QUINTEL ENTERTAINMENT INC, S-1, 1996-10-11

QUINTEL ENTERTAINMENT INC
S-1, 1996-10-11
AMUSEMENT & RECREATION SERVICES

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<PAGE> 1

As filed with the Securities and Exchange Commission on October 11, 1996
File No. 33-

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------

FORM S-1

REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------

QUINTEL ENTERTAINMENT, INC.
(Exact name of registrant specified in its charter)

Delaware 7900 22-3322277
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Code Identification
incorporation) Number) Number)

One Blue Hill Plaza, Pearl River, New York 10965 (914) 620-1212
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)

JEFFREY L. SCHWARTZ, CHAIRMAN
QUINTEL ENTERTAINMENT, INC.

One Blue Hill Plaza, Pearl River, New York 10965 (914) 620-1212
(Address, including zip code, and telephone number,
including area code, of agent for service)
--------------------
Copies to:

MURRAY L. SKALA, ESQ.
FEDER, KASZOVITZ, ISAACSON,
WEBER, SKALA & BASS LLP
750 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022-1200
(212) 888-8200
FAX: (212) 888-7776
---------------------

Approximate date of proposed sale to the public: Not Applicable.

If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
<PAGE> 2

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
Title of
Each Class Amount to Be Proposed Maximum
of Registered Maximum Aggregate Amount
Securities Offering Offering of
to Be Price Per Price(1) Registra
Registered Share (1) tion Fee
- ---------- ---------- --------- --------- --------
<S> <C> <C> <C> <C>
Common Stock
par value 3,213,000
$.001....... shares (2) $8.75 $28,113,750 $9,694.39(3)

Total....... 3,213,000 $8.75 $28,113,750 $9,694.39(3)
============ ========== ========= =========== =========
</TABLE>

(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(c).

(2) Consists of (i) 3,200,000 shares issued to the shareholders of Psychic
Readers Network, Inc. ("PRN"), Steven Feder, Thomas Lindsey and Peter
Stolz, in connection with the acquisition on September 10, 1996, by a
subsidiary of the Company (NL Corp.) of PRN's interest in New
Lauderdale L.C., a Florida limited liability company, of which the
Company's subsidiary, Calling Card Co., Inc., owned the remaining 50%
interest; and (ii) 13,000 shares of the 25,000 shares issued to Feder,
Kaszovitz, Isaacson, Weber, Skala & Bass, LLP, counsel to the Company
("Feder Kaszovitz"), in consideration for services rendered in
connection with the Company's December 1995 initial public offering
(the "Feder Kaszovitz Shares").

(3) $39.22 of such registration fee shall be paid by Feder Kaszovitz.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE AN AMENDMENT THAT SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE
WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY DETERMINE.

ii
<PAGE> 3

QUINTEL ENTERTAINMENT, INC.
-----------------------

CROSS-REFERENCE SHEET
-----------------

PURSUANT TO ITEM 501(b) OF REGULATION S-K

FORM S-1 ITEM NUMBER AND CAPTION CAPTION IN PROSPECTUS
- -------------------------------- ---------------------
1. Forepart of the Registration Outside Front Cover Page
Statement and Outside Front
Cover Page of Prospectus

2. Inside Front and Outside Back Inside Front and Outside Back
Cover Pages of Prospectus Cover Pages

3. Summary Information and Risk Prospectus Summary; Risk
Factors Factors

4. Use of Proceeds Use of Proceeds

5. Determination of Offering Outside Front Cover Page;
Price Risk Factors; Plan of
Distribution; Price Range of
Common Stock and Dividend
Policy

6. Dilution Not Applicable

7. Selling Security Holders Principal and Selling Security
Holders

8. Plan of Distribution Outside Front and Outside Back
Cover Pages; Inside Front
Cover Page; Plan of
Distribution

9. Description of the Securities Prospectus Summary; Price
to be Registered Range of Common Stock and
Dividend Policy; Description
of Securities

10. Interest of Named Experts and Legal Matters; Experts
Counsel

11. Information with Respect to the Prospectus Summary; Risk
Registrant Factors; Use of Proceeds;

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<PAGE> 4

Capitalization; Price Range of
Common Stock and Dividend Policy;
Selected Financial Data of the
Company; Capitalization; Shares
Eligible for Future Sale;
Management's Discussion and Analysis
of Financial Condition and Results
of Operations; Management; Business;
Principal and Selling Security
Holders; Executive Compensation;
Certain Relationships and Related
Transactions; Description of
Securities

12. Disclosure of Commission Not Applicable
Position on Indemnification
for Securities Act
Liabilities

iv
<PAGE> 5

EXPLANATORY NOTE

This Registration Statement contains two prospectuses. The first
prospectus relates to the 3,200,000 shares issued to the shareholders of Psychic
Readers Network, Inc. ("PRN"), Steven Feder, Thomas Lindsey and Peter Stolz, in
connection with the acquisition (the "Acquisition") by a subsidiary of the
Company (NL Corp.) of PRN's 50% interest in New Lauderdale, L.C., a Florida
limited liability company, of which the Company's subsidiary, Calling Card Co.,
Inc., owned the remaining 50% interest (the "Prospectus"). The second prospectus
(the "Alternate Prospectus") relates to 13,000 shares of the 25,000 shares
issued to Feder, Kaszovitz, Isaacson, Weber, Skala & Bass, LLP, counsel to the
Company, in consideration for services rendered in connection with the Company's
December 1995 initial public offering. The Prospectus and the Alternate
Prospectus are identical except that they contain different front cover and back
cover pages, different information under the captions "Principal and Selling
Security Holders" and "Legal Matters" and certain conforming modifications.

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<PAGE> 6

3,200,000 SHARES

QUINTEL ENTERTAINMENT, INC.

COMMON STOCK

This Prospectus covers 3,200,000 shares of Common Stock, par value
$.001 per share (the "Common Stock") of Quintel Entertainment, Inc., a Delaware
corporation (the "Company"), held by security holders of the Company. See
"Description of Securities." The Company will not receive any proceeds from the
sale of the shares offered hereby. The holders of the 3,200,000 shares covered
by this Prospectus intend to sell the shares offered hereby from time to time
for their own respective accounts in the open market at the prices prevailing
therein or in individually negotiated transactions at such prices as may be
agreed upon. Each such holder will bear all expenses with respect to the
offering of shares by him or her except the costs associated with preparing and
printing this Prospectus. The Common Stock of the Company is traded on the
NASDAQ National Market system under the symbol "QTEL." On October 8, 1996, the
last reported sale price of the Common Stock was $8 1/2.

SEE RISK FACTORS FOR INFORMATION THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS (PAGE 6).

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

The date of this Prospectus is _______________________
<PAGE> 7

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, (the "Exchange Act") and in
accordance therewith files periodic reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Square, 450 Fifth Street,
N.W., Washington D.C. 20549, and at the Commission's regional offices located at
500 West Madison Street, Suite 1800, Chicago, Illinois 60661 and at Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies of such material can
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington D.C. 20549 at prescribed rates.

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Each prospective investor is urged to
read this Prospectus in its entirety. See "Risk Factors", page 6.

THE COMPANY

Quintel Entertainment, Inc. (the "Company") is engaged in developing
and marketing telephone entertainment services, consisting primarily of live
conversation and pre-recorded horoscopes and tarot card readings and live
psychic and diet/nutrition consultations. The Company also offers enhanced
voice-mail services which include various psychic, "personals" and other
theme-related entertainment services.

The Company's telephone entertainment services are accessed by dialing
"900" telephone numbers that are billed at premium per-minute rates.
Entertainment services consist primarily of live conversation and pre-recorded
horoscopes and tarot card readings and live psychic consultations designed to
capitalize on the current popularity of "new age" themes. "New age" refers to
astrological and psychic phenomena which can be explained through the use of
horoscopes, tarot card and psychic readings and prognostications. The Company
currently markets approximately twenty "900" number entertainment services, each
offering programs with distinct features.

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<PAGE> 8

Psychic Readers Network, Inc. ("PRN") currently provides the
Company with substantially all of its psychic operators and monitors and
supervises the quality of independent psychic operators provided to the Company.
The Company pays PRN a per minute fee based on caller connection time. See
"Certain Relationships and Related Transactions".

The Company solicits consumers for its "900" number services by
providing access to toll-free "800" numbers for subjects of general interest and
as an introduction to the Company's "900" services. The Company's entertainment
services are available by calling designated "900" numbers from any telephone,
provided that "900 blocking" has not been ordered or imposed for such services
from such telephone. Fees are billed by regional carriers on the customers'
telephone statements.

The Company also currently offers enhanced voice-mail services which
provide customers with a network of theme-related entertainment services. The
Company currently offers voice-mail networks which include astrological and
psychic related entertainment services. These services, which include a variety
of live and pre-recorded programs, newsletters and gifts are made available to
each subscriber with his or her subscription to the Company's enhanced
voice-mail network. For a monthly fee, subscribers are assigned personal voice
mailboxes which can be used to communicate with other subscribers, friends and
family. Voice mailboxes are accessed by dialing designated "800" numbers which
are toll-free. Fees are billed on a monthly basis by regional carriers on the
subscribers' telephone statements.

Commencing in August 1994, the Company began offering entertainment
services similar to those provided with its voice-mail services in a membership
club format, pursuant to which members were enrolled in theme-related membership
clubs and billed monthly for the term of their membership. In response to

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<PAGE> 9

regional and local carrier constraints, the club format was changed to a voice
mail services format.

As enrollment in the Company's voice mail networks increased
significantly, consumer complaints also increased, causing certain regional and
local telephone carriers to discontinue billings. In response to actions by such
carriers, the Company repositioned the marketing of the voice-mail network
services ("VM Product"). See "Business - Increased Chargebacks and Regional
Telephone Carrier Matters." The Company also continues to explore new billing
platforms for its entertainment services in order to assure continued acceptance
by telephone carriers in the future. In addition, the Company has taken several
steps to expand its customer service operations. The Company has recently
outsourced the majority of its customer service operations.

In March 1995, the Company and PRN formed New Lauderdale L.C. ("New
Lauderdale"), a Florida limited liability company, the successor to a joint
venture established in December 1994, for the purpose of creating, developing
and marketing theme-related membership clubs and related telephone entertainment
services.

On September 10, 1996, the Company acquired PRN's interest in New
Lauderdale in consideration for 3,200,000 shares (the "PRN Shares") of Common
Stock of the Company (the "Acquisition"), which shares are included in this
Prospectus.

Except for certain pro forma financial information, all financial
information presented in this prospectus for periods and dates prior to
September 10, 1996 represents the Company before the Acquisition, when the
Company was only a 50% equity owner of New Lauderdale.

The Company was incorporated under the laws of the State of Delaware in
November 1993 under the name U.S. Teleconnect, Inc. The Company's executive
offices are located at One Blue Hill Plaza, Pearl River, New York 10965, and its
telephone number is (914) 620-1212. Unless otherwise indicated, all references
in this Prospectus to the Company include Quintel Entertainment, Inc. and its
wholly-owned subsidiaries.

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<PAGE> 10

THE OFFERING

Securities Offered by the
Selling Stockholders. . . . . . 3,200,000 shares.

Common Stock outstanding
as of the date hereof
(including the 3,200,000
shares included in this
Prospectus). . . . . . . . . . . 18,451,568 shares

Use of Proceeds. . . . . . . . . The Company will not
receive any proceeds from
the sale of the shares.
See "Use of Proceeds."

Risk Factors . . . . . . . . . . An investment in the
shares being registered
hereby involves a high
degree of risk. See
"Risk Factors."
NASDAQ National
Market Symbol . . . . . . . . . . "QTEL"

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<PAGE> 11

RISK FACTORS

The shares offered hereby are speculative and involve a high degree of
risk. Prospective investors should carefully consider the following risk factors
before making an investment decision.

Limited Operating History. The Company commenced operations in August
1992 and has a limited operating history upon which an evaluation of the
Company's performance and prospects can be made. The Company's prospects must be
considered in light of the numerous risks, expenses, delays, problems and
difficulties frequently encountered in the establishment of a new business in a
highly regulated industry characterized by intense competition. The Company's
operating expenses have increased and can be expected to increase significantly
in connection with the Company's proposed advertising, marketing and promotional
activities (including substantial up-front cash expenditures required for the
purchase of media time). Accordingly, the Company's future profitability will
depend upon corresponding increases in revenues from operations. Unfavorable
general economic conditions, changes in government regulation or negative
consumer perceptions of "900" number services, resulting in decreased demand for
the Company's services, could have a material adverse effect on the Company's
future operating results. There can be no assurance that the Company's rate of
revenue will grow in the future or that the Company's future operations will be
profitable. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Consolidated Financial Statements included
herein.

Dependence on Third-Party Carriers. The Company is dependent on long
distance carriers and numerous regional and local telephone companies
("carriers") to continue to transmit "900" number calls and to bill and collect
telephone charges and VM Product fees. Failure by carriers to provide such
services would have a material adverse effect on the Company, including possibly
requiring the Company to significantly curtail or cease operations. Moreover,
changes in billing and collection and other business practices of carriers, for
regulatory or other reasons, could require the Company to modify its
arrangements with carriers or alter its operating and marketing methods at
substantial costs, which could have a significant impact on the Company and
exacerbate the risks inherent in its business. In particular, in response to
increasing consumer complaints and government regulations which impose
limitations and prohibitions on "800" number billing and collection practices,
in early 1994, numerous carriers discontinued billing consumers for calls made
to "800" number entertainment services. In light of these developments, the
Company modified its operations by discontinuing the practice of billing on a
pay-per-call basis for

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services accessed through "800" numbers. At the regional telephone carrier
level, five of the regional telephone carriers suspended billing of the
Company's VM Products at different times during the first six months of fiscal
1996. The Company believes that the suspensions were the result of the carriers'
belief that the Company and Enhanced Services Billing, Inc. ("ESBI"), one of the
Company's service bureaus which contracts directly with carriers to provide
billing and collection of monthly fees, were unable to provide adequate customer
services to VM Product customers in the regions serviced by the carriers. The
Company did not anticipate the increase in customer service calls during the
first three months of fiscal 1996 and was not able to adequately handle the
increased customer service call volume. Both the Company and ESBI expanded their
customer service operations in response to such needs. Four of the five
carriers, in reaching their decisions to suspend billings, specifically
addressed the Company's VM Product and the remaining carrier addressed the
billing platform that encompasses the Company's VM Product. The Company has
resumed billing the VM Product with the four carriers that specifically
addressed the difficulties associated with the VM Product. For the carrier that
addressed the difficulties associated with the billing platform, the Company
resumed billing through an alternate platform with another service bureau. For
four of these carriers, the suspensions each lasted less than sixty (60) days
and did not have a material impact on the Company's cash flows and operations.
For the fifth carrier, the suspension lasted several months and resulted in lost
revenues. During the first six months of fiscal 1996, VM Product net revenues
billed through this carrier approximated 10% of total net revenues. Marketing
shifts between the VM Product and "900" business are expected to partially
offset the impact of this carrier's suspension, however, no assurance can be
given that such offset will occur. See "Forward Looking Information May Prove
Inaccurate". Though the full amount of the impact of the lost revenues is
presently not known, the Company did incur marketing and fulfillment costs in
this carrier's region during the first six months of fiscal 1996. Therefore, the
impact to date has been significant as costs were incurred without a
corresponding revenue stream.

While the VM Product is independent of the Company's "900" number
entertainment services and these difficulties do not impact the "900" number
portion of the Company's business and the carrier billing suspensions of the VM
Product are limited to the geographic regions serviced by the individual
carriers, no assurance can be given that carriers will not suspend product
billings for these or other services for the Company in the future. Failure by
carriers to bill and collect the Company's monthly membership fees or "900"
number fees would have a material adverse effect on the Company. See "Business -

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Telephone Entertainment Services", "- Increased Chargebacks and
Regional Telephone Carrier Matters" and "- Enhanced Voice-Mail
Network Services".

Limitations on Price and Access to "900" Numbers. In response to
pressure from and monitoring by regulatory authorities, carriers have
voluntarily placed limitations on amounts billed to consumers for per minute or
flat rate calls. AT&T, the primary long distance carrier currently utilized by
the Company for "900" services, limits amounts billed to consumers at $10 per
minute and $50 per flat rate call. Regional and local carriers also impose
limits on amounts billed to consumers. Although the Company's per minute rates
are substantially below the limits imposed by AT&T and its other carriers and
the Company does not offer flat per call rate service, there can be no assurance
that carriers will not reduce such limits or implement other billing
restrictions that would require the Company to alter its pricing structure or
other methods of operations. In addition, rates charged by carriers for
telephone services have increased and future increases would adversely affect
the Company's operating margins. Furthermore, consumers may request that
carriers block their ability to access "900" number services and carriers may
involuntarily block consumer access to such services if the consumer fails to
pay for "900" billed service. Blocking of substantial consumer access to "900"
number services could limit the market for the Company's services and adversely
affect the Company's results of operations. See "Business Telephone
Entertainment Services."

Government Regulation. The telephone entertainment services industry is
subject to extensive, stringent and frequently changing federal, state and local
laws and substantial regulation under these laws by governmental agencies,
including the Federal Communications Commission ("FCC"), the Federal Trade
Commission ("FTC"), the Department of Justice, the United States Postal Service,
various state Attorneys General and state and local consumer protection
agencies. Regulations applicable to carriers and providers of telephone
entertainment services are interpreted and enforced by regulatory authorities
with broad discretion and impose significant compliance burdens and risks on the
Company. The FCC regulates carriers that transmit calls and bill and collect
charges, as well as the broadcast and cable television industry, including
networks and stations that carry the Company's infomercials and commercials. The
FTC, which is the federal regulatory authority with primary jurisdiction over
the advertising of "900" number services, is responsible for enforcing various
federal laws intended to protect consumers against deceptive trade practices and
false and misleading advertising, and has promulgated regulations governing,
among other things, advertising disclosures for telephone entertainment

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services. In response to substantial complaints by consumers regarding
fraudulent telemarketing activities, the FTC has recently enacted additional
regulations governing telemarketing activities which, among other things, impose
various mandatory disclosure requirements on inbound and outbound telemarketing
calls, prohibit the telemarketer from making false representations, and prohibit
certain deceptive and abusive telemarketing acts and practices. Such regulations
also restrict telemarketing calls from being placed between 9:00 p.m. and 8:00
a.m. without the prior consent of the person being called. The FTC can impose
substantial penalties for fraudulent telemarketing activities and, require the
telemarketer to disclose the product or service being offered, the cost of such
product or service, any restrictions that may apply before asking for a credit
card or bank information and, if there is a no refund policy, to disclose such
policy. In addition, the FTC has empowered state Attorneys General to seek
injunctions in federal courts for fraudulent telemarketing activities. The
Department of Justice and the United States Postal Service also enforce various
federal laws intended to prevent the use of wires or mail for fraudulent or
deceptive purposes.

The principal federal regulation governing pay-per-call operations is
the Telephone Disclosure and Dispute Resolution Act of 1992 ("TDDRA"). Among
other things, TDDRA provides guidelines with respect to pricing and marketing of
telephone entertainment services, including services offered through "800" and
"900" numbers. The recently enacted Telecommunications Act of 1996 (the "TCA")
amends TDDRA by requiring that billing authorization for pay-per-call "800"
number services be in writing and specifically requires: disclosure to consumers
of pricing information, disclosure of information relating to the provider, a
provider's agreement to notify the customer of changes in billing rates in
advance, disclosure of customer payment options, and the customer's signature to
create an obligation to pay for such "800" number services. The Company utilizes
toll-free "800" numbers in connection with the marketing of voice-mail services
and consumer solicitation. While management believes that the new requirements
set forth in the provisions of the TCA are not applicable to the Company's
operations, based on its belief that its "800" number services are not
pay-per-call services, as such term is defined under TDDRA, as amended by the
TCA, pursuant to the TCA, the FTC is empowered to adopt rules that expand the
definition of pay-per-call to encompass additional services. The FTC is
currently expected to initiate a rule-making concerning the definition, as well
as other pay-per-call reforms later this year. There can be no assurance that
federal or state governmental agencies will not interpret the existing
provisions of the TDDRA, or that the FTC will not revise the definition of
pay-per-call in a manner which would make it applicable to the

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Company's "800" number services, in which event, the Company may be required to
materially change the method in which it markets certain of its entertainment
services. Compliance with such requirements, if determined to be applicable,
could have a material adverse effect on the Company's business.

The FCC recently issued an "Order and Notice of Proposed Rulemaking",
setting forth rules implementing the TCA. The regulations revised the existing
rules to conform with the requirements of the TCA. In addition, the FCC has
proposed a rule that will require all pre-subscription agreements to be in
writing, rather than only those offered through toll-free "800" numbers. The
proposed rules also require that the written pre-subscription agreement be
separate or easily severable from any promotions or sweepstakes. Furthermore,
carriers are authorized to terminate service to an information provider that
cannot provide a written pre-subscription agreement for disputed charges. In the
event a regulatory agency should deem the rules applicable to the Company's
operations, such proposed rules could have a materially adverse effect on the
Company.

The Company's operations in Canada are also subject to Canadian
regulations governing "900" number services and consumer protection regulations
which govern advertising and other business activities.

State Attorney General Matters. All of the Company's entertainment
services and advertisements are reviewed by the Company's regulatory counsel,
and management believes that the Company is in substantial compliance with all
material federal and state laws and regulations governing its provision of "800"
and "900" number entertainment services, all of its billing and collection
practices and the advertising of its services and has obtained or is in the
process of obtaining all licenses and permits necessary to engage in
telemarketing activities. Although the Company from time to time receives
requests for information from, or is forwarded consumer complaints by,
regulatory authorities, the Company has not been subject to any enforcement
actions by any regulatory authority. Nevertheless, civil investigative demands
have been received from the Attorneys' General of the States of Idaho, Missouri,
New York, Pennsylvania and Texas, as well as from the Tennessee Public Service
Commission, seeking certain information relating to the Company. In addition,
certain information has been requested by the Oregon Department of Justice.
Lastly, certain information relating to the Company's programs also has been
subpoenaed by the Attorney General of the State of Texas from West Outbound and
from the Attorneys' General of the States of Texas and Idaho from ESBI. The
Company believes that the information has been sought as part of pending
investigations in connection with certain of

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the Company's marketing activities. The investigation by the State of Idaho has
been discontinued. The Pennsylvania Attorney General's investigation has
concluded with issuance of a warning letter to the Company. The Company has
responded and is continuing to respond to the subpoenas issued by the New York
Attorney General's office. While such investigation is still ongoing, management
believes it will be able to amicably resolve any outstanding issues with such
state. In the event the Company is able to resolve such outstanding issues, it
is possible that the Company may be required to modify the manner in which it
advertises its products and services in New York State. No assurance can be
given, however, that management will be able to amicably resolve the outstanding
issues with New York State and the failure to do so may have a materially
adverse effect on the Company. Management further believes that while the other
remaining investigations also will not result in enforcement actions or claims
which would have a material adverse effect on the Company, there can be no
assurance that this will be the case. Amendments to or interpretations and
enforcement of existing statutes and regulations, adoption of new statutes and
regulations and the Company's expansion into new jurisdictions and "900" number
services could require the Company to continually alter methods of operations,
modify the content or use of its services or the manner in which it markets it
services, which could result in material interruptions in its operations.
Failure to comply with applicable laws and regulations could subject the Company
to civil remedies, including substantial fines, penalties and injunctions, as
well as possible criminal sanctions, which could have a material adverse effect
on the Company. See "Risk Factors - Government Regulation" and "- State Attorney
General Matters".

Industry Factors. The telephone entertainment services industry is an
evolving business with a relatively limited operating history and is
characterized by an increasing and substantial number of new market entrants who
have introduced or are developing an array of new telephone entertainment clubs,
products and services. As is typically the case in an evolving industry, the
ultimate level of demand and market acceptance for newly introduced services and
products are subject to a high degree of uncertainty. The telephone
entertainment services industry is also subject to rapidly changing consumer
preferences, resulting in short service and product life cycles and frequent
introduction of new services and products, many of which are unsuccessful. The
inability to maintain a sufficient level of demand for any particular service or
club may adversely affect the Company's ability to plan for future development
and marketing activities. The Company's current entertainment services and
membership clubs primarily involve "new age" themes, such as psychic
consultations, horoscopes and tarot card

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readings, which are highly susceptible to relatively frequent and rapid changes
in consumer tastes and preferences. There can be no assurance that the Company
will be able to anticipate and respond to changing consumer tastes and
preferences or that competitors will not develop and commercialize services or
products that render the Company's services and clubs less marketable. See
"Business - Competition."

Possible Consumer Opposition to "900" Number Services. Consumer
advocacy groups have in the past opposed certain types of telephone
entertainment services, such as adult related services, by pressing for
legislation in this area and by engaging in public demonstrations and media
campaigns. To the extent that the Company may offer "900" number services or
membership clubs in the future which are considered adult related "900"
services, its operations could be subject to significantly increased scrutiny by
consumer groups and regulatory authorities. There can be no assurance that such
groups will not target any of the Company's services or clubs, which could have
an adverse effect on the Company, including possibly requiring the Company to
discontinue such service or club. See "Risk Factors Government Regulation" and
"Business - Government Regulation."

Consumer Chargebacks. The Company is dependent upon its "900" number
services and its VM Product fees for substantially all of its revenues and is
subject to the risk that "900" number charges and membership fees may not be
paid by consumers. Regulation in the United States provides that a consumer's
telephone service may not be discontinued for failure to pay for a "900" service
or membership fee. In the event of nonpayment by consumers or the provision of
refunds or credits by carriers, the Company is obligated to pay the service
bureau engaged for such service (to the extent amounts are advanced by the
service bureau), which is obligated to pay the carrier. The Company maintains a
reserve for consumer chargebacks which was $5,853,781 at May 31, 1996. Such
reserve is estimated based on the amount of historical chargebacks which
includes refunds, credits and uncollectible charges. There can be no assurance,
however, that the Company's reserves will be adequate to cover actual
chargebacks. The Company recognizes revenues net of consumer chargebacks for
"900" services and VM Product at the time consumers access service, enroll or
continue membership. Since reserves are established prior to the periods in
which chargebacks are ultimately determined, the Company's revenues may be
reduced in later periods in the event that the Company's reserves prove to be
insufficient. Additionally during the previous six month period ending May 31,
1996, the Company increased marketing activities and experienced high
enrollments of new VM Product customers which caused the Company to experience a
high level of acceptance difficulties with its VM

12
<PAGE> 18

Product. Customers did not always relate the VM Product billing description on
their telephone bills to the entertainment service that they purchased. This
prompted an increase in customer service inquiries to both the Company and ESBI.
Accordingly, for the first six months of fiscal 1996, the Company experienced a
higher level of customer cancellations and chargebacks relating to the VM
Product. Management believes that its VM Products can be successfully modified
and repositioned with shifts in emphasis as part of the marketing process. See
"Forward Looking Information May Prove Inaccurate". The Company and ESBI
expanded their customer service operations during the three months ended
February 29, 1996 to better educate the consumer about the product.
Telemarketing efforts during the three month period ended May 31, 1996 were
reduced as the marketing shift was being accomplished. Although management
anticipates that the marketing shift along with the expansions in customer
service will reduce customer cancellations and chargebacks for the VM Product to
acceptable levels, there can be no assurance that these marketing efforts and
changes will be successful. Any significant increase in the level of consumer
chargebacks would have a material adverse effect on the Company's financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and Notes to Financial
Statements.

Significant Outstanding Accounts Receivable. The Company's accounts
receivable at May 31, 1996 were $7,349,639, as compared to $10,097,629 at
November 30, 1995. Substantially all of the Company's accounts receivable at May
31, 1996 were due from numerous telephone carriers through the Company's service
bureaus, West Interactive Corporation ("West") and ESBI. Service bureaus, at
their discretion, withhold a portion of settled accounts receivable as a cash
reserve as security for potential consumer chargebacks which may occur
subsequent to the settlement cycle (generally 60 to 120 days) for receivables.
At May 31, 1996, service bureaus held no cash reserves. Delays in collection or
uncollectability of accounts receivable by third-party carriers or service
bureaus, over which the Company has no control, could result in increased cash
reserves held by service bureaus, adversely affecting the Company's liquidity
and working capital position. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

Dependence on Third-Party Service Bureaus. The Company is dependent on
its service bureaus, West and ESBI, to provide substantially all of the
Company's billing services and accounts receivable financing in connection with
the Company's "900" number services and membership clubs. The Company is also
dependent on service bureaus to provide other services, including call
processing, inbound telemarketing and production of

13
<PAGE> 19

prerecorded programs. While the Company believes that there are a sufficient
number of service bureaus able to extend credit and provide services to the
Company, a decline in the financial condition or economic prospects of either
West or ESBI, resulting in their inability to advance funds to the Company or
otherwise pay amounts owed, could, under certain circumstances, have a material
adverse effect on the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business - Service Bureaus."

Demand Indebtedness and Security Interest. Pursuant to the Company's
agreements with its service bureaus, the Company is liable for all amounts
advanced to the Company by its service bureaus. At May 31, 1996, there were no
outstanding advances provided by service bureaus under accounts receivable
financing arrangements. Any advances under the Company's agreement with West are
due on demand. Substantially all of the Company's accounts receivable are
pledged to the service bureaus as collateral for any advances to the Company. In
the event that the Company recovers an advance and is unable to satisfy its
obligations to West or ESBI, either of such entities could elect to declare an
event of default and foreclose on the assets securing such indebtedness, which
could have a material adverse effect on the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

Expansion Risks. Although the Company intends to actively pursue a
strategy of growth, the Company has only limited experience in effectuating
rapid expansion and in managing operations targeting diverse entertainment
themes or membership clubs. The Company's proposed expansion will be dependent
on, among other things, the Company's ability to maintain sufficient demand for
existing services and clubs; identify and develop commercially viable new
services and clubs; produce and air successful infomercials and commercials;
identify and enter into suitable arrangements with recognizable celebrity hosts
for endorsements and promotion of featured services and clubs; hire and retain
skilled marketing, creative and other personnel; and successfully manage growth
(including monitoring operations, controlling costs and maintaining effective
quality and service controls). The Company may also seek to expand its
operations through the possible acquisition of additional companies which the
Company believes are compatible with its business. As of the date of this
Prospectus, the Company is not engaged in identifying candidates for
acquisition, and has no plans, agreements, commitments, arrangements or
understandings with respect to any acquisition. There can be no assurance that
the Company will be able to successfully expand its operations or ultimately
effect any acquisition, or successfully integrate into its operations any
business which it may acquire.

14
<PAGE> 20

Limited Marketing Capabilities and Experience. The Company has limited
experience in engaging in direct response marketing activities, such as the use
of infomercials, and limited financial, personnel and other resources to
undertake extensive marketing activities. To date, the Company and its
subsidiaries have only produced five infomercials and approximately fifty
commercials. Additionally, the Company markets its telephone entertainment
services and clubs through the use of outbound telemarketing. The failure of the
Company to expand its marketing capabilities could have a materially adverse
effect on the Company. See "Business - Advertising, Marketing and Promotion."

Risks Related to Direct Response Marketing. The use of direct response
marketing is speculative and its success is dependent upon numerous factors,
including the Company's ability to produce infomercials and commercials which
attract and retain viewer interest, the appeal of featured services to viewers
and whether sales to viewers of featured services generate revenues sufficient
to offset the cost of production and broadcast. A significant number of
infomercials do not generate a level of sales sufficient to offset the costs
associated with such infomercials. Two of the Company's infomercials did not
result in consumer acceptance and were discontinued after significant
expenditures by the Company. The production and broadcast of infomercials and
commercials also require up-front cash expenditures. A typical infomercial costs
the Company approximately $250,000 to $300,000 to produce. Media broadcast time,
the largest expense in marketing through infomercials and commercials, must be
paid for in advance and typically accounts for a substantial portion of the
total costs associated with the marketing of a service, depending upon the
broadcast markets and hours at which the infomercial or commercial airs. Media
costs have increased and any future increase in the costs associated with
broadcast time would require the Company to increase the costs of its services
or reduce operating margins, or result in reduced broadcast time which the
Company would otherwise purchase, any of which could have an adverse affect on
the Company's operating results. Increased demand for broadcast time could
result in increased costs, as well as the unavailability of preferred hours and
channels for broadcast and the unwillingness of broadcasters to air the
Company's advertising. See "Business - Advertising, Marketing and Promotion."

Dependence on Principal Service and Club. The Company currently derives
a substantial portion of its revenues from phone calls made to the Company's
live psychic consultation "900" numbers and monthly membership fees to its
numerous VM Product membership clubs, a decline in which would have a material
adverse effect on the Company. Calls made to the Company's live

15
<PAGE> 21

psychic consultation numbers accounted for approximately 54% of the Company's
net revenues for the six months ended May 31, 1996, with the Company's VM
Product fees accounting for approximately 29% of the Company's net revenues for
such period. The Company's first membership club was introduced in August 1994
and has since evolved into the current VM Product. The average length of a
membership is relatively short and the Company experiences a significant
attrition rate. The Company believes that the average commercial life of a
successful service, membership club or VM Product varies but is generally
limited, and a substantial portion of services, clubs and products introduced
are not commercially successful. Accordingly, the Company's success will depend
on its ability to maintain the marketability of its VM Product memberships, as
well as other existing services and to develop new services and membership
products. There can be no assurance that the Company will be able to maintain
the marketability of existing services and clubs, develop commercially
successful services and clubs or, that if developed, any such services and clubs
will remain commercially successful for any significant period of time. See
"Business - Advertising, Marketing and Promotion."

Intense Competition. The Company faces intense competition in the
marketing of its telephone entertainment services and membership clubs. The
Company competes with other "900" number entertainment providers primarily on
the basis of media placements on television and through direct mail
solicitations for similar types of services and club themes. The Company's
telephone entertainment services and membership clubs compete for consumer
recognition with services which have achieved significant, national, regional
and local consumer loyalty. Many of these entertainment services are marketed by
companies which are well-established, have reputations for success in the
development and marketing of services, have extensive experience in creating and
producing infomercials and commercials featuring high profile celebrities, and
may have significantly greater financial, marketing, distribution, personnel and
other resources than the Company. Certain of these competitors, including
Inphomation Inc. and Gold Coast Media, dominate the industry and have the
financial resources to enable them to withstand substantial price competition,
which is expected to increase. Because the telephone entertainment services
industry has no substantial barriers to entry, competition from smaller
competitors in the Company's target markets is also expected to continue to
increase significantly. The Company's services and clubs also compete with
numerous other services and products which provide similar entertainment value,
such as in-person psychic consultation and tarot card readings, newspapers,
magazines, books and audio and video cassettes featuring similar themes, on-line
computer programs and various other forms of

16
<PAGE> 22

entertainment which may be less expensive or provide other advantages to
consumers. There can be no assurance that the Company will be able to continue
to compete successfully, particularly as it seeks to enter into new markets. See
"Business - Competition."

Potential Liability and Insurance. The Company may be subject to
substantial liability as a result of claims made by consumers arising out of
services provided by the Company's independent contractors and employees. The
Company is aware that claims have been made against other companies engaged in
providing telephone entertainment services on the basis of advice or
prognostications disseminated through such services. The Company and New
Lauderdale each currently maintain a general liability insurance policy that is
subject to a per occurrence limit of $1,000,000 with a $2,000,000 aggregate
limit and umbrella policies covering an additional $3,000,000 of liability. In
addition, the Company and New Lauderdale each have errors and omissions
insurance with limits of $2,000,000. There can be no assurance that such
insurance will be sufficient to cover potential claims or that an adequate level
of coverage will be available in the future at a reasonable cost. The Company
seeks to limit any such potential liability by providing disclaimers in
connection with its services and regards its "900" services and membership clubs
as "entertainment." There can be no assurance, however, that the Company or New
Lauderdale will not face claims resulting in substantial liability for which the
Company or New Lauderdale is partially or completely uninsured. A partially or
completely uninsured claim against the Company or New Lauderdale, if successful
and of sufficient magnitude, would have a material adverse effect on the
Company. See "Business - Insurance."

Foreign Trade Risks. For the six months ended May 31, 1996, telephone
entertainment services provided in Canadian markets accounted for less than 1%
of the Company's net revenues. To the extent that the Company is able to
successfully expand its operations in Canada and into other foreign markets, the
Company will become subject to increased credit risks, fluctuations in foreign
currencies and international political, regulatory and economic developments,
all of which could have an adverse effect on the Company's operating margins and
results of operations. In addition, although the Company believes that its
operations are substantially in compliance with all material Canadian
regulations governing its operations, there can be no assurance this is actually
the case or that governmental authorities will not, in the event of
noncompliance, order the Company to cease operations and/or impose sanctions and
other penalties on the Company which, under certain circumstances, could have a
material adverse effect on the Company. See "Business - Government Regulation."

17
<PAGE> 23

Potential Conflicts of Interest. The Company has entered into
transactions with Jami Marketing Services, Inc. ("Jami Marketing"), a list
brokerage and list management consulting firm, Jami Data Services, Inc. ("Jami
Data"), a database management consulting firm, and Jami Direct, Inc. ("Jami
Direct"), a direct mail graphic and creative design firm (collectively, the
"Jami Companies"). The Jami Companies are principally owned and controlled by
Jeffrey L. Schwartz, Chief Executive Officer, director and a principal
stockholder of the Company, and Michael G. Miller, a director and principal
stockholder of the Company. Pursuant to a list management agreement dated June
1, 1993 between the Company and Jami Marketing, Jami Marketing serves as
exclusive manager in connection with the management of the Company's mailing
list for rental to third parties for which Jami Marketing receives a management
fee. Jami Marketing also provides occasional list brokerage services to the
Company, pursuant to an oral agreement, whereby Jami Marketing obtains mailing
lists from third parties for use by the Company in connection with its
telemarketing activities for which the Company pays Jami Marketing a brokerage
fee. In addition, although the Company currently creates and designs
substantially all of its print ads, direct mailings, newsletters and other
communications with club members, the Company has engaged Jami Direct to provide
such services. The Company also engages Jami Data to assist with the Company's
data base requirements. Lastly, the Company obtains a substantial number of
psychics for its live psychic and other services from PRN, and Central Talk
Management ("CTM"), an affiliate of PRN, has created and produced a significant
portion of the Company's television commercials and purchased a portion of the
Company's media time. In January 1996, pursuant to an agreement between the
Company, PRN and CTM, all of CTM's creative, media and production personnel
(approximately 35 persons) directed their full time employment efforts to New
Lauderdale. As a result, all production services previously provided to the
Company by CTM are currently rendered by New Lauderdale. PRN is principally
owned and controlled by Steven Feder, Thomas Lindsey and Peter Stolz, holders of
3,200,000 shares of Common Stock, representing an aggregate of approximately
17.35% of the outstanding Common Stock of the Company. (Such 3,200,000 shares
are included in this Prospectus). The Company believes that all of the foregoing
transactions were advantageous to the Company and were on terms no less
favorable to the Company than could have been obtained from unaffiliated third
parties. The Company anticipates that any similar future transactions will be
approved by a majority of the independent and disinterested members of the Board
of Directors, outside the presence of any interested director and, to the extent
deemed necessary or appropriate by the Board of Directors, the Company will
obtain fairness opinions or stockholder approval in connection with any such
transaction.

18
<PAGE> 24

See "Forward Looking Information May Prove Inaccurate" and "Certain
Relationships and Related Transactions".

Dependence on Key Personnel. The success of the Company is largely
dependent on the personal efforts of Jeffrey L. Schwartz, its Chairman and Chief
Executive Officer, Jay Greenwald, its President and Chief Operating Officer,
Claudia Newman Hirsch, its Executive Vice President, and Andrew Stollman, its
Senior Vice President and Secretary. Although the Company has entered into
three-year employment agreements with all of such individuals, the loss of the
services of such individuals could have a material adverse effect on the
Company's business and prospects. The Company's employment agreement with Mr.
Schwartz requires him to devote not less than 85% of his business time to the
affairs of the Company. Mr. Schwartz is an officer, director and principal
stockholder of the Jami Companies, which could give rise to conflicts of
interests in connection with the allocation of his business time. The success of
the Company may also be dependent upon its ability to hire and retain additional
qualified marketing, creative, financial and other personnel. Competition for
qualified personnel in the telephone entertainment services industry is intense
and there can be no assurance that the Company will be able to hire or retain
additional qualified personnel. See "Business - Employees and Management."

Control by Management. The Company's officers and directors
beneficially own approximately 63% of the Company's outstanding Common Stock.
Accordingly, such persons, acting together, are in a position to control the
Company, elect all of the Company's directors, increase the authorized capital,
dissolve, merge, or sell the assets of the Company and generally direct the
affairs of the Company. See "Management" and "Principal and Selling Security
Holders."

Authorization of Preferred Stock. The Company's Certificate of
Incorporation authorizes the issuance of up to 1,000,000 shares of preferred
stock with designations, rights and preferences determined from time to time by
its Board of Directors. Accordingly, the Company's Board of Directors is
empowered, without stockholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting, or other rights which could adversely affect
the voting power or other rights of the holders of the Common Stock. In the
event of issuance, the preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying, or preventing a change in
control of the Company. Although the Company has no present intention to issue
any shares of its authorized preferred stock, there can be no assurance that the
Company will not do so in the future. See "Description of Securities - Preferred
Stock."

19
<PAGE> 25

No Dividends. Since the completion of the initial public
offering, the Company has not paid any cash dividends. The
Company intends to retain earnings, if any, to finance the
operation and expansion of its business and, therefore, does not
expect to pay cash dividends in the foreseeable future. See
"Dividend Policy."

Shares Eligible for Future Sale. Upon the effectiveness of the
Registration Statement, of which this Prospectus is a part, the 3,200,000 shares
of Common Stock included in this Prospectus and an additional 13,000 shares of
Common Stock included in the Alternate Prospectus of the Registration Statement,
of which this Prospectus is a part, will be freely tradeable without further
registration under the Securities Act of 1933, as amended (the "Securities
Act"). No prediction can be made as to the effect, if any, that sales of shares
of Common Stock or even the availability of such shares for sale will have on
the market prices prevailing from time to time. The possibility that substantial
amounts of Common Stock may be sold in the public market may adversely affect
prevailing market price for the Common Stock and could impair the Company's
ability to raise capital through the sale of its equity securities. See
"Description of Securities" and "Shares Eligible for Future Sale."

USE OF PROCEEDS

The Company will not receive any proceeds from the sale of shares
covered by this Prospectus. The holders of the 3,200,000 shares covered by this
Prospectus intend to sell the shares offered hereby from time to time for their
own respective accounts in the open market at the prices prevailing therein or
in individually negotiated transactions at such prices as may be agreed upon.
Each such holder will bear all expenses with respect to the offering of shares
by him or her except the costs associated with preparing and printing this
Prospectus.

20
<PAGE> 26

SELECTED FINANCIAL DATA OF THE COMPANY

The following table presents selected historical financial data of the
Company for the period from August 1, 1992 (inception) to November 30, 1992, for
each of the three fiscal years through November 30, 1995, and for the six months
ended May 31, 1996. The following selected financial data for the years ended
November 30, 1993, 1994 and 1995 and for the six months ended May 31, 1996, are
derived from the financial statements of the Company appearing elsewhere herein.
The financial data set forth should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements of the Company.

Statement of Operations Data:

<TABLE>
<CAPTION>
For the Six August 1, 1992
Months Ended (inception) to
May 31, 1996 Year Ended November 30, November 30,
------------ ---------------------------------------------- ------------
(unaudited) 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenue $ 29,784,256 $ 50,501,266 $ 22,771,465 $ 8,262,179 $ 1,700,322
Costs of sales 24,805,226 36,732,610 17,521,985 5,778,706 986,319
Gross profit 4,979,030 13,768,656 5,249,480 2,483,473 714,003
Selling, general and ad-
ministrative expenses 3,261,873 3,467,008 3,012,588 1,801,330 448,036
------------ ------------ ------------ ------------ ------------
Income from operations 1,717,157 10,301,648 2,236,892 682,143 265,967
Interest expense (230,862) (334,318) (759,211) (117,460) (6,917)
Other income, net 437,912 35,250 -- -- --
Management fee
income -- 450,000 -- -- --
Equity in earnings of
joint venture 3,149,096 2,860,304 -- -- --
------------ ------------ ------------ ------------ ------------
Income before provision
for income tax and
minority interest 5,073,303 13,312,884 1,477,681 564,683 259,050
Provision (benefit) for
income taxes (175,662) 220,335 54,842 (76,690) 111,994
------------ ------------ ------------ ------------ ------------
Income before minority
interest 4,897,641 13,092,549 1,422,839 641,373 147,056
Minority interest in
net (income) loss -- -- -- 73,528 (73,528)
------------ ------------ ------------ ------------ ------------
Net income(1) $ 4,897,641 $ 13,092,549 $ 1,422,839 $ 714,901 $ 73,528
============ ============ ============ ============ ============
Net Income per share .31
============
Income before pro forma
adjustments and
minority interest $ 13,312,884 $ 1,477,681 $ 564,683 $ 259,050
Pro forma income tax
provision(1) 5,633,116 835,144 257,761 111,994
------------ ------------ ------------ ------------
Pro forma income before
minority interest 7,679,768 642,537 306,922 147,056

Minority interest in
net (income) loss -- -- 73,528 (73,528)
------------ ------------ ------------ ------------
Pro forma net income(1) $ 7,679,768 $ 642,537 $ 380,450 $ 73,528
============ ============ ============ ============
Pro forma net income
per share(1) $ .64 $ .05 $ .08 $ .02
============ ============ ============ ============
Weighted average
number of common
and common
equivalent shares
outstanding 15,778,844 12,000,000 12,000,000 5,008,219 4,000,000
</TABLE>

21
<PAGE> 27

Balance Sheet Data:

<TABLE>
<CAPTION>
November 30
May 31, 1996 --------------------------------------------------------
(unaudited) 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Working Capital . . . $16,047,766 $ 3,217,627 $ 494,738 $ 788,429 $ 147,056
Total Assets . . . . 32,714,049 16,969,956 3,976,881 3,894,080 942,960
Total Liabilities . . 14,855,069 10,938,881 3,432,355 3,105,651 869,432
Stockholders' equity 17,858,980 6,031,075 544,526 788,429 73,528
</TABLE>

(1) The Company and its predecessor affiliated companies had elected to be
treated as S corporations and, accordingly, were not subject to federal
income taxes. Pro forma net income and pro forma per share amounts
assume that the Company was subject to federal income taxes and taxed
at the rates in effect for the periods presented. The Company has
historically made S corporation distributions of a significant portion
of its earnings to its stockholders. The Company's election to be
treated as an S corporation terminated in December 1995.

22
<PAGE> 28

CAPITALIZATION

The following table sets forth the capitalization of the Company at May
31, 1996 as adjusted to give effect to the issuance of the 3,200,000 shares of
Common Stock in connection with the acquisition on September 10, 1996 of PRN's
interest in New Lauderdale, L.C.

<TABLE>
<CAPTION>
As Adjusted For
Outstanding This Offering
----------- -----------
<S> <C> <C>
Stockholders' equity:
Preferred stock, $.001
par value; 1,000,000
shares authorized; no
shares issued or
outstanding .......................... -- --

Common stock, $.001 par
value; 50,000,000 shares
authorized, 15,236,167
shares issued and
outstanding, 18,436,167
shares as adjusted for
this offering ........................ $ 15,236 $ 18,436
Additional paid-in
capital .............................. 14,534,421 37,331,221
Retained earnings ...................... 3,309,323 3,309,323
----------- -----------
Total shareholders'
equity ............................... $17,858,980 $40,658,980
=========== ===========
</TABLE>

23
<PAGE> 29

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

Since December 1995, the Company's Common Stock has traded on the
NASDAQ National Market System under the symbol "QTEL". The following table sets
forth the high and low bid information of the Common Stock as reported by NASDAQ
for each full quarterly period since such date (and for any subsequent interim
period for which financial statements are included herein).

<TABLE>
<CAPTION>
High (1) Low (1)
-------- -------
<S> <C> <C>
Fiscal Year Ending
November 30, 1996

First Quarter ............................ $11-1/2 $4-3/8
Second Quarter ........................... 13-3/8 8-1/8
Third Quarter ............................ 12-5/8 5-3/4
Fourth Quarter
(through October 8, 1996) ............... 9-3/8 5-7/8
</TABLE>

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

(1) Such quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual
transactions.

On January 17, 1996 (the last trading day prior to the public
announcement of the letter of intent relating to the Acquisition), the high and
low sale prices of the Common Stock were $7-3/4 (January 15, 1996) and $4-3/8
(December 18, 1995), respectively.

The Company has not paid, and has no current plans to pay, dividends on
its Common Stock. The Company intends to retain earnings, if any, for use in its
business.

24
<PAGE> 30

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY

OVERVIEW

The Company commenced operations in August 1992 by providing telephone
entertainment services through the use of "900" numbers advertised by direct
mail campaigns. In September 1993, the Company commenced providing such services
through a billable "800" number platform. In February 1994, the Company expanded
its marketing efforts to include the use of broadcast media and has increasingly
emphasized such marketing method. From September 1993 to July 1994, the
Company's "800" number billing arrangements accounted for substantially all of
the Company's net revenues.

In light of carrier termination of certain "800" number billing
platforms, in August 1994, the Company discontinued the use of billable "800"
numbers and resumed providing all of its telephone entertainment services
through "900" numbers. Billing for club membership services ("Club Product"),
which commenced in August 1994, was subsequently modified from July 1995 to
September 1995, by offering club membership as part of enhanced voice-mail
services. Currently, all club membership services are marketed and billed as
voice-mail network services ("VM Product").

In December 1994, the Company entered into a joint venture agreement
with PRN for the purpose of expanding its original club membership concept and
its "900" number services. The joint venture commenced operations in January
1995 and was subsequently reorganized as a limited liability company in March
1995 under the name New Lauderdale L.C. The Company accounted for New
Lauderdale's operations under the equity method and, accordingly, reported its
50% share of New Lauderdale's income or loss. The Company's net revenue and
expenses did not include net revenue and expenses of New Lauderdale. Upon the
consummation of the Acquisition, the Company no longer accounted for New
Lauderdale's operations under the equity method of accounting, but instead
treats New Lauderdale as a subsidiary and includes its results of operations on
a consolidated basis in the Company's consolidated financial statements.

During the three month period ended February 29, 1996, the Company
increased marketing activities and experienced high enrollments of new VM
Product customers which caused the Company to experience a high level of
acceptance difficulties with its VM

25
<PAGE> 31

Product. These acceptance difficulties occurred at two levels, consumer and
regional telephone carrier.

At the consumer level, customers did not always relate the VM Product
billing description on their telephone bills to the entertainment service that
they purchased. This prompted an increase in customer service inquiries to both
the Company and ESBI, the billing service bureau conduit to the regional
telephone carriers and telephone companies. Accordingly, for the first six
months of fiscal 1996, the Company experienced a higher level of customer
cancellations and chargebacks relating to the $19.95 per month VM Product.
Management believes that its VM Products can be successfully modified and
repositioned with shifts in emphasis as part of the marketing process. The
Company and ESBI expanded their customer service departments during the three
months ended February 29, 1996 to better educate the consumer about the product.
Telemarketing efforts during the three months ended May 31, 1996 were reduced as
the marketing shift was being accomplished. Although there can be no assurance
that these marketing efforts and changes will be successful, management
anticipates that the marketing shift along with the expansions in customer
service will reduce customer cancellations and chargebacks for the VM Product to
acceptable levels. Several variations, including different pricing structures,
of a substantially revised VM Product continue to be tested with many tests
yielding positive results. Management expects one or more of the successful
versions to be actively marketed during the second half of the fiscal year. The
pace of telemarketing and enrollments will proceed gradually, along with
increased customer service support, so as not to repeat the difficulties of the
first quarter. Due to the telephone company billing and collection delays
inherent in this business, the higher cancellation and chargeback level began in
the first quarter of fiscal 1996, continued during the second quarter of fiscal
1996 and may have continued into the third quarter of fiscal 1996.

26
<PAGE> 32

Company's VM Product. The Company has already resumed billing the VM Product
with the four carriers that specifically addressed the difficulties associated
with the VM Product. For the carrier that addressed the difficulties associated
with the billing platform, the Company resumed billing through an alternate
platform with another service bureau. For four of these carriers, the
suspensions each lasted less than sixty (60) days and did not have a material
impact on the Company's cash flows and operations. For the fifth, the suspension
lasted several months and resulted in lost revenues. During the first six months
of fiscal 1996, VM Product net revenues billed through this carrier approximated
10% of total net revenues. Marketing shifts between the VM Product and "900"
business are expected to partially offset the impact of this carrier's
suspension. Though the full amount of the impact of the lost revenues is
presently not known, the Company did incur marketing and fulfillment costs in
this carrier's region during the first six months of fiscal 1996. Therefore, the
impact to date has been significant as costs were incurred without a
corresponding revenue stream.

The VM Product is independent of the Company's "900" number
entertainment services and these difficulties do not impact the "900" number
portion of the Company's business. The carrier billing suspensions of the VM
Product are also limited to the geographic regions serviced by the individual
carriers.

The Company intends to continue its promotion of a VM Product or
similar voice-mail entertainment services concept as previously discussed. Also,
as previously discussed, recent shifts in marketing and other strategies have
increased the Company's "900" business net revenues, both absolutely and in
relation to the VM Product. Therefore, the Company expects that revenues from
the VM (or similar) Product will account for a decreasing portion of the
Company's net revenues in the future. Since any reduction in VM Product
contributions to total net revenues are expected to be more than offset by
increases in the Company's "900" business net revenues, total net revenues are
expected to increase. However no assurance can be given that these projections
will prove to be accurate. See "Forward Looking Information May Prove
Inaccurate."

The Company recognizes revenues from "900" number services net of
provision for chargebacks at the time service is accessed. As a result of the
delay between the time funds are billed until they are collected (due to normal
telephone billing and collection practices), the Company and New Lauderdale each
maintain a $4,000,000 line of credit from West and the Company maintains a
$7,000,000 line of credit from ESBI to finance its receivables. Such credit
facilities are not currently being utilized by the Company. The Company
recognizes revenues from

27
<PAGE> 33

new subscriptions to voice-mail networks net of provision for chargebacks at the
time a prospective customer subscribes to the network, subject to a two week
processing delay, and currently as fees are billed each month. See "Liquidity
and Capital Resources."

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated the percentage
of net revenue represented by certain items reflected in the Company's statement
of income. The statements of income contained in the Company's financial
statements and the following table include pro forma adjustments for income
taxes.

<TABLE>
<CAPTION>
For the Six
Months Ended
May 31, 1996 Year Ended November 30,
------------ -----------------------------
(unaudited) 1995 1994 1993
------------ ----- ----- -----
<S> <C> <C> <C> <C>
Net revenue .................... 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
Cost of sales .................. 83.3 72.7 76.9 69.9
----- ----- ----- -----
Gross Profit ................... 16.7 27.3 23.1 30.1
Selling, general and
administrative expenses ....... 11.0 6.9 13.2 21.8
Interest expense ............. 0.8 0.7 3.3 1.4
Management fee income ........ -- 0.9 -- --
Other income, net .............. 1.5
Equity in earnings of
joint venture ................ 10.6 5.7 -- --
Net income ..................... 16.4 25.9 6.2 8.6
Pro forma net income ........... 16.4 15.2 2.8 4.6
</TABLE>

Six months ended May 31, 1996 and May 31, 1995

Net revenue for the six months ended May 31, 1996 was $29,784,256, an
increase of $9,494,953 or 47% as compared to $20,289,303 for the six months
ended May 31, 1995. The increase in net revenue was attributable to increased
enrollments, during the three months ended February 29, 1996, in the Company's
VM Product, which were originally marketed as the Club Product, and increased
calls to the Company's "900" number entertainment services during all of the six
months ended May 31, 1996. For the six months ended May 31, 1996, VM Product net
revenues approximated 29% of net revenues and "900" number entertainment
services approximated 71% of net revenues. For the six months ended May 31,
1995, VM Product (marketed as Club Product in such six months) net revenues
approximated 45% of net revenues and "900" number entertainment services
approximated 55% of net revenues. The Provision for Chargebacks for the six
months ended

28
<PAGE> 34
May 31, 1996 was $19,970,251, an increase of $13,386,801, or 203%, as compared
to $6,583,450, for the six months ended May 31, 1995. Accordingly, the increase
in gross revenues has been partially offset by the rate of consumer chargebacks.
A discussion of chargebacks appears later in this section under the caption
"Increased Chargebacks, Regional Telephone Carrier and Regulatory Matters."

Cost of sales for the six months ended May 31, 1996 was $24,805,226, an
increase of $9,566,001, or 63%, as compared to $15,239,225 for the six months
ended May 31, 1995. The increase was primarily attributable to increased service
bureau fees and increases in advertising costs. Cost of sales as a percentage of
net revenue increased to approximately 83% from approximately 75% for these
periods. As customers receive entertainment services, the Company recognizes
revenues and incurs the costs of fulfillment, including transmission, billing
and collection, psychic and other costs. However, as chargebacks are recognized,
the related revenues are refunded while the cost burden remains. Therefore the
effect of increased chargebacks in the current quarter was a contributing factor
to the increase in cost of sales as a percentage of net revenue.

Selling, general and administrative expenses for the six months ended
May 31, 1996 were $3,261,873, an increase of $1,969,483, or 152%, as compared to
$1,292,390 for the six months ended May 31, 1995. This increase was primarily
attributable to increases in the Company's personnel and the Company's
relocation to larger office space to accommodate the growth of its operations.

Interest income of $284,698 for the six months ended May 31, 1996
related to the investing in short term securities of a portion of the proceeds
of the initial public offering of the Company's common stock.

For the six months ended May 31, 1996, the Company recognized equity in
earnings of the New Lauderdale joint venture of $3,149,096, $3,032,000 of which
was distributed to the Company during such six months. This compares to $646,443
equity in earnings and $640,000 distributed for the comparable prior period.
Such increases reflect New Lauderdale's increased earnings which were affected
by increased chargebacks. New Lauderdale experienced increased chargebacks
similar to those experienced by the Company and the discussion under the caption
"Increased Chargebacks, Regional Telephone Carrier and Regulatory Matters" later
in this section also applies to New Lauderdale. The recognized equity in
earnings reflects the Company's 50% interest in New Lauderdale's income for such
period. New Lauderdale commenced operations during the six months ended May

29
<PAGE> 35
31, 1995 and the Company recognized equity in earnings of joint venture of
$646,443 for such six months. Commensurate with the consummation of the
Acquisition, the Company no longer accounted for New Lauderdale's operations
under the equity method of accounting, instead treating New Lauderdale as a
subsidiary and including its results of operations on a consolidated basis in
the Company's consolidated financial statements from the date of Acquisition.

The Net Tax Provision of $175,662 for the six months ended May 31, 1996
included a $3,746,844 deferred tax benefit relating to the benefit received when
the Company converted to the accrual basis of accounting in connection with the
termination of its S corporation status. This benefit was offset by a current
tax provision of $3,922,506 calculated using C corporation statutory rates, as
adjusted for timing differences in recognizing chargeback reserves.

Net income increased to $4,897,641 for the six months ended May 31,
1996 from $4,339,825 for the prior comparable period, an increase of $557,816,
or 13%. This increase was primarily due to the increase of $2,502,653 in income
attributable to the Company's 50% equity interest in New Lauderdale, partially
offset by the decrease in income from operations of $2,040,531 which was due to
increased chargebacks. A discussion of chargebacks appears elsewhere in this
section under the caption "Overview."

30
<PAGE> 36
Year Ended November 30, 1995 Compared to Year Ended November 30, 1994

Net revenue for the year ended November 30, 1995 was $50,501,266, an
increase of $27,729,801, or 122%, as compared to $22,771,465 for the year ended
November 30, 1994. The increase in net revenue was attributable primarily to the
introduction of the Company's original membership clubs commencing in late 1994,
which accounted for $21,803,903 of net revenue. Chargebacks for the year ended
November 30, 1995 were $19,065,077, an increase of $8,223,503, or 76%, as
compared to $10,841,574 for the year ended November 30, 1994. This increase was
primarily attributable to the increase in the amount of services provided by the
Company and the corresponding increase in gross revenue between the comparable
periods. Such increase in chargebacks was partially offset by the change of the
Company's telephone entertainment services from billable "800" numbers to "900"
numbers and the addition of the original membership clubs, both of which have
historically lower chargeback rates, as well as the Company's more efficient
utilization of database management systems designed to reduce the number of
unbillable records.

Cost of sales for the year ended November 30, 1995 was $36,732,610, an
increase of $19,210,625, or 110%, as compared to $17,521,985 for the year ended
November 30, 1994. The increase was primarily attributable to increased service
bureau fees and increases in advertising expenditures for television commercials
and infomercials and telemarketing. Cost of sales as a percentage of net revenue
decreased to approximately 73% from approximately 77% for these periods,
primarily as a result of the lower costs associated with the Company's original
club membership services compared to its "900" number entertainment services.
Such decrease was partially offset by increased service bureau and advertising
costs.

Selling, general and administrative expenses for the year ended
November 30, 1995 were $3,467,008, an increase of $454,420, or 15%, as compared
to $3,012,588 for the year ended November 30, 1994. This increase was primarily
attributable to a substantial increase in the Company's personnel in 1995 and
the Company's relocation to larger office space to accommodate the growth of its
operations. Such increases were partially offset by decreases in officers'
salaries of approximately $540,000.

Interest expense decreased by $424,893, or 56%, to $334,318 for the
year ended November 30, 1995, as compared to $759,211 for the year ended
November 30, 1994. The decrease was due to lower interest rates under financing
arrangements.

31
<PAGE> 37
For the year ended November 30, 1995, the Company, for the first time,
received management fee income in an aggregate amount of $450,000 from New
Lauderdale. Such management fees were discontinued in February 1996, although
such services currently continue to be rendered to New Lauderdale.

For the year ended November 30, 1995, the Company recognized equity in
earnings of joint venture of $2,860,304, $1,540,000 of which was distributed to
the Company during such year. This reflected the Company's 50% interest in the
income from New Lauderdale's operations for such period. Commensurate with the
consummation of the Acquisition, the Company no longer accounted for New
Lauderdale's operations under the equity method of accounting, instead treating
New Lauderdale as a subsidiary and including its results of operations on a
consolidated basis in the Company's consolidated financial statements.

Net income increased to $13,092,549 for the year ended November 30,
1995 from $1,422,839 for the prior comparable period, an increase of
$11,669,710, or 820%. This increase was primarily due to an increase of
$8,064,756 in the Company's income from operations directly attributable to the
growth of the Company's business, an aggregate increase of $2,860,304 of net
income attributable to the Company's 50% equity interest in New Lauderdale, and
a reduction in interest expense of $424,893. Net income after giving effect to
pro forma income tax provisions would have been $7,679,768 and $642,537 for the
years ended November 30, 1995 and 1994, respectively.

Year Ended November 30, 1994 Compared to Year Ended November 30, 1993

Net revenue for the year ended November 30, 1994 was $22,771,465, an
increase of $14,509,286, or 175.6%, as compared to $8,262,179 for the year ended
November 30, 1993. The increase was attributable to the growth of the Company's
telephone entertainment services. Chargebacks for the year ended November 30,
1994 were $10,841,574, an increase of $8,021,172, or 284.4%, as compared to
$2,820,402 for the year ended November 30, 1993. This increase was primarily
attributable to the growth of the Company's telephone entertainment services.

Cost of sales for the year ended November 30, 1994 were $17,521,985 an
increase of $11,743,279 or 203.2%, as compared to $5,778,706 for the year ended
November 30, 1993. Cost of sales also increased as a percentage of net revenue
from 69.9% to 76.9% during such periods. Such increases were attributable
primarily to an increase in the Company's advertising expenses of approximately
$4,654,000, including $912,000 resulting from the Company's commencement of
television advertising in early 1994

32
<PAGE> 38
and $3,742,000 resulting from increases in direct mail expenses, as well as
increases in service bureau and live operator costs of approximately $6,500,000.

Selling, general and administrative expenses increased by $1,211,258,
or 67.2%, from 1993 to 1994. Such increase was primarily attributable to
increased personnel and other costs resulting from the Company's increased
levels of operations. Such increase was partially offset by a reduction of
approximately $1,190,000 in management fees paid to a related party.

Interest expense increased by $641,751 in 1994 from 1993, as a result
of increased levels of advances and higher interest rates under the Company's
financing arrangements with service bureaus.

Net income increased to $1,422,839 in 1994 from $714,901 in 1993, an
increase of $707,938, or 99.0%. This increase was primarily attributable to the
increase in net revenue in 1994. Net income after giving effect to pro forma
income tax provisions would have been $642,537 and $380,450 for the years ended
November 1994 and 1993, respectively.

LIQUIDITY AND CAPITAL RESOURCES

The Company had working capital of $16,047,766 at May 31, 1996. This
significant increase from November 30, 1995 was primarily attributable to net
proceeds of approximately $13,402,000 received from the initial public offering
of its shares of Common Stock. The Company has historically financed its working
capital requirements principally through cash flow from operations and
receivables financing.

At November 30, 1995, the Company had working capital of $3,217,627 as
compared to working capital of $494,738 at November 30, 1994. Such increase was
attributable to an increase in accounts receivable and cash, offset in part, by
increases in accounts payable, reserves for customer chargebacks and loans
payable. The Company has historically financed its working capital requirements
principally through cash flow from operations and receivable financing. In
December 1995, the Company received net proceeds of approximately $13,402,000
from an initial public offering of its shares of Common Stock, a portion of
which may also be used for working capital purposes.

Net cash provided by operating activities was $7,717,634 for the year
ended November 30, 1995. The increase in cash provided by operating activities,
during the year ended November 30, 1995, was attributable to net income and an
increase in reserve for customer chargebacks, which was partially offset by
equity

33
<PAGE> 39
interest in earnings of joint venture, net of dividends received and an increase
in accounts receivable. Net cash used in investing activities for the year ended
November 30, 1995 was $165,761 and reflects the Company's investment of $25,000
in New Lauderdale and purchases of property and equipment. Net cash used in
financing activities for the year ended November 30, 1995 was $4,962,478 and
reflects distributions to stockholders of $7,606,000, which was partially offset
by proceeds from accounts receivable financing arrangements of $2,643,522. At
November 30, 1995, the Company had cash and cash equivalents of $3,570,468.

The Company is dependent upon its "900" number services and fees
generated from its voice-mail network services for substantially all of its
revenues and is subject to the risk that "900" number charges and fees for
voice-mail network services may not be paid by consumers. Regulation in the
United States provides that a consumer's telephone service may not be
discontinued for failure to pay for "900" service or voice-mail fees. In the
event of nonpayment by consumers or the provision of refunds or credits by
carriers, the Company is nevertheless obligated to pay the service bureau
engaged for such service, which in turn is obligated to pay the carrier. The
Company maintains a reserve for consumer chargebacks which was $5,853,781 at May
31, 1996. Such reserve is estimated based on the amount of historical
chargebacks which includes refunds, credits and uncollectible charges. Due to
the Company's limited experience to date in new "900" markets and voice-mail
networks, there can be no assurance that the Company's reserves will be adequate
to cover actual chargebacks. The Company recognizes revenues net of the
provision for consumer chargebacks for "900" number services and voice-mail
network services at the time consumers access service, subscribe or continue to
use such voice-mail services. Since reserves are established prior to the
periods in which chargebacks are ultimately determined, the Company's revenues
may be reduced in later periods in the event that the Company's reserves prove
to be insufficient. Any significant sustained increase in the level of consumer
chargebacks would have a material adverse effect on the Company's financial
condition and results of operations.

The Company and New Lauderdale both have a financing arrangement with
West which currently provides each of them with a $4,000,000 line of credit
payable on demand. The line of credit provides for weekly advances in an amount
equal to 50% of a borrowing base, which is approximately 70% of gross sales from
"900" number services accessed during the prior week. The Company is entitled to
receive the balance of amounts due within thirty days of the end of the month
during which service is accessed. Amounts advanced under the line of credit bear
interest at the prime rate plus 3% and are collateralized by

34
<PAGE> 40
accounts receivable relating to "900" number services. At November 30, 1995,
$600,000 was outstanding under the line of credit. All outstanding advances
under this credit line were repaid in December 1995 and the Company is not
currently utilizing said facility. West may terminate the line of credit at any
time upon thirty days written notice.

The Company also has a financing arrangement with ESBI which currently
provides for a $7,000,000 line of credit. Such arrangement provides for ESBI's
purchase, with full recourse, of the Company's accounts receivable relating to
fees payable for voice-mail network services. Advances under the arrangement
equal approximately 50% of approved accounts and are made within 30 days of
approval by ESBI. The Company receives the balance of amounts due within 90 and
120 days, after deduction of charges, expenses and reserves. Amounts advanced
under the financing arrangement bear interest at the prime rate plus 6% and are
collateralized by accounts receivable relating to fees for voice- mail network
services. At November 30, 1995, $2,043,522 was outstanding under this
arrangement. During the third quarter of fiscal 1996, all amounts outstanding
under such agreement were reduced to zero. The financing arrangement with ESBI
may be terminated by the Company or ESBI on 30 days written notice.

The Company and its predecessor affiliated companies had elected to be
taxed as S corporations and, accordingly, were not subject to federal income
taxes. Net income, prior to December 5, 1995, had been taxed for federal income
tax purposes directly to the Company's stockholders. For the year ended November
30, 1995, the Company made S corporation distributions to its stockholders in
the aggregate amount of $7,606,000. On December 4, 1995 the Company declared a
final S corporation distribution in the approximate amount of $ 5,000,000,
representing all of its retained earnings in excess of $575,000, $3,000,000 of
which was paid to the Company's stockholders on such date. Such stockholders
were issued promissory notes (the "Stockholder Notes") in the aggregate
principal amount of the remaining portion of such S corporation distribution,
which Stockholder Notes bear interest at the rate of 9% per annum, and are
payable in aggregate minimum monthly payments of principal of $500,000 plus 25%
of monthly cash flow in excess of $1,000,000. The final December 4, 1995
retained earnings balance was $4,470,651, of which 3,875,651, plus accrued
interest, has been distributed to the S corporation stockholders in full
satisfaction of such Stockholder Notes.

The Company's primary cash requirements have been to fund the cost of
advertising and promotion. Chargebacks are paid currently from receivables due
from carriers through the Company's service bureaus. Other than the purchase of
equipment

35
<PAGE> 41
in connection with the establishment of in-house telemarketing operations, the
expansion of its customer service department and the relocation to larger
headquarters offices, the Company currently has no plans or material commitments
for capital expenditures. The Company anticipates, based on currently proposed
plans and assumptions relating to its operations (including the substantial
costs associated with its proposed advertising and marketing activities), that
projected cash flow from operations and available cash resources, including its
financing arrangements with service bureaus, will be sufficient to satisfy its
anticipated cash requirements for at least the next twelve months. The Company
does not currently have any long-term obligations and does not currently intend
to incur any such obligations in the future.

During May 1996, the Company formed three new wholly owned
subsidiaries, Quintel Products, Inc., Quintelco, Inc. and NL Corp. During the
three months ended May 31, 1996, only Quintel Products, Inc. was active. During
May 1996, its start up month, Quintel Products, Inc. contributed an immaterial
amount to net income and did not impose any significant cash requirements on the
Company. During August 1996, the Company formed Quintel Hair Products, Inc., a
wholly-owned subsidiary, for the purpose of marketing a line of hair care
products. Certain development and production costs associated with the marketing
of such hair care products already incurred by another subsidiary of the
Company, will subsequently be transferred to Quintel Hair Products, Inc. During
the next twelve months, none of these new subsidiaries are expected to change
the working capital or cash requirements of the Company as discussed above.

During July 1996, the Company entered into a limited liability company
agreement with Paragon Cellular Services, Inc., an unrelated party, to form
Quintel Cellular, LLC. The Company will retain a 50% interest in such joint
venture and account for this interest as an equity investment. The limited
liability company agreement requires the Company to provide loans to Quintel
Cellular, LLC in the initial amount of $250,000 with additional amounts at the
Company's discretion. Such loans would bear interest at the rate of 7% per annum
and be repaid in installments as a percentage of the joint venture's retained
earnings. The Company expects to be able to fund such loans from its operating
cash flow over the next twelve months and that such loans, if extended, would
not have an adverse effect on the working capital position of the Company.

During August 1996, Quintel Products, Inc., entered into a limited
liability company agreement with LaBuick Entertainment, Inc., an unrelated
party, to form Quintel-LaBuick Products, LLC. Quintel Products, Inc. will retain
a 65% interest in the joint

36
<PAGE> 42
venture. The accounting for this joint venture will be on a consolidated basis
showing a minority interest. The agreement requires the Company to provide loans
to Quintel-La Buick Products, LLC in the initial amount of $ 250,000 with
additional amounts at the Company's discretion. Such loans would bear interest
at the rate of 7% per annum and be repaid in installments as a percentage of the
joint venture's net available cash. The agreement also calls for advances of
$20,000 per month to LaBuick Entertainment, Inc. for services rendered to the
joint venture. Such advances are deductible from distributions due LaBuick
Entertainment, Inc. under the agreement. The Company also intends to advance
funds as necessary to the joint venture for the startup of the venture. The
Company expects to be able to fund such loans and advances from its operating
cash flow over the next twelve months and that such loans and advances would not
have an adverse effect on the working capital position of the Company. See
"Forward Information May Prove Inaccurate."

37
<PAGE> 43
BUSINESS

INTRODUCTION

The Company is engaged in developing and marketing telephone
entertainment services, consisting primarily of live conversation and
pre-recorded horoscopes and tarot card readings and live psychic consultations.
The Company also offers enhanced voice-mail services which include various
psychic, "personals" and other theme-related entertainment services.

MARKET OVERVIEW

The premium billed telephone entertainment services industry emerged
during the late 1980's as an information service designed to increase telephone
usage. Early information services developed by regional carriers consisted
primarily of weather and time announcements. Business enterprises known as
"information providers" soon developed and commercialized additional information
and entertainment services, which were marketed directly to consumers at premium
rates. Entertainment services were initially transmitted exclusively by carriers
in regional markets. By 1989, long distance carriers commenced providing such
services, permitting information providers to expand their potential markets and
customer base nationally and internationally.

Markets for telephone entertainment and information services have grown
steadily in recent years. According to Telemedia News and Views, an industry
publication, revenues from "900" number entertainment and information services
in the United States increased from approximately $590 million in 1993 to an
expected approximate $816 million in 1996, and are expected to reach
approximately $1.4 billion by 2000. (See "Forward Information May Prove
Inaccurate.") Since inception, the Company has sought to capitalize on
opportunities arising from these expanding markets, focusing its efforts
primarily on developing and expanding its psychic and astrology related
entertainment services, a fast-growing segment of the industry. As a result of
such efforts, the Company has achieved increasing levels of revenues and
profitability.

TELEPHONE ENTERTAINMENT SERVICES

38
<PAGE> 44
astrological and psychic phenomena which can be explained through the use of
horoscopes, tarot card and psychic readings and prognostications. The Company
currently markets approximately twenty "900" number entertainment services, each
offering programs with distinct features. For the years ended November 30, 1995
and 1994, the Company's telephone entertainment services accounted for
approximately 57% and 99%, respectively, of the Company's net revenues. For the
Six months ended May 31, 1996 and 1995, the Company's telephone entertainment
services accounted for approximately 71% and 55% respectively of the Company's
net revenues.

The Company's live psychic entertainment services permit callers to
engage in live one-on-one conversations with psychic operators and to receive
personalized information responsive to the caller's requests. The Company also
provides live tarot card entertainment services which permit callers to receive
a live tarot card reading. The Company's live conversation "900" entertainment
services are currently billed at a rate of either $3.49 or $3.99 per minute
depending on the service; provided, however, that the first two to three minutes
of some calls to such live conversation lines are provided to the customer
without charge. For the year ended November 30, 1995, the Company's live
conversation "900" entertainment services accounted for approximately 45% of the
Company's net revenues. This percentage approximated 54% for the six months
ended May 31, 1996.

PRN currently provides the Company with substantially all of its
psychic operators and monitors and supervises the quality of independent psychic
operators provided to the Company. The Company pays PRN a per minute fee based
on caller connection time. For the years ended November 30, 1995 and 1994, the
Company paid aggregate fees of approximately $3,993,000 and $186,000,
respectively, to PRN for such services. For the six months ended May 31, 1996,
approximately $2,601,400 was incurred for such services. See "Certain
Relationships and Related Transactions."

The Company offers several pre-recorded entertainment services,
including horoscopes, tarot card readings and numerology services. Some of such
services contain interactive features which permit callers to access a variety
of services by responding to pre-recorded messages, such as prompts for
birthdates. The Company's pre-recorded "900" entertainment services are
currently billed at rates up to $3.99 per minute; provided, however, that the
first two to three minutes of some calls to such pre-recorded programs are
provided to the customer without charge. For the year ended November 30, 1995,
the Company's pre-recorded entertainment services accounted for

39
<PAGE> 45
approximately 13% of the Company's net revenues and 17% for the six months ended
May 31, 1996.

The Company solicits consumers for its "900" number services by
providing access to toll-free "800" numbers for subjects of general interest and
as an introduction to the Company's "900" services. The Company's entertainment
services are available by calling designated "900" numbers from any telephone,
provided that "900 blocking" has not been ordered or imposed for such services
from such telephone. The Company's per-minute rates on telephone services are
subject to applicable limitations imposed by carriers, including the limitation
currently imposed by AT&T, the Company's primary long distance carrier, of $10
per minute.

ENHANCED VOICE-MAIL NETWORK SERVICES

The Company currently offers enhanced voice-mail services which provide
customers with a network of theme-related entertainment services, which include
astrological and psychic related entertainment services. These services, which
include a variety of live and pre-recorded programs, newsletters and gifts are
made available to each subscriber with his or her subscription to the Company's
enhanced voice-mail network. For a monthly fee, subscribers are assigned
personal voice mailboxes which can be used to communicate with other
subscribers, friends and family. Voice mailboxes are accessed by dialing
designated "800" numbers which are toll-free. Fees are billed on a monthly basis
by regional carriers on the subscribers' telephone statements. Approximately
190,000 persons are currently participating in the Company's voice-mail
networks. For the years ended November 30, 1995 and 1994, club membership and
voice-mail network fees accounted for approximately 43% and 1%, respectively, of
the Company's net revenues. For the six months ended May 31, 1996 and 1995, fees
for voice mail network services accounted for approximately 29% and 45%
respectively, of the Company's net revenues.

40
<PAGE> 46

("VM Product"). See "Business - Increased Chargebacks and Regional Telephone
Carrier Matters." The Company also continues to explore new billing platforms
for its entertainment services in order to assure continued acceptance by
telephone carriers in the future. In addition, the Company has taken several
steps to expand its customer service operations. The Company has recently
outsourced the majority of its customer service operations.

INCREASED CHARGEBACKS AND REGIONAL TELEPHONE CARRIER MATTERS

During the quarter ended February 29, 1996, the Company increased
marketing activities and experienced high enrollments of new VM Product
customers which caused the Company to experience a high level of acceptance
difficulties with its VM Product. These acceptance difficulties occurred at two
levels, consumer and regional telephone carrier.

At the consumer level, customers did not always relate the VM Product
billing description on their telephone bills to the entertainment service that
they purchased. This prompted an increase in customer service inquiries to both
the Company and ESBI. Accordingly, for the first six months of fiscal 1996, the
Company experienced a higher level of customer cancellations and chargebacks
relating to the $19.95 per month VM Product. Management believes that its VM
Products can be successfully modified and repositioned with shifts in emphasis
as part of the marketing process. See "Forward Looking Information May Prove
Inaccurate". The Company and ESBI expanded their customer service departments
during the three month period ended February 29, 1996 to better educate the
consumer about the product. Telemarketing efforts during the three months ended
May 31, 1996 were reduced as the marketing shift was being accomplished.
Although there can be no assurance that these marketing efforts and changes will
be successful, management anticipates that the marketing shift along with the
expansions in customer service will reduce customer cancellations and
chargebacks for the VM Product to acceptable levels. Several variations,
including different pricing structures, of a substantially revised VM Product
continue to be tested with many tests yielding positive results. Management
expects one or more of the successful versions to be actively marketed during
the second half of the fiscal year. See "Forward Looking Information May Prove
Inaccurate". The pace of telemarketing and enrollments will proceed gradually,
along with increased customer service support, so as not to repeat the
difficulties of the first quarter. Due to the telephone company billing and
collection delays inherent in this business, the higher cancellation and
chargeback level began in the first quarter of fiscal 1996, continued during the
second quarter of fiscal 1996 and may continue into the third quarter of fiscal
1996.

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At the regional telephone carrier level, five of the regional telephone
carriers suspended billing of the Company's VM Products at different times
during the first six months of 1996. The suspensions were the result of the
carriers' belief that the Company and ESBI were unable to provide adequate
customer services to VM Product customers in the regions serviced by the
carriers. The Company did not anticipate the increase in customer service calls
during the first three months of fiscal 1996 and was not able to adequately
handle the increased customer service call volume. As stated above, both the
Company and ESBI expanded their customer service departments in response to such
needs. Four of the five carriers, in reaching their decisions to suspend
billings, specifically addressed the Company's VM Product and the remaining
carrier addressed the billing platform that encompasses the Company's VM
Product. The Company has resumed billing the VM Product with the four carriers
that specifically addressed the difficulties associated with the VM Product. For
the carrier that addressed the difficulties associated with the billing
platform, the Company resumed billing through an alternate platform with another
service bureau. For four of these carriers, the suspensions each lasted less
than sixty (60) days and did not have a material impact on the Company's cash
flows and operations. For the fifth carrier, the suspension lasted several
months and resulted in lost revenues. During the first six months of fiscal
1996, VM Product net revenues billed through this carrier approximated 10% of
total net revenues. Marketing shifts between the VM Product and "900" business
are expected to partially offset the impact of this carrier's suspension. See
"Forward Looking Information May Prove Inaccurate". Though the full amount of
the impact of the lost revenues is presently not known, the Company did incur
marketing and fulfillment costs in this carrier's region during the first six
months of fiscal 1996. Therefore, the impact to date has been significant as
costs were incurred without a corresponding revenue stream. See "Risk Factors -
Dependence on Third Party Carriers".

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decreasing portion of the Company's net revenues in the future. Since any
reduction in VM Product contributions to total net revenues are expected to be
more than offset by increases in the Company's "900" business net revenues,
total net revenues are expected to increase. However no assurance can be given
that these projections will prove to be accurate. See "Forward Looking
Information May Prove Inaccurate".

The Company's first membership club, the Astrological Society of
America, ("ASA"), which was introduced in August 1994, ceased marketing to new
members in late 1995, and was replaced by the Psychic Enrichment Network
("PEN"), an alternative voice-mail network, which was an expanded and updated
version of ASA. ASA members, who are now also provided with and billed for the
Company's voice-mail services, are billed at a monthly rate of $9.95. For such
monthly fee, members received a kit consisting of tarot cards and a newsletter,
upon enrollment, and a monthly three-minute live psychic reading. ASA members
are also given access to designated "900" number entertainment services at
special rates. Current membership in this original club is approximately 34,000
members. Use of such "900" number entertainment services by members generates
additional net revenues for the Company.

PEN provides approximately 24,000 current subscribers with voice-mail
services and astrological and psychic related entertainment services for a
monthly fee of $19.95. Subscribers receive unlimited access to pre-recorded and
interactive programs, which are accessed by calling designated "800" numbers.
PEN subscribers received, upon joining the network, a personal stereo headset
cassette player and inspirational tape, at no additional charge, and a monthly
five-minute live psychic reading. Unlike ASA, PEN subscribers do not receive
access to special "900" number entertainment services.

The Company recently began marketing another $9.95 VM Product using the
original ASA name that combines features of both PEN and the original ASA. To
date, approximately 109,000 members have enrolled in such product.

The Company intends to continue its promotion of its voice-mail
services concept and/or similar concepts. However, as discussed above, the
Company expects that revenues from voice-mail subscribers will account for a
decreasing portion of the Company's net revenues in the future. Total net
revenues are expected to increase as marketing shifts increase the Company's
"900" business. See "Forward Looking Information May Prove Inaccurate".

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NEW LAUDERDALE

In March 1995, the Company and PRN formed New Lauderdale, a successor
to a joint venture established in December 1994, for the purpose of creating,
developing and marketing theme-related membership clubs and related telephone
entertainment services. Pursuant to the terms of the agreement governing the
operations of New Lauderdale, each of PRN and the Company were entitled to share
equally in profits and losses from New Lauderdale's telephone entertainment
services and voice-mail subscriber fees. On September 10, 1996, pursuant to the
terms of an Acquisition Agreement (the "Acquisition Agreement"), a subsidiary of
the Company acquired PRN's interest in New Lauderdale (the "Acquisition").
Commensurate with the Acquisition Agreement, the Company began to include 100%
of New Lauderdale's operations in its consolidated financial statements.
Simultaneous with the closing of the Acquisition, the agreement governing the
operations of New Lauderdale was amended. Under the new agreement, PRN is still
responsible for providing psychic operators and the balance of New Lauderdale's
operations are the responsibility of the Company.

To date, New Lauderdale has introduced two membership clubs and four
voice-mail networks. Both membership clubs were modified to voice-mail networks
in late 1995. The services provided pursuant to such networks are similar to
those provided pursuant to the Company's voice-mail services. New Lauderdale's
first membership club, the Philip Michael Thomas Membership Club ("PMT"), which
was introduced in January 1995, ceased marketing to new members in late 1995,
and was replaced by the Joyce Jillson Psychic Astrology Network, a new
voice-mail network, which is an expanded and updated version of PMT. Current
membership in PMT approximates 20,000 subscribers. In June 1995, New Lauderdale
introduced La Sociedad Astrologica de America, a Spanish language version of ASA
("La Sociedad Astrologica") designed to appeal to the Hispanic population, which
currently has approximately 3,000 subscribers. Although each of these services
was initially offered for a monthly fee of $9.95, new La Sociedad Astrologica
subscribers were accepted pursuant to the new format (i.e., voice mail without
special "900" number entertainment services) for a fee of $19.95 per month.

In October 1995, New Lauderdale introduced the Joyce Jillson Psychic
Astrology Network, featuring Joyce Jillson, a nationally syndicated columnist
and author of books on the subject of astrology, which currently has
approximately 28,000 subscribers. Such network is offered to subscribers at
$19.95 per month. New Lauderdale also introduced the Perfect Match Network in
late 1995, a personals and dating network, which currently has approximately
1,000 subscribers. Such network is offered to

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subscribers at $19.95 per month. Subscribers are able to leave "personals ads"
on the voice-mail network and to retrieve "personals ads" submitted by other
subscribers. In addition, New Lauderdale is continuing to test a diet network.

Subscribers to all of New Lauderdale's voice-mail networks receive
unlimited access to several pre-recorded and interactive programs, which are
accessed by calling designated "800" numbers, in addition to various gifts.

For the year ended November 30, 1995 (prior to the consummation of the
Acquisition), income from New Lauderdale's operations accounted for
approximately 21% of the Company's income before provision for income taxes,
substantially all of which was derived from Philip Michael Thomas Membership
Club fees and revenues from "900" numbers.

For the six months ended May 31, 1996 (prior to the consummation of the
Acquisition), income from New Lauderdale's operations accounted for
approximately 16% of the Company's income before provision for income taxes.

ADVERTISING, MARKETING, AND PROMOTION

Strategy

The Company intends to actively pursue a strategy of growth by
expanding its "900" entertainment service consumer markets, primarily through
the use of telemarketing, direct mail, print advertising, and infomercials and
other television advertising. Consistent with its aggressive growth strategy,
the Company intends to produce, in 1996, at least one 30-minute infomercial and
up to ten commercials, expand its telemarketing activities, increase its levels
of syndicated television advertising, and expand its direct mail marketing
programs.

Media Advertising and Promotion

The Company focuses its efforts on direct response marketing which is
designed to capture the highest percentage of calls and maximize revenues. The
Company's principal direct marketing methods include the use of television
infomercials and commercials featuring celebrity endorsements designed to
achieve a high level of consumer awareness and appeal. The Company believes that
consumer awareness and demand for telephone entertainment services has been
increasing due principally to the use of television commercials and
infomercials. Infomercials typically feature in-depth interviews and information
designed to motivate viewers to place telephone calls to access the Company's
services. Infomercials generally take approximately six weeks to

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write and produce, and the Company's production costs generally range from
approximately $250,000 to $300,000. The Company's ability to efficiently produce
and air an infomercial is essential to its marketing strategy.

To date, the Company and its subsidiaries have produced five
infomercials, which are designed to promote the Company's club membership and
successor VM Product concepts. These infomercials feature programs intended to
encourage viewers to call the Company's telephone numbers to access live psychic
operators or astrology-related information and enroll as members.

The Company and its subsidiaries have created and produced
approximately fifty commercials in connection with the promotion of "900" number
services, its membership clubs and voice-mail network services. CTM, an
affiliate of PRN, has created and produced a significant portion of the
Company's commercials. In connection with its production services, the Company
had paid CTM $10,000 per month in consideration of such services and between
$4,000 and $12,000 per month for media purchases related to the Company's
voice-mail services. In January 1996, pursuant to an agreement between the
Company, PRN and CTM, all of CTM's creative, media and production personnel
(approximately 35 persons) directed their full time employment efforts to New
Lauderdale. As a result, all production services previously provided to the
Company by CTM are currently rendered by New Lauderdale. New Lauderdale has also
agreed to provide similar media purchase and commercial production services to
PRN on a commission fee basis until such arrangement is terminated by mutual
agreement of the parties. See "Risk Factors - Potential Conflicts of Interest"
and "Certain Relationships and Related Transactions".

The Company has increasingly emphasized the marketing and promotion of
its "900" number services through celebrity endorsements. The Company actively
seeks to engage celebrity hosts to promote and advertise new telephone
entertainment services. The Company has engaged the services of Dennis Rodman, a
National Basketball Association star and Rhonda Shear, a television entertainer,
to promote the Company's telephone entertainment and voice-mail services. New
Lauderdale has also entered into agreements with celebrities including Philip
Michael Thomas, Joyce Jillson, Catherine Oxenberg, a model and star of the 1980s
television series Dynasty, Billy Dee Williams, a television and film actor, and
Fernando Allende, a Latin American television actor, to appear in commercials
promoting New Lauderdale's various telephone entertainment and voice-mail
services. Agreements with celebrities are generally for a term of one year,
which may be extended under certain circumstances, and grant worldwide rights to
use an individual's name and

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likeness in connection with services promoted by commercials. Compensation
varies by individual and generally consists of an advance payment and royalties
for each minute of "900" number calls or a percentage of monthly voice-mail
subscription fees.

The Company believes that the quality of media time purchased by the
Company is a critical element in a successful direct marketing effort.
Accordingly, the Company seeks to purchase blocks of quality broadcast and cable
television media in order to assure meaningful coverage of its infomercials and
commercials in selected time slots and geographic markets, through
media-purchasing agencies. The Company has an arrangement with DM Media
Management ("DM") pursuant to which DM purchases syndicated advertising time for
the Company nationally. For the year ended November 30, 1995, the Company
incurred fees of approximately $200,000 for DM's services. The Company has also
entered into an agreement with CTM to purchase a portion of the Company's local
media time in geographic regions throughout the United States. For the year
ended November 30, 1995, the Company incurred fees of approximately $84,000 for
CTM's services. In January 1996, New Lauderdale acquired the media business
operated by CTM, including all media contracts and other arrangements. See "Risk
Factors - Potential Conflicts of Interest" and "Certain Relationships and
Related Transactions".

Telemarketing

The Company currently retains West to perform inbound telemarketing
activities. West provides an aggregate of between 100 and 1,000 telephone
operators on an ongoing basis, depending upon the Company's planned marketing
efforts, to respond to incoming telephone calls from viewers of the Company's
infomercials and commercials who are interested in subscribing to the Company's
voice-mail networks or are inquiring about such networks. The Company pays an
average of $4.50 per subscription for each live order in connection with such
services. The Company believes that an integral part of inbound telemarketing is
the opportunity to increase revenues by offering or introducing additional or
selected services, such as "900" number services, with a voice-mail
subscription.

The Company currently engages Atlas Audiotex, Inc., National Market
Share, Inc. and Optima Direct, Inc. to perform substantially all outbound
telemarketing activities. The Company utilizes outbound telemarketing on a
regular basis to promote its telephone entertainment services and voice-mail
networks. These agencies provide an aggregate of between 50 and 150 telephone
operators on an ongoing basis, depending upon the Company's current marketing
efforts, to place telephone calls to prospective customers using consumer
information and data

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obtained from the Company's inbound telemarketing activities and mailing lists.
The Company pays such agencies an average of $27 per hour for each operator. The
Company also intends to establish its own in-house telemarketing capabilities.
The Company believes that establishing such capabilities will allow it to
increase call volume and reduce costs relating to telemarketing activities,
thereby maximizing efficiency and revenues.

Direct Mail and Print Advertising

The Company also engages in direct mail and print advertising campaigns
designed to promote entertainment services, consisting of notifications,
promotions, periodicals and subscription kits. The Company has, in the past,
engaged advertising agencies, principally Jami Direct, Inc., an affiliate of the
Company, to create and design print ads, direct mailings, newsletters and other
communications with subscribers. Since July 1995, the Company has performed such
creative activities in-house.

LIST RENTALS

The Company also rents its mailing lists to third parties through Jami
Marketing Services, Inc. ("Jami Marketing"), an affiliate of the Company.
Pursuant to a list management agreement, dated June 1, 1993, between the Company
and Jami Marketing, Jami Marketing serves as exclusive manager in connection
with renting the Company's mailing list. The Company pays to Jami Marketing a
management fee equal to 10% of rental revenue to manage its list, plus fees in
connection with processing the mailing list. Revenues from mailing list rentals
have not been material to date. See "Risk Factors - Potential Conflicts of
Interest" and "Certain Relationships and Related Transactions."

SERVICE BUREAUS

The Company has engaged West and ESBI as the primary vendors to provide
billing and collection services and accounts receivable financing in connection
with the Company's "900" number services and voice-mail networks. In addition,
West provides other services, including call processing, in-bound telemarketing
and production of pre-recorded programs. The Company is dependent upon West and
ESBI to provide quality services on a timely basis and on favorable terms.
Failure by West or ESBI to provide such services could result in material
interruptions in the Company's operations. See "Risk Factors Dependence on Third
Party Carriers" and "- Dependence on Third Party Service Bureaus."

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COMPETITION

The Company faces intense competition in the marketing of its telephone
entertainment services and voice-mail networks. The Company competes primarily
on the basis of media placements on television and through direct mail
solicitations for similar "new age" services and network themes. The Company's
telephone entertainment services and voice-mail networks compete for consumer
recognition with services which have achieved significant, national, regional
and local consumer loyalty. Many of these entertainment services are marketed by
companies which are well-established, have reputations for success in the
development and marketing of services, have extensive experience in creating and
producing infomercials and commercials featuring high profile celebrities, and
may have significantly greater financial, marketing, distribution, personnel and
other resources than the Company. These financial and other capabilities permit
such companies to implement extensive advertising and promotional campaigns,
both generally and in response to efforts by additional competitors to enter
into new markets and introduce new services.

Certain of these competitors, including Inphomation Inc. and Gold Coast
Media, dominate the industry and have the financial resources to enable them to
withstand substantial price competition, which is expected to increase.
Inphomation Inc. is the operator of "Psychic Friends Network," a highly
successful "900" telephone entertainment service marketed through frequently
broadcast infomercials and commercials featuring Dionne Warwick, as well as
other "900" number services. Gold Coast Media is also the operator of a highly
successful "900" number psychic related telephone entertainment service marketed
through infomercials and commercials featuring Kenny Kingston.

In addition, because the telephone entertainment services industry has
no substantial barriers to entry, competition from smaller competitors in the
Company's target markets and from direct response marketing companies not
currently offering telephone entertainment services and services similar to the
Company's voice-mail network services are also expected to continue to increase
significantly. The Company expects that direct marketing companies that have
developed or are developing new marketing strategies, as well as other companies
that have the expertise that would encourage them to seek to develop direct
marketing capabilities, may attempt to enter the telephone entertainment
services industry or develop voice-mail services similar those provided by the
Company's voice-mail networks, which would compete with the Company's services.
The Company is also aware of other companies that have developed and introduced
or are developing "900" number programs with a concept similar to

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the Company's voice-mail networks, certain of which are psychic related. It is
also possible for a small company to introduce a service or program with limited
financial and other resources through the use of third-party agencies. Any such
company having the potential for success may achieve rapid and significant
growth as a result of the success of a single infomercial.

The Company's services and networks also compete with numerous other
services and products which provide similar entertainment value, such as
in-person psychic consultation and tarot card readings, newspapers, magazines,
books and audio and video cassettes featuring "new age" themes, on-line computer
programs and various other forms of entertainment which may be less expensive or
provide other advantages to consumers. See "Risk Factors - Intense Competition".

INSURANCE

The Company may be subject to substantial liability as a result of
claims made by consumers arising out of services provided by the Company's
independent contractors and employees. The Company is aware that claims have
been made against other companies engaged in providing telephone entertainment
services on the basis of advice or prognostications disseminated through such
services. The Company and New Lauderdale each currently maintain a general
liability insurance policy that is subject to a per occurrence limit of
$1,000,000, with a $2,000,000 aggregate limit and an umbrella policy covering an
additional $3,000,000 of liability. In addition, the Company and New Lauderdale
each have errors and omissions insurance with limits of $2,000,000. Such
insurance may not be sufficient to cover all potential future claims and
additional insurance may not be available in the future at reasonable costs. The
Company seeks to limit any such potential liability by providing disclaimers in
connection with its services and regards its "900" services and the services
provided pursuant to its voice-mail networks as "entertainment." See "Risk
Factors - Insurance".

GOVERNMENT REGULATION

The telephone entertainment services industry is subject to extensive,
stringent and frequently changing federal, state and local laws and substantial
regulation under these laws by governmental agencies, including the Federal
Communications Commission ("FCC"), the Federal Trade Commission ("FTC"), the
Department of Justice, the United States Postal Service, various state Attorneys
General and state and local consumer protection agencies. Regulations applicable
to carriers and providers of

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telephone entertainment services are interpreted and enforced by regulatory
authorities with broad discretion and impose significant compliance burdens and
risks on the Company.

The FCC regulates carriers that transmit calls and bill and collect
charges, as well as the broadcast and cable television industry, including
networks and stations that carry the Company's infomercials and commercials. The
FTC, which is the federal regulatory authority with primary jurisdiction over
the advertising of "900" number services, is responsible for enforcing various
federal laws intended to protect consumers against deceptive trade practices,
and false and misleading advertising, and has promulgated regulations governing,
among other things, advertising disclosures for telephone entertainment
services. In response to substantial complaints by consumers regarding
fraudulent telemarketing activities, the FTC has recently enacted additional
regulations governing telemarketing activities which, among other things, impose
various mandatory disclosure requirements on inbound and outbound telemarketing
calls, prohibit the telemarketer from making false representations, and prohibit
certain deceptive and abusive telemarketing acts and practices. Such regulations
also restrict telemarketing calls from being placed between 9:00 p.m. and 8:00
a.m. without the prior consent of the person being called. The FTC can impose
substantial penalties for fraudulent telemarketing activities and, require the
telemarketer to disclose the product or service being offered, the cost of such
product or service, any restrictions that may apply before asking for a credit
card or bank information and, if there is a no refund policy, to disclose such
policy. In addition, the FTC has empowered state Attorneys General to seek
injunctions in federal courts for fraudulent telemarketing activities. The
Department of Justice and the United States Postal Service also enforce various
federal laws intended to prevent the use of wires or mail for fraudulent or
deceptive purposes.

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<PAGE> 57

numbers in connection with the marketing of voice-mail services and consumer
solicitation. Management believes that the new requirements set forth in the
provisions of the TCA are not applicable to the Company's operations, based on
its belief that its "800" number services are not pay-per-call services, as such
term is defined under TDDRA, as amended by the TCA. Pursuant to the TCA, the FTC
is empowered to adopt rules that expand the definition of pay-per-call to
encompass additional services. The FTC is currently expected to initiate a
rule-making concerning the definition, as well as other pay-per-call reforms
later this year. There can be no assurance that federal or state governmental
agencies will not interpret the existing provisions of the TDDRA, or that the
FTC will not revise the definition of pay-per-call in a manner which would make
it applicable to the Company's "800" number services, in which event, the
Company may be required to materially change the method in which it markets
certain of its entertainment services. Compliance with such requirements, if
determined to be applicable, could have a material adverse effect on the
Company's business.

The FCC recently issued an "Order and Notice of Proposed Rulemaking",
setting forth rules implementing the TCA. The regulations revised the existing
rules to conform with the requirements of the TCA. In addition, the FCC has
proposed a rule that will require all pre-subscription agreements to be in
writing, rather than only those offered through toll-free "800" numbers. The
proposed rules also require that the written pre- subscription agreement be
separate or easily severable from any promotions or sweepstakes. Furthermore,
carriers are authorized to terminate service to an information provider that
cannot provide a written pre-subscription agreement for disputed charges. While
the Company does not believe the proposed rules, if adopted, will effect its
operations, in the event a regulatory agency should deem the rules applicable,
such proposed rules could have a materially adverse effect on the Company.

The Company's operations in Canada are also subject to Canadian
regulations governing "900" number services and consumer protection regulations
which govern advertising and other business activities.

All of the Company's entertainment services and advertisements are
reviewed by the Company's regulatory counsel, and management believes that the
Company is in substantial compliance with all material federal and state laws
and regulations governing its provision of "800" and "900" number entertainment
services, all of its billing and collection practices and the advertising of its
services and has obtained or is in the process of obtaining all licenses and
permits necessary to engage in telemarketing activities. Although the Company
from

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time to time receives requests for information from, or is forwarded consumer
complaints by, regulatory authorities, the Company has not been subject to any
enforcement actions by any regulatory authority. Nevertheless, civil
investigative demands have been received from the Attorneys' General of the
States of Idaho, Missouri, New York, Pennsylvania and Texas, as well as from the
Tennessee Public Service Commission, seeking certain information relating to the
Company. In addition, certain information has been requested by the Oregon
Department of Justice. Lastly, certain information relating to the Company's
programs also has been subpoenaed by the Attorney General of the State of Texas
from West Outbound and from the Attorneys' General of the States of Texas and
Idaho from ESBI. The Company believes that the information has been sought as
part of pending investigations in connection with certain of the Company's
marketing activities. The investigation by the State of Idaho has been
discontinued. The Pennsylvania Attorney General's investigation has concluded
with issuance of a warning letter to the Company. The Company has responded and
is continuing to respond to the subpoenas issued by the New York Attorney
General's office. While such investigation is still ongoing, management believes
it will be able to amicably resolve any outstanding issues with such state. In
the event the Company is able to resolve such outstanding issues, it is possible
that the Company may be required to modify the manner in which it advertises its
products and services in New York State. No assurance can be given, however,
that management will be able to amicably resolve the outstanding issues with New
York State and the failure to do so may have a materially adverse effect on the
Company. Management further believes that while the other remaining
investigations will not result in enforcement actions or claims which would have
a material adverse effect on the Company, there can be no assurance that this
will be the case. Amendments to or interpretations and enforcement of existing
statutes and regulations, adoption of new statutes and regulations and the
Company's expansion into new jurisdictions and "900" number services could
require the Company to continually alter methods of operations, modify the
content or use of its services or the manner in which it markets it services,
which could result in material interruptions in its operations. Failure to
comply with applicable laws and regulations could subject the Company to civil
remedies, including substantial fines, penalties and injunctions, as well as
possible criminal sanctions, which could have a material adverse effect on the
Company. See "Risk Factors - Government Regulation" and "- State Attorney
General Matters".

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EMPLOYEES

The Company currently employs 39 full-time employees, including five
executive officers and 18 part-time employees. The Company believes that its
relations with its employees are satisfactory. None of the Company's employees
are represented by a union.

PROPERTIES

The Company recently entered into a new ten-year lease for 15,000
square feet of space at One Blue Hill Plaza, Pearl River, New York, all of which
is currently used for the Company's principal executive offices. Such lease
provides for a monthly base rent of $11,875 for the initial 15 months, which
amount will be increased to $21,875 per month for the next 45 months, and
further increased to $26,875 per month for the remainder of the term of such
lease.

LEGAL PROCEEDINGS

In October 1995, ESBI was served with a notice of violation under
California's Consumer Legal Remedies Act by an individual acting in her own
right and for others similarly situated, relating to certain billing practices,
including ESBI's alleged billing for one of the Company's "800" numbers which
the Company allegedly advertised to consumers as a free call. Such notice
demands that the class of claimants represented therein be compensated for
violations of such consumer laws.

On April 2, 1996, a complaint was filed in the Superior Court of
California, County of Los Angeles, which seeks class action certification
pursuant to California Civil Code Section 1770, et. sec., on behalf of all
consumers alleged to have been damaged by billings for services advertised as
free. The complaint seeks injunctive relief, general damages and punitive
damages arising from alleged fraudulent and misleading advertising practices.
ESBI has not been formally served with the complaint. While the Company has not
been named as a party in the complaint, certain of the allegations raised in the
complaint pertain to services of the Company billed by ESBI. Management believes
that such claims are without merit and will not have a material impact on the
Company. ESBI has sought indemnification from the Company pursuant to the terms
of the billing agreement. Accordingly, the Company has notified its insurance
carrier of the potential claims.

The Company has been advised that a claim was asserted on or about
February 7, 1996 against New Lauderdale and certain other defendants by Gold
Coast Media, Inc. ("Gold Coast"), one of the Company's competitors. Gold Coast
seeks to enforce an alleged non-competition agreement with a former employee,
has asserted a

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claim for tortious interference against New Lauderdale and the other named
corporate defendants, and seeks unspecified monetary damages. Although the
Company is not a named defendant in this action, it is possible that Gold Coast
could, in the future, amend its complaint to add the Company as a defendant. New
Lauderdale has advised the Company that it believes such claim is without merit
and will not have a material impact on New Lauderdale.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Set forth below are the directors and executive officers of the
Company, their respective names and ages, positions with the Company, principal
occupations and business experiences during the past five years and the dates of
the commencement of each individual's term as a director and/or officer.

<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>

Jeffrey L. Schwartz 48 Chairman of the Board and
Chief Executive Officer
Jay Greenwald 32 President, Chief Operating
Officer and Director
Claudia Newman Hirsch 35 Executive Vice President and
Director
Andrew Stollman 31 Senior Vice President,
Secretary and Director
Michael G. Miller 49 Director
Murray L. Skala 49 Director
Mark Gutterman 41 Director
Edwin A. Levy 59 Director
Vincent Tese 53 Director
</TABLE>

Jeffrey L. Schwartz has been Chairman and Chief Executive Officer of
the Company since January 1995, Secretary/Treasurer from September 1993 to
December 1994 and a director since inception of the Company in 1993. Since
January 1979, Mr. Schwartz has also been Co-President and a director of Jami
Marketing Services, Inc. ("Jami Marketing"), a list brokerage and list
management consulting firm, Jami Data Services, Inc. ("Jami Data"), a database
management consulting firm, and Jami Direct, Inc. ("Jami Direct"), a direct mail
graphic and creative design firm (collectively, the "Jami Companies").

Jay Greenwald has been President and Chief Operating Officer of the
Company since January 1995, Vice President from August 1992 to December 1994 and
a director since inception. From January 1991 to August 1992, Mr. Greenwald was
Vice President of Newald Direct, Inc. ("Newald Direct") and, from July 1990 to
January 1991, he was President of Newald Marketing, Inc. ("Newald Marketing"),
companies engaged in direct response marketing.

Claudia Newman Hirsch has been Executive Vice President of the Company
since January 1995, Vice President from August 1992 to December 1994 and a
director since inception. From January 1991 to August 1992, Ms. Newman Hirsch
was President of Newald

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<PAGE> 62

Direct and from July 1990 to January 1991, was Vice President of Newald
Marketing.

Andrew Stollman has been Senior Vice President, Secretary and a
director of the Company since January 1995 and was President from September 1993
to December 1994. From August 1992 to June 1993, Mr. Stollman was a consultant
to Cas-El, Inc., from November 1992 to June 1993, manager at Media Management
Group, Inc., and from December 1990 to August 1992, national marketing manager
for Infotrax Communications, Inc. and Advanced Marketing & Promotions, Inc.,
companies engaged in providing telephone entertainment services.

Michael G. Miller has been a director of the Company since inception.
Since 1979, Mr. Miller has been the Co-President and a director of each of the
Jami Companies, as well as a director of Jakks Pacific, Inc., a publicly-held
company in the business of developing, marketing and distributing children's
toys.

Murray L. Skala has been a director of the Company since October 1995.
Mr. Skala has been a partner in the law firm of Feder, Kaszovitz, Isaacson,
Weber, Skala & Bass LLP since 1976. Mr. Skala is also a director of Jakks
Pacific, Inc., T-HQ, Inc., a publicly-held company in the business of developing
and selling video games, and Katz Digital Technologies, Inc., a publicly-held
company which is in the business of producing digital printing and prepress
services.

Mark Gutterman has been a director of the Company since October 1995.
Mr. Gutterman has been a partner in the accounting firm of Feldman, Gutterman,
Meinberg & Co. and its predecessor, Weiss & Feldman, since 1980. Mr. Gutterman
is a Certified Public Accountant.

Edwin A. Levy has been a director of the Company since November 1995.
Mr. Levy has been the Chairman of the Board of Levy, Harkins & Co., Inc., an
investment advisor, since 1979, and is also a director of Coastcast Corp., a
publicly-held company in the business of manufacturing golf club heads.

Vincent Tese has been a director of the Company since March 1996. Mr.
Tese has been the Chairman of Wireless Cable International, Inc., a cable
television company, since 1988, Chairman of Cross County Wireless, Inc., which
was in the cable television business, from 1988 until July 1995, when such
company was sold to Pacific Telesis Inc., and the co-founder and Chairman of
Cross County Cable TV Inc. from 1976 to July 1995. Mr. Tese is also a director
of the Bear Stearns Companies, Inc., a publicly-held company in the investment
banking and brokerage business.

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<PAGE> 63

EXECUTIVE OFFICERS

Four of the Company's executive officers, Jeffrey L. Schwartz, Jay
Greenwald, Claudia Newman Hirsch and Andrew Stollman, are also directors of the
Company. Information with regard to such persons is set forth above under the
heading "Directors," which is hereby incorporated by reference.

Raymond J. Richter, age 45, has been Chief Financial Officer
of the Company since March 1995 and Treasurer since October 1995.
From November 1993 to February 1995, Mr. Richter was a financial
consultant. From April 1990 to October 1993, Mr. Richter was the
Chief Financial Officer of All-Ways Advertising Company, a
promotional advertising company. Mr. Richter is a Certified
Public Accountant.

All directors hold office until the next annual meeting of stockholders
and the election and qualification of their successors. Directors receive no
cash compensation for serving on the Board of Directors other than reimbursement
of reasonable expenses incurred in attending meetings. Non-employee Directors of
the Company are compensated for their services and attendance at meetings
through the grant of options pursuant to the Company's Stock Option Plan.
Officers are elected annually by the Board of Directors and serve at the
discretion of the Board.

The Company has obtained "key man" life insurance in the amount of
$1,000,000 on each of the lives of Jeffrey L. Schwartz, Jay Greenwald, Claudia
Newman Hirsch and Andrew Stollman.

The Company has agreed, if so requested by the underwriter of the
initial public offering of the Company's securities, Whale Securities Co., L.P.
("Whale"), to nominate and use its best efforts to elect a designee of Whale as
a director of the Company or, at Whale's option, as a non-voting adviser to the
Company's Board of Directors. The Company's officers, directors and five of its
existing principal stockholders have agreed to vote their shares of Common Stock
in favor of such designee. Whale has not yet exercised its right to designate
such a person. Such right of designation of Whale is in effect until December 5,
2000.

THE COMMITTEES

The Board has an Audit Committee, a Compensation Committee and a Stock
Option Committee. The Board of Directors does not have a Nominating Committee,
and the usual functions of such a committee are performed by the entire Board of
Directors.

Audit Committee. The functions of the Audit Committee include
recommendations to the Board of Directors with respect to the

58
<PAGE> 64

engagement of the Company's independent certified public accountants and the
review of the scope and effect of the audit engagement. The current members of
the Audit Committee are Messrs. Levy, Tese and Skala.

Compensation Committee. The function of the Compensation Committee is to make
recommendations to the Board with respect to compensation of management
employees. In addition, the Compensation Committee administers plans and
programs, with the exception of the Company's stock option plans, relating to
employee benefits, incentives and compensation. The current members of the
Compensation Committee are Messrs. Skala and Gutterman.

Stock Option Committee. The Stock Option Committee determines the persons to
whom options should be granted under the Company's stock option plans and the
number of options to be granted to each person. The current members of the Stock
Option Committee are Messrs. Skala and Gutterman.

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<PAGE> 65

EXECUTIVE COMPENSATION

The following table sets forth the Company's executive compensation
paid during the three fiscal years ended November 30, 1995, 1994 and 1993 for
the Chief Executive Officer and the Company's most highly compensated executive
officers (other than the Chief Executive Officer) whose cash compensation
exceeded $100,000 (the "Named Officers").

Summary Compensation Table

<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------- ------ -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Re-
Other stricted Plan All
Annual Stock Pay- Other
Name and Prin- Salary Bonus Compensa- Awards Options outs Compensa-
cipal Position Year ($) ($) tion($) ($) (#) ($) tion($)
- -------------- ---- ------ ----- --------- -------- ------- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jeffrey Schwartz 1995 $187,879 0 0 0 25,000 0 0
Chairman and 1994 381,758 0 0 0 0 0 0
Chief Executive 1993 90,000 0 $297,526(2) 0 0 0 0
Officer

Jay Greenwald 1995 518,387 0 0 0 25,000 0 0
President and 1994 551,152 0 0 0 0 0 0
Chief Operating 1993 108,000 0 357,031(2) 0 0 0 0
Officer

Claudia Newman
Hirsch 1995 405,291 0 0 0 25,000 0 0
Executive Vice 1994 422,557 0 0 0 0 0 0
President 1993 57,600 0 238,021(2) 0 0 0 0

Andrew Stollman 1995 103,346 0 0 0 25,000 0 0
Senior Vice 1994 225,518 0 0 0 0 0 0
President and 1993 19,000(1) 0 0 0 0 0 0
Secretary
</TABLE>

(1) Mr. Stollman commenced employment with the Company in
September 1993. The amount shown in the table for 1993 with
respect to Mr. Stollman are payments from that date.

(2) These amounts represent each Named Officer's share of
management fees paid by the Company to affiliated entities,
one of which was controlled by Mr. Schwartz and Michael G.
Miller (a director and principal stockholder of the
Company), and the other of which was controlled by Mr.
Greenwald and Ms. Newman Hirsch. See "Certain Relationships
and Related Transactions."

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<PAGE> 66

The following table sets forth certain information regarding options
granted during the fiscal year ended November 30, 1995 by the Company to the
Named Officers.

Option Grants In Last Fiscal Year

<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Appreciation
Individual Grants for Option Term(1)
------------------------------------------------------------------------ --------------------

Percent of
Total Options
Granted to Exercise Expira-
Options Employees in or Base tion
Name Granted Fiscal Year Price Date 5% 10%
---- ------- ----------- ------ ---- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Jeffrey L. Schwartz 25,000 6.3% $5.00 10/20/2005 $78,612 $199,218
Jay Greenwald 25,000 6.3% $5.00 10/20/2005 $78,612 $199,218
Claudia Newman Hirsch 25,000 6.3% $5.00 10/20/2005 $78,612 $199,218
Andrew Stollman 25,000 6.3% $5.00 10/20/2005 $78,612 $199,218
</TABLE>

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

(1) The product of (i) the difference between (a) the product of
(x) the market price at the time of grant and (y) the annual
appreciation rate shown compounded annually for the term of
each option, less (b) the exercise price, and (ii) the
number of options granted. The dollar amounts set forth
under this heading are the result of calculations at the 5%
and 10% rates set by the SEC and therefore are not intended
to forecast possible future appreciation, if any, of the
stock price of the Company. The Company did not use an
alternate formula for valuation as the Company is not aware
of any formula which will determine with reasonable accuracy
a present value of options based on future, unknown or
volatile factors. The Company valued the market price at
the time of grant at the exercise price ($5.00) as the
Company's securities were not publicly traded as of the
fiscal year ended November 30, 1995.

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<PAGE> 67

The following table sets forth certain information regarding options
exercised during the fiscal year ended November 30, 1995 and the value of the
options held as of November 30, 1995 by the Named Officers.

Aggregated Option Exercises In Last Fiscal Year
and Fiscal Year-End Option Value

<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised Options in-the-Money Options
At Fiscal Year-End at Fiscal Year-End(1)
-------------------- ----------------------

Exer- Unexer- Exer- Unexer-
Name cisable cisable cisable cisable
---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Jeffrey L. Schwartz 0 25,000 0 0

Jay Greenwald 0 25,000 0 0

Claudia Newman Hirsch 0 25,000 0 0

Andrew Stollman 0 25,000 0 0
</TABLE>

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

(1) As the shares of Common Stock underlying the Options were unregistered
at the end of the fiscal year ended November 30, 1995, and thereby not
publicly traded, no dollar value can be attributed to the shares
underlying such unexercised Options.

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements, effective October
1, 1995, with each of Messrs. Schwartz, Greenwald and Stollman and Ms. Newman
Hirsch, which expire on November 30, 1998. Pursuant to such agreements, Mr.
Schwartz is employed as Chairman and Chief Executive Officer, Mr. Greenwald is
employed as President and Chief Operating Officer, Ms. Newman Hirsch is employed
as Executive Vice President and Mr. Stollman is employed as Senior Vice
President and Secretary. The employment agreements provide for employment on a
full-time basis (except for Mr. Schwartz, whose agreement provides that he will
devote not less than 85% of his working time to the Company's business) and
contain a provision that the employee will not compete or engage in a business
competitive with the current or anticipated business of the Company during the
term of the agreement and for a period of two years thereafter.

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<PAGE> 68

Under the agreements, the Company has agreed to pay each of Mr.
Schwartz, Mr. Greenwald, Ms. Newman Hirsch and Mr. Stollman $375,000, $375,000,
$300,000, and $175,000 per annum, respectively, for the fiscal year ending
November 30, 1996. The Agreements also provide for an increase in each of their
base salaries in the amount of 10% for each fiscal year thereafter, and in the
event the Company achieves pre-tax earnings of $10,000,000 or more for the
fiscal years ending November 30, 1996 and each year thereafter, the Company may
grant bonuses, subject to approval of the Company's Board of Directors, to such
persons in an aggregate amount not to exceed 5% of pre-tax earnings for each
such year.

BOARD COMPENSATION

As a result of the Company's policy to compensate non-employee
directors for their services, the Company's 1996 Stock Option Plan provides for
the automatic grant to all newly appointed non-employee directors of options to
purchase 25,000 shares of Common Stock and for the additional automatic annual
grant of options to all non-employee directors to purchase 25,000 shares of
Common Stock. The exercise price for all of such non-employee director options
is the market value of the Common Stock on the date of each grant.

63
<PAGE> 69

PRINCIPAL AND SELLING SECURITY HOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock (a) as of a date (August 1,
1996) prior to the issuance of 3,200,000 shares of the Company's common stock to
the shareholders of PRN in connection with the Acquisition (the "PRN Shares")
and (b) as of a date (October 10, 1996) subsequent to the issuance of the PRN
shares, for the following individuals: (i) each current director of the Company,
(ii) each of the Named Officers, (iii) all directors and executive officers of
the Company as a group, (iv) each person known by the Company to own
beneficially more than five per cent (5%) of the outstanding shares of Common
Stock of the Company and (v) the selling security holders. Such table also
indicates the effect of the Acquisition on the amount and percentage of holdings
of Common Stock for such individuals. Inclusive of the foregoing, as of October
8, 1996 there were 35 record shareholders of the Company.

<TABLE>
<CAPTION>
Percentage of Percentage of
Outstanding Outstanding
Amount and Shares Shares Shares to be
Nature of Prior to Subsequent to Registered
Name and Address (1) Beneficial Issuance of Issuance of for Selling
of Beneficial Owner Ownership(2) PRN Shares PRN Shares Securityholders
- ------------------- ------------ ------------ ------------- ---------------
<S> <C> <C> <C> <C>
Jay Greenwald 3,126,282(3) 20.4% 16.9% --

Michael G. Miller 2,614,402(4) 17.1 14.1 --

Jeffrey L. Schwartz 2,609,402(5) 17.1 14.1 --

Claudia Newman Hirsch 2,092,521(6) 13.7 11.3 --

Steven L. Feder 1,424,000 -- 7.7 1,424,000
2455 East Sunrise Blvd
Ft. Lauderdale, FL 33304

Thomas H. Lindsey 1,424,000 -- 7.7 1,424,000
2455 East Sunrise Blvd
Ft. Lauderdale, FL 33304

Andrew Stollman 1,173,843(7) 7.7 6.3 --

Peter Stolz 352,000 -- * 352,000

Murray L. Skala 38,000(8) * * --
750 Lexington Avenue
New York, NY 10022

Mark Gutterman 20,000(9) * * --
280 Plandome Road
Manhasset, NY 11030

Edwin A. Levy 40,500(10) * * --
767 Third Avenue
New York, NY 10017

Vincent Tese 25,000(11) * * --
245 Park Avenue
New York, NY 10167

All executive officers 11,747,617(12)(13) 75.9% 62.8% --
and directors as a
group (ten persons)(12)
</TABLE>

- ------------
* Less than 1% of the Company's outstanding shares.

(1) Unless otherwise listed, the addresses of all of the persons
in the foregoing table are at the Company's offices, One
Blue Hill Plaza, Pearl River, NY 10965.

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<PAGE> 70
(2) The number of Shares of Common Stock beneficially owned by
each person or entity is determined under rules promulgated
by the Securities and Exchange Commission (the
"Commission"). Under such rules, beneficial ownership
includes any shares as to which the person or entity has
sole or shared voting power or investment power. The
percentage of the Company's outstanding shares is calculated
by including among the shares owned by such person any
shares which such person or entity has the right to acquire
within 60 days after the date of this Prospectus. Unless
otherwise indicated, each person or entity referred to above
has sole voting and investment power with respect to the
shares listed. The inclusion herein of any shares deemed
beneficially owned does not constitute an admission of
beneficial ownership of such shares.

(3) Includes 25,000 shares of Common Stock issuable upon the
exercise of an option held by Mr. Greenwald.

(4) Includes 30,000 shares of Common Stock issuable upon
exercise of an option held by Mr. Miller.

(5) Includes 25,000 shares of Common Stock issuable upon
exercise of an option held by Mr. Schwartz.

(6) Includes 25,000 shares of Common Stock issuable upon
exercise of an option held by Ms. Newman Hirsch.

(7) Includes 25,000 shares of Common Stock issuable upon
exercise of an option held by Mr. Stollman.

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<PAGE> 71

(8) Includes 30,000 shares of Common Stock issuable upon
exercise of an option held by Mr. Skala.

(9) Includes 20,000 shares of Common Stock issuable upon
exercise of an option held by Mr. Gutterman.

(10) Includes 30,000 shares of Common Stock issuable upon
exercise of an option held by Mr. Levy.

(11) Includes 25,000 shares of Common Stock issuable upon
exercise of an option held by Mr. Tese.

(12) Includes 7,667 shares of Common Stock beneficially owned by
Mr. Raymond J. Richter, Chief Financial Officer of the
Company (which includes 6,667 shares of Common Stock
issuable upon exercise of options held by Mr. Richter).

(13) Includes 241,667 shares of Common Stock issuable upon exercise of
options held by the above named individuals. See footnotes (3) through
(12) above.

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<PAGE> 72

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company has entered into transactions with Jami Marketing Services,
Inc. ("Jami Marketing"), a list brokerage and list management consulting firm,
Jami Data Services, Inc. ("Jami Data"), a database management consulting firm,
and Jami Direct, Inc. ("Jami Direct"), a direct mail graphic and creative design
firm (collectively, the "Jami Companies"). The Jami Companies are principally
owned and controlled by Jeffrey L. Schwartz, Chief Executive Officer, director
and a principal stockholder of the Company, and Michael G. Miller, a director
and principal stockholder of the Company. Pursuant to a list management
agreement dated June 1, 1993 between the Company and Jami Marketing, Jami
Marketing serves as exclusive manager in connection with the management of the
Company's mailing list for rental to third parties for which Jami Marketing
receives a management fee. Jami Marketing also provides occasional list
brokerage services to the Company, pursuant to an oral agreement, whereby Jami
Marketing obtains mailing lists from third parties for use by the Company in
connection with its telemarketing activities for which the Company pays Jami
Marketing a brokerage fee. In addition, although the Company currently creates
and designs substantially all of its print ads, direct mailings, newsletters and
other communications with club members, the Company has engaged Jami Direct to
provide such services. The Company also engages Jami Data to assist with the
Company's data base requirements. Lastly, the Company obtains a substantial
number of psychics for its live psychic and other services from PRN, and Central
Talk Management ("CTM"), an affiliate of PRN, has created and produced a
significant portion of the Company's television commercials and purchases a
portion of the Company's media time. PRN is principally owned and controlled by
Steven Feder, Thomas Lindsey and Peter Stolz, holders of 3,200,000 shares of
Common Stock, representing an aggregate of approximately 17.35% of the
outstanding Common Stock of the Company. (Such 3,200,000 shares are included in
this Prospectus). The Company believes that all of the foregoing transactions
were advantageous to the Company and were on terms no less favorable to the
Company than could have been obtained from unaffiliated third parties. The
Company anticipates that any similar future transactions will be approved by a
majority of the independent and disinterested members of the Board of Directors,
outside the presence of any interested director and, to the extent deemed
necessary or appropriate by the Board of Directors, the Company will obtain
fairness opinions or stockholder approval in connection with any such
transaction. See "Forward Looking Information May Prove Inaccurate" and "Risk
Factors - Potential Conflicts of Interest".

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<PAGE> 73

Mark Gutterman, a director of the Company, is a partner in the firm of
Feldman, Gutterman, Meinberg & Co. ("FGM"), one of the Company's accountants.
Burton Feldman, a partner in FGM, is the father-in-law of Jeffrey L. Schwartz,
the Chairman and Chief Executive Officer of the Company. For the year ended
November 30, 1995, the Company incurred charges of approximately $168,000 for
services rendered by FGM. FGM continues to provide services to the Company
during its current fiscal year. Its fees are based primarily on hourly rates.
The Company believes that its relationship with FGM is on terms no less or more
favorable to the Company than could have been obtained from unaffiliated third
parties.

Murray L. Skala, a director of the Company, is a partner in the law
firm of Feder, Kaszovitz, Isaacson, Weber, Skala & Bass LLP, the Company's
attorneys ("Feder Kaszovitz"). The Company paid such firm approximately $140,000
during the year ended November 30, 1995. In December 1995, the Company also
issued to Feder Kaszovitz 25,000 shares of the Company's Common Stock in
consideration for legal services rendered in connection with the Company's
initial public offering of its shares of Common Stock. Feder Kaszovitz continues
to provide services to the Company during its current fiscal year. Its fees are
based primarily on hourly rates. The Company believes that its relationship with
such firm is on terms no less or more favorable to the Company than could have
been obtained from unaffiliated third parties.

The Company has entered into a consulting agreement, effective October
1, 1995, with Michael Miller, a director and principal stockholder of the
Company, which expires on November 30, 1998. Under the terms of such consulting
agreement, Mr. Miller provides services in connection with identification and
engagement of celebrities to endorse the Company's services, the Company's
engagement of independent producers to produce commercials and infomercials and
the development of new entertainment services. The agreement provides that Mr.
Miller's services are subject to his availability and recognizes his commitment
to other non-competitive business activities. The Company has agreed to pay Mr.
Miller consulting fees of $10,416, $11,458 and $12,604 per month for the fiscal
years ending November 30, 1996, 1997 and 1998, respectively. The agreement
provides that Mr. Miller is precluded from involvement in any other business
which competes with the Company during the term of the consulting agreement and
for a period of two years thereafter. In addition, Mr. Miller has the right to
become a full-time employee of the Company in the event of the sale of the Jami
Companies, and to receive an initial base salary at the rate of $200,000 per
annum with 10% annual increases. Upon commencement of such full-time employment,
Mr. Miller will also

68
<PAGE> 74

be entitled to bonuses along with the Company's other executive employees.

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

During the fiscal year ended November 30, 1995, the Company did not
have a class of equity securities registered pursuant to Section 12 of the
Securities Exchange Act of 1934 (the "Exchange Act"), and as such was not
subject to the filing requirements of Forms 3,4 or 5 as promulgated under
Section 16(a) of the Exchange Act.

FORWARD LOOKING INFORMATION MAY PROVE INACCURATE

This Prospectus contains certain forward-looking statements and
information relating to the Company that are based on the beliefs of Management,
as well as assumptions made by and information currently available to the
Company. When used in this document, the words "anticipate," "believe,"
"estimate," and "expect" and similar expressions, as they relate to the Company,
are intended to identify forward-looking statements. Such statements reflect the
current views of the Company with respect to future events and are subject to
certain risks, uncertainties and assumptions, including those described in this
Prospectus. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated or
expected. The Company does not intend to update these forward-looking
statements.

DESCRIPTION OF SECURITIES

GENERAL

The Company is authorized to issue 50,000,000 shares of Common Stock,
par value $.001 per share, and 1,000,000 shares of Preferred Stock, par value
$.001 per share. As of the date of this Prospectus, 18,451,568 shares of Common
Stock are outstanding and are listed on the NASDAQ National Market System.

COMMON STOCK

Holders of Common Stock are entitled to one vote for each share on all
matters submitted to a vote of stockholders, including the election of
directors. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election if they choose to do so. The Certificate of Incorporation
does not provide for cumulative voting for the

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<PAGE> 75

election of directors. Holders of Common Stock will be entitled to receive
ratably such dividends, if any, as may be declared from time to time by the
Board of Directors out of funds legally available therefor, and will be entitled
to receive, pro rata, all assets of the Company available for distribution to
such holders upon liquidation. Holders of Common Stock have no preemptive,
subscription, conversion or redemption rights. All outstanding shares of Common
Stock are, and the shares of Common Stock offered hereby, upon issuance and when
paid for, will be, duly authorized, validly issued, fully paid and
non-assessable.

PREFERRED STOCK

Pursuant to the Certificate of Incorporation, the Company is authorized
to issue "blank check" preferred stock, which may be issued from time to time in
one or more series upon authorization by the Company's Board of Directors. The
Board of Directors, without further approval of the stockholders, is authorized
to fix the dividend rights and terms, conversion rights, voting rights,
redemption rights and terms, liquidation preferences, and any other rights,
preferences, privileges and restrictions applicable to each series of preferred
stock. The issuance of preferred stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could, among
other things, adversely affect the voting power of the holders of the Common
Stock and, under certain circumstances, make it more difficult for a third party
to gain control of the Company, discourage bids for the Company's Common Stock
at a premium or otherwise adversely affect the market price of the Common Stock.

TRANSFER AGENT

The transfer agent for the Company is American Stock
Transfer & Trust Company, 40 Wall Street, New York, New York 10005.

SHARES ELIGIBLE FOR FUTURE SALE

Upon the effectiveness of the Registration Statement, of which this
Prospectus is a part, the 3,200,000 shares of Common Stock included in this
Prospectus and an additional 13,000 shares of Common Stock included in the
Alternate Prospectus of the Registration Statement, of which this Prospectus is
a part, will be freely tradeable without further registration under the
Securities Act of 1933, as amended (the "Securities Act"). No prediction can be
made as to the effect, if any, that sales of shares of Common Stock or even the
availability of such shares for sale will have on the market prices prevailing
from time to time. The possibility that substantial amounts of Common Stock may
be sold in the public market may adversely affect prevailing

70
<PAGE> 76

market price for the Common Stock and could impair the Company's
ability to raise capital through the sale of its equity
securities. See "Description of Securities" and "Shares Eligible
for Future Sale."

PLAN OF DISTRIBUTION

All of the shares of Common Stock offered pursuant to this Prospectus
are being offered by the holders thereof (collectively, the "holders"), and,
therefore, the Company will not receive any proceeds resulting from the sale of
any of such shares.

The shares of Common Stock included herein may be sold from time to
time to purchasers directly by the holder thereof. Alternatively, the holders of
any such shares may from time to time offer the shares of Common Stock through
underwriters, dealers or agents who may receive compensation in the form of
underwriting discounts, concessions or commissions from the holders and any
underwriters, dealers or agents who participate in the distribution of such
shares may be deemed to be "underwriters" under the Securities Act, and any
discounts, commissions or concessions received by any such persons might be
deemed to be underwriting discounts and commissions under the Securities Act.

At the time a particular offer of the shares of Common Stock registered
hereunder is made, if required, a Prospectus Supplement will be distributed that
will set forth the number of shares being offered and the terms of the Offering,
including the name or names of any underwriters, dealers, or agents, the
purchase price paid by any underwriter for securities purchased from, any
discounts, commissions and other items constituting compensation and any
discounts, commissions or concessions allowed or reallowed or paid to dealers,
and the proposed selling price to the public. The shares of Common Stock may be
sold from time to time in one or more transactions at a fixed offering price,
which may be changed, or at varying prices determined at the time of sale or at
negotiated prices. Such prices will be determined by the holders or by agreement
between the holders or by agreement between the holders and underwriters or
dealers.

LEGAL MATTERS

71
<PAGE> 77

was issued 25,000 shares of Common Stock for legal services rendered to the
Company in connection with the Company's initial public offering of securities
in December 1995. 13,000 of such 25,000 shares issued to the firm are included
in the Alternate Prospectus of the Registration Statement, of which this
Prospectus is a part. Certain matters relating to government regulation have
been passed upon by Klein, Zelman, Briton, Rothermel & Dichter, L.L.P., New
York, New York, and Hall Dickler Kent Friedman & Wood LLP, New York, New York.

EXPERTS

The Consolidated balance sheets of the Company as of November 30, 1995
and 1994 and the Consolidated Statements of Income, Stockholders' Equity and
Cash Flows for each of the years in the period ended November 30, 1995 included
in this Prospectus and Registration Statement have been included herein in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.

The Statement of Financial Positions of New Lauderdale L.C. as of
November 30, 1995 and the Statements of Operations, Members' Equity and Cash
Flows for the period December 30, 1994 (inception date) to November 30, 1995
included in this Prospectus and Registration Statement have been included herein
in reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.

72
<PAGE> 78

FINANCIAL STATEMENTS

AND

RELATED SCHEDULES

F-1
<PAGE> 79

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of
Quintel Entertainment, Inc.:

We have audited the accompanying consolidated balance sheets of Quintel
Entertainment, Inc. and Subsidiaries (the "Company"), as more fully described in
Note 1, as of November 30, 1995 and 1994 and the related consolidated statements
of income, shareholders' equity and cash flows for each of the years in the
three year period ended November 30, 1995. Our audits also included the
financial statement schedule included in the index of Item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. 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 consolidated financial position of Quintel
Entertainment, Inc. and Subsidiaries as of November 30, 1995 and 1994 and the
consolidated results of their operations and their cash flows for each of the
years in the three year period ended November 30, 1995, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

COOPERS & LYBRAND L.L.P.

Melville, New York
February 19, 1996.

F-2
<PAGE> 80

QUINTEL ENTERTAINMENT, INC.

AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED NOVEMBER 30, 1995, 1994 AND 1993

F-3
<PAGE> 81

QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE

<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
Report of Independent Accountants.............................................. F-5
Consolidated Balance Sheets as of November 30, 1995 and 1994................... F-6
Consolidated Statements of Income for the years ended November 30, 1995, 1994
and
1993......................................................................... F-7
Consolidated Statements of Shareholders' Equity for the years ended November
30, 1995, 1994 and 1993...................................................... F-8
Consolidated Statements of Cash Flows for the years ended November 30, 1995,
1994 and 1993................................................................ F-9
Notes to Consolidated Financial Statements..................................... F-10 - F-18
Schedule II -- Valuation and Qualifying Accounts and Reserves.................. F-19
</TABLE>

F-4
<PAGE> 82

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of
Quintel Entertainment, Inc.:

COOPERS & LYBRAND L.L.P.

Melville, New York
February 19, 1996

F-5
<PAGE> 83

QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
as of November 30, 1995 and 1994

<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents.......................................... $ 3,570,468 $ 981,073
Accounts receivable, trade......................................... 10,097,629 2,814,095
Deferred tax asset................................................. 39,957 9,281
Due from related parties........................................... 67,162
Prepaid expenses and other current assets.......................... 381,292 122,644
----------- ----------
Total current assets............................................ 14,156,508 3,927,093
Property and equipment, at cost, net of accumulated depreciation..... 142,369 16,530
Investment in joint venture, at equity............................... 1,345,304
Other assets......................................................... 1,325,775 33,258
----------- ----------
$16,969,956 $3,976,881
=========== ==========
LIABILITIES:
Current liabilities:
Accounts payable................................................... $ 1,269,647 $ 442,458
Accrued expenses................................................... 2,351,644 1,506,356
Reserve for customer chargebacks................................... 4,025,130 1,176,902
Loans payable...................................................... 2,643,522
Due to related parties............................................. 354,751 205,691
Income taxes payable............................................... 294,187 68,368
Other current liabilities.......................................... 32,580
----------- ----------
Total liabilities............................................... 10,938,881 3,432,355
----------- ----------
Commitments and contingencies (Note 8)
SHAREHOLDERS' EQUITY:
Preferred stock -- $.001 par value; 1,000,000 shares authorized; none
issued and outstanding.............................................
Common stock -- $.001 par value; authorized 50,000,000 shares; issued
and outstanding 12,000,000 shares.................................. 12,000 12,000
Additional paid-in capital........................................... 441,258 441,258
Retained earnings.................................................... 5,597,817 111,268
Less subscriptions receivable........................................ (20,000) (20,000)
----------- ----------
Total shareholders' equity...................................... 6,031,075 544,526
----------- ----------
$16,969,956 $3,976,881
=========== ==========
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE> 84

QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
for the years ended November 30, 1995, 1994 and 1993

<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- ----------
<S> <C> <C> <C>
Net revenue............................................ $50,501,266 $22,771,465 $8,262,179
Cost of sales.......................................... 36,732,610 17,521,985 5,778,706
----------- ----------- ----------
Gross profit......................................... 13,768,656 5,249,480 2,483,473
Selling, general and administrative expenses........... 3,467,008 3,012,588 1,801,330
----------- ----------- ----------
Income from operations............................... 10,301,648 2,236,892 682,143
Interest expense....................................... (334,318) (759,211) (117,460)
Management fee income.................................. 450,000
Other income, net...................................... 35,250
Equity in earnings of joint venture.................... 2,860,304
----------- ----------- ----------
Income before provision for income taxes and minority
interest.......................................... 13,312,884 1,477,681 564,683
Provision (benefit) for income taxes................... 220,335 54,842 (76,690)
----------- ----------- ----------
Income before minority interest...................... 13,092,549 1,422,839 641,373
Minority interest in net loss of subsidiary............ 73,528
----------- ----------- ----------
Net income........................................... $13,092,549 $ 1,422,839 $ 714,901
=========== =========== ==========
Pro Forma Data (Note 1):
Income before pro forma adjustments and minority
interest.......................................... $13,312,884 $ 1,477,681 $ 564,683
Pro forma income tax provision......................... 5,633,116 835,144 257,761
----------- ----------- ----------
Pro forma income before minority interest.............. 7,679,768 642,537 306,922
Minority interest in net loss of subsidiary.......... 73,528
----------- ----------- ----------
Pro forma net income................................. $ 7,679,768 $ 642,537 $ 380,450
=========== =========== ==========
Pro forma net income per share......................... $ .64 $ .05 $ .08
=========== =========== ==========
Weighted average common shares outstanding............. 12,000,000 12,000,000 5,008,219
=========== =========== ==========
</TABLE>

See accompanying notes to consolidated financial statements.

F-7
<PAGE> 85

QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended November 30, 1995, 1994 and 1993

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------------- PAID-IN RETAINED SUBSCRIPTIONS SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS RECEIVABLE EQUITY
---------- -------- --------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, November 30, 1992...... 4,000,000 $ 4,000 $ 6,000 $ 73,528 $ (10,000) $ 73,528
Net income for the year....... 714,901 714,901
Issuance of common stock...... 4,000,000 4,000 396,000 (400,000)
---------- ------- -------- ----------- ---------- -----------
Balance, November 30, 1993...... 8,000,000 8,000 402,000 788,429 (410,000) 788,429
Net income for the year....... 1,422,839 1,422,839
Purchase of minority
interest.................... 33,258 33,258
Distributions to
shareholders................ (2,100,000) (2,100,000)
Issuance of common stock...... 4,000,000 4,000 6,000 (10,000)
Collections on subscriptions
receivable.................. 400,000 400,000
---------- ------- -------- ----------- ---------- -----------
Balance, November 30, 1994...... 12,000,000 12,000 441,258 111,268 (20,000) 544,526
Net income for the year....... 13,092,549 13,092,549
Distributions to
shareholders................ (7,606,000) (7,606,000)
---------- ------- -------- ----------- ---------- -----------
Balance, November 30, 1995...... 12,000,000 $12,000 $441,258 $ 5,597,817 $ (20,000) $ 6,031,075
========== ======= ======== =========== ========== ===========
</TABLE>

See accompanying notes to consolidated financial statements

F-8
<PAGE> 86

QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended November 30, 1995, 1994 and 1993

<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................ $13,092,549 $ 1,422,839 $ 714,901
Items not affecting cash:
Depreciation and amortization...................... 21,574 1,480
Reserve for customer chargebacks................... 2,848,228 78,767 946,975
Deferred income taxes.............................. (30,676) (9,281) 44,167
Equity in net earnings of joint venture, net of
dividends received............................... (1,320,304)
Minority interest.................................. (73,528)
Changes in assets and liabilities:
Accounts receivable................................ (7,283,534) 797,466 (3,087,409)
Due from related parties........................... (67,162)
Prepaid expenses and other current assets.......... (258,648) (39,599) (38,915)
Other assets....................................... (521,135)
Accounts payable................................... 827,189 264,263 178,195
Income tax payable................................. 225,819 68,368 (156,161)
Accrued expenses................................... 67,254 1,000,214 506,142
Due to related parties............................. 149,060 31,944 (172,593)
Other current liabilities.......................... (32,580) 32,580
----------- ----------- -----------
Net cash provided by (used in) operating
activities.................................. 7,717,634 3,649,041 (1,138,226)
----------- ----------- -----------
Cash flows from investing activities:
Investment in joint venture........................... (25,000)
Capital expenditures.................................. (140,761) (18,010)
----------- ----------- -----------
Net cash used in investing activities......... (165,761) (18,010)
----------- ----------- -----------
Cash flows from financing activities:
Loans payable, net.................................... 2,643,522 (1,149,432) 1,007,189
Proceeds from collections on common stock
subscriptions...................................... 400,000
Distributions to shareholders......................... (7,606,000) (2,100,000)
----------- ----------- -----------
Net cash provided by (used in) financing
activities.................................. (4,962,478) (2,849,432) 1,007,189
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents.... 2,589,395 781,599 (131,037)
Cash and cash equivalents, beginning of year............ 981,073 199,474 330,511
----------- ----------- -----------
Cash and cash equivalents, end of year.................. $ 3,570,468 $ 981,073 $ 199,474
=========== =========== ===========
Supplemental disclosures:
Cash paid during the year for:
Interest........................................... $ 334,318 $ 785,093 $ 117,673
Income taxes....................................... 50,010 2,902 26,737
Noncash investing activities:
Repurchase of minority interest....................... $ 33,258
</TABLE>

See accompanying notes to consolidated financial statements.

F-9
<PAGE> 87

QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES:

Principles of consolidation

The consolidated financial statements of Quintel Entertainment, Inc. (the
"Company") include the accounts of its wholly-owned subsidiaries, Creative
Direct Marketing, Inc. ("CDM") and Calling Card Co., Inc. ("CCCI"), which, prior
to the reorganization, were predecessor entities under common control. All
intercompany transactions and balances have been eliminated in consolidation.

Reorganization and basis of presentation

The Company was organized under the laws of the State of Delaware in
November 1993, under the name U.S. Teleconnect, Inc. Pursuant to a plan of
reorganization, as of December 5, 1995, the effective date of a public offering
(see Note 10) the accompanying financial statements have been prepared to
retroactively reflect the foregoing reorganization on a consolidated basis to
present more meaningfully the ongoing organization and equity capitalization as
follows: (i) the stockholders of CDM and CCCI contributed their respective
shares of common stock to the Company and the companies became wholly-owned
subsidiaries of the Company, (ii) the Company effected a 60,000-for-one stock
split, and (iii) the Company changed its name to Quintel Entertainment, Inc. and
Subsidiaries.

Pro forma presentation

As a result of the historical presentation and change in tax status in
connection with the public offering (see Note 10), historical results of
operations, including income taxes, may not in all cases be comparable to or
indicative of current and future results. Therefore, pro forma information,
which presents results as if the Company had always been C corporations, is
presented on the face of the accompanying statements of income.

Nature of business

The Company is primarily engaged in providing a variety of telephone
entertainment services to the general public. These services are provided using
several billing platforms (billing and collection vehicles) over the telephone
lines of various local telephone companies and long distance carriers. These
services include various programs such as live psychic readings, tarot card
readings and daily horoscope and astrology readings. A major program provided by
the Company is an entertainment membership club, the Astrological Society of
America. This club enables all members to enjoy certain monthly club services
for a flat monthly rate and have access to other Company services at preferred
rates.

All consumers are solicited by the Company through a variety of marketing
techniques including television commercials and infomercials, print advertising,
direct mail, telemarketing, and premium gift offerings. The Company has
contracts with service bureaus for the purpose of call processing, billing and
collection. Under these contracts, the bureaus process and accumulate call data,
summarize the information, and forward the data to the local telephone companies
and/or long distance carriers for the ultimate billing to and collection from
the Company's customers.

The Company also contracts with numerous organizations, including Psychic
Readers Network, Inc. (see Note 9), and with individuals to provide live
psychics, live operator services, computer services, media purchasing,
telemarketing and other services necessary to establish and maintain the
Company's programs.

Revenue recognition

F-10
<PAGE> 88

QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Continuing club member fees are recognized as members automatically renew each
month. All revenues are recognized net of provision for customer chargebacks,
which include refunds, credits, and uncollectible amounts. The Company estimates
the reserve for customer chargebacks monthly based on updated chargeback
history. New platforms without a history are reserved based on experience with
similar platforms and adjusted as experience dictates. Accordingly, it is
reasonably possible that these estimates will change in the near term. Since
reserves are established prior to the periods in which chargebacks are actually
incurred, the Company's revenues may be reduced in later periods in the event
that the Company's reserves prove to be insufficient. For the years ended
November 30, 1995, 1994 and 1993 provision for chargebacks were $19,065,077,
$10,841,574 and $2,820,402, respectively.

Included in chargebacks for the year ended November 30, 1995 were
approximately $1.4 million of refunds and credits issued relating to a billing
platform that was terminated by the Company in late fiscal 1994. This write-off
was the direct result of published third party public awareness reports issued
primarily during 1995 as to the availability of refunds and credits for
telephone charges billed under this discontinued platform.

Accounts receivable

The Company has agreements with two service bureaus that provide advances
against accounts receivable collections at interest rates calculated primarily
at prime plus increments up to 6%. Amounts advanced under the agreements are on
a revolving basis and are limited to 50% of a defined borrowing base, net of
related service fees and costs, as applicable. Certain advances under the
agreements are due on demand and all are collateralized by the accounts
receivable collected by the service bureaus. During fiscal 1995 and 1994, the
gross advances and weighted average interest rate on the borrowings received
were approximately $23,029,599 and $15,837,400, respectively, and 14.75% and
14.50%, respectively.

Concentration of credit risk

Financial instruments which potentially subject the Company to
concentration of credit risk consist of accounts receivable and cash deposits.

All of the Company's collections are received through two service bureaus
which process and collect all of the Company's billings. In conjunction with
servicing the accounts receivable, the service bureaus advance amounts based on
eligible accounts receivable and withhold certain cash receipts as a reserve. As
a result, the Company's exposure to the concentration of credit risk primarily
relates to all collections on behalf of the Company by the service bureaus.

Cash balances are held principally at one financial institution and may, at
times, exceed insurable amounts. The Company believes it mitigates its risks by
investing in or through major financial institutions. Recoverability is
dependent upon the performance of the institution.

Cash and cash equivalents

All short-term investments with an original maturity of three months or
less are considered to be cash equivalents.

Minority interest

Through July 30, 1994, an unrelated party held a minority interest in CDM.
The financial statements reflect the proportionate share of such interest in
CDM's income and losses to the extent of its basis.

F-11
<PAGE> 89

QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On July 31, 1994, certain shareholders of the Company repurchased such
minority interest. The excess of the cost over the minority interest at July 31,
1994 of $33,258 has been included in other assets as "goodwill" and is being
amortized over a five-year period.

Property, plant and equipment

Property, plant and equipment are stated at cost. Expenditures for
maintenance and repairs are expensed as incurred while renewals and betterments
are capitalized. Depreciation and amortization have been provided using the
straight-line method over a five to seven year useful life depending on the
nature of the asset.

Upon retirement or disposal, the asset cost and related accumulated
depreciation and amortization are eliminated from the respective accounts and
the resulting gain or loss, if any, is included in the results of operations for
the period.

Deferred offering costs

At November 30, 1995, the Company has incurred costs aggregating $1,224,962
in connection with the public offering of its equity securities (see Note 10).
These costs are being deferred, and are included in other assets and will be
charged against paid-in capital as of the effective date of the offering.

Income taxes

Prior to the reorganization described above, the Company and CDM had
elected treatment as S corporations for Federal and state income taxation as of
November 1, 1994 and August 1, 1994, respectively. CCCI elected treatment as an
S corporation for federal and state income taxation since inception. S
corporation taxable income, whether distributed or not, is passed through and
taxed at the shareholder level. Accordingly, no provision for Federal income
taxes is included in the accompanying statements of operations. For New York and
New Jersey income tax purposes, a corporate level surcharge is imposed on the
Company's allocable income, calculated using an effective rate primarily
representing the difference between the subchapter C corporation Level tax and
the highest state personal income tax rate.

On or prior to the closing of the public offering, the Company's income tax
status as an S corporation will terminate. The Company will convert to a C
corporation, adopt the accrual basis of accounting which will be effective as of
the beginning of the fiscal year and will be subject to both federal and state
income taxes. Any income tax adjustment required as a result of the conversion
will be reflected in the period it becomes effective.

Effective December 1, 1993, the Company adopted statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). Under
this method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.

Earnings per share

Net earnings per share has been computed by dividing pro forma net earnings
by the weighted average number of common and common equivalent shares
outstanding during the period, computed in accordance with the treasury stock
method. Retroactive restatement has been made to all share and per share amounts
for the reorganization discussed in Note 1.

Advertising expenses

The Company presently expenses all advertising costs during the year in
which they are incurred. Total advertising expenses incurred for fiscal 1995,
1994, and 1993 were approximately $15,325,600, $7,282,000 and

F-12
<PAGE> 90

QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$2,628,000, respectively. Included in prepaid expenses and other current assets
is approximately $259,000 relating to prepaid advertising at November 30, 1995.

Newly Issued Accounting Standards

In October, 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," ("SFAS No. 123"). The Statement, which becomes effective in
fiscal 1996, allows companies to measure compensation cost in connection with
employee stock compensation plans using a fair value based method or to continue
to use an intrinsic value based method, which generally does not result in
compensation cost. The Company has not yet decided which method it will utilize
relating to its stock-based employee plans.

Other

The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company's management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.

Reclassifications

Certain prior year amounts have been reclassified to conform with the
current period presentation.

2. ACCOUNTS RECEIVABLE:

Accounts receivable for the years ended November 30, 1995 and 1994 consists
of the following:

<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
Receivable from billing and collection companies............. $10,097,629 $ 687,685
Receivable from local exchange carriers...................... 2,084,197
Receivable from list rentals................................. 42,213
----------- ----------
$10,097,629 $2,814,095
=========== ==========
</TABLE>

3. RELATED PARTY TRANSACTIONS:

The Company purchased various mailing lists and design, copyrighting and
artistic development services from related entities owned by the Company's
shareholders. The agreements require the Company to pay fees equal to 20% of
rental revenues and a management fee of 10%, plus any fees in connection with
processing and mailing lists. During fiscal 1995, 1994 and 1993, costs of
approximately $160,000, $871,400 and $1,900,000, respectively, were incurred by
the Company for such services.

The Company incurred approximately $168,000, $140,000 and $24,000,
respectively, during fiscal 1995, 1994 and 1993, in accounting fees to a firm
having a member who is also a director of the Company. In addition, the Company
incurred approximately $140,000, $89,000 and $4,000, respectively, during fiscal
1995, 1994 and 1993, in legal fees to a firm having a member who is also a
director of the Company.

The Company received $450,000 in management fee income from a joint venture
it entered into during fiscal 1995 (see Note 9) and for the years ended November
30, 1995 and 1994, paid aggregate fees of approximately $3,993,000 and $186,000,
respectively, to the other joint venture for psychic operator services.

F-13
<PAGE> 91

QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. PROPERTY AND EQUIPMENT:

Property and equipment for the years ended November 30, 1995 and 1994
consists of the following:

<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Furniture and fixtures........................................... $ 55,329 $ 11,235
Machinery and equipment.......................................... 73,527 6,775
Telephone and facsimile.......................................... 29,915
-------- --------
158,771 18,010
Less, accumulated depreciation................................... 16,402 1,480
-------- --------
$142,369 $ 16,530
======== ========
</TABLE>

5. ACCRUED EXPENSES:

Accrued expenses for the years ended November 30, 1995 and 1994 consist of
the following:

<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Service fees and related costs................................ $ 885,308 $ 808,284
Compensation.................................................. 24,386 566,514
Professional fees............................................. 314,035 131,558
Underwriter fees.............................................. 522,000
Advertising................................................... 506,038
Other......................................................... 99,877
---------- ----------
$2,351,644 $1,506,356
========== ==========
</TABLE>

6. INCOME TAXES:

The provision (credit) for Federal and state income taxes for the years
ended November 30, 1995, 1994 and 1993 consists of the following:

<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- ---------
<S> <C> <C> <C>
Current:
Federal............................................. $(111,611)
State............................................... $283,829 $ 87,566 (32,689)
-------- -------- ---------
283,829 87,566 (144,300)
-------- -------- ---------
Deferred:
Federal............................................. 35,033
State............................................... (63,494) (32,724) 32,577
-------- -------- ---------
(63,494) (32,724) 67,610
-------- -------- ---------
$220,335 $ 54,842 $ (76,690)
======== ======== =========
</TABLE>

Deferred taxes primarily consist of reserves for chargebacks not recognized
for tax purposes.

7. REGULATORY ISSUES AND OTHER RISK CONSIDERATIONS:

The Company's primary contact with its customers is over the telephone
lines and services of numerous local telephone companies and long distance
carriers. The Company cannot predict the impact, if any, of changes in various
regulations affecting the Company, directly, or through one of the telephone
companies. There can be no assurance that the Company will be able, for
financial or other reasons, to comply with applicable laws and regulations or
that regulatory authorities will not take action to limit or prevent the

F-14
<PAGE> 92

QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company from advertising, marketing or promoting its services and membership
clubs or otherwise require the Company to discontinue or substantially modify
the content of its services.

If the financial condition of a service bureau should change adversely, the
Company has identified alternative service bureaus. If required, Company
management does not believe that a change herein would have a material adverse
effect on the Company's results of operations or its financial position.

8. COMMITMENTS AND CONTINGENCIES:

Leases

The Company is obligated under noncancelable real property operating lease
agreements that expire at various times through fiscal 2005. Future minimum
rents, by the year and in the aggregate, consist of the following at November
30, 1995:

<TABLE>
<S> <C>
1996..................................................................... $ 107,750
1997..................................................................... 86,625
1998..................................................................... 115,500
1999..................................................................... 115,500
2000..................................................................... 121,000
Thereafter............................................................... 558,709
----------
$1,105,084
==========
</TABLE>

The long-term lease contains escalation clauses with respect to real estate
taxes and related operating costs. The short-term lease commenced November 1,
1995 and expires May 5, 1996. The accompanying financial statements reflect rent
expense on a straight-line basis over the terms of the lease as required by
generally accepted accounting principles. The Company is presently negotiating a
lease on a new facility. Rent expense was $96,834, $28,800 and $29,040 for
fiscal 1995, 1994 and 1993, respectively.

Employment Agreements and Consulting

The Company has executed employment agreements, expiring November 30, 1998,
with certain executive officers of the Company. Minimum future payments under
such agreements are as follows:

Commencing with fiscal year ending November 30, 1996, in the event the
Company achieves pre-tax earnings of $10,000,000 or more for any such fiscal
year, the Company may grant bonuses to such persons, subject to approval of the
Compensation Committee of the Board of Directors, in an aggregate amount not to
exceed 5% of pre-tax earnings for such year.

The Company has also entered into a consulting agreement with a
shareholder, expiring on November 30, 1998. Under the terms of such agreement,
the shareholder is to provide services in connection with identification and
engagement of celebrities to endorse the Company's services, engagement of
independent producers to produce commercials and infomercials and the
development of new entertainment services. In addition, he has the right to
become a full-time employee of the Company under certain circumstances, and to
receive an initial base salary at the rate of $200,000 per annum with 10% annual
increases. Upon

F-15
<PAGE> 93

QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

commencement of such full-time employment he is entitled to share in the 5%
bonus with the other executive officers described above. Minimum future payments
under the consulting arrangement are as follows:

Had these employment and consulting agreements been in effect for the
fiscal years ending November 30, 1995 and 1994, selling, general and
administrative expense would have increased (decreased) by approximately
$140,000 and ($575,000) for the years ended November 30, 1995 and 1994,
respectively.

Other

The indebtedness of New Lauderdale to two service bureaus of $1,770,000 as
of November 30, 1995 (see Note 9) is guaranteed by both parties to the joint
venture. The Company is of the opinion that the joint venture will be able to
perform under its respective payment obligations in connection with such
guaranteed indebtedness and that no payments will be required and no losses will
be incurred by the Company under such guarantees.

There are pending claims and litigations against the Company arising in the
ordinary course of business. Management believes, on the basis of its
understanding and consideration of these matters, that these actions will not
result in payment of amounts, if any, which would have a material adverse effect
on the Company's financial statements.

9. FORMATION OF JOINT VENTURE:

In December 1994, the Company entered into an agreement with Psychic
Readers Network, Inc. ("PRN"), an unrelated entity, that established a joint
venture known as New Lauderdale, L.C. ("N.L.") which engages in telephone
entertainment service dealing in membership clubs and other programs. Under the
terms of the agreement, the Company has invested $25,000 for a 50% membership in
N.L. The joint venture commenced operations in January 1995 and was reorganized
as a Florida Limited Liability Company in March 1995.

The parties also entered into an agreement which requires each party to the
joint venture to provide management, consulting and financial services for a
monthly fee of $50,000. Such services include, but are not necessarily limited
to, advice and assistance concerning any and all aspects of the operations,
planning and financing all aspects of the venture's operations. The fee
provision of the agreement was terminated effective February 1, 1996. Services
by the parties joint venture will continue to be rendered.

The Company has recognized income from N.L. of $2,860,304 and received
distributions of $1,540,000 for the year ended November 30, 1995. Income
includes 50% of the N.L.'s earnings which are net of normal costs of its
operations and the fees referred to above.

F-16
<PAGE> 94

QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Following is condensed financial data for the joint venture:

<TABLE>
<CAPTION>
AS OF
NOVEMBER 30,
1995
------------
<S> <C>
Current assets (principally accounts receivable)........................ $ 11,205,559
Current liabilities (principally reserve for customer chargebacks)...... 8,514,951
Members' equity......................................................... 2,690,608
</TABLE>

<TABLE>
<CAPTION>
AS OF
NOVEMBER 30,
1995
------------
<S> <C>
Net revenues............................................................ $ 28,248,093
Gross profit............................................................ 8,054,330
Net income.............................................................. 5,720,608
</TABLE>

10. SUBSEQUENT EVENTS:

On December 5, 1995, the Company completed an initial public offering (the
"Offering") of 3,225,000 shares of common stock with net proceeds received of
approximately $13,640,000. If the offering had occurred as of the beginning of
the fiscal year, pro forma net income per share would have been $.50.

In connection with the terms of the offering, the Company has declared a
final S corporation distribution to its shareholders in the amount of its
aggregate undistributed taxable income, determined on the GAAP basis, except for
$575,000. The distribution will be funded through a series of shareholder notes,
bearing interest at 9% and will provide for aggregate minimum monthly payments
of principal of $500,000, plus 25% of cash flow in excess of $1,000,000,
commencing one month after the effective date.

On January 17, 1996, the Company entered into a letter of intent to acquire
the remaining 50% interest of New Lauderdale, L.C. from PRN. In payment for the
interest being acquired, the Company has agreed to issue to PRN 3,200,000 shares
of its common stock. Shares totalling up to 1,200,000 shall be subject to
forfeiture in the event New Lauderdale's programs do not achieve certain
agreed-upon pre-tax earning levels for 1996 or the first and second quarters of
that year.

In addition, the Company may make available to PRN's shareholders
interest-bearing loans not to exceed $2,500,000, which will be collateralized by
the shares issued to cover a portion of their tax liability attributable to the
transaction in the event that the Company's stock trades below certain levels.
The loan shall be due and payable no later than two years from the date it is
made, or sooner if the Company's stock trades at certain levels.

Consummation of this transaction is subject to the parties completing due
diligence, securing requisite corporate and other approvals and the execution of
definitive acquisition agreements.

11. STOCK OPTION PLAN:

During fiscal 1995, the Company implemented the 1995 Stock Option Plan (the
"Stock Option Plan") effective as of October 1995. The Stock Option Plan
provides for the grant of options to purchase up to 750,000 shares of the
Company's common stock that are intended to qualify either as incentive stock
options ("Incentive Stock Options") within the meaning of Section 422 of the
United States Internal Revenue Code or as options that are not intended to meet
the requirements of such section ("Nonstatutory Stock Options"). Options to
purchase shares may be granted under the Stock Option Plan to persons who, in
the case of Incentive Stock Options, are employees (including officers) of the
Company, or, in the case of Nonstatutory Stock Options, are employees (including
officers), consultants or nonemployee directors of the Company to the Company.

F-17
<PAGE> 95

QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The exercise price of options granted under the Stock Option Plan must be
at least equal to the fair market value of such shares on the date of grant, or,
in the case of Incentive Stock Options granted to the holder of 10% or more of
the Company's Common Stock, at least 110% of the fair market value of such
shares on the date of grant. The maximum exercise period for which Incentive
Stock Options may be granted is ten years from the date of grant (five years in
the case of an individual owning more than 10% of the Company's common stock).
The aggregate fair market value (determined at the date the option is granted)
of shares with respect to which Incentive Stock Options are exercisable for the
first time by the holder of the option during any calendar year shall not exceed
$100,000. If such amount exceeds $100,000, the Board of Directors or the
Committee may, when the Options are exercised and the shares transferred to an
employee, designate those shares that will be treated as Incentive Stock Options
and those that will be treated as Nonstatutory Stock Options.

In addition, the Company's Stock Option Plan provides for certain automatic
grants of options to the Company's non-employee directors in consideration for
their services performed as directors of the Company and for attendance at
meetings. It provides for a one-time automatic grant of an option to purchase
25,000 shares of common stock at market value to those directors who were
serving on the Board of Directors at the inception of the Stock Option Plan and
also to those persons who become nonemployee directors of the Company in the
future, upon their appointment or election as directors of the Company. In
addition, the Stock Option Plan provides for an annual grant to each
non-employee director of the Company of options to purchase 5,000 shares of
common stock at the market value on the date of each grant.

12. FOURTH QUARTER ADJUSTMENTS:

During the fourth quarter of 1995, the Company and New Lauderdale reflected
adjustments based upon new information from their service bureaus of $228,418
($109,927: N.L.) to its provision for chargebacks of which approximately
$182,000 ($60,400: N.L.) relates to activity for previous quarters.

F-18
<PAGE> 96

QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

<TABLE>
<CAPTION>
COL. C
--------------------------
ADDITIONS
COL. B -------------------------- COL. E
---------- CHARGED TO COL. D ----------
COL. A BALANCE AT CHARGED TO OTHER ----------- BALANCE AT
- ----------------------------------------- BEGINNING COSTS AND ACCOUNTS DEDUCTIONS- END OF
DESCRIPTION OF PERIOD EXPENSES RECEIVABLE DESCRIBE(1) PERIOD
- ----------------------------------------- ---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED NOVEMBER 30, 1995
Reserve for customer chargebacks....... $1,176,902 $19,065,077 -- $16,216,849 $4,025,130
========== ============ =========== ============ ==========
YEAR ENDED NOVEMBER 30, 1994
Reserve for customer chargebacks....... $1,098,135 $10,841,574 -- $10,762,807 $1,176,902
========== ============ =========== ============ ==========
YEAR ENDED NOVEMBER 30, 1993
Reserve for customer chargebacks....... $ 151,160 $ 2,820,403 -- $ 1,873,428 $1,098,135
========== ============ =========== ============ ==========
</TABLE>

- ---------

(1) Chargebacks refunded during the year.

F-19
<PAGE> 97

NEW LAUDERDALE, L.C.

FINANCIAL STATEMENTS
FOR THE PERIOD DECEMBER 30, 1994 (INCEPTION)
TO NOVEMBER 30, 1995

F-20
<PAGE> 98

REPORT OF INDEPENDENT ACCOUNTANTS

To the Members of
New Lauderdale, L.C.:

We have audited the accompanying statement of financial position of New
Lauderdale, L.C. (the "Company"), as of November 30, 1995 and the related
statement of operations, members' equity and cash flows for the period December
30, 1994 (inception date) to November 30, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. 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 audit provides 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 New Lauderdale, L.C. as of
November 30, 1995 and the results of its operations and its cash flows for the
period December 30, 1994 (inception date) to November 30, 1995, in conformity
with generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Melville, New York
February 19, 1996.

F-21
<PAGE> 99

NEW LAUDERDALE, L.C.

STATEMENT OF FINANCIAL POSITION
as of November 30, 1995

<TABLE>
<S> <C>
ASSETS:
Cash and cash equivalents....................................................... $ 3,831,552
Accounts receivable, trade...................................................... 6,915,151
Due from related party.......................................................... 191,909
Prepaid expenses................................................................ 266,947
-----------
$11,205,559
-----------
LIABILITIES AND MEMBERS' EQUITY:
Accrued expenses................................................................ $ 1,489,551
Reserve for customer chargebacks................................................ 4,665,912
Loans payable................................................................... 1,769,678
Due to related parties.......................................................... 256,865
Income taxes payable............................................................ 332,945
-----------
8,514,951
-----------
Commitments and contingencies (Note 5)
Members' equity, as annexed..................................................... 2,690,608
-----------
$11,205,559
-----------
</TABLE>

See accompanying notes to financial statements.

F-22
<PAGE> 100

NEW LAUDERDALE, L.C.

STATEMENT OF OPERATIONS
for the period December 30, 1994 (inception date) to November 30, 1995 (Note 1)

<TABLE>
<S> <C>
Net revenue..................................................................... $28,248,093
Cost of sales................................................................... 20,193,763
-----------
Gross profit............................................................... 8,054,330
Selling, general and administrative expenses.................................... 1,879,530
-----------
Income from operations..................................................... 6,174,800
Interest expense................................................................ 136,521
Other income.................................................................... 15,274
-----------
Income before provision for income taxes................................... 6,053,553
Provision for state income taxes................................................ 332,945
-----------
Net income................................................................. $ 5,720,608
-----------
</TABLE>

See accompanying notes to financial statements.

F-23
<PAGE> 101

NEW LAUDERDALE, L.C.

STATEMENT OF MEMBERS' EQUITY
for the period December 30, 1994 (inception date) to November 30, 1995 (Note 1)

<TABLE>
<CAPTION>
CAPITAL UNDISTRIBUTED
CONTRIBUTED EARNINGS TOTAL
----------- ------------- -----------
<S> <C> <C> <C>
Balance, December 30, 1994 (inception).................. $ -- $ -- $ --
Capital contributed..................................... 50,000 50,000
Net income.............................................. 5,720,608 5,720,608
Distributions........................................... (3,080,000) (3,080,000)
------- ------------ -----------
Balance, November 30, 1995.............................. $50,000 $ 2,640,608 $ 2,690,608
------- ------------ -----------
</TABLE>

See accompanying notes to financial statements.

F-24
<PAGE> 102

NEW LAUDERDALE, L.C.

STATEMENT OF CASH FLOWS
for the period December 30, 1994 (inception date) to November 30, 1995 (Note 1)

<TABLE>
<S> <C>
Cash flows from operating activities:
Net income.................................................................... $ 5,720,608
Items not affecting cash:
Reserve for customer chargebacks........................................... 4,665,912
Changes in assets and liabilities:
Accounts receivable........................................................ (6,915,151)
Prepaid expenses........................................................... (266,947)
Income tax payable......................................................... 332,945
Accrued expenses........................................................... 1,489,551
Due to related parties..................................................... 64,956
-----------
Net cash provided by operating activities................................ 5,091,874
-----------
Cash flows from financing activities:
Loans payable, net............................................................ 1,769,678
Capital contributions by Members.............................................. 50,000
Distributions to Members...................................................... (3,080,000)
-----------
Net cash used in financing activities.................................... (1,260,322)
-----------
Net increase in cash and cash equivalents....................................... 3,831,552
Cash and cash equivalents, beginning of year.................................... --
-----------
Cash and cash equivalents, end of year.......................................... $ 3,831,552
-----------
Supplemental disclosures:
Cash paid during the year for:
Interest................................................................... $ 136,521
</TABLE>

See accompanying notes to financial statements.

F-25
<PAGE> 103

NEW LAUDERDALE, L.C.

NOTES TO FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES:

NATURE OF BUSINESS

New Lauderdale, L.C. (the "Company") is a joint venture organized December
1994 between Calling Card Co., Inc. ("CCCI") and Psychic Readers Network, Inc.
("PRN"). Under the terms of the agreement each party to the joint venture
invested $25,000 for a 50% membership in the Company. The joint venture
commenced operations in January 1995 and was reorganized as a Florida Limited
Liability Company in March 1995.

The agreement also requires each party to the joint venture to provide
services to the Company at cost, and for the Company to pay to each a monthly
management fee of $50,000. Such services include, but are not necessarily
limited to, advice and assistance concerning all aspects of the operations,
planning and financing. The fee provision of the agreement was terminated
effective February 1, 1996. Services by the parties to the joint venture will
continue to be rendered.

The Company is primarily engaged in providing a variety of telephone
entertainment services to the general public. These services are provided using
several billing platforms (billing and collection vehicles) over the telephone
lines of various local telephone companies and long distance carriers. These
services include various programs such as live psychic readings, tarot card
readings and daily horoscope and astrology readings. Two major programs provided
by the Company are entertainment membership clubs, the Philip Michael Thomas
Membership Club and the Joyce Jillson Psychic Astrology Network. These clubs
enable all members to enjoy certain monthly club services for a flat monthly
rate and have access to other Company services at preferred rates.

Consumers are solicited by the Company through a variety of marketing
techniques including television commercials and infomercials, print advertising,
direct mail, telemarketing, and premium gift offerings. Additional consumers are
obtained by solicitation by PRN. The Company has contracts with service bureaus
for the purpose of call processing, billing and collection. Under these
contracts, the bureaus process and accumulate call data, summarize the
information, and forward the data to the local telephone companies and/ or long
distance carriers for the ultimate billing to and collection from the Company's
customers.

The Company also contracts with numerous organizations, including PRN (see
Note 2), and with individuals to provide live psychics, live operator services,
computer services, media purchasing, telemarketing and other services necessary
to establish and maintain the Company's programs.

REVENUE RECOGNITION

Revenues from all billable platforms are recorded at the time the customer
initiates a billable transaction, except for club membership fees. New club
membership fees are recognized upon approved enrollment. Continuing club member
fees are recognized as members automatically renew each month. All revenues are
recognized net of provision for customer chargebacks, which include refunds,
credits, and uncollectible amounts. The Company estimates the reserve for
customer chargebacks monthly based on updated chargeback history. New platforms
without a history are reserved based on experience with similar platforms and
adjusted as experience dictates. Accordingly, it is reasonably possible that
this estimate will change in the near term. Since reserves are established prior
to the periods in which chargebacks are actually incurred, the Company's
revenues may be reduced in later periods in the event that the Company's
reserves prove to be insufficient. For the year ended November 30, 1995,
provision for all chargebacks were $11,742,474.

ACCOUNTS RECEIVABLE

The Company has agreements with service bureaus that provide advances
against accounts receivable collections at interest rates calculated primarily
at prime plus increments up to 6%. Amounts advanced under

F-26
<PAGE> 104

NEW LAUDERDALE, L.C.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

the agreements are on a revolving basis and are limited to 50% of a defined
borrowing base, net of related service fees and costs, as applicable. Certain
advances under the agreements are due on demand and all are collateralized by
the accounts receivable collected by the service bureaus. During fiscal 1995,
the gross advances received approximated $9,820,787.

LOANS PAYABLE

The indebtedness of the Company is guaranteed by both parties to the joint
venture. The Company is of the opinion that it will be able to perform under its
respective payment obligations in connection with such indebtedness and that no
payments will be required by either member of the joint venture under such
guarantees.

CONCENTRATION OF CREDIT RISK

Financial instruments which potentially subject the Company to
concentration of credit risk consist of accounts receivable and cash deposits.

All of the Company's collections are received through service bureaus which
process and collect all of the Company's billings. In conjunction with servicing
the accounts receivable, the service bureaus advance amounts based on eligible
accounts receivable and withhold certain cash receipts as a reserve. As a
result, the Company's exposure to the concentration of credit risk primarily
relates to all collections on behalf of the Company by the service bureaus.

CASH AND CASH EQUIVALENTS

All short-term investments with an original maturity of three months or
less are considered to be cash equivalents.

INCOME TAXES

The Company was formed as a limited liability company ("LLC") under the
laws of the State of Florida. Florida taxes all limited liability companies as C
corporations. However, for Federal income tax purposes the LLC is taxed as a
partnership. Accordingly, taxable income, deductions and tax credits are passed
through to, and included in, the members' respective income tax returns and no
provision for Federal income taxes is included in the accompanying statements of
operations.

Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse.

ADVERTISING EXPENSES

The Company expenses all advertising costs during the year in which they
are incurred, except for certain media costs. Media costs are expensed as the
advertising occurs, resulting in prepaid costs which are included in prepaid
expense. Such costs approximated $68,000 at November 30, 1995. Total advertising
expense incurred for fiscal 1995 were approximately $8,029,100.

F-27
<PAGE> 105

NEW LAUDERDALE, L.C.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

2. RELATED PARTY TRANSACTIONS:

The Company paid PRN approximately $3,418,000 during fiscal 1995 for
providing psychic operators and telemarketers and purchasing television media
time. In addition, payments of approximately $113,000 were made to CCCI for
managing billing and collections during fiscal 1995.

The Company purchased various mailing lists and design, copyrighting and
artistic development services from related entities owned by CCCI's
shareholders. During fiscal 1995, costs of approximately $5,200 were incurred by
the Company for such services.

The Company paid management fees of $50,000 a month, beginning March 1,
1995, to each of CCCI and PRN.

Certain service bureau transactions are consummated for the Company through
Quintel Entertainment, Inc., the parent company of CCCI. All such transactions
are consummated at cost.

3. ACCRUED EXPENSES:

Accrued expenses at November 30, 1995 consist of the following:

<TABLE>
<S> <C>
Service fees and related costs................................... $ 903,805
Advertising expenses............................................. 402,999
Professional fees................................................ 124,314
Other............................................................ 58,433
----------
$1,489,551
----------
</TABLE>

4. REGULATORY ISSUES AND OTHER RISK CONSIDERATIONS:

There can be no assurance that the Company will be able, for financial or
other reasons, to comply with applicable laws and regulations or that regulatory
authorities will not take action to limit or prevent the Company from
advertising, marketing or promoting its services and membership clubs or
otherwise require the Company to discontinue or substantially modify the content
of its services.

5. COMMITMENTS AND CONTINGENCIES:

The Company has entered into agreements with various celebrities to promote
its telephone entertainment services. These agreements are generally for a term
of one year, which may be extended under certain circumstances, and grant
worldwide rights to use an individual's name and likeness in connection with
services promoted by advertisements. Compensation varies by individual and
generally consists of an advance payment and royalties based on defined revenues
earned by the Company. Total royalty expenses incurred for fiscal 1995 were
$434,468.

F-28
<PAGE> 106

NEW LAUDERDALE, L.C.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

6. SUBSEQUENT EVENTS:

On January 17, 1995, PRN entered into a letter of intent with Quintel
Entertainment, Inc., the parent company of CCCI, to acquire the remaining 50%
interest of N.L. Consummation of the transaction is subject to the parties
completing due diligence, securing requisite corporate and other approvals and
the execution of definitive acquisition agreements.

In a separate transaction effective January 17, 1995, PRN transferred its
media departments and staff to N.L. and a principal of PRN will also be retained
by the Company as a consultant.

F-29
<PAGE> 107

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

MAY 31, NOVEMBER 30,
1996 1995
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents....................................... $16,519,449 $ 3,570,468
Accounts receivable, trade...................................... 7,349,639 10,097,629
Deferred tax asset.............................................. 3,768,801 39,957
Due from related parties........................................ 691,950 67,162
Prepaid expenses and other current assets....................... 2,572,996 381,292
----------- -----------
Total current assets.................................... 30,902,835 14,156,508
Property and equipment, at cost, net of accumulated
depreciation.................................................... 240,550 142,369
Investment in joint venture, at equity............................ 1,462,400 1,345,304
Other assets...................................................... 108,264 1,325,775
----------- -----------
$32,714,049 $16,969,956
=========== ===========
LIABILITIES:
Current liabilities:
Note payable.................................................... $ 684,713
Accounts payable................................................ 1,346,399 $ 1,269,647
Accrued expenses................................................ 1,014,449 2,351,644
Reserve for customer chargebacks................................ 5,853,781 4,025,130
Loans payable................................................... 1,685,383 2,643,522
Due to related parties.......................................... 2,850,839 354,751
Income taxes payable............................................ 1,419,505 294,187
----------- -----------
Total liabilities....................................... 14,855,069 10,938,881
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock -- $.001 par value; 1,000,000 shares authorized;
none issued and outstanding
Common stock -- $.001 par value; authorized 50,000,000 shares;
issued and outstanding 15,236,167 and 12,000,000 shares,
respectively.................................................... 15,236 12,000
Additional paid-in capital........................................ 14,534,421 441,258
Retained earnings................................................. 3,309,323 5,597,817
Less subscriptions receivable..................................... (20,000)
----------- -----------
Total stockholders' equity.............................. 17,858,980 6,031,075
----------- -----------
$32,714,049 $16,969,956
=========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-30
<PAGE> 108

QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MAY 31, MAY 31,
--------------------------- ---------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenue........................... $13,765,685 $12,074,304 $29,784,256 $20,289,303
Cost of sales......................... 12,127,246 8,430,024 24,805,226 15,239,225
----------- ----------- ----------- -----------
Gross profit................ 1,638,439 3,644,280 4,979,030 5,050,078
Selling, general and administrative
expenses............................ 1,188,499 796,143 3,261,873 1,292,390
----------- ----------- ----------- -----------
449,940 2,848,137 1,717,157 3,757,688
Interest expense...................... (90,901) (125,236) (230,862) (143,921)
Other income, net..................... 71,802 183,200 437,912 183,200
Equity in earnings of joint venture... 712,066 488,655 3,149,096 646,443
----------- ----------- ----------- -----------
1,142,907 3,394,756 5,073,303 4,443,410
Provision for income taxes............ 547,455 101,450 175,662 103,585
----------- ----------- ----------- -----------
Net income.................. $ 595,452 $ 3,293,306 $ 4,897,641 $ 4,339,825
=========== =========== =========== ===========
Pro Forma Data (Note 1):
Income before pro forma
adjustments...................... $ 1,142,907 $ 3,394,756 $ 5,073,303 $ 4,443,410
Pro forma income tax provision........ 547,455 1,315,468 175,662 1,721,882
----------- ----------- ----------- -----------
Pro forma net income................ $ 595,452 $ 2,079,288 $ 4,897,641 $ 2,721,528
----------- ----------- ----------- -----------
Pro forma net income per share........ $ 0.04 $ 0.17 $ 0.31 $ 0.23
=========== =========== =========== ===========
Weighted average common shares
outstanding......................... 15,778,844 12,000,000 15,778,844 12,000,000
=========== =========== =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-31
<PAGE> 109

QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------------
MAY 31, MAY 31,
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income...................................................... $ 4,897,641 $ 4,339,825
Items not affecting cash:
Depreciation and amortization................................ 21,808 3,907
Reserve for customer chargebacks............................. 1,828,651 1,199,147
Deferred income taxes........................................ (3,728,844) 19,509
Equity in net earnings of joint venture, net of dividends
received.................................................... (117,096) (6,443)
Changes in assets and liabilities:
Accounts receivable.......................................... 2,747,990 (5,315,677)
Prepaid expenses and other current assets.................... (2,214,984) (536,506)
Accounts payable............................................. 76,752 779,107
Income tax payable........................................... 1,125,318 84,076
Due to related parties....................................... 1,871,300 (99,656)
Other, principally accrued expenses.......................... (32,915) (405,512)
----------- -----------
Net cash provided by operating activities............... 6,475,621 61,777
----------- -----------
Cash flows from investing activities:
Investment in joint venture..................................... (25,000)
Capital expenditures............................................ (119,989) (61,372)
----------- -----------
Net cash used in investing activities................... (119,989) (86,372)
----------- -----------
Cash flows from financing activities:
Proceeds from collection of common stock subscription........... 20,000
Proceeds from issuance of common stock, net..................... 13,402,075
Proceeds from exercise of stock options......................... 55,835
Distributions to shareholders................................... (3,000,000) (2,121,137)
Principal payments on notes payable to shareholders............. (2,926,422)
Loans payable, net.............................................. (958,139) 2,887,560
----------- -----------
Net cash provided by financing activities............... 6,593,349 766,423
----------- -----------
Net increase in cash and cash equivalents......................... 12,948,981 741,828
Cash and cash equivalents, beginning of period.................... 3,570,468 981,073
----------- -----------
Cash and cash equivalents, end of period.......................... $16,519,449 $ 1,722,901
=========== ===========
Non-cash financing activities:
Notes issued to shareholders for undistributed S corporation
earnings..................................................... $ 3,611,135
Contribution of capital from S corporation...................... 575,000
</TABLE>

See accompanying notes to consolidated financial statements.

F-32
<PAGE> 110

QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. GENERAL

The consolidated financial statements for the three and six month periods
ended May 31, 1996 and May 31, 1995 are unaudited and reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the financial position and
operating results for the interim period. The consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto, together with management's discussion and analysis of financial
condition and results of operations, contained in the Company's Annual Report on
Form 10-K for the fiscal year ended November 30, 1995, and Quarterly Report on
Form 10-Q for the quarter ended February 29, 1996. The results of operations for
the three and six months ended May 31, 1996 are not necessarily indicative of
the results for the entire fiscal year ending November 30, 1996.

2. EARNINGS PER SHARE

Pro forma net earnings per share have been computed by dividing net
earnings by the weighted average number of common and common equivalent shares
outstanding during the period, computed in accordance with the treasury stock
method.

3. ADVERTISING EXPENSES

The Company expenses all advertising costs during the year in which they
are incurred, except for certain media costs. For interim purposes, media costs
are expensed as the advertising occurs. Included in prepaid expenses and other
current assets is approximately $611,265 relating to prepaid advertising at May
31, 1996. All costs will be expensed prior to year end. Total advertising
expense incurred for the three months ended May 31, 1996 and May 31, 1995 were
$6,946,526 and $4,276,612, respectively, and for the six months ended May 31,
1996 and May 31, 1995 were $12,498,775 and $5,451,941, respectively.

4. NEW LAUDERDALE

In addition, the Company may make available to PRN's shareholders an
interest-bearing loan secured by the shares issued to cover a portion of their
tax liability attributable to the transaction in the event that the Company's
stock trades below certain levels. The loan shall be due and payable no later
than two years from the date it is made, or sooner, if the Company's stock
trades at certain levels. Consummation of this transaction is subject to the
parties completing due diligence, securing requisite corporate and other
approvals and the execution of definitive acquisition agreements. The following
is condensed financial data for New Lauderdale:

<TABLE>
<CAPTION>
3 MONTHS ENDED 6 MONTHS ENDED
MAY 31, MAY 31,
-------------------------- --------------------------
1996 1995 1996 1995
----------- ---------- ----------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues............................ $19,657,602 $4,060,149 $41,904,148 $5,358,688
Gross profit............................ 2,833,513 1,428,447 8,678,575 1,813,633
Net income.............................. 1,424,132 977,309 6,298,192 1,292,885
</TABLE>

F-33
<PAGE> 111

QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. NEW SUBSIDIARIES

The Company formed three new wholly-owned subsidiaries during May 1996.
Quintel Products, Inc. and Quintelco, Inc. were formed for the purpose of
developing new business opportunities. NL Corp. was formed for the purpose of
acquiring the remaining 50% interest in New Lauderdale, L.C. (see Note 4).
During the three and six month periods ended May 31, 1996, Quintelco, Inc. and
NL Corp. were inactive. Quintel Products, Inc.'s operations were not significant
during its start-up month of May, 1996.

6. SUBSEQUENT EVENT

During July 1996, the Company entered into a joint venture agreement with
Paragon Cellular Services, Inc., an unrelated party, to form Quintel Cellular,
LLC, a Delaware limited liability company. The Company will retain a 50%
interest in the joint venture and will account for it under the equity method of
accounting. Quintel Cellular, LLC expects to market, lease and sell cellular
telephones and related services.

F-34
<PAGE> 112

NEW LAUDERDALE, L.C.

UNAUDITED STATEMENT OF FINANCIAL POSITION
May 31, 1996

<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents...................................................... $ 1,416,837
Accounts receivable, trade..................................................... 12,175,161
Due from related parties....................................................... 2,158,886
Prepaid expenses............................................................... 583,367
-----------
$16,334,251
===========
LIABILITIES AND MEMBERS' EQUITY
Accrued expenses............................................................... $ 1,710,017
Reserve for customer chargebacks............................................... 9,848,248
Loans payable.................................................................. 1,770,154
Deferred tax liability......................................................... 46,439
Income taxes payable........................................................... 34,593
-----------
13,409,451
-----------
2,924,800
-----------
Members' equity, as annexed.................................................... $16,334,251
===========
</TABLE>

F-35
<PAGE> 113

NEW LAUDERDALE, L.C.

UNAUDITED STATEMENT OF OPERATIONS
for the six month period ended May 31, 1996

<TABLE>
<S> <C>
Net Revenue.................................................................... $41,904,148
Cost of Sales.................................................................. 33,225,573
-----------
Gross Profit................................................................. 8,678,575
Selling, General and administrative expenses................................... 1,959,237
-----------
Income from Operations....................................................... 6,719,338
Interest Expense............................................................... (263,153)
Other Income................................................................... 40,096
-----------
Income before Provision for Income Taxes..................................... 6,496,281
Provision for State Income Taxes............................................. 198,089
-----------
Net Income..................................................................... $ 6,298,192
===========
</TABLE>

F-36
<PAGE> 114

NEW LAUDERDALE, L.C.

UNAUDITED STATEMENT OF CASH FLOWS
for the six month period ended May 31, 1996

<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net income.................................................................. $6,298,192
Items not affecting cash:
Reserve for customer chargebacks......................................... 5,182,336
Deferred income taxes.................................................... 46,439
Changes in assets and liabilities:
Accounts receivable...................................................... (5,260,010)
Due from related parties................................................. (1,966,977)
Prepaid expenses......................................................... (316,420)
Accrued expenses......................................................... 220,466
Due to related parties................................................... (256,865)
Income taxes payable..................................................... (298,352)
----------
Net Cash used in Operating Activities.................................... 3,648,809
----------
Cash Flows from Financing Activities:
Loans payable, net.......................................................... 476
Distributions to members.................................................... (6,064,000)
----------
Net Cash used in Financing Activities.................................... (6,063,524)
----------
Net Decrease in Cash and Cash Equivalents..................................... (2,414,715)
Cash and Cash Equivalents, Beginning of Period................................ 3,831,552
----------
Cash and Cash Equivalents, End of Period...................................... $1,416,837
==========
Supplemental Disclosures:
Cash paid for interest...................................................... $ 263,153
==========
</TABLE>

F-37
<PAGE> 115

NEW LAUDERDALE, L.C.

UNAUDITED STATEMENT OF MEMBERS' EQUITY
for the six month period ended May 31, 1996

<TABLE>
<CAPTION>
CAPITAL UNDISTRIBUTED
CONTRIBUTED EARNINGS TOTAL
----------- ------------- ----------
<S> <C> <C> <C>
Balance, November 30, 1995 $50,000 $ 2,640,608 $2,690,608
Net Income 6,298,192 6,298,192
Distributions (6,064,000) (6,064,000)
------- ----------- ----------
Balance, May 31, 1996 $50,000 $ 2,874,800 $2,924,800
======= =========== ==========
</TABLE>

F-38
<PAGE> 116

UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS

The following unaudited pro forma consolidated balance sheet, as of May 31,
1996, has been prepared by combining the unaudited consolidated balance sheets
of Quintel Entertainment, Inc. and Subsidiaries (the "Company") and of New
Lauderdale, L.C. ("N.L."). The Acquisition is being accounted for using the
purchase method of accounting as if the Acquisition had occurred on May 31,
1996. Under this method, based upon the estimated purchase price for N.L., the
identifiable assets and liabilities of N.L. have been adjusted to their
estimated fair values.

The following unaudited pro forma consolidated statements of operations
have been prepared by combining the consolidated statements of operations of (i)
the Company and N.L. for the year ended November 30, 1995, and (ii) the Company
and N.L. for the six months ended May 31, 1996 as if the Acquisition had
occurred on December 30, 1994. Cost savings and synergies which the Company
expects to realize as a result of the Acquisition have not been recognized in
the pro forma consolidated statements of operations.

These statements have been prepared from the historical consolidated
financial statements of the Company and N.L. and should be read in conjunction
with such statements, exhibits, and the related notes contained in the Company's
Annual Report on Form 10-K for the 1995 fiscal year and Quarterly Report on Form
10-Q for the second quarter of 1996 included as exhibits elsewhere in this
document.

The pro forma consolidated financial statements do not purport to represent
what the Company's consolidated financial position or results of operations
would have actually been had the Acquisition been completed on such date, nor is
it necessarily indicative of future financial position or operating results of
the Company.

F-39
<PAGE> 117

QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA
CONSOLIDATED BALANCE SHEET
as of May 31, 1996

<TABLE>
<CAPTION>
HISTORICAL HISTORICAL QUINTEL
QUINTEL NEW PRO FORMA ENTERTAINMENT, INC.
ENTERTAINMENT, INC. LAUDERDALE, L.C. ADJUSTMENTS PRO FORMA
------------------- ---------------- ----------- -------------------
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents.... $16,519,449 $ 1,416,837 $(1,462,400)(A) $16,473,886
Accounts receivable, trade... 7,349,639 12,175,161 19,524,800
Deferred tax asset........... 3,766,801 3,768,801
Due from related parties..... 691,950 2,158,889 (2,850,839)(A)
Prepaid expenses and other
current assets............ 2,572,996 583,364 3,156,360
----------- ----------- ----------- -----------
Total current assets...... 30,902,835 16,334,251 (4,313,239) 42,923,847
Property and equipment, at
cost, net of accumulated
depreciation................. 240,550 240,550
Investment in joint venture, at
equity....................... 1,462,400 (1,462,400)(C)
Other assets................... 108,264 22,800,000 (B) 22,908,264
----------- ----------- ----------- -----------
$32,714,049 $16,334,251 $17,024,361 $66,072,661
=========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS'
EQUITY:
Accounts payable............. $ 1,346,399 $ 1,346,399
Accrued expenses............. 1,014,449 1,710,017 2,724,466
Reserve for customer
chargebacks............... 5,853,781 9,848,248 15,702,029
Loans payable................ 1,685,383 1,770,154 3,455,537
Due to related parties....... 2,850,839 $(2,850,839)(A)
Income taxes payable......... 1,419,505 34,593 1,454,098
Note payable................. 684,713 684,713
Deferred tax liability....... 46,439 46,439
----------- ----------- ----------- ------------
Total liabilities......... 14,855,069 13,409,451 (2,850,839) 25,413,681
----------- ----------- ----------- ------------
Members' equity........... 2,924,800 (2,924,800)(A)(C)
Common stock................... 15,236 3,200 (B) 18,436
Additional paid-in capital..... 14,534,421 22,796,800 (B) 37,331,221
Retained earnings.............. 3,309,323 3,309,323
----------- ----------- ----------- ------------
Shareholders' equity...... 17,858,980 -- 22,800,000 40,658,980
----------- ----------- ----------- -----------
$32,714,049 $16,334,251 $17,024,361 $66,072,661
=========== =========== =========== ===========
Book value per share........... $1.17 $2.21
Number of common shares used to
calculate book value per
share........................ 15,236,167 3,200,000 (I) 18,436,157
=========== ========== ===========
</TABLE>

F-40
<PAGE> 118

QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA
CONSOLIDATED INCOME STATEMENT
for the six months ended May 31, 1996

<TABLE>
<CAPTION>
HISTORICAL HISTORICAL QUINTEL
QUINTEL NEW PRO FORMA ENTERTAINMENT, INC.
ENTERTAINMENT, INC. LAUDERDALE, L.C. ADJUSTMENT PRO FORMA
------------------- ---------------- ---------- -------------------
<S> <C> <C> <C> <C>
Net revenue..................... $29,784,256 $41,904,148 $71,688,404
Cost of sales................... 24,805,226 33,225,573 58,030,799
----------- ----------- -----------
Gross profit.................. 4,979,030 8,678,575 13,657,605
Selling, general and
administrative expenses....... 3,261,873 1,959,237 $ 314 (D)(E) 5,221,424
----------- ----------- ----------- ----------
Income from operations........ 1,717,157 6,719,338 (314) 8,436,181
Interest expense................ (230,862) (263,153) (494,015)
Amortization expense............ (1,111,891)(F) (1,111,891)
Other income, net............... 437,912 40,096 (100,000)(D) 378,008
Equity in earnings of joint
venture...................... 3,149,096 (3,149,096)(G)
----------- ----------- ---------- -----------
Income before provision for
income taxes............... 5,073,303 6,496,281 (4,361,301) 7,208,283
Provision for income taxes...... 175,662 198,089 2,129,397 (H) 2,503,148
----------- ----------- ----------- -----------
Net income.................... $ 4,897,641 $ 6,298,192 $ (6,490,698) $ 4,705,135
=========== =========== ============ ===========
Net income per share............ $.31 $.25
=========== ===========
Weighted average common shares
outstanding................... 15,778,844 3,200,000 (I) 18,978,844
=========== ============ ===========
</TABLE>

F-41
<PAGE> 119

QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA
CONSOLIDATED INCOME STATEMENT
for the year ended November 30, 1995

<TABLE>
<CAPTION>
HISTORICAL HISTORICAL QUINTEL
QUINTEL NEW PRO FORMA ENTERTAINMENT, INC.
ENTERTAINMENT, INC. LAUDERDALE, L.C. ADJUSTMENTS PRO FORMA
------------------- ---------------- ----------- -------------------
<S> <C> <C> <C> <C>
Net revenue..................... $50,501,266 $28,248,093 $78,749,359
Cost of sales................... 36,732,610 20,193,763 56,926,373
----------- ----------- -----------
Gross profit.................. 13,768,656 8,054,330 21,822,986
Selling, general and
administrative expenses....... 3,467,008 1,879,530 $ (728,125)(D)(E) 4,618,413
----------- ----------- ----------- -----------
Income from operations........ 10,301,648 6,174,800 (728,125) 17,204,573
Interest expense................ (334,318) (136,521) (470,839)
Amortization expense............ (1,966,681)(F) (1,966,681)
Consultant fee..................
Management fee income........... 450,000 (450,000)(D)
Other income, net............... 35,250 15,274 50,524
Equity in earnings of joint
venture....................... 2,860,304 (2,860,304)(G)
----------- ----------- ----------- -----------
Income before provision for
income taxes............... 13,312,884 6,053,553 (4,548,860) 14,817,577
Provision for income taxes...... 220,335 332,945 553,280
----------- ----------- ----------- -----------
Net income.................... $13,092,549 $ 5,720,608 $(4,548,860) $14,264,297
=========== =========== =========== ===========
Income before pro forma
adjustments................... $13,312,884 $ 6,053,553 $(4,548,860) $14,817,577
Pro forma income tax
provision..................... 5,633,116 589,808 (H) 6,222,929
----------- ----------- ----------- -----------
Pro forma net income............ $ 7,679,768 $ 6,053,553 $(5,138,668) $ 8,594,653
=========== =========== =========== ===========
Net income per share............ $.64 $.58
=========== ===========
Weighted average common shares
outstanding................... 12,000,000 2,933,337 (I) 14,933,337
=========== =========== ===========
</TABLE>

F-42
<PAGE> 120

QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION

(A) To reflect on the pro forma balance sheet those assets to be distributed in
accordance with the asset purchase agreement and liabilities to be assumed
or eliminated prior to the effective date of the Acquisition.

(B) To reflect the issuance of common stock of Quintel and the excess of
purchase price paid over historical basis of N.L.'s net assets based on an
assumed purchase price of $22,800,000. The assumed purchase price was
computed based on the fair market value of 3.2 million shares of Quintel's
common stock expected to be issued at a market price of $7.125 which is
determined using the closing market price at January 17, 1996.

(C) Adjustment to N.L.'s capital structure to conform with that of the Company
and the elimination of N.L.'s members' equity and the Company's investment
in N.L.

(D) Reflects the elimination of the management fee arrangement established
between N.L. and its joint venture partners.

(E) Reflects the expense relating to a consulting arrangement with one of the
PRN shareholders.

(F) Represents amortization of the excess purchase price of $22,800,000 over
the net book value of interest acquired, which is currently estimated to be
amortized over a ten-year period on a straight-line basis.

(G) Reflects the elimination of the Company's equity in earnings of N.L.

(H) The adjustment of the tax provision represents the statutory federal rate
applied to the estimated adjustments to pre-tax income assuming the Company
and N.L. had always been C corporations.

(I) Net income per share for the year ended November 30, 1995 is calculated
based on the assumption that 14,933,337 shares were outstanding reflecting
the increase in shares explained in Note B above. Net income per share for
the six months ended May 31, 1996 is calculated based on the assumption
that 18,978,844 shares were outstanding during the entire period which
includes the effect of the shares issued in Quintel's initial public
offering effective December 5, 1995.

F-43
<PAGE> 121
No dealer, salesperson or any other person has been authorized to give
any information or to make any representations other than those contained in
this Prospectus, and, if given or made, such information or representations must
not be relied upon as having been authorized by the Company. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any
security other than the Common Stock offered by this Prospectus, or an offer to
sell or a solicitation of an offer to buy any security, by any person in any
jurisdiction in which such an offer or solicitation would be unlawful. Neither
the delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, imply that the information in this Prospectus is correct as of
any time subsequent to the date of this Prospectus.

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

TABLE OF CONTENTS

PAGE 3,200,000 Shares
---- of Common Stock
Available Information.................. 2
Prospectus Summary..................... 2
Risk Factors........................... 6
Use of Proceeds ....................... 20
Selected Financial Data of
the Company......................... 21 QUINTEL
Capitalization ........................ 23 ENTERTAINMENT, INC.
Price Range of Common Stock and
Dividend Policy .................... 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations of the Company........... 25 -------------------
Business............................... 38
Management............................. 56 PROSPECTUS
Executive Compensation................. 60
Principal and Selling Security -------------------
Holders............................. 64
Certain Relationships and Related
Transactions........................ 67 , 1996
Compliance with Section 16(a) of the
Securities Exchange Act of 1934..... 69
Forward Looking Information May Prove
Inaccurate.......................... 69
Description of Securities.............. 69
Shares Eligible for Future Sale ....... 70
Plan of Distribution................... 71
Legal Matters.......................... 71
Experts ............................... 72
Financial Statements and Related
Schedules........................... F-1

<PAGE> 122

ALTERNATE PROSPECTUS

13,000 SHARES

QUINTEL ENTERTAINMENT, INC.

COMMON STOCK

This Prospectus covers 13,000 shares of Common Stock, par value $.001
per share (the "Common Stock") of Quintel Entertainment, Inc., a Delaware
corporation (the "Company"), held by security holders of the Company. The
Company will not receive any proceeds from the sale of the shares offered
hereby. The holders of the 13,000 shares covered by this Prospectus intend to
sell the shares offered hereby from time to time for their own respective
accounts in the open market at the prices prevailing therein or in individually
negotiated transactions at such prices as may be agreed upon. Each such holder
will bear all expenses with respect to the offering of shares by him or her
including the costs associated with preparing and printing this Prospectus.
Concurrently herewith the Company is registering 3,200,000 shares of Common
Stock on behalf of selling security holders unrelated to the selling security
holders included in this Prospectus.

The Common Stock of the Company is traded on the NASDAQ National Market
system under the symbol "QTEL." On October 8, 1996, the last reported sale price
of the Common Stock was $8 1/2.

SEE RISK FACTORS FOR INFORMATION THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS (PAGE 6).

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

The date of this Prospectus is _______________________

<PAGE> 123

PRINCIPAL AND SELLING SECURITY HOLDERS

The following table sets forth certain information as of the date of
this Prospectus with respect to the beneficial ownership of the Company's Common
Stock and as adjusted to reflect the sale of the 25,000 shares included in this
Prospectus and the 3,200,000 shares being registered pursuant to the
Registration Statement of which this Prospectus forms a part, for the following
individuals: (i) each current director of the Company, (ii) the Chief Executive
Officer and the Company's most highly compensated executive officers (other than
the Chief Executive Officer) whose cash compensation exceeds $100,000, (iii) all
directors and executive officers of the Company as a group, (iv) each person
known by the Company to own beneficially more than five per cent (5%) of the
outstanding shares of Common Stock of the Company and (v) the selling security
holders.

<TABLE>
<CAPTION>
Percentage of Percentage of
Outstanding Outstanding
Amount and Shares Shares Shares to be
Nature of Prior to Subsequent to Registered
Name and Address (1) Beneficial Issuance of Issuance of for Selling
of Beneficial Owner Ownership(2) Shares Shares Securityholders
- -------------------- ------------ ------------- -------------- ---------------
<S> <C> <C> <C> <C>
Jay Greenwald 3,126,282(3) 20.4% 16.9% --

Michael G. Miller 2,614,402(4) 17.1 14.1 --

Jeffrey L. Schwartz 2,609,402(5) 17.1 14.1 --

Claudia Newman Hirsch 2,092,521(6) 13.7 11.3 --

Steven L. Feder 1,424,000 -- 7.7 1,424,000
2455 East Sunrise Blvd
Ft. Lauderdale, FL 33304

Thomas H. Lindsey 1,424,000 -- 7.7 1,424,000
2455 East Sunrise Blvd
Ft. Lauderdale, FL 33304

Andrew Stollman 1,173,843(7) 7.7 6.3 --

Peter Stolz 352,000 -- * 352,000

Murray L. Skala 38,000(8) * * --
750 Lexington Avenue
New York, NY 10022

Mark Gutterman 20,000(9) * * --
280 Plandome Road
Manhasset, NY 11030

Edwin A. Levy 40,500(10) * * --
767 Third Avenue
New York, NY 10017

Vincent Tese 25,000(11) * * --
245 Park Avenue
New York, NY 10167

All executive officers 11,747,617(12)(13) 75.9% 62.8% --
and directors as a
group (ten persons)(12)

Feder, Kaszovitz, Isaacson,
Weber, Skala & Bass LLP
750 Lexington Avenue
New York, New York 10022 13,000(14)(15) * * 13,000
</TABLE>

- ------------
* Less than 1% of the Company's outstanding shares.

(1) Unless otherwise listed, the addresses of all of the persons in the
foregoing table are at the Company's offices, One Blue Hill Plaza,
Pearl River, NY 10965.

<PAGE> 124

(2) The number of Shares of Common Stock beneficially owned by each person
or entity is determined under rules promulgated by the Securities and
Exchange Commission (the "Commission"). Under such rules, beneficial
ownership includes any shares as to which the person or entity has sole
or shared voting power or investment power. The percentage of the
Company's outstanding shares is calculated by including among the
shares owned by such person any shares which such person or entity has
the right to acquire within 60 days after the date of this Prospectus.
Unless otherwise indicated, each person or entity referred to above has
sole voting and investment power with respect to the shares listed.
The inclusion herein of any shares deemed beneficially owned does not
constitute an admission of beneficial ownership of such shares.

(3) Includes 25,000 shares of Common Stock issuable upon the exercise of an
option held by Mr. Greenwald.

(4) Includes 30,000 shares of Common Stock issuable upon exercise of an
option held by Mr. Miller.

(5) Includes 25,000 shares of Common Stock issuable upon exercise of an
option held by Mr. Schwartz.

(6) Includes 25,000 shares of Common Stock issuable upon exercise of an
option held by Ms. Newman Hirsch.

(7) Includes 25,000 shares of Common Stock issuable upon exercise of an
option held by Mr. Stollman.

<PAGE> 125

(8) Includes 30,000 shares of Common Stock issuable upon
exercise of an option held by Mr. Skala.

(9) Includes 20,000 shares of Common Stock issuable upon
exercise of an option held by Mr. Gutterman.

(10) Includes 30,000 shares of Common Stock issuable upon
exercise of an option held by Mr. Levy.

(11) Includes 25,000 shares of Common Stock issuable upon
exercise of an option held by Mr. Tese.

(13) Includes 241,667 shares of Common Stock issuable upon
exercise of options held by the above named individuals.
See footnotes (3) through (12) above.

(14) Represents a portion of the 25,000 shares issued to Feder,
Kaszovitz, Isaacson, Weber, Skala & Bass LLP, counsel for
the Company, as partial consideration for services rendered
to the Company in connection with the Company's initial
public offering (the "IPO") and which were registered by the
Company in its Registration Statement on Form S-1 for such
IPO, declared effective by the Commission on December 5,
1996 (the "IPO Registration Statement"). 12,000 of such
25,000 shares were already sold by the holders thereof. The
Company deregistered the remaining 13,000 shares in a Post-
Effective Amendment to the IPO Registration Statement,
declared effective by the Commission on October 7, 1996,
intending to re-register such 13,000 shares pursuant to the
Registration Statement of which this Prospectus forms a
part.

(15) Does not include 30,000 shares of Common Stock issuable upon
exercise of an option held by Mr. Skala, a partner in such
firm and a director of the Company (see footnote 8).

LEGAL MATTERS

The legality of the Common Stock included in this Prospectus has been
passed upon for the Company by Feder, Kaszovitz, Isaacson, Weber, Skala & Bass
LLP, New York, New York. Murray L. Skala, a director of the Company and a
partner of Feder, Kaszovitz, Isaacson, Weber, Skala & Bass, LLP, beneficially
owns options to purchase 30,000 shares of Common Stock and such firm was issued
25,000 shares of Common Stock for legal services rendered to the Company in
connection with the Company's initial public offering of securities in December
1995. 13,000 of such 25,000 shares issued to the firm are included in this
Prospectus.

<PAGE> 126

No dealer, salesperson or any other person has been authorized to give
any information or to make any representations other than those contained in
this Prospectus, and, if given or made, such information or representations must
not be relied upon as having been authorized by the Company. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any
security other than the Common Stock offered by this Prospectus, or an offer to
sell or a solicitation of an offer to buy any security, by any person in any
jurisdiction in which such an offer or solicitation would be unlawful. Neither
the delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, imply that the information in this Prospectus is correct as of
any time subsequent to the date of this Prospectus.

_________________

TABLE OF CONTENTS
PAGE
<S> <C> <C>
Available Information..................
Prospectus Summary..................... 13,000 Shares
Risk Factors........................... of Common Stock
Use of Proceeds .......................
Selected Financial Data of
the Company.........................
Capitalization ........................
Price Range of Common Stock and QUINTEL
Dividend Policy .................... ENTERTAINMENT, INC.
Management's Discussion and Analysis of
Financial Condition and Results of
Operations of the Company...........
Business...............................
Management.............................
Executive Compensation.................
Principal and Selling Security _____________________
Holders.............................
Certain Relationships and Related
Transactions........................ PROSPECTUS
Compliance with Section 16(a) of the
Securities Exchange Act of 1934..... _____________________
Forward Looking Information May Prove
Inaccurate..........................
Description of Securities..............
Shares of Eligible for Future Sale ....
Plan of Distribution...................
Legal Matters.......................... ,1996
Experts ...............................
Financial Statements and Related
Schedules........................... F-1
</TABLE>

<PAGE> 127

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

It is expected that the following expenses will be incurred in
connection with the issuance and distribution of the Common Stock being
registered:

SEC Registration fee $ 9,694.39(1)
*Printing 25,000.00
*Accountants' fees and expenses 7,500.00
*Attorneys' fees and expenses 50,000.00
*Miscellaneous 2,805.61
----------
*TOTAL $95,000.00
==========
- -------------

* Estimated
(1) $39.22 of such registration fee shall be paid by Feder, Kaszovitz,
Isaacson, Weber, Skala & Bass LLP, counsel to the Company and the holder of
the 13,000 shares included in the Alternate Prospectus included in this
Registration Statement.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company's Certificate of Incorporation provides that the personal
liability of the directors of the Company shall be limited to the fullest extent
permitted by the provisions of Section 102(b)(7) of the General Corporation Law
of the State of Delaware (the "DGCL"). Section 102(b)(7) of the DGCL generally
provides that no director shall be liable personally to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided that the Certificate of Incorporation does not eliminate the liability
of a director for (i) any breach of the director's duty of loyalty to the
Company or its stockholders; (ii) acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law; (iii) acts or
omissions in respect of certain unlawful dividend payments or stock redemptions
or repurchases; or (iv) any transaction from which such director derives
improper personal benefit. The effect of this provision is to eliminate the
rights of the Company and its stockholders (through stockholders' derivative
suits on behalf of the Company) to recover monetary damages against a director
for breach of her or his fiduciary duty of care as a director (including
breaches resulting from negligent or grossly negligent behavior) except in the
situations described in clauses (i) through (iv) above. The limitations
summarized above, however, do not affect the ability of the Company or its
stockholders to seek nonmonetary remedies, such as an injunction or rescission,
against a director for breach of her or his fiduciary duty. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers, or persons controlling the Company pursuant to
the foregoing provisions, the Company has been informed that in the opinion of
the Securities and Exchange Commission (the "Commission"), such indemnification
is against public policy as expressed in the Securities Act and is therefore
unenforceable.

In addition, the Certificate of Incorporation provides that the Company
shall, to the fullest extent permitted by Section 145 of the DGCL, indemnify

II - 1

<PAGE> 128

all persons whom it may indemnify pursuant to Section 145 of the DGCL. Section
145 of the DGCL permits a company to indemnify an officer or director who was or
is a party or is threatened to be made a party to any proceeding because of his
or her position, if the officer or director acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interests of
the Company and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful.

The Company maintains a directors' and officers' liability insurance
policy covering certain liabilities that may be incurred by directors and
officers in connection with the performance of their duties. The entire premium
for such insurance is paid by the Company.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

The following sets forth information relating to the sale of all
unregistered securities of the Company since December 1, 1993:

Names or Approximate Title and
Class of Purchasers Date of Issuance Amount of Securities
- ------------------- ---------------- --------------------

Five controlling December 1, 1993 All shares of Common
stockholders Stock then outstanding

Steven Feder, September 10, 1996 3,200,000 shares
Thomas Lindsey and of Common Stock
Peter Stolz*

- -----------------
* On September 10, 1996, a wholly-owned subsidiary of the Company (NL
Corp.) acquired the interest of Psychic Readers Network, Inc. ("PRN") in New
Lauderdale L.C., a Florida limited liability company, of which the Company's
subsidiary, Calling Card Co., Inc., owned the remaining 50% interest. In
consideration for such acquisition, the Company issued to Messrs. Feder, Lindsey
and Stolz, the shareholders of PRN, an aggregate of 3,200,000 shares of the
Company's common stock. Such shares are included in this Registration Statement.

Exemption from registration under the Securities Act is claimed for the
sale of all of the securities set forth above in reliance upon the exemption
afforded by Section 4(2) of the Securities Act for transactions not involving a
public offering. Each certificate evidencing such shares of Common Stock bears
an appropriate restrictive legend and "stop transfer" orders and are maintained
on the Company's stock transfer records.

II - 2

<PAGE> 129
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) EXHIBITS

EXHIBIT
NUMBER

2.1+ Definitive Form of Acquisition Agreement by and between the Company,
Calling Card Co., Inc., and Psychic Readers Network, Inc.(1)

2.2 Definitive Information Statement filed by the Company with the
Commission on August 1, 1996 in connection with the approval of the
Acquisition and incorporated herein by reference.

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

**3.2 By-Laws of the Company

**3.3 Articles of Organization of New Lauderdale L.C.

**3.4 Regulations of New Lauderdale L.C.

4.1 Form of certificate evidencing shares of Common Stock(3)

*5.1 Opinion, with consent, of Feder, Kaszovitz, Isaacson, Weber, Skala &
Bass LLP, Counsel for the Registrant

10.1 1996 Employee Stock Option Plan(4)

10.2 Employment Agreement by and between the Company and Jeffrey L.
Schwartz(3)

10.3 Employment Agreement by and between the Company and Jay Greenwald(3)

10.4 Employment Agreement by and between the Company and Claudia Newman
Hirsch(3)

10.5 Employment Agreement by and between the Company and Andrew Stollman(3)

10.6 Consulting Agreement by and between the Company and Michael G.
Miller(3)

**10.8+ Servicing Agreement between West Interactive Corporation and the
Company

**10.9+ Servicing Agreement between West Interactive Corporation and New
Lauderdale

**10.10 Collateral Note and Security Agreement between West Interactive
Corporation and the Company

II - 3

<PAGE> 130

**10.11 Collateral Note and Security Agreement between West Interactive
Corporation and New Lauderdale

**10.12 Telemarketing Services Agreement between West Telemarketing Corporation
Outbound and the Company

**10.13+ Billing and Information Management Services Agreement and Advanced
Payment Agreement between Enhanced Services Billing, Inc. and the
Company

10.14 Commercial/Infomercial Performance Agreement between New Lauderdale and
RMI Entertainment (on behalf of P.M.T. Productions) with Letter of
Inducement executed by Philip Michael Thomas (3)

10.15 Amended and Restated Consulting Agreement among New Lauderdale, RMI
Entertainment, Kaye M. Porter Management and P.M.T. Productions, Inc.
(3)

10.16 Production Agreement between W.A.V.E Productions and New Lauderdale (3)

10.17 Promotion and Endorsement Agreement between New Lauderdale and Joyce
Jillson(3)

10.18 Promotion and Endorsement Agreement between New Lauderdale and
Catherine Oxenberg(3)

10.19 Promotion and Endorsement Agreement between New Lauderdale and Fran
Gare(3)

10.20 Promotion and Endorsement Agreement between the Company and Dennis
Rodman(3)

10.21 Promotion and Endorsement Agreement between the Company and Maxine Fiel
(3)

*22.1 Subsidiaries of the Company

*24.1 Consents of Coopers & Lybrand L.L.P.

*24.2 Consent of Feder, Kaszovitz, Isaacson, Weber, Skala & Bass LLP
(included in Exhibit 5.1)

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

* Filed herewith.

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

II - 4

<PAGE> 131

+ Confidential treatment requested as to portions of this Exhibit.

(1) Filed as an Exhibit to the Preliminary Information Statement filed with
the Commission on June 26, 1996, and incorporated herein by reference.

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

(3) Filed as an Exhibit to Amendment No. 1 to the Company's Registration
Statement on Form S-1 dated November 14, 1995, and incorporated herein
by reference.

(4) Filed as an Exhibit to the Company's Proxy Statement, filed with the
Commission on August 20, 1996, and incorporated herein by reference.

(b) FINANCIAL STATEMENT SCHEDULES

All schedules have been omitted because the information required to be
set forth therein is not applicable or is shown in the financial statements or
notes thereto.

ITEM 17. UNDERTAKINGS

The Registrant hereby undertakes:

(1) That for purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Act shall be deemed to be part of this Registration Statement as of
the time it was declared effective.

(2) That for the purpose of determining any liability under the Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

(3) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:

(a) To include any prospectus required by Section 10(a)(3) of
the Act;

(b) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereto) that, individually or in the

II - 5

<PAGE> 132

aggregate, represent a fundamental change in the information set
forth in the Registration Statement;

(c) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.

(4) To remove from registration by means of a post-effective amendment
any of the securities being registered that remain unsold at the termination of
the offering.

(5) Insofar as indemnification for liabilities arising under the Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Registrant's Certificate of Incorporation,
indemnification agreement, insurance or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

II - 6

<PAGE> 133

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Pearl
River, New York, on the 11th day of October, 1996.

QUINTEL ENTERTAINMENT, INC.

By: /s/Jeffrey L. Schwartz
----------------------
Jeffrey L. Schwartz
Chairman and CEO

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on form S-1 has been signed below by the following
persons in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----

<S> <C> <C>
/s/ Jeffrey L. Schwartz Chairman, Chief Executive Officer
- --------------------------
Jeffrey L. Schwartz and Director (Principal Executive
Officer) October 11, 1996

/s/ Jay Greenwald President, Chief Operating Officer
- --------------------------
Jay Greenwald and Director October 11, 1996

/s/ Raymond J. Richter Chief Financial Officer and
- --------------------------
Raymond J. Richter Treasurer (Principal Financial
and Accounting Officer) October 11, 1996

/s/ Claudia Newman Hirsch Executive Vice President and
- --------------------------
Claudia Newman Hirsch Director October 11, 1996

/s/ Andrew Stollman Senior Vice President, Secretary
- --------------------------
Andrew Stollman and Director October 11, 1996

/s/ Michael G. Miller Director October 11, 1996
- --------------------------
Michael G. Miller

/s/ Murray L. Skala Director October 11, 1996
- --------------------------
Murray L. Skala

/s/ Mark Gutterman Director October 11, 1996
- --------------------------
Mark Gutterman

/s/ Edwin Levy Director October 11, 1996
- --------------------------
Edwin Levy

/s/ Vincent Tese Director October 11, 1996
- --------------------------
Vincent Tese

</TABLE>

II - 7

<PAGE> 134

<PAGE> 135
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
------
<S> <C>
2.1+ Definitive Form of Acquisition Agreement by and between the
Company, Calling Card Co., Inc., and Psychic Readers Network, Inc.
(1)

2.2 Definitive Information Statement filed by the Company with the
Commission on August 1, 1996 in connection with the approval of the
Acquisition and incorporated herein by reference.

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

** 3.2 By-Laws of the Company

** 3.3 Articles of Organization of New Lauderdale L.C.

** 3.4 Regulations of New Lauderdale L.C.

4.1 Form of certificate evidencing shares of Common Stock(3)

* 5.1 Opinion, with consent, of Feder, Kaszovitz, Isaacson, Weber, Skala
& Bass LLP, Counsel for the Registrant

10.1 1996 Employee Stock Option Plan(4)

10.2 Employment Agreement by and between the Company and Jeffrey L.
Schwartz(3)

10.3 Employment Agreement by and between the Company and Jay Greenwald
(3)

10.4 Employment Agreement by and between the Company and Claudia Newman
Hirsch(3)

10.5 Employment Agreement by and between the Company and Andrew
Stollman(3)

10.6 Consulting Agreement by and between the Company and Michael G.
Miller(3)

**10.8+ Servicing Agreement between West Interactive Corporation and the
Company

**10.9+ Servicing Agreement between West Interactive Corporation and New
Lauderdale

</TABLE>
<PAGE> 136
<TABLE>
<S> <C>
**10.10 Collateral Note and Security Agreement between West Interactive
Corporation and the Company

**10.11 Collateral Note and Security Agreement between West Interactive
Corporation and New Lauderdale

**10.12 Telemarketing Services Agreement between West Telemarketing
Corporation Outbound and the Company

**10.13+ Billing and Information Management Services Agreement and Advanced
Payment Agreement between Enhanced Services Billing, Inc. and the
Company

10.14 Commercial/Infomercial Performance Agreement between New Lauderdale
and RMI Entertainment (on behalf of P.M.T. Productions) with Letter
of Inducement executed by Philip Michael Thomas (3)

10.15 Amended and Restated Consulting Agreement among New Lauderdale, RMI
Entertainment, Kaye M. Porter Management and P.M.T. Productions,
Inc.(3)

10.16 Production Agreement between W.A.V.E Productions and New Lauderdale
(3)

10.17 Promotion and Endorsement Agreement between New Lauderdale and
Joyce Jillson(3)

10.18 Promotion and Endorsement Agreement between New Lauderdale and
Catherine Oxenberg(3)

10.19 Promotion and Endorsement Agreement between New Lauderdale and Fran
Gare(3)

10.20 Promotion and Endorsement Agreement between the Company and Dennis
Rodman(3)

10.21 Promotion and Endorsement Agreement between the Company and Maxine
Fiel (3)

*22.1 Subsidiaries of the Company

*24.1 Consents of Coopers & Lybrand L.L.P.

*24.2 Consent of Feder, Kaszovitz, Isaacson, Weber, Skala & Bass LLP
(included in Exhibit 5.1)
</TABLE>

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

** Filed as an Exhibit to the Company's Registration Statement on Form
S-1, dated September 6, 1995 (File No. 33-96632) and incorporated
herein by reference.
<PAGE> 137
+ Confidential treatment requested as to portions of this Exhibit.

(1) Filed as an Exhibit to the Preliminary Information Statement filed with
the Commission on June 26, 1996, and incorporated herein by reference.

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

(3) Filed as an Exhibit to Amendment No. 1 to the Company's Registration
Statement on Form S-1 dated November 14, 1995, and incorporated herein
by reference.

(4) Filed as an Exhibit to the Company's Proxy Statement, filed with the
Commission on August 20, 1996, and incorporated herein by reference.

<PAGE> 1
Exhibit 5.1

October 10, 1996

Quintel Entertainment, Inc.
One Blue Hill Plaza
Pearl River, New York 10965

RE: REGISTRATION STATEMENT ON FORM S-1

Ladies and Gentlemen:

We have examined the Registration Statement on Form S-1 to be filed by
Quintel Entertainment, Inc. (the "Company") with the Securities and Exchange
Commission (the "SEC") on the date hereof (the "Registration Statement") in
connection with the registration under the Securities Act of 1933, as amended
(the "Act"), of 3,213,000 shares of Common Stock of the Company (the "Shares"),
including 3,200,000 shares of Common Stock being sold by certain selling
stockholders of the Company and 13,000 shares being sold by this firm.

As counsel to the Company, in connection with the above described
transactions, we have examined the proceedings taken and are familiar with the
proceedings proposed to be taken in connection with the sale and issuance of
the Shares.

It is our opinion that upon conclusion of the proceedings being taken
or contemplated by us, as your counsel, to be taken prior to the issuance of
the Shares, and upon completion of the proceedings being taken in order to
permit such transactions to be carried out in accordance with the securities
laws of the various states where required, the Shares, when issued and sold in
the manner described in the Registration Statement, will be legally and validly
issued, fully paid and non-assessable.

We consent to the use of this opinion as an exhibit to said
Registration Statement, and further consent to the use of our

<PAGE> 2

October 10, 1996
Page 2

name wherever appearing in said Registration Statement, including in each
Prospectus constituting a part thereof, and in any amendment thereto.

Very truly yours,

FEDER, KASZOVITZ, ISAACSON
WEBER, SKALA & BASS LLP

<PAGE> 1

Exhibit 22.1

SUBSIDIARIES OF QUINTEL ENTERTAINMENT, INC.

State of Incorporation
Subsidiary or Organization
---------- -----------------------

1. Calling Card Company, Inc. New York

2. New Lauderdale L.C. Florida

3. N.L. Corp. Delaware

4. Quintel Cellular, L.L.C. Delaware

5. Quintel Hair Products, Inc. Delaware

6. Quintel LaBuick Products, L.L.C. Delaware

7. Quintel Products, Inc. Delaware

8. Quintelco, Inc. Delaware

<PAGE> 1
Exhibit 24.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in this registration statement on Form S-1 of our
report dated February 19, 1996, on our audits of the consolidated financial
statements and the financial statement schedule of Quintel Entertainment, Inc.
and Subsidiaries. We also consent to the reference to our Firm under the
caption "Experts."

/s/ Coopers & Lybrand L.L.P.

COOPERS & LYBRAND L.L.P.

Melville, New York
October 10, 1996.

<PAGE> 2

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in this registration statement on Form S-1 of our
report dated February 19, 1996, on our audit of the financial statements of
New Lauderdale, L.C. We also consent to the reference to our Firm under the
caption "Experts."

/s/ Coopers & Lybrand L.L.P.

COOPERS & LYBRAND L.L.P.

Melville, New York
October 10, 1996.