UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                  FORM 10-KSB/A
                                (AMENDMENT NO. 2)

(Mark one)

|X| Annual Report Under Section 13 or 15(d) of The Securities Exchange Act of
    1934

                    For the fiscal year ended March 31, 2004

|_| Transition Report Under Section 13 or 15(d) of The Securities Exchange Act
    of 1934

         For the transition period from ______________ to _____________

                         Commission File Number: 0-28717

                              ADZONE RESEARCH, INC.

        (Exact name of small business issuer as specified in its charter)

       Delaware                                                88-0420405
(State of incorporation)                               (IRS Employer ID Number)

                    4062-80 Grumman Blvd. Calverton, NY 11933
                    (Address of principal executive offices)

                                 (631) 369-1100
                          (Issuer's telephone number)

       Securities registered under Section 12(b) of the Exchange Act: None

         Securities registered under Section 12(g) of the Exchange Act:
                          Common Stock $0.001 par value

Check  whether  the issuer  has (1) filed all  reports  required  to be files by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter  period  AdZone was  required  to file such  reports),  and (2) has been
subject to such filing requirements for the past 90 days. Yes |X| No |_|

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the best of Company's knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. |_|

The issuer's revenues for the fiscal year ended March 31, 2004 was $74,844.

The aggregate market value of voting common equity held by  non-affiliates as of
March 31, 2004 was  approximately  $12,695,285.12,  using the  closing  price of
AdZone's common stock of $0.32 per share on March 31 2004.

As of March 31, 2004,  there were  70,832,255  shares of common stock issued and
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

None.

Transitional Small Business Disclosure Format: Yes |_|  No |X|
<PAGE>

                                EXPLANATORY NOTE

This  Amendment on Form  10-KSB/A  (Amendment  No. 2) amends and restates in its
entirety the  following  items of the Annual Report on Form 10-KSB and Amendment
No. 1 of the Form  10-KSB/A  for the fiscal year ended March 31, 2004 (the "2004
10-KSB/A") of Adzone Research,  Inc. (the "Company") as initially filed with the
Securities  and Exchange  Commission  (the "SEC") on July 9, 2004 and amended on
November 1, 2004 (the "original 2004 10-KSB"):

        Part II - Item 6.  Management's Discussion and Analysis of Financial
                           Condition and Results of Operations

        Part II - Item 7.  Financial Statements

        Part II - Item 8A. Controls and Procedures

        Part IV - Item 13. Exhibits and Reports on Form 8-K

This  Amendment  is being  filed to reflect  the  restatement  of the  Company's
results for the fiscal years ended March 31, 2004 and 2003, as discussed in Note
C to the Company's consolidated financial statements filed herewith. The Company
has had  discussions  with the  accounting  staff (the  "Staff") of the SEC with
respect  to (1) the  valuation  of equity  securities  issued to  employees  and
non-employees  and (2) the accounting and reporting for preferred stock that had
also included the issuance of warrants and beneficial conversion features. After
the Company's  discussions with the Staff, and after the Company  consulted with
its independent  registered public  accounting firm, the Company  determined the
need to restate its annual and quarterly  financial  statements for fiscal 2004,
and the first two quarterly financial statements for fiscal 2005. The effects of
the  restatements,  in  management's  view,  rises to the  level  of a  material
weakness in internal  control,  which is further  discussed  in Item 8A. of this
annual report, as amended.

This Amendment speaks as of the end of the Company's fiscal year ended March 31,
2004 as required by Form 10-KSB or as of the date of the filing of the  original
2004  10-KSB.  Except  for  the  restatement  of  certain  historical  financial
information  as  described  above,  it does  not  update  any of the  statements
contained in the original 2004 10-KSB.  This Amendment contains  forward-looking
statements that were made at the time the original 2004 10-KSB was filed on July
9, 2004. It must be considered in light of any subsequent statements,  including
forward looking statements, in any reports made by the Company subsequent to the
filing of the original 2004 10-KSB, including statements made in filings on Form
8-K and the Company's Quarterly Reports on Form 10-QSB.
<PAGE>

                              ADZONE RESEARCH, INC.
                                  FORM 10-KSB/A
                                (AMENDMENT NO. 2)
                    FOR THE FISCAL YEAR ENDED MARCH 31, 2004

                                      INDEX

                                     PART I

                                                                           Page

Item 1.   Description of Business                                            1
Item 2.   Description of Property                                            5
Item 3.   Legal Proceedings                                                  5
Item 4.   Submission of Matters to a Vote of Security Holders                5

                                     PART II

Item 5.   Market for the Registrant's Common Equity and                      6
          Related Stockholder Matters
Item 6.   Management's Discussion and Analysis or Plan of Operation          8
Item 7.   Financial Statements                                              13
Item 8.   Changes in and Disagreements with Accountants on
          Accounting and Financial Disclosure                               13
Item 8A.  Controls and Procedures                                           14
Item 8B.  Other Information                                                 15

                                    PART III

Item 9.   Directors, Executive Officers, Promoters and Control Persons;
              Compliance with Section 16(A) of the Exchange Act.            16
Item 10.  Executive Compensation                                            18
Item 11.  Security Ownership of Certain Beneficial Owners and Management    21
Item 12.  Certain Relationships and Related Transactions                    22
Item 13.  Exhibits and Reports on Form 8-K                                  23

                                     PART IV

Item 14.  Principal Accountant Fees and Services                            23

                                   SIGNATURES

CAUTION REGARDING FORWARD-LOOKING INFORMATION

Certain  statements  contained in this annual report on Form 10-KSB,  including,
without limitation,  statements containing the words "believes",  "anticipates",
"expects" and words of similar import,  constitute  forward-looking  statements.
Such forward-looking  statements involve known and unknown risks,  uncertainties
and other factors that may cause the actual results, performance or achievements
of AdZone,  or industry  results,  to be  materially  different  from any future
results,   performance   or   achievements   expressed   or   implied   by  such
forward-looking statements.

Such factors include, among others, the following:  international,  national and
local general economic and market conditions;  demographic  changes; the ability
of AdZone to sustain,  manage or forecast  its growth;  the ability of AdZone to
successfully   make  and  integrate   acquisitions;   raw  material   costs  and
availability;  new product  development and  introduction;  existing  government
regulations  and  changes  in,  or  the  failure  to  comply  with,   government
regulations;  adverse publicity;  competition; the loss of significant customers
or suppliers;  fluctuations  and  difficulty in forecasting  operating  results;
changes in business strategy or development  plans;  business  disruptions;  the
ability  to attract  and  retain  qualified  personnel;  the  ability to protect
technology; and other factors referenced in this and previous filings.
<PAGE>

Given these  uncertainties,  readers of this Form  10-KSB/A  and  investors  are
cautioned not to place undue reliance on such forward-looking statements. AdZone
disclaims any obligation to update any such factors or to publicly  announce the
result  of any  revisions  to any of the  forward-looking  statements  contained
herein to reflect future events or developments.

ITEM 1 - DESCRIPTION OF BUSINESS

GENERAL

We were  incorporated  in Delaware on May 31, 1994 under the name Executive Help
Services,  Inc.  for the purpose of  developing  an Internet web site that would
offer  planning  of  professional  office  space and  design of  modular  office
furniture with direct ordering capabilities. From our inception until June 1999,
we had no significant operations.  In June 1999, we decided to capitalize on the
advances on Internet  technology  that had occurred since our inception in order
to reach a broader  customer  base.  We began to offer our products and services
through an e-commerce  website,  "www.modularoffice.com",  which offered  office
furnishings  to businesses  ranging in size from small  businesses  operating in
home offices to large corporate customers.

In January 2000, we registered our common stock with the Securities and Exchange
Commission on a Form 10-SB pursuant to the  Securities  Exchange Act of 1934 and
became a public  reporting  company.  We also filed a request  with the NASD for
clearance  of  quotations  on the OTC  Bulletin  Board under Rule 15c2-11 of the
Securities Exchange Act of 1934. A clearance letter was issued to us and we were
issued the trading symbol "EHSV."

Upon a change in  management  that  occurred in January  2001,  we abandoned our
previously  adopted  business plan.  From January 2001 until August 2001, we did
not engage in any  significant  activity  other than  negotiating  a merger with
AdZone Interactive,  Inc., also known as AII, a privately held corporation.  AII
was  founded  in March  2000 to  engage  in  Internet  advertising  research  by
extracting  various data elements  through the  monitoring of Internet  websites
maintained by independent third parties.

On August 10, 2001, we closed an Agreement  and Plan of Share  Exchange with AII
whereby we exchanged  18,000,000  shares of our restricted common stock for 100%
of the issued and  outstanding  common stock of AII.  Immediately  thereafter we
effected a merger of the two entities with AII as the surviving  entity.  At the
time of the merger we changed our corporate  name to AdZone  Research,  Inc. and
changed our trading symbol to "ADZR."

Since our merger with AII, we have  continued the business of AII as an Internet
advertising  research  firm  engaged  in the  extraction  of  data  through  the
monitoring of Internet  websites.  The  extracted  data are then used to provide
various market research statistics and other focused information as requested by
AdZone's  clients.  AdZone  is  in  it's  development  stage,  and  has  focused
principally on the development of its proprietary  software,  and has just begun
to initiate efforts towards developing a significant revenue base.

Among the  applications of the extracted data are the compilation of advertising
activity  and  information  regarding   advertising   expenditures  on  Internet
websites.  AdZone also has developed a subscription based online application for
accessing  data from  websites  that are hosted  within the United  States,  the
United Kingdom, Europe, and Asia and for providing such data to its clients in a
variety of customizable report formats.

The events of  September  11, 2001 and threats of terrorist  activity  that have
occurred  subsequently  thereto have generated interest in AdZone as a potential
provider  of  Internet  data.  Shortly  after  September  11,  2001,  AdZone was
contacted by the United States Office of Homeland  Security,  which expressed an
interest in using AdZone's NetGet(TM) Internet monitoring  technology to monitor
the Internet for terrorist planning and other communication. AdZone believes its
technology  is well  suited for this  purpose  and has been  working  with local
members  of  Congress  in both the House and  Senate to secure  funding  for its
proposal. The proposal has earned support from various Congressmen and senators.
Based on our initial  discussions  with officials of the federal  government and
the State of New York,  we believe that AdZone is well placed to obtain  federal
and New York State  contracts  for  Internet  monitoring  of possible  terrorist
communication, planning and various forms of cybercrime.


                                       1
<PAGE>

AdZone continues to market its surveillance systems and data directly to various
government agencies.  AdZone has temporarily  suspended its efforts in marketing
its  products  at the state  level and is  instead  currently  focusing  on more
federal agency contracts and contracts through Autometric, Raytheon and Sarnoff.

AdZone  was  also  negotiating  with  officials  of  the  Global  Public  Health
Intelligence  Network, a world-wide public health  organization based in Canada,
and the World Health  Organization  based in Geneva,  Switzerland,  for possible
contracts or grants to provide  internet  monitoring  for possible  bioterrorist
activities.  These  negotiations were terminated during the year ended March 31,
2003.

In June 2002, AdZone concluded a Systems Integrator  Agreement with the Raytheon
Company  under  which  Raytheon  agreed to use its  efforts  to  obtain  systems
integrator  agreements with smaller  technology  firms to provide software tools
developed  by AdZone  that  would  enhance  the data  analysis  capabilities  of
Raytheon's  software or that would more effectively  gather data for analysis by
Raytheon and any of its systems  integrator  partners.  Raytheon's  intent is to
demonstrate  AdZone's  technologies in conjunction  with its own technologies to
its  prospective   governmental  customers,   which  include  all  agencies  and
departments  of the United  States  government  and its  approved  international
allies.

On October 10, 2002, Adzone signed a "Broker-Dealer Marketing Program" agreement
with First  American  Financial  Group of New York, NY (First  American).  First
American  will contact  broker-dealers  as potential  market  makers in AdZone's
equity  securities;  contact  broker-dealers  via e-mail and telephone to review
current AdZone  information and meet with  broker-dealers,  and their registered
representatives, to discuss and promote awareness of AdZone's equity securities.
This agreement  originally  terminated on September 30, 2003 and was extended to
September 30, 2004 by a written  amendment dated January 7, 2004. First American
has  asserted  that  AdZone  breached  various  components  of this  contractual
agreement and filed for arbitration of the contested  matters.  AdZone and First
American   reached  a  settlement   agreement  on  June  24,  2004  whereby  the
"Broker-Dealer  Marketing  Program"  agreement  was  settled  in full  with  the
issuance of 200,000 shares of restricted  unregistered  common stock on June 25,
2004. AdZone has no further obligations in relation to this agreement.

In December  2002,  AdZone signed an investment  banking  agreement with Spartan
Securities of Florida,  whereby Spartan intends to provide assistance in banking
and capital raising for AdZone. AdZone is in the process of completing a private
placement with the assistance of Spartan Securities.

In March of 2003,  AdZone  signed an  agreement  with Sarnoff  Corp.  to jointly
market  anti-terrorist  services to government security agencies.  The companies
plan to offer technology that discovers and tracks clandestine communications by
terrorist  or other  outlaw  groups  across the World Wide Web.  Their  combined
expertise can produce advanced tools for uncovering and decoding hidden messages
and other content embedded in the pixels of innocent-looking Web pages.

In April of 2003,  AdZone signed an agreement with  Autometric Inc (a subsidiary
of the Boeing Corp).  The companies will explore ways to integrate the NetGet TM
technology with Autometrics range of products and services.

In June of 2003 AdZone filed for  preliminary  Patent  protection for its NetGet
technology.  The  patent  application  is in the  early  stages  and there is no
assurance that a patent will be granted.

In May of 2004  AdZone  received  its first  purchase  order  from a US  Defense
contractor in connection with using AdZone's  technology in a viable  commercial
setting.  Due to nondisclosure  agreements  AdZone is prohibited from disclosing
any further  information in regard to this purchase  order.  AdZone  anticipated
this to be the  first  of many  revenue  generating  opportunities  for  AdZone.
Although there are no assurances that this revenue stream will continue.


                                       2
<PAGE>

COMPETITION

AdZone has  several  competitors  in the  commercial  arena,  many of which have
financial  and  other  resources  that are far  greater  than its own.  AdZone's
limited  resources  may hinder its  ability  to  compete  effectively.  AdZone's
principal  competitor is Competitive  Media Research (CMR), a division of Taylor
Nelson Sofres, which offers expenditure information on close to 300 web sites as
well as an online  application  for  accessing  certain of its data.  Management
believes that  AdZone's  product,  although  similar in  methodology  to CMR, is
superior and that its database  contains more information on a greater number of
sites.  In addition,  Leading Web  Advertisers  (LWA) a.k.a.  Evalient,  another
significant competitor, offers custom reports on banner creativity. Evalient was
recently acquired by CMR.

EMPLOYEES

AdZone has 9 full time and two part time employees.  None of AdZone's  employees
are represented by a union, and AdZone  considers its employee  relationships to
be good.

SALES AND MARKETING

AdZone   markets  its   products  and  services   principally   through   e-mail
distributions to selected target markets, through direct sales contacts, through
the sales efforts of Executive  Vice President Dan  Wasserman,  advisor  General
Paul   Weaver  and   through  its   websites,   www.adzoneinteractive.com,   and
www.adzoneresearch.com.

DISTRIBUTION METHODS OF PRODUCTS OR SERVICES

AdZone  distributes its products and services  electronically  through e-mailing
its reports to the client,  posting  such  reports to a private  website that is
accessible to the client,  distribution of the report on a CD-ROM, or faxing its
reports  to the  client  location.  In June  2002,  AdZone  concluded  a Systems
Integrator   Agreement  with  Raytheon  Company,   whereby  Raytheon  agreed  to
demonstrate and promote sales of AdZone's  proprietary  software for defense and
security  applications.  Any such sales of AdZone's  software  products  through
Raytheon,   therefore,  will  be  completed  through  sales  of  Raytheon's  own
technology  with which AdZone's  products will be integrated.  In March of 2003,
AdZone signed a joint  marketing  agreement with Sarnoff Corp. to jointly market
its technology to various government  agencies that Sarnoff already has contacts
with. In April of 2003, AdZone signed a deal with Autometric agreeing to provide
its technology to Autometric  and their clients  through  Autometric  contracts.
AdZone will provide data, custom  development and support to Autometric with the
current contract and additional contracts under negotiation.

STATUS OF ANY PUBLICLY ANNOUNCED NEW PRODUCT OR SERVICE

In May 2004,  we executed a letter of intent  based on a proposal  for  services
issued to a major United States  Governmental  agency.  The agency  subsequently
issued and  executed a contract  with an  initial  face value of  $100,000  with
provisions for increases based on certain specified performance benchmarks.

DEPENDENCE ON ONE OR A FEW MAJOR CUSTOMERS

In the normal course of business,  AdZone periodically  extends unsecured credit
to its customers  which during fiscal 2004 were 100% derived from a sole source.
Because of the credit risk  involved,  management  will provide an allowance for
doubtful  accounts,  which  will  reflect  its  opinion  of  amounts  which will
eventually become uncollectible.  In the event of complete non-performance,  the
maximum exposure to us is the recorded amount of trade accounts receivable shown
on the balance sheet at the date of non-performance.


                                       3
<PAGE>

PATENTS, TRADEMARKS,  LICENSES, FRANCHISES,  CONCESSIONS,  ROYALTY AGREEMENTS OR
LABOR CONTRACTS, INCLUDING DURATION

AdZone   owns   its   internet    domain    names,    www.adzoneinteractive.com,
www.adzoneresearch.com,   and  www.adzonereports.com  and  holds  a  common  law
copyright on all of its proprietary software. In June of 2003 AdZone applied for
patent protection for its methodology and/or technology.

In addition,  AdZone has no plans to enter into  franchise,  concession or labor
contracts.  In June 2002, AdZone concluded a Systems  Integrator  Agreement with
Raytheon  Company  pursuant to which it granted  Raytheon the right to integrate
certain  of  AdZone's  proprietary  software  for  integration  with  Raytheon's
software for defense and security applications.  In March of 2003, AdZone signed
a joint marketing  agreement with Sarnoff Corp. to jointly market its technology
to various government  agencies that Sarnoff already has contacts with. In April
of 2003 AdZone signed a deal with  Autometric (A division of the Boeing Company)
agreeing  to  provide  it's  technology  to  their  clients  through  Autometric
contracts.

NEED FOR GOVERNMENT APPROVAL OF PRINCIPAL PRODUCTS OR SERVICES

AdZone is not  required to apply for or obtain any  government  approval for its
products or services.

EFFECT OF EXISTING OR PROBABLE GOVERNMENTAL REGULATIONS ON THE BUSINESS

AdZone is not currently subject to direct federal,  state or local regulation in
the United States other than regulations  applicable to businesses  generally or
directly  applicable  to  electronic  commerce.  However,  it is possible that a
number of laws and  regulations may be adopted in the United States with respect
to the Internet.  These laws may cover issues such as user  privacy,  freedom of
expression,  pricing,  content and quality of products and  services,  taxation,
advertising, intellectual property rights and information security. In addition,
due  to the  sensitive  nature  of  the  data  extracted  in its  anti-terrorism
programs,  the US government  could prohibit or restrict the markets that AdZone
could sell to. The effect of this restriction, if any, is unknown.  Furthermore,
the growth of electronic  commerce may prompt calls for more stringent  consumer
protection  laws.  Several states have proposed  and/or  enacted  legislation to
limit the use of personal user  information  gathered  online or require  online
services to establish privacy  policies.  The adoption of such laws could create
uncertainty in Internet usage and reduce the demand for all products and serves.
AdZone is not certain how its  business  may be affected by the  application  of
existing  laws  governing  issues  such  as  property   ownership,   copyrights,
encryption and other intellectual property issues,  taxation,  libel,  obscenity
and export or import matters. The vast majority of those laws were adopted prior
to the advent of the Internet.  As a result,  they do not contemplate or address
the unique  issues of the  Internet  and related  technologies.  Changes in laws
intended  to address  such  issues  could  create  uncertainty  in the  Internet
marketplace.  That  uncertainty  could reduce  demand for  AdZone's  products or
services or increase the cost of doing business as a result of litigation  costs
or increased service delivery costs.

RESEARCH AND DEVELOPMENT. AdZone has expended approximately $566,000 and $88,000
during fiscal 2004 and 2003, respectively,  for the maintenance and upgrading of
its proprietary software.

COSTS AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS

AdZone has not expended any funds for  compliance  with  environmental  laws and
does not anticipate its business plan will require any such compliance.

REPORTS TO SECURITY HOLDERS

AdZone has not in the past  provided an annual  report to its  shareholders  and
does not intend to do so until it is able to  generate  sufficient  revenues  to
fund the expense of such reports.  AdZone is subject to the disclosure  rules of
Regulation S-B for a small business  issuer under the Securities Act of 1933 and
the  Securities  Exchange Act of 1934 and is  therefore  required to file a Form
10-KSB annually and Forms 10-QSB quarterly.  In addition,  AdZone is required to
file Forms 8-K and other proxy and  information  statements from time to time as
required.


                                       4
<PAGE>

The public may read and copy any materials  AdZone files with the Securities and
Exchange  Commission,  at the SEC's Public  Reference  Room at 450 Fifth Street,
N.W.,  Washington D.C. 20549. The public may obtain information on the operation
of the Public  Reference  Room by  calling  the SEC at  1-800-SEC-0330.  The SEC
maintains an internet site (http://www.sec.gov) That contains reports, proxy and
information  statements,  and  other  information  regarding  issuers  that file
electronically with SEC.

DEPENDENCE ON AND CONTROL BY MANAGEMENT

Charles  Cardona,  our Chief Executive  Officer and Chairman of the Board,  John
Cardona,  a member of our Board of  Directors,  and other members of the Cardona
family  beneficially own in the aggregate  approximately  51% of the outstanding
shares of AdZone's common stock.  Accordingly,  such  individuals may be able to
control the election of directors and all other matters  subject to  shareholder
vote.  This  concentration  of  ownership  may have the  effect of  delaying  or
preventing a change of control of AdZone,  even if this change of control  would
benefit shareholders.  In addition,  our future success depends to a significant
extent on the efforts and abilities of Charles Cardona. The loss of the services
of Mr.  Cardona  could  substantially  harm our business.  Should Mr.  Cardona's
services  be  terminated,  we may be unable to  attract,  motivate  and retain a
suitable replacement for him.

ITEM 2 - DESCRIPTION OF PROPERTY

AdZone  conducts its  administrative,  development  and marketing  operations in
facilities leased from an unrelated party at 4062-80 Grumman Blvd. Calverton, NY
11933.  Management  believes that the facilities  used by it in the operation of
its business are  adequately  covered by insurance and are suitable and adequate
for their purposes.

ITEM 3 - LEGAL PROCEEDINGS

AdZone is not a party to any pending legal proceedings,  and no such proceedings
are known to be  contemplated.  AdZone  may be subject  to a claim  relating  to
certain previously leased facilities. In May 2000 AdZone executed a 5-year lease
for a marketing  premises in the Empire  State  Building in New York City.  This
office was closed prior to March 2001,  and AdZone  surrendered  the premises to
the landlord.  The scheduled annual rental amount was approximately  $65,145 for
the period from May 1, 2000 through December 31, 2001; approximately $68,175 for
the period from  January 1, 2002  through  August 31,  2003;  and  approximately
$71,205  for  the  period  from  September  1,  2003  through  April  30,  2005.
Additionally,  AdZone was  responsible for its pro-rata share of increases in ad
valorem taxes,  utilities,  insurance and common area  operating  costs over the
base year expenses.  The lease also provided that in the event of AdZone's early
termination of the lease,  AdZone would be responsible for supplemental  amounts
during  the  occupancy  period  using  the  effective  annual  rental  yield  of
approximately  $68,175  and the  amounts  actually  paid by  AdZone.  AdZone has
surrendered  all  security  deposits to the  landlord.  To date,  AdZone has not
received  any notice  from the  landlord  demanding  amounts in addition to such
security deposits.  Management cannot provide you any assurances,  however, that
such demand may not be made in the future.

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

AdZone has not  conducted  any  meetings of  shareholders  during the  preceding
quarter or periods subsequent thereto.


                                       5
<PAGE>

PART II

ITEM 5 - MARKET FOR COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

As of March 31, 2004,  there were  70,832,255  shares of $0.001 par value common
stock of AdZone  outstanding  and owned by  approximately  159  shareholders  of
record,  exclusive of  shareholders  holding  their shares in street name. As of
June 29, 2004, there were 76,604,148  shares of $0.001 par value common stock of
AdZone  outstanding  and owned by  approximately  169  shareholders  of  record,
exclusive of shareholders holding their shares in street name.

Our Certificate of Incorporation  authorizes the issuance of 100,000,000  shares
of common stock, $0.001 par value per share, and 20,000,000 shares of $0.001 par
value preferred stock. No shares of preferred stock have been issued. Holders of
shares of common stock are entitled to one vote for each share on all matters to
be voted on by the stockholders.  Holders of common stock have cumulative voting
rights.  Holders  of shares of common  stock are  entitled  to share  ratably in
dividends,  if any,  as may be  declared,  from  time to  time by the  Board  of
Directors in its  discretion,  from funds legally  available  therefore.  In the
event of a  liquidation,  dissolution,  or winding up of AdZone,  the holders of
shares of common stock are entitled to share pro rata all assets remaining after
payment in full of all  liabilities.  Holders of common stock have no preemptive
or other  subscription  rights, and there are no conversion rights or redemption
or sinking fund provisions with respect to such shares.

In January 2000, AdZone became a publicly reporting company under the Securities
Exchange  Act of  1934,  after  filing  a Form  10-SB  with  the  United  States
Securities  and Exchange  Commission.  We also filed a request with the NASD for
clearance  of  quotations  on the OTC  Bulletin  Board under Rule 15c2-11 of the
Securities Exchange Act of 1934. A clearance letter was issued to us and we were
issued the  trading  symbol,  "EHSV."  Concurrently  with our merger with AII on
August 10, 2001,  we changed our  corporate  name to AdZone  Research,  Inc. and
changed our trading symbol to "ADZR."

The following are the high and low closing  prices of AdZone's  Common Stock for
each quarter during the last two fiscal years:

FISCAL YEAR ENDED MARCH 31, 2004

First Quarter             $0.18                  $0.01
Second Quarter            $0.24                  $0.06
Third Quarter             $0.37                  $0.15
Fourth Quarter            $1.35                  $0.31

FISCAL YEAR ENDED MARCH 31, 2003

                           High                   Low
                           ----                   ---
First Quarter             $0.08                  $0.03
Second Quarter            $0.10                  $0.02
Third Quarter             $0.08                  $0.02
Fourth Quarter            $0.04                  $0.02

EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth the aggregate number of shares of AdZone's Common
Stock that may be issued upon  exercise of  outstanding  options  granted to Mr.
Charles Cardona,  our Chairman of the Board and Chief Executive Officer, and Mr.
John Cardona,  our former  President and a Director of AdZone,  and the weighted
average exercise price of such options.

<TABLE>
<CAPTION>
                                   Number of          Weighted-
                                 securities to be      average             Number of
                                   issued upon        exercise       securities remaining
                                   exercise of        price of       available for future
                                   outstanding        outstanding        compensation
                                    options,          options,      (excluding securities
                                   warrants and        warrants         referred to in
                                      rights           and rights           column 1
                                ----------------     -----------    ---------------------
<S>                                     <C>                      <C>                  <C>
Equity compensation plans approved             -0-                -0-                -0-
By security holders

Equity compensation plans not           8,000,000                .98                 -0-
Approved by security holders

      Total                             8,000,000                .98                 -0-
</TABLE>


                                       6
<PAGE>

DIVIDEND POLICY

AdZone has never paid or declared a cash dividend on its common stock. The Board
of Directors does not intend to declare or pay cash dividends in the foreseeable
future. It is the current policy of the Board to retain all earnings, if any, to
support future growth and expansion.

RECENT SALES OF UNREGISTERED SECURITIES

On January 5, 2004,  we issued 15,000 shares of common stock to Ronald C. Mayhew
for a purchase price of $0.34 per share.

On January 7, 2004,  we issued 54,444 shares of common stock to Ronald C. Mayhew
in consideration of $4,900 in accounting services.

On January 20,  2004,  we issued,  20,000  shares of common  stock to William F.
Bogardus in consideration of $7,000 in services.

On January 20, 2004, we issued 60,000 shares of common stock and 100,000  common
stock  purchase  warrants  exercisable  at $0.15 per share to Thomas F. Gavin in
consideration  of consulting  services  relating to new releases and shareholder
service.

On January 20, 2004,  we issued  160,000  shares of common stock to Tom Kober in
consideration of accounting consulting services.

On January  23,  2004,  we issued  3,227  shares of common  stock to Art Metz in
consideration of accounting consulting services.

On January 27, 2004, we issued 30,000 shares of common stock to Ronald C. Mayhew
for a purchase price of $0.34 per share.

On January 30, 2004, we issued 36,000 shares of common stock to Peter Cardona in
consideration of web design services.

On February 20, 2004,  we issued an aggregate of 224,000  shares of common stock
to employees in lieu of cash bonuses.

On February 23, 2004, we issued 700 shares of common stock to Equities  Magazine
in consideration of services rendered.

On March 5, 2004, we issued 51,617 shares of common stock to Ronald C. Mayhew in
consideration of accounting services rendered.

On March 12,  2004,  we issued 5,000 shares of common stock to Duane B. Lewin in
consideration of consulting services rendered.

On March 20, 2004, AdZone Research,  Inc. entered into a Subscription Agreement,
with The Nutmeg Group,  L.L.C,  for a private  placement of up to $1,750,000 for
shares of common stock of the Company.  As of date,  the Company issued and sold
to the  Purchaser (i)  6,746,691  shares of common  stock;  and (ii) warrants to
purchase 3,373,345 shares of common stock for a purchase price of $1,000,000.

The  issuance  of the  shares and the  warrants  was  exempt  from  registration
requirements  of the  Securities  Act of 1933  pursuant to Section  4(2) of such
Securities  Act  and  Regulation  D  promulgated   thereunder   based  upon  the
representations of each of the Investors that it was an "accredited investor"(as
defined  under  Rule  501 of  Regulation  D) and  that  it was  purchasing  such
securities  without a present view toward a distribution of the  securities.  In
addition,  there was no general  advertisement  conducted in connection with the
sale of the securities.


                                       7
<PAGE>

ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

GENERAL

Adzone follows the accrual basis of accounting in accordance with U.S. generally
accepted accounting principles.

Adzone's business plan has not been fully implemented and,  accordingly,  Adzone
has not fully commenced operations.  Adzone has had no substantial operations or
assets since inception and is considered to be in the development stage.

RESULTS OF OPERATIONS

One Year Ended March 31,2004 and March 31, 2003

REVENUES:

Revenues for the year ended March 31, 2004 amounted to $74,844,  compared to nil
for the same  period of the prior  fiscal  year.  Current  period  revenues  are
derived from sales from our Defense Division representing  sub-contracting sales
to major defense supply  contractors.  While the Company expects similar revenue
producing  industry  contracts in the future, no additional  contracts have been
entered into as of this date.  Adzone  currently has three  proposals in process
promoting our NetGet technology.

PRODUCTION EXPENSES:

Salaries, wages and related costs:

For the fiscal year ended March 31, 2004,  Adzone incurred wage related costs of
$393,288  compared to $33,881 for the same period of the prior fiscal year. This
increase was caused by additions to staff,  and the creation of new positions to
accommodate  requirements for new  revenue-producing  contracts.  The Company is
investigating the use of interns to supplement  salaried  positions for standard
monitoring for future contracts. See salaries, wages and related costs under the
caption   OPERATING   EXPENSES,   below,  for  information   about   stock-based
compensation.

Direct occupancy and operating expenses:

For the fiscal  year ended March 31,  2004,  Adzone  incurred  operating-related
expenses of $169,855 compared to $40,123 for the same period of the prior fiscal
year.  This increase was due to office  related  expansions,  increased rent and
building  improvements.   The  Company's  current  facilities  will  accommodate
foreseeable expansions.

OPERATING EXPENSES:

Salaries and wages and related costs:

For the fiscal year ended March 31, 2004, Adzone incurred wage related costs for
Marketing of  $1,469,238  compared to $330,678  for the prior fiscal year.  This
increase is due to the creation of our Marketing  Division and related  employee
salaries.  It is expected,  that with increased contracts  requiring  monitoring
and/or input the operating  expenses for our Marketing  Division may increase in
the future.

Salaries and wages,  including amounts allocated to PRODUCTION EXPENSES,  above,
included  $1,463,953 and $120,188 of stock-based  compensation during the fiscal
years ended March 31, 2004 and 2003, respectively.  Stock-based awards were made
to Company  officers  and  employees to preserve  existing  cash  reserves.  The
Company has  measured  compensation  associated  with stock  awards to employees
using the closing  market price for the  Company's  trading  common stock on the
dates of awards.


                                       8
<PAGE>

Consulting and professional fees:

For the  fiscal  year ended  March 31,  2004,  Adzone  incurred  consulting  and
professional fees of $1,038,963  compared to $582,931 for the prior fiscal year.
Consultants have been used by the Company to identify revenue opportunities, and
develop business strategies.

The Company  compensated  certain consultants and professionals with stock-based
compensation.  During the  fiscal  years  ended  March 31,  2004 and 2003,  this
expense category included  $1,012,390 and $271,823 of stock-based  compensation.
The  Company  measures  the   compensation   associated  with  stock  awards  to
consultants and  professional  service  providers using the closing market price
for the Company's trading common stock on the dates of the awards. Management of
the Company  believes that the consultants  will continue to accept  stock-based
compensation  for their  services,  allowing  the Company to  preserve  its cash
reserves.

General and administrative expense:

For  the  fiscal  year  ended  March  31,  2004,  Adzone  incurred  general  and
administrative  expense of $234,607  compared to $138,030  for the prior  fiscal
year.  General and  administrative  expenses  increased  as a result of expanded
efforts to develop revenue-producing contracts.

Depreciation:

Depreciation expense amounted to $5,469 for the fiscal year ended March 31, 2004
compared to $16,923 for the same period of the prior fiscal  year.  Depreciation
decreased as a result of certain assets  becoming fully  depreciated  during the
current year. The Company  currently has no  commitments to acquire  property or
equipment at this time. However,  new revenue producing  contracts,  when and if
awarded,  will require the Company to acquire  additional  computer equipment to
support the contracts.

OTHER INCOME (EXPENSE):

Interest expense:

For the fiscal year ended March 31, 2004,  Adzone incurred  interest  expense of
$11,580  compared to $11,463 for the same period of the prior fiscal  year.  The
Company's  average loan balances have not changed in this time period,  nor does
it expect changes in the near future.

Lawsuit settlement:

During the fiscal year ended March 31,  2004,  Adzone  entered into a settlement
related to occupancy agreements in the amount of $3,000.

NET LOSS:

Based upon the  aforementioned  discussion items,  Adzone incurred a net loss of
approximately $(3,251,821) for the fiscal year ended March 31, 2004, as compared
to a net loss of approximately  $(1,154,029) for the fiscal year ended March 31,
2003.

PREFERRED STOCK DIVIDENDS AND ACCRETIONS:

Preferred stock dividends and accretions relate to the Company's 9% Series A and
9% Series B Preferred  Stock. The Company carries its preferred stock based upon
amounts  allocated to these securities in connection with certain unit offerings
during the year.  The Company  accretes  the  carrying  value to its  respective
redemption  values through  periodic  charges to retained  earnings.  Accretions
during the year ended  March 31,  2004  amounted to  $589,533.  Preferred  stock
dividends,  paid and in arrears,  which amounted to $26,657, plus accretions are
reflected  as  reductions  in net loss to  arrive at loss  applicable  to common
stockholders for purposes of our loss per common share  computations.  Preferred
stock  dividends will be recorded so long as the preferred stock is outstanding.
Preferred  stock  accretions  will  be  recorded  periodically  until  the  full
redemption values are reflected.


                                       9
<PAGE>

Preferred  stock is carried as an equity  security in accordance  with generally
accepted  accounting  principles.  There are no instances,  irrespective  of how
remote,  that the holders of  preferred  stock can require the Company to redeem
shares for cash.

LIQUIDITY AND CAPITAL RESOURCES

Conditions  raising  doubt  about the  Company's  ability to continue as a going
concern and management's plans:

The  Company's  financial  statements  have been  prepared  in  accordance  with
Generally Accepted  Accounting  Principles,  which contemplates that the Company
will  continue  as a going  concern  for a  reasonable  period.  As noted in the
financial  statements,  the Company incurred a net loss of ($3,251,821) and used
cash of ($961,402) in conducting its operations  during the year ended March 31,
2004.  In addition,  since  inception  through  March 31, 2004,  the Company has
incurred  cumulative net losses of ($6,513,345)  and has used cumulative cash of
($2,497,575) in conducting its operations.  Finally,  the Company incurred a net
loss of  ($2,758,559)  and used cash of  ($1,242,595)  for the nine months ended
December 31, 2004. These recurring negative trends raise substantial doubt about
the Company's ability to continue as a going concern.

Operating  cash flows for the remaining  three months in fiscal year ended March
31, 2005 are not projected to be sufficient to sustain the Company's operations.
However,  management  currently believes that existing cash reserves of $633,535
as of  December  31,  2004,  coupled  with  (i) an  outstanding  commitment  for
approximately  $750,000 in connection with the Nutmeg Subscription Agreement and
(ii) $136,370 of freely tradable  marketable  securities,  will be sufficient to
fund operating  deficits for a period of  approximately  twelve months following
December 31, 2004.  Management considered the following specific elements of its
internal projections in making its conclusions about its ability to continue for
approximately twelve months following December 31, 2004:

      a.    Management does not believe that the significant  level of cash used
            in  operations  during  the nine  months  ended  December  31,  2004
            ($1,242,595)  is  indicative of cash flow usage during the next four
            fiscal quarters. Cash flow from operations during the current period
            included two amounts, as follows,  that increased cash usage. First,
            a bonus of  $320,000  was awarded to two  officers by the  Company's
            Board of Directors during the second quarter.  Accordingly,  at this
            time,  no  further  officer  bonuses  are  contemplated.Second,  the
            Company used cash proceeds from the Nutmeg Subscription Agreement to
            pay  certain  current  and past due  accounts  payable  and  accrued
            liabilities  amounting  to  $262,947.  While  payments  on  accounts
            payable and accrued  expenses  will continue in the normal course of
            business,  such  payments  are  not  expected  to  be at  the  level
            reflected in the Company's year to date operations.

      b.    Certain vendors continue to accept the Company's  equity  securities
            for  compensation  for their  services,  which has  helped  and will
            continue to help preserve cash.  While such non-cash  expense is not
            currently expected to be as high in the near term future quarters as
            during the current quarter,  based upon ongoing discussions with the
            vendors,  management believes that they will continue to accept such
            securities in the foreseeable future.

      c.    The  Company  completed  a three  month U.S.  Department  of Defense
            contract in the second  quarter of 2005 and  collected  $150,000 for
            said  contract.  Management  of the Company is  optimistic  that the
            success of this contract  will lead to follow on contracts  with the
            government,  although  no such  contracts  have  yet  been  awarded.
            However,  management is actively negotiating three such proposals in
            the Defense Industry arena.


                                       10
<PAGE>

      d.    Management does not currently project expending  significant  levels
            of cash to acquire  equipment to support  revenue  growth during the
            next four fiscal  quarters.  Equipment  necessary  for the Company's
            contracts  principally  relates  to  computer  equipment,  which  is
            projected to be sufficient for the foreseeable future.  However, the
            nature of  contracts  awarded in the future,  if any,  may result in
            additional   modifications   and  expenditures  at  the  request  of
            customers.

      e.    Finally,  management believes that, in the event necessary,  certain
            operating expenses can be curtailed.  These expenses are principally
            related to employment and facility costs.

Management  plans to continue to promote  contracts with the U.S.  Department of
Defense and commercial uses of its technologies. There can be no assurances that
the Company can execute  revenue-producing  contracts under acceptable terms and
conditions.

The  Company's  ability to continue  as a going  concern is  dependent  upon the
preservation  of existing cash  reserves,  the receipt of the final  conditional
traunch of the Nutmeg Subscription Agreement and, ultimately, the achievement of
profitable  operations.  The financial statements do not include any adjustments
that might arise as a result of this uncertainty.

Liquidity:

Adzone  has been able to  advance  its  business  plan in a limited  fashion  by
maintaining  and  upgrading  the defense  oriented  products  and  services  and
marketing efforts for these products.

The  capitalization of Adzone through the sale of equity  securities,  loans and
options  exercised  has  allowed  Adzone to maintain a positive  cash  position.
Adzone has  approximately  $622,797  on hand at March 31,  2004 as  compared  to
$8,084 of March 31, 2003.

On March 20, 2004, AdZone entered into a Subscription Agreement, with The Nutmeg
Group,  L.L.C, for a private  placement of up to $1,750,000 for shares of common
stock.  As of date, we issued and sold to The Nutmeg Group (i) 6,746,691  shares
of common stock; and (ii) warrants to purchase  3,373,345 shares of common stock
for a purchase price of $1,000,000.

The shares of common stock are priced at the lesser of

(a) $.20, or

(b) fifty-seven  percent (57%) of the average closing bid price for common stock
on the two trading days immediately prior to Closing of such traunche, or

(c) fifty-seven  percent (57%) of the average closing bid price for common stock
on the two trading days immediately  prior to the date on which the registration
statement  (as  described  in the  Registration  Rights  Agreement)  is declared
effective,

(the  lesser of (a),  (b) and (c) being  hereinafter  referred  to as the "Fixed
Price").

The Purchaser will be issued Warrants  exercisable into such number of shares of
common stock as is equal to 50% of the purchase price paid by Nutmeg, divided by
the Fixed Price.  The common stock into which the Warrants are exercisable  will
have  piggyback  registration  rights,  and the Warrants  will be  transferable.
Unexercised Warrants will expire December 31, 2008. Warrants will be exercisable
into common stock at a price equal to 125% of  fifty-seven  percent (57%) of the
average  closing bid price for Common Stock on the two trading days  immediately
prior  to  the  filing  with  the  Securities  and  Exchange  Commission  of the
registration statement (as described in the Registration Rights Agreement).

The  third  traunche  will be at the  option  of the  Company  for an  amount of
$750,000  and shall  occur  within 5 days of the date on which the  registration
statement registering the Securities is declared effective.


                                       11
<PAGE>

Liquidity  during  fiscal  2004 and 2003 was  provided  principally  through the
unregistered sales of equity securities, loans and the exercise of options under
the  company's  stock  option  plan.  There  is no  guarantee  that  we  will be
successful in raising cash from the sale of  unregistered  securities or through
loans.  Total proceeds from sales were  approximately  $1,568,870  during fiscal
2004 and $106,000 during Fiscal 2003.

PLAN OF OPERATION

The Company has initially  identified  three key potential  markets for Adzone's
products:  businesses engaged in advertising  research;  agencies of the federal
and of state governments and the defense and security industries.  The Company's
operations  will  continue  to focus on  mining  of data and  other  information
through  the  monitoring  of  Internet  websites  developed  and  maintained  by
independent  third parties  worldwide.  Additionally,  if the Company is able to
obtain one or more contracts with governmental  agencies or other  organizations
to  provide  internet  monitoring  for  possible  terrorist,  cybercrime  and/or
bioterrorist  activities,  management intends to use its proprietary software in
accordance with the requirements of such respective  contracts.  Adzone has been
very  successful  in  garnering  support  from many  members  of  Congress,  and
Autometric (A division Of Boeing),  Raytheon and Sarnoff Corp. Adzone feels this
is excellent validation of its technology and the usefulness of its data.

Adzone plans to continue  marketing its G-Stir  product which reports on current
and historical  data in its  clandestine  message  interception  database.  This
product  has been well  received by the various  interested  parties  within the
Government  and  Defense  Industry.  Adzone  intends to have sales with this and
similar products in the near future.  Adzone has numerous potential clients with
which it is currently working.

Adzone also has developed an updated strategic  business plan which incorporates
an aggressive sales strategy in the defense area of our business.  The plan also
includes strategic  alliances and acquisitions,  to that end Adzone has retained
Baltic  Ventures run by Jeff Hale,  former  President of VNU USA. His experience
brings  considerable  talents  to  AdZone  in  the  field  of  acquisitions  and
integrations   of  acquired   companies.   His  experience   includes   multiple
acquisitions  and  research  and defense  company  management.  This should help
Adzone in its goal of completing a strategically valuable acquisition.

In June 2002, Adzone concluded a Systems Integrator  Agreement with the Raytheon
Company  under  which  Raytheon  agreed to use its  efforts  to  obtain  systems
integrator  agreements with smaller  technology  firms to provide software tools
developed by the Company that would enhance the data analysis capabilities.  Our
contacts at Raytheon have indicated that they are presenting  AdZone's  products
to various  clients  including US and  international  governmental  and security
agencies.  Adzone  anticipated  contracts  to result  from these  efforts in the
fiscal year  beginning  April 1, 2003,  while  delays have  occurred,  Adzone is
confident it will achieve revenues from this agreement.

In March of 2003,  Adzone  signed an  agreement  with Sarnoff  Corp.  to jointly
market anti-terrorist services to govt. security agencies. The companies plan to
offer  technology  that  discovers  and  tracks  clandestine  communications  by
terrorist  or other  outlaw  groups  across the World Wide Web.  Their  combined
expertise can produce advanced tools for uncovering and decoding hidden messages
and other content embedded in the pixels of innocent-looking Web pages.

In April of 2003,  Adzone  signed an agreement  with  Autometric  (A division Of
Boeing). Adzone anticipated revenue to result within fiscal year 2003. Adzone in
fact did generate  revenues from this  agreement.  Additional  business is being
negotiated  and is  anticipated  in the  coming  year  from  Autometric.  Adzone
believes  that its alliance  with  Autometric  will  benefit  both  entities and
provide considerable sales opportunities.

Adzone continues to market its surveillance systems and data directly to various
government agencies.  Adzone has temporarily  suspended its efforts in marketing
its  products  at the state  level and is  instead  currently  focusing  on more
lucrative federal agency contracts and contracts through its partners Autometric
(A division Of Boeing), Raytheon and Sarnoff.


                                       12
<PAGE>

Adzone will face  considerable  risks in each of its future business plan steps,
such as difficulty of hiring competent personnel within its budget,  longer than
anticipated   website   decoding,   difficulty   in   completing   key  business
acquisitions,  and a shortfall  of funding due to  Adzone's  inability  to raise
capital in the equity  securities  market.  Adzone is currently  dependent  upon
either funds  advanced or loaned by Adzone's  directors and officers or the sale
of equity securities. Adzone's officers and directors have no formal commitments
or  arrangements  to  advance or loan funds for Adzone and do not have any legal
requirement to do so.

CONTRACTUAL OBLIGATIONS

The table below reflects the Company's contractual obligations for the next five
years.

<TABLE>
<CAPTION>
                                  Less than       One to          Three to         After
                                  One Year      Three Years      Five Years      Five Years         Total
<S>                              <C>             <C>             <C>             <C>             <C>
Long-term debt                   $  166,783              --      $       --      $       --      $  166,783
Short-term debt                      62,787              --              --              --          62,787
Employment agreements               269,333         718,333              --              --         987,666
Operating lease obligations          25,608          76,548              --              --         102,156

                                 --------------------------------------------------------------------------
                                 $  524,511      $  794,881      $       --      $       --      $1,319,392
                                 ==========================================================================
</TABLE>

ITEM 7 - INDEX TO FINANCIAL STATEMENTS

The required accompanying  financial statements begin on page F-1 of this Annual
Report.

ITEM 8 -  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURES

On August 4, 2004, AdZone Research,  Inc. notified S. W. Hatfield,  CPA, ("SWH")
that it has engaged  Aidman,  Piser & Company as the Company's  auditor and as a
consequence SWH was dismissed as the Company's auditors.  On August 4, 2004, the
Company  engaged Aidman,  Piser & Company as independent  auditor of the Company
for the fiscal year ending March 31, 2005. The action to engage Aidman,  Piser &
Company was taken upon the  unanimous  approval of the Board of Directors of the
Company, which performs the function of the Audit Committee.

During the last two fiscal  years  ended  March 31,  2004 and March 31, 2003 and
through August 4, 2004, (i) there were no disagreements  between the Company and
SWH on any matter of accounting  principles or  practices,  financial  statement
disclosure  or  auditing  scope  or  procedure  which,  if not  resolved  to the
satisfaction of SWH would have caused SWH to make reference to the matter in its
reports on the Company's  financial  statements,  and (ii) SWH's reports did not
contain an adverse  opinion or a  disclaimer  of opinion,  or was  qualified  or
modified as to uncertainty,  audit scope, or accounting  principles.  During the
last two most  recent  fiscal  years  ended  March 31, 2004 and 2003 and through
August 4, 2004,  there were no reportable  events as the term  described in Item
304(a)(1)(iv)  of Regulation  S-B. SWH 's opinion in its report on the Company's
financial  statements  for the year  ended  March 31,  2004 and 2004,  expressed
substantial  doubt with respect to the Company's  ability to continue as a going
concern.

During the two most recent fiscal years and through  August 4, 2004, the Company
has not consulted with S. W. Hatfield, CPA regarding either:

      1. the application of accounting principles to any specified  transaction,
either  completed  or  proposed,  or the type of  audit  opinion  that  might be
rendered on the Company's financial statements, and neither a written report was
provided to the Company nor oral advice was provided  that S. W.  Hatfield,  CPA
concluded  was an  important  factor  considered  by the  Company in  reaching a
decision as to the accounting, auditing or financial reporting issue; or


                                       13
<PAGE>

      2. any matter that was either subject of disagreement or event, as defined
in Item  304(a)(1)(iv)(A)  of Regulation S-B and the related instruction to Item
304 of Regulation S-B, or a reportable  event, as that term is explained in Item
304(a)(1)(iv)(A) of Regulation S-B.

SWH furnished the Company with a letter addressed to the Securities and Exchange
Commission  stating  that it agrees  with the above  statements.  A copy of such
letter,  dated August 4, 2004, was filed as Exhibit 16.1 to Form 8-K, filed with
the Securities and Exchange Commission on August 4, 2004.

ITEM 8A - CONTROLS AND PROCEDURES

As of the end of the period covered by this report ("the Evaluation  Date"), our
management,  including our chief executive officer and chief financial  officer,
conducted an evaluation  ("Evaluation")  of the  effectiveness of the design and
operation  of our  disclosure  controls  and  procedures,  as  defined  in  Rule
13a-15(e) or Rule 15d-15(e)  under the  Securities  Exchange Act of 1934. In the
course of the Evaluation,  we identified  significant material weaknesses in our
internal disclosure controls and procedures.


The Company has had discussions  with the accounting  staff (the "Staff") of the
SEC with respect to (1) the valuation of equity  securities  issued to employees
and  non-employees and (2) the accounting and reporting for preferred stock that
had also included the issuance of warrants and beneficial  conversion  features.
After the Company's  discussions with the Staff, and after the Company consulted
with its independent  registered public accounting firm, the Company  determined
the need to restate its annual and  quarterly  financial  statements  for fiscal
2004, and the first two quarterly financial  statements for fiscal 2005. Aidman,
Piser &  Company,  P.A.  advised  AdZone  that  each of these  internal  control
deficiencies  constitute a material weakness as defined in Statement of Auditing
Standards  No.  60.  Certain  of  these  internal  control  weaknesses  may also
constitute  material  weaknesses  in our  disclosure  controls.  Management  has
considered the effects of the financial statement restatements on its evaluation
of disclosure  controls and  procedures  and has concluded  that  weaknesses are
present.  Our chief executive  officer and our chief financial officer concluded
that as of the Evaluation  Date our disclosure  controls and procedures were not
effective,  and as of the date of the filing of this amended  report,  our chief
executive  officer  and our chief  financial  officer  concluded  that we do not
maintain  disclosure  controls and  procedures  that are  effective in providing
reasonable  assurance that  information  required to be disclosed in our reports
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported  within the time periods  specified  in the SEC's rules and forms,  and
that  such  information  is  accumulated  and  communicated  to our  management,
including our chief executive officer and our chief financial officer,  to allow
timely decisions regarding required disclosure.

We are committed to improving our financial  organization.  However, the Company
does  not  possess  the  financial  resources  to  address  other  than the most
rudimentary  of accounting  and  reporting  requirements,  and therefore  relies
heavily on outside advisors.  The Company's  inability to independently  prepare
its  financial  reports  to  the  standards  of  Generally  Accepted  Accounting
Principles  and  the  Rules  and  Regulations  of the  Securities  and  Exchange
Commission rise to the level of a material weakness in internal control.

Management of the Company intends to promptly remediate this deficiency by:

(i) acquiring the appropriate level of internal financial support

(ii) access current developments training programs for financial employees and

(iii) provide financial  employees with adequate technical resources to research
financial  accounting and reporting  requirements.  We currently believe we will
need to  take  additional  steps  to  remediate  the  above-referenced  material
weaknesses, and we will continue to evaluate the effectiveness of our design and
operation of our disclosure  controls and  procedures on an ongoing  basis,  and
will take further action as appropriate.


                                       14
<PAGE>

ITEM 8B -Other Information

None.


                                       15
<PAGE>

                                    PART III

ITEM  9  -  DIRECTORS,  EXECUTIVE  OFFICERS,  PROMOTORES  AND  CONTORL  PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

The directors and executive officers serving AdZone are as follows:

Name                  Position Held and Tenure      Date First Elected/Appointed
----                  ------------------------      ----------------------------
Charles Cardona*      Chairman of the Board,                 August 2001
                      CEO and CFO

Daniel Wasserman      Executive Vice President              January 2002

John Cardona*         Director                               August 2001

Warren Hamburger      Director                               August 2001

Russell Ivy           Director                              January 2001

Richard A. McCann     Director                                  May 2004

*Charles Cardona and John Cardona are brothers.

The directors  named above will serve until the next annual  meeting of AdZone's
stockholders  or until their  successors  are duly  elected and have  qualified.
Directors will be elected for one-year terms at the annual stockholders meeting.
Officers hold their positions at the pleasure of the board of directors,  absent
any  employment  agreement.  Charles  Cardona  has  entered  into an  employment
agreement with AdZone that  terminates on August 31, 2004, and Daniel  Wasserman
has entered into an employment agreement that terminates on March 3, 2004. There
is no arrangement or  understanding  between any of the directors or officers of
AdZone and any other person  pursuant to which any director or officer was or is
to be selected as a director or officer,  and there is no  arrangement,  plan or
understanding  as to whether  non-management  shareholders  will exercise  their
voting  rights to  continue to elect the current  directors  to AdZone's  board.
There  are  also  no   arrangements,   agreements  or   understandings   between
non-management  shareholders  that may directly or indirectly  participate in or
influence the management of AdZone's affairs.

BIOGRAPHICAL INFORMATION

CHARLES CARDONA

Charles  Cardona,  age 39, has served as AdZone's  President and Chairman of the
Board since AdZone's merger with AdZone  Interactive,  Inc. in August 2001. From
February 2000 to August 2001,  Mr.  Cardona was  President  and Chief  Executive
Officer of AdZone  Interactive,  Inc.,  with which AdZone merged in August 2001.
From 1992 to February  2000,  Mr. Cardona was the President of Owl Data Systems,
Inc., a software development company owned by Mr. Cardona.

JOHN CARDONA

John Cardona,  age 35, is consultant to AdZone serving as its Homeland  Security
Defense Advisor with  responsibility for long-term corporate planning and global
and  operational  strategies.  Mr.  Cardona is also serving as a  consultant  to
Competitrack,  a market research company. From August 2001 until his resignation
in June 2002, Mr.  Cardona  served as President of AdZone.  Mr. Cardona has also
served  AdZone as a Director  from August 2001 to the  present  time.  From 1990
through August 2001, Mr. Cardona was a director of sales for  Competitive  Media
Reporting, an advertising research firm. Mr. Cardona received a Bachelor of Arts
Degree from New York Institute of Technology, Long Island, New York.


                                       16
<PAGE>

DANIEL WASSERMAN

Daniel  Wasserman,  age 52, was appointed  Executive Vice President and Managing
Director of AdZone's  Global  Defense Group in January  2002.  From July 2001 to
December 2001,  Mr.  Wasserman was Vice  President-Commercial  Sales of Reliable
Integration  Services, a systems integration  company.  From November 2000 until
June 2001, he was Vice President of Sales of zGraffitti,  a desktop  advertising
firm. Mr. Wasserman served as Vice President of Sales/Advertising for Conducent,
Inc.,  a desktop  advertising  firm,  from March  1999  through  November  2000.
Beginning in 1995 through  February  1999,  Mr.  Wasserman  was a consultant  to
various  companies  specializing  in  technology  marketing,   including  Lucent
Technologies  and  Sympatico,  which  subsequently  became the largest  internet
service provider in Canada.  Mr. Wasserman received a Bachelor of Science degree
in biology in 1972 from the University of Toronto and an MBA degree in marketing
from The Schulich School of Business of York  University,  Toronto,  Canada,  in
1978.

WARREN HAMBURGER

Warren Hamburger,  age 49, has been a director of AdZone from August 2001 to the
present.  He has been a  practicing  attorney  for 21 years  during which he has
operated his own firm as a sole  practitioner.  Mr.  Hamburger  received a Juris
Doctor  degree  from New  England  School of Law,  Boston  Massachusetts,  and a
Bachelor of Science degree in business  administration from Duquesne University,
Pittsburgh, Pennsylvania.

RUSSELL STOVER IVY

Russell  Stover  Ivy,  age 36, is a  Director  of AdZone  and was  President  of
Executive  Help from  January  2001 until the merger with AdZone in August 2001.
Mr. Ivy has been a consultant  to small and medium sized  companies  for over 20
years.  He has been  involved  in the  start-up,  design and  implementation  of
numerous business ranging from small financial services corporations to publicly
traded  telecommunications  companies.  In 1998, Mr. Ivy was a consultant to IWL
Communications,  which  merged  with  CapRoc  Communications,  which  was  later
purchased by McLeod  Communications.  In 1999 and 2000, Mr. Ivy was a consultant
to First Financial Group of America,  where he served as Director of Operations.
Mr.  Ivy  continues  to  consult  for  companies   regarding  their  operational
activities  and goals.  Mr. Ivy  received a Bachelor's  degree in  international
economics from Texas Tech University in 1991.

RICHARD A. MCCANN

Richard McCann 68, is a director of AdZone Research, Inc. During his career, Mr.
McCann has held positions of increasing responsibility.  He initially began as a
Vice  President  and  Co-Manager  of equity  trading with Bank of America in San
Francisco,  and several years later joined Montgomery Securities in that city as
a Partner.  Thereafter he served as a Vice  President  and Senior  Institutional
Trader  in  Plymouth,  California,  and then  relocated  to the  Tampa,  Florida
headquarters of Raymond James & Co.,  serving there as a Vice President and then
became a Vice President at Ryan, Beck & CO.,  another Tampa area financial firm.
He  relocated to Atlanta,  Georgia to become  Senior Vice  President  and Equity
Trading Manager at Wachovia Securities,  and the following year became a Partner
at Florida-based Spartan Securities.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

Based on the  Company's  review  of copies of all  disclosure  reports  filed by
directors and executive officers of the Company pursuant to Section 16(a) of the
Securities Exchange Act of 1934, as amended, the Company believes that there was
compliance with all filing requirements of Section 16(a) applicable to directors
and executive officers of the Company during fiscal 2004

CODE OF ETHICS

We have adopted a Code of Business Conduct and Ethics that applies to all of our
directors,  officers and employees,  including our principal  executive officer,
principal  financial  officer  and  principal  accounting  officer.  The Code of
Business   Conduct   and   Ethics   will   be   posted   on   our   website   at
http://www.adzoneinteractive.com.


                                       17
<PAGE>

ITEM 10 - EXECUTIVE COMPENSATION

The  following  Summary  Compensation  Table  sets  forth all cash and  non-cash
compensation  paid or accrued for  services  rendered in all  capacities  to the
named  Executive  Officers for the fiscal years ended March 31, 2004,  2003, and
2002:

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                     Other Annual         Long-Term
                                                     Compensation       Compensation
                                                     (# of Share of  Awards (# Securities
Name and Positions       Year   Salary ($)  Bonus    Common Stock)    Underlying Options)
=========================================================================================
<S>                      <C>    <C>             <C>      <C>                   <C>
Charles Cardona
Chief Executive Officer  2004   $188,551(2)     0        5,471,151 (1)            50,000
Acting Chief Financial   2003   $190,385        0                0                     0
Officer                  2002   $153,525        0                0             1,000,000
Director

John Cardona
Director                 2004   $ 83,418(3)      0        5,706,899 (1)           100,000
                         2003   $190,385         0                0                     0
                         2002   $153,525         0                0             1,000,000
</TABLE>

(1) These shares were issued and charged against accrued liabilities in the
    amount of $160,000.
(2) Excludes $98,472 that was charged against accrued liabilities.
(3) Excludes $41,800 that was charged against accrued liabilities.

DIRECTOR COMPENSATION

From time to time the members of the board of directors receive shares of common
stock at the discretion of the board for their services.  The following table is
a list of  directors  and  the  amount  of  shares  each  one  had  received  as
compensation:

------------------ -------------------- ----------------- ----------------------
NAME               TITLE                NUMBER OF SHARES  DATE OF ISSUANCE
------------------ -------------------- ----------------- ----------------------
John Conley        Advisory Director    50,000            February 28, 2003
------------------ -------------------- ----------------- ----------------------
                                        10,000            May 1, 2002
------------------ -------------------- ----------------- ----------------------
Jonathan White     Advisory Director    40,000            November 18, 2002
------------------ -------------------- ----------------- ----------------------
                                        50,000            February 28, 2003
------------------ -------------------- ----------------- ----------------------
Russell Ivy        Director             10,000            February 28, 2003
------------------ -------------------- ----------------- ----------------------
                                        50,000            September 3, 2003
------------------ -------------------- ----------------- ----------------------
                                        15,000            February 20, 2004
------------------ -------------------- ----------------- ----------------------
Warren Hamburger   Director             200,000           September 3, 2003
------------------ -------------------- ----------------- ----------------------
                                        15,000            February 20, 2004
------------------ -------------------- ----------------- ----------------------


                                       18
<PAGE>

                      OPTION/SAR GRANTS IN LAST FISCAL YEAR
                               (Individual Grants)

<TABLE>
<CAPTION>
                                       Percent of Total
               Number of Securities     Options/SAR's
                   Underlying         Granted to Employees    Exercise
Name          Options/SAR's Granted     In Fiscal Year       Price/Share     Expiration
----               -----------            --------               --------      --------
<S>                 <C>                     <C>                    <C>           <C>
Charles Cardona     3,000,000               20.69%                 $0.10         2/5/10
John Cardona        3,000,000               20.69%                 $0.10         2/5/10
</TABLE>

               AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
                          AND FY-END OPTION/SAR VALUES

<TABLE>
<CAPTION>
                                                                     Value of Unexercised
                                           Number of Unexercised             In-The-Money
                                           Securities Underlying              Option/SARs
Name            Shares Acquired   Value     Options/SARs At FY-End             At FY-End
                 On Exercise     Realized  Exercisable/Unexercisable          Exercisable
-----            ---------       -------   ------------------------        --------------
<S>                  <C>            <C>               <C>                             <C>
Charles Cardona      -0-            $0                7,000,000                       $0
John Cardona         -0-            $0                7,000,000                       $0
</TABLE>

On February 5, 2004, we entered into an employment  agreement  with Mr.  Charles
Cardona, which superseded all prior agreements.  In this agreement,  Mr. Cardona
will continue to serve as our Chief Executive Officer, through February 5, 2007.
This agreement contains the following terms and conditions:

Position: CEO

Effective Date: February 5, 2004

BASE SALARY:

2004 - $161,000 annual
2005 - $181,000 annual
2006 - $191,000 annual

The initial  base salary  shall be reduced to $1,500 per week until such time as
the company  reaches a cash flow positive  position for at least 1 month, or the
company  raises at least $2 Million within 12 months,  or management  deems that
the company's cash position is sufficient to support an increase.  No additional
salary  above the reduced  base shall  accrue as back salary  during the first 6
months of this contract.

Bonuses: Quarterly Qualitative Bonus of $ 10,000

2ND YEAR, YEAR END QUALITATIVE BONUS OF $ 25,000

Profitability Bonus: If the company reaches annual  profitability  employee will
receive a $100,000 bonus plus 250,000 shares in stock.

Mr. Cardona shall receive an annual bonus as follows:

0.5% of the previous years revenues plus 3.5% of the previous years profits plus
0.5% of the transaction price of any acquisition.

The  Board of  Directors  shall  at its  discretion  grant  up to an  additional
$100,000 in bonus to Mr. Cardona on an annual basis.

Stock Options:  The employee shall receive options to purchase  3,000,000 (Three
Million) shares as follows:


                                       19
<PAGE>

Options for 750,000  shares at $.85 Options for 750,000  shares at $1.00 Options
for 750,000 shares at $1.50 Options for 750,000 shares at $1.75

Additionally the employee shall receive the following 3,000,000 options upon the
Company achieving $500,000 in total revenues prior to March 31, 2005.

Options for 750,000 shares at $.85
Options for 750,000 shares at $1.00
Options for 750,000 shares at $1.50
Options for 750,000 shares at $1.75

All the options  granted above shall be exercisable for 6 years from the date of
granting.

Additionally  the company shall  maintain any existing  options  under  previous
contracts.

Additional  Incentives:  Charles A.  Cardona  will receive 5% of all sales he is
involved with.

Other Agreements: Medical and Dental insurance is fully paid for the employee by
the Company during the  employment  period.  Company shall  reimburse or pay for
reasonable company vehicle expenses  including lease or purchase payments,  gas,
tolls and repairs. AdZone Research agrees to defend employee against any and all
legal claims and litigation.  In addition, AdZone Research further agrees to pay
all expenses  arising from any and all litigation,  including but not limited to
attorney's fee's legal fee's, misc.  expenses,  .[sic] Legal  representation for
Charles A.  Cardona  will  continue  beyond the term of this  contract  and will
continue for the remainder of Charles A. Cardona's life.

On February 5, 2004, the Company  entered into an Employment  Agreement with Mr.
John A. Cardona  (JCardona),  which  superseded  all prior  agreements.  In this
agreement, JCardona will serve as the Company's Chief Operating Officer, through
February 5, 2007. This agreement contains the following terms and conditions:

Position: COO

Effective Date: February 5, 2004

BASE SALARY:

2004 - $161,000 annual
2005 - $181,000 annual
2006 - $191,000 annual

The initial  base  salary  shall be reduced to $1500 per week until such time as
the company  reaches a cash flow positive  position for at least 1 month, or the
company  raises at least $2 Million within 12 months,  or management  deems that
the company's cash position is sufficient to support an increase.  No additional
salary  above the reduced  base shall  accrue as back salary  during the first 6
months of this contract.

Bonuses: Quarterly Qualitative Bonus of $ 10,000

2ND YEAR, YEAR END QUALITATIVE BONUS OF $ 25,000

PROFITABILITY BONUS:

If the company  reaches  annual  profitability  employee will receive a $100,000
bonus plus 250,000 shares in stock.

JCardona shall receive an annual bonus as follows:

0.5% of the previous years revenues plus 3.5% of the previous years profits plus
0.5% of the transaction price of any acquisition.


                                       20
<PAGE>

The  Board of  Directors  shall  at its  discretion  grant  up to an  additional
$100,000 in bonus to JCardona on an annual basis.

Stock Options:  The employee shall receive options to purchase  3,000,000 (Three
Million) shares as follows:

Options for 750,000 shares at $.85
Options for 750,000 shares at $1.00
Options for 750,000 shares at $1.50
Options for 750,000 shares at $1.75

Additionally the employee shall receive the following 3,000,000 options upon the
company achieving $500,000 in total revenues prior to March 31, 2005.

Options for 750,000 shares at $.85
Options for 750,000 shares at $1.00
Options for 750,000 shares at $1.50
Options for 750,000 shares at $1.75

All the options  granted above shall be exercisable for 6 years from the date of
granting.

Additionally  the company shall  maintain any existing  options  under  previous
contracts.

Additional  Incentives:  John A.  Cardona  will  receive  5% of all  sales he is
involved with.

Other Agreements: Medical and Dental insurance is fully paid for the employee by
the Company during the  employment  period.  Company shall  reimburse or pay for
reasonable company vehicle expenses  including lease or purchase payments,  gas,
tolls and repairs. AdZone Research agrees to defend employee against any and all
legal claims and litigation.  In addition, AdZone Research further agrees to pay
all expenses  arising from any and all litigation,  including but not limited to
attorney's fee's legal fees, and miscellaneous  expenses.  Legal  representation
for John A.  Cardona  will  continue  beyond the term of this  contract and will
continue for the remainder of John A. Cardona's life.

ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The  following  table  sets  forth as of the date of this  Report  the number of
shares of Common Stock owned of record and  beneficially by executive  officers,
directors  and persons who hold 5% or more of the  outstanding  Common  Stock of
AdZone.  Also  included  are the  shares  held  by all  executive  officers  and
directors as a group.

                                                                  % of Class
Name and address                     Number of Shares         Beneficially Owned
----------------                     ----------------         ------------------
Charles Cardona                        22,352,422 (1)                 26.74%
17 Sunny Line Dr.
Calverton, NY 11933

John Cardona                           18,381,849 (2)                 19.35%
118 Overlook Dr.
Aquebogue, NY 11931

Daniel Wasserman                        3,081,000 (3)                  4.01%
20953 Cohasset Ter
Ashburn, VA

Warren Hamburger                        1,070,000                      2%
42 Fire Island Ave.
Babylon, NY 11702

Russell Ivy                                65,000                       .08%
211 West Sealy Street
Alvin, TX 77511

Richard A. McCann                       1,709,218                       .08%
116 Holcomb Cove Rd.
Candler, NC 28715

All Executive Officers and
Directors of AdZone as
a Group (6 persons)                    46,659,489                     52.26%


                                       21
<PAGE>

----------

      The  above-referenced  percentages are given on a fully-diluted  basis for
such owner only.  We are not  assuming in the number of shares  outstanding  for
purposes of this table that all options and rights have been exercised.

(1)  Includes  7,000,000  shares  that may be  acquired  upon  exercise of stock
options  granted to Mr.  Cardona at exercise  prices ranging from $0.10 to $1.75
per share.  Excludes  securities owned by John Cardona,  Mr. Cardona's  brother;
12,849  shares owned by Michael  Cardona,  Mr.  Cardona's  brother;  and 198,183
shares owned by Valerie Cardona,  Mr. Cardona's  mother,  with respect to all of
which Mr. Cardona disclaims beneficial ownership.  Plus 4,000,000 shares owed to
Mr. Cardona under the agreement which he loaned AdZone  4,000,000 shares for the
purpose of a stock loan.

(2)  Includes  7,000,000  shares  that may be  acquired  upon  exercise of stock
options  granted to Mr.  Cardona at exercise  prices ranging from $0.10 to $1.75
per share.  Excludes securities owned by Charles Cardona, Mr. Cardona's brother;
12,849  shares owned by Michael  Cardona,  Mr.  Cardona's  brother;  and 198,183
shares owned by Valerie Cardona,  Mr. Cardona's  mother,  with respect to all of
which Mr. Cardona disclaims beneficial ownership.  Plus 4,000,000 shares owed to
Mr. Cardona under the agreement, which he loaned AdZone 4,000,000 shares for the
purpose of a stock loan.

(3)  Includes  1,500,000  shares  that may be  acquired  upon  exercise of stock
options  granted to Mr.  Wasserman  at exercise  prices  ranging from $0.3182 to
$0.3612 per share.

ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In prior periods,  the Company's officers advanced various monies to the Company
under formal  unsecured note documents  bearing  interest at 10.0%. The advances
are repayable in at least minimum  aggregate  monthly  amounts of  approximately
$370.  Due to the  nature  of the  debt and  irregular  payment  history,  these
advances are classified as "current" in the accompanying  financial  statements.
During Fiscal 2004, no advances  were made and all amounts  previously  advanced
amounts to Company officers were repaid in full.

The following table reflects the advances and repayments  during each of the two
years in the period ended March 31, 2004:

        Year ended March 31,             Advances        Repayments
                                  -----------------------------------
               2004                         none          $33,754
               2003                     ($30,410)         $10,030

In the opinion of management, the above-referenced  transactions are at least as
fair to the Company as we would  expect to  negotiate  with  unaffiliated  third
parties.


                                       22
<PAGE>

ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K

Exhibit
-------
3.1     Certificate of Incorporation **
3.2     By-Laws **
10.1    Consulting Agreement dated as of October 26, 2001 with Theresa A. Kober
        ***
10.2    Consulting Agreement dated as of November 2, 2001 with Blanchfield,
        King, Kober & Company, P.C. +
10.3    Consulting Agreement dated as of Thomas F. Gavin
10.4    Consulting Agreement dated as of February 5, 2002 with International
        Standard Consulting Corporation +++
10.5    Employment Agreement dated February 5, 2004 with Charles Cardona
10.6    Employment Agreement dated as of February 5, 2004 with John Cardona
10.7    Systems Integration Agreement dated as of June 21 2002 with Raytheon
        Company
10.8    A-K Consulting agreements with Kyle Kennedy Dated Aug. 19, 2002 - May
        22, 2003
10.9    Stipulation of Settlement with Sheldon Katz , Sept. 2002
10.10   Multimedia Web Site design contract with Jason Genet dated Oct. 16, 2002
10.11   Investment Banking Agreement with Spartan Securities dated Nov. 27, 2002
10.12   Agreement to borrow shares for stock loans dated Mar. 7, 2003
10.13   Joint Marketing agreement with Sarnoff Corp. dated Mar. 3, 2003
10.14   Warrant agreement with Tom Gavin dated Mar. 12, 2003
10.15   Agreement with Boeing Autometric Division dated April 2003.
23.1    Consent of Registered Independent Accounting Firm
31.1    Certification by Chief Executive Officer and Acting Chief Financial
        Officer pursuant to Sarbanes Oxley Section 302.
32.1    Certification by Chief Executive Officer and Acting Chief Financial
        Officer pursuant to 18 U.S. C. Section 1350

* Incorporated by reference to Exhibit 2 to the Registrant's Report on Form 8-K
filed with the Securities and Exchange Commission on September 21, 2001.
** Incorporated by reference to the same exhibit number in the Registrant's Form
10SB12G filed with the Securities and Exchange Commission on December 30, 1999.
*** Incorporated by reference to Exhibit 101 to the Registrant's Form S-8 filed
with the Securities and Exchange Commission on December 13, 2001.
+ Incorporated by reference to Exhibit 10.2 to the Registrant's Form S-8 filed
with the Securities and Exchange Commission on December 13, 2001.
++ Incorporated by reference to Exhibit 10.1 to the Registrant's Form S-8 filed
with the Securities and Exchange Commission on January 28, 2002.
+++ Incorporated by reference to Exhibit 10.1 to the Registrant's Form S-8 filed
with the Securities and Exchange Commission on February 21, 2002.

REPORTS ON FORM 8-K:

AdZone  filed two reports on form 8-K during the quarter  ended March 31,  2004.
Information regarding the items reported on is as follows:

DATE OF REPORT             ITEM REPORTED ON
--------------             ----------------
February 11, 2004          AdZone announced the private placement of $300,000.
March 30, 2004             AdZone disseminated a corporate update.

ITEM 14- PRINCIPAL ACCOUNTANT FEES AND SERVICES

The Company paid or accrued the  following  fees in each of the prior two fiscal
years to S. W. Hatfield, CPA of Dallas, Texas:

                                       Year ended          Year ended
                                        March 31,           March 31,
                                          2004                2003
                                       ----------          ----------
(1)   Audit fees                         $26,613              $24,040
(2)   Audit-related fees                      --                   --
(3)   Tax fees                                --                   --
(4)   All other fees                          --                   --
                                        --------             --------

   Totals                                $26,613              $24,040
                                        ========             ========


                                       23
<PAGE>

The Company has no formal audit committee. However, as defined in Sarbanes-Oxley
Act of 2002,  the entire  Board of  Directors  is the  Company's  defacto  audit
committee.

In discharging its oversight  responsibility as to the audit process,  the Board
obtained from the independent auditors a formal written statement describing all
relationships  between  the  auditors  and the  Company  that  might bear on the
auditors'  independence as required by Independence Standards Board Standard No.
1,  "Independence  Discussions with Audit  Committees." The Board discussed with
the  auditors  any   relationships   that  may  impact  their   objectivity  and
independence,  including fees for non-audit services, and satisfied itself as to
the auditors'  independence.  The Board also discussed  with  management and the
independent  auditors  the  quality  and  adequacy  of  the  Company's  internal
controls.  The Board reviewed with the  independent  auditors  their  management
letter on internal controls, if one was issued by the Company's auditors.

The Board  discussed  and  reviewed  with the  independent  auditors all matters
required to be discussed by auditing standards  generally accepted in the United
States of America,  including those described in Statement on Auditing Standards
No. 61, as amended, "Communication with Audit Committees".

The Board reviewed the audited financial statements of the Company as of and for
the year  ended  March 31,  2004 and 2003 with  management  and the  independent
auditors. Management has the sole ultimate responsibility for the preparation of
the  Company's  financial  statements  and the  independent  auditors  have  the
responsibility for their examination of those statements.

Based  on the  above-mentioned  review  and  discussions  with  the  independent
auditors and management,  the Board of Directors  approved the Company's audited
financial  statements and recommended that they be included in its Annual Report
on Form 10-KSB for the year ended March 31, 2004, for filing with the Securities
and Exchange Commission.

The Company's principal accountant, S. W. Hatfield, CPA did not engage any other
persons or firms  other than the  principal  accountant's  full-time,  permanent
employees.


                                       24
<PAGE>

                                   SIGNATURES

In  accordance  with  Section  13 or 15(d)  of the  Securities  Act of 1933,  as
amended,  AdZone  caused  this  report  to  be  signed  on  its  behalf  by  the
undersigned, thereto duly authorized.

                                       ADZONE RESEARCH, INC.

Dated: July 13, 2005                   By:  /s/ Charles Cardona
                                       ----------------------------------------
                                       Charles Cardona, Chief Executive Officer
                                       and Principal Financial and Accounting
                                       Officer

In accordance with the Securities Exchange Act of 1934, as amended, this report
has been signed below by the following persons on behalf of AdZone and in the
capacities and on the date indicated.

Dated: July 13, 2005                 By:  /s/ Charles Cardona
                                       ----------------------------------------
                                       Charles Cardona, Chairman of the Board

Dated: July 13, 2005                 By:  /s/ John Cardona
                                       ----------------------------------------
                                       John Cardona, Director

Dated: July 13, 2005                 By:  /s/ Warren Hamburger
                                       ----------------------------------------
                                       Warren Hamburger, Director

Dated: July 13, 2005                 By:  /s/ Russell Ivy
                                       ----------------------------------------
                                       Russell Ivy, Director

Dated: July 13, 2005                 By:  /s/ Richard A. McCann
                                       ----------------------------------------
                                       Richard A. McCann, Director


                                       25
<PAGE>

                              ADZONE RESEARCH, INC.
                              FINANCIAL STATEMENTS
                       YEARS ENDED MARCH 31, 2004 AND 2003

                                    CONTENTS

<TABLE>
<CAPTION>
                                                                                   Page
                                                                                   ----
<S>                                                                                 <C>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                             F-2

FINANCIAL STATEMENTS (RESTATED)

   Balance Sheet as of March 31, 2004                                               F-3

   Statements of Operations and Comprehensive Income for the years
     ended March 31, 2004 and 2003 and for the period  from February  28, 2000
     (date of inception) through March 31, 2004                                     F-4

   Statements  of Changes in  Shareholders' Equity for the period from
     February 28, 2000 (date of inception) through March 31, 2004                   F-6

   Statements of Cash Flows for the years ended March 31, 2004 and 2003
     and for the period from February 28, 2000 (date of inception)
     through March 31, 2004                                                         F-10

   Notes to Financial Statements                                                    F-12
</TABLE>


                                       F-1
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders
Adzone Research, Inc.

We have  audited the  accompanying  balance  sheet of Adzone  Research,  Inc. (a
Development  Stage Company) as of March 31, 2004, and the related  statements of
operations,  shareholders'  deficit  and cash flows for each of the two years in
the period  ended  March 31, 2004 and the period from  inception  (February  28,
2000) to March 31, 2004. These financial  statements are the  responsibility  of
Adzone's  management.  Our  responsibility  is to  express  an  opinion on these
financial statements based on our audits.

We conducted  our audits in  accordance  with  standards  of the Public  Company
Accounting  Oversight Board (United States of America).  Those standards require
that we plan and perform the audit to obtain reasonable  assurance about whether
the financial statements are free of material misstatement.  We were not engaged
to perform an audit of the Company's internal control over financial  reporting.
Our audits included  consideration of internal control over financial  reporting
as  a  basis  for  designing  audit  procedures  that  are  appropriate  in  the
circumstances,  but  not  for  the  purpose  of  expressing  an  opinion  on the
effectiveness  of the  Company's  internal  control  over  financial  reporting.
Accordingly,  we express no such opinion. An audit includes examining, on a test
basis,  evidence  supporting  the  amounts  and  disclosures  in  the  financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Adzone Research,  Inc. at March
31, 2004,  and the results of its  operations and its cash flows for each of the
two years in the period  ended March 31, 2004,  in  conformity  with  accounting
principles generally accepted in the United States of America.

As more fully discussed in Note D, the Company has incurred  substantial  losses
and has used  significant  levels of cash in  developing  its  operations  since
inception.  These conditions raise substantial doubt about the Company's ability
to continue as a going concern for a reasonable period.  Management's plans with
respect to this uncertainty are discussed in Note D to the financial statements.
The financial  statements do not include any adjustments  that might result from
the outcome of this uncertainty.

As more fully discussed in Note C, the accompanying financial statements for the
years ended March 31,  2004 and 2003 have been  restated  for errors made in the
determination of stock-based compensation. In addition, the financial statements
have been  restated  for errors made in the  allocation  of  proceeds  from unit
offerings  to all  instruments  sold  in  connection  with  the  offerings,  and
beneficial  conversion features.  As a result of these errors, net loss and loss
applicable  to  common  stockholders,  for the year  ended  March 31,  2004,  as
restated,  is $1,516,716 and $2,132,906  higher,  respectively,  than previously
reported and net loss and loss  applicable to common  stockholders  for the year
ended March 31, 2003,  as restated,  are both  $226,493  higher than  previously
reported.

                                            /s/ AIDMAN, PISER & COMPANY, P.A.

Tampa, Florida
June 29, 2005


                                       F-2
<PAGE>

                              ADZONE RESEARCH, INC.
                          (a development stage company)
                                 BALANCE SHEET
                                 March 31, 2004

                                                                      March 31,
                                                                        2004
                                                                    -----------
                                                                     (Restated)
                                     ASSETS
CURRENT ASSETS
   Cash on hand and in bank                                         $   622,797
   Prepaid expenses and other                                           134,272
                                                                    -----------
     TOTAL CURRENT ASSETS                                               757,069
                                                                    -----------
PROPERTY AND EQUIPMENT - AT COST                                         62,098
   Accumulated depreciation                                             (51,675)
                                                                    -----------
     NET PROPERTY AND EQUIPMENT                                          10,423
                                                                    -----------
OTHER ASSETS
   Restricted cash - preferred stock dividend reserve                    37,266
   Security deposits and other                                            1,089
                                                                    -----------
     TOTAL OTHER ASSETS                                                  38,355
                                                                    -----------
TOTAL ASSETS                                                        $   805,847
                                                                    ===========

                      LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
   Notes payable                                                    $    62,787
   Accounts payable - trade                                             297,389
   Accrued dividends payable                                                583
   Accrued officer compensation                                         160,926
                                                                    -----------
     TOTAL CURRENT LIABILITIES                                          521,685
                                                                    -----------
LONG-TERM LIABILITIES
   Notes payable                                                        166,783
                                                                    -----------
     TOTAL LIABILITIES                                                  688,468
                                                                    -----------
COMMITMENTS AND CONTINGENCIES (Note S)                                       --
SHAREHOLDERS' EQUITY
   Preferred stock - $0.001 par value.  20,000,000 shares
   authorized:
     Series A - 50 shares authorized; 24.2194
       shares issued and outstanding                                    278,530
     Series B - 100 shares authorized; 31.0000
       shares issued and outstanding                                    240,286
   Common stock - $0.001 par value. 200,000,000
       shares authorized; 70,832,255 shares issued
     and outstanding                                                     70,832
   Additional paid-in capital                                         6,690,030
   Deficit accumulated during the development stage                  (7,129,534)
                                                                    -----------
                                                                        150,144
   Stock subscription receivable                                        (30,550)
   Treasury stock - at cost (25,000 shares)                              (2,215)
                                                                    -----------
     TOTAL SHAREHOLDERS' EQUITY                                         117,379
                                                                    -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                          $   805,847
                                                                    ===========

The accompanying notes are an integral part of these financial statements.


                                       F-3
<PAGE>

                              ADZONE RESEARCH, INC.
                          (a development stage company)
                 STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
                     Years ended March 31, 2004 and 2003 and
            Period from February 28, 2000 (date of inception) through
                                 March 31, 2004

<TABLE>
<CAPTION>
                                                                             Period from
                                                                          February 28, 2000
                                                                         (date of inception)
                                             Year ended       Year ended       through
                                           March 31, 2004   March 31, 2003  March 31, 2004
                                           --------------   --------------  --------------
                                               (Restated)       (Restated)    (Restated)
<S>                                           <C>            <C>            <C>
REVENUES                                      $    74,844    $        --    $   158,850
                                              -----------    -----------    -----------

PRODUCTION EXPENSES
   Salaries, wages and related costs              393,288         33,881      1,147,633
   Direct occupancy and operating expenses        169,855         40,123        428,481
                                              -----------    -----------    -----------
     Total production expenses                    563,143         74,004      1,576,114
                                              -----------    -----------    -----------

GROSS (LOSS)                                     (488,299)       (74,004)    (1,417,264)
                                              -----------    -----------    -----------

OPERATING EXPENSES
   Selling, general and marketing expenses:
     Salaries, wages and related costs          1,469,238        330,678      2,413,906
     Consulting and professional fees           1,038,963        582,931      1,805,101
     General and administrative expense           234,607        138,030        747,021
   Depreciation                                     5,469         16,923         58,750
                                              -----------    -----------    -----------
       Total operating expenses                 2,748,277      1,068,562      5,024,778
                                              -----------    -----------    -----------

LOSS FROM OPERATIONS                           (3,236,576)    (1,142,566)    (6,442,042)

OTHER INCOME (EXPENSE)
   Interest and other income                          298             --          4,636
   Interest expense                               (11,580)       (11,463)       (36,160)
   Lawsuit settlement                              (3,000)            --        (23,000)
   Loss on disposition of equipment                  (963)            --        (16,779)
                                              -----------    -----------    -----------

NET LOSS                                       (3,251,821)    (1,154,029)    (6,513,345)

OTHER COMPREHENSIVE INCOME                             --             --             --
                                              -----------    -----------    -----------

COMPREHENSIVE LOSS                            $(3,251,821)   $(1,154,029)   $(6,513,345)
                                              ===========    ===========    ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.


                                       F-4
<PAGE>

                              ADZONE RESEARCH, INC.
                          (a development stage company)
            STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS - CONTINUED
                     Years ended March 31, 2004 and 2003 and
            Period from February 28, 2000 (date of inception) through
                                 March 31, 2004

<TABLE>
<CAPTION>
                                                                         Period from
                                                                      February 28, 2000
                                                                     (date of inception)
                                        Year ended      Year ended        through
                                      March 31, 2004  March 31, 2003   March 31, 2004
                                      --------------  --------------   --------------
                                        (Restated)     (Restated)        (Restated)
<S>                                    <C>             <C>             <C>
RECONCILIATON OF NET LOSS TO LOSS
APPLICABLE TO COMMON STOCKHOLDERS:

NET LOSS                               $ (3,251,821)   $ (1,154,029)   $ (6,513,345)
                                       ------------    ------------    ------------
PREFERRED STOCK DIVIDENDS
     AND ACCRETIONS:
     Accretions of preferred stock
       carrying values to redemption
       values                              (589,533)             --        (589,533)
     Preferred dividends paid               (26,657)             --         (26,657)
                                       ------------    ------------    ------------
TOTAL PREFERRED STOCK DIVIDENDS AND
ACCRETIONS                                 (616,190)             --        (616,190)
                                       ------------    ------------    ------------
LOSS APPLICABLE TO COMMON
SHAREHOLDERS                           $ (3,868,011)   $ (1,154,029)   $ (7,129,535)
                                       ============    ============    ============

LOSS PER COMMON SHARE:
   BASIC AND DILUTED LOSS PER
   COMMON SHARE                        $      (0.06)   $      (0.03)   $      (0.20)
                                       ============    ============    ============
   WEIGHTED AVERAGE COMMON SHARES
   USED IN BASIC AND DILUTED LOSS
   PER COMMON SHARE                      62,374,341      36,670,763      35,891,430
                                       ============    ============    ============
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                       F-5
<PAGE>

                              ADZONE RESEARCH, INC.
                          (a development stage company)
                  STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                          Period from February 28, 2000
                   (date of inception) through March 31, 2004

<TABLE>
<CAPTION>
                                                                                                              Deficit
                                                                                                            accumulated
                                          Preferred Stock              Common Stock           Additional      in the
                                    -------------------------   -------------------------      paid-in      development
                                       Shares        Amount        Shares         Amount       capital         stage
                                    -----------   -----------   -----------   -----------    -----------    -----------
<S>                                          <C>  <C>            <C>          <C>            <C>            <C>
INITIAL CAPITALIZATION
   FEBRUARY 28, 2000                         --   $        --           170   $       150    $        --    $        --
   Effect of September 10, 2000
     125,000 for 1 forward stock
     split and change to $0.001
     par value                               --            --    21,249,830        21,100        (21,100)            --
February 29, 2000 private
   placement of common stock                 --            --            30     1,000,000             --             --
     Effect of September 10, 2000
     125,000 for 1 forward stock
     split and change to $0.001
     par value                               --            --     3,749,970      (996,250)       996,250             --
   Less costs of raising capital             --            --            --            --        (12,500)            --
Net loss for the period                      --            --            --            --             --        (35,822)
                                    -----------   -----------   -----------   -----------    -----------    -----------

BALANCES AT MARCH 31,2000                    --            --    25,000,000        25,000        962,650        (35,822)

Cash received on stock
   subscription receivable                   --            --            --            --             --             --
November 30, 2000 private
   placement of common stock                 --            --       666,665           667        289,333             --
   Less costs and expenses
     of raising capital                      --            --            --            --       (188,500)            --
Common stock issued for:
   Costs and expenses of
     raising capital                         --            --       400,000           400        175,600             --
   Prepaid interest on loan                  --            --       250,000           250         31,000             --
   Employee wages and bonuses                --            --     1,095,000         1,095         64,605             --
   Officer bonus                             --            --       500,000           500         29,500             --
   Professional services                     --            --       107,000           107          6,313             --
Net loss for the year                        --            --            --            --             --     (1,460,043)
                                    -----------   -----------   -----------   -----------    -----------    -----------
BALANCES AT MARCH 31, 2001                   --   $        --    28,018,665   $    28,019    $ 1,370,501    $(1,495,865)
                                    ===========   ===========   ===========   ===========    ===========    ===========
</TABLE>


                                       F-6
<PAGE>

                                       Stock        Treasury
                                    subscription     Stock
                                     receivable      at cost        Total
                                    -----------    -----------    -----------
INITIAL CAPITALIZATION
   FEBRUARY 28, 2000                $        --    $        --    $       150
   Effect of September 10, 2000
     125,000 for 1 forward stock
     split and change to $0.001
     par value                               --             --             --
February 29, 2000 private
   placement of common stock           (600,000)            --        400,000
     Effect of September 10, 2000
     125,000 for 1 forward stock
     split and change to $0.001
     par value                               --             --             --
   Less costs of raising capital             --                       (12,500)
Net loss for the period                      --             --        (35,822)
                                    -----------    -----------    -----------

BALANCES AT MARCH 31,2000              (600,000)            --        351,828

Cash received on stock
   subscription receivable              600,000             --        600,000
November 30, 2000 private
   placement of common stock                 --             --        290,000
   Less costs and expenses
     of raising capital                      --             --       (188,500)
Common stock issued for:
   Costs and expenses of
     raising capital                         --             --        176,000
   Prepaid interest on loan                  --             --         31,250
   Employee wages and bonuses                --             --         65,700
   Officer bonus                             --             --         30,000
   Professional services                     --             --          6,420
Net loss for the year                        --             --     (1,460,043)
                                    -----------    -----------    -----------
BALANCES AT MARCH 31, 2001          $        --             --    $   (97,345)
                                    ===========    ===========    ===========

The accompanying notes are an integral part of these financial statements.


                                       F-7
<PAGE>

<TABLE>
<CAPTION>
                                                                                                                          Deficit
                                                                                                                        accumulated
                                                    Preferred Stock               Common Stock           Additional       in the
                                               -------------------------   --------------------------      paid-in      development
                                                  Shares        Amount       Shares          Amount        capital         stage
                                               -----------   -----------   -----------    -----------    -----------    -----------
<S>                                                     <C>  <C>            <C>           <C>            <C>            <C>
BALANCES,
   MARCH 31, 2001                                       --   $        --    28,018,665    $    28,019    $ 1,370,501    $(1,495,865)
Conversion of AdZone
   Interactive, Inc. common
   stock to AdZone Research,
   Inc. common stock                                    --            --   (10,018,643)       (10,019)        10,019             --
Effect of reverse merger with
   AdZone Research, Inc.                                --            --     5,346,000          5,346         (5,346)            --
                                               -----------   -----------   -----------    -----------    -----------    -----------
BALANCES AT MARCH 31, 2001
POST-REVERSE ACQUISITION --                                           --    23,346,022         23,346      1,375,174     (1,495,865)
Issuance of common stock for
   Conversion of
     short-term debt                                    --            --       360,000            360         21,240             --
   Cash                                                 --            --       744,442            744         39,656             --
   Lawsuit settlement                                   --            --       500,000            500         19,500             --
   Professional services                                --            --     1,531,666          1,532        115,668             --
Net loss for the year                                   --            --            --             --             --       (611,630)
                                               -----------   -----------   -----------    -----------    -----------    -----------
BALANCES AT
   MARCH 31, 2002                                       --            --    26,482,130         26,482      1,571,238     (2,107,495)
Issuance of common stock for
   Cash                                                 --            --     2,413,334          2,413        103,587             --
   Exercise of granted
     Options (restated)                                 --            --     9,350,000          9,350        131,450             --
   Directors fees                                       --            --       160,000            160          8,140             --
   Employee compensation (restated)                                   --     5,790,000          5,790        179,398             --
   Professional services (restated)                                   --     5,900,998          5,901        208,670             --
Issuance of stock options for
  services (restated)                                   --            --            --                       218,000             --
Issuance of warrants for services (restated)                                        --             --         57,252             --
Net loss for the year (restated)                                      --            --             --             --     (1,154,029)
                                               -----------   -----------   -----------    -----------    -----------    -----------
BALANCES AT
   MARCH 31, 2003                                       --   $        --    50,096,462    $    50,096    $ 2,477,735    $(3,261,524)
                                               ===========   ===========   ===========    ===========    ===========    ===========

<CAPTION>
                                                  Stock        Treasury
                                              subscription       Stock
                                               receivable       at cost           Total
                                               -----------    -----------      -----------
<S>                                            <C>            <C>              <C>
BALANCES AT MARCH 31, 2001                     $        --    $        --      $   (97,345)
Conversion of AdZone
   Interactive, Inc. common
   stock to AdZone Research,
   Inc. common stock                                    --             --               --
Effect of reverse merger with
   AdZone Research, Inc.                                --             --               --
                                               -----------    -----------      -----------
BALANCES AT MARCH 31, 2001
   POST-REVERSE ACQUISITION                             --             --          (97,345)
Issuance of common stock for
   Conversion of short-term debt                        --             --           21,600
   Cash                                                 --             --           40,400
   Lawsuit settlement                                   --             --           20,000
   Professional services                                --             --          117,200
Net loss for the year                                   --             --         (611,630)
                                               -----------    -----------      -----------
BALANCES AT MARCH 31, 2002                              --             --         (509,775)

Issuance of common stock for
   Cash                                                 --             --          106,000
   Exercise of granted options (restated)          (14,800)            --          126,000
   Directors fees                                       --             --            8,300
   Employee compensation (restated)                     --             --          185,188
   Professional services (restated)                     --             --          214,571
Issuance of stock options for
  services (restated)                                   --             --          218,000
Issuance of warrants for services (restated)            --             --           57,252
Net loss for the year (restated)                        --             --       (1,154,029)
                                               -----------    -----------      -----------
BALANCES AT MARCH 31, 2003 (restated)          $   (14,800)   $        --      $  (748,493)
                                               ===========    ===========      ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.


                                       F-8
<PAGE>

<TABLE>
<CAPTION>
                                                                                                                    Deficit
                                                                                                                  accumulated
                                              Preferred Stock                  Common Stock         Additional       in the
                                         --------------------------    -------------------------     paid-in       development
                                            Shares         Amount         Shares       Amount        capital         stage
                                         -----------    -----------    -----------   -----------   -----------    -----------
<S>                                           <C>       <C>             <C>          <C>           <C>            <C>
BALANCES AT
  MARCH 31, 2003 (restated)                       --    $        --     50,096,462   $    50,096   $ 2,477,735    $(3,261,524)

Issuance of preferred stock and
warrants:
   Series A Unit Offering (a)                  34.85         51,528             --            --       296,972             --
   Series B Unit Offering (b)                  31.00             --             --            --       310,000             --
Accretions of discounts
   on preferred stock                             --        589,533             --            --            --       (589,533)
Preferred stock dividends paid                    --             --             --            --            --        (26,657)
Redemption of preferred stock:
   Series A Preferred Stock                   (10.63)      (122,245)            --            --            --             --
Issuance of common stock for:
   Cash                                           --             --        772,333           773        61,127             --
   Exercise of stock options                      --             --      3,025,000         3,025       861,195             --
   Employee compensation                          --             --     14,054,000        14,054     1,388,926             --
   Professional services                                         --      2,304,460         2,304       598,164             --
   Director fees                                  --             --        280,000           280        30,520             --
   Cost of obtaining capital                      --             --        300,000           300          (300)            --
   Purchase of treasury stock                     --             --             --            --            --             --
Issuance of stock options for services                           --             --            --       543,020             --
Issuance of warrants for services                 --             --             --            --       122,672             --
Net loss for the year                             --             --             --            --            --     (3,251,821)
                                         -----------    -----------    -----------   -----------   -----------    -----------
RESTATED BALANCES AT
MARCH 31, 2004                                 55.22    $   518,816     70,832,255   $    70,832   $ 6,690,031    $(7,129,535)
                                         ===========    ===========    ===========   ===========   ===========    ===========

<CAPTION>
                                            Stock        Treasury
                                         subscription      Stock
                                          receivable      at cost         Total
                                         -----------    -----------    -----------
<S>                                      <C>            <C>            <C>
BALANCES AT MARCH 31, 2003 (restated)    $   (14,800)   $        --    $  (748,493)

Issuance of preferred stock and
warrants:
   Series A Unit Offering (a)                     --             --        348,500
   Series B Unit Offering (b)                     --             --        310,000
Accretions of discounts
   on preferred stock                                            --             --
Preferred stock dividends paid                    --             --        (26,657)
Redemption of preferred stock:
   Series A Preferred Stock                       --             --       (122,245)
Issuance of common stock for:
   Cash                                           --             --         61,900
   Exercise of stock options                 (15,750)            --        848,470
   Employee compensation                          --             --      1,402,980
   Professional services                          --             --        600,468
   Director fees                                  --             --         30,800
   Cost of obtaining capital                      --             --             --
   Purchase of treasury stock                     --         (2,215)        (2,215)
Issuance of stock options for services            --             --        543,020
Issuance of warrants for services                 --             --        122,672
Net loss for the year                             --             --     (3,251,821)
                                         -----------    -----------    -----------
RESTATED BALANCES
AT MARCH 31, 2004                        $   (30,550)   $    (2,215)   $   117,379
                                         ===========    ===========    ===========
</TABLE>

INFORMATION ABOUT THE ALLOCATION OF PREFERRED UNIT OFFERING PROCEEDS:

(a)   Series  A Unit  Offering  proceeds  were  allocated  $51,528  to  Series A
      Preferred  Stock,  $147,884  to  warrants  and  $149,088  to a  beneficial
      conversion feature embedded in the Series A Preferred Stock.

(b)   Series B Unit Offering  proceeds were allocated $-0- to Series B Preferred
      Stock,  $176,146  to warrants  and  $133,854  to a  beneficial  conversion
      feature embedded in the Series B Preferred Stock.

   The accompanying notes are an integral part of these financial statements.


                                       F-9
<PAGE>

                              ADZONE RESEARCH, INC.
                          (a development stage company)
                            STATEMENTS OF CASH FLOWS
                     Years ended March 31, 2004 and 2003 and
   Period from February 28, 2000 (date of inception) through March 31, 2004

<TABLE>
<CAPTION>
                                                                                    Period from
                                                                                 February 28, 2000
                                                                                (date of inception)
                                                     Year ended      Year ended       through
                                                   March 31, 2004  March 31, 2003  March 31, 2004
                                                      -----------    -----------    -----------
                                                       (Restated)     (Restated)    (Restated)
<S>                                                   <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net loss for the period                            $(3,251,821)   $(1,154,029)   $(6,513,345)
   Adjustments to reconcile net loss to
     net cash provided by operating activities
       Depreciation                                         5,469         16,923         58,750
       Loss on disposition of equipment                       963             --         16,779
       Stock-compensation:
         Salaries, wages and bonuses                    1,656,750        185,188      1,937,638
         Professional services                          1,012,390        461,823      1,625,833
         Directors fees                                    30,800          8,300         39,100
         Lawsuit settlement                                    --             --         20,000
       Changes in operating assets and liabilities:
         Prepaid expenses and other                       (98,897)        14,800       (103,022)
             Deposits and other assets                    (37,965)         1,800        (38,355)
         Accounts payable and accrued liabilities         130,343         46,231        298,121
         Accrued officers compensation                   (409,434)       211,428        160,926
         Accrued interest payable                              --         (1,078)            --
                                                      -----------    -----------    -----------
NET CASH USED IN OPERATING ACTIVITIES                    (961,402)      (208,614)    (2,497,575)
                                                      -----------    -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES
   Cash paid to purchase property and equipment            (5,250)          (608)       (91,851)
   Cash received on disposition of equipment                   --             --          5,900
                                                      -----------    -----------    -----------
NET CASH USED IN INVESTING ACTIVITIES                      (5,250)          (608)       (85,951)
                                                      -----------    -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES
   Sale of common stock                                   910,370        232,000      2,472,770
   Sale of preferred stock                                658,500             --        658,500
   Principal received from notes payable                  166,783             --        254,341
   Cash paid to redeem preferred stock                   (122,245)            --       (122,245)
   Financing costs                                             --             --        (25,000)
   Net cash activity on officer and
     employee advances                                         --        (14,694)            --
   Cash paid for preferred stock dividends                (26,657)            --        (26,657)
   Principal paid on notes payable                         (3,171)            --         (3,171)
   Cash paid to acquire treasury stock                     (2,215)            --         (2,215)
                                                      -----------    -----------    -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES               1,581,365        217,306      3,206,323
                                                      -----------    -----------    -----------
INCREASE (DECREASE) IN CASH                               614,713          8,084        622,797
Cash at beginning of period                                 8,084             --             --
                                                      -----------    -----------    -----------
CASH AT END OF PERIOD                                 $   622,797    $     8,084    $   622,797
                                                      ===========    ===========    ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.


                                      F-10
<PAGE>

                              ADZONE RESEARCH, INC.
                          (a development stage company)
                       STATEMENTS OF CASH FLOWS - CONTINUED
                     Years ended March 31, 2004 and 2003 and
            Period from February 28, 2000 (date of inception) through
                                 March 31, 2004

<TABLE>
<CAPTION>
                                                                            Period from
                                                                          February 28, 2000
                                                                         (date of inception)
                                            Year ended       Year ended       through
                                          March 31, 2004   March 31, 2003  March 31, 2004
                                           -------------   -------------   -------------
                                            (Restated)                       (Restated)
<S>                                        <C>             <C>             <C>
SUPPLEMENTAL DISCLOSURE OF
   INTEREST AND INCOME TAXES PAID
     Interest paid for the period          $       6,029   $       2,527   $       8,556
                                           =============   =============   =============
     Income taxes paid for the period      $          --   $          --   $          --
                                           =============   =============   =============

SUPPLEMENTAL DISCLOSURE OF NON-CASH
   INVESTING AND FINANCING ACTIVITIES

     Common stock issued for
        prepaid interest                   $          --   $          --   $      31,250
                                           =============   =============   =============
     Common stock issued in repayment of
       short-term debt                     $          --   $          --   $      21,600
                                           =============   =============   =============
     Common stock issued in exchange for
       Stock subscription receivable       $          --   $      14,800   $          --
                                           =============   =============   =============
</TABLE>

The accompanying notes are an integral part of these financial statements.


                                      F-11
<PAGE>

                              ADZONE RESEARCH, INC.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS

NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS

AdZone Research,  Inc. (Company) was incorporated on May 31, 1994 under the laws
of the State of Delaware as Executive Help Services, Inc.

On August 10, 2001, the Company executed an Agreement and Plan of Share Exchange
with AdZone Interactive,  Inc. (a privately-owned New York corporation) (AdZone)
whereby the Company  exchanged  18,000,022  shares of  restricted,  unregistered
common stock for 100.0% of the issued and outstanding common stock of AdZone and
effected a merger of the two entities with the Company being the surviving legal
entity. Concurrent with this transaction, the Company changed its corporate name
to AdZone Research, Inc.

AdZone Interactive,  Inc. (AdZone) was initially  incorporated as Web-AdNet.com.
Inc.  under the laws of the State of New York on February 28, 2000.  The Company
was formed to extract various data elements through the monitoring and review of
Internet  websites   developed  and  maintained  by  independent  third  parties
worldwide. These extracted data elements are then used to provide various market
research  statistics  and other focused  information  as guided by the Company's
clientele.

The Company's business plan has not been fully implemented and, accordingly, has
not fully commenced operations. The Company has had no substantial operations or
substantial  revenues since inception and is considered to be in the development
stage.

NOTE B - PREPARATION OF FINANCIAL STATEMENTS

The  Company  follows  the  accrual  basis  of  accounting  in  accordance  with
accounting principles generally accepted in the United States of America. AdZone
originally  elected a year-end of December  31.  Concurrent  with the August 10,
2001 business combination transaction,  the Company's Board of Directors changed
AdZone's year-end to March 31. The accompanying financial statements reflect the
Company's  year-end  of  March  31 as of  the  first  day of  the  first  period
presented.

For accounting  purposes,  the acquisition of AdZone, on August 10, 2001, by the
Company  effected  a change  in  control  and was  accounted  for as a"  reverse
acquisition"  whereby AdZone is the accounting  acquirer for financial statement
purposes.  Accordingly,  for all  periods  subsequent  to August 10,  2001,  the
financial  statements of the Company reflect the historical financial statements
of AdZone from its  inception  on February  28, 2000 and the  operations  of the
Company subsequent to the August 10, 2001 transaction date.

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires 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 revenues  and expenses  during the  reporting  period.
Actual results could differ from those estimates.

Management further acknowledges that it is solely responsible for adopting sound
accounting  practices,   establishing  and  maintaining  a  system  of  internal
accounting  control and preventing and detecting  fraud. The Company's system of
internal  accounting  control is designed to assure,  among other items, that 1)
recorded  transactions  are valid; 2) valid  transactions  are recorded;  and 3)
transactions  are  recorded in the proper  period in a timely  manner to produce
financial  statements which present fairly the financial  condition,  results of
operations  and cash  flows of the  Company  for the  respective  periods  being
presented


                                      F-12
<PAGE>

                              ADZONE RESEARCH, INC.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS

NOTE C - CORRECTION OF ERRORS AND FINANCIAL STATEMENT RESTATEMENT

During the fiscal years ended March 31, 2004 and 2003, the Company estimated the
fair market value of equity  securities  issued to employees and  non-employees,
using a discount to trading  market  values of the Company's  common stock.  The
Company  has  reevaluated  the use of such  discounts  and  determined  that the
trading market value of the Company's  common stock on the date of award was the
more  appropriate  value of the securities.  Additionally,  certain common stock
options  and  warrants  were  not   recognized  in  the  financial   statements.
Compensation  costs  associated with these issuances have now been adjusted.  In
addition,  this  adjustment,  as  reflected  in the tables  below,  reflects the
allocation of certain  stock-based  compensation awards to the quarters in which
the award occurred. All stock based compensation awards commencing in the fiscal
year ended March 31, 2005 have been recorded based upon the trading market price
of the  Company's  common stock,  which  practice  became the  Company's  policy
effective with the first fiscal quarter of that fiscal year.

During fiscal year ended March 31, 2004, the Company sold Preferred Stock,  with
Warrants to acquire the Company's common stock, in two separate  offerings.  The
adjustment in the tables below reflects the effect on loss  applicable to common
stockholders  and loss per common share of the allocation of proceeds from these
unit  offerings  to (i) the  warrants and (ii)  beneficial  conversion  features
underlying the convertible preferred stock. As a result of this allocation,  the
discount to the carrying value of the preferred stock has been accreted  through
charges to  retained  earnings  over a period of 180 days  following  the offer,
which  was the  first  contractual  date that the  preferred  stockholders  were
entitled to convert the preferred stock into common stock.

The aforementioned  adjustments did not affect any major classification of asset
or liability. Rather, the adjustments only affect the components of stockholders
equity.  As a result,  the balance sheet effects of these  adjustments have been
omitted.

The Company is currently in the process of responding to questions  posed by the
Staff of the Securities and Exchange Commission regarding,  among other matters,
the  subject  adjustments.  In  addition,  the Company  believes  that the above
adjustments will require the amendment of the quarterly financial filings during
fiscal year ended March 31, 2004.  The Company  intends to resolve all remaining
questions of the Staff and file such amendments as soon as practicable.

As a result of the  above  matters,  the  Company  has  restated  its  financial
statements  included  in its  original  filing on Form 10-KSB for the year ended
March 31, 2004, for the following matters:

<TABLE>
<CAPTION>
                                                                       Period from
                                                                     February 28, 2000
                                                                    (date of inception)
                                         Year ended      Year ended       through
                                      March 31, 2004   March 31, 2003 March 31, 2004
                                        -----------    -----------    -----------
<S>                                     <C>            <C>            <C>
Net loss, as originally reported        $(1,735,105)   $  (927,536)   $(4,770,136)

Adjustments to increase the value of
stock-based compensation to market
values on dates issued or granted and
to recognize stock options and/or
  warrants issued                        (1,516,716)      (226,493)    (1,743,209)

                                        -----------    -----------    -----------
Net Loss, as restated                   $(3,251,821)   $(1,154,029)   $(6,513,345)
                                        ===========    ===========    ===========
</TABLE>


                                      F-13
<PAGE>

                              ADZONE RESEARCH, INC.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS

NOTE C - CORRECTION OF ERRORS AND FINANCIAL STATEMENT RESTATEMENT (CONTINUED)

<TABLE>
<CAPTION>
                                                                              Period from
                                                                           February 28, 2000
                                                                          (date of inception)
                                            Year ended       Year ended         through
                                          March 31, 2004   March 31, 2003    March 31, 2004
                                          -------------    -------------    -------------
<S>                                       <C>              <C>              <C>
Loss applicable to common stockholders,
   as originally reported                 $  (1,735,105)   $    (927,536)   $  (4,770,136)

Adjustment to increase the value of
stock-based compensation to market
values on dates issued or granted and
to recognize stock options and warrants
issued                                       (1,516,716)        (226,493)      (1,743,209)

Preferred stock dividends and
accretion                                      (616,190)              --         (616,190)
                                          -------------    -------------    -------------
Loss applicable to common stockholders,
   as restated                            $  (3,868,011)   $  (1,154,029)   $  (7,129,535)
                                          =============    =============    =============

Loss per common share as applicable
  to common stockholders,
   as originally reported                 $       (0.03)   $       (0.03)   $       (0.13)

Adjustment to increase the value of
stock-based compensation to market
values on dates issued or granted                 (0.02)             (--)           (0.05)

Preferred stock dividends and
accretion                                         (0.01)             (--)           (0.02)
                                          -------------    -------------    -------------
Loss per common share as applicable
  to common stockholders,
  as restated                             $       (0.06)   $       (0.03)   $       (0.20)
                                          =============    =============    =============
</TABLE>

The effects of the above  adjustments on the Company's  quarterly filings during
the year  ended  March 31,  2004,  are as  follows,  for each  quarterly  period
(Unaudited):

<TABLE>
<CAPTION>
                                                    Quarterly Period Ended
                                   --------------------------------------------------------
                                     June 30,     September 30,  December 31,     March 31,
                                       2003           2003          2003            2004
                                   -----------    -----------    -----------    -----------
<S>                                <C>            <C>            <C>            <C>
Net loss, as reported              $   (77,042)   $  (362,579)   $  (240,080)   $(1,055,404)
Adjustment to increase the value
of stock-based compensation to
market values on dates issued or
granted                                (46,495)    (1,245,670)       216,013       (440,564)
                                   -----------    -----------    -----------    -----------
Net loss, as restated              $  (123,537)   $(1,608,249)   $   (24,067)   $(1,495,968)
                                   ===========    ===========    ===========    ===========
</TABLE>


                                      F-14
<PAGE>

                              ADZONE RESEARCH, INC.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS

NOTE C - CORRECTION OF ERRORS AND FINANCIAL STATEMENT RESTATEMENT (CONTINUED)

<TABLE>
<CAPTION>
                                                    Quarterly Period Ended
                                    --------------------------------------------------------
                                      June 30,    September 30,   December 31,     March 31,
                                        2003           2003          2003            2004
                                    -----------    -----------    -----------    -----------
<S>                                 <C>            <C>            <C>            <C>
Loss applicable to common shares,
   as reported                      $   (77,042)   $  (362,579)   $  (240,080)   $(1,055,404)
Adjustment to increase the value
of stock-based compensation to
market values on dates issued or
granted                                 (46,495)    (1,245,670)       216,013       (440,564)
Preferred stock dividends and
   accretions                                --        (95,412)      (248,297)      (272,481)
                                    -----------    -----------    -----------    -----------
Loss applicable to common shares,
  as restated                       $  (123,537)   $(1,703,661)   $  (272,364)   $(1,768,449)
                                    ===========    ===========    ===========    ===========

Loss per common share applicable
  to common stockholders,
   as reported                      $     (0.00)   $     (0.01)   $     (0.00)   $     (0.02)
                                    ===========    ===========    ===========    ===========

Loss per common share applicable
  to common stockholders,
   as restated                      $     (0.00)   $     (0.03)   $     (0.00)   $     (0.03)
                                    ===========    ===========    ===========    ===========
</TABLE>

NOTE D - GOING CONCERN UNCERTAINTY

The preparation of financial  statements in accordance  with Generally  Accepted
Accounting  Principles  contemplates  that the Company will  continue as a going
concern  for a  reasonable  period.  As  noted  in  the  accompanying  financial
statements,  the Company  incurred a net loss of  ($3,251,821)  and used cash of
($961,402) in conducting its operations during the year ended March 31, 2004. In
addition,  since  inception  through  March 31,  2004,  the Company has incurred
cumulative net losses of ($6,513,345) and has used cumulative cash in operations
of ($2,497,575) in conducting its operations.  Finally,  the Company  incurred a
net loss of  ($2,758,599)  and used cash in operations of  ($1,242,595)  for the
nine months ended December 31, 2004 (unaudited). These recurring negative trends
raise  substantial  doubt  about the  Company's  ability to  continue as a going
concern.

Operating  cash flows for the remaining  three months in fiscal year ended March
31, 2005 are not projected to be sufficient to sustain the Company's operations.
However,  management  currently believes that existing cash reserves of $633,535
as of  December  31,  2004,  coupled  with  (i) an  outstanding  commitment  for
approximately  $750,000 in connection with the Nutmeg Subscription Agreement and
(ii) $136,370 of freely tradable  marketable  securities,  will be sufficient to
fund operating  deficits for a period of  approximately  twelve months following
December 31, 2004.  Management considered the following specific elements of its
internal projections in making its conclusions about its ability to continue for
approximately twelve months following December 31, 2004:


                                      F-15
<PAGE>

                              ADZONE RESEARCH, INC.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS

NOTE D - GOING CONCERN UNCERTAINTY (CONTINUED)

      a.    Management does not believe that the significant  level of cash used
            in  operations  during  the nine  months  ended  December  31,  2004
            ($1,242,595)  is  indicative of cash flow usage during the next four
            fiscal quarters. Cash flow from operations during the current period
            included two amounts, as follows,  that increased cash usage. First,
            a bonus of  $320,000  was awarded to two  officers by the  Company's
            Board of Directors during the second quarter.  Accordingly,  at this
            time,  no  further  officer  bonuses  are  contemplated.Second,  the
            Company used cash proceeds from the Nutmeg Subscription Agreement to
            pay  certain  current  and past due  accounts  payable  and  accrued
            liabilities  amounting  to  $262,947.  While  payments  on  accounts
            payable and accrued  expenses  will continue in the normal course of
            business,  such  payments  are  not  expected  to  be at  the  level
            reflected in the Company's year to date operations.

      b.    Certain vendors continue to accept the Company's  equity  securities
            for  compensation  for their  services,  which has  helped  and will
            continue to help preserve cash.  While such non-cash  expense is not
            currently expected to be as high in the near term future quarters as
            during the current quarter,  based upon ongoing discussions with the
            vendors,  management believes that they will continue to accept such
            securities in the foreseeable future.

      c.    The  Company  completed  a three  month U.S.  Department  of Defense
            contract  in the second  quarter  and  collected  $150,000  for said
            contract.  Management of the Company is optimistic  that the success
            of  this  contract  will  lead  to  follow  on  contracts  with  the
            government,  although  no such  contracts  have  yet  been  awarded.
            However,  management is actively negotiating three such proposals in
            the Defense Industry arena.

      d.    Management does not currently project expending  significant  levels
            of cash to acquire  equipment to support  revenue  growth during the
            next four fiscal  quarters.  Equipment  necessary  for the Company's
            contracts  principally  relates  to  computer  equipment,  which  is
            projected to be sufficient for the foreseeable future.  However, the
            nature of  contracts  awarded in the future,  if any,  may result in
            additional   modifications   and  expenditures  at  the  request  of
            customers.

      e.    Finally,  management believes that, in the event necessary,  certain
            operating expenses can be curtailed.  These expenses are principally
            related to employment and facility costs.

Management  plans to continue to promote  contracts with the U.S.  Department of
Defense and Commercial uses of its technologies. There can be no assurances that
the Company can execute  revenue-producing  contracts under acceptable terms and
conditions.

The  Company's  ability to continue  as a going  concern is  dependent  upon the
preservation  of existing cash  reserves,  the receipt of the final  conditional
traunch of the Nutmeg Subscription Agreement and, ultimately, the achievement of
profitable  operations.  The financial statements do not include any adjustments
that might arise as a result of this uncertainty.


                                      F-16
<PAGE>

                              ADZONE RESEARCH, INC.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS

NOTE E - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1.    Cash and cash equivalents

      For Statement of Cash Flows  purposes,  the Company  considers all cash on
      hand  and in  banks,  certificates  of  deposit  and  other  highly-liquid
      investments with maturities of three months or less, when purchased, to be
      cash and cash equivalents.

2.    Accounts receivable and revenue recognition

      In the  normal  course  of  business,  the  Company  periodically  extends
      unsecured  credit to its  customers  which  during  Fiscal  2004 were 100%
      derived  from  a  sole  source.  Because  of  the  credit  risk  involved,
      management  will provide an allowance  for  doubtful  accounts  which will
      reflect its opinion of amounts which will eventually become uncollectible.
      In the event of  complete  non-performance,  the  maximum  exposure to the
      Company is the recorded amount of trade accounts  receivable  shown on the
      balance sheet at the date of non-performance.

      Revenue  is  recognized   pro-rata   over  the  term  of  the   respective
      corresponding  agreement to provide  research  services and information to
      the Company's customers.

3.    Property, plant and equipment

      Property and equipment are recorded at  historical  cost.  These costs are
      depreciated  over the  estimated  useful lives of the  individual  assets,
      generally  3 years  for  computer  equipment  and 5 to 7 years  for  other
      tangible   equipment  and  office   furniture  and  fixtures,   using  the
      straight-line method.

      Gains and losses from disposition of property and equipment are recognized
      as incurred and are included in operations.

4.    Organization costs

      The  Company has adopted the  provisions  of AICPA  Statement  of Position
      98-5,  "Reporting  on  the  Costs  of  Start-Up  Activities"  whereby  all
      organization and initial costs incurred with the incorporation and initial
      capitalization of the Company were charged to operations as incurred.

5.    Production, Research and development expenses

      Costs  associated with software  production,  research and development are
      charged to operations as incurred.

6.    Advertising expenses

      Advertising and marketing expenses are charged to operations as incurred.

7.    Income taxes

      The Company  utilizes the asset and  liability  method of  accounting  for
      income  taxes.  At March 31,  2004 and 2003,  the  deferred  tax asset and
      deferred tax liability accounts,  as recorded when material,  are entirely
      the result of temporary differences.


                                      F-17
<PAGE>

                              ADZONE RESEARCH, INC.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS

NOTE E - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      Temporary  differences  represent differences in the recognition of assets
      and  liabilities  for  tax and  financial  reporting  purposes,  primarily
      accumulated depreciation and amortization.  As of March 31, 2004 and 2003,
      the deferred tax asset is related  solely to the  Company's  net operating
      loss carryforward and is fully reserved.

8.    Loss per common share

      Basic  earnings  (loss) per common  share is computed by dividing  the net
      income (loss)  available to common  shareholders  by the  weighted-average
      number of common shares outstanding during the respective period presented
      in our accompanying  financial  statements.  Fully diluted earnings (loss)
      per share is computed similar to basic income (loss) per share except that
      the  denominator  is  increased  to  include  the  number of common  stock
      equivalents  (primarily  outstanding  options and warrants).  Common stock
      equivalents  represent the dilutive effect of the assumed  exercise of the
      outstanding  stock options and warrants,  using the treasury stock method,
      at either the beginning of the respective  period presented or the date of
      issuance, whichever is later, and only if the common stock equivalents are
      considered dilutive based upon the Company's net income (loss) position at
      the calculation date.

      As of March 31, 2004 and 2003, the Company's outstanding stock options and
      warrants are deemed to be anti-dilutive due to the Company's net operating
      loss position.

9.    Stock-based compensation

      The Company  uses  stock-based  compensation  arrangements  to  compensate
      employees and professional service providers and consultants.  The Company
      accounts   for  and  reports   its   stock-based   employee   compensation
      arrangements using the intrinsic method outlined in Accounting  Principles
      Board Opinion No. 25 Accounting  for Stock Issued to Employees and related
      interpretations.  In all instances,  involving  Employee and  non-employee
      stock-based compensation, the Company uses the trading market value of the
      common stock on the date of the award to measure compensation expense.

      The  following  tabular  presentation  reflects   supplemental   financial
      information related to stock-based employee compensation:

                                     March 31,      March 31,      Inception
                                       2004            2003         to-date
                                    -----------    -----------    -----------
Net loss applicable to common
      stockholders, as reported     $(3,868,011)   $(1,154,029)   $(7,129,535)
                                    ===========    ===========    ===========
Stock-based employee compensation
 included in net loss               $(1,656,750)   $  (185,188)   $(1,937,638)
                                    ===========    ===========    ===========
Stock-based employee compensation
 using the fair value model         $(5,193,563)   $  (171,250)   $(2,162,225)
                                    ===========    ===========    ===========
Pro forma net loss applicable to
 common stockholders                $(7,404,824)   $(1,140,091)   $(7,354,122)
                                    ===========    ===========    ===========


                                      F-18
<PAGE>

                              ADZONE RESEARCH, INC.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS

NOTE E - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

9.    Stock-based compensation (continued)

Loss applicable to common
  stockholders, as reported         $     (0.05)   $     (0.03)   $     (0.18)
                                    ===========    ===========    ===========
Pro forma net loss applicable
  to common stockholders            $     (0.10)   $     (0.03)   $     (0.20)
                                    ===========    ===========    ===========

      The Black  Scholes  Valuation  Model is used to  estimate  fair  values of
      employee  stock  options.  Significant  assumptions  included  an  average
      expected term of sixty months;  a volatility  factor of 360%;  and, a risk
      free interest rate of 3.0%.

10.   Research and development

      The  Company  expenses  research  and  development  expenses  as they  are
      incurred.  The Company expended  approximately $566,000 and $88,000 during
      fiscal 2004 and 2003,  respectively,  for the maintenance and upgrading of
      its proprietary software.

NOTE F - FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of cash,  accounts  receivable,  accounts  payable and notes
payable, as applicable,  approximates fair value due to the short term nature of
these items  and/or the current  interest  rates  payable in relation to current
market conditions.

Interest  rate risk is the risk  that the  Company's  earnings  are  subject  to
fluctuations  in interest  rates on either  investments  or on debt and is fully
dependent  upon  the  volatility  of  these  rates.  The  Company  does  not use
derivative instruments to moderate its exposure to interest rate risk, if any.

Financial  risk  is  the  risk  that  the  Company's  earnings  are  subject  to
fluctuations in interest rates or foreign exchange rates and are fully dependent
upon the  volatility  of  these  rates.  The  Company  does  not use  derivative
instruments to moderate its exposure to financial risk, if any.

NOTE G - CONCENTRATIONS OF CREDIT RISK

The  Company  maintains  its cash  accounts  in various  financial  institutions
subject  to  insurance   coverage  issued  by  the  Federal  Deposit   Insurance
Corporation  (FDIC).  Under FDIC rules,  the  Company is  entitled to  aggregate
coverage of $100,000 per account type per  separate  legal entity per  financial
institution.  During the year ended March 31,  2004 the Company had  deposits in
these  financial  institutions at various times for varying lengths of time with
credit risk  exposures in excess of  statutory  FDIC  coverage.  The Company has
incurred no losses to date as a result of any of these unsecured situations.


                                      F-19
<PAGE>

                              ADZONE RESEARCH, INC.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS

NOTE H - PROPERTY AND EQUIPMENT

Property and equipment consists of the following at March 31, 2004:

                                       March 31,
                                         2004
                                       --------
Computer equipment                     $ 54,168
Office furniture and other equipment      7,930
                                       --------
                                         62,098
Less accumulated depreciation           (51,675)
                                       --------
Net property and equipment             $ 10,423
                                       ========

Depreciation  expense for the years ended March 31, 2004 and 2003 and the period
from  February 28, 2000 (date of  inception)  through March 31, 2004 was $5,469,
$16,923, and $58,750, respectively.

NOTE I - SHORT-TERM NOTES PAYABLE

<TABLE>
<CAPTION>
                                                                                                      March 31,
                                                                                                        2004
                                                                                                       -------
<S>                                                                                                    <C>
Unsecured $50,000  installment note payable to an individual.  Interest imputed at 15.0%
and paid in advance  with the  issuance of 250,000  shares of  restricted,  unregistered
common  stock to the  lender.  Payable  in  monthly  installments  of $1,000  commencing
September 1, 2001 and each successive month until paid In full.  Scheduled  payments are
in default at March 31, 2004 and the entire  amount is  classified  as  "current" in the
accompanying financial statements                                                                      $50,000

Secured  $15,958  promissory  note payable to a law firm.  Interest at 9.0%.  Originally
payable  in full on June  30,  2001.  Renegotiated  as a  result  of  litigation  during
February  2004.  Payable as follows:  $5,000 on the date of execution of the  settlement
agreement;  seven  monthly  installments  of  $2,000,  starting  March 13,  2004;  final
installment  of $766.50 on October  13,  2004  Non-interest  bearing  subsequent  to the
February 2004  settlement  date.  Secured by 150,000 shares of common stock owned by the
Company's Chief Operating Officer.                                                                      12,787
                                                                                                       -------
                                                                                                       $62,787
                                                                                                       =======
</TABLE>

NOTE J - ADVANCES FROM OFFICERS

In prior periods,  the Company's officers advanced various monies to the Company
under formal  unsecured note documents  bearing  interest at 10.0%. The advances
were repayable in aggregate  monthly amounts of  approximately  $370. Due to the
nature of the debt and irregular payment history, these advances were classified
as "current" in the accompanying financial statements.

During  Fiscal 2004,  all amounts  advanced by Company  officers  were repaid in
full.


                                      F-20
<PAGE>

                              ADZONE RESEARCH, INC.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS

NOTE K - LONG-TERM NOTES PAYABLE

<TABLE>
<CAPTION>
                                                                                                           March 31,
                                                                                                             2004
                                                                                                            -------
<S>                                                                                                         <C>
Four  separate  notes  payable to a  non-financial  institution  investment  corporation.  Interest at the
prevailing Prime Rate plus 100 basis points (5.00% at March 31, 2004),  payable  quarterly in arrears plus
an  origination  fee  equal  to 1.0% of the  principal  amount.  Principal  payable  in full in May  2006.
Collateralized  by shares of the Company's  common stock  (aggregating  approximately  7,958,121 shares at
March 31,  2004),  placed  in escrow  with the  lender's  brokerage  firm,  owned by the  Company's  Chief
Executive and Chief Operating Officers.
                                                                                                            $166,783
                                                                                                            ========
</TABLE>

NOTE L - OFFICER COMPENSATION

On February 5, 2004, the Company  entered into an Employment  Agreement with Mr.
Charles  Cardona  (CCardona),  which  superseded all prior  agreements.  In this
agreement,  CCardona  will continue to serve as the  Company's  Chief  Executive
Officer,  through February 5, 2007. This agreement  contains the following terms
and conditions:

  Position:                    CEO
  Effective Date:              February 5, 2004
  Base Salary:                 2004 - $161,000 annual
                               2005 - $181,000 annual
                               2006 - $191,000 annual

The initial  base salary  shall be reduced to $1,500 per week until such time as
the company  reaches a cash flow positive  position for at least 1 month, or the
company  raises at least $2 Million within 12 months,  or management  deems that
the company's cash position is sufficient to support an increase.  No additional
salary  above the reduced  base shall  accrue as back salary  during the first 6
months of this contract.

Bonuses:                       Quarterly Qualitative Bonus of $ 10,000
                               2nd Year, Year end Qualitative Bonus of $ 25,000
Profitability Bonus:           If the company reaches annual profitability
                               employee will receive a $100,000 bonus plus
                               250,000 shares in stock.

CCardona shall receive an annual bonus as follows:  0.5% of the previous  year's
revenues plus 3.5% of the previous  year's profits plus 0.5% of the  transaction
price of any acquisition.


                                      F-21
<PAGE>

                              ADZONE RESEARCH, INC.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS

NOTE L - OFFICER COMPENSATION (CONTINUED)

The  Board of  Directors  shall  at its  discretion  grant  up to an  additional
$100,000 in bonus to CCardona on an annual basis.

Stock Options:                 The employee shall receive options to purchase
                               3,000,000 (Three Million) shares as follows:
                               Options for 750,000 shares at $.85 (85 cents )
                               Options for 750,000 shares at $1.00 (1 dollar )
                               Options for 750,000 shares at $1.50 (1 dollar and
                               50 cents ) Options for 750,000 shares at $1.75 (1
                               dollar and 75 cents )
                               Additionally the employee shall receive the
                               following 3,000,000 options upon the company
                               achieving $500,000 in total revenues prior to
                               March 31, 2005.
                               Options for 750,000 shares at $.85 (85 cents )
                               Options for 750,000 shares at $1.00 (1 dollar )
                               Options for 750,000 shares at $1.50 (1 dollar and
                               50 cents ) Options for 750,000 shares at $1.75 (1
                               dollar and 75 cents )

All the options  granted above shall be exercisable for 6 years from the date of
granting.  Additionally  the company shall  maintain any existing  options under
previous contracts.

Additional Incentives:         Charles A. Cardona will receive 5% of all sales
                               he is involved with.

Other Agreements:              Medical and Dental insurance is fully
                               paid for the employee by the Company during the
                               employment period. Company shall reimburse or pay
                               for reasonable company vehicle expenses including
                               lease or purchase payments, gas, tolls and
                               repairs.

Legal Representation:          AdZone Research agrees to defend
                               employee against any and all legal claims and
                               litigation. In addition, AdZone Research further
                               agrees to pay all expenses arising from any and
                               all litigation, including but not limited to
                               attorney's fee's legal fees, misc. expenses,
                               .[sic] Legal representation for Charles A.
                               Cardona will continue beyond the term of this
                               contract and will continue for the remainder of
                               Charles A. Cardona's life.


                                      F-22
<PAGE>

                              ADZONE RESEARCH, INC.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS

NOTE L - OFFICER COMPENSATION (CONTINUED)

On February 5, 2004, the Company  entered into an Employment  Agreement with Mr.
John A. Cardona  (JCardona),  which  superseded  all prior  agreements.  In this
agreement, JCardona will serve as the Company's Chief Operating Officer, through
February 5, 2007. This agreement contains the following terms and conditions:

Position:                      COO
Effective Date:                February 5, 2004
Base Salary:                   2004 - $161,000 annual
                               2005 - $181,000 annual
                               2006 - $191,000 annual

The initial  base  salary  shall be reduced to $1500 per week until such time as
the company  reaches a cash flow positive  position for at least 1 month, or the
company  raises at least $2 Million within 12 months,  or management  deems that
the company's cash position is sufficient to support an increase.  No additional
salary  above the reduced  base shall  accrue as back salary  during the first 6
months of this contract.

Bonuses:                       Quarterly Qualitative Bonus of $ 10,000
                               2nd Year, Year end Qualitative Bonus of $ 25,000

Profitability Bonus:           If the company reaches annual profitability
                               employee will receive a $100,000 bonus plus
                               250,000 shares in stock.

JCardona shall receive an annual bonus as follows:  0.5% of the previous  year's
revenues plus 3.5% of the previous  year's profits plus 0.5% of the  transaction
price of any acquisition.

The  Board of  Directors  shall  at its  discretion  grant  up to an  additional
$100,000 in bonus to JCardona on an annual basis.

Stock Options:     The employee shall receive options to purchase
                   3,000,000 (Three Million) shares as follows:
                   Options for 750,000 shares at $.85 (85 cents )
                   Options for 750,000 shares at $1.00 (1 dollar )
                   Options for 750,000 shares at $1.50 (1 dollar and 50 cents )
                   Options for 750,000 shares at $1.75 (1 dollar and 75 cents )

                         Additionally the employee shall receive the following
                         3,000,000 options upon the company achieving
                         $500,000 in total revenues prior to March 31,
                         2005.
                         Options for 750,000 shares at $.85 (85 cents )
                         Options for 750,000 shares at $1.00 (1 dollar )
                         Options for 750,000 shares at $1.50 (1 dollar and
                         50 cents ) Options for 750,000 shares at $1.75 (1
                         dollar and 75 cents )


                                      F-23
<PAGE>

                              ADZONE RESEARCH, INC.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS

NOTE L - OFFICER COMPENSATION (CONTINUED)

All the options  granted above shall be exercisable for 6 years from the date of
granting.  Additionally  the company shall  maintain any existing  options under
previous contracts.

Additional Incentives:         John A. Cardona will receive 5% of all sales he
                               is involved with.

Other Agreements:              Medical and Dental insurance is fully
                               paid for the employee by the Company during the
                               employment period. Company shall reimburse or pay
                               for reasonable company vehicle expenses including
                               lease or purchase payments, gas, tolls and
                               repairs.

Legal Representation:          AdZone Research agrees to defend
                               employee against any and all legal claims and
                               litigation. In addition, AdZone Research further
                               agrees to pay all expenses arising from any and
                               all litigation, including but not limited to
                               attorney's fee's legal fees, misc. expenses,
                               .[sic] Legal representation for John A. Cardona
                               will continue beyond the term of this contract
                               and will continue for the remainder of John A.
                               Cardona's life.

In March 2003,  the Company  entered into an  employment  agreement  with Daniel
Wasserman  (Wasserman)  to serve as its  Executive  Vice  President and Managing
Director of Global Defense Group for a 12-month  period.  Under this  agreement,
Wasserman  receives a salary of $175,000 per year,  commencing upon closing of a
paid sale or completed  financing of  $1,000,000 or more.  Until such time,  the
Company shall pay Wasserman an interim  salary  beginning at $550 per week.  The
salary  will  increase by $1000 per month upon the first paid sale of $50,000 or
more made by Wasserman. The salary will then increase by an additional $1500 per
month upon each paid sale of $100,000 or more made by Wasserman. These increases
will  continue  until the standard  base salary of $175,000 per year is reached.
This  salary is  independent  of any  commission,  which may be earned and paid.
Should  Wasserman reach  $1,200,000 in paid sales by the end of 2003,  Wasserman
will be entitled  to full base  salary of $175,000  for the entire year of 2003,
any back  portion  of which is unpaid  at that  time  will be paid to  Wasserman
within 30 days.  This provision is in addition to any  commission,  which is due
and payable. Wasserman also received a contract signing bonus of 450,000 shares.
The Company shall pay Wasserman a bonus of 100,000  shares upon the  contracting
of a sale of  $1,000,000  or more.  Wasserman  shall be entitled to 4 weeks paid
vacation, plus 10 holiday days off per year. Unused vacation will be paid at the
end of the year.  Medical  benefits  will be paid by the Company  once the board
begins  coverage for the employee.  The Company shall pay Wasserman a cash bonus
of $175,000  should sales exceed  $3,000,000 for the calendar year of 2003. This
bonus shall be paid  proportionally  as sales  revenues are received.  Wasserman
shall receive 1.5 % of the first  $1,000,000  of contract  value as paid on each
contract brought in by Wasserman and 2.5% of contract values above $1,000,000 as
paid  on  each  contract  brought  in  Wasserman.  Additional  compensation  for
consulting contracts brought in will be negotiated on a case by case basis. This
commission  shall be payable when funds are received by the company and shall be
paid  to the  employee  regardless  of the  salary  status.  There  shall  be an
additional  sales  commission bonus of 1% on any $500,000 plus sale closed prior
to July 4, 2003. Should a multi year contract be closed,  this bonus shall apply
to first year value only.  This  commission  bonus shall be paid as the money is
received by AdZone.


                                      F-24
<PAGE>

                              ADZONE RESEARCH, INC.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS


NOTE L - OFFICER COMPENSATION (CONTINUED)

As of March 31,  2004,  there was  $160,926  unpaid  under the  agreements  with
CCardona and JCardona.

Future minimum amounts payable under the Cardona contracts are as follows:

Year ending
 March 31,                Amount
   2005                $  269,333
   2006                   365,333
   2007                   353,000
                       ----------
  Totals               $  987,666
                       ==========
NOTE M - INCOME TAXES

The  components  of income tax  (benefit)  expense for the years ended March 31,
2004 and 2003 and for the period  from  February  28,  2000 (date of  inception)
through March 31, 2004, respectively, are as follows:

                                                              Period from
                                                           February 28, 2000
                                                          (date of inception)
                  Year ended            Year ended            through
                March 31, 2004         March 31, 2003      March 31, 2004
                --------------         --------------      ------------------
Federal:
  Current         $     --               $     --               $     --
  Deferred              --                     --                     --
                  --------               --------               --------
State:
  Current               --                     --                     --
  Deferred              --                     --                     --
                  --------               --------               --------

Totals            $     --               $     --               $     --
                  ========               ========               ========

As of March 31,  2004,  the Company has a net  operating  loss  carryforward  of
approximately  $5,100,000 to offset future  taxable  income.  Subject to current
regulations,  this  carryforward  will  begin to expire in 2020.  The amount and
availability  of  the  net  operating  loss  carryforwards  may  be  subject  to
limitations set forth by the Internal  Revenue Code.  Factors such as the number
of shares ultimately issued within a three year look-back period;  whether there
is a deemed more than 50 percent change in control; the applicable long-term tax
exempt bond rate;  continuity of historical  business;  and subsequent income of
the  Company  all  enter  into  the  annual   computation  of  allowable  annual
utilization of the carryforwards.


                                      F-25
<PAGE>

                              ADZONE RESEARCH, INC.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS

NOTE M - INCOME TAXES (CONTINUED)

The Company's  income tax expense for each of the years ended March 31, 2004 and
2003 and for the period from February 28, 2000 (date of inception) through March
31, 2004,  respectively,  differed from the statutory federal rate of 34 percent
as follows:

<TABLE>
<CAPTION>
                                                                                   Period from
                                                                                 February 28, 2000
                                                                                (date of inception)
                                                      Year ended      Year ended     through
                                                       March 31        March 31      March 31
                                                         2004            2003          2004
                                                      -----------    -----------    -----------
<S>                                                   <C>            <C>            <C>
Statutory rate applied to loss before income taxes    $(1,120,000)   $  (315,000)   $(1,640,000)
Increase (decrease) in income taxes resulting from:
    Change in deferred tax valuation allowance          1,160,000        315,000      1,680,000

    Other, including reserve for deferred tax asset       (40,000)            --        (40,000)
                                                      -----------    -----------    -----------
      Income tax expense                              $        --    $        --    $        --
                                                      ===========    ===========    ===========
</TABLE>

Temporary  differences,  consisting primarily of statutory deferrals of expenses
for organizational costs and statutory  differences in the depreciable lives for
property and equipment, between the financial statement carrying amounts and tax
bases of assets and liabilities give rise to deferred tax assets and liabilities
as of March 31, 2004 and 2003:

                                                                  March 31, 2004
                                                                   -----------
Deferred tax assets
   Net operating loss carryforwards                                $ 1,950,000
   Less valuation allowance                                         (1,950,000)
                                                                   -----------
     Net Deferred Tax Asset                                        $        --
                                                                   ===========

During the years  ended March 31,  2004 and 2003,  the reserve for the  deferred
current  tax  asset   increased  by   approximately   $1,160,000   and  $73,400,
respectively.


                                      F-26
<PAGE>

                              ADZONE RESEARCH, INC.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS

NOTE N - PREFERRED STOCK

Preferred stock consists of the following:

                                                         March 31, 2004
                                                 -----------------------------
                                                 Shares  Carrying   Redemption
                                                           Value      Value
                                                 ------  --------   ---------

9.0% Series A Cumulative Convertible Stock       24.22   $278,530   $287,530
9.0% Series B Cumulative Convertible Stock       31.00    240,286    356,500
                                                 -----   --------   --------
     Totals                                      55.22   $518,816   $644,030
                                                 =====   ========   ========

9.0% Series A Cumulative Preferred Stock

On August 12, 2003, the Company opened a Private Placement Memorandum to sell up
to 50 Units,  consisting of one (1) share of 9.0% Series A Cumulative  Preferred
Stock and Warrants to purchase up to 4,376,094  shares of the  Company's  common
stock at a price of $10,000  per Unit.  The number of  warrants  to be issued to
each  purchaser was determined by dividing the purchase price of the Unit by the
average bid price of the Company's  common stock during the 5 day trading period
prior to such  purchaser's  delivery of cleared  funds to the  Company's  Escrow
Agent for this specific offering.

Each share of Series A Preferred  Stock may be converted,  at the sole option of
the holder,  into shares of the Company's common stock commencing on the earlier
of (1) 180 days after the date any share of Series A  Preferred  Stock was first
issued or (2) the effective date of a Registration  Statement registering shares
of the Company's Common Stock issuable upon conversion of the Series A Preferred
Stock. The number of shares of common stock that may be received upon conversion
shall be determined by dividing  115.0% of the price of a Unit  ($11,500) by the
average  closing bid price of the  Company's  common  stock during the 5 trading
days immediately prior to receipt by the Company of the Preferred  Shareholder's
notice of intent to  convert.  However,  in no case,  will any share of Series A
Preferred  Stock be  convertible  into more than 500,000 shares of the Company's
common stock.

Additionally,  at the Company's  option,  the Company may elect to redeem all of
the outstanding  shares of Series A Preferred Stock at any time at a price equal
to $11,500 per share, plus all dividends accrued to the date of redemption.  The
Company also has the option,  within 3 business  days of the receipt of a notice
to convert from a Preferred  Shareholder,  to pay such shareholder $11,500, plus
all accrued dividends, in lieu of the conversion.

The Series A Preferred Stock accrues dividends at a rate of 9.0% per annum, from
the date of issue,  and the accrued  dividends  are payable  monthly on the last
business day of each month.  In the event that the accrued  dividends are unpaid
for 12 consecutive  months, the holders of the Series A Preferred Stock,  voting
as a class,  shall have the right to elect one member to the Company's  Board of
Directors to fill such newly-created position as created by the default.

Each  share of  Series A  Preferred  Stock is  entitled  to vote on all  matters
submitted to the Company's  shareholders at a rate of 100,000 votes per share of
Series A Preferred Stock held by each respective shareholder.


                                      F-27
<PAGE>

                              ADZONE RESEARCH, INC.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS

NOTE N - PREFERRED STOCK (CONTINUED)

The Company is contractually obligated to file a Registration Statement with the
U. S. Securities and Exchange Commission,  and use its best efforts to have said
Registration Statement declared effective within 120 days of the closing date of
this Private Placement Memorandum,  registering a number of shares of its common
stock  issuable  upon the  conversion  of the Series A  Preferred  Stock and the
exercise of the Warrants. This offering was closed by the Company on October 31,
2003.

The Company  initially  sold  approximately  34.85  Units for gross  proceeds of
approximately  $348,500  and  redeemed  approximately  10.63  Units  at a  gross
redemption  price of approximately  $122,250,  inclusive of the 15.0% redemption
premium upon the sale of 9.0% Series B Cumulative  Preferred  Stock. The Company
paid a commission of approximately $41,280 to Spartan Securities Group, Ltd. for
the selling of this offering.  Additionally,  Spartan Securities Group, Ltd. was
the purchaser of one (1) Unit and received a commission  related to the purchase
of its Unit.

9.0% Series B Cumulative Preferred Stock

On November 17, 2003, the Company opened a Private Placement  Memorandum to sell
up to 100  Units,  consisting  of one (1)  share  of 9.0%  Series  B  Cumulative
Preferred Stock and Warrants to purchase up to 2,091,138 shares of the Company's
common stock at a price of $10,000 per Unit. The number of warrants to be issued
to each  purchaser was  determined by dividing the purchase price of the Unit by
the average bid price of the  Company's  common  stock  during the 5 day trading
period  prior to such  purchaser's  delivery of cleared  funds to the  Company's
Escrow Agent for this specific offering.

Each share of Series B Preferred  Stock may be converted,  at the sole option of
the holder,  into shares of the Company's common stock commencing on the earlier
of (1) 180 days after the date any share of Series B  Preferred  Stock was first
issued or (2) the effective date of a Registration  Statement registering shares
of the Company's Common Stock issuable upon conversion of the Series B Preferred
Stock. The number of shares of common stock that may be received upon conversion
shall be determined by dividing  $11,000 by the average closing bid price of the
Company's common stock during the 2 trading days immediately prior to receipt by
the Company of the Preferred Shareholder's notice of intent to convert. However,
in no case, will any share of Series B Preferred Stock be convertible  into more
than 100,000 shares of the Company's common stock.

Additionally,  at the Company's  option,  the Company may elect to redeem all of
the outstanding  shares of Series B Preferred Stock at any time at a price equal
to $11,500 per share, plus all dividends accrued to the date of redemption.

The Series B Preferred Stock accrues dividends at a rate of 9.0% per annum, from
the date of issue,  and the accrued  dividends  are payable  monthly on the last
business day of each month.  In the event that the accrued  dividends are unpaid
for 12 consecutive  months, the holders of the Series B Preferred Stock,  voting
as a class,  shall have the right to elect one member to the Company's  Board of
Directors to fill such newly-created position as created by the default.

Each  share of  Series B  Preferred  Stock is  entitled  to vote on all  matters
submitted to the Company's  shareholders at a rate of 100,000 votes per share of
Series B Preferred Stock held by each respective shareholder.


                                      F-28
<PAGE>

                              ADZONE RESEARCH, INC.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS

NOTE N - PREFERRED STOCK (CONTINUED)

The Company is contractually obligated to file a Registration Statement with the
U. S. Securities and Exchange Commission,  and use its best efforts to have said
Registration Statement declared effective within 120 days of the closing date of
this Private Placement Memorandum,  registering a number of shares of its common
stock  issuable  upon the  conversion  of the Series B  Preferred  Stock and the
exercise of the Warrants. This offering was closed by the Company on January 15,
2004. As of March 31, 2004,  and subsequent  thereto,  the Company has not filed
the required Registration Statement.

The Company  initially  sold  approximately  31.00  Units for gross  proceeds of
approximately  $310,000.  The Company paid a commission of approximately $36,000
to  Spartan   Securities   Group,   Ltd.  for  the  selling  of  this  offering.
Additionally, approximately $122,245 of the net proceeds were used to repurchase
approximately  10.63  shares of the then  issued and  outstanding  9.0% Series A
Preferred Stock.

Dividend reserve

In conjunction with the Series A and Series B Preferred Stock transactions,  the
Company  established a contractual  reserve account for the payment of 12 months
of dividends. At March 31, 2004,  approximately $37,300 was in two separate bank
accounts  maintained  by the  Company's  Escrow Agent for the payment of monthly
dividends.

NOTE O - BENEFICIAL CONVERSION DISCOUNT FEATURE ON PREFERRED STOCK

In conjunction with the Company's August 12, 2003 Private  Placement  Memorandum
to sell up to 50 Units,  consisting of one (1) share of 9.0% Series A Cumulative
Preferred  Stock and  Warrants  and the  Company's  November  17,  2003  Private
Placement  Memorandum  to sell up to 100 Units,  consisting  of one (1) share of
9.0%  Series B  Cumulative  Preferred  Stock  and  Warrants  (collectively  Unit
Offerings),  the  Company  applied  the  tenets of  Emerging  Issues  Task Force
Consensus No. EITF 98-5,  Accounting for Convertible  Securities with Beneficial
Conversion Features or Contingently  Adjustable Conversion Features. The Company
also considered the guidance of Accounting  Principles  Board Opinion Number 14,
Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants and
EITF 00-27 Application of Issue No. 98-5 to Certain Convertible Instruments.  It
is  Management's  opinion that these  standards  apply to the accounting for the
Offerings.

The  following  table  reflects the  allocation  of proceeds  from the offerings
following the application of these accounting standards.

                                                 Initial
                                         Allocation of Proceeds
                                   ----------------------------------
                                   Series A Preferred                    Total
                                         Stock            Warrants      Proceeds
                                      -------------      ----------    ---------
Series A Unit Offering                    $ 197,525      $ 150,975     $ 348,500
                                                         =========     =========
Beneficial conversion feature              (145,997)
                                          ---------
Initial carrying value                    $  51,528
                                          =========


                                      F-29
<PAGE>

                              ADZONE RESEARCH, INC.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS

NOTE O - BENEFICIAL CONVERSION DISCOUNT FEATURE ON PREFERRED STOCK (CONTINUED)

                                                 Initial
                                         Allocation of Proceeds
                                   ----------------------------------
                                   Series B Preferred                    Total
                                         Stock            Warrants     Proceeds
                                      -------------      ---------     ---------
Series B Unit Offering                    $ 133,853      $ 176,147     $ 310,000
                                                         =========     =========
Beneficial conversion feature              (133,853)
                                          ---------
Initial carrying value                    $      --
                                          =========

The initial  allocation of proceeds between the Preferred Stock and Warrants was
made based upon the relative fair values of the securities  sold. The fair value
of the  Preferred  Stock  was  calculated  as equal to the fair  value of common
shares into which the preferred stock is  convertible,  using the trading market
prices of the common stock on the  respective  dates of sale.  The fair value of
the Warrants was calculated using the Black Scholes Valuation Model.  Underlying
assumptions used included (i) the trading market values of the common stock into
which the  Warrants  are  convertible  on the  dates  sold was used for the fair
value;  (ii) the term of the warrants was used for the term;  (iii) a volatility
factor of 360% and, (iv) a risk-free interest factor of 3%.

The beneficial  conversion  feature for each Unit Offering was calculated  using
that effective  conversion  rate,  following the initial  allocation,  described
above.  The  effective  conversion  rate is  calculated  by dividing  the amount
allocated to the  preferred  stock by the number of common shares into which the
preferred stock is convertible.  A beneficial conversion feature is present when
the  effective  conversion  rate is lower than the trading  market  value of the
underlying  common stock.  In each of the Unit Offerings  beneficial  conversion
features were present, as reflected in the tabular presentation above.

Following  the  allocation  of  proceeds,  the Company will accrete the carrying
values of the preferred  stock to their  respective  redemption  values  through
charges to accumulated earnings over the period up to the earliest date that the
preferred shares can be converted or redeemed. That period is 180 days following
the sale of the securities.

The following  table reflects the details of the amounts of accretions that have
been recorded during the fiscal year ended March 31, 2004 and, also reflects the
preferred stock dividends at the cumulative rate:

                                         Accretions      Dividends       Totals
                                          --------       --------       --------
Series A Unit Offering                    $349,247       $ 16,167       $365,414
Series B Unit Offering
   Traunch 1                               161,000          7,032        168,032
   Traunch 2                                75,389          3,289         78,678
   Traunch 3                                 3,897            169          4,066
                                          --------       --------       --------
                                          $589,533       $ 26,657       $616,190
                                          ========       ========       ========


                                      F-30
<PAGE>

                              ADZONE RESEARCH, INC.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS

NOTE O - BENEFICIAL CONVERSION DISCOUNT FEATURE ON PREFERRED STOCK (CONTINUED)

Accretions  on the  preferred  stock  during the year ended  March 31,  2005 are
estimated  to be  $125,214.  Cumulative  dividends  as of March 31, 2004 include
$6,265 in arrears.

NOTE P - COMMON STOCK TRANSACTIONS

On August 10, 2001, the Company executed an Agreement and Plan of Share Exchange
with AdZone Interactive,  Inc. (a privately-owned New York corporation) (AdZone)
whereby the Company  exchanged  18,000,022  shares of  restricted,  unregistered
common stock for 100.0% of the issued and outstanding common stock of AdZone and
effected a merger of the two entities with the Company being the surviving legal
entity. Concurrent with this transaction, the Company changed its corporate name
to AdZone Research, Inc.

On May 27, 2004,  pursuant to actions  filed on a Schedule  14C,  the  Company's
Articles  of  Incorporation  were  amended  to allow for the  issuance  of up to
200,000,000  shares of $0.001 par value common stock from 100,000,000  shares of
$0.001 par value previously  authorized.  The effect of this change is reflected
in the accompanying financial statements as of the first day of the first period
presented.

During Fiscal 2004, 2003 and 2002, the Company issued approximately  20,735,793,
25,364,332  and  3,136,108  shares  of  common  stock,  in both  registered  and
restricted, unregistered form.

On January 28,  2002,  February  21, 2002 and March 26, 2003 (as  amended),  the
Company filed separate Registration  Statements on Form S-8 registering 538,665,
303,000 and 17,100,000 shares of common stock respectively.

The  following  table  recaps the status of each of the  Company's  Registration
Statements on Form S-8:

<TABLE>
<CAPTION>
                                          Cumulative        Cumulative
                                           number of         number of         Remaining
                                            shares            shares             to be
                                          registered          issued            issued
                                       --------------   ----------------   --------------
<S>                                       <C>               <C>               <C>
     Filing dated 1/28/02                    538,665           459,998           78,667
     Filing dated 2/21/02                    303,000           171,000          132,000
     Filing dated 3/26/03 (as amended)    17,100,000        16,864,000        2,036,000
</TABLE>

The following table presents the various  categories for stock issuances  during
Fiscal 2004, 2003 and 2002:

                                                    Total
                                                 -----------
       Balances at March 31, 2001                 23,346,022
         Cash                                        744,442
         Conversion of short-term loans              360,000
         Consulting and Legal services               706,666
         Lawsuit settlement                          500,000
         Legal services                              170,000
         Operating expenses                          405,000
         Personnel compensation                      250,000
                                                 -----------

       Balances at March 31, 2002                 26,482,130


                                      F-31
<PAGE>

                              ADZONE RESEARCH, INC.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS

NOTE P - COMMON STOCK TRANSACTIONS (CONTINUED)

         Cash                                     2,413,334
         Consulting and Legal services           15,240,998
         Directors fees                             160,000
         Operating expenses                          10,000
         Personnel compensation                   5,790,000
         Reclassifications per Rule 144(k)               --
                                                 ----------

       Balances at March 31, 2003                50,096,462

         Cash                                       772,333
         Capital formation and public relations     300,000
         Consulting and Legal services            2,304,460
         Directors fees                             280,000
         Personnel compensation                  17,079,000
         Reclassifications per Rule 144(k)               --
                                                 ----------

       Balances at March 31, 2004                70,832,255
                                                 ==========

As more  fully  described  in NOTE C -  CORRECTION  OF AN  ERROR  AND  FINANCIAL
STATEMENT  RESTATEMENT,  the Company has restated its  financial  statements  to
reflect the expense from the  issuance of common stock to employees  and service
providers at the closing market prices on the dates awarded.

NOTE Q - STOCK OPTIONS

In August 2001, pursuant to an employment  agreement which superceded an earlier
agreement  dated January 29, 2001,  with Charles  Cardona,  the Company's  Chief
Executive  Officer,  the Company  granted  options to  purchase up to  1,000,000
shares  of  common  stock at a price of $0.10  per  share.  The  options  vested
immediately  upon  execution of this  employment  agreement and expire in August
2006.

In August 2001, pursuant to an employment  agreement which superceded an earlier
agreement  dated  February  9,  2001,  with John  Cardona,  the  Company's  then
President and Chief  Operating , the Company  granted  options to purchase up to
1,000,000  shares of common  stock at a price of $0.10 per  share.  The  options
vested  immediately  upon execution of this  employment  agreement and expire in
August 2006.

Pursuant to  replacement  employment  contracts,  executed in February 2004, the
Company has granted  options to purchase up to 3,000,000  shares of common stock
each to Charles  Cardona and John Cardona at exercise  prices ranging from $0.85
to $1.75 per share.  These options  vested  immediately  upon  execution of each
respective employment agreement and expire in February 2010.

At various times during  Fiscal 2004 and 2003,  the Company  granted  short-term
options (generally with a term of 30 days) to Kyle Kennedy to assist the Company
with business strategy,  business development and mergers and acquisitions.  Mr.
Kennedy's  compensation was in the form of options to purchase registered freely
trading  securities at various  discounts to the then current Market price.  The
agreement  was on a month to month basis  cancelable at 30 days notice by either
party.


                                      F-32
<PAGE>

                              ADZONE RESEARCH, INC.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS

NOTE Q - STOCK OPTIONS (CONTINUED)

                                                             Weighted average
                                                             price per share
                                                             ----------------
     Options outstanding at April 1, 2001        2,000,000        $0.10
       Issued                                           --           --
       Exercised                                        --           --
       Expired/Terminated                               --           --
                                                                  -----

     Options outstanding at March 31, 2002       2,000,000        $0.10
       Issued                                   13,350,000         0.03
       Exercised                                (9,350,000)        0.01
       Expired/Terminated                       (2,000,000)        0.08
                                                                  -----

     Options outstanding at March 31, 2003       4,000,000        $0.10
       Issued                                   12,925,000         1.02
       Exercised                                (3,025,000)        0.28
       Expired/Terminated                       (3,700,000)          --
                                                                  -----

     Options outstanding at March 31, 2004      10,200,000        $1.04
                                                                  =====

The weighted  average  exercise price of all issued and  outstanding  options at
March 31, 2004 is approximately $1.04.

The  weighted-average  remaining  contractual life of the options outstanding at
March 31, 2004 was 5.00 years. The exercise prices of the options outstanding at
March 31,  2004  ranged  from  $0.10 to $2.00 per  share.  The  following  table
summarizes the outstanding options at March 31, 2004:

                                                     Weighted        Weighted
                                                     Average          Average
Range of              Stock Options                 Remaining        Exercise
Prices           Outstanding  Exercisable             Life             Price
----------       -----------  -----------            --------         --------
$0.10              2,000,000   2,000,000             2.00 yrs          $0.10
$0.275               200,000     200,000             0.00 yrs          $0.275
$0.85              2,150,000   2,150,000             5.77 yrs          $0.85
$1.00              1,750,000   1,750,000             5.71 yrs          $1.00
$1.50              1,950,000   1,950,000             5.74 yrs          $1.50
$1.75              1,700,000   1,700,000             6.00 yrs          $1.75
$2.00                450,000     450,000             4.89 yrs          $2.00
                  ----------  ----------
                  10,200,000  10,200,000
                 ===========  ==========


                                      F-33

<PAGE>

                              ADZONE RESEARCH, INC.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS

NOTE Q - STOCK OPTIONS (CONTINUED)

The weighted-average fair value of options covering approximately 600,000 shares
of common  stock  granted  during  the year ended  March 31,  2004 for which the
exercise price was greater than the market price on the grant date was $0.28 and
the weighted-average exercise price was $0.33.

The  weighted-average  fair value of options  covering  approximately  2,425,000
shares of common  stock  granted  during the year ended March 31, 2004 for which
the  exercise  price was less than the market  price on the grant date was $0.34
and the weighted-average exercise price was $0.26.

No stock options were granted during the year ended March 31, 2004 for which the
exercise price was equal to the market price on the grant date.


                                      F-34
<PAGE>

                              ADZONE RESEARCH, INC.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS

NOTE R - STOCK WARRANTS

On August 13,  2002,  pursuant  to an  agreement  with Thomas  Gavin  (Gavin) to
provide informational and educational news releases and distribute said releases
to the news media,  the  Company  issued  180,000  warrants to purchase up to an
equivalent  number of shares of the  Company's  common stock at a price of $0.25
per share and 380,000 warrants to purchase an equivalent number of shares of the
Company's  common  stock at a price of $0.10 per share.  The  aggregate  560,000
warrants have an average exercise price of approximately  $0.15 per share.  Each
of these warrants is for a three year term and expire on August 13, 2005. During
Fiscal 2004,  the Company  issued an additional  aggregate  250,000  warrants as
compensation  to Gavin to facilitate the purchase up to an equivalent  number of
shares of the Company's  common stock at exercise  prices  ranging from $0.15 to
$0.85 per share.  Each of these warrants expire on the 2nd  anniversary  date of
issuance.

On August 12, 2003, the Company opened a Private Placement Memorandum to sell up
to 50 Units,  consisting of one (1) share of 9.0% Series A Cumulative  Preferred
Stock and Warrants to purchase up to 4,376,094  shares of the  Company's  common
stock at a price of $10,000  per Unit.  The number of  warrants  to be issued to
each  purchaser was determined by dividing the purchase price of the Unit by the
average bid price of the Company's  common stock during the 5 day trading period
prior to such  purchaser's  delivery of cleared  funds to the  Company's  Escrow
Agent for this specific offering. The Warrants have an exercise price calculated
using the average  closing  bid price for the 5 trading day period  prior to the
receipt of cleared  funds from the  purchaser  times 115%.  Each  Warrant  shall
expire on the 5th anniversary date of the Private Placement  Memorandum,  August
12, 2008.

On November 17, 2003, the Company opened a Private Placement  Memorandum to sell
up to 100  Units,  consisting  of one (1)  share  of 9.0%  Series  B  Cumulative
Preferred Stock and Warrants to purchase up to 2,091,138 shares of the Company's
common stock at a price of $10,000 per Unit. The number of warrants to be issued
to each  purchaser was  determined by dividing the purchase price of the Unit by
the average bid price of the  Company's  common  stock  during the 5 day trading
period  prior to such  purchaser's  delivery of cleared  funds to the  Company's
Escrow Agent for this specific  offering.  The Warrants  have an exercise  price
calculated  using the  average  closing  bid price for the 5 trading  day period
prior to the  receipt  of cleared  funds from the  purchaser  times  115%.  Each
Warrant  shall  expire  on the 5th  anniversary  date of the  Private  Placement
Memorandum, November 17, 2008.

As additional  compensation for investment banking services,  Spartan Securities
Group,  Inc.  received  Warrants  in fiscal  2004 and 2003 to  purchase up to an
aggregate  1,523,463  shares of common  stock at a price of either  $0.0874  per
share  (114,416  shares),  $0.07 per share  (995,714  shares) or $0.20 per share
(413,333 shares). The 114,416 Warrants shall expire on September,23,  2008 , and
the 1,409,047 Warrants shall expire on November 27, 2008.


                                      F-35
<PAGE>

                              ADZONE RESEARCH, INC.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS

NOTE R - STOCK WARRANTS (CONTINUED)

No  warrants  have been  exercised  during the period  ended  March 31,  2004 or
subsequent thereto.

The following table summarizes the outstanding warrants as of March 31, 2004 and
2003, respectively:

<TABLE>
<CAPTION>
                                            Warrants      Warrants
                                           originally  outstanding at   Exercise price
                                             issued     March 31, 2004      per share
                                         ------------   --------------   --------------
<S>                                         <C>           <C>           <C>
Gavin warrants                                180,000       180,000     $0.25 per share
Gavin warrants                                400,000       400,000     $0.10 per share
Underwriter's Warrants                      1,409,047     1,409,047     $.07 - $.20
                                            ---------    ----------
     Totals at March 31, 2003               1,989,047     1,989,047
Gavin warrants - FY2004                       250,000       250,000     $0.15 - $0.85
9.0% Series A Preferred Stock Warrants      4,376,094     4,376,094     $0.07406 - $0.13858
9.0% Series B Preferred Stock Warrants      2,091,138     2,091,138     $0.14819 - $0.15
Underwriter's Warrants                        114,416       114,416     $0.874
NuQuest Consulting warrants                   250,000       250,000     $0.15
                                            ---------     ---------
     Totals at March 31, 2004               9,070,695     9,070,695
                                            =========     =========
</TABLE>

The  weighted-average  exercise price of the Company's  outstanding  warrants at
March 31, 2004 is approximately $0.11 per share.

NOTE S - COMMITMENTS AND CONTINGENCIES

Litigation

AdZone  Interactive,  Inc.  is a party to a lawsuit  filed  against  it by R. C.
Auletta and Co., Inc.  (Auletta) which was filed during 2001. Auletta is seeking
fees in the  amount of  approximately  $32,000  which were  performed  after the
expiration of a contract for consulting  services  between  AdZone  Interactive,
Inc.  and  Auletta.  The Company is of the  opinion  that the lawsuit is without
merit and had accrued an open unpaid balance due of approximately $600 as of the
expiration  date of the  contract.  A  judgment  in the  amount  of  $34,691.87,
including  interest,  was entered  against the Company  during Fiscal 2004.  The
Company executed a settlement  agreement whereby the judgment will be retired as
follows:  $5,000 cash upon execution of the settlement  agreement and $1,000 per
month,  commencing  December  15, 2003,  until the judgment is paid in full.  In
2002, the Company accrued, and charged to operations,  all costs associated with
this  transaction.  No further effect on the financial  condition of the Company
should occur on this matter.

Due to the  Company's  financial  position,  from time to time,  the Company may
become party to either collection  actions,  litigation and/or judgments related
to the non-payment of various operating  expenses.  Management is of the opinion
that an  appropriate  provision for amounts due and other  related  expenses has
been made in the accompanying financial statements.


                                      F-36
<PAGE>

                              ADZONE RESEARCH, INC.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS

NOTE S - COMMITMENTS AND CONTINGENCIES (CONTINUED)

Office facilities

On September  14, 2002,  the Company  executed a new long-term  operating  lease
agreement  for office space to house the Company's  administrative,  development
and marketing  operations  located in Calverton,  New York.  The lease is for an
initial term of 60 months at a rate of  approximately  $1,800 per month for Year
1, approximately $1,850 per month for Year 2; approximately $2,418 per month for
Year 3; approximately  $2,545 per month for Year 4 and approximately  $2,625 per
month for Year 5.

Future minimum  non-cancelable  lease payments under this lease agreement are as
follows:

                                  Year ending
                                   March 31,                Amount
                                     2005                 $  25,608
                                     2006                    29,778
                                     2007                    31,020
                                     2008                    15,750
                                                          ---------

                                     Total                $ 102,156
                                                          =========

Consulting agreements

In January 2002, the Company executed a one-year  contract with Communique Media
Services,  Inc. and/or Leonard Braumberger,  an unrelated entity, to provide web
development  services and maintain the Company's corporate internet web site for
a  fee  of  $8,000  per  month  payable  in  shares  registered  on a  Form  S-8
Registration  Statement.  Through July 1, 2002,  the Company issued an aggregate
399,998 shares under the Form S-8 Registration Statement.  Each monthly issuance
was charged to  operations  as  consulting  fees.  As of December 31, 2002,  the
Company has no further obligations under this agreement.

In February 2002, the Company  executed a one-year  contract with  International
Standard  Consulting  Corporation,  and/or Dave Grandy,  an unrelated entity, to
provide strategic business and technology  development consulting services for a
fee of  $4,500  per  month  payable  in  shares  as  registered  on a  Form  S-8
Registration  Statement.  Through July 1, 2002,  the Company issued an aggregate
171,000 shares under the Form S-8 Registration Statement.  Each monthly issuance
is charged to  operations  as  consulting  fees.  As of December 31,  2002,  the
Company has no further obligations under this agreement.


                                      F-37
<PAGE>

                              ADZONE RESEARCH, INC.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS

NOTE S - COMMITMENTS AND CONTINGENCIES (CONTINUED)

In April 2002,  the Company  entered into a one-year  consulting  agreement with
NuQuest  Consulting,  Inc.  pursuant to which NuQuest agreed to consult with and
assist the Company with respect to the Company's  business  plan,  its financial
statements  and other  materials  prepared for the purpose of  obtaining  equity
financing,  engaging in a public offering, and/or relating to the trading of the
Company's  common  stock in the  public  markets.  NuQuest  also  agreed  to use
reasonable efforts to seek and identify potential  investors for the Company, to
assist the Company in the consummation of any proposed financing, and to provide
the Company with  written  reports of the status of its efforts on behalf of the
Company.  As  compensation  for its  services,  the  Company  agreed to issue to
NuQuest  warrants to purchase 900,000 shares of common stock, on a fully diluted
basis.  The warrants  are  exercisable  at $0.15 per share,  and the Company has
agreed to file an S-8  Registration  Statement  with the Securities and Exchange
Commission  to register the shares  underlying  the warrants.  In addition,  the
Company agreed to pay NuQuest cash  compensation  of $33,000  payable in monthly
installments over the term of the contract. As of March 31, 2003, and subsequent
thereto,  the  Company  has not  completed  the  preparation  and  filing of the
required Form S-8 Registration Statement and has not made any cash payments. The
Company cancelled and settled this agreement with the issuance of 200,000 shares
of  restricted,   unregistered   common  stock  on  July  22,  2003,  valued  at
approximately $8,000.

On November 11, 2002, the Company entered into a Consulting Agreement with PAW &
Associates  and/or Paul Weaver to provide various  product sales services.  This
Agreement  is for a 12 month term  starting  November  7, 2002.  The  Company is
obligated to issue 25,000 shares of restricted,  unregistered  common stock upon
execution of the Agreement and to pay a 3.0%  commission on the first $3 million
of acquired contract value and 5.0% on all acquired contract values in excess of
$3 million.

On December 2, 2002,  the Company  entered into a one year business  development
agreement with Paul Weaver to provide  assistance in the  acquisition of various
contracts  utilizing  the  Company's  data mining  research  capabilities.  This
agreement  requires  compensation  as follows:  25,000  shares of the  Company's
common stock upon  execution of the  agreement;  a 3.0%  commission on the first
cumulative $3 million in total contract value; an additional 2.0% commission for
total contract value in excess of $3 million, an additional 25,000 shares of the
Company's  common  stock on the first  contract  in excess of  $500,000 in total
contract value.

On August 13, 2002,  the Company  entered  into an  agreement  with Thomas Gavin
(Gavin) to provide  informational  and educational  news releases and distribute
said  releases to the news media.  Gavin is required to spend  approximately  40
hours per month 1) developing news release concepts and a news release timeline;
2) drafting and editing news releases for Company review and approval; 3)issuing
these news releases with a quality wire news service to ensure highest  possible
media distribution; 4) identifying major trade and general daily/weekly media to
expand coverage;  5) reconnecting  with reporters  providing earlier coverage to
update them and to begin the building of a major media  outreach  effort for the
longer term; and 6) preparing a general  snapshot report on the Company and it's
operating history.  As compensation,  the Company issued Gavin 175,000 shares of
the Company's  common stock, as registered on Form S-8, as of August 1, 2002 and
70,000 shares of the Company's  common stock,  as registered on Form S-8, on the
first day of each succeeding month.  Additionally,  the Company will issue Gavin
30,000  warrants  per month to  purchase an  equivalent  number of shares of the
Company's  common  stock at an exercise  price of $0.25 per share.  Each warrant
will be for a three year term from the date of issuance. During Fiscal 2004, the
Company issued an additional  aggregate 250,000 warrants to Gavin to purchase up
to an  equivalent  number  of shares of the  Company's  common  stock at a price
ranging from $0.15 to $0.85 per share. Each of the FY2004 warrants expire on the
2nd anniversary date of issuance.


                                      F-38
<PAGE>

                              ADZONE RESEARCH, INC.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS

NOTE S - COMMITMENTS AND CONTINGENCIES (CONTINUED)

On October 16, 2002, the Company  entered into a  Multi-Media/Corporate  Imaging
Agreement  with Jason Genet (Genet).  This agreement  contains two (2) phases of
services:  Phase I - Create [a] Multimedia  Website,  Corporate  Imaging and Web
Mercial  ("New  Product")  and Phase II - assist the Company in the marketing of
New Product, make reasonable effort to organize, produce and supervise corporate
imaging and advertising as approved by the Company.  The Company is obligated to
compensate  Genet for both Phase I and Phase II in either  cash of  $370,000  or
common stock of the Company,  as  registered  on Form S-8, in a number of shares
equal to $400,000,  priced at the closing  quoted price of the Company's  common
stock on the day of issuance.  This  agreement is  cancelable at any time by the
Company with no further  obligation beyond that which was already earned and due
to be paid. Through December 31, 2002, the Company has issued Genet an aggregate
1,625,000  shares of common  stock under this  agreement.  As of March 31, 2004,
this agreement has terminated and the Company has no further obligation.

Investment Banking agreements

On June 20, 2002, the Company signed a Financial  Services  Agreement with First
American  Financial Group, New York, New York,  pursuant to which First American
Financial  Group  agreed to attempt to complete a private  placement of up to $5
million of the Company's 9% convertible  preferred  stock.  Through December 31,
2002, the Company paid First American  Financial Group  approximately  $5,000 in
conjunction with this Agreement and First American Financial Group, Inc. has not
provided any financing pursuant to this agreement.

On November  27, 2002,  the Company  entered  into an  agreement  (the  "Spartan
Agreement") with Spartan Securities Group, Ltd.  ("Spartan") under which Spartan
agreed to provide,  on an exclusive  basis,  financial  advisory and  investment
banking services to the Company for a period of one (1) year, subject to earlier
termination  by either the  Company or Spartan  upon at least  thirty (30) days'
prior written  notice to the other party.  The services  that Spartan  agreed to
provide  include  rendering  advice  with  regard  to our  internal  operations,
corporate  finance  matters,  mergers  and  acquisitions,  and  capital  raising
activities.  Spartan  also  will act as our  exclusive  Placement  Agent for any
private  offering of the Company's  securities  and as underwriter in any public
offering of equity or debt securities.  The Company has also agreed to appoint a
person nominated by Spartan to our Board of Directors.

In consideration for Spartan's  services,  the Company has agreed to pay Spartan
an initial  non-refundable  retainer of 300,000 shares of our Common Stock and a
monthly  consulting  fee of  $2,500  that will  commence  upon  completion  of a
financing  of not less  than  $350,000,  increasing  to $3,000  per  month  upon
completion of a financing of not less than $500,000.

In addition, upon completion of certain extraordinary transactions,  including a
sale of the Company's assets,  securities or business,  or the purchase by us of
another company or any of such other company's  assets,  securities or business,
Spartan  will be  entitled  to  receive  5% of the first  Five  Million  Dollars
($5,000,000),  4% of the second Five  Million  Dollars  ($5,000,000),  3% of the
third  Five  Million  Dollars  ($5,000,000),  and 2% of any  amount in excess of
Fifteen  Million  Dollars  ($15,000,000)  of  consideration   involved  in  such
transaction.  If Spartan  is  involved  in  originating  a loan or other  credit
facility with any bank or other institutional  lender, the Company has agreed to
pay Spartan a fee of 2% of the maximum amount of the credit facility,  including
of any increases in such facility after the date of the original financing.


                                      F-39
<PAGE>

                              ADZONE RESEARCH, INC.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS

NOTE S - COMMITMENTS AND CONTINGENCIES (CONTINUED)

The Company  also granted  Spartan a right of first  refusal to act as Placement
Agent  for  any  private  offering  of  our  equity  securities  (or  securities
convertible  into  equity  securities)  except for  private  placements  of such
securities  originating  from our officers and  directors.  Spartan will receive
Placement  Agent  compensation  of 10% of the gross proceeds  raised in any such
private offering and a 2% non-accountable expense allowance, as well as warrants
to  purchase  up to  20% of the  number  of  securities  sold  in the  offering,
exercisable  at 100% of the market  price of the  securities  on the date of the
sale.

If Spartan acts as  underwriter in any public  offering of the Company's  equity
securities,  Spartan  will  receive  7% of  the  gross  proceeds  raised  in the
offering, a 2% non-accountable expense allowance, and warrants to purchase up to
10% of the number of securities sold in the offering, exercisable at 100% of the
closing  market  price  on the  date of the  sale of  securities  in the  public
offering.

At November 27, 2003, the Spartan  Agreement  matured and became a non-exclusive
agreement  for the  same  services.  Spartan  was the  Placement  Agent  for the
Company's  Private  Placement  Memorandums  offering  both  the  9.0%  Series  A
Preferred  Stock and the 9.0% Series B Preferred  Stock and was paid  cumulative
commissions of approximately $77,280,  including a commission on a 9.0% Series A
Preferred Stock Unit purchased by Spartan.

On April 6, 2004,  the  Company  executed  a  non-exclusive  Financial  Advisor,
Investment  Bank  and  Placement   Agent   Agreement  with  Hartsfield   Capital
Securities,  Inc. of Atlanta,  Georgia  (Hartsfield) whereby Hartsfield will use
it's   "best   efforts"   to  assist  the   Company  in  one  or  more   capital
investments/fundings  which  might  result  in  a  private  placement,   merger,
acquisition, sale of assets, sale of common stock, sale of ownership interest or
any other financial transaction as defined in this agreement. This agreement has
an initial  term of one year  (expiring  April 6, 2005) with an option to extend
the  expiration  date for an  additional  six (6)  months.  For these  services,
Hartsfield  will  receive a success  fee of 6.0% of the  gross  proceeds  on all
common  debt  financing;  10.0%  of  the  gross  proceeds  on  any  hybrid  debt
(convertibles,  warrants,  etc.);  10.0% of the  gross  proceeds  on any  equity
raised;  10.0% of the gross  proceeds  on all  closings  from  Transactions  (as
defined) with an Investor Candidate or a Strategic Candidate (as defined); 10.0%
on the gross  proceeds  received from any mezzanine  loan or other  subordinated
form of indebtedness;  and 10.0% of the Aggregate  Consideration (as defined) of
any merger or acquisition introduced by Hartsfield.

Additionally,  Hartsfield  will be granted  warrants to  purchase  shares of the
Company's  common  stock  equal to 20.0% of the value of such  transactions  for
successful  common  stock  equity  raised at 100.0% of the  market  price of the
Company's  common stock at the closing of such  transaction  for a period of two
(2) years, and/or to grant Hartsfield warrants to purchase that number of shares
of the Company's  common stock equal to 20.0% of the value of such  transactions
for successful  preferred stock,  debt,  hybrid debt of any kind  (convertibles,
warrants,  etc.) or debt and equity  combination  raised at 100.0% of the market
price of the  Company's  common stock at the closing of such  transaction  for a
period of two (2) years.  These stocks shall be delivered on a cashless exercise
and issuable from the investment  closing date up to no more than five (5) years
from the date and upon  exercise  thereof.  The  stock  obtainable  under  these
warrants shall have  "piggyback"  registration  rights on the next  Registration
Statement  filed with the U. S. Securities and Exchange  Commission  after their
issue.


                                      F-40
<PAGE>

                              ADZONE RESEARCH, INC.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS

NOTE S - COMMITMENTS AND CONTINGENCIES (CONTINUED)

Business Development agreement

During  Fiscal  2004 and 2003,  the  Company has  executed  multiple  Consulting
Agreements  with Kyle  Kennedy to provide  consulting  services  in the areas of
business  development,  mergers and acquisitions  and business  strategy for the
Company. At the beginning of the business  relationship  between the Company and
Mr. Kennedy, Mr. Kennedy was affiliated with Spartan Securities Group, Ltd. (see
above) and has  represented  to the Company that the  services  provided in this
agreement are separate and unique to Spartan's  efforts in capital raising.  The
dates and consideration  related to the various  agreements with Mr. Kennedy are
as follows:

August 19, 2002       1,000,0000 options to purchase an equivalent
                      number of shares of the Company's common stock at $0.04
                      per share; 666,000 options to purchase an equivalent
                      number of shares of the Company's common stock at $0.06
                      per share; and 334,000 options to purchase an equivalent
                      number of shares at $0.08 per share. These options expired
                      on February 19, 2003.

October 7, 2002       250,000 options to purchase an equivalent number of shares
                      of the Company's common stock at $0.01 per share. These
                      options expired on November 7, 2002

October 11, 2002      1,000,000 options to purchase an equivalent number of
                      shares of the Company's common stock at $0.015 per share.
                      These options expired on November 10, 2002.

November 12, 2002     200,000 options to purchase an equivalent number of shares
                      of the Company's common stock at $0.02 per share. These
                      options expired on December 12, 2002.

November 26, 2002     300,000 options to purchase an equivalent number of shares
                      of the Company's common stock at $0.016 per share. These
                      options expired on December 26, 2002.

December 11, 2002     2,100,000 options to purchase an equivalent number of
                      shares of the Company's common stock at $0.016 per share.
                      These options expired on January 10, 2003.

January 23, 2003      1,050,000 options to purchase an equivalent number of
                      shares of the Company's common stock at $0.01 per share.
                      These options expired on February 22, 2003.

January 28, 2003      3,950,000 options to purchase an equivalent number of
                      shares of the Company's common stock at $0.01 per share.
                      These options expired on February 28, 2003.

May 6, 2003           300,000 options to purchase an equivalent number of shares
                      of the Company's common stock at $0.03 per share. These
                      options expired on June 6, 2003.

May 20, 2003          625,000 options to purchase an equivalent number of shares
                      of the Company's common stock at $0.02 per share. These
                      options expired on June 20, 2003.


                                      F-41
<PAGE>

                              ADZONE RESEARCH, INC.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS

NOTE S - COMMITMENTS AND CONTINGENCIES (CONTINUED)

As of March 31,  2004 and  2003,  Mr.  Kennedy  owed the  Company  approximately
$30,550 and $14,800, respectively, for shares purchased by Mr. Kennedy under the
exercised options.

Broker-Dealer Marketing agreement

On October 10, 2002,  the Company  signed a  "Broker-Dealer  Marketing  Program"
agreement with First American  Financial Group of New York, NY (First American).
First  American will contact  broker-dealers  as potential  market makers in the
Company's equity securities;  contact broker-dealers via e-mail and telephone to
review  current  Company  information  and meet  with  broker-dealers  and their
registered  representatives  to discuss and promote  awareness of the  Company's
equity  securities.  As  compensation  to First  Financial,  the Company  issued
500,000  shares of restricted,  unregistered  common stock upon the execution of
this  agreement.  Further,  the Company is  obligated  to pay First  Financial a
non-accountable  expense  allowance  of $10,000 cash payable upon receipt of any
financing from any source in a minimum amount of $500,000.

Further,  First  American  is entitled  to Bonus  Compensation  equal to 100,000
shares of  restricted,  unregistered  common  stock if at any time during the 12
months  following the execution of this  agreement,  the Company's  common stock
reaches  $0.10  per  share;   an  additional   100,000   shares  of  restricted,
unregistered  common  stock if at any time  during the 12 months  following  the
execution of this agreement, the Company's common stock reaches $0.20 per share;
an additional 100,000 shares of restricted,  unregistered common stock if at any
time  during  the 12 months  following  the  execution  of this  agreement,  the
Company's common stock reaches $0.40 per share; and an additional 100,000 shares
of  restricted,  unregistered  common  stock if at any time during the 12 months
following the execution of this  agreement,  the Company's  common stock reaches
$0.60 per share. This agreement originally  terminated on September 30, 2003 and
was extended to September 30, 2004 by a written amendment dated January 7, 2004.
First American has asserted that the Company is in breach of various  components
of this  contractual  agreement  and  filed  for  arbitration  of the  contested
matters.  The Company and First American reached a settlement  agreement on June
24, 2004 whereby the "Broker-Dealer  Marketing Program" agreement was settled in
full with the  issuance of 200,000  shares of  restricted,  unregistered  common
stock on June 25, 2004.  The Company has no further  obligations  in relation to
this agreement.


                                      F-42