**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


WASHINGTON,
      D.C. 20549




**FORM
      10-Q/A**


Amendment
        No. 1


(Mark
      One)





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




For
      the
      quarterly period ended August 31, 2007




or




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





For
      the
      transition period from  ___________ to
      ___________





Commission
      file number 0-27046


**TRAFFIX,
      INC.**


(Exact
      name of registrant as specified in its charter)


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





(845)
      620-1212


Registrant's
      telephone number, including area code:





Indicate
      by check mark whether the Registrant: (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the Registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes
x No
o




Indicate
      by check mark whether the Registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check
      one).





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





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





The
      number of shares outstanding of the Registrant's common stock is 15,160,077
      (as
      of 10/12/07).







**TRAFFIX,
      INC.**


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


**FILED
      WITH THE SECURITIES AND EXCHANGE COMMISSION**


**QUARTER
      ENDED AUGUST 31, 2007**





**ITEMS
      IN FORM 10-Q**


**Page****Part
                  I**
              **Financial
                  Information**Item
                  1.
              Financial
                  StatementsConsolidated
                  Balance Sheets at August 31, 2007 (Unaudited) and November 30,
                  2006
                  (Audited)
              
              4Consolidated
                  Statements of Income for the three and nine months ended August
                  31, 2007
                  and August 31, 2006 (Unaudited)
              
              5Consolidated
                  Statements of Cash Flows for the nine months ended August 31, 2007
                  and
                  August 31, 2006 (Unaudited)
              
              6Consolidated
                  Statement of Shareholders’ Equity for the nine months ended August 31,
                  2007 (Unaudited)
              
              7Notes
                  to Consolidated Financial Statements (Unaudited)
              
              8Item
                  2.
              Management's
                  Discussion and Analysis of Financial Condition and Results
                  of Operations
              
              30Item
                  3.
              Quantitative
                  and Qualitative Disclosures
                  About Market Risk
              
              NoneItem
                  4.
              Controls
                  and Procedures
              
              81**Part
                  II**
              **Other
                  Information**Item
                  1.
              Legal
                  Proceedings
              
              83Item
                  1A.
              Risk
                  Factors
              
              85Item
                  2.
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              
              NoneItem
                  3.
              Defaults
                  Upon Senior Securities
              
              NoneItem
                  4.
              Submission
                  of Matters to a
                  Vote of Security Holders
              
              94Item
                  5.
              Other
                  Information
              
              94Item
                  6.
              Exhibits
              
              95**Signatures**
              
              97
  2




REASON
      FOR THE FILING





This
      amendment is being filed solely for the purpose of correcting the amount of
      “cash dividends declared per common share” for the Nine Months Ended August 31,
      2006 and 2007 as it appears on the last line of the Consolidated Statements
      of
      Income. Due to scrivener’s error, the original filing erroneously listed said
      dividends as $0.16 per share when it should have been listed as $0.24 per share.
      Aside from this correction, no other changes have been made and, the date of
      this filing notwithstanding, this amendment still speaks as of the dates
      described in the original filing and no attempt has been made to update this
      filing for any events subsequent to the initial filing.




FORWARD
      LOOKING INFORMATION





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





3




**TRAFFIX,
                  INC. AND SUBSIDIARIES****CONSOLIDATED
                  BALANCE SHEETS**
 
 **August
                  31,**
              
              **November
                  30,****2007**
              
              **2006****(Unaudited)****Assets**Current
                  assets:Cash
                  and cash equivalents
              
              $
              8,722,855
              
              $
              8,972,197Marketable
                  securities
              
              
              20,676,309
              
              
              21,433,775Accounts
                  receivable, trade, net of allowance for doubtful accountsof
                  $813,269 at August 31, 2007 and $1,079,661 at November 30,
                  2006
              
              
              10,072,841
              
              
              8,975,402Deferred
                  income taxes
              
              
              266,047
              
              
              451,909Prepaid
                  expenses and other current assets
              
              
              643,132
              
              
              957,674**Total
                  current assets**
              
              
              40,381,184
              
              
              40,790,957Property
                  and equipment, net
              
              
              1,807,988
              
              
              1,965,183Goodwill
              
              
              9,942,601
              
              
              7,913,007Other
                  intangibles, net
              
              
              2,577,256
              
              
              1,210,257Deferred
                  income taxes
              
              
              1,151,446
              
              
              846,223**Total
                  assets**
              
              $
              55,860,475
              
              $
              52,725,627**Liabilities
                  and shareholders' equity**Current
                  liabilities:Accounts
                  payable
              
              $
              5,426,845
              
              $
              4,692,374Accrued
                  expenses
              
              
              3,234,173
              
              
              3,831,223Due
                  to related parties
              
              
              -
              
              
              90,000Income
                  taxes payable
              
              
              760,754
              
              
              470,000**Total
                  liabilities**
              
              
              9,421,772
              
              
              9,083,597Minority
                  interest
              
              
              -
              
              
              313,637Commitments
                  and contingencies**Shareholders'
                  equity**Preferred
                  stock - $.001 par value; 1,000,000 shares authorized;none
                  issued and outstanding
              
              
              -
              
              
              -Common
                  stock - $.001 par value; authorized 50,000,000 shares;
                  issuedand
                  outstanding 15,130,910 shares and 14,365,671 shares,
                  respectively
              
              
              15,130
              
              
              14,365Additional
                  paid-in capital
              
              
              45,166,822
              
              
              42,286,760Retained
                  earnings
              
              
              -
              
              
              -Accumulated
                  other comprehensive income
              
              
              1,256,751
              
              
              1,027,268**Total
                  shareholders' equity**
              
              
              46,438,703
              
              
              43,328,393**Total
                  liabilities and shareholders' equity**
              
              $
              55,860,475
              
              $
              52,725,627
  The
                  accompanying notes are an integral part of these financial
                  statements
 
 4
  **TRAFFIX,
                    INC. AND SUBSIDIARIES****CONSOLIDATED
                    STATEMENTS OF INCOME****(UNAUDITED)**
  **Three
                    Months Ended**
                
                **Nine
                    Months Ended****August
                    31,**
                
                **August
                    31,**
                
                **August
                    31,**
                
                **August
                    31,****2007**
                
                **2006**
                
                **2007**
                
                **2006**Net
                    revenue
                
                $
                25,734,028
                
                $
                19,698,883
                
                $
                63,568,699
                
                $
                55,685,827Cost
                    of revenue
                
                
                18,807,892
                
                
                12,576,905
                
                
                44,267,516
                
                
                35,407,074**GROSS
                    PROFIT**
                
                
                6,926,136
                
                
                7,121,978
                
                
                19,301,183
                
                
                20,278,753Selling
                    expenses
                
                
                947,976
                
                
                1,473,299
                
                
                3,209,383
                
                
                4,683,465General
                    and administrative expenses
                
                
                4,409,013
                
                
                3,899,851
                
                
                12,443,786
                
                
                11,982,007Bad
                    debt (recapture) expense
                
                
                (62,152
                )
                
                80,028
                
                
                (90,003
                )
                
                174,340**INCOME
                    FROM OPERATIONS**
                
                
                1,631,299
                
                
                1,668,800
                
                
                3,738,017
                
                
                3,438,941Other
                    income (expense):Interest
                    income and dividends
                
                
                288,171
                
                
                277,972
                
                
                862,998
                
                
                774,344Realized
                    gains (losses) on marketable securities
                
                
                (7,218
                )
                
                12,854
                
                
                29,436
                
                
                (5,498
                )Other
                    non-operating income (expense)
                
                
                18,366
                
                
                (3,005
                )
                
                19,043
                
                
                (25,356
                )Minority
                    interest in income ofconsolidated
                    subsidiary
                
                
                -
                
                
                (144,000
                )
                
                (48,000
                )
                
                (432,000
                )**INCOME
                    BEFORE PROVISION****FOR
                    INCOME TAXES**
                
                
                1,930,618
                
                
                1,812,621
                
                
                4,601,494
                
                
                3,750,431Provision
                    for income taxes
                
                
                1,082,756
                
                
                970,573
                
                
                2,310,530
                
                
                1,848,704**NET
                    INCOME**
                
                $
                847,862
                
                $
                842,048
                
                $
                2,290,964
                
                $
                1,901,727Basic
                    earnings per share (Note 3):Net
                    income
                
                $
                0.06
                
                $
                0.06
                
                $
                0.15
                
                $
                0.13Weighted
                    average shares outstanding
                
                
                15,046,108
                
                
                14,359,171
                
                
                14,798,507
                
                
                14,286,215Diluted
                    earnings per share (Note 3):Net
                    income
                
                $
                0.06
                
                $
                0.06
                
                $
                0.15
                
                $
                0.13Weighted
                    average shares outstanding
                
                
                15,155,860
                
                
                14,547,567
                
                
                15,057,786
                
                
                14,483,124Cash
                    dividends declared per common share
                
                $
                0.08
                
                $
                0.08
                
                $
                0.24
                
                $
                0.24
 
 The
                    accompanying notes are an integral part of these financial
                    statements
 
 5
 **TRAFFIX,
                      INC. AND SUBSIDIARIES****CONSOLIDATED
                      STATEMENTS OF CASH FLOWS****(UNAUDITED)**
 
 **Nine
                      Months Ended****August
                      31,**
                  
                  **August
                      31,****2007**
                  
                  **2006**Cash
                      flows from operating activities:Net
                      income
                  
                  $
                  2,290,964
                  
                  $
                  1,901,727Adjustments
                      to reconcile net income to net cashprovided
                      by operating activities:Depreciation
                      and amortization
                  
                  
                  1,588,541
                  
                  
                  1,710,832Stock-based
                      compensation
                  
                  
                  241,675
                  
                  
                  589,060Provision
                      for uncollectible accounts
                  
                  
                  (90,003
                  )
                  
                  174,340Deferred
                      income taxes
                  
                  
                  (81,623
                  )
                  
                  249,781Net
                      (gains) losses on sale of marketable securities
                  
                  
                  (45,831
                  )
                  
                  5,498Minority
                      interest
                  
                  
                  48,000
                  
                  
                  432,000Changes
                      in assets and liabilities of business, net of
                      acquisitions:Accounts
                      receivable
                  
                  
                  (1,007,436
                  )
                  
                  (785,617
                  )Prepaid
                      expenses and other current assets
                  
                  
                  314,542
                  
                  
                  204,135Accounts
                      payable
                  
                  
                  734,471
                  
                  
                  (1,375,849
                  )Income
                      taxes payable
                  
                  
                  290,954
                  
                  
                  (151,936
                  )Due
                      to related parties
                  
                  
                  (90,000
                  )
                  
                  (5,076
                  )Other,
                      principally accrued expenses
                  
                  
                  (639,217
                  )
                  
                  186,634**Net
                      cash provided by operating activities**
                  
                  
                  3,554,837
                  
                  
                  3,135,529Cash
                      flows from investing activities:Purchases
                      of securities
                  
                  
                  (90,871,833
                  )
                  
                  (131,536,228
                  )Proceeds
                      from sales of securities
                  
                  
                  91,564,137
                  
                  
                  131,090,897Payment
                      for asset acquisition, net of cash received
                  
                  
                  (1,590,000
                  )
                  
                  (907,918
                  )Capital
                      expenditures
                  
                  
                  (324,662
                  )
                  
                  (369,184
                  )**Net
                      cash used in investing activities**
                  
                  
                  (1,222,358
                  )
                  
                  (1,722,433
                  )Cash
                      flows from financing activities:Dividends
                      paid
                  
                  
                  (3,557,914
                  )
                  
                  (3,428,211
                  )Distribution
                      to minority interest holder
                  
                  
                  (144,000
                  )
                  
                  (436,000
                  )Repayment
                      of capital lease obligation
                  
                  
                  (5,833
                  )
                  
                  (222,833
                  )Proceeds
                      from stock options exercised
                  
                  
                  953,602
                  
                  
                  219,215Excess
                      tax benefits from stock-based compensation
                  
                  
                  160,833
                  
                  
                  28,689**Net
                      cash used in financing activities**
                  
                  
                  (2,593,312
                  )
                  
                  (3,839,140
                  )Effect
                      of exchange rate changes on cash and cash equivalents
                  
                  
                  11,491
                  
                  
                  8,111Net
                      decrease in cash and cash equivalents
                  
                  
                  (249,342
                  )
                  
                  (2,417,933
                  )Cash
                      and cash equivalents, beginning of period
                  
                  
                  8,972,197
                  
                  
                  9,335,723**Cash
                      and cash equivalents, end of period**
                  
                  $
                  8,722,855
                  
                  $
                  6,917,790
 
 See
                      Notes (1), (2), (4), (6) and (11) for a summary of noncash
                      investing and
                      financing activities.
 
 The
                      accompanying notes are an integral part of these financial
                      statements
 
 6
 **TRAFFIX,
                        INC. AND SUBSIDIARIES****CONSOLIDATED
                        STATEMENT OF SHAREHOLDERS' EQUITY****FOR
                        THE NINE MONTHS ENDED AUGUST 31, 2007****(UNAUDITED)**
 
 **Common
                        Stock**
                    
                    **Additional
                        Paid-in**
                    
                    **Retained**
                    
                    **Accumulated
                            Other**
                          **Comprehensive**
                    
                    **Total**
                          **Shareholders'****Shares**
                    
                    **Amounts**
                    
                    **Capital**
                    
                    **Earnings**
                    
                    **Income(Loss)**
                    
                    **Equity****Balance,
                        November 30, 2006**
                    
                    
                    
                    
                    
                    14,365,671
                    
                    $
                    14,365
                    
                    $
                    42,286,760
                    
                    $
                    -
                    
                    $
                    1,027,268
                    
                    $
                    43,328,393Net
                        income for the nine monthsended
                        August 31, 2007
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    2,290,964
                    
                    
                    
                    
                    
                    2,290,964Unrealized losses
                        on available-for-sale securities
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (73,255
                    )
                    
                    (73,255
                    )Foreign
                        Currency Translationadjustment
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    302,738
                    
                    
                    302,738Comprehensive
                        Income
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    2,520,447Stock-based
                        compensation expense
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    241,675
                    
                    
                    
                    
                    
                    
                    
                    
                    241,675Dividends
                        declared
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (1,266,950
                    )
                    
                    (2,290,964
                    )
                    
                    
                    
                    
                    (3,557,914
                    )Stock
                        option exercises
                    
                    
                    
                    
                    
                    250,619
                    
                    
                    250
                    
                    
                    953,352
                    
                    
                    
                    
                    
                    
                    
                    
                    953,602Tax
                        benefit from exercise ofstock
                        options
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    160,833
                    
                    
                    
                    
                    
                    
                    
                    
                    160,833Common
                        stock issued in connectionwith
                        terms of prior year acquisition
                    
                    
                    
                    
                    
                    14,620
                    
                    
                    15
                    
                    
                    74,985
                    
                    
                    
                    
                    
                    
                    
                    
                    75,000Common
                        stock issued in connectionwith
                          terms of current year acquisition of minority
                          interest
                    
                    
                    
                    
                    
                    500,000
                    
                    
                    500
                    
                    
                    2,716,167
                    
                    
                    
                    
                    
                    
                    
                    
                    2,716,667**Balance,
                        August 31, 2007**
                    
                    
                    
                    
                    
                    15,130,910
                    
                    $
                    15,130
                    
                    $
                    45,166,822
                    
                    $
                    -
                    
                    $
                    1,256,751
                    
                    $
                    46,438,703
 The
                accompanying notes are an integral part of these financial
                statements
 7


**TRAFFIX,
      INC. AND SUBSIDIARIES**


**NOTES
      TO FINANCIAL STATEMENTS (UNAUDITED)**







**1.
      GENERAL**





The
      accompanying consolidated financial statements are unaudited; however,
      in the opinion of management, these financial statements are presented
      in conformity with accounting principles generally accepted in the United
      States of America. The accompanying unaudited consolidated financial statements
      reflect all adjustments which are, in the opinion of management, necessary
      for a fair presentation of the financial position and operating results
      for the interim periods presented and are of a normal and recurring nature.
      In the preparation of these financial statements, management is required
      to make estimates and assumptions that affect the reported amounts of assets
      and liabilities and disclosure of contingent assets and liabilities at the
      date
      of the financial statements and revenues and expenses during the interim
      periods reported. Actual results could differ from those estimates.





Principally,
      estimates are used in reserves for uncollectible receivables, recoverability
      of
      long-lived assets, and the realizability of deferred tax assets. Additionally,
      at times, the Company may have the potential for exposure resulting from pending
      and/or threatened litigation. See Note 10, infra.




8





Management’s
      estimates and assumptions are continually reviewed against actual results with
      the effects of any revisions being reflected in the results of operations at
      that time.




The
      accompanying unaudited consolidated financial statements should be read in
      conjunction with the audited consolidated financial statements and notes
      thereto, together with management's discussion and analysis of financial
      condition and results of operations, contained in the Company's Annual Report
      on
      Form 10-K for the fiscal year ended November 30, 2006. The consolidated balance
      sheet at November 30, 2006 was derived from the audited financial statements,
      but does not include all disclosures required by generally accepted accounting
      principles accepted in the United States of America. The results of operations
      for the three and nine-month periods ended August 31, 2007 are not necessarily
      indicative of the results to be expected for the subsequent quarter or the
      full
      fiscal year ending November 30, 2007.




9




Certain
      prior year amounts in the unaudited consolidated financial statements have
      been
      reclassified to conform to the current and prior year’s presentation.





During
      the nine months ended August 31, 2007 and August 31, 2006, options
      for 250,619 shares and 47,331 shares of the Company’s common stock, respectively,
      were exercised by its employees and directors. Tax benefits of $241,675
      and $28,689 in the nine months ended August 31, 2007 and August 31, 2006,
      respectively, resulting from the exercise of these options, were recorded
      as an increase to additional paid-in capital and a reduction of income
      taxes currently payable.





**Recent
      Accounting Pronouncements**





There
      have been no material changes to the recent pronouncements as previously
      reported in the Company’s Annual Report on Form 10-K for the fiscal year ended
      November 30, 2006.





**2.
      SIGNIFICANT ACCOUNTING POLICIES**





The
      Company’s significant accounting policies are included in its Form 10-K for the
      year ended November 30, 2006. During the nine months ended August 31, 2007,
      there were no significant changes in the Company’s accounting policies.




10





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





In
      prior
      fiscal periods a significant portion of the Company’s revenue was dependent on a
      limited number of major customers. The Company focuses on modifying its business
      methods and practices, including diversification of its revenue drivers, in
      an
      effort to diversify its customer base. There can be no assurance that the
      Company will be successful in such efforts. After giving affect to the Company’s
      business planning and diversification to minimize major customer reliance,
      the
      three and nine-month periods ended August 31, 2007 and 2006 include two and
      one
      customer, respectively, which equaled or exceeded 10% of the Company’s
      consolidated net revenue. The Company’s five largest customers during the three
      months ended August 31, 2007 accounted for 21.0%, 11.6%, 6.0%, 5.8% and 4.9%
      of
      consolidated net revenues during such period. The Company’s five largest
      customers during the nine months ended August 31, 2007 accounted for 10.2%,
      9.7%, 7.2%, 6.8% and 6.1% of consolidated net revenues during such
      period.




As
      more
      fully described in Note 11, “Subsequent Events”, the Company has executed a
      definitive Agreement and Plan of Merger with New Motion, Inc. (NASDAQ NWMO.OB).
      As identified above, New Motion, Inc. was the Company’s largest customer during
      the three and nine-month periods ended August 31, 2007, and accounted for 21.0%
      and 10.2% of revenues, respectively.





During
      the nine months ended August 31, 2007, 3.1% of the Company’s revenue was derived
      from its proprietary Personals service, iMatchUp.com., as compared to 9.4%
      of
      revenue during the comparable prior year’s period.





**Stock-based
      Compensation**





As
      a
      result of the adoption of the
      provisions of Statement of Financial Accounting Standards ("SFAS") No. 123
      (revised 2004), "Share-Based Payment" ("SFAS 123R"), effective December 1,
      2005, the Company’s net income for the three and nine-month periods ended August
      31, 2007 and August 31, 2006 includes $82,714 and $115,725, and $241,675 and
      $589,060, respectively, of compensation expense and $28,123 and $40,144, and
      $82,170 and $202,766, respectively, of income tax benefits related to the
      Company’s stock options and restricted stock grants. The compensation expense
      related to all of the Company’s stock-based compensation arrangements is
      recorded as a component of general and administrative expenses.





11




**Income
      Taxes**




Quarterly
      income taxes are calculated in accordance with the interim financial reporting
      requirements as set forth in the Accounting Principal Board’s Opinion 28 as
      amended by SFAS 109, and Financial Interpretation Number 18. The pronouncements
      consider interim quarterly periods as an integral part of the annual period,
      with interim quarterly tax periods reflecting the estimated annual effective
      tax
      rate. The Company believes that it has adequately provided for tax-related
      matters. The Company is subject to examination by taxing authorities in various
      jurisdictions. Matters raised upon audit may involve substantial amounts.
      Management considers it unlikely that resolution of any such matters would
      have
      a material adverse effect upon the Company’s consolidated financial statements.


**Nine
                  Months Ended****August
                  31,**
              
              **August
                  31,****2007**
              
              **2006****Supplemental
                  Cash Flow Disclosure**Cash
                  paid during the nine months ended for:Income
                  taxes paid (refunds received), net
              
              $
              2,234,599
              
              $
              1,352,155




12




**Non-cash
      Investing and Financing Activities**





Non-cash
      investing and financing activities are excluded from the consolidated statement
      of cash flows. For the nine months ended August 31, 2007 and August 31, 2006,
      non-cash activities included the following items:




**Investing
                    Activities:**
 
 **Nine
                    Months Ended****August
                    31,**
                
                **August
                    31,****Stock
                    Issued in connection with Acquisitions (Also see notes 6 and
                    8)**
                
                **2007**
                
                **2006**Hot
                    Rocket Marketing, Inc.
                
                
                -see
                    (1) below
                
                
                -see
                    (2) belowEZTracks,
                    L.P.
                
                
                -see
                    (1) below
                
                $
                -


(1)
      The
      Company issued 500,000 shares of its common stock on March 8, 2007, having
      a
      fair market value of $2,716,667. The issuance of such shares related to the
      Company’s minority interest acquisition in EZTracks, L.P. Approximately 14,200
      shares of the Company’s common stock, valued at $75,000, were issued on April
      25, 2007, as those shares related to a contingent earn-out attained by the
      Company’s Hot Rocket Marketing, Inc. subsidiary, effective January 31, 2007 (see
      Note 6).





(2)
      On
      May 10, 2006, as partial payment of contingent purchase price (see Note 6),
      the
      Company issued 103,354 shares of common stock having a fair market value of
      $580,690.





Non-cash
      investing activities for marketable securities relating to unrealized gains
      and
      (losses) were ($110,993) and $17,454, for the nine months ended August 31,
      2007
      and 2006, respectively.





13




**3.
      Earnings Per Share**





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





**Three
                Months Ended**
            
            **Nine
                Months Ended****August
                31,**
            
            **August
                31,**
            
            **August
                31,**
            
            **August
                31,****2007**
            
            **2006**
            
            **2007**
            
            **2006**Denominator:Denominator
                for basic earnings per share-weighted
                average shares
            
            
            15,046,108
            
            
            14,359,171
            
            
            14,798,507
            
            
            14,286,215Effect
                of dilutive securities:Stock
                options
            
            
            109,752
            
            
            188,396
            
            
            259,279
            
            
            196,909Denominator
                for diluted earnings per share-adjusted
                weighted average shares
            
            
            15,155,860
            
            
            14,547,567
            
            
            15,057,786
            
            
            14,483,124




Options
      to purchase 1,753,700 and 2,212,650 shares of common stock for the three and
      nine month periods ended August 31, 2007 and 2006, respectively, were
      outstanding but were not included in the computation of diluted earnings per
      share because their effect would be anti-dilutive.




**4.
      Comprehensive Income (Loss)**




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


**Three
                  Months Ended**
              
              **Nine
                  Months Ended****August
                  31,**
              
              **August
                  31,**
              
              **August
                  31,**
              
              **August
                  31,****2007**
              
              **2006**
              
              **2007**
              
              **2006**Net
                  income
              
              $
              847,862
              
              $
              842,048
              
              $
              2,290,964
              
              $
              1,901,727Other
                  comprehensive income (loss) , net of tax:Foreign
                  currency translation adjustment
              
              
              62,382
              
              
              (11,287
              )
              
              302,738
              
              
              145,419Unrealized
                  (losses) gains from available-for-sale securities, arising during
                  the
                  three and nine-month periods, net of deferred income taxes of ($91,487)
                  and $($4,135) for August 31, 2007 and ($37,737) and $-0- for August
                  31,
                  2006
              
              
              (177,592
              )
              
              (23,910
              )
              
              (73,255
              )
              
              (4,463
              )Add:
                  reclassification adjustments for gains realized in net income,
                  net of tax
                  effect of $-0- for the nine months ended August 31, 2006
              
              
              -
              
              
              -
              
              
              -
              
              
              (8,834
              )Comprehensive
                  income
              
              $
              732,652
              
              $
              806,851
              
              $
              2,520,447
              
              $
              2,033,849


14





**5.
      Advertising and Marketing**





The
      Company’s advertising and marketing costs, incurred in the advertising and
      marketing of the Company’s and its clients’ products, services and promotional
      offers, have historically been comprised of (1) costs associated with the
      transmission of email marketing messages, both from internal sources and
      external third party vendors, (2) costs associated with the purchase of online
      consumer marketing data (including registered users to the Company’s websites),
      (3) costs associated with our search engine marketing and optimization
      activities, (4) costs associated with the direct purchases of online advertising
      space, which is resold on a performance return basis, and (5) email and website
      program promotional and creative development costs. All above referenced costs
      are charged to operations (1) at the time of the email transmission, (2) upon
      receipt of the qualified consumer data, (3) at the time the search engine
      marketing liability is incurred, (4) at the time the online advertising space
      is
      purchased, and/or (5) at the time we take receipt of the promotional and
      creative services, respectively, and all are included as components of the
      Company’s cost of revenue accounts.




15


Total
      advertising and marketing costs included in cost of revenue for the three months
      ended August 31, 2007 and 2006 were approximately $18.8 million and $12.6
      million, respectively, and for the nine months ended August 31, 2007 and 2006
      were approximately $44.3 million and $35.4 million, respectively.




**6.
      Recent Asset Acquisitions**




**Fiscal
      2007 Acquisition**




On
      March
      13, 2007, the Company entered into a Memorandum of Agreement (the “Madacy/EZ
      Agreement”) with Madacy Entertainment LP (“Madacy”) and EZ-Tracks, LP (“EZ LP”),
      to amend the terms of a Marketing and Services Agreement dated January 22,
      2005,
      as amended (the “M&S Agreement”), by and among Madacy, EZ LP and the
      Company.





The
      M&S Agreement had provided, among other things, that EZ LP would market and
      promote EZTracks.com, the Company’s web destination consisting of downloadable
      songs licensed from Madacy (the “License”). A subsidiary of the Company, which
      owned 50.7% of EZ LP, was responsible for managing the operations of the
      business, including generating traffic to the website, as well as selling
      advertising on the site. CIK Holdings Inc. (“CIK”), an entity associated with
      Madacy, owned 49.3% of EZ LP and licensed to EZ LP its inventory of downloadable
      music, including downloadable music licensed from other parties.





Pursuant
      to the terms of the Madacy/EZ Agreement, the M&S Agreement was amended to,
      among other things, (i) provide for a single fixed 10-year term commencing
      on
      January 1, 2007 and terminating on December 31, 2016; (ii) give the Company
      the
      option to extend such term for up to five (5) additional one-year terms; (iii)
      continue the sublicense from Madacy of the San Juan Songs (as defined in the
      M&S Agreement); and (iv) continue and establish a term to the License for
      ringtones, ringbacks and other telephone uses.




16





Concurrent
      with the execution of the Madacy/EZ Agreement, the Company entered into a
      Memorandum of Agreement dated March 13, 2007 with CIK, pursuant to which the
      Company acquired CIK’s 49.3% ownership of EZ LP (the “CIK Agreement”) (so that
      the Company owns all of the limited partnership interests of EZ LP).





The
      purchase price consisted of 500,000 shares of the Company’s common stock (valued
      at approximately $2,717,000, using an average share price of $5.43 in accordance
      with the valuation standards set forth under Statement of Financial Accounting
      Standards 141 (Business Combinations), Paragraph 22, and $1,290,000 in cash,
      reduced by approximately $170,000 of a prior minority interest balance. In
      addition, the Company agreed to pay CIK additional consideration of between
      $1.25 million and $2.75 million in the event of a Traffix Sales Event or an
      EZ-Tracks Sale, each as defined in the CIK Agreement. The purchase price has
      been tentatively allocated as follows (subject to a purchase price allocation
      currently being prepared by an independent third party): $2,254,000 to
      amortizable intangibles, with an assigned useful life of 7.5 years and the
      balance of approximately $1,583,000 allocated to unamortizable
      goodwill.





The
      CIK
      Agreement further provided for CIK’s warranty and guaranty that there would be
      no termination of the License and M&S Agreement prior to July 1, 2012, and,
      if, for any reason (other than the Company’s default), there is such a
      termination, then CIK would pay the Company a sum certain, which amount would
      equal $2.6 million should the termination occur in 2007 and which amount would
      decrease during each subsequent six month period. Should the termination occur
      during the final period (i.e. the six months ending June 30, 2012), the amount
      payable by CIK would have been reduced to $0.3 million.




17





**Fiscal
      2005 Acquisition with current quarter earn-out achieved**




In
      January of Fiscal 2005, the Company, through its wholly owned subsidiary, Hot
      Rocket Acquisition Corp., acquired all of the intangible assets of Hot Rocket
      Marketing Inc. and Clockwork Advertising Inc. (collectively “Hot Rocket”),
      corporations in the business of buying and selling performance based online
      advertising space for third parties, as well as providing such services to
      the
      sales activities of our consolidated entity.




The
      initial purchase price for the Hot Rocket acquisition, recorded in Fiscal 2005,
      was approximately $3.8 million and was comprised of $3.1 million in cash, $0.7
      million (or 113,821 shares) of our common stock and transaction fees
      approximating $0.1 million. Pursuant to an independent third party valuation,
      the reported purchase price was allocated to approximately $2.2 million of
      goodwill and $1.6 million of identifiable intangibles. There were no tangible
      assets acquired.




In
      addition to the initial purchase price of the acquisition, the Company agreed
      to
      pay Hot Rocket a contingent purchase price of up to $12.5 million if Hot Rocket
      generates an aggregate of $27 million in EBITDA (as quantified in the
      acquisition agreement) over the four year period following the closing. In
      accordance with the terms of the acquisition agreement, for the period February
      1, 2005 to January 31, 2006, the Company was liable for a combined additional
      purchase price payment of $1.467 million, which has been settled by a cash
      payment of approximately $0.886 million made on May 9, 2006, and an issuance
      of
      103,354 shares issued on May 10, 2006 (then having a fair market value of
      approximately $0.581 million).




Additionally,
      in accordance with the terms of the acquisition agreement, for the period August
      1, 2006 to January 31, 2007, the Company was liable for a combined additional
      purchase price payment of $375,000, which was settled by a cash payment of
      $300,000 and the issuance of approximately 14,620 shares, then having an
      approximate fair market value of $75,000, on April 25, 2007.




18




The
      terms
      of the acquisition agreement also provided for additional contingent payments
      of
      purchase price for the periods February 1, 2006 through July 31, 2006, and
      February 1, 2006 to January 31, 2007, upon the attainment of certain EBITDA
      thresholds as specified in the acquisition agreement. Hot Rocket did not reach
      either of the EBITDA thresholds for those periods.





**7.
      Accrued Expenses**




Accrued
      expenses are comprised of the following at:


**August
                  31,**
              
              **November
                  30,****2007**
              
              **2006****(Unaudited)**Accrued
                  payroll and bonuses
              
              $
              1,172,606
              
              $
              1,553,107Advances
                  from customers
              
              
              412,991
              
              
              634,353Accrued
                  fee share liabilities
              
              
              108,627
              
              
              309,494Capital
                  lease obligations
              
              
              -
              
              
              6,844Accrued
                  marketing media costs
              
              
              345,654
              
              
              690,729Accrued
                  search engine marketing costs
              
              
              286,391
              
              
              119,153Accrued
                  professional fees
              
              
              400,023
              
              
              289,244Minority
                  interest income payable - December 2006
              
              
              48,000
              
              
              -Accrued
                  email costs
              
              
              142,820Accrued
                  property taxes
              
              
              23,260
              
              
              30,380Accrued
                  straight-line rent concession
              
              
              78,109
              
              
              82,705Other
                  accrued liabilities
              
              
              215,692
              
              
              115,214Total
                  accrued liabilities
              
              $
              3,234,173
              
              $
              3,831,223
  19


**8.
      Goodwill and Identifiable Intangibles Assets**




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


As
                    of August 31, 2007
                
                As
                    of November 30, 2006Gross
                
                
                
                GrossCarrying
                
                Accumulated
                
                Carrying
                
                AccumulatedAmount
                
                Amortization
                
                Amount
                
                AmortizationUnamortized
                    intangible assets:Goodwill
                
                $
                9,942,601
                
                
                
                
                $
                7,913,007Amortizable
                    Intangible Assets:*GroupLotto
                    identifiable intangibles:*GroupLotto
                    Site Brand Recognition
                
                $
                722,922
                
                $
                722,922
                
                $
                722,922
                
                $
                722,922GroupLotto
                    Database
                
                
                433,754
                
                
                433,754
                
                
                433,754
                
                
                433,754Intellectual
                    Property Assets
                
                
                289,169
                
                
                289,169
                
                
                289,169
                
                
                289,169Marketing
                    Right License Fee
                
                
                246,915
                
                
                177,943
                
                
                246,915
                
                
                131,756*Infiknowledge
                    identifiable intangibles:*Internet
                    Game Suite
                
                
                290,913
                
                
                289,788
                
                
                269,169
                
                
                266,523Intellectual
                    Property Assets
                
                
                218,183
                
                
                217,339
                
                
                201,876
                
                
                199,891Market
                    Position Acquired
                
                
                242,426
                
                
                241,488
                
                
                224,307
                
                
                222,102*Thanksmuch
                    identifiable intangibles:*Profiled
                    customer data
                
                
                50,000
                
                
                50,000
                
                
                50,000
                
                
                50,000Restrictive
                    Covenants
                
                
                10,000
                
                
                10,000
                
                
                10,000
                
                
                10,000*SendTraffic
                    identifiable intangibles:*Restrictive
                    Covenants
                
                
                523,109
                
                
                523,109
                
                
                523,109
                
                
                422,609Software
                
                
                963,951
                
                
                914,425
                
                
                963,951
                
                
                716,672*Hot
                    Rocket identifiable intangibles*Restrictive
                    Covenants
                
                
                569,394
                
                
                297,667
                
                
                569,394
                
                
                212,257Software
                
                
                1,012,257
                
                
                881,976
                
                
                1,012,257
                
                
                628,911*EZ
                    Tracks identifiable intangibles*Music
                    Licensing and trade name
                
                
                2,254,218
                
                
                200,375
                
                
                -
                
                
                -Total
                    amortizable intangible assets
                
                $
                7,827,211
                
                $
                5,249,955
                
                $
                5,516,823
                
                $
                4,306,566
 20


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




The
      amortizable intangibles listed above are deemed to have finite lives ranging
      between five and eight years and are generally amortized on a straight-line
      basis, with the weighted average life being 5.1 years.





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




21




The
      future Online Advertising and Media Services activities intangible amortization
      expense for the next five fiscal years is estimated to be as
      follows:





**2007**
            
            **2008**
            
            **2009**
            
            **2010**
            
            **2011***GroupLotto
                Identifiable**Intangible
                amortization:*Licenses
            
            $
            13,168
            
            $
            45,804
            
            $
            10,000
            
            $
            -
            
            $
            -*Total
                Group's amortization*
            
            
            13,168
            
            
            45,804
            
            
            10,000
            
            
            -
            
            
            -*Infiknowledge
                Identifiable**Intangible
                amortization:*Internet
                Game Suite
            
            
            132
            
            
            551
            
            
            443
            
            
            -
            
            
            -Intellectual
                Property Assets
            
            
            100
            
            
            412
            
            
            332
            
            
            -
            
            
            -Market
                Position Acquired
            
            
            113
            
            
            457
            
            
            367
            
            
            -
            
            
            -*Total
                Group's amortization*
            
            
            345
            
            
            1,420
            
            
            1,142
            
            
            -
            
            
            -*SendTraffic
                Identifiable**Intangible
                amortization:*Restrictive
                Covenants
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Software
            
            
            37,145
            
            
            12,381
            
            
            -
            
            
            -
            
            
            -*Total
                Group's amortization*
            
            
            37,145
            
            
            12,381
            
            
            -
            
            
            -
            
            
            -*Hot
                Rocket Identifiable**Intangible
                amortization:*Restrictive
                Covenants
            
            
            28,470
            
            
            113,878
            
            
            113,879
            
            
            15,500
            
            
            -Software
            
            
            84,354
            
            
            45,927
            
            
            -
            
            
            -
            
            
            -*Total
                Group's amortization*
            
            
            112,824
            
            
            159,805
            
            
            113,879
            
            
            15,500
            
            
            -*EZ
                Tracks Identifiable**Intangible
                amortization:*Music
                Lic.and trade name
            
            
            75,141
            
            
            300,562
            
            
            300,562
            
            
            300,562
            
            
            300,562*Total
                Group's amortization*
            
            
            75,141
            
            
            300,562
            
            
            300,562
            
            
            300,562
            
            
            300,562**Summary
                of Identifiable****Intangibles:***GroupLotto:*
            
            
            13,168
            
            
            45,804
            
            
            10,000
            
            
            -
            
            
            -*Infiknowledge:*
            
            
            345
            
            
            1,420
            
            
            1,142
            
            
            -
            
            
            -*SendTraffic:*
            
            
            37,145
            
            
            12,381
            
            
            -
            
            
            -
            
            
            -*Hot
                Rocket:*
            
            
            112,824
            
            
            159,805
            
            
            113,879
            
            
            15,500
            
            
            -*EZ
                Tracks:*
            
            
            75,141
            
            
            300,562
            
            
            300,562
            
            
            300,562
            
            
            300,562*Totals*
            
            $
            238,623
            
            $
            519,972
            
            $
            425,583
            
            $
            316,062
            
            $
            300,562




22


**9.
      Income Taxes**




The
      Company’s income tax provision for the three and nine months ended August 31,
      2007 was approximately $1,083,000 and $2,311,000, respectively, which represents
      expense related to current year operations.




The
      Company’s income tax provision for the three and nine months ended August 31,
      2006 was approximately $971,000 and $1,849,000, respectively, which represents
      expense related to current year operations.





The
      effective annualized income tax rate for the three and nine months ended August
      31, 2007 was 56.0% and 50.2%, respectively. This Fiscal 2007 estimated effective
      rate correlates with the Company’s annual effective income tax rate of 46.2% as
      recognized in the fiscal year ended November 30, 2006, after consideration
      of
      the impact on tax expense attributable to expenses incurred and expected to
      be
      incurred, arising out of our current merger activities.





**10.
      Litigation**





The
      Company is subject to legal proceedings, lawsuits and other claims, brought
      by:
      (1) consumers of our products and services; (2) our clients; (3) consumers
      of
      our clients’ products and services; and (4) others bringing claims that arise in
      the normal course of our business. Legal proceedings are subject to numerous
      uncertainties rendering the prediction of their outcome difficult. As a result
      of such uncertainty, we are unable to estimate the ultimate outcome of any
      of
      the subsequently mentioned claims; however, we believe that individually, and
      in
      the aggregate, the ultimate settlement of the subsequently mentioned claim(s)
      should not have a material adverse effect on our consolidated financial
      position, results of operations or cash flows.




23





*Hatton
      v. Prize America/Prize Distributors*





In
      or
      about October 2005 Brandon Hatton filed a *pro
      se* action
      in the U.S. District Court, Middle District of Tennessee (No. 05 CV 00073)
      and
      was also granted permission to proceed *in
      forma pauperis.* The
      complaint, as amended, alleges that at some time between June 2002 and July
      2004
      the plaintiff won a prize and that defendant failed to pay/deliver, and claims
      damages of $391 million. In
      December 2006, the Company learned that plaintiff had attempted to serve
      process; Company counsel made a special appearance and moved to dismiss the
      action on jurisdictional grounds. That application was denied in August 2007
      and
      plaintiff has served process. A preliminary conference has been held and the
      case will now proceed to discovery. The
      Company believes that there is no merit to this claim and intends vigorously
      to
      defend the action.





*Curtis
      J. Jackson/Shoot the Rapper Ads*





In
      late
      July 2007, the rapper Curtis J. Jackson (p/k/a 50 Cent) filed a complaint
      against the Company in Supreme Court, New York County (Index No. 602445/07).
      The
      complaint refers to certain banner ads published by the Company and alleges
      that
      50 Cent’s image was used in those ads without his permission. The complaint
      asserts claims under New York Civil Rights Law, for intentional and negligent
      infliction of emotional distress, defamation, and unjust enrichment. It seeks
      damages in excess of one million dollars, as well as injunctive relief. When
      plaintiff’s representatives originally contacted the Company regarding this
      matter in May 2007, the Company ceased using the ad copy about which they
      complained and replaced it. Plaintiff’s representatives have advised that their
      client is willing to settle the matter for a payment of $500,000. The Company
      has reported the matter to its insurance carrier, which is providing a defense,
      although the retainage on the policy is $100,000, with such retainage being
      treated as a period expense in the three and nine-month periods ended August
      31,
      2007. Currently, counsel to the Company is engaged in settlement discussions
      with plaintiff’s counsel. We believe that there is no merit to the claim and, in
      the event it is not resolved amicably, the Company intends vigorously to defend
      against it.




24





*Tactara
      LLC*





In
      June
      2007, Tactara LLC ("Tactara") filed a complaint in the Superior Court of
      California, Los Angeles, alleging that the Company breached a service order
      agreement and seeking damages of $189,000 plus interest. The Company’s contract
      with Tactara provides for arbitration and the Company has requested that the
      action be withdrawn. In September 2007, Tactara withdrew the court action
      without prejudice and served an arbitration demand with a claim of approximately
      $208,000 which appears to include some amounts unrelated to the subject
      contract. The Company is currently in settlement negotiations with Tactara’s
      counsel. The Company believes that there is no merit to the claim and in the
      event the matter is not settled, the Company intends vigorously to defend
      against it.





**11.
      Subsequent Events**




***Merger
      with New Motion, Inc.***




On
      September 26, 2007, the Company executed a definitive Agreement and Plan of
      Merger (the “Merger Agreement”) with New Motion, Inc., a Delaware corporation
      (“NM”), and NM Merger Sub, a Delaware corporation and wholly-owned subsidiary of
      NM (“Merger Sub”), pursuant to which Merger Sub will merge with and into the
      Company, the separate existence of Merger Sub shall cease, and the Company
      will
      continue as the surviving corporation in the merger, thus becoming a
      wholly-owned subsidiary of NM (the “Merger”).




25




At
      the
      effective time of the Merger, the Company’s stockholders will receive shares of
      NM’s common stock in exchange for all of its outstanding shares of common stock
      (the “Merger Consideration”). As a result of the Merger, each outstanding share
      of the Company’s common stock will be converted into the right to
      receive 0.683 of a share of NM common stock based on the Company’s
      capitalization as of September 24, 2007. In the aggregate, on a fully diluted
      basis, NM will issue 11,917,520 shares of its common stock. The exchange ratio
      and the aggregate number of shares are subject to adjustment as provided in
      the
      Merger Agreement if certain contingent matters are not resolved in accordance
      with the requirements and conditions referenced in the Merger
      Agreement.




Under
      the
      terms of the Merger Agreement, each outstanding stock option to purchase shares
      of the Company’s common stock will convert into and become an option to purchase
      common stock of NM upon the same terms and conditions as the outstanding
      options, except that the number of shares for which the new option may be
      exercised and the exercise price of the new option will be adjusted consistent
      with the applicable exchange ratio in the Merger.




It
      is the
      intent of the parties that the aggregate Merger Consideration, together with
      the
      shares of NM’s common stock to be issued to holders of the Company’s options
      upon their exercise, at the effective time of the Merger, will constitute
      approximately 45% of the shares of NM’s capital stock outstanding immediately
      after the Merger on a fully diluted basis, assuming the exercise of all
      outstanding NM options and warrants and settlement of certain contingent matters
      described in the Merger Agreement.




The
      board
      of directors of each of the Company and NM has recommended approval of the
      transaction by its shareholders. In addition, a special committee of the
      Company’s independent directors recommended approval of the Merger to the
      Company’s full board of directors. Mr. Jeffrey L. Schwartz (the Company’s chief
      executive officer and chairman of the board) and Mr. Andrew Stollman (the
      Company’s president), who hold an aggregate of 14.60 % of our outstanding
      shares, have agreed to vote in favor of the transaction pursuant to the terms
      of
      certain stockholder agreements between them and NM entered into on September
      26,
      2007. Pursuant to the terms of Mr. Schwartz’s agreement he may sell up to
      1,223,270 shares between the date of the Merger Agreement and the date of the
      stockholder’s meeting to vote on the Merger. Similarly, stockholders of NM
      holding an aggregate of 29.60% of NM’s outstanding shares have agreed to vote in
      favor of the transaction pursuant to the terms of certain stockholder agreements
      entered into with the Company on September 26, 2007. Other than with respect
      to
      Mr. Schwartz’s right to sell certain of his shares, the provisions of all of the
      stockholder agreements are similar.




26




The
      consummation of the Merger is subject to the receipt of any necessary
      governmental consents or clearances, and other customary closing conditions,
      including approval by shareholders of both companies. Subject to satisfaction
      of
      all closing conditions, the Merger is expected to close by the end of 2007
      or
      during the first quarter of 2008.




The
      Merger Agreement further contains certain termination rights for both the
      Company and NM. If the Merger Agreement is terminated, it will be void, and
      there will be no liability or obligation of any party except that each party
      will remain liable for its willful and material breach of the Merger Agreement,
      and designated provisions of the Merger Agreement, including the confidential
      treatment of information and the allocation of fees and expenses, including,
      if
      applicable, the termination fees described below, will survive
      termination.





Upon
      termination, the terminating party will pay a $4 million termination fee to
      the
      other party if (i) the board of directors of the terminating party has, pursuant
      to the Merger Agreement, made an adverse recommendation and such party has
      timely elected to terminate the Merger Agreement; (ii) the board of directors
      of
      the terminating party has, pursuant to the Merger Agreement, made an adverse
      recommendation as a result of a development after September 26, 2007, and such
      party has additionally materially breached its obligations under the Merger
      Agreement by failing to call its stockholder meeting or prepare and mail the
      applicable Proxy Statement; or (iii) the terminating party has effected a change
      in recommendation other than in accordance with the provisions of the Merger
      Agreement or approved, recommended or entered into an agreement with respect
      to
      an “acquisition proposal” (as defined in the Merger Agreement) other than in
      accordance with the provisions of the Merger Agreement.





In
      addition, if (i) either party terminates the Merger Agreement because the
      stockholder vote required to approve the Merger has not been obtained upon
      a
      vote taken at the other party’s stockholders meeting and (ii) after March 26,
      2007 and before the other party’s stockholders meeting an acquisition proposal
      is communicated to the other party, then such party will pay $1,000,000 of
      the
      termination fee within three business days following such termination; and
      if
      (iii) within twelve months of the date of the Merger Agreement termination,
      the
      other party or any of its subsidiaries executes any definitive agreement with
      respect to, or consummates, any acquisition proposal, then such party will
      pay
      the remaining $3,000,000 of the termination fee upon the date of such execution
      or consummation.




27





Furthermore,
      if (i) either party terminates the Merger Agreement because the Merger is not
      consummated on or before January 14, 2008, or, in the event the joint Form
      S-4/Proxy Statement has not been declared effective on or before November 15,
      2007, if either party terminates the Merger Agreement because the Merger has
      not
      been consummated on or before February 28, 2008, and (ii) before such
      termination there is an acquisition proposal with respect to a party, then
      the
      party receiving the acquisition proposal will pay $1,000,000 to the other party
      within three business days following such termination and if within twelve
      months of the date of the Merger Agreement termination, the party receiving
      the
      acquisition proposal or any of its subsidiaries executes any definitive
      agreement with respect to, or consummates, any acquisition proposal, then such
      party will pay the remaining $3,000,000 of the termination fee upon the date
      of
      such execution or consummation.





Upon
      completion of the Merger, Mr. Burton Katz, the current chief executive officer
      of NM will lead the combined company as chief executive officer and Mr. Stollman
      will serve as president. Mr. Schwartz will step down as chairman and a director
      of the Company. Furthermore, the employment agreement between the Company and
      Mr. Schwartz will be terminated and NM and Mr. Schwartz will enter into a
      consulting agreement with a two year term. In consideration for terminating
      his
      employment agreement, Mr. Schwartz will receive a lump sum payment of One
      Million Five Hundred Thousand Dollars ($1,500,000) upon the effective time
      of
      the Merger. The terms of Mr. Schwartz’s consulting agreement will call for him
      to provide NM with consulting services, in consideration for which he will
      be
      paid at least $200,000 per annum. In addition, Mr. Schwartz will receive health
      insurance and benefits similar to those he receives under his existing
      employment agreement with the Company.





The
      board
      of directors of the combined company following the Merger will initially consist
      of seven persons, with three persons designated by NM, two of whom will be
      independent directors, three persons designated by the Company, two of whom
      will
      be independent directors, and the chief executive officer of the combined
      company.




28




The
      terms
      of the Merger Agreement and the transactions contemplated by the Merger
      Agreement are qualified in their entirety by reference to the full text of
      the
      Merger Agreement, a copy of which is available as an attachment to the Company’s
      Form 8-K announcing the transaction, as filed on September 27, 2007. The Merger
      Agreement, as included in such Form 8-K, has been included to provide investors
      and security holders with information regarding its terms and conditions. It
      is
      not intended to provide any other factual information about NM. The Merger
      Agreement contains representations and warranties that the parties to the Merger
      Agreement made to and solely for the benefit of each other. The assertions
      embodied in such representations and warranties are qualified by information
      contained in confidential disclosure schedules that the parties exchanged in
      connection with signing the Merger Agreement. Accordingly, investors and
      security holders should not rely on such representations and warranties as
      characterizations of the actual state of facts or circumstances, since they
      were
      only made as of the date of the Merger Agreement and are modified in important
      part by the underlying disclosure schedules. Moreover, information concerning
      the subject matter of such representations and warranties may change after
      the
      date of the Merger Agreement, which subsequent information may or may not be
      fully reflected in the Company’s public disclosures.




NM
      was
      the Company’s largest customer during the three and nine-month periods ended
      August 31, 2007, and accounted for 21.0% and 10.2% of revenues,
      respectively.




*Third
      Quarter Dividend*




On
      October 11 ,
      2007 ,
      the
      Company’s Board of Directors declared a dividend of $0.08 per share on the
      outstanding shares of the Company’s common stock for the quarter ended August
      31, 2007. Such dividend is payable on or about November 10, 2007 to holders
      of
      record of such shares at the close of business on November 1, 2007. In the
      event
      the Merger is consummated, the Company, as a wholly-owned subsidiary of NM,
      will
      terminate the issuance of its quarterly dividend. Even if the Merger is not
      consummated, the Company can give no assurance that its Board will declare
      any
      dividends in future fiscal periods. Any further declarations will depend upon
      the Company’s performance, the level of its then current and retained earnings,
      if any, available capital and projected capital requirements necessary for
      operations, and other pertinent factors. You should not rely on any prior
      approvals of the Company’s Board as an indicator of its intent to approve the
      declaration of any dividends in the future.




29





**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 us. When used in this Management's Discussion
      and Analysis, and elsewhere in this Form 10-Q/A, the words “anticipate",
“believe", “estimate", and “expect" similar expressions, as they relate to our
      Company are intended to identify forward-looking statements. Such statements
      reflect the current views of our Company's management, with respect to future
      events and are subject to certain risks, uncertainties and assumptions, which
      could cause the actual results to differ materially from those reflected in
      the
      forward-looking statements.





**Overview**





We
      are a
      leading Interactive media and marketing company that provides complete
      end-to-end marketing solutions for our clients who seek to increase sales and
      customer contact deploying the numerous facets of online marketing we offer.
      Our
      clients include advertisers, direct marketers, agencies and wireless service
      providers. Our online marketing offers include search engine marketing, search
      engine optimization, email marketing, affiliate marketing, lead generation,
      creative support, and development and hosting solutions. We own and operate
      customized websites, hosted and third-party web pages, and email marketing
      platforms to facilitate consumer interaction with, and ultimate transactions
      for, our clients. We generate and record revenue primarily on a
      performance-based model, whereby revenue is recognized upon the successful
      delivery of a qualifying lead, customer, survey, completed application, ultimate
      sale or the delivery of some other measurable marketing benefit as defined
      in
      the underlying marketing agreement.




30




In
      addition to generating customers, sales and leads for our advertising clients,
      we also use this media platform for the promotion of our own services which
      include subscriptions to our online personals websites and our mobile services,
      under which we bill consumers directly.




**Proposed
      Merger**




On
      September 26, 2007, we executed a definitive Agreement and Plan of Merger
      (the “Merger Agreement”) with New Motion, Inc., a Delaware corporation (“NM”),
      and NM Merger Sub, a Delaware corporation and wholly-owned subsidiary of NM
      (“Merger Sub”), pursuant to which Merger Sub will merge with and into us, the
      separate existence of Merger Sub shall cease, and we will continue as the
      surviving corporation in the merger, thus becoming a wholly-owned subsidiary
      of
      NM (the “Merger”).




At
      the
      effective time of the Merger, our stockholders will receive shares of NM’s
      common stock in exchange for all of its outstanding shares of common stock
      (the
“Merger Consideration”). As a result of the Merger, each outstanding share
      of our common stock will be converted into the right to receive 0.683
      of a share of NM common stock based on our capitalization as of September
      24, 2007. In the aggregate, on a fully diluted basis, NM will issue 11,917,520
      shares of its common stock. The exchange ratio and the aggregate number of
      shares are subject to adjustment as provided in the Merger Agreement if certain
      contingent matters are not resolved in accordance with the requirements and
      conditions referenced in the Merger Agreement.




Under
      the
      terms of the Merger Agreement, each outstanding stock option to purchase shares
      of our common stock will convert into and become an option to purchase
      common stock of NM upon the same terms and conditions as the outstanding
      options, except that the number of shares for which the new option may be
      exercised and the exercise price of the new option will be adjusted consistent
      with the applicable exchange ratio in the Merger.




31




It
      is the
      intent of the parties that the aggregate Merger Consideration, together with
      the
      shares of NM’s common stock to be issued to holders of our options upon
      their exercise, at the effective time of the Merger, will constitute
      approximately 45% of the shares of NM’s capital stock outstanding immediately
      after the Merger on a fully diluted basis, assuming the exercise of all
      outstanding NM options and warrants and settlement of certain contingent matters
      described in the Merger Agreement.




The
      board
      of directors of each of our Company and NM has recommended approval of the
      transaction by its shareholders. In addition, a special committee of our
      independent directors recommended approval of the Merger to our full board
      of directors. Mr. Jeffrey L. Schwartz (our chief executive officer and chairman
      of the board) and Mr. Andrew Stollman (our president), who hold an aggregate
      of
      14.60 % of our outstanding shares, have agreed to vote in favor of the
      transaction pursuant to the terms of certain stockholder agreements between
      them
      and NM entered into on September 26, 2007. Pursuant to the terms of Mr.
      Schwartz’s agreement he may sell up to 1,223,270 shares between the date of the
      Merger Agreement and the date of the stockholder’s meeting to vote on the
      Merger. Similarly, stockholders of NM holding an aggregate of 29.60% of NM’s
      outstanding shares have agreed to vote in favor of the transaction pursuant
      to
      the terms of certain stockholder agreements entered into with us on
      September 26, 2007. Other than with respect to Mr. Schwartz’s right to sell
      certain of his shares, the provisions of all of the stockholder agreements
      are
      similar.




The
      consummation of the Merger is subject to the receipt of any necessary
      governmental consents or clearances, and other customary closing conditions,
      including approval by shareholders of both companies. Subject to satisfaction
      of
      all closing conditions, the Merger is expected to close by the end of 2007
      or
      during the first quarter of 2008.




The
      Merger Agreement further contains certain termination rights for both NM
      and us. If the Merger Agreement is terminated, it will be void, and there will
      be no liability or obligation of any party except that each party will remain
      liable for its willful and material breach of the Merger Agreement, and
      designated provisions of the Merger Agreement, including the confidential
      treatment of information and the allocation of fees and expenses, including,
      if
      applicable, the termination fees described below, will survive
      termination.




32





Upon
      termination, the terminating party will pay a $4 million termination fee to
      the
      other party if (i) the board of directors of the terminating party has, pursuant
      to the Merger Agreement, made an adverse recommendation and such party has
      timely elected to terminate the Merger Agreement; (ii) the board of directors
      of
      the terminating party has, pursuant to the Merger Agreement, made an adverse
      recommendation as a result of a development after September 26, 2007, and such
      party has additionally materially breached its obligations under the Merger
      Agreement by failing to call its stockholder meeting or prepare and mail the
      applicable Proxy Statement; or (iii) the terminating party has effected a change
      in recommendation other than in accordance with the provisions of the Merger
      Agreement or approved, recommended or entered into an agreement with respect
      to
      an “acquisition proposal” (as defined in the Merger Agreement) other than in
      accordance with the provisions of the Merger Agreement.





In
      addition, if (i) either party terminates the Merger Agreement because the
      stockholder vote required to approve the Merger has not been obtained upon
      a
      vote taken at the other party’s stockholders meeting and (ii) after March 26,
      2007 and before the other party’s stockholders meeting an acquisition proposal
      is communicated to the other party, then such party will pay $1,000,000 of
      the
      termination fee within three business days following such termination; and
      if
      (iii) within twelve months of the date of the Merger Agreement termination,
      the
      other party or any of its subsidiaries executes any definitive agreement with
      respect to, or consummates, any acquisition proposal, then such party will
      pay
      the remaining $3,000,000 of the termination fee upon the date of such execution
      or consummation.





Furthermore,
      if (i) either party terminates the Merger Agreement because the Merger is not
      consummated on or before January 14, 2008, or, in the event the joint Form
      S-4/Proxy Statement has not been declared effective on or before November 15,
      2007, if either party terminates the Merger Agreement because the Merger has
      not
      been consummated on or before February 28, 2008, and (ii) before such
      termination there is an acquisition proposal with respect to a party, then
      the
      party receiving the acquisition proposal will pay $1,000,000 to the other party
      within three business days following such termination and if within twelve
      months of the date of the Merger Agreement termination, the party receiving
      the
      acquisition proposal or any of its subsidiaries executes any definitive
      agreement with respect to, or consummates, any acquisition proposal, then such
      party will pay the remaining $3,000,000 of the termination fee upon the date
      of
      such execution or consummation.




33





Upon
      completion of the Merger, Mr. Burton Katz, the current chief executive officer
      of NM will lead the combined company as chief executive officer and Mr. Stollman
      will serve as president. Mr. Schwartz will step down as our chairman and a
      director. Furthermore, the employment agreement between Mr. Schwartz and us
      will
      be terminated and NM and Mr. Schwartz will enter into a consulting agreement
      with a two year term. In consideration for terminating his employment agreement,
      Mr. Schwartz will receive a lump sum payment of One Million Five Hundred
      Thousand Dollars ($1,500,000) upon the effective time of the Merger. The terms
      of Mr. Schwartz’s consulting agreement will call for him to provide NM with
      consulting services, in consideration for which he will be paid at
      least $200,000 per annum. In addition, Mr. Schwartz will receive health
      insurance and benefits similar to those he receives under his existing
      employment agreement with us.





The
      board
      of directors of the combined company following the Merger will initially consist
      of seven persons, with three persons designated by NM, two of whom will be
      independent directors, three persons designated by us, two of whom will be
      independent directors, and the chief executive officer of the combined
      company.




The
      terms
      of the Merger Agreement and the transactions contemplated by the Merger
      Agreement are qualified in their entirety by reference to the full text of
      the
      Merger Agreement, a copy of which is available as an attachment to our Form
      8-K announcing the transaction, as filed on September 27, 2007. The Merger
      Agreement, as included in such Form 8-K, has been included to provide investors
      and security holders with information regarding its terms and conditions. It
      is
      not intended to provide any other factual information about NM. The Merger
      Agreement contains representations and warranties that the parties to the Merger
      Agreement made to and solely for the benefit of each other. The assertions
      embodied in such representations and warranties are qualified by information
      contained in confidential disclosure schedules that the parties exchanged in
      connection with signing the Merger Agreement. Accordingly, investors and
      security holders should not rely on such representations and warranties as
      characterizations of the actual state of facts or circumstances, since they
      were
      only made as of the date of the Merger Agreement and are modified in important
      part by the underlying disclosure schedules. Moreover, information concerning
      the subject matter of such representations and warranties may change after
      the
      date of the Merger Agreement, which subsequent information may or may not be
      fully reflected in our public disclosures.




34




NM
      was our largest customer during the three and nine-month periods ended
      August 31, 2007, and accounted for 21.0% and 10.2% of revenues,
      respectively.




Madacy
      Acquisition




On
      March
      13, 2007, we entered into a Memorandum of Agreement (the “Madacy/EZ Agreement”)
      with Madacy Entertainment LP (“Madacy”) and EZ-Tracks, LP (“EZ LP”), to amend
      the terms of a Marketing and Services Agreement dated January 22, 2005, as
      amended (the “M&S Agreement”), by and among Madacy, EZ LP and us.





The
      M&S Agreement had provided, among other things, that EZ LP would market and
      promote EZTracks.com, our web destination consisting of downloadable songs
      licensed from Madacy (the “License”). Our subsidiary, which owned 50.7% of EZ
      LP, was responsible for managing the operations of the business, including
      generating traffic to the website, as well as selling advertising on the site.
      CIK Holdings Inc. (“CIK”), an entity associated with Madacy, owned 49.3% of EZ
      LP and licensed to EZ LP its inventory of downloadable music, including
      downloadable music licensed from other parties.





Pursuant
      to the terms of the Madacy/EZ Agreement, the M&S Agreement was amended to,
      among other things, (i) provide for a single fixed 10-year term commencing
      on
      January 1, 2007 and terminating on December 31, 2016; (ii) give us the option
      to
      extend such term for up to five (5) additional one-year terms; (iii) continue
      the sublicense from Madacy of the San Juan Songs (as defined in the M&S
      Agreement); and (iv) continue and establish a term to the License for ringtones,
      ringbacks and other telephone uses.





Concurrent
      with the execution of the Madacy/EZ Agreement, we entered into a Memorandum
      of
      Agreement dated March 13, 2007 with CIK, pursuant to which we acquired CIK’s
      49.3% ownership of EZ LP (the “CIK Agreement”) (so that we now own all of the
      limited partnership interests of EZ LP).




35





The
      purchase price consisted of 500,000 shares of our common stock (valued at
      approximately $2,717,000, using an average share price of $5.43 in accordance
      with the valuation standards set forth under Statement of Financial Accounting
      Standards 141 (Business Combinations), Paragraph 22) and $1,290,000 in cash,
      reduced by approximately $170,000 of a prior minority interest balance. In
      addition, we agreed to pay CIK additional consideration of between $1.25 million
      and $2.75 million in the event of a Traffix Sales Event or an EZ-Tracks Sale,
      each as defined in the CIK Agreement. The purchase price has been tentatively
      allocated as follows (subject to a purchase price allocation currently being
      prepared by an independent third party): $2,254,000 to amortizable intangibles,
      with an assigned useful life of 7.5 years (the entire license term being 10
      years) and the balance of the purchase price, or approximately $1,583,000 was
      allocated to unamortizable goodwill.





The
      CIK
      Agreement further provided for CIK’s warranty and guaranty that there would be
      no termination of the License and M&S Agreement prior to July 1, 2012, and,
      if, for any reason (other than our default), there is such a termination, then
      CIK would pay us a sum certain, which amount would equal $2.6 million should
      the
      termination occur in 2007 and which amount would decrease during each subsequent
      six month period. Should the termination occur during the final period (i.e.
      the
      six months ending June 30, 2012), the amount payable by CIK would have been
      reduced to $0.3 million.




Hot
      Rocket




In
      January of Fiscal 2005, we, through our wholly owned subsidiary, Hot Rocket
      Acquisition Corp., acquired all of the intangible assets of Hot Rocket Marketing
      Inc. and Clockwork Advertising Inc. (collectively “Hot Rocket”), corporations in
      the business of buying and selling performance based online advertising space
      for third parties, as well as providing such services to the sales activities
      of
      our consolidated entity.




36




The
      initial purchase price for the Hot Rocket acquisition, recorded in Fiscal 2005,
      was approximately $3.8 million and was comprised of $3.1 million in cash, $0.7
      million (or 113,821 shares) of our common stock and transaction fees
      approximating $0.1 million. Pursuant to an independent third party valuation,
      the reported purchase price was allocated to approximately $2.2 million of
      goodwill and $1.6 million of identifiable intangibles. There were no tangible
      assets acquired.




In
      addition to the initial purchase price of the acquisition, we agreed to pay
      Hot
      Rocket a contingent purchase price of up to $12.5 million if Hot Rocket
      generates an aggregate of $27 million in EBITDA (as quantified in the
      acquisition agreement) over the four year period following the closing. In
      accordance with the terms of the acquisition agreement, for the period February
      1, 2005 to January 31, 2006, we were liable for a combined additional purchase
      price payment of $1.467 million, which has been settled by a cash payment of
      approximately $0.886 million made on May 9, 2006, and an issuance of 103,354
      shares issued on May 10, 2006 (then having a fair market value of approximately
      $0.581 million).




Additionally,
      in accordance with the terms of the acquisition agreement, for the period August
      1, 2006 to January 31, 2007, we were liable for a combined additional purchase
      price payment of $375,000, which was settled by a cash payment of $300,000,
      and
      the issuance of 14,620 shares, with both events occurring during the nine months
      ended August 31, 2007.




The
      terms
      of the acquisition agreement also provided for additional contingent payments
      of
      purchase price for the periods February 1, 2006 through July 31, 2006, and
      February 1, 2006 to January 31, 2007, upon the attainment of certain EBITDA
      thresholds as specified in the agreement. Hot Rocket did not reach either of
      the
      EBITDA thresholds for those periods.




Future
      contingent payments made, if any, will be treated as additional purchase price
      and included as an addition to goodwill.




37





**Background**





From
      our
      inception in 1993 (under the name "Quintel Communications, Inc.") through 1999,
      we generated the bulk of our revenue from direct marketing using the traditional
      media of television, postal mail and telemarketing.




In
      Fiscal
      2000, we repositioned our operations, focus and direct marketing business to
      the
      online media of the Web. Applying the marketing disciplines honed from our
      years
      of operating in the "off-line" media arena, we have been able to provide
      enhanced response-based results in a cost-effective and scaleable manner via
      our
      online marketing strategy.




During
      December 1995, we completed our initial public offering of common stock, which
      is publicly traded and is currently reported on the NASDAQ National Market
      under
      the symbol “TRFX”.




We
      are
      headquartered in Pearl River, New York and our mailing address is 1 Blue Hill
      Plaza, Pearl River, New York, 10965. The telephone number of our executive
      offices is (845) 620-1212. We have subsidiaries and branch offices in
      Canada.




**Online
      Advertising and Media Services**





We
      own
      and operate a variety of Internet websites featuring specialized content such
      as
      online personals, downloadable ring-tones, wallpaper and music, recipes,
      greeting cards, automobile information, DVD promotions, and other theme-based
      content. We generate traffic to our websites from advertising on third-party
      Internet media (e.g., search engines, email and banner advertisements) and
      through cross-marketing within our own online media. Our Web properties and
      our
      marketing activities utilize proprietary technologies to generate real-time
      response-based marketing results for our advertising clients. When visiting
      our
      online properties, consumers are given the opportunity to purchase, sign-up
      for,
      ask to be contacted regarding, or simply indicate an interest in, hundreds
      of
      offers for various products and services. Specifically, through these
      interactive Web properties we generate a variety of transactional results
      ranging from (a) Web traffic, (b) inbound telemarketing calls, (c) outbound
      telemarketing leads, (d) demographically/psychographically profiled lists of
      consumers, (e) highly-targeted customized response-based leads, (f) completed
      applications for products, and (g) sales of our clients’ products and
      services.




38




*Online
      Advertising - Website Advertising*




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





The
      websites feature content ranging from music for downloads to sweepstakes. In
      Fiscal 2004, we launched EZ-Tracks.com (a Canadian domiciled majority owned
      subsidiary), our music destination site that features over 30,000 songs
      available for free and legal downloading, as well as other content such as
      musical greeting cards and a downloadable version of the Bible in audio format.
      During the nine months ended August 31, 2007, we acquired the 49.3% minority
      interest in EZ-Tracks.com (see “-Overview”). We have a games website that offers
      a variety of free parlor-style games, such as backgammon and checkers. In Fiscal
      2004, we also launched reciperewards.com, a website that features thousands
      of
      cooking recipes.





Our
      PrizeDistributors, Inc. sponsored group of websites offers consumers the
      opportunity to win up to $1 million daily in our free, online sweepstakes.
      The
      sweepstakes prizes are indemnified by an independent, third-party agency. In
      order to play, each consumer must provide complete and accurate registration
      information and agree to receive ("opt-in") marketing messages from us and
      our
      marketing partners.




39




We
      own
      and operate several other websites such as Q121, Inc., Music of Faith.com,
      AtlasCreditGroup.com, TheBargainSpot.com, AltasAutomotiveGroup.com,
      EZGreets.com, GameFiesta.com, PrizeAmerica.com and LoveFreeGames.com. Each
      of
      these sites is designed for a specific consumer interest category that we
      matched with client promotions that appeal to such interest category.





*Online
      Advertising - Email Marketing Programs*




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




*Results
      Analysis*




Subsequent
      to a campaign being fully implemented, we continually analyze the marketing
      results to gauge whether the campaigns are generating adequate results for
      the
      client, whether the media is being utilized cost-efficiently, and to determine
      whether new and different copy is yielding better overall results. These are
      traditional direct-marketing disciplines that we apply and that, we believe,
      distinguish us from many of our competitors in the online marketing
      industry.




*Affiliate
      Marketing*




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




40




*Syndication*




After
      we
      develop a campaign that works efficiently on our own media, we sometimes
      "syndicate" the program to third-party media. Typically, we have expended time,
      media and other costs in developing certain campaigns. In exchange for this
      invested effort, we obtain the right to market those campaigns to other online
      media companies. We believe that with syndicated offers we can leverage
      campaigns we have developed so that in future fiscal periods we can generate
      additional revenue with reduced costs and risks associated with such business
      extension. There is no guarantee that this belief will be realized in future
      fiscal periods.




*Online
      Advertising - Internet Media Performance Based Sales*




Pursuant
      to our Fiscal 2005 acquisition of Hot Rocket Marketing, Inc., we generate
      revenues from the resale, on a variable performance basis, of Internet Media
      Advertising space acquired on a fixed cost basis.




*Online
      Advertising - Data Sales, Rentals and List Management*




We
      also
      generate revenues from the sales, rentals and management (for use both online
      and offline) of our proprietary, profiled databases. Such revenue is included
      in
      our Online Advertising and Media Services activities revenue in the Online
      Advertising revenue line item component.




*Search
      Engine Marketing*




Our
      search engine marketing company, SendTraffic (acquired in Fiscal 2004), develops
      and manages search engine marketing (SEM) campaigns for our third party
      advertising clients, as well as for our own proprietary websites, promotions
      and
      offers. Using a proprietary technology called Marketing Dashboard, we build,
      manage and analyze the effectiveness of hundreds of thousands of pay per click
      (PPC) keywords in real time across each of the major search engines, like
      Google, Yahoo and MSN. SendTraffic pays the search engines directly for the
      traffic, and generates revenue by billing its clients the search engine costs,
      plus a marketing services fee. We also perform search engine optimization (SEO)
      services, for which advertising clients are billed a monthly retainer
      fee.




41




*Personals*




Our
      Personals business is designed as a monthly recurring billing program, with
      various memberships to our Personals program, iMatchUp.com. Revenue from our
      Personals business is generated by directly billing consumers. In the latter
      part of Fiscal 2006, we began managing the declining Personals customer base,
      and had, and continue to have, a reduction in marketing efforts directed at
      obtaining new enrollments within the Personals program. Competition for
      enrollees has driven the marketing costs in excess of our tolerable
      thresholds.





*Internet
      Game Development*




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




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




**Transactions
      with Major Customers**





Transactions
      with major customers and related economic dependence information is set forth
      (1) following our discussion of Liquidity and Capital Resources, (2) in our
      discussion of Critical Accounting Policy and Accounting Estimates Discussion
      (immediately following {1} previously mentioned) and (3) under the heading
      “Transactions with Major Customers” in Note 1 to the Consolidated Financial
      Statements referred to in the Financial Statements and Supplementary Data
      section hereof and incorporated herein by reference.




42




**Basis
      of Presentation**





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





**Segment
      Information**





We
      operate in one segment, Online Advertising and Media Services. In classifying
      the financial information for our operating activities, we rely primarily upon
      the evaluations of the chief operating decision maker (CODM - as managed by
      committee) and executive management in deciding how to allocate our resources
      and assess our performance. Disclosure is also required about products and
      services, geographic areas and major customers.




We
      sell
      services and not products and, correspondingly, do not carry
      inventory.




We
      had
      Internet Game Development revenue from our Canadian-based subsidiary of
      approximately $645,000 and $774,000 during the nine-month periods ended August
      31, 2007 and 2006, respectively. The primary role of the Canadian subsidiary
      is
      to support back office data operations and does not directly contribute
      significant amounts to consolidated net income. The majority of the Canadian
      subsidiary’s outlays are related to the generation of our revenues.
      Correspondingly, we classify them within the categories of cost of sales and
      selling, general and administrative expenses, where appropriate.




43





Segment
      information is set forth in Note 1 to the Consolidated Financial Statements
      referred to in the Financial Statements and Supplementary Data section hereof.





**RESULTS
      OF OPERATIONS**





The
      following is a discussion of our results of operations for the three and
      nine-month periods ended August 31, 2007 and August 31, 2006. It should be
      read
      in conjunction with our Annual Report on Form 10-K as filed for the year ended
      November 30, 2006, the notes thereto and other financial information included
      elsewhere in this report.





THREE
      MONTHS ENDED AUGUST 31, 2007 AND 2006





Our
      net
      revenues, and the disclosure of our revenue components, for each of the three
      months ended August 31, 2007 and August 31, 2006, are set forth
      below:


***Net
                  Revenue Components******Online
                  Advertising and Media Service
                  Activities***
 
 **Three
                  Months Ended**
              
              **Change**
              
              **Change****August
                  31,**
              
              **August
                  31,**
              
              **Inc(Dec)**
              
              **Inc(Dec)****2007**
              
              **2006**
              
              $$$
              
              %%%Online
                  Advertising
              
              $
              16,587,672
              
              $
              13,688,990
              
              $
              2,898,682
              
              
              21
              %Search
                  Engine Marketing
              
              
              8,579,204
              
              
              4,117,887
              
              
              4,461,317
              
              
              108
              %Personals
              
              
              435,628
              
              
              1,531,465
              
              
              (1,095,837
              )
              
              -72
              %Internet
                  game development
              
              
              131,524
              
              
              360,541
              
              
              (229,017
              )
              
              -64
              %**Consolidated
                  totals**
              
              $
              25,734,028
              
              $
              19,698,883
              
              $
              6,035,145
              
              
              31
              %
  44


Net
      Revenue increased approximately $6.0 million, or 31%, to $25.7 million for
      the
      three months ended August 31, 2007, from $19.7 million in the prior year’s
      comparable period. The Online Advertising and Media Service’s core business grew
      organically, primarily driven by increased revenues from Search Engine Marketing
      services ($4.5 million, or 108%) and Online Advertising services ($2.9 million,
      or 21%), offset by combined declines in our Personals business and our Internet
      game development activities of approximately $1.1 million, or 72.0%, and $0.2
      million, or 64%, respectively. Search Engine Marketing service revenue increased
      as a result of our continued focus on the successful identification of new
      third
      party clients and our enhancement of existing Search client relationships.
      Our
      Online Advertising revenue principally consists of three revenue sub-sets:
      (a)
      our Website Advertising sub-set revenue increased to $12.6 million from $8.8
      million, for an increase of approximately $3.8 million, or 44%, and is primarily
      the result of the continuation of our increased emphasis on generating revenue
      via our Websites for our recently developed wireless client relationships,
      offset by declines in other historically traditional clientele; (b) our Email
      Marketing sub-set revenue declined to $0.6 million from $1.8 million, for a
      decrease of approximately $1.2 million, or 65%, and resulted from internet
      service providers’ consumer contact restrictions negatively impacting our
      ability to deliver commercial email to our permission based consumers; (c)
      revenues generated from our Hot Rocket Marketing subsidiary increased to $3.2
      million from $2.8 million, for an increase of approximately $0.4 million, or
      14%, and resulted from the combination of an expansion in their client base,
      increased utilization of their affiliate network and increased volume with
      previously existing clients.




Our
      Personals business revenue declined as a result of our prior year suspension
      of
      consumer enrollments based on the unprofitable values being paid for such new
      personals enrollees. We continue to generate revenues from the declining base
      of
      customers acquired in prior years, and expect this to be an immaterial
      contribution to operations in future fiscal periods.




45




Our
      cost
      of revenue during the three months ended August 31, 2007 and Auguat 31, 2006
      were comprised of direct and indirect marketing costs associated with the
      acquisition  and
      retention of consumers for our Online Advertising and Media Service activities’
marketing programs, and includes direct response email marketing costs
      (including related salaries, depreciation and amortization costs), website
      registrations costs, the cost of customer profiles, other customer acquisition
      costs, search engine marketing costs, and the related contingent-based
      sweepstakes indemnification expense.





The
      cost
      of revenues, and the disclosure of the components, for each of the three-month
      periods ended August 31, 2007 and August 31, 2006, are set forth
      below:


***Cost
                  of Revenue Components******Online
                  Advertising and Media Service
                  Activities***
 
 **Three
                  Months Ended**
              
              **Change**
              
              **Change****August
                  31,**
              
              **August
                  31,**
              
              **Inc(Dec)**
              
              **Inc(Dec)****2007**
              
              **2006**
              
              $$$
              
              %%%Online
                  Advertising
              
              $
              11,758,726
              
              $
              7,939,783
              
              $
              3,818,943
              
              
              48
              %Search
                  Engine Marketing
              
              
              6,993,466
              
              
              3,290,616
              
              
              3,702,850
              
              
              113
              %Personals
              
              
              15,660
              
              
              1,233,344
              
              
              (1,217,684
              )
              
              -99
              %Internet
                  game development
              
              
              40,040
              
              
              113,162
              
              
              (73,122
              )
              
              -65
              %**Consolidated
                  totals**
              
              $
              18,807,892
              
              $
              12,576,905
              
              $
              6,230,987
              
              
              50
              %


Cost
      of
      revenues on a consolidated basis increased $6.2 million, or 50%, to $18.8
      million for the three months ended August 31, 2007, from $12.6 million in the
      comparable prior year period.




The
      significant factors contributing to the increase in consolidated cost of
      revenues were related to an increase of $3.7 million, or 113%, in the costs
      incurred in conducting our increased volume of Search Engine Marketing
      activities and an increased relative cost of procuring marketing media in the
      conduct of our Online Advertising activities. The increases in cost of revenue
      referenced above were offset by a decline in the cost of revenues attributable
      to our Personals business, of $1.2 million, or 99%, which relates to the
      suspension in outlays for new Personals enrollees based on the prohibitive
      market cost of such enrollees.




46




Our
      gross
      profit in terms of dollars, on a component basis, and our gross profit
      percentage, on a component basis, for each of the three-month periods ended
      August 31, 2007 and August 31, 2006, are set forth below:


***Gross
                  Profit Components******Online
                  Advertising and Media Service
                  Activities***
  **Three
                  Months Ended**
              
              **Change**
              
              **Change****August
                  31,**
              
              **August
                  31,**
              
              **Inc(Dec)**
              
              **Inc(Dec)****2007**
              
              **2006**
              
              $$$
              
              %%%Online
                  Advertising
              
              $
              4,828,946
              
              $
              5,749,207
              
              $
              (920,261
              )
              
              -16
              %Search
                  Engine Marketing
              
              
              1,585,738
              
              
              827,271
              
              
              758,467
              
              
              92
              %Personals
              
              
              419,968
              
              
              298,121
              
              
              121,847
              
              
              41
              %Internet
                  game development
              
              
              91,484
              
              
              247,379
              
              
              (155,895
              )
              
              -63
              %**Consolidated
                  totals**
              
              $
              6,926,136
              
              $
              7,121,978
              
              $
              (195,842
              )
              
              -3
              %
  47
  ***Gross
                  Profit Components******Online
                  Advertising and Media Service
                  Activities***
 **Absolute**
                
                **Relative****Three
                    Months Ended**
                
                **Change**
                
                **Change****August
                    31,**
                
                **August
                    31,**
                
                **Inc(Dec)**
                
                **Inc(Dec)****2007**
                
                **2006**
                
                %%%
                
                %%%Online
                    Advertising
                
                
                29.1
                %
                
                42.0
                %
                
                -12.9
                %
                
                -30.7
                %Search
                    Engine Marketing
                
                
                18.5
                %
                
                20.1
                %
                
                -1.6
                %
                
                -8.0
                %Personals
                
                
                96.4
                %
                
                19.5
                %
                
                76.9
                %
                
                394.4
                %Internet
                    game development
                
                
                69.6
                %
                
                68.6
                %
                
                1.0
                %
                
                1.5
                %**Consolidated
                    totals**
                
                
                26.9
                %
                
                36.2
                %
                
                -9.3
                %
                
                -25.7
                %


Consolidated
      Gross Profit ("gross margin") as a percentage of net revenue was 26.9% during
      the three months ended August 31, 2007, compared to 36.2% in the prior year’s
      comparable period, representing an absolute percentage point decrease of 9.3%,
      or a 25.7% decline on a relative basis when compared to the prior year’s
      period.




The
      25.7%
      relative decline in the gross profit percentage is primarily attributable to
      a
      decrease in the gross profit margin of our Online Advertising and Search Engine
      Marketing components, which due to their higher relative revenue contributions
      yielded a higher proportionate impact on the total relative decline. Offsetting
      the decline was an increase in the gross profit margin of our Personals
      business.




Relative
      to our proposed Merger discussion,the approximate gross margin recognized on
      our
      revenues generated with New Motion, Inc. was 24.3% during the three months
      ended
      August 31, 2007, and is approximately 33% less than our consolidated margin
      during the three months ended August 31, 2006 of 36.2%. New Motion’s activity is
      reflected as a component of our Online Advertising activities.




48




Our
      Selling Expenses for each of the three-month periods ended August 31, 2007
      and
      August 31, 2006 are set forth below:


***Selling
                  Expense Components***
                
                ***Online
                  Advertising and Media Service
                  Activities***
 
 **Three
                  Months Ended**
              
              **Change**
              
              **Change****August
                  31,**
              
              **August
                  31,**
              
              **Inc(Dec)**
              
              **Inc(Dec)****2007**
              
              **2006**
              
              $$$
              
              %%%Fee
                  share commissions
              
              $
              188,750
              
              $
              633,994
              
              $
              (445,244
              )
              
              -70
              %Selling
                  salaries and related costs
              
              
              690,085
              
              
              793,159
              
              
              (103,074
              )
              
              -13
              %Travel,
                  entertainment, shows, other
              
              
              69,141
              
              
              46,146
              
              
              22,995
              
              
              50
              %**Consolidated
                  totals**
              
              $
              947,976
              
              $
              1,473,299
              
              $
              (525,323
              )
              
              -36
              %


Selling
      expenses, on a consolidated basis, decreased approximately $0.5 million, or
      36%,
      to $0.9 million during the three months ended August 31, 2007 from $1.5 million
      during the three months ended August 31, 2006. The decrease primarily resulted
      from an approximate $0.4 million decrease in fee share commissions correlating
      to our decreased email marketing revenue (as referenced above in the MD&A
      revenue discussion) and the correlative decrease in amounts owing to third-party
      database owners in the generation of such decreased revenues. We are the primary
      obligor to the third party list owner and bear the responsibility of payment
      to
      the list owner regardless of whether or not our client pays. This decrease
      was
      also attributable to a reduction of approximately $0.1 million, or 13%, in
      selling salaries and related costs attributable to a single client, which
      contributed 21% of our third quarter’s revenues and which revenues were not
      subject to sales commissions.




49




Our
      general and administrative expenses ("G&A") are principally comprised of (i)
      compensation costs and related expenses for executive, finance, information
      technology and operation systems, and general administration personnel, (ii)
      professional fees (which include legal; audit, accounting and tax; public
      relations; database management and consulting; and public company related
      printing and filing costs), (iii) insurance costs, (iv) occupancy and other
      equipment rental costs, (v) salaries, depreciation and amortization related
      to
      our site development, maintenance and modification costs related to our Online
      Advertising and Media Services activities, and (vi) all other general and
      miscellaneous corporate expense items.




Our
      General and Administrative Expenses for the three months ended August 31, 2007
      and August 31, 2006 are set forth below:


***General
                  and Administrative Expense Components***
                
                ***Online
                  Advertising and Media Service
                  Activities***
 
 **Three
                  Months Ended**
              
              **Change**
              
              **Change****August
                  31,**
              
              **August
                  31,**
              
              **Inc(Dec)**
              
              **Inc(Dec)****2007**
              
              **2006**
              
              $$$
              
              %%%Compensation
                  and related costs
              
              $
              2,490,963
              
              $
              2,420,645
              
              $
              70,318
              
              
              3
              %Professional
                  fees
              
              
              607,684
              
              
              293,222
              
              
              314,462
              
              
              107
              %Insurance
                  costs
              
              
              235,842
              
              
              240,367
              
              
              (4,525
              )
              
              -2
              %Occupancy
                  and equipment costs
              
              
              159,011
              
              
              119,474
              
              
              39,537
              
              
              33
              %Depreciation
                  and amortization
              
              
              317,130
              
              
              357,108
              
              
              (39,978
              )
              
              -11
              %All
                  other miscellanous G&A expenses
              
              
              598,383
              
              
              469,035
              
              
              129,348
              
              
              28
              %**Consolidated
                  totals**
              
              $
              4,409,013
              
              $
              3,899,851
              
              $
              509,162
              
              
              13
              %


General
      and Administrative expenses ("G&A") on a consolidated basis increased by
      $509,000, or 13%, when comparing G&A of $4.4 million for the three months
      ended August 31, 2007 to G&A of $3.9 million for the three months ended
      August 31, 2006. The net increase was attributable to increases in professional
      fees, miscellaneous G&A, compensation expense and occupancy costs, with such
      increases totaling approximately $0.5 million. Our depreciation and amortization
      costs decreased by $40,000, which slightly offset the above mentioned increase
      in G&A expense. Our professional fees increased 107%, or $0.3 million and
      was attributable to professional fees expensed during the three months ended
      August 31, 2007, as they relate to the proposed Merger, as well as $0.1 million
      attributable to a period cost associated with legal retainage.




50




Feder,
      Kaszovitz, Isaacson, Weber, Skala, Bass and Rhine LLP (“FKIWSBR”) provides
      general legal services to us in the ordinary course of business and litigation
      services in defense of actions arising from such business activities. Murray
      L.
      Skala, a partner in such firm, was a member of our Board of Directors from
      inception to August 25, 2006, at which time he chose not to stand for
      re-election. FKIWSBR fees are billed on an arms length basis. We incurred
      approximately $91,000 in legal fees (exclusive of disbursements) from FKIWSBR
      during the three months ended August 31, 2006.





51




***Bad
      Debt Expense and (Recapture) Components***


***Online
      Advertising and Media Service Activities***


**Three
                  Months Ended**
              
              **Change**
              
              **Change****August
                  31,**
              
              **August
                  31,**
              
              **Inc(Dec)**
              
              **Inc(Dec)****2007**
              
              **2006**
              
              $$$
              
              %%%Online
                  Advertising
              
              $
              62,871
              
              $
              66,580
              
              $
              (3,709
              )
              
              6
              %Search
                  Engine Marketing
              
              
              (125,023
              )
              
              13,420
              
              
              (138,443
              )
              
              -1032
              %Personals
              
              
              -
              
              
              -
              
              
              -
              
              
              0
              %Internet
                  game development
              
              
              -
              
              
              28
              
              
              (28
              )
              
              100
              %**Consolidated
                  totals**
              
              $
              (62,152
              )
              $
              80,028
              
              $
              (142,180
              )
              
              -178
              %


Bad
      Debt
      expense decreased on a net basis by approximately $0.1 million, or 178%, when
      comparing the three months ended August 31, 2007 with the three months ended
      August 31, 2006. The net decrease is attributable to recaptures of bad expense
      provided for in prior fiscal periods that were settled during the three months
      ended August 31, 2007 for less than originally estimated. Such bad debt
      recaptures were offset by increased bad debt reserves for other smaller accounts
      in our Online Advertising activities. Our allowance for bad debt results from
      our assessment of the risk of collection embedded in our customer base, as
      described below.




We
      continuously evaluate the potential of the collectibility of trade receivables
      by reviewing such factors as deterioration in the operating results, financial
      condition or bankruptcy filings of our customers. Not all of our customers
      are
      publicly traded, or otherwise make available financial information in
      significant detail. Therefore, there are limits placed on our ability to draw
      information from financial filings. As a result of our review process, we record
      adjustments to bad debt provisions/(recoveries) to reflect the related accounts
      receivable carrying amount to amounts that estimate their probable realizable
      value. Provisions for bad debts are also recorded resulting from the review
      of
      other factors, including (a) length of time the receivables are past due, and
      (b) historical experience, and other factors obtained during collection efforts.
      If circumstances related to specific customers change, our estimates for bad
      debt provision/(recoveries) could be further increased or decreased in future
      fiscal periods.




52




**OTHER
      NON-OPERATING INCOME (EXPENSE)**





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


***OTHER
        NON-OPERATING INCOME (EXPENSE)***
  **Three
                  Months Ended**
              
              **Change**
              
              **Change****Other
                  non-operating**
              
              **August
                  31,**
              
              **August
                  31,**
              
              **Inc(Dec)**
              
              **Inc(Dec)****income
                  (expense):**
              
              **2007**
              
              **2006**
              
              $$$
              
              %%%Interest
                  income and dividends
              
              $
              288,172
              
              $
              277,972
              
              $
              10,200
              
              
              4
              %Realized
                  gains on sale ofmarketable
                  securities
              
              
              9,177
              
              
              12,854
              
              
              (3,677
              )
              
              -29
              %Other
                  non-operating income:Other
                  miscellaneousincome
              
              
              11,450
              
              
              2,821
              
              
              8,629
              
              
              -306
              %Foreign
                  Currency Exchange RateFees
                  and interest expense
              
              
              (9,480
              )
              
              (5,826
              )
              
              (3,654
              )
              
              63
              %Minority
                  interest (income)
              
              
              -
              
              
              (144,000
              )
              
              144,000
              
              
              -100
              %**Total
                  other non-operating****income:**
              
              $
              299,319
              
              $
              143,821
              
              $
              155,498
              
              
              108
              %





Consolidated
      Other Non-operating Income (Expense) increased approximately $155,000, from
      approximately $144,000 for the three months ended August 31, 2006, to
      approximately $272,000 for the three months ended August 31, 2007.




53




The
      factors contributing to the increase are set forth in the order shown in the
      above table:




(a)
            Interest
                income increased approximately $10,000, or 4%, as the result of more
                favorable rates available during Fiscal 2007 as compared to Fiscal
                2006 on
                slightly less cash and marketable security
                balances.


(b)
            Realized
                gains on the sale of marketable securities decreased by $4,000 when
                comparing the current fiscal period gains of $9,000 to the prior
                periods’s
                comparable gains of $13,000.


(c)
            Minority
                Interest resulting from our EZ-Tracks partnership with Madacy
                Entertainment decreased from approximately $144,000 in the third
                quarter
                of Fiscal 2006 to $-0- in the third quarter of Fiscal 2007 as a result
                of
                our acquisition of the related minority interest, effective January
                1,
                2007 (see “-Overview”).





**MINORITY
      INTEREST**




During
      Fiscal 2005, we entered into an agreement with Madacy Entertainment, through
      a
      newly created partnership, EZTracks LP, to market and promote EZTracks.com,
      our
      new web destination consisting of approximately 30,000 downloadable songs
      covering a wide array of musical genres. We, through a wholly-owned subsidiary,
      owned 50.7% of the partnership and were responsible for managing the operations
      of the business, including generating traffic to the website, as well as selling
      advertising on the site. Madacy Entertainment, through its wholly-owned
      subsidiary, owned 49.3% until January 1, 2007, at which time we acquired the
      49.3% interest in the partnership. Prior to our acquisition of the interest,
      Madacy provided its inventory of music and an extensive library of music
      licensed from other parties. Madacy had limited involvement with certain aspects
      of operations. The results of operations for the six months ended August 31,
      2006 include the fully consolidated results of EZTracks LP with minority
      interest established to reflect Madacy’s ownership share of the partnership’s
      operating results, as applicable, for such periods.




54




***The
        following table summarizes the results of EZTracks for the periods indicated
        below:***
 **Three
                        Months Ended**
                    
                    
                    
                    **Change**
                    
                    **Change****August
                        31,**
                    
                    
                    
                    **August
                        31,**
                    
                    
                    
                    **Inc(Dec)**
                    
                    **Inc(Dec)****2007**
                    
                    
                    
                    **2006**
                    
                    
                    
                    $$$
                    
                    %%%Net
                        Revenues
                    
                    $
                    -
                    
                    
                    
                    
                    $
                    2,749,151
                    
                    
                    
                    $
                    (2,749,151
                    )
                    
                    -100
                    %Cost
                        of Sales
                    
                    
                    -
                    
                    
                    
                    
                    
                    2,424,109
                    
                    
                    
                    
                    (2,424,109
                    )
                    
                    -100
                    %Gross
                        Profit
                    
                    
                    -
                    
                    
                    
                    
                    
                    325,042
                    
                    
                    
                    
                    (325,042
                    )
                    
                    -100
                    %General
                        andAdministrative
                        Expenses
                    
                    
                    -
                    
                    
                    
                    
                    
                    32,952
                    
                    
                    
                    
                    (32,952
                    )
                    
                    -100
                    %Net
                        Income
                    
                    $
                    -
                    
                    
                    
                    
                    $
                    292,090
                    
                    (1
                    )
                    $
                    (292,090
                    )
                    
                    -100
                    %Minority
                        interest
                    
                    $
                    -
                    
                    
                    (3
                    )
                    $
                    144,000
                    
                    (2
                    )
                    $
                    (144,000
                    )
                    
                    -100
                    %


(1)
        All
        items included in our Online Advertising and Media Service activities.
  (2)
        Represents Madacy Entertainment's 49.3% minority interest.
  (3)
        Madacy Entertainment's 49.3% minority interest was acquired by us effective
        January 1, 2007.


**PROVISION
      FOR INCOME TAXES**





Quarterly
      income taxes are calculated in accordance with the interim financial reporting
      requirements as set forth in the Accounting Principal Board’s Opinion 28 as
      amended by SFAS 109, and Financial Interpretation Number 18. The pronouncements
      consider interim quarterly periods as an integral part of the annual period,
      with interim quarterly tax periods reflecting the estimated annual effective
      tax
      rate. We believe that we have adequately provided for tax-related matters.
      We
      are subject to examination by taxing authorities in various jurisdictions.
      Matters raised upon audit may involve substantial amounts of tax. Management
      considers it unlikely that future audits of any open audit year (if at all)
      would have a material adverse effect upon our consolidated financial statements.




55




Our
      income tax provision for the three months ended August 31, 2007 was
      approximately $1,083,000, which is tax expense related to current period
      operations.




The
      current year’s estimated effective rate relationship of 56.0% differs
      immaterially from our annual effective rate of 46.2% recognized during the
      year
      ended November 30, 2006, after consideration of the impact on tax expense
      attributable to expenses incurred and expected to be incurred, in connection
      with our current activities related to the proposed Merger.





NINE
      MONTHS ENDED AUGUST 31, 2007 AND 2006





Our
      net
      revenues, and the disclosure of our revenue components, for each of the nine
      months ended August 31, 2007 and August 31, 2006, are set forth
      below:


***Net
        Revenue Components***
  ***Online
        Advertising and Media Service Activities***
 **Nine
                  Months Ended**
              
              **Change**
              
              **Change****August
                  31,**
              
              **August
                  31,**
              
              **Inc(Dec)**
              
              **Inc(Dec)****2007**
              
              **2006**
              
              $$$
              
              %%%Online
                  Advertising
              
              $
              39,513,758
              
              $
              37,348,813
              
              $
              2,164,945
              
              
              6
              %Search
                  Engine Marketing
              
              
              21,427,637
              
              
              12,334,262
              
              
              9,093,375
              
              
              74
              %Personals
              
              
              1,982,569
              
              
              5,228,331
              
              
              (3,245,762
              )
              
              -62
              %Internet
                  game development
              
              
              644,735
              
              
              774,421
              
              
              (129,686
              )
              
              -17
              %**Consolidated
                  totals**
              
              $
              63,568,699
              
              $
              55,685,827
              
              $
              7,882,872
              
              
              14
              %
  56


Net
      Revenue increased approximately $7.9 million, or 14%, to $63.6 million for
      the
      nine months ended August 31, 2007, from $55.7 million in the prior year’s
      comparable period. The Online Advertising and Media Service’s core business grew
      organically, primarily driven by increased revenues from Search Engine Marketing
      services ($9.1 million, or 74%) and Online Advertising services ($2.2 million,
      or 6%), offset by combined declines in our Personals business and our Internet
      game development activities of approximately $3.2 million, or 62.0%, and $0.1
      million, or 17%, respectively. Search Engine Marketing service revenue increased
      as a result of our continued focus on the successful identification of new
      third
      party clients and our enhancement of existing Search client relationships.
      Our
      Online Advertising revenue principally consists of three revenue sub-sets:
      (a)
      our Website Advertising sub-set revenue increased to $27.1 million from $20.7
      million, for an increase of approximately $6.4 million, or 31%, and is primarily
      the result of our increased emphasis on generating revenue via our Websites
      for
      our recently developed wireless client relationships, offset by declines in
      other historically traditional clientele; (b) our Email Marketing sub-set
      revenue declined to $2.5 million from $6.0 million, for a decrease of
      approximately $3.5 million, or 58%, and resulted from internet service
      providers’ consumer contact restrictions negatively impacting our ability to
      deliver commercial email to our permission based consumers; (c) revenues
      generated from our Hot Rocket Marketing subsidiary remained relatively
      consistent, yielding a decline of $0.3 million, or 4% of revenue ($8.962 million
      in Fiscal 2006, as compared to $8.644 million in Fiscal 2007).




Our
      Personals business revenue declined as a result of decreased consumer
      enrollments based on the unprofitable values being paid for such new enrollees.
      We continue to generate revenues from the declining base of customers acquired
      in prior years, and expect this to be an immaterial contribution to operations
      in future fiscal periods.




57




Our
      cost
      of revenue during the nine months ended August 31, 2007 and August 31, 2006
      were
      comprised of direct and indirect marketing costs associated with the
      acquisition  and
      retention of consumers for our Online Advertising and Media Service activities’
marketing programs, and includes direct response email marketing costs
      (including related salaries, depreciation and amortization costs), website
      registrations costs, the cost of customer profiles, other customer acquisition
      costs, search engine marketing costs, and the related contingent-based
      sweepstakes indemnification expense.





The
      cost
      of revenues, and the disclosure of the components, for each of the nine-month
      periods ended August 31, 2007 and August 31, 2006, are set forth
      below:


***Cost
        of Revenue Components***
 ***Online
        Advertising and Media Service Activities***


**Nine
                  Months Ended**
              
              **Change**
              
              **Change****August
                  31,**
              
              **August
                  31,**
              
              **Inc(Dec)**
              
              **Inc(Dec)****2007**
              
              **2006**
              
              $$$
              
              %%%Online
                  Advertising
              
              $
              26,676,438
              
              $
              21,178,886
              
              $
              5,497,552
              
              
              26
              %Search
                  Engine Marketing
              
              
              17,272,989
              
              
              10,281,307
              
              
              6,991,682
              
              
              68
              %Personals
              
              
              118,558
              
              
              3,703,704
              
              
              (3,585,146
              )
              
              -97
              %Internet
                  game development
              
              
              199,531
              
              
              243,177
              
              
              (43,646
              )
              
              -18
              %**Consolidated
                  totals**
              
              $
              44,267,516
              
              $
              35,407,074
              
              $
              8,860,442
              
              
              25
              %


Cost
      of
      revenues on a consolidated basis increased $8.9 million, or 25%, to $44.3
      million for the nine months ended August 31, 2007, from $35.4 million in the
      comparable prior year period.




The
      significant factors contributing to the increase in consolidated cost of revenue
      were related to an increase of $7.0 million, or 68%, in the costs incurred
      in
      conducting our increased volume of Search Engine Marketing activities and an
      increased relative cost of procuring marketing media in the conduct of our
      Online Advertising activities. The increases in cost of revenue referenced above
      were offset by a decline in the cost of revenues attributable to our Personals
      business of $3.6 million, or 97%, which relates to the suspension in outlays
      for
      new Personals enrollees based on the prohibitive market cost of such enrollees.




58




Our
      gross
      profit in terms of dollars, on a component basis, and our gross profit
      percentage, on a component basis, for each of the nine-month periods ended
      August 31, 2007 and August 31, 2006, are set forth below:


***Gross
        Profit Components***
  ***Online
        Advertising and Media Service Activities***


**Nine
                  Months Ended**
              
              **Change**
              
              **Change****August
                  31,**
              
              **August
                  31,**
              
              **Inc(Dec)**
              
              **Inc(Dec)****2007**
              
              **2006**
              
              $$$
              
              %%%Online
                  Advertising
              
              $
              12,837,320
              
              $
              16,169,927
              
              $
              (3,332,607
              )
              
              -21
              %Search
                  Engine Marketing
              
              
              4,154,648
              
              
              2,052,955
              
              
              2,101,693
              
              
              102
              %Personals
              
              
              1,864,011
              
              
              1,524,627
              
              
              339,384
              
              
              22
              %Internet
                  game development
              
              
              445,204
              
              
              531,244
              
              
              (86,040
              )
              
              -16
              %**Consolidated
                  totals**
              
              $
              19,301,183
              
              $
              20,278,753
              
              $
              (977,570
              )
              
              -5
              %




59


***Gross
        Profit Components***
  ***Online
        Advertising and Media Service Activities***


**Absolute**
              
              **Relative****Nine
                  Months Ended**
              
              **Change**
              
              **Change****August
                  31,**
              
              **August
                  31,**
              
              **Inc(Dec)**
              
              **Inc(Dec)****2007**
              
              **2006**
              
              %%%
              
              %%%Online
                  Advertising
              
              
              32.5
              %
              
              43.3
              %
              
              -10.8
              %
              
              -24.9
              %Search
                  Engine Marketing
              
              
              19.4
              %
              
              16.6
              %
              
              2.8
              %
              
              16.9
              %Personals
              
              
              94.0
              %
              
              29.2
              %
              
              64.8
              %
              
              221.9
              %Internet
                  game development
              
              
              69.1
              %
              
              68.6
              %
              
              0.5
              %
              
              0.7
              %**Consolidated
                  totals**
              
              
              30.4
              %
              
              36.4
              %
              
              -6.0
              %
              
              -16.5
              %


Consolidated
      Gross Profit ("gross margin") as a percentage of net revenue was 30.4% during
      the nine months ended August 31, 2007, compared to 36.4% in the prior year’s
      comparable period, representing an absolute percentage point decrease of 6.0%,
      or a 16.5% decline on a relative basis when compared to the prior year’s
      comparable period.




The
      16.5%
      relative decline in the gross profit percentage is primarily attributable to
      a
      decrease in the gross profit margin of our Online Advertising, which due to
      its
      higher relative revenue contribution yields a higher proportionate impact on
      the
      total relative decline. Offsetting the relative decline were increases in the
      gross profit margins of our Personals business and our Search Engine Marketing
      business.




60


Our
        Selling Expenses for each of the nine-month periods ended August 31, 2007
        and
        August 31, 2006 are set forth below:


***Selling
        Expense Components***
  ***Online
        Advertising and Media Service Activities***




**Nine
                  Months Ended**
              
              **Change**
              
              **Change****August
                  31,**
              
              **August
                  31,**
              
              **Inc(Dec)**
              
              **Inc(Dec)****2007**
              
              **2006**
              
              $$$
              
              %%%Fee
                  share commissions
              
              $
              680,637
              
              $
              2,336,336
              
              $
              (1,655,699
              )
              
              -71
              %Selling
                  salaries and related costs
              
              
              2,324,691
              
              
              2,185,096
              
              
              139,595
              
              
              6
              %Travel,
                  entertainment, shows, other
              
              
              204,055
              
              
              162,033
              
              
              42,022
              
              
              26
              %**Consolidated
                  totals**
              
              $
              3,209,383
              
              $
              4,683,465
              
              $
              (1,474,082
              )
              
              -31
              %


Selling
      expenses, on a consolidated basis, decreased approximately $1.5 million, or
      31%,
      to $3.2 million during the nine months ended August 31, 2007 from $4.7 million
      during the nine months ended August 31, 2006. The decrease resulted from an
      approximate $1.7 million decrease in fee share commissions correlating to our
      decreased email marketing revenue (as referenced above in the MD&A revenue
      discussion) and the correlative decrease in amounts owing to third-party
      database owners in the generation of such decreased revenues. We are the primary
      obligor to the third party list owner and bear the responsibility of payment
      to
      the list owner regardless of whether or not our client pays. This decrease
      was
      offset by an increase of approximately $0.1 million, or 6%, in selling salaries
      and related costs attributable to increased selling commissions attributable
      to
      increased comparable period revenues.




Our
      general and administrative expenses ("G&A") are principally comprised of (i)
      compensation costs and related expenses for executive, finance, information
      technology and operation systems, and general administration personnel, (ii)
      professional fees (which include legal; audit, accounting and tax; public
      relations; database management and consulting; and public company related
      printing and filing costs), (iii) insurance costs, (iv) occupancy and other
      equipment rental costs, (v) salaries, depreciation and amortization related
      to
      our site development, maintenance and modification costs related to our Online
      Advertising and Media Services activities, and (vi) all other general and
      miscellaneous corporate expense items.




61


Our
      general and administrative expenses for the nine months ended August 31, 2007
      and August 31, 2006 are set forth below:


***General
        and Administrative Expense Components***
  ***Online
        Advertising and Media Service Activities***


**Nine
                  Months Ended**
              
              **Change**
              
              **Change****August
                  31,**
              
              **August
                  31,**
              
              **Inc(Dec)**
              
              **Inc(Dec)****2007**
              
              **2006**
              
              $$$
              
              %%%Compensation
                  and related costs
              
              $
              7,235,713
              
              $
              7,432,187
              
              $
              (196,474
              )
              
              -3
              %Professional
                  fees
              
              
              1,489,162
              
              
              1,053,807
              
              
              435,355
              
              
              41
              %Insurance
                  costs
              
              
              693,275
              
              
              719,473
              
              
              (26,198
              )
              
              -4
              %Occupancy
                  and equipment costs
              
              
              446,657
              
              
              339,967
              
              
              106,690
              
              
              31
              %Depreciation
                  and amortization
              
              
              1,079,427
              
              
              1,132,104
              
              
              (52,677
              )
              
              -5
              %All
                  other miscellanous G&A expenses
              
              
              1,499,552
              
              
              1,304,469
              
              
              195,083
              
              
              15
              %**Consolidated
                  totals**
              
              $
              12,443,786
              
              $
              11,982,007
              
              $
              461,779
              
              
              4
              %


General
      and Administrative expenses ("G&A") on a consolidated basis increased
      approximately $0.4 million, or 4%, when comparing G&A of $12.4 million for
      the nine months ended August 31, 2007 to G&A of $12.0 million for the nine
      months ended August 31, 2006. The net increase was attributable to combined
      increases in professional fees, occupancy costs and miscellaneous G&A of
      approximately $0.7 million, or 27%, offset by combined declines in compensation
      and related costs, insurance costs, and depreciation and amortization of
      approximately $0.3 million, or 3%. The decline in compensation costs was
      attributable to a decrease in stock-based compensation costs of approximately
      $0.3 million (resulting from a decline in SFAS 123R non-cash compensation
      expense during the nine-month ended August 31, 2007 when compared to the nine
      months ended August 31, 2006). Insurance costs declined as a result of favorable
      terms procured on our directors and officers policy renewal. Depreciation and
      amortization costs had a net decline based on certain assets reaching their
      useful life, offset, to a lesser degree, by additional amortization and
      depreciation on current period acquisitions.




62




Feder,
      Kaszovitz, Isaacson, Weber, Skala, Bass and Rhine LLP (“FKIWSBR”) provides
      general legal services to us in the ordinary course of business and litigation
      services in defense of actions arising from such business activities. Murray
      L.
      Skala, a partner in such firm, was a member of our Board of Directors from
      inception to August 25, 2006, at which time he chose not to stand for
      re-election. FKIWSBR fees are billed on an arms length basis. We incurred
      approximately $226,000 in legal fees (exclusive of disbursements) from FKIWSBR
      during the nine months ended August 31, 2006.




63




***Bad
        Debt Expense and (Recapture) Components***
  ***Online
        Advertising and Media Service Activities***


**Nine
                  Months Ended**
              
              **Change**
              
              **Change****August
                  31,**
              
              **August
                  31,**
              
              **Inc(Dec)**
              
              **Inc(Dec)****2007**
              
              **2006**
              
              $$$
              
              %%%Online
                  Advertising
              
              $
              (201,958
              )
              $
              116,575
              
              $
              (318,533
              )
              
              -273
              %Search
                  Engine Marketing
              
              
              111,955
              
              
              54,131
              
              
              57,824
              
              
              107
              %Personals
              
              
              -
              
              
              -
              
              
              -
              
              
              0
              %Internet
                  game development
              
              
              -
              
              
              3,634
              
              
              (3,634
              )
              
              100
              %**Consolidated
                  totals**
              
              $
              (90,003
              )
              $
              174,340
              
              $
              (264,343
              )
              
              -152
              %





Bad
      Debt
      expense decreased on a net basis by approximately $0.3 million, or 152%, when
      comparing the nine months ended August 31, 2007 with the nine months ended
      August 31, 2006. The net decrease is attributable to recaptures of bad expense
      provided for in prior fiscal periods that were settled in the current fiscal
      period for less than originally estimated. Such bad debt recaptures were offset
      by increased bad debt reserves for other smaller accounts in our Online
      Advertising activities and net bad debt expense in our Search Engine Marketing
      activities. Our allowance for bad debt results from our assessment of the risk
      of collection embedded in our customer base, as described below.





We
      continuously evaluate the potential of the collectibility of trade receivables
      by reviewing such factors as deterioration in the operating results, financial
      condition or bankruptcy filings of our customers. Not all of our customers
      are
      publicly traded, or otherwise make available financial information in
      significant detail. Therefore, there are limits placed on our ability to draw
      information from financial filings. As a result of our review process, we record
      adjustments to bad debt provisions/(recoveries) to reflect the related accounts
      receivable carrying amount to amounts that estimate their probable realizable
      value. Provisions for bad debts are also recorded resulting from the review
      of
      other factors, including (a) length of time the receivables are past due, and
      (b) historical experience, and other factors obtained during collection efforts.
      If circumstances related to specific customers change, our estimates for bad
      debt provision/(recoveries) could be further increased or decreased in future
      fiscal periods.




64




**OTHER
      NON-OPERATING INCOME (EXPENSE)**





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




***OTHER
        NON-OPERATING INCOME (EXPENSE)***
  **Nine
                  Months Ended**
              
              **Change**
              
              **Change****Other
                  non-operating**
              
              **August
                  31,**
              
              **August
                  31,**
              
              **Inc(Dec)**
              
              **Inc(Dec)****income
                  (expense):**
              
              **2007**
              
              **2006**
              
              $$$
              
              %%%Interest
                  income and dividends
              
              $
              862,999
              
              $
              774,344
              
              $
              88,655
              
              
              11
              %Realized
                  gains (losses) on sale ofmarketable
                  securities
              
              
              45,831
              
              
              (5,498
              )
              
              51,329
              
              
              934
              %Other
                  non-operating income:Other
                  miscellaneousincome
              
              
              41,902
              
              
              10,054
              
              
              31,848
              
              
              100
              %Foreign
                  Currency Exchange RateFees
                  and interest expense
              
              
              (39,255
              )
              
              (35,410
              )
              
              (3,845
              )
              
              11
              %Minority
                  interest (income)
              
              
              (48,000
              )
              
              (432,000
              )
              
              384,000
              
              
              -89
              %**Total
                  other non-operating****income:**
              
              $
              863,477
              
              $
              311,490
              
              $
              551,987
              
              
              177
              %




65





Consolidated
      Other Non-operating Income (Expense) increased approximately $552,000, from
      approximately $311,000 for the nine months ended August 31, 2006, to
      approximately $863,000 for the nine months ended August 31, 2007.




The
      factors contributing to the increase are set forth in the order shown in the
      above table:




(a)
            Interest
                income increased approximately $89,000, or 11%, as the result of
                more
                favorable rates available during Fiscal 2007 as compared to Fiscal
                2006 on
                slightly less cash and marketable security
                balances.


(b)
            Realized
                gains on the sale of marketable securities increased by $51,000 when
                comparing the current fiscal period gains of $46,000 to the prior
                period’s
                comparable losses of $5,000.


(c)
            Other
                miscellaneous income increased approximately $31,000 and primarily
                was the
                result of collections from various test marketing projects performed
                for
                our clients.


(d)
            Minority
                Interest resulting from our EZ-Tracks partnership with Madacy
                Entertainment decreased from approximately $432,000 in the nine months
                ended August 31, 2006 to $48,000 during the nine months ended August
                31,
                2007, as a result of the acquisition of the related minority interest
                by
                us during the first quarter of Fiscal 2007 (see
                “-Overview”).





**MINORITY
      INTEREST**




During
      Fiscal 2005, we entered into an agreement with Madacy Entertainment, through
      a
      newly created partnership, EZTracks LP, to market and promote EZTracks.com,
      our
      new web destination consisting of approximately 30,000 downloadable songs
      covering a wide array of musical genres. We, through a wholly-owned subsidiary,
      owned 50.7% of the partnership and were responsible for managing the operations
      of the business, including generating traffic to the website, as well as selling
      advertising on the site. Madacy Entertainment, through its wholly-owned
      subsidiary, owned 49.3% until January 1, 2007, at which time we acquired the
      49.3% interest in the partnership. Prior to our acquisition of the interest,
      Madacy provided its inventory of music and an extensive library of music
      licensed from other parties. Madacy had limited involvement with certain aspects
      of operations. The results of operations for the nine months ended August 31,
      2007, and for the nine months ended August 31, 2006, include the fully
      consolidated results of EZTracks LP with minority interest established to
      reflect Madacy’s ownership share of the partnership’s operating results, as
      applicable, for such periods.




66


***The
        following table summarizes the results of EZTracks for the periods indicated
        below:***
 **Nine
                  Months Ended**
              
              
              **Change**
              
              **Change****August
                  31,**
              
              
              
              **August
                  31,**
              
              
              **Inc(Dec)**
              
              **Inc(Dec)****2007
                  (4)**
              
              
              
              **2006**
              
              
              $$$
              
              %%%Net
                  Revenues
              
              $
              895,997
              
              
              
              $
              8,737,347
              
              
              
              $
              (7,841,350
              )
              
              -90
              %Cost
                  of Sales
              
              
              790,398
              
              
              
              
              7,697,968
              
              
              
              
              (6,907,570
              )
              
              -90
              %Gross
                  Profit
              
              
              105,599
              
              
              
              
              1,039,379
              
              
              
              
              (933,780
              )
              
              -90
              %General
                  andAdministrative
                  Expenses
              
              
              8,236
              
              
              
              
              163,111
              
              
              
              
              (154,875
              )
              
              -95
              %Net
                  Income
              
              $
              97,363
              
              (1
              )
              $
              876,268
              
              (1
              )
              $
              (778,905
              )
              
              -89
              %Minority
                  interest
              
              $
              48,000
              
              (3
              )
              $
              432,000
              
              (2
              )
              $
              (384,000
              )
              
              -89
              %
  (1)
              All
                  items included in our Online Advertising and Media Service activities.
  (2)
              Represents
                  Madacy Entertainment's 49.3% minority
                  interest
  (3)
              Represents
                  Madacy Entertainment's 49.3% minority interest for the period December
                  1,
                  2006 to December 31, 2006, as effective January 1, 2007 we acquired
                  Madacy
                  Entertainment's 49.3% interest
  (4)
              Represents
                  minority interest operations for the period December 1, 2006 to
                  December
                  31, 2006.


67


**PROVISION
      FOR INCOME TAXES**





Quarterly
      income taxes are calculated in accordance with the interim financial reporting
      requirements as set forth in the Accounting Principal Board’s Opinion 28 as
      amended by SFAS 109, and Financial Interpretation Number 18. The pronouncements
      consider interim quarterly periods as an integral part of the annual period,
      with interim quarterly tax periods reflecting the estimated annual effective
      tax
      rate. We believe that we have adequately provided for tax-related matters.
      We
      are subject to examination by taxing authorities in various jurisdictions.
      Matters raised upon audit may involve substantial amounts of tax. Management
      considers it unlikely that future audits of any open audit year (if at all)
      would have a material adverse effect upon our consolidated financial statements.




Our
      income tax provision for the nine months ended August 31, 2007 was approximately
      $2,310,530, which is tax expense related to current period
      operations.




The
      current year’s estimated effective rate relationship of 50.7% differs
      immaterially from our annual effective rate of 46.2% recognized during the
      year
      ended November 30, 2006 after consideration of the impact on tax expense
      attributable to expenses incurred and expected to be incurred in connection
      with
      our activities arising out of the proposed Merger.





**LIQUIDITY
      AND CAPITAL RESOURCES**





As
      of
      August 31, 2007, we had aggregate working capital of $31.0 million, compared
      to
      aggregate working capital of $31.7 million as of November 30, 2006. We had
      available cash, cash equivalents, equities and readily available marketable
      debt
      securities of $29.4 million as of August 31, 2007, compared to available cash,
      cash equivalents, equities and readily available marketable debt securities
      of
      $30.4 million as of November 30, 2006. The equity component of our marketable
      securities was $2.0 million at August 31, 2007 and $1.9 million at November
      30,
      2006.




68




Cash
      provided by operating activities was approximately $3.554 million for the nine
      months ended August 31, 2007, compared to approximately $3.14 million provided
      by operating activities during the nine months ended August 31, 2006,
      representing a net increase in cash provided by operations of approximately
      $0.419 million. Changes in assets and liabilities of the business, net of
      acquisitions, used approximately $1.53 million less in cash when comparing
      the
      nine months ended August 31, 2007, with the nine months ended August 31, 2006,
      contributing a corresponding approximate $1.53 million in cash provided by
      operations. Offsetting this increase was a decline in other cash provided by
      operating activities, or approximately $1.5 million, and is principally
      attributable to decreases in deprecation and amortization of approximately
      $1.0
      million and a decrease in minority interest of $384,000.




Cash
      used
      in investing activities was approximately $1.2 million during the nine months
      ended August 31, 2007, compared to $1.7 million of cash provided by investing
      activities during the prior year’s comparable period. The net use of cash in
      investing activities during the nine months ended August 31, 2007 related to
      net
      proceeds used for the acquisition of marketable securities being $0.7 million
      less than the proceeds generated from the sale of marketable securities, as
      compared to net proceeds from the sale of marketable securities exceeding
      proceeds used for the acquisition of marketable securities by approximately
      $0.5
      million during the nine months ended August 31, 2006, contributing to a net
      decrease in cash flows used in investing activities of $1.1 million.
      Additionally, cash expended for asset acquisitions during the nine months ended
      August 31, 2007 was $1.6 million, which exceeded the $0.9 million in cash
      expended for asset acquisitions during the nine months ended August 31, 2006.
      Investing cash used for capital expenditures remained relatively constant at
      approximately $0.3 million.




69




Cash
      used
      in financing activities was approximately $2.6 million for the nine months
      ended
      August 31, 2007, compared to $3.8 million used in financing activities for
      the
      nine months ended August 31, 2006. Fiscal 2007 financing cash flows were: (a)
      $292,000 less than the prior comparable fiscal period with respect to
      distributions to a minority interest holder (whose interest was acquired
      effective January 1, 2007); and (b) $217,000 less than the prior comparable
      period with respect to payments required under capital lease obligations; with
      both (a) and (b) further supplemented by approximately $734,000 in increased
      cash provided by option exercises during the nine months ended August 31, 2007.
      All of the above referenced increases in cash flows from financing activities
      were offset by a $130,000 increase in dividends paid.




Our
      days-sales-outstanding ("DSO") in accounts receivable at August 31, 2007 was
      43
      days, compared to 40 days at May 31, 2007, 44 days at February 28, 2007, 45
      days
      at November 30, 2006, and 56 days at August 31, 2006. The three day, or 7.5%
      increase in the current quarter’s DSO compared to the second quarter of this
      fiscal year relates to our continued efforts in monitoring our clients and
      improving our rates of collection across all of our client relationships. Our
      DSO may rise above 43 days (as recognized during the nine months ended August
      31, 2007) in future fiscal periods as a result of changes in the components
      of
      our client mix or other potential factors not currently
      identifiable.




The
      majority of our customers are extended 30-day credit terms. In limited
      instances, customer credit is extended in ranges exceeding 30 days, and in
      very
      limited circumstances can exceed 180 days. We continually monitor customer
      adherence to credit terms and constantly strive to improve the effectiveness
      of
      our collection efforts with the goal of attaining, and then maintaining a DSO
      in
      the 35 to 40-day range. Future fiscal periods might not reflect this DSO goal,
      and might exceed the 43-day DSO recognized in the nine-month period ended August
      31, 2007.




70


Historically,
      our primary cash requirements have been used to fund the cost of advertising
      and
      promotion and test-marketing new services and promotions, with additional funds
      having been used in the purchasing of equipment and services in connection
      with
      the commencement of new business lines, further development of businesses being
      test marketed and for the development of the equipment infrastructure of
      subsidiaries.





Aside
      from any impact that may arise as a result of the proposed Merger, our future
      plans and business strategy may continue to call for our Internet-based Online
      Advertising and Media Service activities to be our sole operating focus as
      it
      was for the three and nine-month periods ended August 31, 2007, as well as
      the
      years ended November 30, 2006 and 2005. Our cash demands for capital
      expenditures and equipment lease obligations have declined to $324,662 during
      the nine months ended August 31, 2007 compared to $369,184 during the nine
      months ended August 31, 2006. Our capital expenditures and capital lease
      obligation payments during the fiscal years ended November 30, 2004 to 2006
      were
      $141,052, $519,079 and $719,741, respectively. The significant portion of such
      capital expenditure was for email servers that substantially reduced our
      reliance on and related additional costs associated with third party email
      delivery suppliers. All other outlays for capital expenditures were also used
      to
      support other facets of our Online Advertising and Media Services business.




Aside
      from any impact that may arise as a result of the proposed Merger, we may,
      in
      future fiscal periods, be required to invest significant amounts of capital
      into
      our business, far in excess for that expended as detailed above. If our
      operations fail to generate sufficient revenue, we could realize a material
      adverse impact on our capital and liquidity resources resulting from
      expenditures necessary to generate such revenue, including, but not limited
      to,
      expenditures for (a) marketing campaigns, including media costs and other costs
      of customer acquisition information, (b) service and/or product development
      costs, (c) site development and maintenance and related technology based costs,
      (d) potential online, and/or off-line, business acquisitions, or (e) costs
      associated with developing alternative means of email promotion delivery.




71




On
      March
      13, 2007, we entered into a Memorandum of Agreement (the “Madacy/EZ Agreement”)
      with Madacy Entertainment LP (“Madacy”) and EZ-Tracks, LP (“EZ LP”), to amend
      the terms of a Marketing and Services Agreement dated January 22, 2005, as
      amended (the “M&S Agreement”), by and among Madacy, EZ LP and us.





The
      M&S Agreement had provided, among other things, that EZ LP would market and
      promote EZTracks.com, our web destination consisting of downloadable songs
      licensed from Madacy (the “License”). Our subsidiary of the Company, which owned
      50.7% of EZ LP, was responsible for managing the operations of the business,
      including generating traffic to the website, as well as selling advertising
      on
      the site. CIK Holdings Inc. (“CIK”), an entity associated with Madacy, owned
      49.3% of EZ LP and licensed to EZ LP its inventory of downloadable music,
      including downloadable music licensed from other parties.





Pursuant
      to the terms of the Madacy/EZ Agreement, the M&S Agreement was amended to,
      among other things, (i) provide for a single fixed 10-year term commencing
      on
      January 1, 2007 and terminating on December 31, 2016; (ii) give us the option
      to
      extend such term for up to five (5) additional one-year terms; (iii) continue
      the sublicense from Madacy of the San Juan Songs (as defined in the M&S
      Agreement); and (iv) continue and establish a term to the License for ringtones,
      ringbacks and other telephone uses.





Concurrent
      with the execution of the Madacy/EZ Agreement, we entered into a Memorandum
      of
      Agreement dated March 13, 2007 with CIK, pursuant to which we acquired CIK’s
      49.3% ownership of EZ LP (the “CIK Agreement”) (so that we now own all of the
      limited partnership interests of EZ LP).




72





The
      purchase price consisted of 500,000 shares of our common stock (valued at
      approximately $2,717,000, using an average share price of $5.43 in accordance
      with the valuation standards set forth under Statement of Financial Accounting
      Standards 141 (Business Combinations), Paragraph 22) and $1,290,000 in cash,
      reduced by approximately $170,000 of a prior minority interest balance. In
      addition, we agreed to pay CIK additional consideration of between $1.25 million
      and $2.75 million in the event of a Traffix Sales Event or an EZ-Tracks Sale,
      each as defined in the CIK Agreement. The purchase price has been tentatively
      allocated as follows (subject to a purchase price allocation currently being
      prepared by an independent third party): $2,254,000 to amortizable intangibles,
      with an assigned useful life of 7.5 years and the balance of approximately
      $1,583,000 allocated to unamortizable goodwill.





The
      CIK
      Agreement further provided for CIK’s warranty and guaranty that there would be
      no termination of the License and M&S Agreement prior to July 1, 2012, and,
      if, for any reason (other than our default), there is such a termination, then
      CIK would pay us a sum certain, which amount would equal $2.6 million should
      the
      termination occur in 2007 and which amount would decrease during each subsequent
      six month period. Should the termination occur during the final period (i.e.
      the
      six months ending June 30, 2012), the amount payable by CIK would have been
      reduced to $0.3 million.




In
      January of Fiscal 2005, we, through our wholly owned subsidiary, Hot Rocket
      Acquisition Corp., acquired all of the intangible assets of Hot Rocket Marketing
      Inc. and Clockwork Advertising Inc. (collectively “Hot Rocket”), corporations in
      the business of buying and selling performance based online advertising space
      for third parties, as well as providing such services to the sales activities
      of
      our consolidated entity.




The
      initial purchase price for the Hot Rocket acquisition, recorded in Fiscal 2005,
      was approximately $3.8 million and was comprised of $3.1 million in cash, $0.7
      million (or 113,821 shares) of our common stock and transaction fees
      approximating $0.1 million. Pursuant to an independent third party valuation,
      the reported purchase price was allocated to approximately $2.2 million of
      goodwill and $1.6 million of identifiable intangibles. There were no tangible
      assets acquired.


73


In
      addition to the initial purchase price of the acquisition, we agreed to pay
      Hot
      Rocket a contingent purchase price of up to $12.5 million if Hot Rocket
      generates an aggregate of $27 million in EBITDA (as quantified in the
      acquisition agreement) over the four year period following the closing. In
      accordance with the terms of the acquisition agreement, for the period February
      1, 2005 to January 31, 2006, we were liable for a combined additional purchase
      price payment of $1.467 million, which has been settled by a cash payment of
      approximately $0.886 million made on May 9, 2006, and an issuance of 103,354
      shares issued on May 10, 2006 (then having a fair market value of approximately
      $0.581 million).




Additionally,
      in accordance with the terms of the acquisition agreement, for the period August
      1, 2006 to January 31, 2007, we were liable for a combined additional purchase
      price payment of $375,000, which was settled by a cash payment of $300,000,
      and
      the issuance of 14,620 shares, with both events occurring during the six months
      ended August 31, 2007.




The
      terms
      of the acquisition agreement also provided for additional contingent payments
      of
      purchase price for the periods February 1, 2006 through July 31, 2006, and
      February 1, 2006 to January 31, 2007, upon the attainment of certain EBITDA
      thresholds as specified in the agreement. Hot Rocket did not reach either of
      the
      EBITDA thresholds for those periods.




Future
      contingent payments made, if any, will be treated as additional purchase price
      and included as an addition to goodwill.




74




**OBLIGATIONS
      AND COMMITMENTS**




We
      are
      not aware of any specific factors, outside of those described in the following
      table, and those “potential factors” described in the “Critical Accounting
      Policy and Accounting Estimate Discussion” which is set forth below, that are
      reasonably likely to cause a material impact, either positive or negative,
      on
      our liquidity trends.




Additionally,
      we do not have off-balance sheet arrangements, other than those described in
      the
      following table, and do not engage in trading activities involving non-exchange
      traded contracts.




A
      summary
      table of future contractual commitments, for future minimum lease payments
      under
      non-cancelable operating leases and employment contracts, and other
      contractually binding agreements, as of August 31, 2007, are set forth
      below:


Operating
                    Leases
                
                Employment
                    agreements
                
                Other
                
                Total
                      ContractualObligationsDomestic
                
                Foreign
                
                Domestic
                
                Foreign
                
                Domestic
                
                Domestic
                
                Foreign2007
                
                $
                152,471
                
                
                -
                
                $
                579,849
                
                $
                75,000
                
                
                -
                
                $
                732,320
                
                $
                75,0002008
                
                
                675,005
                
                
                -
                
                
                570,460
                
                
                325,000
                
                
                -
                
                
                1,245,465
                
                
                325,0002009
                
                
                688,629
                
                
                -
                
                
                319,542
                
                
                350,000
                
                
                
                
                
                1,008,171
                
                
                350,0002010
                
                
                696,996
                
                
                -
                
                
                254,665
                
                
                -
                
                
                
                
                
                951,661
                
                
                -2011
                
                
                666,876
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                666,876
                
                
                -$
                2,879,977
                
                $
                -
                
                $
                1,724,516
                
                $
                750,000
                
                $
                -
                
                $
                4,604,493
                
                $
                750,000




**RELATED
      PARTIES**




Feder,
      Kaszovitz, Isaacson, Weber, Skala, Bass and Rhine LLP (“FKIWSBR”) provides
      general legal services to us in the ordinary course of business and litigation
      services in defense of actions arising from such business activities. Murray
      L.
      Skala, a partner in such firm, was a member of our Board of Directors from
      inception to August 25, 2006, at which time he chose not to stand for
      re-election. FKIWSBR fees are billed on an arms length basis. We incurred
      approximately $226,000 in legal fees (exclusive of disbursements) from FKIWSBR
      during the nine months ended August 31, 2006.




75




**CRITICAL
      ACCOUNTING POLICY AND ACCOUNTING ESTIMATE DISCUSSION**





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





**Estimates**





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




76




**FACTORS
      THAT COULD AFFECT FUTURE RESULTS**





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





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




77




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





We
      currently earn our revenue from our Online and Media Service activities pursuant
      to marketing agreements with our marketing partners and corporate customers.
      The
      provisions of each agreement determine the type and timing of revenue to be
      recorded. We invoice our customers in accordance with the terms of the
      underlying agreement. Revenue is recognized at the time the marketing activity
      is delivered, or service is provided, net of an estimated sales allowance,
      when
      applicable. Such sales allowance may include an estimate for duplications,
      invalid addresses, and/or age restrictions that are due from, but have not
      yet
      been reported to us by our customers. These sales allowances are recorded as
      contra-revenue. Our revenues are adjusted in later fiscal periods if actual
      sales allowances vary from amounts previously estimated. Historically, the
      variance between actual sales allowances and previously estimated sales
      allowances has been immaterial. Aside from any impact that may arise as a result
      of the proposed Merger, if events were to occur that would cause actual sales
      allowances (which are recorded as offsets against gross revenue, as
      contra-revenues, in arriving at reported net revenue) to vary significantly
      from
      those originally estimated and reflected in the financial statements, we could
      suffer material deterioration in future fiscal period gross margins, and,
      therefore, our profitability, cash flows and capital resources could be
      adversely affected.





Certain
      revenue related obligations are recorded at the time revenue is recognized.
      They
      include costs payable to other online, as well as off-line, media companies
      for
      generating registered users and consumer data for us, database fee sharing
      costs
      under third-party database use agreements, email message delivery costs,
      contingent-based prize indemnification coverage (i.e. sweepstakes payout
      indemnification), estimated premium fulfillment costs related to the respective
      promotion (when and if applicable) and all other variable costs directly
      associated with completing our obligations relative to the revenue being
      recognized. When our estimates vary from that which was originally accrued,
      the
      associated variance is deemed a change in management’s estimate, and accordingly
      we take the increase or decrease to sales, costs, or overhead in the fiscal
      period that the variance is determinable.




78





Aside
      from any impact that may arise as a result of the proposed Merger, should the
      Internet operating landscape change resulting in (a) higher costs of acquiring
      consumer data and registered users for our websites; (b) higher costs of
      acquiring data for our marketing partners, compromising such marketing partners'
      ability to maintain adequate sized databases to allow for continued third-party
      database use agreements; (c) the InfiKnowledge asset acquisition failing to
      maintain a lower cost of our email delivery activities and web development
      and
      web hosting service costs as compared to our competitors, or us being required
      to depend on third-party emailing service bureaus, to a degree higher, and/or
      at
      a cost in excess of our anticipated internally-generated costs, (d) our
      contingent-based prize indemnification premiums for indemnification coverage
      increasing due to an increase in the number of prize winners at the sites;
      or
      (e) unpredictable technology changes or commercial technology applications;
      then, if any one, or a combination, of the above factors were to materialize
      we
      could suffer material deterioration in future fiscal period revenue growth
      and
      gross margins and, therefore, our profitability, cash flows and capital
      resources could be materially adversely affected.




79





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





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





We
      carry
      goodwill and other identifiable intangibles on our balance sheet arising from
      current and prior-year acquisitions. We are required to review, at least
      annually goodwill for any asset impairment. If the review of the goodwill
      related to the subsidiaries organized to acquire such assets determines that
      such goodwill is impaired, then we will be required to recognize an impairment
      charge on such goodwill necessary to reduce the carrying value of the goodwill
      to its net realizable value. Should events occur that would give rise to such
      impairment charge, we would recognize decreased profitability to the extent
      of
      such adjustment. Cash flows would not be directly affected by the impairment
      charge, but cash flows would, most likely, be adversely affected as a result
      of
      the facts and circumstances that created the impairment charge. As of August
      31,
      2007, we reviewed our annual analysis performed November 31, 2006, and
      determined there continues to be no impairment, and have not recognized any
      events through the date of this report that would negatively impact goodwill,
      or
      otherwise require an impairment charge.




80





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





We
      maintain an investment portfolio that is managed by prominent financial
      institutions. The portfolio includes high-grade corporate commercial paper
      and
      auction rate securities, and common stock equities, all of which are held for
      varying periods of time, pursuant to maturity dates, market conditions and
      other
      factors. The fair value of our investments in the common stock of publicly
      traded companies as of August 31, 2007 amounted to approximately $2.0 million.
      These investments are subject to market price volatility, in addition to the
      potential for business failure at the company level. Moreover, due to the
      potential for an economic downturn and the potential of related fiscal
      difficulties that may be faced by some of the companies in which we have
      investments, our investment portfolio could become impaired by the failure
      of
      such companies to fulfill their responsibility of adhering to the repayment
      of
      principal upon maturity. Additionally, our cash flows and interest income could
      be negatively impacted by Federal Reserve Bank interest rate reductions, if
      any.





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





(a)  Evaluation
      of disclosure controls and procedures.





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




81





(b)  Changes
      in internal control over financial reporting.





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




82




**PART
      II**





**OTHER
      INFORMATION**





**Item
      1.**  **Legal
      Proceedings**





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





*Hatton
      v. Prize America/Prize Distributors*





In
      or
      about October 2005 Brandon Hatton filed a *pro
      se* action
      in the U.S. District Court, Middle District of Tennessee (No. 05 CV 00073)
      and
      was also granted permission to proceed *in
      forma pauperis.* The
      complaint, as amended, alleges that at some time between June 2002 and July
      2004
      the plaintiff won a prize and that defendant failed to pay/deliver, and
      claims damages of $391 million. In
      December 2006, we learned that plaintiff had attempted to serve process; our
      counsel made a special appearance and moved to dismiss the action on
      jurisdictional grounds. That application was denied in August 2007 and plaintiff
      has served process. A preliminary conference has been held and the case will
      now
      proceed to discovery. We believe that there is no merit to this claim and intend
      vigorously to defend the action.




83







*Curtis
      J. Jackson/Shoot the Rapper Ads*





In
      late
      July 2007, the rapper Curtis J. Jackson (p/k/a 50 Cent) filed a complaint
      against us in Supreme Court, New York County (Index No. 602445/07). The
      complaint refers to certain banner ads published by us and alleges that 50
      Cent’s image was used in those ads without his permission. The complaint asserts
      claims under New York Civil Rights Law, for intentional and negligent infliction
      of emotional distress, defamation, and unjust enrichment. It seeks damages
      in
      excess of one million dollars, as well as injunctive relief. When plaintiff’s
      representatives originally contacted us regarding this matter in May 2007,
      we
      ceased using the ad copy about which they complained and replaced it.
      Plaintiff’s representatives have advised that their client is willing to settle
      the matter for a payment of $500,000. We have reported the matter to our
      insurance carrier, which is providing a defense, although the retainage on
      the
      policy is $100,000. Currently, our counsel is engaged in settlement discussions
      with plaintiff’s counsel. We believe that there is no merit to the claim and, in
      the event it is not resolved amicably, we intend vigorously to defend against
      it.





*Tactara
      LLC*





In
      June
      2007, Tactara LLC ("Tactara") filed a complaint in the Superior Court of
      California, Los Angeles, alleging that we breached a service order agreement
      and
      seeking damages of $189,000 plus interest. Our contract with Tactara provides
      for arbitration and we requested that the action be withdrawn. In September
      2007, Tactara withdrew the court action without prejudice and served an
      arbitration demand with a claim of approximately $208,000 which appears to
      include some amounts unrelated to the subject contract. We are currently in
      settlement negotiations with Tactara’s counsel. We believe that there is no
      merit to the claim and in the event the matter is not settled, we intend
      vigorously to defend against it.




84





**Item
      1A. Risk Factors**




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




In
      addition, set forth below are certain risk factors intended to highlight
      potential adverse consequences that we may face going forward due to the
      announcement of the Merger and some additional considerations of which our
      stockholders should be aware (whether or not the Merger is consummated). We,
      together with New Motion, intend, within the next few weeks, to file with the
      SEC a joint registration/proxy statement that will contain additional
      information about the Merger and New Motion. That disclosure will also contain
      additional risk factors about the Merger and New Motion. We urge all of our
      stockholders, and those persons considering becoming our stockholders, to
      carefully review such document when it becomes available on the SEC’s website at www.sec.gov .




85




***Risks
      Related to our Day-to-Day Operations***





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




We
      have
      paid a dividend of $0.08 per share of our common stock in the last seventeen
      fiscal quarter and have declared a dividend payable on or about November 10,
      2007 to holders of record of our common stock at the close of business on
      November 10, 2007. The declaration of each such dividend was approved by our
      Board of Directors upon the conclusion of each quarter. In the event the Merger
      is consummated, we will cease the declaration of this quarterly dividend. Even
      if the Merger is not consummated, however, we can give you no assurances that
      our Board will declare any dividends in future fiscal periods. Any further
      declarations will depend upon our performance, the level of our then current
      and
      retained earnings and other pertinent factors relating to our financial
      position. You should not rely on any prior approvals of our Board as an
      indicator of its intent to approve the declaration of any dividends in the
      future.





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




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





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




86




As
      a
      direct-to-consumer marketing company we are subject to a variety of federal,
      state and local laws and regulations designed to protect consumers that govern
      certain of our marketing practices, all as more fully set forth in our periodic
      reports filed pursuant to the Securities Exchange Act of 1934 under the heading
      “Business - Government Regulation.”





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





Our
      business may be adversely affected by the proliferation of "spam" and other
      unwanted Internet solicitations. In response to such proliferation, Internet
      Service Providers ("ISP's") have been adopting technologies, and individual
      computer users are installing software on their computers that are designed
      to
      prevent the delivery of certain Internet advertising, including legitimate
      solicitations such as those delivered by us. We cannot assure you that the
      number of ISP's and individual computer users who employ these or other similar
      technologies and software will not increase, thereby diminishing the efficacy
      of
      our services. In the case that one or more of these technologies are widely
      adopted or the software widely utilized, demand for our services would decline.
      During the nine months ended August 31, 2007 we recognized a decline in our
      email marketing revenue of approximately 58% when compared to the nine months
      ended August 31, 2006. We believe that such decline is the result of the factors
      mentioned above, and may continue to decline at higher rates in future fiscal
      periods.




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





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




87




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





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




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




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




88





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





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




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




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





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




89





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





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




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





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





Our
      executive officers and directors beneficially own 1,779,767 shares of our
      outstanding common stock representing approximately 11.74% of the total of
      our
      outstanding shares before the exercise of any outstanding options. Aside from
      any impact that may result from the consummation of the Merger, such persons
      will be able to exercise substantial control in the election of our directors,
      increases in our authorized capital, our dissolution or merger, or sale of
      our
      assets, and otherwise influence the control of our affairs. As a result,
      potential purchasers may not seek to acquire control of our Company through
      the
      purchase of common stock which may tend to reduce the market price of our common
      stock. In addition, we are subject to provisions of the General Corporation
      Law
      of the State of Delaware respecting business combinations which could, under
      certain circumstances, also hinder or delay a change in control.





90




***Risks
      Related to the Merger***




*Because
      the market price of New Motion’s common stock will fluctuate, our stockholders
      cannot be sure of the market value of the New Motion common stock that they
      will
      receive.*




In
      the
      event the Merger is consummated, shares of our common stock will be converted
      into the right to receive approximately 0.683 shares of New Motion common stock
      based on the capitalization of both companies as of September 26, 2007, the
      date
      of the Merger Agreement (subject to adjustment if certain contingent matters
      are
      not resolved before the closing). The exchange ratio and the number of shares
      that New Motion will issue or assume in the Merger will not be adjusted for
      changes in the market price of either New Motion common stock or our common
      stock and the Merger agreement does not provide for any price-based termination
      right. Accordingly, the market value of the shares of New Motion common stock
      that New Motion grants and our stockholders will be entitled to receive if
      we
      complete the Merger will depend on the market value of shares of New Motion
      common stock at the time that we complete the Merger and could vary
      significantly from the market value on the date hereof or the date of our
      special meeting of stockholders to approve the Merger. The market value of
      the
      shares of New Motion common stock will continue to fluctuate after the
      completion of the Merger.




These
      variations could result from changes in our business, operations or prospects
      or
      those of New Motion prior to or following the Merger, regulatory considerations,
      general market and economic conditions and other factors both within and beyond
      our control or the control of New Motion.




*Uncertainty
      about the Merger and diversion of management could harm us, whether or not
      the
      Merger is completed.*




In
      response to the announcement of the Merger, our existing customers and suppliers
      may delay or defer their purchasing or other decisions concerning us, or they
      may seek to change their existing business relationship. In addition, as a
      result of the Merger, current and prospective employees could experience
      uncertainty about their future. These uncertainties may impair our ability
      to
      retain, recruit or motivate key personnel. Completion of the Merger will also
      require a significant amount of time and attention from management. The
      diversion of management attention away from ongoing operations could adversely
      affect ongoing operations and business relationships.




91




*Failure
      to complete the Merger could adversely affect our stock prices and our future
      business and financial results.*




Completion
      of the Merger is conditioned upon the approval of New Motion’s and our
      stockholders. There is no assurance that we will receive the necessary approvals
      or satisfy the other conditions to the completion of the Merger. Failure to
      complete the proposed Merger would prevent us from realizing the anticipated
      benefits of the Merger. We will also remain liable for significant transaction
      costs, including legal, accounting and financial advisory fees. In addition,
      the
      market price of our common stock may reflect various market assumptions as
      to
      whether the Merger will occur. Consequently, the completion of, or failure
      to
      complete, the Merger could result in a significant change in the market price
      of
      our common stock.




*Because
      certain of our directors and executive officers and of New Motion have interests
      in seeing the Merger completed that are different than those of the other
      stockholders of the two companies, these persons may have conflicts of interest
      in recommending that the stockholders of the two companies vote to approve
      the
      Merger Agreement.*




Certain
      directors of the two companies have arrangements or other interests that provide
      them with interests in the Merger that are different than those of other
      stockholders. For example, Burton Katz, the CEO of New Motion, who is also
      a
      director of New Motion, will, pursuant to the Merger Agreement, keep that title
      with the combined company and will remain on the board of directors of the
      combined company; Andrew Stollman, our President and a director, will become
      the
      President of the combined company; and Jeffrey Schwartz, our CEO and a director,
      will receive a severance payment of $1.5 million and a new consulting agreement
      providing for a term of two years. In addition, up to three current Traffix
      directors and up to four current New Motion directors may serve on the combined
      company’s board. While other current directors of the two companies will not
      become directors of the combined company after the Merger, New Motion will
      indemnify and maintain liability insurance for each of the directors’ services
      as directors before the Merger. As a result of these interests, these directors
      and officers could be more likely to recommend a vote in favor of approval
      of
      the Merger and adoption of the Merger Agreement than if they did not hold these
      interests, and may have reasons for doing so that are different than the
      interests of other stockholders of the two companies.




92




*The
      Merger Agreement contains provisions that could discourage a potential competing
      acquiror that might be willing to pay more to acquire us.*




The
      Merger Agreement contains “no shop” provisions that restrict our ability to
      solicit or facilitate proposals regarding a merger or similar transaction with
      another party. Further, there are only limited exceptions to our Agreement
      that
      our board of directors will not withdraw or adversely qualify its recommendation
      regarding the Merger Agreement. Although our board of directors is permitted
      to
      terminate the Merger Agreement in response to a superior proposal if it
      determines that a failure to do so would be inconsistent with its fiduciary
      duties, its doing so would entitle New Motion to collect a $4 million
      termination fee from us.




These
      provisions could discourage a potential competing acquiror from considering
      or
      proposing that acquisition, even if it were prepared to pay consideration with
      a
      higher value than that proposed to be paid in the Merger, or might result in
      a
      potential competing acquiror proposing to pay a lower per share price than
      it
      might otherwise have proposed to pay because of the added expense of the
      termination fee.




*Resales
      of shares of New Motion’s common stock following the Merger and additional
      obligations to issue shares of New Motion common stock may cause the market
      price of New Motion common stock to fall.*




As
      of
      September 26, 2007, New Motion had approximately 12,040,596 million shares
      of common stock outstanding and 1,878,992 shares of common stock subject to
      outstanding options and other rights to purchase or acquire its shares. New
      Motion currently expects that it will issue or assume up to 11,917,520 million
      shares of New Motion common stock in connection with the Merger (including
      shares underlying options to be issued by New Motion in the Merger). The
      issuance of these new shares of New Motion common stock and the sale of
      additional shares of New Motion common stock that may become eligible for sale
      in the public market from time to time upon exercise of options (including
      a
      substantial number of New Motion options that will replace existing options
      currently held by our option holders) could have the effect of depressing the
      market price for shares of New Motion common stock.




*The
      trading price of shares of New Motion common stock after the Merger may be
      affected by factors different from those affecting the price of shares of our
      common stock or shares of New Motion common stock before the Merger.*




93




If
      we
      complete the Merger, holders of our common stock will become holders of New
      Motion common stock. The results of operations of New Motion, as well as the
      trading price of New Motion common stock, after the Merger may be affected
      by
      factors different from those currently affecting New Motion’s or our results of
      operations and the trading price of our common stock.





**Item
      4.**  **SUBMISSION
      OF MATTERS TO A VOTE OF SECURITYHOLDERS**





A
      proxy
      statement was mailed on or about July 20, 2007 to our stockholders of record
      as
      of July 16, 2007 in connection with our 2007 Annual Meeting of Stockholders,
      which was held on August 28, 2007 at our executive offices, One Blue Hill Plaza,
      Pearl River, New York. At the meeting, the stockholders voted on two matters,
      both of which were approved.




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





**Nominees
                For Directors**
            
            **For**
            
            **Against**
            
            **Withheld**Jeffrey
                L. Schwartz
            
            11,170,644
            
            596,318
            
            -0-Andrew
                Stollman
            
            11,102,124
            
            664,838
            
            -0-Lawrence
                Burstein
            
            11,104,337
            
            662,625
            
            -0-Mark
                Gutterman
            
            11,094,720
            
            672,242
            
            -0-Robert
                Machinist
            
            11,199,794
            
            567,168
            
            -0-





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




The
      second matter upon which the stockholders voted was the proposal to ratify
      the
      appointment by the Board of Directors of Goldstein Golub Kessler LLP as our
      independent certified public accountants for the current fiscal year. The
      tabulation of the votes (both in person and by proxy) was as
      follows:




**For**
            
            **Against**
            
            **Abstentions**11,465,843
            
            108,005
            
            192,112





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




**Item
        5.** **** **Other
        Information**
 
 On
        October 15, 2007, we issued a press release announcing (i) our results of
        operations for the quarter ended August 31, 2007; and (ii) that our Board
        of
        Directors, on October 11, 2007, had declared a dividend of $0.08 per share
        to
        shareholders of record as of November 1, 2007, payable on or about November
        10,
        2007. A copy of such release is filed herewith as an exhibit.




94




**Item
      6.**  **Exhibits**





**Exhibit****Number**





2.1
            Agreement
                and Plan of Merger dated as of September 26, 2007 by and among New
                Motion,
                Inc. NM Merger Sub, Inc. and the Company
                (1)





2.2
            Form
                of Stockholder Agreement dated as of September 26, 2007 between the
                Company and certain stockholders of New Motion, Inc.
                (1)





3.1.1
            Articles
                of Incorporation of the Company, as amended
                (2)





3.1.2
            Amendment
                to the Articles of Incorporation of the Company
                (3)





3.2
            By-Laws
                of the Company (4)





31.1
            Rule
                13a-14(a)/15d-14(a) Certification of Chief Executive Officer
                *





31.2
            Rule
                13a-14(a)/15d-14(a) Certification of Chief Financial Officer
                *





32.1
            Section
                1350 Certification of Chief Executive Officer
                *





32.2
            Section
                1350 Certification of Chief Financial Officer
                *





99.1
            October
                15, 2007 Press Release (5)





*  Filed
      herewith.




(1)
              Filed
                  as an Exhibit to the Company’s Current Report on Form 8-K, dated September
                  27, 2007, and incorporated herein by
                  reference.
 
 (2)
              Filed
                  as an Exhibit to the Company's Registration Statement on Form 8-A,
                  dated
                  October 23, 1995, and incorporated herein by
                  reference.
 
 (3)
              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.
 
 (4)
              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.  (5)
              Filed
                  as an Exhibit to the Company’s Quarterly Report on Form 10-Q for the
                  fiscal quarter ended August 31, 2007, and incorporated herein by
                  reference.





95







SIGNATURES





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


TRAFFIX,
              INC.Date: 
              November 1,
              2007
            By:
            /s/
              Jeffrey L. SchwartzJeffrey
              L. SchwartzChairman
                and CEO Chairman and CEO
              (Principal
                Executive Officer)




Date: November
              1,
              2007
            By:
            /s/
              Daniel HarveyDaniel
              Harvey
              Chief
                Financial Officer(Principal
                Financial Officer)




96


Exhibit
      Index





**Exhibit****Number**





2.1
            Agreement
                and Plan of Merger dated as of September 26, 2007 by and among New
                Motion,
                Inc. NM Merger Sub, Inc. and the Company
                (1)





2.2
            Form
                of Stockholder Agreement dated as of September 26, 2007 between the
                Company and certain stockholders of New Motion, Inc.
                (1)





3.1.1
            Articles
                of Incorporation of the Company, as amended
                (2)





3.1.2
            Amendment
                to the Articles of Incorporation of the Company
                (3)





3.3
            By-Laws
                of the Company (4)





31.3
            Rule
                13a-14(a)/15d-14(a) Certification of Chief Executive Officer
                *





31.4
            Rule
                13a-14(a)/15d-14(a) Certification of Chief Financial Officer
                *





32.3
            Section
                1350 Certification of Chief Executive Officer
                *





32.4
            Section
                1350 Certification of Chief Financial Officer
                *




99.1
              October
                  15, 2007 Press Release (5)







*  Filed
      herewith.





(1)
            Filed
                as an Exhibit to the Company’s Current Report on Form 8-K, dated September
                27, 2007, and incorporated herein by
                reference.





(2)
            Filed
                as an Exhibit to the Company's Registration Statement on Form 8-A,
                dated
                October 23, 1995, and incorporated herein by
                reference.





(3)
            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.





(4)
            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.  (5)
            Filed
                as an Exhibit to the Company’s Quarterly Report on Form 10-Q for the
                fiscal quarter ended August 31, 2007, and incorporated herein by
                reference.





97