b) $800,000 placed in escrow, with such
escrowed funds to be disbursed to the Company (net of any claims arising out of
activity that occurred prior to the termination of the Company's relationship
with Qwest), in installments not to exceed $200,000, on July 1, 2000, October 1,
2000 and January 1, 2001, with any remaining balance being disbursed on April 1,
2001. The first $200,000 installment due July 1, 2000 was received by the
Company on July 7, 2000.

PRIOR YEAR TRANSACTIONS IMPACTING CURRENT AND FUTURE FISCAL PERIODS

     In June 1999, the Company entered into a series of agreements
(collectively, the "Transaction Agreements") pursuant to which the Company
ceased offering its telephone entertainment services. Included in the
Transaction Agreements is the Agreement Regarding 900 Pay-Per-Call Psychic
Services (the "900 Agreement"), dated as of May 26, 1999, by and between the
Company and Access Resource Services, Inc. ("ARS"), pursuant to which the
Company agreed to refrain until January 17, 2001 from conducting, marketing,
advertising or promoting certain "stand alone" 900 Pay-Per-Call Psychic Services
described in the 900 Agreement (the "900 Psychic Services") directly or
indirectly through any affiliate. In addition, the Company agreed to cease the
conduct of the media buying operation which it conducted under the name "Quintel
Media" and ARS agreed to assume responsibility for the "Quintel Media" employees
and for the lease of the premises used by "Quintel Media" in Fort Lauderdale,
Florida, and to acquire the computer equipment and other furniture, fixtures and
leasehold improvements used by "Quintel Media" at such premises.

     In consideration for the Company's acceptance of the terms of the 900
Agreement, ARS and any of its affiliates offering 900 Pay-Per-Call Psychic
Services and/or membership club services, agreed to pay to the Company certain
"900" entertainment service termination royalty fees relative to such service
offerings. ARS is required to pay such royalty fees from and after the
consummation of the transactions contemplated by the Transaction Agreements, and
until January 17, 2001. For the six months ended May 31, 2000, such royalties
amounted to approximately $1,488,000, or 15% of the Company's net revenues.

SERVICE BUREAUS AND LOCAL EXCHANGE CARRIERS

     In November 1998, three of the LECs (Local Exchange Carriers), Ameritech
Corp., Bell Atlantic Corp. and SBC Communications, Inc., refused to bill
customers for enhanced services provided by the Company. This was a result of
what the LECs claimed was excessive complaints by customers for "cramming"
(unauthorized charges billed to a customer's phone bill) against the Company and
its affiliates. As a result of such LEC imposed billing cessation, in November
1998, the primary billing service provider for the Company's enhanced services,
Billing Information Concepts Corporation ("BIC"), terminated its arrangement
with the Company for providing billing for the Company's enhanced services. BIC
continued to service all data relating to post-billing adjustments to records
billed prior to BIC's self-imposed billing cessation. In December 1998, the
Company entered into an agreement with Federal Transtel, Inc. ("Transtel")
whereby Transtel provided the billing services previously provided by BIC. The
remaining LECs did not alter their billing practices for the Company's services
and the Company continued to offer its enhanced services in those areas through
Transtel from December 28, 1998 to present.

                                       22
<PAGE>   24

     During the six months ended May 31, 1999, the Company billed approximately
$9.1 million in gross enhanced services as compared to approximately $1,671,000
in the six months ended May 31, 2000. The enhanced services that continue to be
billed are from the residual customers that remain from marketing efforts
undertaken prior to the November 1998 LEC billing cessation.

QUINTEL NETWORK

     In November 1999, the Company began the implementation of its strategy to
create the Quintel Network, a portfolio of marketing partnerships and strategic
investments with Internet marketing companies, e-commerce retailers and service
providers, to allow for the marketing of different services and products to a
detailed database of profiled consumers.

  Database Growth and Expansion

     The first phase in creating the Company's Quintel Network was to grow the
Company's already extensive profiled consumer database. Towards this end, the
Company has made strategic investments in several companies. In tandem with
these investments, the Company entered into marketing agreements, entitling the
Company access to these entities' proprietary e-mail databases and other
marketing data. The entities in which the Company made these strategic
investments (and to whose databases the Company gained access) include the
following:

     - SkyMall, Inc., a publicly-traded company (Nasdaq-SKYM) with access to
       e-mail addresses and other marketing information for over 3 million
       consumers, that utilizes its website, SkyMall.com, and exclusive
       agreements with several airline carriers and travel partners to offer a
       wide array of products from a variety of vendors.

     - itarget.com, Inc. (now a subsidiary of Cybergold, Inc. (Nasdaq-CGLD)) is
       a permission based direct e-mail marketing company with over 1 million
       members that have given their consent to be marketed for various products
       and services.

     - GenerationA.com, Inc. provides Internet and other computer related
       products and services to the over-50 generation.

     - AtYourBusiness.com, Inc. provides a full-range of support services for
       small businesses, including assistance with human resources, payroll,
       office management and growth management.

     - Bluewater Information Convergence, Inc. provides information technology
       consulting and fully managed data center outsourcing.

     The Company is also acquiring additional marketing information from traffic
attracted to GroupLotto.com and MultiBuyer.com, two subsidiaries of the Company.

     - GroupLotto.com -- This entity is the Company's primary focal point
       relative to its Internet initiative. The GroupLotto.com website permits
       Internet users to play an on-line lottery free in exchange for providing
       their e-mail addresses. Players can win up to a $10,000,000 jackpot by
       selecting the winning lottery numbers. GroupLotto.com accommodates the
       public's interest in free lotteries by offering the opportunity to
       participate in multiple daily chances to play at no cost, while
       simultaneously serving as a valuable marketing information source for the
       Company's other Internet activities. The Company has obtained contingent
       prize based insurance for the first jackpot payout up to $10 million.

     - MultiBuyer.com -- The Company is exploring the opportunities available
       from the MultiBuyer.com website, which is an online retail location where
       buyers consolidate their purchasing power for a variety of offered
       products and services and reap the benefits of reduced sales prices that
       generally correlate to bulk purchases. The Company has not realized
       significant traffic, or purchasing activity at this website, and cannot
       currently ascertain whether it will continue to fund the maintenance of
       the website's presence on the Internet. During the quarter ended May 31,
       2000 the Company recorded an impairment write-down of approximately
       $241,000 on related software costs capitalized in a prior period.

     Based on the foregoing alliances that comprise the Quintel Network, the
Company estimates that it presently has access to in excess of 6 million opt-in
e-mail addresses.

                                       23
<PAGE>   25

                                    PART II

                               OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     On or about May 4, 1998, a complaint entitled "Joseph Chalverus, on behalf
of himself and all others similarly situated v. Quintel Entertainment, Inc.,
Jeffrey L. Schwartz and Daniel Harvey" was filed in the United States District
Court for the Southern District of New York; subsequently, a complaint entitled
"Richard M. Woodward, on behalf of himself and all others similarly situated v.
Quintel Entertainment, Inc., Jeffrey L. Schwartz and Daniel Harvey" was filed in
that same court, as was a complaint entitled "Dr. Michael Title, on behalf of
himself and all others similarly situated v. Jeffrey L. Schwartz, Jay Greenwald,
Claudia Newman Hirsch, Andrew Stollman, Mark Gutterman, Steven L. Feder, Michael
G. Miller, Daniel Harvey and Quintel Entertainment, Inc." (collectively, the
"Complaints"). In addition to the Company, the defendants named in the
Complaints are present and former officers and directors of the Company (the
"Individual Defendants"). The plaintiffs seek to bring the actions on behalf of
a purported class of all persons or entities who purchased shares of the
Company's Common Stock from July 15, 1997 through October 15, 1997 and who were
damaged thereby, with certain exclusions. The Complaints allege violations of
Sections 10(b) and 20 of the Securities Exchange Act of 1934, and allege that
the defendants made misrepresentations and omissions concerning the Company's
financial results, operations and future prospects, in particular, relating to
the Company's reserves for customer chargebacks and its business relationship
with AT&T. The Complaints allege that the alleged misrepresentations and
omissions caused the Company's Common Stock to trade at inflated prices, thereby
damaging plaintiffs and the members of the purported class. The amount of
damages sought by plaintiffs and the purported class has not been specified.

     On September 18, 1998, the District Court ordered that the three actions be
consolidated, appointed a group of lead plaintiffs in the consolidated actions,
approved the lead plaintiffs' selection of counsel for the purported class in
the consolidated actions, and directed the lead plaintiffs to file a
consolidated complaint. The consolidated and amended class action complaint
("Consolidated Complaint") which has been filed asserts the same legal claims
based on essentially the same factual allegations as did the Complaints. On
February 19, 1999, the Company and the Individual Defendants filed a motion to
dismiss the Consolidated Complaint. The District Court has denied the motion to
dismiss. The Company and the Individual Defendants have answered the
Consolidated Complaint, denying all liability and raising various affirmative
defenses. Discovery has commenced. The Company believes that the allegations in
the Complaints are without merit, and intends to vigorously defend the
consolidated actions. The Company maintains Directors, Officers and Corporate
liability insurance which, the Company believes, should adequately cover
damages, if any, that may arise under the Complaints. No assurance can be given,
however, that the outcome of the consolidated actions will not have a materially
adverse impact upon the results of operations and financial condition of the
Company. See "Forward Looking Information May Prove Inaccurate".

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(A) EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<S>      <C>
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)
27.1*    Financial Data Schedule
</TABLE>

---------------
 * 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.

                                       24
<PAGE>   26

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

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

(B) REPORTS ON FORM 8-K.

     The Company did not file any reports on Form 8-K during the second quarter
of the fiscal year ending November 30, 2000.

                          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.

                                       25
<PAGE>   27

                                   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.

                                          QUINTEL COMMUNICATIONS, INC.

<TABLE>
<S>                                            <C>
Date: July 17, 2000                                     By: /s/ JEFFREY L. SCHWARTZ
                                               ----------------------------------------------
                                                            Jeffrey L. Schwartz
                                                              Chairman and CEO

Date: July 17, 2000                                        By: /s/ DANIEL HARVEY
                                               ----------------------------------------------
                                                               Daniel Harvey
                                                          Chief Financial Officer
                                                       (Principal Financial Officer)
</TABLE>

                                       26
<PAGE>   28

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<S>      <C>
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)
27.1*    Financial Data Schedule
</TABLE>

---------------
 * 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.