QUINTEL ENTERTAINMENT INC, 10-K, 1998-03-02

QUINTEL ENTERTAINMENT INC
10-K, 1998-03-02
AMUSEMENT & RECREATION SERVICES

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
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FORM 10-K

(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1997

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

FOR THE TRANSITION PERIOD FROM __________ TO __________

COMMISSION FILE NUMBER 0-27046

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

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DELAWARE 22-3322277
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

ONE BLUE HILL PLAZA 10965
PEARL RIVER, NEW YORK (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (914) 620-1212

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EXCHANGE ON WHICH
TITLE OF CLASS REGISTERED
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SECURITIES REGISTERED PURSUANT COMMON STOCK NASDAQ NATIONAL MARKET
TO SECTION 12(b) OF THE ACT: $.001 PAR VALUE
SECURITIES REGISTERED PURSUANT COMMON STOCK
TO SECTION 12(g) OF THE ACT: $.001 PAR VALUE
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (sec.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
------------------------

The number of shares outstanding of the Registrant's common stock is
18,649,347 (as of 2/17/98). The aggregate market value of the voting stock held
by nonaffiliates of the Registrant was approximately $52,775,736 (as of 2/17/98,
based upon a closing price of the Company's Common Stock on the NASDAQ National
Market on such date of $6.8125).

DOCUMENTS INCORPORATED BY REFERENCE

None.

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QUINTEL ENTERTAINMENT, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1997

ITEMS IN FORM 10-K

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PAGE
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Facing page
PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 9
Item 3. Legal Proceedings........................................... 9
Item 4 Submission of Matters to Vote of Security Holders........... N/A
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 9
Item 6. Selected Financial Data..................................... 10
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 10
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ N/A
Item 8. Financial Statements and Supplementary Data................. 17
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... N/A
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 17
Item 11. Executive Compensation...................................... 20
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 22
Item 13. Certain Relationships and Related Transactions.............. 23
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 24

Signatures................................................................ 27
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PART I.

ITEM 1. BUSINESS

INTRODUCTION

Quintel Entertainment, Inc. (the "Company") is engaged in providing various
products and services, primarily through the use of direct marketing techniques,
and in providing services to strategic corporate partners. Throughout the fiscal
year ended November 30, 1997, the Company's operations consisted primarily of
telephone entertainment services which provide live conversation and
pre-recorded horoscopes, tarot card readings and live psychic consultations. In
addition, the Company offered marketing services through a strategic corporate
partnership with AT&T Communications, Inc. ("AT&T"), whereby the Company
marketed AT&T's residential long distance products. The Company also separately
offered memberships in theme-related club 900 products ("Club 900 products") and
voice mail services ("VM services"). The Company's Club 900 product memberships
offer certain club entertainment services, with membership periods ranging from
30 days to one year, at a flat pre-paid rate. At the end of such periods, a
subscriber's membership in a club lapses (see "-- Club 900 product"). In
addition to the foregoing, the Company is also test marketing diversified new
programs, including cellular phone products, the issuance of secured and
unsecured credit cards, enhanced call-conferencing and paging systems and
financial fulfillment services. Such programs were not significant in the fiscal
year ended November 30, 1997.

TELEPHONE 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.

TELEPHONE ENTERTAINMENT SERVICES

The Company's telephone entertainment services are accessed by dialing
"900" telephone numbers that are billed at either premium per-minute rates
(pay-per-call) or on a periodic basis through club memberships (Club 900
product). Entertainment services consist primarily of 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 numerous "900" number entertainment services, each
offering programs with distinct features. For the years ended November 30, 1997
and 1996, the Company's pay-per-call "900" telephone entertainment services
accounted for approximately 67% and 82%, respectively, of the Company's net
revenues. During the fiscal year ended November 30, 1997, the Company commenced
the marketing and billing for its club memberships, with such club memberships
accounting for 6% of the Company's net revenues.

Pay-Per-Call

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's live
tarot card entertainment services permit callers to receive a live tarot card
reading. The Company's live conversation "900" entertainment services are
currently billed at the rate of $4.99 per minute; provided, however, that the
first two to five minutes of some calls to such live conversation lines are
provided to the customer without charge. For the years ended November 30, 1997
and 1996, the

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Company's live conversation "900" entertainment services accounted for
approximately 67% and 76% of the Company's net revenues, respectively.

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
$4.99 per minute; provided, however, that the first two to five minutes of some
calls to such pre-recorded programs are provided to the customer without charge.
For the year ended November 30, 1996, the Company's pre-recorded entertainment
services accounted for approximately 6% of the Company's net revenues. For the
year ended November 30, 1997, the Company's net revenues from pre-recorded
entertainment services were insignificant.

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,
except cellular phones, pay phones or any phone for which "900 blocking" has
been imposed or ordered. 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.

Psychic Readers Network, Inc. and its subsidiaries (collectively, "PRN")
currently provide the Company with substantially all of its psychic operators.
PRN 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, 1997 and 1996, the Company
paid aggregate fees of approximately $24,300,000 and $8,560,000, respectively,
to PRN for such services. PRN is controlled by Messrs. Steven L. Feder, Thomas
H. Lindsey and Peter Stolz. Based upon information provided to the Company by
such individuals, the Company believes that trusts for the benefit of such
individuals own an aggregate of 2,898,481 shares of Common Stock of the Company,
or 15.5% of the total shares outstanding. In addition, Mr. Feder is a director
and employee of the Company. See "Certain Relationships and Related
Transactions."

Club 900 Product

The Company offers a theme-related membership club ("Club 900 product"),
whereby subscribers prepay a $39.95 fee for a 90 day membership term, in
addition to a free 30 day trial period. Upon a member's enrollment, the Company
provides such member with an assortment of new age theme related entertainment
gifts, obtainable through certificate redemption, and 15 free minutes of live
psychic readings per month during the course of their membership. PRN is
contractually responsible for all costs incurred in connection with such live
psychic readings. In the event a member exceeds his or her 15 free minutes in
any given month, such member is billed at the rate of $4.99 per minute. PRN and
the Company share equally in any net profits derived therefrom. The Company
currently has approximately 73,000 members in the Club 900. The Company
commenced the marketing and billing of the Club 900 product in January of 1997.
This product accounted for 6% of the Company's fiscal 1997 net revenues. This
product is independent of the voice mail services described below.

VOICE MAIL SERVICES

The Company continually changes the nature and marketing of its voice mail
and club related products in response to changing consumer tastes and telephone
company billing practices. During the fiscal year ended November 30, 1996, the
Company began offering basic voice mail services, billed at $9.95 per month.
Such basic voice mail services include call answering and messaging accessed
through toll free 800 phone numbers. As an inducement to enroll potential
subscribers, the Company may offer certain of its new age entertainment services
and products free of charge. During the second quarter of fiscal 1997, the
Company increased the monthly rate for all new subscribers to $14.95. Currently,
the Company has approximately 235,000 customers enrolled at $14.95 per month and
approximately 100,000 remaining customers enrolled at $9.95 per month.

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Additionally, the Company services approximately 36,500 subscribers that remain
from a voice mail product that is no longer marketed. The Company discontinued
marketing this product in the first quarter of fiscal 1996. This product was
billed monthly at prices ranging from $9.95 to $19.95. For the fiscal years
ended November 30, 1997 and 1996, voice mail services collectively accounted for
approximately 12% and 17%, respectively, of the Company's net revenues.

ACQUISITION OF NEW LAUDERDALE

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.

Pursuant to the terms of an acquisition agreement entered into between the
Company and PRN (the "Acquisition Agreement"), on September 10, 1996, the
Company acquired PRN's interest in New Lauderdale (the "Acquisition"). A portion
of the consideration paid by the Company therefor was 3,200,000 shares (the "PRN
Shares") of the Company's Common Stock. The PRN Shares delivered at the closing
of the Acquisition were issued to the shareholders of PRN, Steven L. Feder,
Thomas Lindsey and Peter Stolz (the "PRN Principals"). Based upon information
provided to the Company by such individuals, the Company believes that on
December 24, 1997, all of the shares of Common Stock of the company owned by
such individuals, including the PRN Shares, were transferred to trusts. The
Company further believes that as of February 17, 1998, such trusts own, in the
aggregate, 2,898,481 shares, or 15.5%, of the outstanding Common Stock of the
Company. A registration statement including the PRN Shares was declared
effective by the Securities and Exchange Commission (the "Commission") on
December 19, 1996. The following is a summary of the relevant and material terms
of the Acquisition:

Restriction on Resale of Shares

Two Year Lock-Up Period. Pursuant to the Acquisition Agreement, until
September 10, 1998, the PRN Principals may not sell any of their shares of
Common Stock except, in the event a principal shareholder of Quintel ("Quintel
Principal") elects to sell any of his shares of Common Stock, (the "Selling
Quintel Principal"), he shall give written notice to the PRN Principals of such
sale. The PRN Principals then have the right to sell, in the aggregate, a
percent of the total shares owned by the PRN Principals equal to that percent of
the total shares of Common Stock owned by the Quintel Principals being sold by
the Selling Quintel Principal. Each PRN Principal has the right, individually,
to sell an amount of shares of Common Stock equal to his proportionate ownership
interest in that amount permitted to be sold in the aggregate by the PRN
Principal.

Restrictions on Sales by PRN Principals. Pursuant to the Acquisition
Agreement, for as long as the PRN Principals as a group own 5% or more of
Quintel's outstanding shares of Common Stock, as promulgated under Rule 144(e)
of the Securities Act of 1933, as amended (the "Securities Act"), the PRN
Principals will not sell during any three month period that number of shares
which, in the aggregate, exceeds the greater of (a) 1% of the then outstanding
shares of Common Stock of the Company, or (b) the average weekly trading volume
of the Common Stock as listed on NASDAQ during the four calendar weeks preceding
the sale of such shares of Common Stock, notwithstanding the fact that the
shares owned by the PRN Principals may have been registered for resale under the
Securities Act or that each of the PRN Principals may not be an "affiliate" as
defined under such Rule 144(e).

Related Agreements

The following are summaries of certain of the agreements which were
executed in connection with the Acquisition.

Non-Competition and Right of First Refusal Agreement. The Company, PRN and
the PRN Principals entered into a Non-Competition and Right of First Refusal
Agreement, whereby PRN, which is a direct competitor of the Company, and each of
the PRN Principals, agreed, for a period of five years from the closing

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of the Acquisition, (i) not to engage in any activities competitive with the
Company, except for such business already conducted by PRN as of the
consummation of the Acquisition, and (ii) provide the Company with a right of
first refusal with respect to any future business developed by them.

Employment Agreement. Upon the effective date of the Acquisition, the
Company entered into an employment agreement with Mr. Feder. Pursuant to the
terms of such employment agreement, Mr. Feder agreed to serve as the General
Manager of the business operated by New Lauderdale until April 30, 2001. Mr.
Feder agreed to devote at least 50% of his time to this employment and be
responsible for performing those services provided by him to New Lauderdale
prior to the consummation of the Acquisition. The Company obtained the rights to
any venture, new business idea, product, technology, or item of intellectual
property developed by Mr. Feder in the course of his employment with the
Company, as well as a right of first refusal with respect to any new business
venture developed by Mr. Feder with any third parties. See "Certain
Relationships and Related Transactions."

Service Agreement. The Company and PRN are parties to an agreement
pursuant to which PRN provides the Company with live psychic operator services
in connection with the operation of the Company's telephone entertainment
programs (the "Service Agreement"). In connection with the Acquisition, the
Service Agreement was amended to provide for an extension of its term for five
(5) years following the date of the closing of the Acquisition and to establish
a set fee schedule during the extended five (5) year term. In addition, the PRN
Principals agreed that Mr. Feder will continue to maintain control of PRN and
manage its operations, including the operation of the live psychic operator
network used by the Company in connection with its telephone entertainment
programs, and in order to secure the obligations of PRN, Feder and the other PRN
Principals under the Service Agreement, PRN granted the Company a security
interest in PRN's computer system hardware and software operating PRN's caller
distribution and psychic operators' scheduling and all agreements, arrangements
or understandings between PRN and its live psychic operators.

Other Issues Related to the Acquisition. Certain media, creative, computer
and production operations and personnel, formerly provided by PRN and/or New
Lauderdale, for the benefit of PRN, New Lauderdale and the Company, were
transferred to the Company and are now performed exclusively by the Company for
the benefit of such parties. During the fiscal year ended November 30, 1997, PRN
paid approximately $830,000 to the Company for media services. In addition to
payments for psychic operators as described above, PRN provides certain
non-psychic services and facilities to the Company at an approximate rate of
$24,000 per month.

ADVERTISING, MARKETING AND PROMOTION

Strategy

The Company intends to actively pursue a strategy of growth by expanding in
both general consumer and corporate markets, primarily through the use of
telemarketing, direct mail, infomercials and other television advertising and
expanded servicing of corporate clientele and partners. Consistent with its
aggressive growth strategy, the Company intends to produce additional
infomercials and commercials, expand its telemarketing activities, increase its
levels of syndicated television advertising, and expand its direct mail
marketing programs, targeting existing and potential customers with all of its
products and services. Strategic corporate partners will be offered the
Company's direct marketing expertise, which includes the marketing of additional
products and services to the Company's database of consumer customers. See
"Forward Looking Information May Prove Inaccurate."

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 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
services or subscribe to the Company's voice mail networks. The Company's
ability to efficiently produce and air infomercials and commercials is essential
to its marketing strategy.

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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 time in order to assure meaningful coverage of its infomercials
and commercials in selected time slots and geographic markets. The majority of
media purchases are done by the Company's in-house media department.

Telemarketing

The Company currently retains West TeleServices Corporation ("West") to
perform inbound telemarketing activities. West provides telephone operators on
an ongoing basis to respond to incoming telephone calls from recipients of mail
promotions or viewers of the Company's infomercials and commercials who are
interested in the advertised product or service. The Company believes that an
integral part of inbound telemarketing is the opportunity to increase revenues
by offering or introducing additional products and services.

The Company currently engages West, Advanced Access, Inc., Optima Direct,
Inc., Paradigm Direct, Inc., and APAC TeleServices, Inc. to perform the majority
of the Company's outbound telemarketing activities. The Company continues
outbound telemarketing on a regular basis to promote its products and services
and fulfill marketing services to strategic corporate partners, including LCI
International, Inc., a long distance service provider. These agencies provide
telephone operators on an ongoing basis to place calls to prospective customers
using consumer information and data obtained from the Company's inbound
telemarketing activities, mailing lists, data base and customer lists obtained
from its marketing activities.

Direct Mail and Print Advertising

The Company engages in direct mail and print advertising campaigns designed
to promote entertainment services and voice mail services, consisting of
notifications, promotions, periodicals and subscription kits.

Other Marketing Activities

During the fiscal year ended November 30, 1996 the Company entered into an
agreement with AT&T, whereby it marketed AT&T's long distance products. The
Company commenced significant marketing efforts under this agreement in the
first quarter of fiscal 1997, and continued marketing for the entire fiscal year
ended November 30, 1997. During the third quarter of fiscal 1997, AT&T modified
its contact and customer acquisition strategies. These modifications severely
limited the Company's ability to successfully market AT&T's long distance
products to its customer database. As a result of the AT&T modifications, the
Company significantly reduced its marketing efforts under this arrangement in
the fourth quarter of fiscal 1997. The Company terminated its strategic
corporate partnership with AT&T late in the first quarter of fiscal 1998. As a
result, AT&T related revenues will be negligible in fiscal 1998.

The Company concluded an agreement with the long distance carrier, LCI
International Telecom Corp. ("LCI"), in the first quarter of fiscal 1998. The
Company will provide marketing services to LCI, primarily through outbound
telemarketing. These marketing services will be directed at the acquisition of
residential long distance customers for LCI. In addition to commissions paid to
the Company for its successful customer acquisitions on behalf of LCI, the
agreement also calls for the Company to participate in LCI's net revenues earned
from such acquired customer's residential long distance usage. Management
believes that this new arrangement with LCI will replace a significant portion
of the revenues previously earned under the AT&T strategic corporate
partnership. "See Forward Looking Information May Prove Inaccurate".

The Company produces and markets video cassettes, music CD's, hair care
products, cellular telephones and service and other consumer products. While the
Company continues to test new products and services, sales and related expenses
of such products and services were not material in the fiscal year ended
November 30, 1997 and may not account for a meaningful portion of the Company's
net revenues in the future.

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The Company 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 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 "Certain Relationships and Related Transactions."

SERVICE BUREAUS

The Company has engaged West, Billing Information Concepts Corporation
("BIC"), Federal Transtel, Inc. ("FTT") and VRS Billing Systems, a division of
Integretel, Inc., to provide billing and collection services in connection with
the Company's telephone entertainment products and services, "900" number
services, VM services and Club 900 products. West and BIC also provide accounts
receivable financing relating to products and services billed through these
companies. Though the facilities are available, the Company is not currently
financing any of its accounts receivable. In addition, West provides other
services, including call processing, inbound and outbound telemarketing and
production of prerecorded programs. The Company is dependent on these service
bureaus to provide quality services on a timely basis on favorable terms. While
the Company believes its service bureau needs could be transferred to alternate
providers, if necessary, no contracts to cover such a contingency are currently
in effect. Accordingly, failure by any existing bureaus to provide such services
would result in material interruptions in the Company's operations.

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 "new age" services and product 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 have
significant financial, marketing, distribution, personnel and other resources.
These financial and other capabilities permit such companies to implement
extensive advertising and promotional campaigns, both generally and in response
to efforts by additional competitors to enter into new markets and introduce new
services.

Certain of these competitors, including Gold Coast Media, Main Street
Media, Direct American Marketers, Vision TeleMedia and PRN (see "Acquisition of
New Lauderdale"), are prominent in the psychic industry and have the financial
resources to enable them to withstand substantial price competition, which is
expected to increase. 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 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 to allow the development of direct marketing
capabilities, may attempt to enter the telephone entertainment services industry
or develop voice mail services similar to those provided by the Company, 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 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 new age products and services also compete with numerous
other services and products which provide similar entertainment value, such as
in-person psychic consultation and tarot card readings,

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newspapers, magazines, books and audio and video cassettes featuring "new age"
themes, internet access and various other forms of entertainment which may be
less expensive or provide other advantages to consumers.

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 servicing
contractors and their 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 maintains 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 $10,000,000 of liability. In addition,
the Company has errors and omissions insurance with a limit of $5,000,000. The
Company also maintains Directors and Officers liability insurance policies
providing aggregate coverage of $10,000,000 for legal costs and claims. 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 potential liability by providing disclaimers in
connection with its services by identifying its "900" services and the services
provided pursuant to its VM services and Club 900 products as "entertainment."

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 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,
including misleading advertising, and has promulgated regulations governing,
among other things, program content and advertising and promotional disclosures
for telephone entertainment services and infomercials. 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, enable the FTC to 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. 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. 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. Management believes that the new requirements set
forth in the provisions of the TCA
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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. There can be no assurance that federal or
state governmental agencies will not interpret the provisions of the TCA 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 TCA also provides the FCC with expanded
rule making authority, which could result in legislation, in the future,
applicable to the Company's "800" number and other services.

The Company's operations in Canada, which have not been significant to
date, 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 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, during
1997, civil investigative demands were received from the Attorneys' General of
the States of Illinois and Texas, as well as recent warnings of possible
violations from the States of California, Connecticut and Wisconsin. 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 Company is
in discussions with Texas concerning revisions to the Company's billing and
marketing practices. During the summer of 1996, the Attorney General of the
State of New York commenced an investigation of the Company's pay-per-call
consumer billing practices by issuing subpoenas for documents, which the Company
provided. On or about October 23, 1996, the Company submitted to the New York
Attorney General's office a letter, setting forth its position with respect to
the investigation. To date, the Company has not received a response to its
letter and there has been no further activity with respect to the investigation.
Management believes that, while the 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 continually require the Company to 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 "Forward Looking Information May
Prove to be Inaccurate."

EMPLOYEES

The Company currently employs 98 full-time employees, including five
executive officers, all of whom are located at the Company's principal executive
offices in Pearl River, New York and Fort Lauderdale, Florida. The Company
believes that its relations with its employees are satisfactory. None of the
Company's employees are represented by a union.

8
<PAGE> 11

ITEM 2. PROPERTIES

The Company leases approximately 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. The lease for such premises expires on
July 31, 2006. The current monthly base rent is $21,875 per month which amount
will be increased to $26,875 per month commencing on August 1, 2001, for the
remainder of the term of the lease.

The Company's wholly owned subsidiary, Calling Card Co., Inc., leases
approximately 11,800 square feet of space at 2455 East Sunrise Boulevard, Fort
Lauderdale, Florida, all of which is used for general office space. The lease
for such space expires on June 30, 2004. The current monthly rent is $15,459.94,
with such rent increasing by approximately three (3%) percent per year for the
remainder of the term of the lease.

ITEM 3. LEGAL PROCEEDINGS

In April 1996, a complaint was filed as a class action in the Superior
Court of California, County of Los Angeles, naming Enhanced Services Billing,
Inc., the former name of BIC and John Does 1 to 100 as defendants. The plaintiff
alleged that the defendants defrauded a class by billing for a service that was
never ordered. The complaint seeks unspecified compensatory, statutory and
punitive damages. Although the Company has not been served with process, based
upon allegations in the complaint it appears that the complaint is directed, in
whole or in part, against the Company. The plaintiff in such action has filed a
motion seeking class certification. The Company's insurance carrier has agreed
to provide a defense if the Company is joined as a party, although such
insurance carrier has not yet stated how much coverage it will provide. The
Company believes that such claim is without merit and there is no basis, at this
time, to believe that the claim will have a material adverse affect on the
Company.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

Market Information. 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 sales prices of the Common Stock as
reported by NASDAQ for each full quarterly period since such date.

<TABLE>
<CAPTION>
HIGH LOW
-------- -------
<S> <C> <C>
Fiscal Year Ended November 30, 1997
First Quarter......................................... $13.00 $ 6.75
Second Quarter........................................ 12.625 8.6875
Third Quarter......................................... 17.00 9.50
Fourth Quarter........................................ 14.8125 5.50
Fiscal Year Ending November 30, 1996
First Quarter......................................... $11.50 $ 4.375
Second Quarter........................................ 13.375 8.125
Third Quarter......................................... 12.625 5.75
Fourth Quarter........................................ 10.125 5.875
</TABLE>

Security Holders. To the best knowledge of the Company, at February 17,
1998, there were 38 record holders of the Company's Common Stock. The Company
believes there are numerous beneficial owners of the Company's Common Stock
whose shares are held in "street name."

Dividends. Except for S corporation distributions made to the Company's
stockholders prior to December 5, 1995 (the effective date of the initial public
offering of the Company's Common Stock), the Company has not paid, and has no
current plans to pay, dividends on its Common Stock. The Company currently
intends to retain all earnings for use in its business.

9
<PAGE> 12

ITEM 6. SELECTED FINANCIAL DATA

The following table presents selected historical financial data of the
Company for each of the five fiscal years ending November 30, 1997. The year
ended November 30, 1996 includes the results of operations of New Lauderdale,
L.C. from its acquisition date of September 10, 1996. 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.

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue..................... $191,374,936 $86,666,768 $50,501,266 $22,771,465 $8,262,179
Costs of sales.................. 149,821,363 64,661,256 36,732,610 17,521,985 5,778,706
Gross profit.................... 41,553,573 22,005,512 13,768,656 5,249,480 2,483,473
Selling, general and
administrative expenses....... 18,880,769 10,159,226 3,467,008 3,012,588 1,801,330
------------ ----------- ----------- ----------- ----------
Income from operations.......... 22,267,804 11,846,286 10,301,648 2,236,892 682,143
Interest expense................ (80,763) (473,289) (334,318) (759,211) (117,460)
Other income, net............... 1,841,356 760,413 485,250
Equity in earnings of joint
venture....................... 4,939,653 2,860,304
------------ ----------- ----------- ----------- ----------
Income before provision for
income tax and minority
interest...................... 24,433,397 17,073,063 13,312,884 1,477,681 564,683
Provision (benefit) for income
taxes......................... 10,069,616 4,898,633 220,335 54,842 (76,690)
------------ ----------- ----------- ----------- ----------
Income before minority
interest...................... 14,363,781 12,174,430 13,092,549 1,422,839 641,373
Minority interest in net loss... 73,528
------------ ----------- ----------- ----------- ----------
Net income...................... $ 14,363,781 $12,174,430 $13,092,549 $ 1,422,839 $ 714,901
============ =========== =========== =========== ==========
Income before pro forma tax
provision 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... 73,528
----------- ----------- ----------
Pro forma net income............ $ 7,679,768 $ 642,537 $ 380,450
=========== =========== ==========
Net income per share............ $ .76 $ .76
============ ===========
Pro forma net income per
share......................... $ .64 $ .05 $ .08
=========== =========== ==========
Weighted average number of
common and common equivalent
shares outstanding............ 18,915,339 16,124,743 12,000,000 12,000,000 5,008,219

BALANCE SHEET DATA:
Working capital................. $ 43,674,688 $25,423,442 $ 3,217,627 $ 494,738 $ 788,429
Total assets.................... 115,998,775 79,029,547 16,969,956 3,976,881 3,894,080
Total liabilities............... 52,292,478 31,294,614 10,938,881 3,432,355 3,105,651
Stockholders' equity............ 63,706,297 47,734,933 6,031,075 544,526 788,429
</TABLE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

The Company is engaged in providing various products and services,
primarily through the use of direct marketing techniques, and in providing
services to strategic corporate partners. Throughout the fiscal year ended
November 30, 1997, the Company's operations consisted primarily of telephone
entertainment services which provide live conversation psychic consultations. In
addition, the Company offered marketing services through a strategic corporate
partnership with AT&T Communications, Inc. ("AT&T"), whereby the

10
<PAGE> 13

Company marketed AT&T's residential long distance products. The Company also
separately offered memberships in theme-related club 900 products ("Club 900
products") and voice mail services ("VM Services"). The Company's Club 900
product memberships offer certain club entertainment services, with membership
periods ranging from 30 days to one year, at a flat pre-paid rate. At the end of
such periods, a subscriber's membership in a club lapses. The foregoing services
are billed and collected through the use of service bureaus and local and long
distance telephone companies and carriers. Historically, the services offered by
the Company have evolved based on changing consumer tastes as well as the impact
of telephone company billing practices and governmental regulations.

Revenues are recorded at the time a customer initiates a billable
transaction, except for customer fees for Club 900 products and VM services. New
customer Club 900 products and VM service fees are recognized when the service
is rendered. Recurring monthly VM service fees are recognized as customers
automatically renew each month. All revenues are recognized net of an estimated
provision for customer chargebacks, which include refunds and credits. The
Company continually revises its reserve for chargebacks, on a monthly basis, in
accordance with actual chargeback experiences. Chargebacks for new products and
services, without a performance history, are reserved based on chargeback
experience gained from similar products and services. These initial estimates
for new product and service chargebacks are revised according to the products'
and services' actual chargeback experiences. Since reserves are established
prior to the periods in which the chargebacks are actually incurred, the
Company's net revenues may be adjusted in later periods in the event that the
Company's experienced chargebacks vary from amounts previously reserved. See
"-- Increased Chargebacks."

During the year ended November 30, 1997, the Company commenced marketing
the Club 900 product and continued its strategic corporate partnership with
AT&T, whereby the Company marketed AT&T's residential long distance products.

The Company also produced and marketed video cassettes, music CDs, hair
care products, prepaid cellular telephones and related service, and other
consumer products. While the Company continues to test these new products and
services during fiscal 1997 and 1996, sales and related expenses of such
products and services were insignificant for the fiscal year ended November 30,
1997 and 1996. Additionally, these products and services may not result in a
meaningful portion of the Company's net revenues and income in the future. See
"Forward Looking Information May Prove Inaccurate."

11
<PAGE> 14

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>
YEAR ENDED NOVEMBER 30,
-----------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Net Revenue......................................... 100.0% 100.0% 100.0%
----- ----- -----
Cost of Sales....................................... 78.3 74.6 72.7
----- ----- -----
Gross Profits....................................... 21.7 25.4 27.3
Selling, general and administrative expenses........ 9.9 11.7 6.6
Interest expense.................................. 0.0 0.5 0.7
Other Income...................................... 1.0 0.9 1.0
Equity in earnings of joint revenue............... 0.0 5.7 5.7
Net Income.......................................... 7.5 14.0 --
Pro forma net income................................ -- -- 15.2
</TABLE>

Year Ended November 30, 1997 Compared to Year Ended November 30, 1996

Net revenue for the year ended November 30, 1997 was $191,374,936, a net
increase of $104,708,168 or 121%, as compared to $86,666,768 for the year ended
November 30, 1996. Approximately $94,844,032, or 90.6% of such net increase was
attributable to the Company's acquisition of New Lauderdale, L.C. ("New
Lauderdale") in September 1996 (the "Acquisition"). The Company's strategic
corporate partnership with AT&T accounted for approximately $26,325,549 or 25.1%
of such net increase. During fiscal 1997, the company marketed AT&T's long
distance products under the terms of the strategic corporate partnership. See
"-- Strategic Corporate Partnership." Net revenues from the Company's enhanced
voice mail networks comprised approximately $4,614,099, or 4.4% of such net
increase. Net revenues from the Company's Club 900 product comprised
approximately $11,305,734, or 10.8% of such net increase. These increases were
partially offset by decreases to net revenues earned by one of the Company's
subsidiaries from its "900" number entertainment services, resulting from the
Company shifting the billing and collection services for the subsidiary's "900"
number telephone calls to New Lauderdale's service contract. The related net
revenue reductions approximated $33,541,715. Such consolidation of service
contracts allowed the Company to reduce processing and administration costs
associated with its "900" number business. During the year ended November 30,
1997, the Company completed the transition of changing all "900" number
entertainment lines from $3.99 to $4.99 per minute. For the year ended November
30, 1997, the Company recorded approximately 23 million billable "900" minutes,
at the $4.99 price point, and approximately 24 million billable minutes, at the
$3.99 price point, as compared to approximately 25 million minutes, primarily
billed at the $3.99 price point, in the prior year.

For the year ended November 30, 1997, "900" entertainment services, VM
services, the AT&T strategic corporate partnership, Club 900 product memberships
and other products approximated 67%, 12%, 14%, 6% and 1% of net revenues,
respectively. For the year ended November 30, 1996, "900" number entertainment
services, VM Products and other products approximated 82%, 17% and 1% of net
revenues, respectively. The provisions for chargebacks for the year ended
November 30, 1997 were $103,597,803, an increase of $57,245,165, or 123%, as
compared to $46,352,638 for the year November 30, 1996. The increase is
primarily attributable to increased chargebacks on the Company's "900" number
entertainment services and, to a lesser extent, chargebacks on the Company's
Club 900 product memberships, which commenced billing in the first quarter of
fiscal 1997. The provisions for chargebacks as a percentage of gross revenues
increased from approximately 34.9% for the year ended November 30, 1996 to
approximately 38.7% for the year ended November 30, 1997. These percentages
exclude the AT&T strategic corporate partnership revenues, which are not
encumbered by chargebacks. See "Increased Chargebacks."

12
<PAGE> 15

Cost of sales for the year ended November 30, 1997 was $149,821,363, an
increase of $85,160,107, or 132%, as compared to $64,661,256 for the year ended
November 30, 1996. The increase in the cost of sales is directly attributable to
the consolidation of New Lauderdale's operations subsequent to the Acquisition,
increases in service bureau fees, marketing costs associated with the AT&T
strategic corporate partnership and increases in advertising cost associated
with the Company's "900" number entertainment services. Cost of sales as a
percentage of gross revenues increased to approximately 50.8% for the year ended
November 30, 1997 from approximately 48.6% for the year ended November 30, 1996.
The increase in the relationship of cost of sales to gross revenue is
principally due to decreased returns from the Company's marketing expenditures.
The increase was partially offset through the Company's ability to renegotiate
certain contract terms with its primary "900" number service provider during
fiscal 1997, pursuant to increased call volume as a result of the Acquisition.
Gross revenues for the year ended November 30, 1997 were $294,976,042, with
marketing costs of approximately $81,576,000, or 27.7% of such gross revenues.
Gross revenues for the year ended November 30, 1996 were $133,040,851, with
marketing costs of approximately $31,795,000, or 23.9% of such gross revenues.

Selling, general and administration expenses ("SG&A") for the year ended
November 30, 1997 were $18,880,769, an increase of $8,721,543, or 86% as
compared to $10,159,226 for the year ended November 30, 1996. The increase in
SG&A is principally attributable to the consolidation of New Lauderdale's
operations subsequent to the Acquisition, increases in goodwill amortization of
$1,251,900 and increases in personnel costs of approximately $1,636,000
associated with the Company's growth. SG&A as a percentage of the Company's
gross revenue decreased from 7.6% during the year ended November 30, 1996, to
6.4% for the year ended November 30, 1997.

Interest expense for the year ended November 30, 1997 was $80,763, a
decrease of $392,526, or 83% as compared to $473,289 for the year ended November
30, 1996. This decrease is directly attributable to the Company's discontinuance
of its accounts receivable financing during the prior fiscal year. Accounts
receivable financing arrangements remain available, but are currently not in
use. See "Liquidity and Capital Resources."

Other income for the years ended November 30, 1997 and 1996 consisted
primarily of interest income. For the year ended November 30, 1997, interest
income was $1,841,356, an increase of $1,080,943, or 142%, as compared to
$760,413 for the year ended November 30, 1996. The increase is attributable to
interest earned on the Company's marketable securities, consisting primarily of
direct U.S. government obligations.

For the year ended November 30, 1996, the Company recognized equity in
earnings of joint venture of $4,939,653, of which $4,432,000 was distributed to
the Company during such year. This was comprised entirely of the Company's 50%
interest in the net income of New Lauderdale's operations for the year then
ended. On September 10, 1996, the Company acquired the remaining 50% interest in
New Lauderdale. After the Acquisition, the Company commenced treating New
Lauderdale as a subsidiary and including its results of operations on a
consolidated basis in the Company's consolidated financial statements.

The Company's effective tax rate was 41% for the year ended November 30,
1997, as compared with 29% for the year ended November 30, 1996. The year ended
November 30, 1996 included a tax benefit of approximately $1,782,000 relating to
the Company's conversion to the accrual basis of accounting in connection with
the termination of its S corporation status. The Company's effective rate is
higher than the federal statutory rate due to the addition of state income taxes
and certain deductions taken for financial reporting purposes that are not
deductible for federal income tax purposes. The primary factor contributing to
the increase in the effective rate during the year ended November 30, 1997, as
compared with the prior comparable period, is nondeductible amortization
relating to the Acquisition.

Net income increased to $14,363,781 for the year ended November 30, 1997,
as compared to net income of $12,174,430 for the prior comparable period, an
increase of $2,189,351, or 18%. This increase was primarily due to an increase
of $10,826,518 in the Company's income from operations, growth in the Company's
core business, the addition of new business lines and an increase of $1,080,943
in interest income. Such increases were offset, in part, by an increase in
goodwill amortization of $1,251,900, total salary increases of approximately
$2,894,000 and increases in income taxes of $5,170,983.
13
<PAGE> 16

YEAR ENDED NOVEMBER 30, 1996 COMPARED TO YEAR ENDED NOVEMBER 30, 1995

Net revenue for the year ended November 30, 1996 was $86,666,768, an
increase of $36,165,502, or 72%, as compared to $50,501,266 for the year ended
November 30, 1995. The increase in net revenue resulted from the increased
marketing of the Company's products during the year, increased enrollments for
the Company's VM and club products and services and the acquisition of New
Lauderdale in the fiscal fourth quarter of 1996. The Company continually changes
the nature and marketing of its voice mail and club related products in response
to changing consumer tastes and telephone company billing practices. The
original $9.95 club product, initiated during fiscal 1994, increased to a
monthly rate of $19.95 in the fourth quarter of fiscal 1995, and was
subsequently changed to an enhanced voice mail product ("VM Enhanced Product")
during the first and second quarters of fiscal 1996. This change from a "club"
named product to a "voice mail" named product was in response to adjustments in
telephone company billing platforms and consumer resistance to the use of
certain "900" number platforms used to deliver monthly club services. The $19.95
VM Enhanced Product experienced temporary billing suspensions during the second
quarter of 1996. These suspended billings were due to a combination of increased
enrollments, consumer complaints and customer service difficulties. As a result
of the foregoing, chargebacks for the year ended November 30, 1996 were
$46,352,638, an increase of $27,287,561, or 143%, as compared to $19,065,077 for
the year ended November 30, 1995.

Cost of sales for the year ended November 30, 1996 was $64,661,256, an
increase of $27,928,646, or 76%, as compared to $36,732,610 for the year ended
November 30, 1995. The increase in cost of sales was directly attributable to
the increased sales volume and the inclusion of New Lauderdale's cost of sales
since the Acquisition. The increase in the relationship of cost of sales to net
revenue was due to marketing and fulfillment costs incurred during certain
carrier billing suspensions for which there was no corresponding revenue stream
and the higher level of chargebacks experienced in the fiscal year ended
November 30, 1996 partially offset by volume discounts received from providers.

Selling, general and administrative expenses for the year ended November
30, 1996 were $10,159,226, an increase of $6,692,218, or 193%, as compared to
$3,467,008 for the year ended November 30, 1995. This increase was primarily
attributable to amortization of goodwill in the fiscal year ended November 30,
1996 of $1,211,924 relating to the Acquisition, total executives' bonuses of
$898,578, continuing increases in the Company's personnel, the Company's
relocation to larger office space to accommodate the growth of its operations
and the post-Acquisition New Lauderdale selling, general and administrative
expenses included in the fourth quarter of the fiscal year ended November 30,
1996.

Interest expense increased by $138,971, or 42%, to $473,289 for the year
ended November 30, 1996, as compared to $334,318 for the year ended November 30,
1995. The increase was due to related party interest to New Lauderdale prior to
the Acquisition of $100,250 and interest on stockholder notes of approximately
$130,000 relating to a final S corporation distribution made to the Company's
stockholders prior to the effective date of the initial public offering of the
Company's Common Stock, partially offset by reductions in interest expense
relating to receivables financing. Accounts receivable financing arrangements
are available, but currently not in use. See "Liquidity and Capital Resources"
later in this section.

For the year ended November 30, 1996, other income was $760,413, an
increase of $275,163 or 57% as compared to $485,250 for the year ended November
30, 1995. During the fiscal year ended November 30, 1996, other income included
$614,000 in interest and gains from investments of cash generated by operations
and proceeds from the initial public offering of the Company's Common Stock,
offset by reductions in management fee income.

For the year ended November 30, 1996, the Company recognized equity in
earnings of joint venture of $4,939,653, of which $4,432,000 was distributed to
the Company during such year. This reflects the Company's 50% interest in the
income from New Lauderdale's operations for the period prior to the Acquisition.
The increase in equity in earnings of joint ventures of $2,079,349 or 73%
compared to $2,860,304 for the year ended November 30, 1995 resulted from the
increased earnings of New Lauderdale during the period. After the Acquisition,
the Company commenced consolidating the operations of New Lauderdale in its
financial statements.

14
<PAGE> 17

The provision for income taxes of $4,898,633 for the year ended November
30, 1996 included a $1,782,000 deferred tax benefit for the benefit received
when the Company converted to the accrual basis of accounting in connection with
the termination of its S corporation status.

Net income increased to $12,174,430 for the year ended November 30, 1996 as
compared to pro forma net income of $7,679,768 for the prior comparable period,
an increase of $4,494,662, or 59%. This increase was primarily due to an
increase of $1,544,638 in the Company's income from operations directly
attributable to the growth of the Company's business, an aggregate increase of
$2,079,349 of net income attributable to the Company's 50% equity interest in
New Lauderdale and the current year tax benefit of $1,782,000 described above.
Such increases were offset in part by the goodwill amortization of $1,211,924
and executives' bonuses of $898,578.

LIQUIDITY AND CAPITAL RESOURCES

The Company had working capital of $43,674,688 at November 30, 1997, an
increase of $18,251,246, or 72%, as compared to $25,423,442 in working capital
at November 30, 1996. The Company continues to generate strong cash flows from
operations, as indicated by a $6,057,712 increase in marketable securities and
cash balances during the year ended November 30, 1997. During the year ended
November 30, 1997, the Company recognized substantial increases in chargebacks
experienced on its "900" entertainment service revenues. Pursuant to this
increase, two of the Company's service providers instituted a cash reserve
policy. Under this cash reserve policy, the service providers withheld cash
flows from carrier collections in amounts that approximated the Company's future
expected chargebacks, as it related to each service provider. As at November 30,
1997, the reserves withheld approximated $14,800,000 and are included in the
Company's accounts receivable. Historically, the Company has financed its
working capital requirements principally through cash flow from operations and
receivables financing. During the year ended November 30, 1996, the Company
repaid all loans related to advances received for accounts receivable financing
and fully paid the notes due to shareholders for undistributed S corporation
earnings. Such payments amounted to $2,643,522 and $3,855,694, respectively.
Although not currently dependent on cash flow from receivables financing, credit
lines for this purpose are being maintained and the Company may avail itself of
such financing in the future.

The Company's primary cash requirements have been to fund the cost of
advertising and promotion. Collections of accounts receivable by the Company's
"900" entertainment related service providers are remitted net of chargeback
reserves. The Company anticipates purchasing equipment in connection with the
establishment of in-house telemarketing operations and expanding its computer
database capabilities. The Company currently has no other plans or material
commitments for capital expenditures. Based on currently proposed plans and
assumptions relating to its operations (including the substantial costs
associated with its advertising and marketing activities), projected cash flows
from operations and available cash resources, including, if necessary, its
financing arrangements with service providers, will be sufficient to satisfy its
anticipated cash requirements for at least the next twelve months. The Company
does not have any long-term obligations and does not intend to incur any such
obligations in the future. As the Company seeks to diversify with new
telecommunication products and services, the Board of Directors, may, at its
discretion, authorize the use of existing cash reserves, long term financing, or
other means to finance such diversification. See "Forward Looking Information
May Prove Inaccurate."

STRATEGIC CORPORATE PARTNERSHIPS

During the third quarter of fiscal 1997, AT&T modified its contact and
customer acquisition strategies. These modifications by AT&T severely limited
the customer base to which the Company could market AT&T's long distance
products. These modifications included changes in the policy regarding selecting
prospects based on long distance spending patterns, whereby the spending price
point criteria for eligible prospects was raised by AT&T. Additionally, AT&T
limited the Company's marketing efforts by withdrawing from the Company's
programs potential prospects who had recently been contacted by AT&T's customer
acquisition team. The policy adjustments, which commenced in late July 1997,
were responsible for the Company's decrease in AT&T strategic corporate
partnership revenues in the third and fourth quarter of fiscal 1997. The Company
realized AT&T strategic corporate partnership revenues of $26,489,599 for the
year
15
<PAGE> 18

ended November 30, 1997. The fourth quarter of fiscal 1997 included $3,473,249
of AT&T strategic corporate revenues as compared to $7,849,599 in the third
quarter, $9,571,099 in the second quarter and $5,595,612 in the first quarter of
fiscal 1997. The Company terminated its strategic corporate partnership with
AT&T in the first quarter of fiscal 1998. As a result, AT&T related revenues
will be negligible in fiscal 1998.

INCREASED CHARGEBACKS

During the fiscal quarters immediately preceding the fiscal quarter ended
August 31, 1997, the Company received data from one of its "900" entertainment
service providers indicating significant decreases in the amount of chargebacks
received by the Company during such quarters, as compared to the prior
comparable quarters. Based upon such information provided by the service
provider, the Company adjusted the amount of its "900" entertainment related
chargeback reserves. During the third quarter of fiscal 1997, the Company
received further information from such service provider indicating a significant
increase in the rate of reported "900" entertainment service chargebacks for the
third quarter of fiscal 1997 and prior quarters. The reserves established at the
end of the second quarter of fiscal 1997 were insufficient to absorb the
increase, and as a result, the Company has revised its estimates for
chargebacks, based on this increased chargeback experience. The Company believes
that the chargeback reserves at November 30, 1997 fairly state the future
liability for chargebacks on gross revenues recorded to November 30, 1997, based
on all currently available information. "See Forward Looking Information May
Prove Inaccurate."

GOVERNMENT REGULATION

16
<PAGE> 19

require the Company to 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
"Forward Looking Information May Prove to be Inaccurate."

THE YEAR 2000 PROBLEM

At the time computer programs were first being written, two digits were
used instead of four to define years on such programs. For example, the year
"1998" was written within such computer program as "98". As a result, at the
onset of the new millenium, any programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a major system failure or miscalculations. This potential
difficulty is commonly referred to as the "Year 2000 problem". The Company has
conducted a comprehensive review of its computer systems to identify the systems
that could be affected by the "Year 2000" problem. The Company believes that all
of its internal computer programs, software packages, systems and networks are
"Year 2000" compliant. See "Forward Looking Information May Prove Inaccurate".
Notwithstanding the foregoing, the Company is reliant on third parties,
including the providers of its various services, for the operation of the
Company's day-to-day business. The Company can not provide any assurances that
the steps being taken by such third parties, if any, will be sufficient to
eliminate any Year 2000 problem from the computer systems used by such third
parties and relied upon by the Company. The Company has corresponded with such
third parties, expressing its concerns about the impact of the Year 2000 problem
on the Company's operations. In the event modifications and conversions to
computer systems are required by such third parties and are not completed on a
timely basis, the Year 2000 problem may have a material adverse effect on the
operations of the Company.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Reference is made to the Financial Statements referred to in the
accompanying Index, setting forth the consolidated financial statements of
Quintel Entertainment, Inc. and subsidiaries, together with the report of
Coopers & Lybrand L.L.P., dated February 17, 1998.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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....................... 49 Chairman of the Board and Chief Executive
Officer
Jay Greenwald............................. 33 President, Chief Operating Officer and
Director
Claudia Newman Hirsch..................... 37 Executive Vice President and Director
Andrew Stollman........................... 32 Senior Vice President, Secretary and
Director
Steven L. Feder........................... 47 Director
Michael G. Miller......................... 50 Director
Murray L. Skala........................... 51 Director
Mark Gutterman............................ 42 Director
Edwin A. Levy............................. 60 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

17
<PAGE> 20

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, 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 Direct and from July 1990 to January 1991, 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 CoPresident and a director of each of the Jami
Companies. Mr. Miller is also a director of JAKKS Pacific, Inc. ("JAKKS"), a
publicly-held company which develops, markets and distributes 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 and Katz
Digital Technologies, Inc., a publicly-held company which provides 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.

Steven L. Feder has been a director of the Company since October 1996 and
the Chief Executive Officer of Psychic Readers Network, Inc., the provider of
substantially all of the Company's psychic operators, since 1991.

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.

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 Amended and Restated 1996
Stock Option Plan.

18
<PAGE> 21

Resignation of Director

On February 24, 1998, Vincent Tese resigned as a director of the Company.
Mr. Tese has held such position since March 1996. Mr. Tese cited as his reason
for resigning his limited availability of time to devote to the Company's
affairs. The Company is actively seeking a replacement for Mr. Tese to serve on
the Company's Board of Directors.

EXECUTIVE OFFICERS

Officers are elected annually by the Board of Directors and serve at the
direction of the Board of Directors. Four of the Company's five 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."

The remaining executive officer is Mr. Daniel Harvey, the Company's Chief
Financial Officer. Mr. Harvey, Age 39, has held such position since January
1997. He joined the Company in September 1996. From November 1991 to August
1996, Mr. Harvey was a Senior Manager with the accounting firm of Feldman,
Gutterman, Meinberg & Co. Mr. Harvey is a Certified Public Accountant.

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 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 engagement of the
Company's independent certified public accountants and the review of the scope
and effect of the audit engagement. Prior to the resignation of Mr. Tese, the
members of the Audit Committee were Messrs. Levy, Tese and Skala. The Company is
actively seeking a replacement for Mr. Tese to serve on the Company's Audit
Committee.

Compensation Committee. The function of the Compensation Committee is to
make recommendations to the Board with respect to compensation of management. 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, Gutterman and Feder.

Stock Option Committee. The Stock Option Committee determines the persons
to whom options are granted under the Company's stock option plans and the
number of options to be granted to each person. Prior to the resignation of Mr.
Tese, the members of the Stock Option Committee were Messrs. Tese and Levy. The
Company is actively seeking a replacement for Mr. Tese to serve on the Company's
Stock Option Committee.

ATTENDANCE AT MEETINGS

From December 1, 1996 through November 30, 1997 there were three meetings
of the Board of Directors, six meetings of the Stock Option Committee and one
meeting each of the Audit Committee and Compensation Committee.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

To the best of the Company's knowledge, Jay Greenwald, Mark Gutterman,
Edwin Levy, Thomas H. Lindsey, Michael Miller, Jeffrey Schwartz, Murray L. Skala
and Vincent Tese, executive officers, directors and/or beneficial owners of more
than 10% of the Common Stock of the Company during 1997, have untimely filed
reports on Form 4 during the fiscal year ended November 30, 1997. Messrs.
Greenwald, Levy, Miller, Schwartz, Skala and Tese each filed one late report,
reporting one transaction. Mr. Lindsey filed one late
19
<PAGE> 22

report, reporting two transactions, and Mr. Gutterman filed two late reports,
reporting two late transactions. To the best of the Company's knowledge, all
other Forms 3, 4 or 5 required to be filed during the fiscal year ended November
30, 1997 were done so on a timely basis.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth the Company's executive compensation paid
during the three fiscal years ended November 30, 1997, 1996 and 1995 for the
Chief Executive Officer and the Company's four most highly compensated executive
officers of the Company (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) (i)
OTHER RESTRICTED (h) ALL
ANNUAL STOCK PLAN OTHER
NAME AND SALARY BONUS COMPENSA- AWARDS OPTIONS PAYOUTS COMPENSA-
PRINCIPAL POSITION YEAR ($) ($) TION($) ($) (#) ($) TION($)
------------------ ---- -------- -------- ---------- ---------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jeffrey Schwartz 1997 $412,500 $418,347 0 0 0 0 0
Chairman and 1996 $375,000 $269,573 0 0 0 0 0
Chief Executive 1995 $187,879 0 0 0 25,000 0 0
Officer
Jay Greenwald 1997 $412,500 $418,346 0 0 0 0 0
President and 1996 $375,000 $269,573 0 0 0 0 0
Chief Operating 1995 $518,387 0 0 0 25,000 0 0
Officer
Claudia Newman
Hirsch(1) 1997 $330,000 $ 50,000 0 0 0 0 0
Executive Vice 1996 $300,000 $ 89,858 0 0 0 0 0
President 1995 $405,291 0 0 0 25,000 0 0
Andrew Stollman 1997 $243,750(2) $418,346 0 0 0 0
Senior Vice 1996 $175,000 $269,573 0 0 0 0 0
President and 1995 $103,346 0 0 0 25,000 0 0
Secretary
Daniel Harvey(3) 1997 $103,308(2) $ 25,000 0 0 0 0 0
Chief Financial
Officer
</TABLE>

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

(1) On January 5, 1998, Ms. Newman Hirsch's employment agreement with the
Company was amended, providing that Ms. Newman Hirsch would be required only
to devote not less than three days per week to the Company's business and
her annual compensation would be reduced to $165,000 per annum.

(2) Such amounts reflect the aggregate consideration paid to such Named
Executives during the fiscal year ended November 30, 1997 in their capacity
as Executive Officers of the Company, as the annual compensation paid to
such individuals was increased during such fiscal year.

(3) Mr. Harvey was first appointed the Company's Chief Financial Officer in
January 1997. Prior to that time, Mr. Harvey was not employed as an
executive officer of the Company.

20
<PAGE> 23

The following table sets forth certain information regarding options
exercised and exercisable during the fiscal year ended November 30, 1997 and the
value of the options held as of November 30, 1997 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)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey L. Schwartz... -- -- 25,000 0 $18,750(1) 0
Jay Greenwald......... -- -- 25,000 0 18,750(1) 0
Claudia Newman
Hirsch.............. -- -- 25,000 0 18,750(1) 0
Andrew Stollman....... -- -- 25,000 0 18,750(1) 0
Daniel Harvey......... 3,000 $21,750(2) 8,334 16,666 --(1) --
</TABLE>

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

(1) The difference between (x) the product of the number of unexercised options
at fiscal year end multiplied by $5.75 (the closing price of the Company's
Common Stock at November 30, 1997, as listed on the Nasdaq National Market)
and (y) the product of the number of unexercised options at fiscal year end
multiplied by $5.00 (the exercise price of the options).

(2) Based upon an exercise price of $5.00 per share and a fair market value of
$12.25 per share as of March 13, 1997, the date of exercise.

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 for Messrs. Greenwald and
Stollman provide for employment on a full-time basis. The employment agreement
for Mr. Schwartz provides that he will devote not less than 85% of his working
time to the Company's business. Ms. Newman Hirsch is required to devote not less
than three days per week to the Company's business. Each of the employment
agreements 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.

Under the agreements, the Company agreed to pay each of Mr. Schwartz, Mr.
Greenwald, Ms. Newman Hirsch and Mr. Stollman $412,500, $412,500, $330,000, and
$275,000 per annum, respectively, for the fiscal year ended November 30, 1997.
The Agreements 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 year ended
November 30, 1997, 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. Ms. Newman Hirsch entered into
a new employment agreement, effective January 5, 1998, which provided, inter
alia, for an annual salary for the remainder of the term of such Agreement of
$165,000. For a summary of the bonuses granted in the fiscal year ended November
30, 1997, see "Summary Compensation Table."

BOARD COMPENSATION

As a result of the Company's policy to compensate non-employee directors
for their services, the Company's Amended and Restated 1996 Stock Option Plan
(the "Plan") provides for an automatic one-time

21
<PAGE> 24

grant to all non-employee directors of options to purchase 25,000 shares of
Common Stock and for additional automatic quarterly grants of options to
purchase 6,250 shares of Common Stock. The exercise prices for all of such
non-employee director options are the market value of the Common Stock on their
date of grant.

COMPENSATION COMMITTEE INTERLOCK AND INSIDER PARTICIPATION

The Compensation Committee of the Company's Board of Directors during the
fiscal year ended November 30, 1997 consisted of Mark Gutterman, Steven Feder
and Murray L. Skala. See "Certain Relationships and Related Transactions."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information, as of February 25, 1998, based
upon information obtained from the persons named below, regarding beneficial
ownership of the Company's Common Stock by (i) each person who is known by the
Company to own beneficially more than 5% of the outstanding shares of its Common
Stock, (ii) each director of the Company, (iii) each of the Named Officers, and
(iv) all executive officers and directors of the Company as a group.

<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES PERCENT
BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2) OF CLASS(2)
------------------- --------------------- -----------
<S> <C> <C>
Jay Greenwald............................................... 2,969,402(3) 15.9%
Peter T. Dirksen, Trustee................................... 2,898,481(4) 15.5
511 Union Street, Suite 2100 Nashville, TN 37219
Michael G. Miller........................................... 2,503,252(5) 13.4
Jeffrey L. Schwartz......................................... 2,477,002(6) 13.3
Claudia Newman Hirsch....................................... 1,994,601(7) 10.7
Andrew Stollman............................................. 1,119,443(8) 6.0
Murray L. Skala............................................. 65,250(9) *
750 Lexington Avenue New York, NY 10022
Edwin A. Levy............................................... 61,250(10) *
767 Third Avenue New York, NY 10017
Mark Gutterman.............................................. 56,250(11) *
280 Plandome Road Manhasset, NY 11030
All executive officers and directors as a group (12
persons).................................................. 11,272,450(12)(13) 59.2%
</TABLE>

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

(1) Unless otherwise provided, such person's address is c/o the Company, One
Blue Hill Plaza, Pearl River, New York 10965.

(2) The number of Shares of Common Stock beneficially owned by each person or
entity is determined under the 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 February 25, 1998. 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) In 1996, Steven L. Feder, Thomas H. Lindsey and Peter Stolz filed a Form
13D with the Commission classifying themselves collectively as a "group,"
as that term is defined in Section 13(d) of the Exchange Act. Such
individuals, as a "group," were the beneficial owners of more than 5% of
the

22
<PAGE> 25

outstanding Common Stock of the Company. Based upon information provided to
the Company by counsel to Messrs. Feder, Lindsey and Stolz, the Company
believes that on December 24, 1997, Messrs. Feder, Lindsey and Stolz each
transferred all shares of Common Stock of the Company owned by them, both
in individual capacities and as a "group", to the Steven Feder Irrevocable
Short Term Trust of 1997, the Thomas H. Lindsey Irrevocable Short Term
Trust of 1997, and the Peter Stolz Irrevocable Short Term Trust of 1997,
respectively (collectively, the "Trusts"). The Company believes Mr. Dirksen
is the sole trustee under all of the Trusts.

(5) Includes 61,250 shares of Common Stock issuable upon exercise of options
held by Mr. Miller.

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

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

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

(9) Includes 61,250 shares of Common Stock issuable upon exercise of options
held by Mr. Skala.

(10) Includes 61,250 shares of Common Stock issuable upon exercise of options
held by Mr. Levy.

(11) Includes 41,250 shares of Common Stock issuable upon exercise of options
held by Mr. Gutterman. Also includes 15,000 shares of Common Stock issuable
upon the exercise of an option held by Feldman, Gutterman, Meinberg & Co.,
a firm in which Mr. Gutterman is a partner.

(12) Includes 26,000 shares of Common Stock issuable upon the exercise of
options held by Mr. Daniel Harvey, Chief Financial Officer of the Company.

(13) Includes 366,000 shares of Common Stock issuable upon the exercise of
options held by the executive officers and directors of the Company. See
footnote (3) and footnotes (5) through (12), above. Does not include shares
held by the Trusts. See footnote (4), above.

ITEM 13. 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 L. Feder, Thomas Lindsey and Peter Stolz. Based upon information provided
to the Company by counsel to such individuals, the Company believes that trusts
for the benefit of such individuals own an aggregate of 2,898,481 shares of
Common Stock, representing approximately 15.5% of the outstanding Common Stock
of the Company. In addition, Mr. Feder, is a director and employee of the
Company. The Company believes that all of the foregoing transactions and
agreements were advantageous to the Company and were on terms no less favorable
to the Company than could have been obtained from unaffiliated third parties.
See "Forward Looking Information May Prove Inaccurate."

23
<PAGE> 26

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 fiscal year
ended November 30, 1997, the Company incurred charges of approximately $173,000
for services rendered by FGM. In December 1996, the Company granted FGM options
to purchase 15,000 shares of Common Stock in consideration for services
rendered. 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 incurred charges of approximately $472,000
during the fiscal year ended November 30, 1997. 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 paid and 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 be entitled to
bonuses along with the Company's other executive employees.

FORWARD LOOKING INFORMATION
MAY PROVE INACCURATE

This Annual Report on Form 10-K 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
Annual Report on Form 10-K. 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.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(A) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.

(i) Financial Statements:

See Index to Financial Statements.

24
<PAGE> 27

(ii) Financial Statement Schedules

Schedule of Valuation and Qualifying Accounts and Reserves

All other financial statement schedules have been omitted since either (i)
the schedule or condition requiring a schedule is not applicable or (ii) the
information required by such schedule is contained in the Consolidated Financial
Statements and Notes thereto or in Management's Discussion and Analysis of
Financial Condition and Results of Operation.

(B) REPORTS ON FORM 8-K.

The Company filed no Current Reports on Form 8-K during the fourth quarter
of fiscal year ended November 30, 1997.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<S> <C>
3.1 Articles of Incorporation of the Company, as amended(1)
3.2 By-Laws of the Company(2)
10.1 Employment Agreement by and between the Company and Jeffrey
L. Schwartz(3)
10.2 Employment Agreement by and between the Company and Jay
Greenwald(3)
10.3* Employment Agreement by and between the Company and Claudia
Newman Hirsch(3)
10.4.1 Employment Agreement by and between the Company and Andrew
Stollman(3)
10.4.2 Amendment to Employment Agreement by and between the Company
and Andrew Stollman(4)
10.5 Employment Agreement by and between the Company and Steven
L. Feder(5)
10.6 Consulting Agreement by and between the Company and Michael
G. Miller(3)
10.7 Definitive Form of Non-Competition and Right of First
Refusal Agreement between the Company and Steven L. Feder,
Thomas H. Lindsey and Peter Stolz(5)
10.8 Definitive Form of Non-Competition and Right of First
Refusal Agreement between the Company and Psychic Readers
Network, Inc.(5)
10.9 Amended and Restated 1996 Stock Option Plan(6)
10.10 Lease of the Company's offices at One Blue Hill Plaza, Pearl
River, New York(4)
10.11* Lease of office space for Calling Card Co., Inc. at 2455
East Sunrise Boulevard, Fort Lauderdale, Florida(P)
10.12*+ Servicing Agreement between West Interactive Corporation and
the Company(P)
10.13 Collateral Note and Security Agreement between West
Interactive Corporation and the Company(2)
10.14 Collateral Note and Security Agreement between West
Interactive Corporation and New Lauderdale(2)
10.15 Telemarketing Services Agreement between West Telemarketing
Corporation Outbound and the Company(2)
10.16+ Billing and Information Management Services Agreement and
Advanced Payment Agreement between Enhanced Services
Billing, Inc. and the Company(2)
10.17 Amended and Restated Psychic Readers Network Live Operator
Service Agreement between Psychic Readers Network, Inc. and
the Company(5)
10.18+ Telemarketing Services Agreement between Advanced Access,
Inc. and the Company(4)(P)
10.19+ Telemarketing Services Agreement between APAC TeleServices,
Inc. and the Company(4)(P)
10.20*+ Telemarketing Services Agreement between AT&T Wireless
Services and the Company(P)
10.21*+ Telemarketing Services Agreement between AT&T Wireless
Services and Paradigm Direct, Inc., a co-venturer of the
Company pursuant to an oral joint venture agreement(P)
10.22+ Telemarketing Services Agreement between Optima Direct, Inc.
and the Company(4)(P)
10.23+ Billing and Collection Services Agreement between Federal
Transtel, Inc. and the Company(4)(P)
</TABLE>

25
<PAGE> 28

<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<S> <C>
10.24+ Telemarketing Services Agreements between New Media
Telecommunications, Inc. and the Company(4)(P)
10.25+ Telecommunications Services Agreement between AT&T
Communications, Inc. and the Company(4)(P)
10.26*+ Letter Agreement, dated November 12, 1997, amending the
Telecommunications Services Agreement between AT&T
Communications, Inc. and the Company(P)
10.27*+ Letter Agreement, dated January 19, 1998, amending the
Telecommunications Services Agreement between AT&T
Communications, Inc. and the Company
10.28*+ Ownership Agreement between the Company, Calling Card Co.,
Inc., Access Resource Services, Inc. and Real Communication
Services, Inc.
10.29.1* Limited Liability Company Agreement between the Company and
Paragon Cellular Services, Inc.
10.29.2* Amendment No. 1 to Limited Liability Company Agreement
between the Company and Paragon Cellular Services, Inc.
10.30*+ Telecommunications Services Agreement between LCI
International Telecom Corp. and the Company(P)
17* Letter of Resignation of Vincent Tese
21* Subsidiaries of the Company
27* Financial Data Schedule
</TABLE>

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

+ Confidential treatment requested as to portions of this Exhibit.

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

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

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

(4) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended November 30, 1996, and incorporated herein by reference.

(5) Filed as an Exhibit to a Definitive Information Statement filed with the
Commission, dated August 20, 1996, and incorporated herein by reference.

(6) Filed as an Exhibit to the Company's Proxy Statement filed with the
Commission, dated July 21, 1997, and incorporated herein by reference.

(P) Filed by paper with the Commission pursuant to a continuing hardship
exemption.

26
<PAGE> 29

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.

Dated: March 2, 1998

QUINTEL ENTERTAINMENT, INC.

By: /s/ JEFFREY L. SCHWARTZ

------------------------------------
Jeffrey L. Schwartz
Chairman and CEO

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

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

/s/ JEFFREY L. SCHWARTZ Chairman and Chief Executive March 2, 1998
- ----------------------------------------------------- Officer (Principal
Jeffrey L. Schwartz Executive Officer)

/s/ DANIEL HARVEY Chief Financial Officer March 2, 1998
- ----------------------------------------------------- (Principal Financial and
Daniel Harvey Accounting Officer)

/s/ JAY GREENWALD President, Chief Operating March 2, 1998
- ----------------------------------------------------- Officer and Director
Jay Greenwald

/s/ CLAUDIA NEWMAN HIRSCH Executive Vice President and March 2, 1998
- ----------------------------------------------------- Director
Claudia Newman Hirsch

/s/ ANDREW STOLLMAN Senior Vice President and March 2, 1998
- ----------------------------------------------------- Director
Andrew Stollman

/s/ MICHAEL G. MILLER Director March 2, 1998
- -----------------------------------------------------
Michael G. Miller

/s/ MURRAY L. SKALA Director March 2, 1998
- -----------------------------------------------------
Murray L. Skala

/s/ EDWIN A. LEVY Director March 2, 1998
- -----------------------------------------------------
Edwin A. Levy

/s/ MARK GUTTERMAN Director March 2, 1998
- -----------------------------------------------------
Mark Gutterman

/s/ STEVEN L. FEDER Director March 2, 1998
- -----------------------------------------------------
Steven L. Feder
</TABLE>

27
<PAGE> 30

QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE

<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Report of Independent Accountants............................................. F-1
Consolidated Balance Sheets as of November 30, 1997 and 1996.................. F-2
Consolidated Statements of Income for the years ended November 30, 1997, 1996
and 1995.................................................................... F-3
Consolidated Statements of Shareholders' Equity for the years ended November
30, 1997, 1996 and 1995..................................................... F-4
Consolidated Statements of Cash Flows for the years ended November 30, 1997,
1996 and 1995............................................................... F-5 - F-6
Notes to Consolidated Financial Statements.................................... F-7 - F-19
Schedule II -- Valuation and Qualifying Accounts and Reserves................. S-1
</TABLE>
<PAGE> 31

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 of November 30, 1997 and
1996 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,
1997. Our audits also included the financial statement schedule included in the
index of Item 14(a). These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated 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, 1997 and 1996
and the consolidated results of their operations and their cash flows for each
of the years in the three year period ended November 30, 1997, in conformity
with generally accepted accounting principles. Also, in our opinion, the related
consolidated 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 17, 1998.

F-1
<PAGE> 32

QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
AS OF NOVEMBER 30, 1997 AND 1996

<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents...................................... $ 10,063,717 $14,140,987
Marketable securities.......................................... 24,730,706 14,595,724
Accounts receivable, trade..................................... 46,310,960 18,030,083
Deferred income taxes.......................................... 10,021,057 6,961,940
Due from related parties....................................... 237,485 644,168
Prepaid expenses and other current assets...................... 4,096,452 2,345,154
------------ -----------
Total current assets........................................ 95,460,377 56,718,056
Property and equipment, at cost, net of accumulated
depreciation................................................... 1,041,790 344,407
Intangible assets, net........................................... 19,496,608 21,967,084
------------ -----------
$115,998,775 $79,029,547
============ ===========
LIABILITIES:
Current liabilities:
Accounts payable............................................... $ 4,653,862 $ 2,565,383
Accrued expenses............................................... 7,956,308 3,038,510
Reserve for customer chargebacks............................... 38,196,114 20,080,903
Due to related parties......................................... 979,405 1,478,515
Income taxes payable........................................... 4,131,303
------------ -----------
Total current liabilities................................... 51,785,689 31,294,614
Deferred income taxes............................................ 506,789
------------ -----------
Total liabilities........................................... 52,292,478 31,294,614
------------ -----------
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 18,649,347 shares and 18,452,368 shares,
respectively................................................... 18,649 18,452
Additional paid-in capital....................................... 39,027,700 37,406,050
Retained earnings................................................ 24,663,931 10,300,150
Unrealized (loss) gain on marketable securities.................. (3,983) 10,281
------------ -----------
Total shareholders' equity.................................. 63,706,297 47,734,933
------------ -----------
$115,998,775 $79,029,547
============ ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-2
<PAGE> 33

QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED NOVEMBER 30, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Net revenue........................................ $191,374,936 $86,666,768 $50,501,266
Cost of sales...................................... 149,821,363 64,661,256 36,732,610
------------ ----------- -----------
Gross profit..................................... 41,553,573 22,005,512 13,768,656
Selling, general and administrative expenses....... 18,880,769 10,159,226 3,467,008
------------ ----------- -----------
Income from operations........................... 22,672,804 11,846,286 10,301,648
Interest expense................................... (80,763) (473,289) (334,318)
Other income....................................... 1,841,356 760,413 485,250
Equity in earnings of joint venture................ 4,939,653 2,860,304
------------ ----------- -----------
Income before provision for income taxes......... 24,433,397 17,073,063 13,312,884
Provision for income taxes......................... 10,069,616 4,898,633 220,335
------------ ----------- -----------
Net income....................................... $ 14,363,781 $12,174,430 $13,092,549
============ =========== ===========
Pro forma data (Note 1):
Income before provision for income taxes......... $13,312,884
Pro forma income tax provision..................... 5,633,116
-----------
Pro forma net income............................. $ 7,679,768
===========
Net income per share............................... $ .76 $ .76
============ ===========
Pro forma net income per share..................... $ .64
===========
Weighted average common shares outstanding......... 18,915,339 16,124,743 12,000,000
============ =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE> 34

QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED NOVEMBER 30, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
UNREALIZED
GAINS
COMMON STOCK ADDITIONAL (LOSSES) TOTAL
-------------------- PAID-IN RETAINED ON MARKETABLE SUBSCRIPTIONS SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS SECURITIES RECEIVABLE EQUITY
---------- ------- ----------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
Collections on
subscriptions
receivable............. 20,000 20,000
Distributions to S
corporation
shareholders........... (6,897,097) (6,897,097)
Common stock issued:
Common stock
offering............. 3,225,000 3,225 13,398,850 13,402,075
Common stock issued in
connection with
acquisition.......... 3,200,000 3,200 22,796,800 22,800,000
Stock option
exercises............ 27,368 27 136,812 136,839
Tax benefit from exercise
of stock options....... 57,330 57,330
Contributed capital....... 575,000 (575,000)
Unrealized gains on
available for sale
securities............. $ 10,281 10,281
Net income for the year... 12,174,430 12,174,430
---------- ------- ----------- ----------- -------- -------- -----------
Balance, November 30,
1996...................... 18,452,368 18,452 37,406,050 10,300,150 10,281 -- 47,734,933
Common stock issued:
Stock option
exercises............ 152,797 153 837,597 837,750
Warrant transactions... 44,182 44 364,458 364,502
Tax benefit from exercise
of stock options....... 419,595 419,595
Unrealized losses on
available for sale
securities............. (14,264) (14,264)
Net income for the year... 14,363,781 14,363,781
---------- ------- ----------- ----------- -------- -------- -----------
Balance, November 30,
1997...................... 18,649,347 $18,649 $39,027,700 $24,663,931 $ (3,983) $ -- $ 63,706,297
========== ======= =========== =========== ======== ======== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE> 35

QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income...................................... $ 14,363,781 $ 12,174,430 $13,092,549
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................ 2,620,146 1,268,166 21,574
Reserve for customer chargebacks............. 18,115,211 6,719,018 2,848,228
Deferred income taxes........................ (2,552,328) (6,431,212) (30,676)
Gain on sale of securities................... (384,250)
Equity in net earnings of joint venture, net
of dividends received...................... (507,653) (1,320,304)
Changes in assets and liabilities, net of
effects from acquisition of business:
Accounts receivable.......................... (28,280,877) (1,582,937) (7,283,534)
Due from related parties..................... 406,683 3,102,976 (67,162)
Prepaid expenses and other current assets.... (1,331,703) (893,712) (258,648)
Other assets................................. 1,299,169 (521,135)
Accounts payable............................. 2,088,479 511,786 827,189
Income tax payable........................... (4,131,303) 3,894,446 225,819
Accrued expenses............................. 4,917,798 362,118 67,254
Due to related parties....................... (499,110) 565,806 149,060
Other current liabilities.................... (32,580)
------------ ------------ -----------
Net cash provided by operating
activities.............................. 5,716,777 20,098,151 7,717,634
------------ ------------ -----------
Cash flows from investing activities
Investment in New Lauderdale joint venture...... (25,000)
Purchases of securities......................... (65,649,246) (37,434,414)
Proceeds from sales of securities............... 55,500,000 23,240,075
Acquisition, net of cash acquired............... 900,040
Capital expenditures............................ (847,053) (251,628) (140,761)
------------ ------------ -----------
Net cash used in investing activities...... (10,996,299) (13,545,927) (165,761)
------------ ------------ -----------
Cash flows from financing activities:
Loans payable, net.............................. (2,643,522) 2,643,522
Proceeds from public offering, less expenses.... 13,402,075
Proceeds from collections on common stock
subscriptions................................ 20,000
Distributions to S corporation shareholders..... (6,897,097) (7,606,000)
Proceeds from stock options exercised........... 837,750 136,839
Proceeds from warrants exercised................ 364,502
------------ ------------ -----------
Net cash provided by (used in) financing
activities.............................. 1,202,252 4,018,295 (4,962,478)
------------ ------------ -----------
Net (decrease) increase in cash and cash
equivalents..................................... (4,077,270) 10,570,519 2,589,395
Cash and cash equivalents, beginning of year...... 14,140,987 3,570,468 981,073
------------ ------------ -----------
Cash and cash equivalents, end of year............ $ 10,063,717 $ 14,140,987 $ 3,570,468
============ ============ ===========
</TABLE>

Continued

See accompanying notes to consolidated financial statements.

F-5
<PAGE> 36

QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
Supplemental disclosures:
Cash paid during the year for:
Interest..................................... $ 80,763 $ $473,289 $ 334,318
Income taxes................................. 13,613,887 6,627,866 50,010
Details of acquisition (Note 7):
Fair value of assets acquired................... $ 36,031,621
Liabilities assumed............................. (11,731,621)
Stock issued.................................... (22,800,000)
------------
Cash paid.................................... 1,500,000
Less: cash acquired............................. (2,400,040)
------------
Net cash received from acquisition........... $ (900,040)
============
</TABLE>

During fiscal 1997 and 1996, options and warrants for shares of common stock
were exercised by certain employees, directors and an underwriter. A tax benefit
of approximately $419,595 and $57,330, respectively, was recorded as an increase
in additional paid-in capital and a reduction to income taxes currently payable
(Note 9.)

See accompanying notes to consolidated financial statements.

F-6
<PAGE> 37

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 and its
majority-owned and controlled joint ventures. On September 10, 1996, the Company
acquired the remaining interest in New Lauderdale, L.C. ("New Lauderdale") (see
Note 7). The consolidated financial statements of the Company include the
accounts of New Lauderdale subsequent to this date. New Lauderdale had
previously been accounted for by the equity method as a 50% owned joint venture.
All significant 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,
(i) the stockholders of Creative Direct Marketing, Inc. ("CDM") and Calling Card
Co., Inc. ("CCCI"), which, prior to the reorganization, were predecessor
entities under common control, 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.

Public Offering

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 $13,402,000.

In connection with the terms of the offering, the Company declared a final
S corporation distribution to its shareholders in the amount of its aggregate
undistributed taxable income, determined in conformity with generally accepted
accounting principles, except for $575,000 which was contributed to paid-in
capital. The distribution was funded through a series of shareholder notes,
bearing interest at 9%. As of November 30, 1996, there were no amounts
outstanding under such notes. In addition, the Company issued 320,000 warrants
to the underwriter for the purchase of the Company's stock at an exercise price
of $8.25 per share. During 1997, 44,182 of these warrants were exercised with
proceeds to the Company of $364,502.

Pro Forma Presentation

As a result of the historical presentation and change in tax status in
connection with the public offering, pro forma information, which presents
results as if the Company had always been a C corporation, 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. Services are accessed by,
and billed to, consumers primarily through the use of "900" telephone numbers.
The Company currently markets basic voice mail services and theme related club
memberships and continues to service an existing enhanced voice mail product
customer base (collectively "club and VM products and services"). These networks
enable all members to enjoy certain monthly club services for a flat monthly
rate.

F-7
<PAGE> 38
QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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. Customers are also
obtained through solicitation by Psychic Readers Network, Inc. and Subsidiaries
("PRN") (see Note 7). The Company has contracts with a limited number of 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 to provide live
psychics, live operator services, computer services, telemarketing and other
services necessary to establish, fulfill and maintain the Company's programs.
PRN currently provides substantially all of the Company's live psychics. Certain
non psychic services previously provided by PRN came under the direct control of
the Company in connection with the acquisition of New Lauderdale (see Note 7).

In addition, during fiscal 1997, the Company received approximately
$26,490,000 in commissions relating to the strategic corporate partnership with
AT&T. Such arrangement with AT&T was terminated in January 1998.

Revenue recognition

Revenues from all billable platforms are recorded at the time the customer
initiates a billable transaction, except for customer fees for club and VM
products and services. New customer club and VM product fees are recognized upon
approved enrollment and when the service is rendered. Continuing club and VM
product fees are recognized as customers automatically renew each month. All
revenues are recognized net of an estimated provision for customer chargebacks,
which include refunds and credits. The Company estimates the reserve for
customer chargebacks monthly based on updated chargeback history. Chargebacks
and other provisions for new products and services without a history are based
on experience with similar products and services and adjusted as further
information becomes available. Since reserves are established prior to the
periods in which chargebacks are actually incurred, the Company's revenues may
be adjusted in later periods in the event that the Company's incurred
chargebacks vary from the estimated amounts. For the years ended November 30,
1997, 1996 and 1995, provisions for chargebacks were $103,597,803, $46,352,638
and $19,065,077, respectively.

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 the agreements are on
a revolving basis and are primarily 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 1996 and 1995, the
gross advances and weighted average interest rate on the advances received were
approximately $9,156,355 and $23,029,599, respectively, and 13.17% and 14.75%,
respectively. The Company did not receive any such advances during fiscal 1997.
As of November 30, 1997 and 1996, there were no advances outstanding under these
agreements.

Concentration of credit risk

Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of cash, investments and accounts receivable.

F-8
<PAGE> 39
QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company invests a portion of its excess cash in debt instruments and
has established guidelines relative to diversification that maintain safety and
liquidity. The Company has not experienced any significant losses to date.

The Company's collections are received primarily through three unrelated,
unaffiliated service bureaus which process and collect all of the Company's
billings. In conjunction with servicing the accounts receivable, the service
bureaus remit 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 these service bureaus.

Cash balances are held principally at three 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 institutions.

Cash and cash equivalents

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

Marketable securities

The Company accounts for its investments using Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." The Company's marketable securities consist of government
obligations which they intend to hold only for an indefinite period of time. At
November 30, 1997 and 1996, all securities covered by SFAS No. 115 were
designated as available for sale. Accordingly, such securities are stated at
fair value, with unrealized gains and losses, net of tax effects, reported as a
separate component of shareholders' equity, until realized. The contractual
maturities of all available for sale debt securities at November 30, 1997 and
1996 are within one year. The amortized cost of available for sale debt
securities are $24,737,345 and $14,578,589 at November 30, 1997 and 1996,
respectively.

Gross unrealized holding losses and gains were $3,983 and $10,281,
respectively, net of deferred taxes of $2,656 and $6,854, at November 30, 1997
and 1996, respectively. Proceeds from the sale of securities classified as
available for sale for the year ended November 30, 1997 and 1996 were
$55,500,000 and $23,240,075, respectively. Gross realized gains for the year
ended November 1997 and 1996 were $0 and $384,250, respectively. For the purpose
of determining gross realized gains, the cost of securities is based upon
specific identification.

Property, plant and equipment

Property, plant and equipment are stated at cost and are depreciated using
the straight-line method over a five to seven year useful life depending on the
nature of the asset. Leasehold improvements are amortized over the life of the
improvement or the term of the lease, whichever is shorter. Expenditures for
maintenance and repairs are expensed as incurred while renewals and betterments
are capitalized.

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.

F-9
<PAGE> 40
QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Intangible assets

Goodwill represents the excess of purchase price over the fair value of
identifiable net assets of companies acquired. Goodwill and other intangibles
are principally amortized on a straight-line basis from four to fifteen years.

Long-lived assets

If events or changes in circumstances indicate that the carrying amount of
a long-lived asset may not be recoverable, the Company estimates the future cash
flows expected to result from the use of the asset and its eventual disposition.
If the sum of the expected future cash flows (undiscounted and without interest
charges) is less than the carrying amount of the long-lived asset, an impairment
loss is recognized. To date, no impairment losses have been recognized.

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 was 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 was included in the
accompanying statements of operations for the year ended November 30, 1995. 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 closing of the public offering, the Company's income tax status as an S
corporation was terminated. The Company was converted to a C corporation,
adopted the accrual basis of accounting which became effective as of the
beginning of fiscal 1996 and is now subject to both federal and state income
taxes. The deferred tax benefit resulting from the conversion is reflected in
the fiscal 1996 operations. (See Note 5.)

The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Deferred tax liabilities and assets 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 advertising costs, which consist primarily of print,
media, production, telemarketing and direct mail related charges, when the
related advertising occurs. Total advertising expense for fiscal 1997, 1996, and
1995 were approximately $81,576,000, $31,795,000 and $15,325,600, respectively.
Included in prepaid expenses and other current assets is approximately $488,300
and $1,069,700 relating to prepaid advertising at November 30, 1997 and 1996,
respectively.

Earnings per share

Earnings per share are computed by dividing net earnings by the weighted
average number of common and common equivalent shares outstanding during the
period. For fiscal 1997 and 1996, common equivalent shares which consisted of
common shares issuable upon the exercise of outstanding stock options and
warrants, were 380,454 and 205,862. There were no common stock equivalents for
fiscal 1995.

Pro forma net earnings per share are computed by dividing pro forma net
earnings by the weighted average number of common and common equivalent shares
outstanding during the period.

F-10
<PAGE> 41
QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Accounting changes

On December 1, 1996, the Company adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). As permitted by SFAS No. 123, the Company continues
to measure compensation cost in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," but provides pro
forma disclosures of net income and earnings per share as if the fair value
method (as defined in SFAS No. 123) had been applied beginning in 1996.

Newly Issued Accounting Standards

In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Accounting Standards No. 128, "Earnings Per Share," ("SFAS No.
128"), which simplifies the standards for computing earnings per share ("EPS")
and makes them comparable to international EPS standards. The statement requires
the presentation of both "basic" and "diluted" EPS on the face of the income
statement with a supplementary reconciliation of the amounts used in the
calculations. SFAS 128 is effective for the quarter ending February 28, 1998.
Had the statement been required to be implemented for the periods presented, the
effect on EPS would have been insignificant.

In June 1997, the FASB issued Statement of Accounting Standard No. 130,
"Reporting Comprehensive Income," (" SFAS No. 130"), which requires that changes
in comprehensive income be shown in a financial statement that is displayed in
the same prominence as other financial statements. SFAS No. 130 becomes
effective in fiscal 1999. Management does not believe that this change will have
a significant effect on the Company's financial statements.

In June 1997, the FASB issued Statement of Accounting Standard No. 131,
"Disclosures About Segments of an Enterprise and Related Information" ("SFAS
131"), which changes the way public companies report information about segments.
SFAS 131, which is based on the management approach to segment reporting,
includes requirements to report selected segment information quarterly and
entity-wide disclosures about products and services, major customers, and the
material countries in which the entity holds and reports revenues. SFAS 131
becomes effective in fiscal 1999. Management has not yet evaluated the effect of
this change on the Company's financial statements.

Estimates

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. The
Company's most significant estimate relates to the reserve for customer
chargebacks.

2. RELATED PARTY TRANSACTIONS:

The Company purchased various mailing lists and design, copyrighting and
artistic development services from related entities owned by certain of the
Company's officers/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 1997, 1996 and 1995,
costs of approximately $267,000, $535,000 and $160,000, respectively, were
incurred by the Company for such services.

The Company incurred approximately $173,000, $242,000 and $168,000,
respectively, during fiscal 1997, 1996 and 1995, in accounting fees to a firm
having a member who is also a director of the Company. In addition, the Company
incurred approximately $472,000, $334,000 and $140,000, respectively, during
fiscal 1997, 1996 and 1995, in legal fees to a firm having a member who is also
a director of the Company.
F-11
<PAGE> 42
QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In connection with the acquisition of PRN's interest in New Lauderdale (see
Note 7), a principal shareholder of PRN was elected a director of the Company
and entered into an employment agreement with the Company (see Note 8). The
Company incurred approximately $206,250 and $39,000 in expense relating to this
employment agreement in fiscal 1997 and 1996, respectively.

The Company received management fee income from New Lauderdale (prior to
acquisition) during fiscal 1996 and 1995 in the amounts of $100,000 and
$450,000, respectively (see Note 7). During fiscal 1996, the Company incurred
approximately $100,250 in interest expense relating to transactions with New
Lauderdale.

For the years ended November 30, 1997, 1996 and 1995, the Company paid
aggregate fees of approximately $24,300,000, $8,560,000 and $3,993,000,
respectively, to PRN for psychic operator services under an agreement that
extends to fiscal 2001. Since February 1996, PRN also provided certain
non-psychic services and facilities to the Company for approximately $24,000 per
month.

During fiscal 1997 and 1996, the Company received commissions of
approximately $830,000 and $171,000, respectively, from PRN for purchasing
television media time on their behalf.

During the fourth quarter of fiscal 1997, the Company introduced a new club
membership program offering premium telephone services to its members for a one
time payment. In conjunction with the new program, the Company executed a
contract with PRN who has assumed the responsibility for the fulfillment of all
the recurring club services under the program. Under certain circumstances, the
Company is entitled to share in certain revenues, net of expenses generated from
additional services sold by PRN to the club members. Such amounts were not
material for fiscal 1997.

3. PROPERTY AND EQUIPMENT:

Property and equipment for the years ended November 30, 1997 and 1996
consists of the following:

<TABLE>
<CAPTION>
1997 1996
---------- --------
<S> <C> <C>
Furniture and fixtures............................. $ 297,445 $155,812
Computers and equipment............................ 861,870 187,977
Telephone and facsimile............................ 46,992 46,432
Leasehold improvements............................. 51,145 20,178
---------- --------
1,257,452 410,399
Less, accumulated depreciation and amortization.... 215,662 65,992
---------- --------
$1,041,790 $344,407
========== ========
</TABLE>

Depreciation and amortization expense for the years ended November 30,
1997, 1996 and 1995 was approximately $150,000, $50,000 and $15,000,
respectively.

F-12
<PAGE> 43
QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. INTANGIBLE ASSETS:

Intangible assets, at cost, acquired at various dates are as follows:

<TABLE>
<CAPTION>
NOVEMBER 30,
-------------------------- AMORTIZATION
1997 1996 PERIOD
----------- ----------- ------------
<S> <C> <C> <C>
Goodwill............................. $19,186,635 $19,186,635 5-15
Customer lists....................... 567,686 567,686 1
Commercials and infomercials......... 714,769 714,769 1
Service contract..................... 2,723,222 2,723,222 4
----------- -----------
23,192,312 23,192,312
Less accumulated amortization...... 3,695,704 1,225,228
----------- -----------
$19,496,608 $21,967,084
=========== ===========
</TABLE>

Amortization expense was $2,470,476 and $1,218,576 and $6,652 for the years
ended November 30, 1997, 1996 and 1995, respectively.

5. INCOME TAXES:

The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
--------------------------------------
1997 1996 1995
----------- ----------- --------
<S> <C> <C> <C>
Federal:
Current............................. $10,201,378 $ 8,852,749
Deferred............................ (1,761,002) (4,723,850)
----------- ----------- --------
8,440,376 4,128,899
----------- ----------- --------
State:
Current............................. 2,152,177 1,661,946 $283,829
Deferred............................ (522,937) (892,212) (63,494)
----------- ----------- --------
1,629,240 769,734 220,335
----------- ----------- --------
Total provision............. $10,069,616 $ 4,898,633 $220,335
=========== =========== ========
</TABLE>

The following is a reconciliation of the income tax expense computed using
the statutory federal income tax rate to the actual income tax expense and its
effective income tax rate:

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Income tax expense at federal
statutory rate.................... $ 8,551,689 $ 5,975,572 $ 4,659,509
Benefit of S corporation status..... (4,659,509)
State income taxes, net of federal
income tax benefit................ 1,059,006 500,327 220,335
Deferred benefit arising from
conversion to C corporation....... (1,781,700)
Goodwill amortization............... 179,636
Other, individually less than 5%.... 279,285 204,434
----------- ----------- -----------
$10,069,616 $ 4,898,633 $ 220,335
=========== =========== ===========
</TABLE>

F-13
<PAGE> 44
QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The components of deferred tax assets are as follows:

<TABLE>
<CAPTION>
NOVEMBER 30,
-------------------------
1997 1996
----------- ----------
<S> <C> <C>
Deferred tax assets:
Current:
Accrued expenses and reserves not currently
deductible.................................. $10,219,454 $6,742,755
Miscellaneous................................. 219,185
----------- ----------
Current deferred tax assets.............. 10,219,454 6,961,940
Deferred tax liabilities:
Current:
Miscellaneous................................. (198,397)
Noncurrent:
Intangibles................................... (506,789)
----------- ----------
Net deferred tax asset................... $ 9,514,268 $6,961,940
=========== ==========
</TABLE>

A deferred tax asset of $1,312,775 was recorded in connection with the
acquisition of New Lauderdale (see Note 7).

6. 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 Company from
advertising, marketing or promoting its services and club and VM products and
services or otherwise require the Company to discontinue or substantially modify
the content of its services.

The Company has received requests for information from regulatory
authorities, regarding investigations of certain of its telemarketing
activities. Management believes, based on advice from counsel, that their
investigations will not result in enforcement actions or claims which would have
a material adverse effect on the financial statements.

The Company is dependent on service bureaus to process its calls, billings
and collections. While the Company believes its processing can be transferred to
other service bureaus, there are no contracts in place with alternate providers.
Accordingly, failure by any of the existing bureaus would result in material
interruptions to the Company's operations.

7. NEW LAUDERDALE:

In December 1994, the Company entered into an agreement with PRN, an
unrelated entity at that time, to establish a joint venture known as New
Lauderdale, L.C. On September 10, 1996, the Company acquired the remaining 50%
interest in New Lauderdale for 3,200,000 common shares. PRN subsequently
distributed such shares to its shareholders. In addition to receiving its share
of New Lauderdale's earnings through the closing date, PRN received
approximately $1,500,000 in cash for the deferred tax benefit to New Lauderdale
resulting from the transaction. The common shares were valued at the market
price on the date of the letter of intent ($7.125 per share). The acquisition
was accounted for using the purchase method of accounting and, accordingly, the
purchase price was allocated to the assets purchased based upon the fair values
at the date of

F-14
<PAGE> 45
QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

acquisition. As a result, approximately $23,159,000 of the purchase price was
allocated to goodwill, customer lists and other intangibles which are being
amortized on a straight line basis over a period from 1 to 15 years. (See Note
4.)

The operating results of the acquisition have been included in the
consolidated statement of income from the date of the acquisition. The following
pro forma information has been prepared assuming that this acquisition had taken
place on December 1, 1994. The pro forma information includes adjustments for
amortization of intangibles arising from the transaction and an adjustment of
the tax provision for fiscal 1995 representing the statutory federal rate
assuming the Company had always been a C corporation. The pro forma financial
information is not necessarily indicative of the results of operations as they
would have been had the transaction been effected on the assumed dates.

<TABLE>
<CAPTION>
NOVEMBER 30,
---------------------------
1996 1995
------------ -----------
<S> <C> <C>
Net revenues..................................... $150,284,451 $78,749,359
Net income....................................... 12,351,385 8,594,653
Earnings per share............................... .66 .58
</TABLE>

Prior to the acquisition on September 10, 1996, the terms of the joint
venture agreement required each party to the joint venture to provide
management, consulting and financial services for a monthly fee of $50,000. Such
services included, but were not necessarily limited to, advice and assistance
concerning any and all aspects of the operations, planning and financing of the
venture's operations. The fee provision of the agreement was terminated
effective February 1, 1996.

The Company has recognized income from New Lauderdale (50% of its earnings
which are net of normal costs of its operations and the fees referred to above),
of $4,939,653 and $2,860,304 and received distributions of $4,432,000 and
$1,540,000 for the period December 1, 1995 to September 10, 1996 and for the
year ended November 30, 1995, respectively.

Following is condensed financial data for the joint venture:

<TABLE>
<CAPTION>
AS OF
SEPTEMBER 10,
1996
-------------
<S> <C>
Current assets (principally accounts receivable)............ $13,584,579
Current liabilities (principally reserve for customer
chargebacks).............................................. 11,731,621
Members' equity(a).......................................... 1,852,958
</TABLE>

- ---------------
(a) Relates solely to the Company's equity.

<TABLE>
<CAPTION>
FOR THE PERIOD
ENDED YEAR ENDED
SEPTEMBER 10, NOVEMBER 30,
1996 1995
-------------- ------------
<S> <C> <C>
Net revenues...................................... $ 63,617,683 $ 28,248,093
Gross profit...................................... 12,258,916 8,054,330
Net income........................................ 9,879,308 5,720,608
</TABLE>

F-15
<PAGE> 46
QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. COMMITMENTS AND CONTINGENCIES:

Leases

The Company is obligated under two noncancelable real property operating
lease agreements that expire in fiscal 2004 and 2006. Future minimum rents
consist of the following at November 30, 1997:

<TABLE>
<S> <C>
1998........................................................ $ 450,325
1999........................................................ 455,957
2000........................................................ 461,779
2001........................................................ 487,766
2002........................................................ 533,941
Thereafter.................................................. 1,508,508
----------
$3,898,276
==========
</TABLE>

The leases contain escalation clauses with respect to real estate taxes and
related operating costs. The accompanying financial statements reflect rent
expense on a straight-line basis over the term of the lease as required by
generally accepted accounting principles. Rent expense was $383,867, $210,153
and $96,834 for fiscal 1997, 1996 and 1995, 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 $1,347,500, which reflects the amendment to one of the
executive officer's employment agreement dated January 5, 1998.

Commencing in fiscal 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. Such bonuses amounted to approximately $1,305,000 and
$899,000 at November 30, 1997 and 1996, respectively.

The Company has a consulting agreement with a director/shareholder,
expiring on November 30, 1998. Under the terms of such agreement, the
director/shareholder provides 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, under the agreement, the
director/shareholder 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 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 current
consulting arrangement are $151,248. The Company incurred approximately $138,000
in expense relating to this agreement in 1997.

In connection with the acquisition of PRN's interest in New Lauderdale (see
Note 7), a principal shareholder of PRN was elected a director of the Company
and entered into an employment agreement with the Company. Minimum future
payments under this agreement are as follows:

F-16
<PAGE> 47
QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Other

As a result of the acquisition of New Lauderdale (see Note 7), the Company
has 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 1997, 1996 and 1995 were $399,395,
$261,566 and $205,285, respectively.

Litigation

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 advice of counsel, that these actions will not result in
payment of amounts, if any, which would have a material adverse effect on the
Company's results of operations.

9. 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 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. The Stock
Option Plan was amended in September 1996 and in June 1997 to provide for the
granting of options to purchase an additional 500,000 and 600,000 shares,
respectively, of the Company's common stock. After these amendments, grants are
available under the Stock Option Plan to purchase a total of 1,850,000 shares of
the Company's common stock.

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 a 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. No incentive stock options have been
granted since the implementation of the plan.

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 amended Stock Option Plan provides for quarterly grants to each
non-employee director of the Company of options to purchase 6,250 shares of the
Company's common stock at the market value on the date of each
F-17
<PAGE> 48
QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

grant. During fiscal 1997, the Company granted 125,000 options to the
non-employee directors. On December 26, 1997, the stock option committee
approved the granting of an additional 80,500 options to certain employees of
the Company.

A summary of the Company's stock options is as follows:

<TABLE>
<CAPTION>
1997 1996 1995
------------------------- ------------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding, beginning
of year..................... 653,850 $4.75 to 8.25 394,000 $ 5.00 -- --
Granted....................... 470,500 7.31 to 15.56 297,250 4.75 to 8.25 394,000 $5.00
Exercised..................... (152,797) 5.00 to 6.00 (27,368) 5.00 -- --
Cancelled or lapsed........... (32,862) 5.00 to 6.00 (10,032) 5.00 -- --
-------- -------------- ------- -------------- ------- -----
Options outstanding, end of
year........................ 938,691 $4.75 to 15.56 653,850 $4.75 to 8.25 394,000 $5.00
======== ============== ======= ============== ======= =====
Options exercisable, end of
year........................ 645,952 653,850 394,000
======== ======= =======
Options available for grant,
end of year................. 731,144 568,782 356,000
======== ======= =======
Weighted-average fair value of
options granted during the
year........................ $ 5.82 $ 3.93
======== =======
</TABLE>

As discussed in Note 1, the Company has applied the disclosure-only
provision SFAS 123. Had compensation cost been determined based on the fair
value at the grant date consistent with the provisions of SFAS 123, the
Company's net income and earnings per share would have been as follows for the
years ended November 30, 1997 and 1996.

<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net income as reported............................ $14,194,523 $12,174,430
=========== ===========
Net income -- pro forma........................... $13,158,826 $11,760,015
=========== ===========
Earnings per share -- as reported................. $ .76 $ .76
=========== ===========
Earnings per share -- pro forma................... $ .70 $ .73
=========== ===========
</TABLE>

The weighted average fair value of each option has been estimated on the
date of grant using the Black Scholes options pricing model with the following
weighted average assumptions used for grants in 1997 and 1996, respectively; no
dividend yield; expected volatility of 58.5%; risk-free interest rate (ranging
from 6.17% -- 6.50%); and expected lives of approximately 4.8 years. Weighted
averages are used because of varying assumed exercise dates.

F-18
<PAGE> 49
QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table summarizes information about stock options outstanding
at November 30, 1997:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE SHARES CONTRACTUAL EXERCISABLE SHARES EXERCISABLE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
-------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$4.75 - $5.00 262,899 7.9 $ 4.98 262,066 $ 4.98
$6.00 - $7.31 244,959 8.8 6.25 141,385 6.14
$9.38 - $11.75 399,583 9.4 10.27 211,251 10.36
$15.56 - $15.56 31,250 9.6 15.56 31,250 15.56
------- --- ------ ------- ------
$4.75 - $15.56 938,691 8.8 $ 7.91 645,952 $ 7.50
======= === ====== ======= ======
</TABLE>

10. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):

The following is a summary of the unaudited quarterly results of operations
for fiscal 1997, 1996 and 1995:

<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------
NOVEMBER 30, AUGUST 31, MAY 31, FEBRUARY 28,
------------ ---------- ------- ------------
<S> <C> <C> <C> <C>
1997:
Net revenues.............. $49,302,822 $44,688,568 $53,323,734 $44,059,812
Gross profit.............. 10,072,085 4,152,170 13,786,298 13,543,020
Income before income
taxes.................. 5,420,442 307,049 9,660,751 9,045,155
Net income................ 2,911,615 184,229 5,832,540 5,435,397
Earnings per share........ 0.15 0.01 0.31 0.29
1996:
Net revenues.............. $39,389,333 $17,493,179 $13,765,685 $16,018,571
Gross profit.............. 11,288,981 5,737,501 1,638,439 3,340,591
Income before income
taxes.................. 7,080,889 4,918,871 1,142,807 3,930,396
Net income................ 4,165,501 3,111,288 595,452 4,302,189
Earnings per share........ 0.23 0.20 0.04 0.28
1995:
Net revenues.............. $15,897,677 $14,314,288 $12,074,304 $ 8,214,988
Gross profit.............. 4,752,752 3,965,826 3,644,280 1,405,798
Income before income
taxes.................. 4,678,595 4,190,879 3,394,756 1,048,654
Pro forma net income...... 2,701,683 2,256,577 2,079,288 642,240
Pro forma earnings per
share.................. 0.23 0.19 0.17 0.06
</TABLE>

During the fourth quarter of fiscal 1996, the Company recorded an accrual
of approximately $1,070,000 relating to compensation.

The fourth quarter of fiscal 1997 included an increase of approximately
$200,000 for state income taxes. This increase was attributable to increased
revenues in the states where the Company is subject to higher tax rates.

F-19
<PAGE> 50

QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- -------------------------------- ------------ --------------------------- ------------- -------------
ADDITIONS
---------------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER DEDUCTIONS - BALANCE AT
DESCRIPTION PERIOD EXPENSES ACCOUNTS(1) DESCRIBE(2) END OF PERIOD
- -------------------------------- ------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED NOVEMBER 30, 1997
Reserve for customer
chargebacks................... $20,080,903 $103,597,803 $ $85,482,592 $38,196,114
=========== ============ ========== =========== ===========
YEAR ENDED NOVEMBER 30, 1996
Reserve for customer
chargebacks................... $ 4,025,130 $ 46,352,638 $9,336,755 $39,633,620 $20,080,903
=========== ============ ========== =========== ===========
YEAR ENDED NOVEMBER 30, 1995
Reserve for customer
chargebacks................... $ 1,176,902 $ 19,065,077 -- $16,216,849 $ 4,025,130
=========== ============ ========== =========== ===========
</TABLE>

- ---------------
(1) Assumed liability in connection with New Lauderdale acquisition (see Note
7).

(2) Chargebacks refunded during the year.

S-1
<PAGE> 51
Exhibit Number
- --------------

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

3.2 By-Laws of the Company (2)

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

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

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

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

10.4.2 Amendment to Employment Agreement by and between the Company and Andrew
Stollman (4)

10.5 Employment Agreement by and between the Company and Steven L. Feder (5)

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

10.7 Definitive Form of Non-Competition and Right of First Refusal Agreement
between the Company and Steven L. Feder, Thomas H. Lindsey and Peter
Stolz (5)

10.8 Definitive Form of Non-Competition and Right of First Refusal Agreement
between the Company and Psychic Readers Network, Inc. (5)

10.9 Amended and Restated 1996 Stock Option Plan (6)

10.10 Lease of the Company's offices at One Blue Hill Plaza, Pearl River, New
York (4)

10.11* Lease of office space for Calling Card Co., Inc. at 2455 East Sunrise
Boulevard, Fort Lauderdale, Florida (P)

10.12*+ Servicing Agreement between West Interactive Corporation and the
Company (P)

10.13 Collateral Note and Security Agreement between West Interactive
Corporation and the Company (2)

10.14 Collateral Note and Security Agreement between West Interactive
Corporation and New Lauderdale (2)

10.15 Telemarketing Services Agreement between West Telemarketing Corporation
Outbound and the Company (2)

<PAGE> 52

10.16+ Billing and Information Management Services Agreement and Advanced
Payment Agreement between Enhanced Services Billing, Inc. and the
Company (2)

10.17 Amended and Restated Psychic Readers Network Live Operator Service
Agreement between Psychic Readers Network, Inc. and the Company (5)

10.18+ Telemarketing Services Agreement between Advanced Access, Inc. and the
Company (4)(P)

10.19+ Telemarketing Services Agreement between APAC TeleServices, Inc. and
the Company (4)(P)

10.20*+ Telemarketing Services Agreement between AT&T Wireless Services and the
Company (P)

10.21*+ Telemarketing Services Agreement between AT&T Wireless Services and
Paradigm Direct, Inc., a co-venturer of the Company pursuant to an oral
joint venture agreement (P)

10.22+ Telemarketing Services Agreement between Optima Direct, Inc. and the
Company (4)(P)

10.23+ Billing and Collection Services Agreement between Federal Transtel,
Inc. and the Company (4)(P)

10.24+ Telemarketing Services Agreements between New Media Telecommunications,
Inc. and the Company (4)(P)

10.25+ Telecommunications Services Agreement between AT&T Communications, Inc.
and the Company (4)(P)

10.26*+ Letter Agreement, dated November 12, 1997, amending the
Telecommunications Services Agreement between AT&T Communications, Inc.
and the Company (P)

10.27*+ Letter Agreement, dated January 19, 1998, amending the
Telecommunications Services Agreement between AT&T Communications, Inc.
and the Company

10.28*+ Ownership Agreement between the Company, Calling Card Co., Inc., Access
Resource Services, Inc. and Real Communication Services, Inc.

10.29.1* Limited Liability Company Agreement between the Company and Paragon
Cellular Services, Inc.

10.29.2* Amendment No. 1 to Limited Liability Company Agreement between the
Company and Paragon Cellular Services, Inc.

<PAGE> 53

10.30*+ Telecommunications Services Agreement between LCI International Telecom
Corp. and the Company (P)

17* Letter of Resignation of Vincent Tese

21* Subsidiaries of the Company

27* Financial Data Schedule

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

+ Confidential treatment requested as to portions of this Exhibit.

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

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

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

(4) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended November 30, 1996, and incorporated herein by
reference.

(5) Filed as an Exhibit to a Definitive Information Statement filed with
the Commission, dated August 20, 1996, and incorporated herein by
reference.

(6) Filed as an Exhibit to the Company's Proxy Statement filed with the
Commission, dated July 21, 1997 and incorporated herein by reference.

(P) Filed by paper with the Commission pursuant to a continuing hardship
exemption.

<PAGE> 1
EXHIBIT 10.3

EMPLOYMENT AGREEMENT dated
as of January 5, 1998 by
and between QUINTEL
ENTERTAINMENT, INC., a New
York corporation (the
"Company"), and CLAUDIA
NEWMAN HIRSCH (the
"Executive").

The parties hereto desire to provide for the Executive's continued
employment by the Company in accordance with the terms and provisions set forth
below:

NOW, THEREFORE, the parties agree as follows:

1. EMPLOYMENT; TERM.

The Company will continue to employ the Executive, and the
Executive will continue to work for the Company, as Executive Vice President of
the Company until November 30, 1998 unless sooner terminated in accordance with
Section 7 hereof. Such period, together with the period of any extension or
renewal of such employment, is referred to herein as the "Employment Period."

2. DUTIES.

During the Employment Period, the Executive shall serve as the
Executive Vice President of the Company and of its subsidiaries and affiliated
companies, and perform such further duties as shall, from time to time, be
reasonably delegated or assigned to the Executive by the Board of Directors
consistent with her office.

3. DEVOTION OF TIME.

During the Employment Period, the Executive shall: (i) expend
all of her working time for not less then three days per work week for the
Company; (ii) devote her best efforts, energy and skill to the services of the
Company and the promotion of its interests; and (iii) not take part in
activities known by the Executive to be detrimental to the best interests of the
Company.

4. COMPENSATION.

4.1 In consideration for the services to be performed by the
Executive during the Employment Period hereunder, the

<PAGE> 2
Company shall compensate the Executive with a base salary of $165,000 per annum,
at the rate of $13,750.00 per month.

4.2 In addition to the annual base salary payable to the
Executive pursuant to the provisions of Section 4.1 hereof, the Executive is
also entitled to bonus compensation with respect to any fiscal year, in the
event that the Company achieves pre-tax earnings of $10,000,000 or more for any
such fiscal year, equal to a percentage of such pre-tax earnings, as determined
by the Compensation Committee of the Company's Board of Directors; provided that
the aggregate amount of bonus compensation payable to the Executive, Jeffrey L.
Schwartz, Jay Greenwald, Andrew Stollman and Michael G. Miller (if Mr. Miller is
employed by the Company on a full-time basis during such fiscal year) for any
fiscal year shall not exceed five percent (5%) of the Company's pre-tax earnings
for such fiscal year. For the purposes of this Agreement, "pre-tax earnings"
shall be determined by the Company's independent certified public accountants in
accordance with generally accepted accounting principles consistently applied.

5. REIMBURSEMENT OF EXPENSES; ADDITIONAL BENEFITS.

5.1 The Company shall pay directly, or reimburse the Executive
for, all other reasonable and necessary expenses and disbursements incurred by
her for and on behalf of the Company in the performance of her duties under this
Agreement. For such purposes, the Executive shall submit to the Company itemized
reports of such expenses in accordance with the Company's policies.

5.2 The Executive shall be entitled to paid vacations during
the Employment Period in accordance with the Company's then prevalent practices
for executive employees; provided, however, that the Executive shall be entitled
to such paid vacations for not less than four (4) weeks per annum.

5.3 The Executive shall be entitled to participate in, and to
receive benefits under, any employee benefit plans of the Company (including,
without limitation, pension, profit sharing, group life insurance and group
medical insurance plans) as may exist from time to time for its executive
employees.

6. RESTRICTIVE COVENANT.

6.1 During the Employment Period and thereafter, the Executive shall
not reveal, divulge or make known to any person, firm, corporation or other
business organization, and shall not directly or indirectly use for her own
benefit, or for the benefit of anyone else, any secret or confidential
information used by the Company in its business, including, without

2
<PAGE> 3

limitation, (i) pricing information, (ii) the terms of the Company's existing
contracts with suppliers, service bureaus or vendors (iii) any information
pertaining to the Company's customers and their requirements and (iv) any other
of the Company's trade secrets, all of which shall be collectively referred to
hereafter as the "Confidential Information."

6.2 The services of the Executive are unique, extraordinary
and essential to the business of the Company, particularly in view of the
Executive's access to the Confidential Information. Accordingly, the Executive
agrees that she will not at any time during the Employment Period and for a
period of two (2) years thereafter, without the prior written approval of the
Board of Directors of the Company, directly or indirectly, engage in any
business activity competitive with the business of the Company. For the purposes
of this Agreement any business which provides telephone entertainment services
of the type provided by the Company or which the Company is considering or has
in the past twelve months considered to provide, or markets and operates
membership clubs pertaining to astrology, psychics, diet services, personals or
any other subject matter with which the Company is then actively engaged in or
had been engaged in during the preceding twelve months, will constitute a
business activity competitive with the business of the Company. Furthermore, the
Executive agrees that, during such period, she shall not solicit, directly or
indirectly, or affect to the Company's detriment any relationship of the Company
with any customer, supplier, service bureau, vendor or employee of the Company
or cause any customer, supplier, service bureau or vendor to refrain from
entrusting additional business to the Company.

6.3 In the event that any of the provisions of Sections 6.1
and 6.2 hereof shall be adjudicated to exceed the time, geographic or other
limitations permitted by applicable law in any jurisdiction, then such provision
shall be deemed reformed in any such jurisdiction to the maximum time,
geographic or other limitations permitted by applicable law.

6.4 As used in this Section 6, the term "Company" shall mean
and include any and all corporations affiliated with the Company, which either
now exist or which may hereafter be organized.

6.5 The Executive hereby acknowledges and agrees that, in the
event she shall violate any provisions of this Section 6 the Company will be
without an adequate remedy at law and accordingly, will be entitled to enforce
such restrictions by temporary or permanent injunctive or mandatory relief
obtained in any action or proceeding instituted in any court of competent
jurisdiction without the necessity of proving damages and without prejudice to
any other remedies which it may have at law or in equity.

3
<PAGE> 4

7. EARLIER TERMINATION.

7.1 The Executive's employment hereunder shall automatically
be terminated upon the death of the Executive or the Executive's voluntarily
leaving the employ of the Company and, in addition, may be terminated, at the
sole discretion of the Company, as follows:

(a) Upon thirty (30) days' prior written notice
by the Company, in the event of the Executive's disability as set
forth in Section 7.2 below; or

(b) Upon thirty (30) days' prior written notice
by the Company, in the event that the Company terminates the Executive's
employment hereunder for cause as set forth in Section 7.3 below.

7.2 The Executive shall be deemed disabled hereunder, if in
the opinion of the Board of Directors of the Company, as confirmed by competent
medical advice, she shall become physically or mentally unable to perform her
duties for the Company hereunder and such incapacity shall have continued for
any period of six (6) consecutive months.

7.3 For purposes hereof, "cause" shall include, but not be
limited to, the following: (a) the Executive's willful malfeasance or gross
negligence; (b) any material misrepresentation or concealment of a material fact
made by the Executive in connection with this Agreement; or (c) the material
breach of any covenant made by the Executive hereunder, and the Executive's
failure to cure such conduct or event constituting "cause" within 30 days after
written notice thereof.

7.4 In the event that this Agreement shall be terminated due
to the Executive's death or disability, then the Company shall pay to the
Executive or her personal representatives, as the case may be, severance pay in
a lump sum amount equal to her then current annual base salary, as set forth in
Section 4 hereof, for a period of twelve months from the date of such
termination. If, however, this Agreement shall be terminated for any other
reason whatsoever, then the Company shall not be obligated to make any severance
payments whatsoever to the Executive hereunder, except for the compensation set
forth in Section 4 hereof which shall have accrued but be unpaid at the
effective time of termination.

8. NO REQUIREMENT OF RELOCATION.

The Company expressly agrees that the Executive, as a
condition of her employment, need not relocate her residence from the community
in which she presently resides. Any demand or requirement by the Company that
the Executive principally perform

4
<PAGE> 5

her duties at a location or office that requires more than an additional hour of
one-way commutation time than the Executive currently experiences shall, in the
absence of the Executive's consent (which may be withheld for any reason),
constitute a termination without cause by the Company of the Executive's
employment hereunder.

9. SERVICE AS DIRECTOR.

During the Employment Period, the Executive shall, if elected
or appointed, serve as a Director of the Company and/or any subsidiary of the
Company upon such terms as shall be mutually agreed upon by the Executive and
the Company.

10. ASSIGNMENT.

This Agreement, as it relates to the employment of the
Executive, is a personal contract and the rights and interests of the Executive
hereunder may not be sold, transferred, assigned, pledged or hypothecated,
except as otherwise set forth herein. This Agreement shall inure to the benefit
of and be binding upon the Company and its successors and assigns, including
without limitation, any corporation or other entity into which the Company is
merged or which acquires all of the outstanding shares of the Company's capital
stock, or all or substantially all of the assets of the Company.

11. RIGHT TO PAYMENTS.

The Executive shall not under any circumstances have any
option or right to require payments hereunder otherwise than in accordance with
the terms hereof. To the extent permitted by law, the Executive shall not have
any power of anticipation, alienation or assignment of payments contemplated
hereunder, and all rights and benefits of the Executive shall be for the sole
personal benefit of the Executive, and no other person shall acquire any right,
title or interest hereunder by reason of any sale, assignment, transfer, claim
or judgment or bankruptcy proceedings against the Executive.

12. NOTICES.

Any notice required or permitted to be given pursuant to this
Agreement shall be deemed given one (1) business day after personally delivered
or delivered by a nationally recognized overnight courier or three (3) business
days after such notice is mailed by certified mail, return receipt requested,
addressed as follows: (i) if to Executive, at One Blue Hill Plaza, Pearl River,
New York 10965 and (ii) if to the Company, at One Blue Hill Plaza, Pearl River,
New York 10965, Attention: Chief Financial Officer or at such other address as
any such party shall designate by written notice to the other

<PAGE> 6

party. Copies of all notices shall also be provided to Feder, Kaszovitz,
Isaacson, Weber, Skala & Bass LLP, 750 Lexington Avenue, New York, New York
10022-1200.

13. GOVERNING LAW.

This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of New York.

14. WAIVER.

The waiver by either party of a breach of any provision of
this Agreement shall not operate or be construed as a Agreement shall be held to
be invalid or unenforceable, such invalidity or unenforceability shall attach
only to such provision and not in any way affect or render invalid or
unenforceable any other provisions of this Agreement, and this Agreement shall
be carried out as if such invalid or unenforceable provisions were not embodied
therein.

15. ENTIRE AGREEMENT.

This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and there are no
representations, warranties or commitments except as set forth herein. This
Agreement supersedes any other prior and contemporaneous agreements,
understandings, negotiations and discussions, whether written or oral, of the
parties hereto relating to the transactions contemplated by this Agreement;
provided, however, that it is the intention of the parties that this Agreement
shall be interpreted and applied in conjunction with the terms of any option,
warrant or other right now in existence or hereinafter granted to the Executive
to acquire shares of capital stock of the Company. In the event of any conflict,
however, the terms of this Agreement shall govern and prevail. This Agreement
may be amended only in a writing executed by the parties hereto affected by such
amendment.

<PAGE> 7

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the day and year first above written.

QUINTEL ENTERTAINMENT, INC.

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

---------------------------
CLAUDIA NEWMAN HIRSCH

<PAGE> 1
EXHIBIT 10.27

QUINTEL
ENTERTAINMENT, INC.

ONE BLUE HILL PLAZA, 5TH FLOOR, P.O. BOX 1665, PEARL RIVER, NY 10965 -
PHONE (914) 620-1212 - FAX (914) 620-1717

January 19, 1998

Mr. Scott Brady
AT&T Partnership Marketing
AT&T Communications, Inc.
295 North Maple Avenue
Basking Ridge, New Jersey 07920

Dear Scott:

Reference is made to the agreement dated May 28, 1996 between AT&T
Communications, Inc. ("AT&T") and Quintel Entertainment, Inc. ("Quintel"), as
amended heretofore (the "Quintel Winback Agreement") and the letters dated
October 15, 1997 between Jeffrey Schwartz and Dennis Corrigan. This confirms our
discussion on December 31, 1997 that effective January 21, 1998 the Quintel
Winback Agreement shall be terminated, and that effective upon such termination
Quintel will have no further liability thereunder, including for any refund
described in Amendment Number One to the Quintel Winback Agreement dated April
22, 1997 (such refund obligation is referred to as the "Winback Refund"). This
further confirms our previous agreement that Quintel will permit {Confidential
portion omitted and filed separately with the Commission} to utilize Quintel's
existing proprietary customer database (excluding customer databases licensed or
leased from third parties) for marketing of the AT&T Winback Program until June
30, 1998. If AT&T and {Confidential portion omitted and filed separately with
the Commission} do not reach final agreement regarding {Confidential portion
omitted and filed separately with the Commission}'s marketing of the AT&T
Winback Program for AT&T by January 21, 1998, then the Quintel Winback Agreement
shall continue, until the earlier of June 30, 1998 or the date an agreement
between AT&T and {Confidential portion omitted and filed separately with the
Commission} for conduct of the AT&T Winback Program is concluded, on the
following terms: AT&T may continue to use the Quintel customer list (consisting
of approximately {Confidential portion omitted and filed separately with the
Commission} names) in marketing the AT&T Winback Program until June 30, 1998,
and Quintel may engage {Confidential portion omitted and filed separately with
the Commission} as Quintel's third party vendor to conduct all of the marketing
and other activities which Quintel is obligated to conduct under the Quintel
Winback Agreement, and the Winback Refund shall be deemed reduced at the rate of
${Confidential portion omitted and filed separately with the Commission} per
month commencing as of October, 1997 until June 30, 1998, when the Winback
Refund shall be deemed satisfied in its entirety. Please confirm your agreement
to the foregoing by signing below.
Yours truly,

QUINTEL ENTERTAINMENT, INC.

By:
--------------------------------------

Confirmed:
AT&T COMMUNICATIONS, INC.

By:
-------------------------------

<PAGE> 1

EXHIBIT 10.28

AGREEMENT REGARDING OWNERSHIP OF ASA {CONFIDENTIAL
PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION} CLUB AND
FULFILLMENT OF FREE MINUTES AND EXCESS MINUTES
USED BY CLUB MEMBERS

AGREEMENT entered into as of the 1st day of June 1997 by and among QUINTEL
ENTERTAINMENT, INC., a corporation organized under the laws of Delaware with
offices at One Blue Hill Plaza, Fifth Floor, Pearl River, New York 10965
(hereafter referred to as "Quintel"), CALLING CARD CO., INC., a corporation
organized under the laws of New York with offices at One Blue Hill Plaza, Fifth
Floor, Pearl River, New York 10965 (hereafter referred to as "CC", Quintel and
CC, and their respective subsidiaries and affiliates, and entities controlling,
controlled by or under common control with Quintel and CC are collectively
referred to as the "Quintel Companies"), ACCESS RESOURCE SERVICES, INC., a
Delaware corporation with offices at 2455 E. Sunrise Boulevard, Fort Lauderdale,
Florida 33304 (hereafter referred to as "Access"), and REAL COMMUNICATION
SERVICES, INC., a Delaware corporation with offices at 2455 E. Sunrise
Boulevard, Fort Lauderdale, Florida 33304 (hereafter referred to as "RCI");
Access and RCI, and their respective subsidiaries and affiliates, and entities
controlling, controlled by or under common control with Access and RCI,
including Psychic Readers Network, Inc., a Florida corporation ("PRN") are
collectively referred to as the "PRN Companies".

RECITALS:

A. The Quintel Companies intend to market a membership club which they have
called the ASA {Confidential portion omitted and filed separately with the
Commission} Club (the "{Confidential portion omitted and filed separately with
the Commission} Club") offering premium telephone psychic and "new-age"
entertainment services (the "Service") for a flat rate membership fee of
{Confidential portion omitted and filed separately with the Commission} (the
"Membership Fee"), entitling the club member ("Club Member") to utilize the
Service for a certain number of free minutes of telephone time during a
specified period (the "Free Service Minutes").

B. The Quintel Companies anticipate that Club Members will utilize additional
minutes of telephone time in addition to the Free Service Minutes for which Club
Members will be charged (the "Excess Service Minutes"; the Free Service Minutes
and the Excess Service Minutes provided to Club Members shall be collectively
referred to as the "Service Minutes").

C. The PRN Companies are also involved in the marketing of premium audiotext
telephone entertainment and also provide the Quintel Companies with live psychic
operator services pursuant to another agreement with the Quintel Companies (the
"Service Agreement").

<PAGE> 2

D. The PRN Companies are parties to agreements with telecommunications service
bureaus such as West Interactive Corporation ("Service Bureaus") under which
telecommunications services furnished by telecommunications carriers
("Carriers") are provided to the PRN Companies for use in providing telephone
entertainment services to their customers, as well as to customers of the
Quintel Companies.

E. The Quintel Companies are also party to agreements with Service Bureaus under
which telecommunications services furnished by the Service Bureaus and Carriers
are provided to the Quintel Companies and their affiliates for use in providing
telephone entertainment services to their customers.

F. The PRN Companies have assisted the Quintel Companies in the development of
the {Confidential portion omitted and filed separately with the Commission}
Club, and have agreed to assume responsibility for fulfillment of the obligation
to provide the Free Service Minutes to Club Members, in consideration for which
the Quintel Companies and the PRN Companies have agreed that the revenues, if
any, from the charges to Club Members for the Excess Service Minutes and the
expenses incurred in connection with the {Confidential portion omitted and filed
separately with the Commission} Club shall be divided between them in the manner
and on all of the other terms described in this Agreement.

NOW, THEREFORE, for good and valuable consideration, receipt of which is
acknowledged by the parties, it is hereby agreed as follows:

1. OWNERSHIP AND OPERATION OF THE {CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION} CLUB. The Quintel Companies shall have the sole
and exclusive right to market and sell the Service offered by the {Confidential
portion omitted and filed separately with the Commission} Club to the Quintel
Companies' customers and potential customers in their sole and absolute
discretion, in accordance with all applicable laws and regulations.

a. The PRN Companies shall provide live psychic operator
services to the Quintel Companies pursuant to the Service
Agreement in connection with the operation of the
{Confidential portion omitted and filed separately with
the Commission} Club. All of the Service Minutes which
are required to be provided to Club Members under the
terms of membership in the {Confidential portion omitted
and filed separately with the Commission} Club shall be
provided to the Club Members by the PRN Companies under
the PRN Companies' agreements with the Service Bureaus.

b. The PRN Companies shall not market the {Confidential
portion omitted and filed separately with the Commission}

<PAGE> 3

Club (or any program similar thereto) to their customers or
potential customers.

c. The Quintel Companies shall be the sole owners of all
tangible and intangible property rights with respect to
the {Confidential portion omitted and filed separately
with the Commission} Club. The Quintel Companies shall
have the sole right to the use of the names, telephone
numbers and other information generated about the
customers and potential customers of the {Confidential
portion omitted and filed separately with the Commission}
Club from the marketing and operation of the
{Confidential portion omitted and filed separately with
the Commission} Club, and the PRN Companies shall treat
such information as Confidential Information of the
Quintel Companies under the terms of the Service
Agreement.

2. DIVISION OF RESPONSIBILITY FOR EXPENSES OF THE {CONFIDENTIAL PORTION OMITTED
AND FILED SEPARATELY WITH THE COMMISSION} CLUB.

a. All charges rendered by the Service Bureaus and the
Carriers for the Free Service Minutes used by the Club
Members shall be paid in a timely fashion by the PRN
Companies in accordance with their agreements with the
Service Bureaus. The PRN Companies shall indemnify the
Quintel Companies against any claim made by the Club
Members, the Service Bureaus or the Carriers for charges,
fees or expenses incurred in providing the Free Service
Minutes to which the Club Members are entitled under the
terms of their membership in the {Confidential portion
omitted and filed separately with the Commission} Club
and the PRN Companies shall hold the Quintel Companies
harmless from any cost or expense arising in connection
therewith. The Quintel Companies shall give notice to
the PRN Companies of any claim for indemnification made
under this paragraph in accordance with Section 5 of this
Agreement, and the Quintel Companies shall be entitled to
offset any payment made by them with respect to such
indemnified claim against amounts due to the PRN
Companies by the Quintel Companies under the Service
Agreement or any other agreement between them.

b. The Quintel Companies shall reimburse the PRN Companies
for fifty percent (50%) of all charges rendered by the
Service Bureaus and the Carriers for the Excess Service
Minutes used by the Club Members, and which are not
deducted by the Service Bureaus and Carriers from
payments made in account of such Service Minutes, within
thirty (30) days after receipt of a statement from the
PRN Companies of such charges, and the PRN Companies
shall be entitled to offset any such charges not paid by

<PAGE> 4

the Quintel Companies against amounts due to the Quintel
Companies by the PRN Companies under any other agreement
between them. In the event that the Quintel Companies dispute
the charges rendered by the Service Bureaus and the Carriers
for the Excess Service Minutes used by the Club Members, the
PRN Companies will cooperate with the Quintel Companies in
seeking adjustment and refund, if applicable, of disputed
charges, and in the event of any refund by the Service Bureaus
and Carriers of charges for which the Quintel Companies have
reimbursed the PRN Companies under this paragraph, such amount
shall in turn be refunded to the Quintel Companies.

c. The Quintel Companies shall be solely responsible for all
other costs and expenses arising in connection with the
marketing and operation of the {Confidential portion
omitted and filed separately with the Commission} Club.
The Quintel Companies shall indemnify the PRN Companies
against any claims made by the Club Members or any other
party (other than the Service Bureaus, Carriers or Club
Members with respect to the charges for the Free Service
Minutes) arising out of the operation of the
{Confidential portion omitted and filed separately with
the Commission} Club and shall hold the PRN Companies
harmless from any cost or expense arising in connection
therewith.

d. The Quintel Companies shall have the right in their sole
and absolute discretion to discontinue the {Confidential
portion omitted and filed separately with the Commission}
Club at any time, and to alter the membership terms,
provided that any increase in the amount of Free Service
Minutes shall be subject to the approval of the PRN
Companies unless the Quintel companies assume
responsibility for the charges of the Service Bureaus and
Carriers for any such additional Free Service Minutes.

3. DIVISION OF REVENUES OF THE {CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION} CLUB. The revenues generated by the charges
billed to the Club Members for the Excess Service Minutes provided to Club
Members by the PRN Companies' Service Bureaus and Carriers shall be shared
equally by the PRN Companies and the Quintel Companies.

a. The Membership Fee paid by the Club Members shall be the sole
property of the Quintel Companies, and the PRN Companies shall
have no right to share in or have any other interest in the
Membership Fee.

b. The Quintel Companies shall be entitled to all revenues,
other than the revenues from charges to Club Members for
Excess Service Minutes provided by the PRN Companies'

<PAGE> 5

Service Bureaus and Carriers, generated by or derived from the
sale of other goods or services in connection with the
operation of the {Confidential portion omitted and filed
separately with the Commission} Club.

4. REPRESENTATIONS AND WARRANTIES OF THE PRN COMPANIES. The PRN Companies
represent and warrant to the Quintel Companies that: (i) they have the ability
to provide all of the fulfillment of the Service Minutes required under this
Agreement and to satisfy all charges rendered by the Service Bureaus and
Carriers in connection therewith, subject to reimbursement by the Quintel
Companies in accordance with this Agreement; (ii) annexed hereto as an Exhibit
is a balance sheet and income statement of PRN for the six (6) month period
ended June 30, 1997, and subsequent to such date PRN has organized RCI and
Access Resource Services, Inc., a Delaware corporation, as wholly owned
subsidiaries of PRN to conduct certain operations theretofore conducted by PRN,
and the operation of such subsidiaries shall have no materially adverse effect
upon the combined net income or results of operation of the PRN Companies.

5. INDEMNIFICATION. Promptly after receipt by any party hereto (the
"Indemnitee") of notice of any demand, claim or circumstances which, with the
lapse of time, would or might give rise to a claim or the commencement (or
threatened commencement) of any action, proceeding or investigation (an
"Asserted Liability") that may result in any claim for which a party is entitled
to indemnification under this Agreement (a "Claim"), the party entitled to
indemnification (the "Indemnitee") shall promptly give notice thereof (the
"Claims Notice") to the party obligated to provide indemnification pursuant to
this Agreement (the "Indemnifying Party"); provided, however, that the failure
of any Indemnitee to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under paragraph (a) or (b) of this
Section, except to the extent that the Indemnifying Party is actually prejudiced
by such failure to give notice. The Claims Notice shall describe the Asserted
Liability in reasonable detail, and shall indicate the amount (estimated, if
necessary and to the extent feasible) of the Claim that has been or may be
suffered by the Indemnitee.

a. The Indemnifying Party may elect to compromise or defend,
at its own expense and by its own counsel, any Asserted
Liability. If the Indemnifying Party elects to
compromise or defend such Asserted Liability, it shall
within thirty (30) days (or sooner, if the nature of the
Asserted Liability so requires) notify the Indemnitee of
its intent to do so, and the Indemnitee shall cooperate,
at the expense of the Indemnifying Party, in the
compromise of, or defense against, such Asserted
Liability.

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<PAGE> 6

i. If the Indemnifying Party elects not to compromise or
defend the Asserted Liability, fails to notify the
Indemnitee of its election as herein provided or
contests its obligation to indemnify under this
Agreement, the Indemnitee may pay, compromise or
defend such Asserted Liability at the expense of the
Indemnifying Party (if the Indemnifying Party is
found obligated to indemnify the Indemnitee with
respect to the Claim).

ii. Subject to the limitations contained in Paragraph
5(b) on the obligations of the Indemnifying Party in
respect of proposed settlements, the Indemnitee shall
have the right to employ its own counsel with respect
to any Asserted Liability, but the fees and expenses
of such counsel shall be at the expense of such
Indemnitee unless (1) the employment of such counsel
shall have been authorized in writing by the
Indemnifying Party in connection with the defense of
such action, or (2) such Indemnifying Party shall not
have, as provided above, promptly employed counsel
reasonably satisfactory to the Indemnitee to take
charge of the defense of such action, or (3) the
Indemnitee shall have reasonably concluded based on
an opinion of counsel that there may be one or more
legal defenses available to it which are different
from or additional to those available to such
Indemnifying Party, in any of which events such
reasonable fees and expenses shall be borne by the
Indemnifying Party and the Indemnifying Party shall
not have the right to direct the defense of such
action on behalf of the Indemnitee in respect of such
different or additional defenses.

iii. If the Indemnifying Party chooses to defend any
claim, the Indemnitee shall make available to the
Indemnifying Party any books, records or other
documents within its control that are necessary or
appropriate for such defense. If the Indemnifying
Party elects not to assume the defense of a Claim, it
will not be obligated to pay the fees and expenses of
more than one counsel for all Indemnitees with
respect to such claim, unless in the reasonable
judgment of an Indemnitee, and in the opinion of such
Indemnitee's counsel, a conflict of interest may
exist between such Indemnitee and any other of such
Indemnitees with respect to such claim, in which
event the Indemnifying Party shall be obligated to
pay the fees and expenses of such additional counsel
or counsels.

b. Notwithstanding the provisions of paragraph 5(a) neither the
Indemnifying Party nor the Indemnitee may settle or compromise
any claim for which indemnification has been sought and is
available hereunder, over the objection of the other;
provided, however, that consent to settlement or compromise
shall not be unreasonably withheld or delayed. If, however,
the Indemnitee refuses to consent

<PAGE> 7

to a bona fide offer of settlement which the Indemnifying
Party wishes to accept, the Indemnitee may continue to pursue
such matter, free of any participation by the Indemnifying
Party, at the sole expense of the Indemnitee. In such event,
the obligation of the Indemnifying Party to the Indemnitee
shall be equal to the lesser of (i) the amount of the offer of
settlement which the Indemnitee refused to accept plus the
costs and expenses of the Indemnitee prior to the date the
Indemnifying Party notified the Indemnitee of the offer of
settlement, or (ii) the actual out-of-pocket amount the
Indemnitee is obligated to pay as a result of the Indemnitee's
continuing to pursue such matter. No party will be required to
consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such party of a release
from all liability in respect to the Claim.

6. MISCELLANEOUS.

a. Neither PRN nor any of the PRN Companies may assign its
rights and obligations under this Agreement without the
consent of Quintel. Any of the Quintel Companies may
assign its rights and obligations under this Agreement to
any subsidiary or affiliate controlling, controlled by or
under common control with the Quintel Companies, or in
connection with the sale of all or substantially all of
the assets of any of the Quintel Companies or a merger or
consolidation of any of the Quintel Companies with
another entity.

b. Any notice or other communications required or permitted
hereunder shall be in writing and shall be deemed
effective (a) upon personal delivery, if delivered by
hand and followed by notice by mail or facsimile
transmission; (b) one day after the date of delivery by
Federal Express or other nationally recognized courier
service, if delivered by priority overnight delivery
between any two points within the United States; or (c)
five days after deposit in the mails, if mailed by
certified or registered mail (return receipt requested)
between any two points within the United States, and in
each case of mailing, postage prepaid, addressed to a
party at its address first set forth above, or such other
address as shall be furnished in writing by like notice
by any such party.

c. No waiver by a party of any breach of this Agreement by
the other shall be deemed to be a waiver of any preceding
or subsequent breach.

<PAGE> 8

d. This Agreement contains the entire understanding of the
parties hereto with respect to the subject matter
contained herein.

e. Each party hereto intends that this Agreement shall not
benefit or create any right or cause of action in or on behalf
of any person other than the parties hereto and the other
persons executing this Agreement.

f. This Agreement may not be changed orally, but only by an
agreement in writing signed by the party or parties to be
charged thereby.

g. This Agreement shall be governed by and construed in
accordance with the law of New York, including its choice
of law rules. Any judicial proceeding brought against
any of the parties to this Agreement on any dispute
arising out of this Agreement or any matter related
hereto shall be brought in the courts of the State of New
York in New York County or in the United States District
Court for the Southern District of New York, and, by
execution and delivery of this Agreement, each of the
parties to this Agreement accepts for itself the
jurisdiction of the aforesaid courts, irrevocably
consents to the service of any and all process in any
action or proceeding by the mailing of copies of such
process to such party at its address provided for the
giving of notices under Section 6(b) above, and
irrevocably agrees to be bound by any judgment rendered
thereby in connection with this Agreement. Each party
hereto irrevocably waives to the fullest extent permitted
by law any objection that it may now or hereafter have to
the laying of the venue of any judicial proceeding
brought in such courts and any claim that any such
judicial proceeding has been brought in an inconvenient
forum.

h. This agreement does not constitute a joint venture or
partnership by the parties, and each party is entering into
this Agreement as a principal and not as an agent of the
other.

i. This Agreement is intended to be performed in accordance
with, and only to the extent permitted by, all applicable
laws, ordinances, rules and regulations. In case any one
or more of the provisions contained in this Agreement or
any application thereof shall be invalid, illegal or
unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained
herein and any other application thereof shall not in any
way be affected or impaired thereby, and the extent of
such invalidity or unenforceability shall not be deemed

<PAGE> 9

to destroy the basis of the bargain among the parties as
expressed herein, and the remainder of this Agreement and the
application of such provision to other Persons or
circumstances shall not be affected thereby, but rather shall
be enforced to the greatest extent permitted by law.

j. The section headings appearing in this Agreement are for
convenience of reference only and are not intended, to
any extent or for any purpose, to limit or define the
text of any section.

k. This Agreement may be executed in several counterparts and all
counterparts so executed shall constitute one agreement
binding on all the parties hereto, notwithstanding that all
the parties are not signatory to the original or the same
counterpart.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.

QUINTEL ENTERTAINMENT, INC. CALLING CARD CO., INC.

By: By:
---------------------------------- -------------------------------------

PSYCHIC READERS NETWORK, INC. REAL COMMUNICATION SERVICES,
INC.

By: By:
---------------------------------- -------------------------------------

ACCESS RESOURCE SERVICES, INC.

By:
----------------------------------

<PAGE> 1
EXHIBIT 10.29.1
EXECUTION COPY 6/25/96

LIMITED LIABILITY COMPANY AGREEMENT
OF QUINTEL CELLULAR LLC (a Delaware limited liability company)

This Limited Liability Company Agreement (the "Agreement") is entered
into as of July 3, 1996, by and between Quintel Entertainment, Inc., with its
principal place of business at One Blue Hill Plaza, Pearl River, New York 10965
("Quintel"), and Paragon Cellular Services, Inc., with its principal place of
business at 16805 U.S. Highway 19N, Clearwater, FL 34024 ("Paragon") (Quintel
and Paragon are hereinafter referred to individually as a "Member" and
collectively as "Members"), both of which do hereby form QUINTEL CELLULAR LLC, a
limited liability company (the "Company"), pursuant to the Delaware Limited
Liability Company Act, upon the following terms and conditions:

Section 1. DEFINITIONS.

As used herein, the following terms have the following meanings:

1.1 "Act" means the Delaware Limited Liability Company Act, as amended
from time to time.

1.2 "Affiliate" means, with respect to any Person, (i) any Person
directly or indirectly controlling, controlled by, or under common control with
such Person, (ii) any officer, director, shareholder, member, or partner of such
Person, (iii) any Person who is an officer, director, shareholder, member,
partner, trustee, or employee of any Person described in clauses (i) and (ii) of
this sentence, or (iv) any child, grandchild (whether through marriage,
adoption, or otherwise), parent, brother, sister, or spouse of a Person. For
purposes of this definition, the term "controls," "is controlled by," or "is
under common control with" shall mean the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.

1.3 "Bankruptcy" means, with respect to any Person, a "Voluntary
Bankruptcy" or an "Involuntary Bankruptcy." A "Voluntary Bankruptcy" means, with
respect to any Person, the inability of such Person generally to pay its debts
as such debts become due, or an admission in writing by such Person of its
inability to pay its debts generally or a general assignment by such Person for
the benefit of creditors; the filing of any petition or answer by such Person
seeking to adjudicate it bankrupt or insolvent, or seeking for itself any
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief or composition of such Person or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking,
consenting to, or acquiescing in the entry of an order for the relief or the

<PAGE> 2
EXECUTION COPY 6/25/96

appointment of a receiver, trustee, custodian, or other similar official for
such Person or for any substantial part of its property; or corporate action
taken by such Person to authorize any of the actions set forth above. An
"Involuntary Bankruptcy" means, with respect to any Person, without the consent
or acquiescence of such Person, the entering of an order for relief or approving
a petition for relief or reorganization or any other petition seeking any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or other similar relief under any present or future bankruptcy,
insolvency or similar statute, law, or regulation, or the filing of any such
petition against such Person which petition shall not be dismissed within ninety
(90) days, or, without the consent or acquiescence of such Person, the entering
of an order appointing a trustee, custodian, receiver, or liquidator of such
Person or of all or any substantial part of the property of such Person which
order shall not be dismissed within sixty (60) days.

1.4 "Capital Account" means a capital account to be established for
each Member (or transferee of a Member who is not admitted to the Company as a
Member) and maintained in accordance with the rules in Code Reg.
1.704-1(b)(2)(iv). Upon a distribution in kind of Company property, the Capital
Account of each Member will be debited or credited with the Member's allocable
share of gain or loss that would have been recognized by the Company had the
property been sold for an amount equal to the fair market value immediately
prior to the distribution.

Each Member's Capital Account shall be determined and
maintained in accordance with the Treasury Regulations adopted under Section
704(b) of the Code. Any questions concerning a Member's Capital Account shall be
resolved by applying principles consistent with this Agreement and the Treasury
Regulations adopted under Section 704 of the Code in order to ensure that all
allocations to the Members will have substantial economic effect or will
otherwise be respected for federal income tax purposes.

In the event any Member transfers a Percentage Interest in the
Company in accordance with the terms of this Agreement, the transferee shall
succeed to the Capital Account of the transferor Member to the extent such
Capital Account relates to such transferred Percentage Interest. In determining
the amount of any liability for purposes of this Section 1.4, there shall be
taken into account Code Section 752(c) and any other applicable provisions of
the Code and regulations promulgated therein.

1.5 "Capital Contribution" means, as to each Member, the Initial
Capital Contribution together with all additional capital contributed to the
Company by such Member pursuant to Section 4 hereof.

1.6 "Code" means the Internal Revenue Code of 1986, as amended from
time to time (or any corresponding provisions of succeeding law).

<PAGE> 3

EXECUTION COPY 6/25/96

1.7 "Code Regulations", "Code Regs." or "Regulations" means the Income
Tax Regulations, including Temporary Regulations, promulgated under the Code, as
such regulations may be amended form time to time (including corresponding
provisions in succeeding regulations).

1.8 "Company" means QUINTEL CELLULAR LLC, a Delaware limited liability
company.

1.9 "Depreciation" means, for each fiscal year or other fiscal period
of the Company, an amount equal to the depreciation, amortization, or other cost
recovery deduction allowable with respect to an asset of the Company for such
year or other period, except as provided in this Section 1.10. If the adjusted
basis of the Company's assets for federal income tax purposes differs from its
Gross Asset Value at the beginning of such year or other period, Depreciation
shall be an amount which bears the same ratio to such beginning Gross Asset
Value as the federal income tax depreciation, amortization, or other cost
recovery deduction for such fiscal year or other period bears to such beginning
adjusted tax basis. If, however, the federal income tax depreciation,
amortization or other cost recovery deduction for such year is zero,
Depreciation shall be determined with reference to such beginning Gross Asset
Value using any reasonable method selected by the Members.

1.10 "Gross Asset Value" means, with respect to any asset of the
Company, the asset's adjusted basis for federal income tax purposes.

1.11 "Initial Capital Contribution" means, as to any Member, the amount
of cash or property set forth opposite such Member's name on the attached
Schedule A under the heading "Initial Capital Contribution."

1.12 "Majority Vote" means the affirmative vote of Members holding a
majority of Percentage Interests in the Company.

1.13 "Member" means any Person (i) who becomes a Member pursuant to the
terms of this Agreement, and (ii) who holds Percentage Interests. "Members"
means all such Persons.

1.14 "Method of Accounting" means the method of accounting selected
from time to time by the Members.

1.15 "Net Available Cash" means for each fiscal year or other period an
amount equal to the total cash revenues and receipts of the Company from any
source (including financings and refinancings) for such period and other funds
of the Company which, in the determination of the Management Committee are not
needed for the conduct of the Company's

3
<PAGE> 4
EXECUTION COPY 6/25/96

business, less the sum of (i) cash payments made by the Company during such
period in connection with the conduct of the Company's business (including
payments of principal and interest on the Quintel Loans and any Third Party
Loans, but excluding distributions to Members) and (ii) the amount of any
increase during such period in, or amounts established during such period for,
reasonable reserves for anticipated costs, expenses, liabilities and obligations
of the Company, working capital needs of the Company or other appropriate
Company purposes, as determined by the Management Committee.

1.16 "Person" means any individual, partnership, limited liability
company, corporation, trust or other entity.

1.17 "Profit and Loss" means, for each fiscal year or other period, an
amount equal to the Company's taxable income or loss for such year or period,
determined in accordance with the Code.

1.18 "Substituted Member" means any Person admitted to the Company in
accordance with the provisions of Section 6 of this Agreement.

1.19 "Third Party Loans" means secured or unsecured financings arranged
by the Company and obtained from unaffiliated third parties; each such financing
to bear interest at the rate offered by the third party lender and to be
repayable over such period and upon such terms and conditions as shall have been
agreed upon between the third party lender and the Company.

1.20 "Transfer" means, with respect to a Percentage Interest, a sale,
assignment, gift, or other disposition, or the pledge, grant of a security
interest or lien in, or other encumbrance, whether voluntary or by operation of
law, of such Percentage Interest.

1.21 "Percentage Interest" or "Interest" means a fractional membership
interest in the Company.

Section 2. PURPOSES AND POWERS OF THE COMPANY

2.1 Purposes. The Company has been formed to engage in the business
described in the business plan on Schedule B annexed hereto.

2.2 Certificate of Formation. Upon the execution hereof, the Members
authorize the Managers to file a Certificate of Formation for the Company in the
form annexed hereto as

4
<PAGE> 5

EXECUTION COPY 6/25/96

Schedule C pursuant to Section 18-201 of the Act, which may be executed by any
of the Managers.

Section 3. MEMBERS; MANAGERS; MANAGEMENT OF COMPANY

3.1 Members' Voting Rights.

(a) Except as otherwise expressly provided in this
Agreement, all decisions of the Members shall be made with the consent of the
holders of a Majority in Percentage Interests.

(b) The following matters shall require approval by
the Members holding a Majority of Percentage Interests:

(i) dissolution of the Company;

(ii) the sale, exchange or other disposition
of assets constituting a material part of the assets of the Company outside of
the ordinary course of business;

(iii) the lease, mortgage, pledge or other
hypothecation of assets constituting a material part of the assets of the
Company;

(iv) the merger or consolidation of the
Company with another entity;

(v) the incurring of indebtedness by the
Company in excess of $50,000.00;

(vi) the issuance of any additional Interests
in the Company;

(vii) such other matters as are reserved to
the Members pursuant to any provisions of this Agreement or the Act.

3.2 Management Committee.

(a) The management of the Company's business shall be
vested in the Management Committee which shall consist of not less than five
Managers of whom two (2) shall be elected by Quintel (the "Quintel Managers" or
a "Quintel Manager"), two (2) by

5
<PAGE> 6
EXECUTION COPY 6/25/96

Paragon (the "Paragon Managers" or a "Paragon Manager") and one (1) by Quintel
for as long as the Quintel Loan and/or Additional Quintel Loan is due and
outstanding and thereafter by unanimous consent of the Members (the "Fifth
Manager"). Each Member agrees to vote his Percentage Interest to elect as a
Manager the nominee or nominees of the other Member which the other Member is
entitled to nominate as a Manager. Subject to Section 3.1, the powers granted to
the Management Committee shall include, without limitation, the express powers:

(i) to conduct, manage and control the
affairs and business of the Company, and to make such rules and regulations
therefor consistent with law, the Certificate of Formation and this Agreement;

(ii) to change the principal office of the
Company from one location to another within or outside of Florida; to fix and
locate from time to time one or more subsidiary offices of the Company within or
outside of the State of Florida; and to designate any place within or outside of
the State of Florida for the holding of any Members' meeting or meetings;

(iii) subject to Section 3.1(b)(v), to borrow
money and incur indebtedness for the purposes of the Company, to cause to be
executed and delivered therefor, in the Company's name, promissory notes, bonds,
debentures, deeds of trust, mortgages, pledges, hypothecations or other evidence
of debt and securities;

(iv) to execute and file in the appropriate
office(s) any certificates or other documents required by law to effectuate the
purposes of this agreement, including, without limitation those required to
comply with the Act; and

(v) to execute all instruments, documents or
other papers which may be required to be executed by the Company in furtherance
of any of the powers described above, may be executed by any one of the
Managers, except that all withdrawals of Company funds, whether by check or
otherwise, shall be governed by Section 3.5 of this Agreement.

(b) Each Manager shall have one vote. Any action
requiring a decision of the Management Committee shall be determined by a
majority vote of the Managers then sitting on the Management Committee.

(c) In the event that the outstanding amount of
principal and interest due and unpaid on the Quintel Loan or Additional Loan is
less than $100,000.00 and more than $0.00, and Quintel determines that
additional capital or loans in excess of $100,000.00 are required for the
operation of the Company's business, and requests that such capital or loans be
provided by the Members, then Paragon shall have the right, exercisable within
ten (10) days

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<PAGE> 7
EXECUTION COPY 6/25/96

after receipt of Quintel's notice of such additional capital or loans, to
provide such amount on the terms proposed by Quintel, and if Paragon provides
such amount on such terms within such period, then Quintel shall request that
one of the three Managers appointed by Quintel resign and the Fifth Manager
shall be appointed by Paragon.

(d) Jeffrey L. Schwartz, Jay Greenwald, Charles
Robert Darst, Anthony N. Amico, Jr. and Andrew Stollman are hereby appointed as
the Initial Managers of the Company. The Initial Managers shall serve until the
first organizational meeting of the Company. Thereafter, each Manager shall be
elected annually by the Members in accordance with Section 3.2(a). Failure by
the Members to name the Fifth Manager or to fill a vacancy created by the
removal or resignation of the Fifth Manager shall not affect the validity of any
action taken by the Management Committee in accordance with the other provisions
of this Agreement.

(e) The Management Committee may from time to time
authorize one or more of its Managers, agents or attorneys acting alone or in
concert, to take such actions as may be necessary or advisable to implement the
policies, decisions and duties of the Management Committee including, without
limitation, the execution and delivery of documents and instruments as
contemplated in Section 3.2(a)(iii) and 3.2(a)(v).

(f) The Managers shall not be required to manage the
Company as their sole and exclusive function and each may have other business
interests and/or engage in any other activity in addition to those related to
the Company. Neither the Company nor any Member or Manager shall have any right
pursuant to this Agreement to share or participate in such other business
interests or activities or to the income or proceeds derived therefrom. No
Manager shall incur liability to the Company or any Member solely as a result of
engaging in any other business interests or activities.

(g) The Members may appoint one or more officers of
the Company, including a President, one or more Vice Presidents, Treasurer,
Secretary and such other officers and agents as the Members may deem advisable.
All such officers must also be Managers and such officers shall have such
authority and perform such duties as may be prescribed by the Management
Committee.

3.3 Books of Account and Company Records. The books of the Company
shall be maintained, as provided by law, at the principal place of business of
the Company and shall include but not limited to: (1) a current and past list,
setting forth, in alphabetical order, the full name and last known mailing
address of each Member and Manager, if any; (2) a copy of the Certification of
Formation and any amendments thereto, together with executed copies of any
powers of attorney to which any Articles of Amendment have been executed; (3)
copies of the

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<PAGE> 8
EXECUTION COPY 6/25/96

Company's federal, state and local income tax returns and financial statements
for the three (3) most recent years; (4) copies of this Agreement and any other
operating agreements, and all amendments of any of the foregoing; and (5) a
statement setting forth the Capital Contribution and the agreed value of any
other property or services contributed by each Member. Each Member shall cause
to be entered in the Company's books a full and accurate account any transaction
made by that Member on behalf of the Company. Each of the Members shall have the
right at all reasonable times to review all books of account and physical books
and records of the Company. At the completion of each fiscal year, the books of
account and physical records of the Company shall be audited by a certified
public accounting firm selected by the Management Committee.

3.4 Banking. The Company shall establish one or more general business
bank accounts with such bank or banks as may be determined by the Management
Committee from time to time. All Company receipts (including, without
limitation, the capital of the Company and all other monies and instruments for
the payment of monies to the Company) shall be deposited into said account or
accounts of the Company, and all expenses of the Company shall be paid from said
account or accounts.

3.5 Authorization of Disbursement of Company Funds. Disbursement of the
Company funds, in payment of business expenses or otherwise, shall be by
appropriate check, on an account of the company and shall be drawn upon those
signatures of the Managers or Members as hereinafter set forth. All drafts,
checks or withdrawal of monies from the company accounts shall require the
signature of at least two (2) Managers which will be the Quintel Managers for as
long as the Quintel Loan and/or Additional Quintel Loan remain due and
outstanding and thereafter, one of which will be a Quintel Manager and the other
a Paragon Manager.

3.6 Database. The Company anticipates that it will develop a customer
data base in the course of the sale and marketing of its products and services,
which shall be the property of the Company and be leased, sold and otherwise
dealt with by the Company. Each Member shall have the right while a Member of
the Company to use the customer data base created by the Company to market and
promote other products and services offered by such Member, but no Member may
sell or lease the Company's customer data base other than on behalf of the
Company. The foregoing restrictions shall not apply to any customer names or
other customer information provided by a Member to the Company, which names and
information shall remain the property of the Member to be sold, leased and
otherwise dealt with in that Member's sole discretion and without any duty to
account to the other Member.

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3.7 General Restrictions. No Member or Manager shall have the right,
power or authority to do any of the following acts without the prior approval of
the holders of a majority in Percentage Interests:

(a) expend or use any Company money or property
except upon the account of and for the benefit of the Company or except as
otherwise expressly provided in this Agreement;

(b) pledge any of the Company's credit or property
for other than Company purposes;

(c) assign the Company's property in trust for
creditors or on the assignee's promise to pay the debts of the Company except as
otherwise provided in this Agreement;

(d) confess a judgment against the Company in an
amount greater than $10,000.00; (e) enter into any leases for real or personal
property;

(f) enter into any financing or loan arrangements,
including any letters of credit; or

(g) enter into any agreement with any telephone or
telecommunications company or any service bureau.

3.8 Meetings.

(a) An annual meeting of all Members shall be held
annually at such time and place as may be designated by the Management
Committee.

(b) Written notice of the annual meeting setting
forth the place, date and hour of the meeting shall be given to each Member and
shall be given personally or by first class mail, not less than ten (10) nor
more than fifty (50) days before the date of the meeting.

(c) Any Member may call a special meeting of the
Members for any purpose on giving ten (10) days prior written notice of the
meeting (shorter notice may be agreed upon all of the Members in writing). The
notice shall provide information as to time, place and agenda of the meeting.

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(d) Any Member may waive his or her right to receive
any notice required under this Agreement by delivery to the Company of a written
waiver of the right to receive such notice.

3.9 Quorum. Members holding not less than a majority of all Percentage
Interests, represented in person or by proxy, shall constitute a quorum at any
meeting of Members. In the absence of a quorum at any meeting of Members, a
majority of the Percentage Interests so represented may adjourn the meeting from
time to time for a period not to exceed sixty (60) days without further notice.
However, if the adjournment is for more than sixty (60) days, or if after the
adjournment a new date if fixed for the adjourned meeting, a notice of the
adjourned meeting shall be given to each Member of record entitled to vote at
such meeting. At an adjourned meeting at which a quorum shall be present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed. The Members present at a meeting may continue
to transact business until adjournment, notwithstanding the withdrawal during
the meeting of Percentage Interests who absence results in less than a quorum
being present.

3.10 Proxies.

(a) A Member may vote in person or by proxy executed
in writing by the Member or by a duly authorized attorney-in-fact.

(b) Every proxy must be signed by the Member or his
or her attorney-in- fact. No proxy shall be valid after the expiration of eleven
(11) months from the date thereof unless otherwise provided in the proxy. Every
proxy shall be revocable at the pleasure of the Member executing it.

3.11 Salaries and Compensation to Members. Except as approved from time
to time by the Management Committee, the Company shall have no duty or
obligation to compensate the Members, their employees, agents or assigns, for
services rendered on behalf of the Company, nor shall a Member be entitled to
salary or other compensation.

3.12 Company Property. All property originally brought into or
transferred to the Company as Capital Contributions of the Members or
subsequently acquired by purchase or otherwise by or on behalf of the Company,
shall be owned by and held in the name of the Company or in such fictitious
business names as are approved by the Management Committee. The trade name
and/or goodwill, if any, of the Company shall be the sole property of the
Company and no Member or Person, shall have the right, title or interest in and
to the trade name or goodwill of the Company.

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3.13 Bankruptcy of the Company. Upon an affirmative vote of Members
holding a Majority in Percentage Interests, the Management Committee shall have
the right to cause a petition to be filed on the Company's behalf and exercise
any and all rights of the Company pursuant to the Federal Bankruptcy Code or any
successor thereto.

3.14 Limitation of Liability. The debts, obligations and liabilities of
the Company, whether arising in contract, tort or otherwise, shall be solely the
debts, obligations and liabilities of the Company, and no Member or Manager of
the Company shall be obligated personally for any such debt, obligation or
liability of the Company solely by reason of being a Member or acting as a
Manager of the Company.

Section 4. CAPITAL CONTRIBUTIONS AND LOANS

4.1 Quintel Loans.

(a) Quintel will provide a loan to the Company in the
amount of Two Hundred Fifty Thousand Dollars ($250,000.00) to provide for the
initial financing of the Company (the "Initial Quintel Loan"). The Initial
Quintel Loan shall bear interest at the rate of seven (7%) percent per annum
payable monthly and shall be repayable as follows:

(i) Mandatory prepayments of principal and
interest shall be made in equal quarterly installments in an amount equal to
twenty (20%) percent of the Company's retained earnings if retained earnings as
determined by the Company for the preceding financial quarter are at least
$250,000 or seventy-five (75%) of the Company's retained earnings if retained
earnings as determined by the Company for the preceding financial quarter are
greater than $500,000.

(ii) Notwithstanding the above, minimum
principal payments of the greater of $10,000.00 or five (5%) percent of the
Company's retained earnings determined on a semi-annual basis shall be made
semi-annually commencing January 1, 1997.

(b) In the event that Quintel determined in its sole
and absolute discretion, that additional funds are required by the Company
following the making of the Initial Quintel Loan, Quintel at its option, in its
sole and absolute discretion, may elect to make an additional $250,000.00 loan
to the Company (the "Additional Quintel Loan"). The terms of repayment and
interest on the Additional Quintel Loan shall be the same as the Initial Quintel
Loan. If Quintel determines that additional funds are needed by the Company but
Quintel determines that

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it does not wish to provide such additional funds, Quintel at its option and in
its sole discretion may offer to sell its Interest in the Company to Paragon at
an amount equal to the outstanding balance of principal and interest owing to
Quintel on the Quintel Loan, and, in the event that Paragon accepts such offer
(which acceptance to be effective must be accepted within ten (10) business days
after the making of such offer) Quintel shall not be bound by the restrictive
covenants set forth in Section 7 of this Agreement. The closing of the purchase
by Paragon of Quintel's Interest shall occur within ten (10) business days after
Paragon's acceptance of Quintel's offer, time being of the essence in connection
therewith.

4.2 Initial Capital Contributions. Each Member has initially
contributed to the capital of the Company the sum adjacent to the respective
Member's name as set forth in the attached Schedule A, which amount has been
advanced to or for the benefit of the Company.

4.3 Additional Loans or Capital Contributions.

(a) Quintel may, from time to time, propose a budget
that may require additional funds up to $1,000,000.00 for the operation of the
Company. If all of the Members agree in writing on the proposed budget by
Quintel, and the terms upon which such funds shall be provided (e.g. capital
contribution or loan and if a loan, the terms of such loans), then the
Management Committee shall deliver a Cash Call Notice to each Member, in which
event each Member shall, within ten (10) days after delivery of the Cash Call
Notice, loan or contribute, as the case may be as determined by the Members,
such Member's proportionate share (determined in accordance with its respective
Percentage Interest) of the total amount required. Nothing herein shall require
Quintel to propose such budget, and nothing herein shall limit the discretion of
Paragon to approve or disapprove any budget proposed by Quintel, or the
discretion of Paragon or Quintel, after a proposed budget has been presented, to
agree or decline to provide the funds described in any proposed budget, all of
which shall be in the sole and absolute discretion of the parties and such
approval or agreement, as the case may be, may be withheld or granted for any
reason or no reason.

(b) In the event that a Member shall fail or refuse
to provide its proportionate share of additional funds as set forth in the Cash
Call Notice (said Member hereinafter a "Cash Deficient Member"), then the
Percentage Interest of all of the Members who have provided their proportionate
share of additional funds shall thereupon be recalculated so that (1) the
Percentage Interest in the Company of each Cash Deficient Member shall be
reduced by subtracting therefrom the product (rounded to six decimal places) of
One and One Half (1 1/2) multiplied by the result obtained from (A) multiplying
such Cash Deficient Member's then Percentage Interest by (B) a fraction, the
numerator of which shall be the amount of the Deficiency and the denominator of
which shall be the sum of all Capital Contributions made and required to be made
plus the amount of additional funding required to be provided to the Company by
the Cash Deficient Member pursuant to the Cash Call Notice, and (2) the
Percentage Interest of the Member(s) who provided all or a portion of the
additional funds to the Company immediately prior to the making of such
additional funding shall be increased by adding thereto an aggregate amount
equal to the amount so subtracted from the Percentage

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Interest of each Cash Deficient Member. In such an event, the Management
Committee shall cause to be recorded in the books of the Company an amendment to
this Agreement reflecting the adjusted Percentage Interests of the Members. An
example of the operation of the formula set forth in this Paragraph 4.3(b)
appears in Schedule D annexed hereto.

(c) In the event all of the Members do not agree in
the manner provided for in Paragraph 4.3(a) on the budget proposed by Quintel,
then Quintel shall have the option to loan to the Company the additional funds
required by the Company (the amount of this loan shall be referred to as a
"Preferred Quintel Loan"). The Preferred Quintel Loan shall bear interest at the
rate of seven (7%) percent per annum, payable monthly, and shall be repayable on
the same terms as the Initial Quintel Loan. Notwithstanding anything to the
contrary contained herein, until the sum of the amount received by Quintel in
repayment of the Preferred Quintel Loan and distributions of Net Available Cash
equals two hundred percent (200%) of the sum of the principal amount of the
Preferred Quintel Loan, no payments whatsoever shall be made to any other
Member, including any payments due a Member by reason of dissolution of the
Company, other than payments under Paragraph 5.2(d) of this Agreement.

4.4 Interest. No Member shall be entitled to interest on its Capital
Contributions.

4.5 Withdrawal of Capital. No Member shall withdraw any portion of
the capital of the Company without the express consent of all of the Members.

4.6 Capital Account. An individual Capital Account shall be
established and maintained for each Member.

Section 5. PERCENTAGE INTERESTS; CASH DISTRIBUTIONS; ALLOCATIONS
OF PROFIT AND LOSS

5.1 Percentage Interests. The Members shall have the respective
Percentage Interests in the Company as are detailed on the attached Schedule A.

5.2 Distribution of Net Available Cash.

(a) Except as provided in Section 5.2(b) and (c), Net
Available Cash shall be distributed to the Members pro rata in accordance with
their respective Percentage Interests in the Company.

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(b) Prior to any distribution under Sections 5.2(a)
and 5.2(c) herein, there shall be paid first to Quintel the regular payments due
Quintel under the Initial Quintel Loan, and then the regular payments due under
any Additional Quintel Loan, and then regular payments due under any Preferred
Loan.

(c) Net Available Cash distributed in liquidation or
dissolution of the Company shall be distributed to the Members, pro rata in
accordance with each Member's positive Capital Account balance, to the extent
thereof, after allocation of all Profits and Losses and other appropriate
Capital Account adjustments.

(d) Notwithstanding the provisions of Paragraph 5.2(b)
above, the Company shall be required to distribute annually to each Member an
amount equal to forty (40%) percent of the amount of the Company's profits
allocated to the Member for tax purposes (the foregoing percentage has been
determined based upon present federal, state and local tax rates, and such
percentage will be adjusted if and when such rates change). Such distribution
shall be made not later than ten (10) days prior to the last day for filing of a
Member's tax returns for the preceding year, it being agreed that the Management
Committee shall use its best efforts to estimate the amount of profits allocated
to each Member, it being understood that the final amount may not be determined
until the final date for filing the Company's tax returns, giving effect to
automatic extensions of the time to file a return then available.

(e) If any Member shall fail to withdraw the whole or
any part of his share of the Net Available Cash when the same becomes available
to it as aforesaid, it shall not be entitled to receive any interest upon its
share of the Net Available Cash left in the Company and such Net Available Cash
shall not be treated as an increase in its Percentage Interest in the Company.

5.3 Allocation of Profits and Losses.

(a) Losses of the Company for each fiscal year shall be
allocated to the Members, pro rata in accordance with their respective
Percentage Interests.

(b) Profits of the Company for each fiscal year shall be
allocated to the Members, pro rata in accordance with their respective
Percentage Interests.

5.4 Taxable Year and Accounting Method. Except as otherwise required by
the Code or the Regulations, the Company's taxable year shall be the fiscal year
ending November 30. The Company shall use the accrual method of accounting for
federal income tax purposes.

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5.5 Tax Elections. The Management Committee shall have the authority to
make any election or other determination on behalf of the Company provided for
under the Code or any provision of state or local tax law.

5.6 Tax Matters Partner. The Members hereby designate Quintel to be the
"tax matters partner" of the Company pursuant to Section 6231(a)(7) of the Code.
Any Manager who is designated "tax matters partner" shall take any action as may
be necessary to cause each other Member to become a "notice partner" within the
meaning of Section 6223 of the Code.

Section 6 TRANSFER OF INTERESTS; ADDITIONAL MEMBERS

6.1 Transfer of Interests. Except as otherwise set forth in this
Section 6, a Member may not Transfer all or any part of his Interest in the
Company without the prior written consent of the other Members and no Person
taking or acquiring, by whatever means, any Percentage Interest in the Company
shall be admitted as a Substitute Member without the consent of all of the
Members. The other Members, in their sole discretion, may withhold their consent
to any Transfer for which such consent is required with or without reasonable
cause.

6.2 Come Along/Take Along Provision.

(a) If either Member secures a Selling Commitment to
transfer all or any portion of its Interest to a Person which is not an
Affiliate thereof ("Purchaser"), such Member (the "Offeror") must immediately
thereafter give written notice (the "Selling Notice") to the other Member (the
"Receiver") that the Offeror desires to sell such Interest in the Company in
accordance with the terms and conditions of the Selling Commitment and this
Section 6.2. The term "Selling Commitment" means a letter of intent from
Purchaser to purchase the Offeror's Interest, and if required, the Receiver's
Interest for a purchase price (as proportionately adjusted to reflect the
acquisition of either the Offeror's or both Members' Interests and expressed as
the purchase price for each one (1%) percent of Interests, the "Interests
Purchase Price") subject only to (i) customary "due diligence" items and a "due
diligence" period not to exceed forty-five (45) days and (ii) a closing on the
Selling Commitment to occur not more than ninety (90) days following execution
of the Selling Commitment; provided, however, the Selling Commitment shall not
be deemed delivered unless and until Purchaser delivers to the Company's
counsel, to be held in escrow, by wire transfer of immediately available funds,
an amount equal to five (5%) percent (the "Interests Downpayment") of the
Interests Purchase Price assuming both Members agree to sell in accordance with
the Selling Commitment. Upon receipt of the Selling Notice

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the Receiver shall be estopped from electing to transfer its Interest until the
Selling Commitment obligations of both Members have been released and relieved
as hereinafter provided.

(b) The Selling Commitment shall be specifically
subject to the provisions of this Section 6.2.

(c) On or before the date which is thirty (30) days
after delivery of the Selling Notice (the "Decision Date"), the Receiver shall
send a notice (the "Election Notice") to the Offeror electing either (i) to sell
its interests in the Company in accordance with the Selling Commitment or (ii)
to purchase the interests in the Company of the Offeror in accordance with the
Selling Commitment but at a price (the "FMV Purchase Price") determined in
accordance with the following formula: Interests Purchase Price multiplied by
the Percentage Interest of the Offeror multiplied by ninety-five (95%) percent.
Such transfer of the Offeror's interests in the Company shall occur at a closing
on the date set for closing in the Selling Commitment.

(d) In the event the Receiver (i) elects to sell its
interest in the Company in accordance with the Selling Commitment or (ii) fails
to deliver the Election Notice on or before the Decision Date, then the
Interests Downpayment shall be held in escrow in accordance with the terms of
the Selling Commitment and the Receiver shall be deemed to have elected to sell
its Interest in accordance therewith.

(e) In the event the Receiver elects to purchase the
Offeror's Interest at the FMV Purchase Price, then an amount (the "FMV Escrow")
equal to one (1%) percent of the FMV Purchase Price shall be deposited by the
Receiver and held in escrow by the Offeror's attorneys in accordance with the
terms of the Selling Commitment. The Offeror shall be obligated to sell its
interests to the Receiver in accordance with the terms of the Selling Commitment
at a purchase price equal to the FMV Purchase Price and the closing of the sale
and purchase shall occur not later than sixty (60) days following the Receiver's
election to purchase the Offeror's Interest.

(f) In the event the Offeror defaults in its
obligation to sell its Interest to the Receiver, (i) the Offeror shall be deemed
a Defaulting Member hereunder and (ii) the Receiver may exercise any and all
remedies available at law or in equity, including without limitation, (1)
obtaining an injunction to prevent the transfer of the Offeror's Interest to
Purchaser in accordance with the Selling Commitment and (2) seeking specific
performance of the Offeror's obligations hereunder, provided that the FMV
Purchase Price shall, following such default, be deemed to be an amount equal to
eighty percent (80%)] of the FMV Purchase Price as defined in Section 6.2(c)
above.

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(g) The remedies set forth in Section 6.2(f) hereof shall
also be available to the Offeror if, when obligated to do so, the Receiver does
not purchase the Offeror's interests as set forth herein; provided, however, the
FMV Purchase Price shall be further adjusted to account for the different
Interests of the Members, if any. Further, if Receiver does not convey its
interests to the Purchaser when, as and if obligated to do so under the
provisions of this Section 6.2, the Offeror is hereby granted a power of
attorney, which power of attorney shall be deemed irrevocable and coupled with
an interest, to execute and deliver, as attorney-in-fact for Receiver, and in
its name, place and stead, an assignment of all of the Receiver's interests in
the Company to Purchaser, and Offeror shall have the right to seek, receive and
retain (i) all remedies available to it at law or in equity as a result of
Receiver's failure to transfer its interest in the Partnership to the Purchaser
including, without limitation, specific performance and consequential damages or
(ii) to receive and retain twenty (20%) of the actual proceeds received from the
sale of the Receiver's interests in the Company to the Purchaser.

6.3 Legend. A legend shall be placed on each certificate or other
document, if any, evidencing a Percentage Interest stating the following:

The Percentage Interest represented by this Certificate
has not been registered under the Securities Act of 1933,
as amended, or the securities laws of any state. This
Percentage Interest has been acquired for investment and
may not be sold, transferred, pledged or hypothecated in
the absence of any effective registration statement for
such Percentage Interest under the Securities Act of 1933,
as amended, and any applicable state securities laws or an
opinion of counsel acceptable to counsel for the Company
that registration is not required under such laws. In
addition, the sale, transfer, pledge or hypothecation of
this Percentage Interest is substantially restricted by
that certain Agreement by and among the Company and its
Members, dated ________________, 1996, a copy of which is
on file with the Company at its principal place of
business and may be obtained by any Member upon prior
written request to the Company without charge.

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Section 7 RESTRICTIVE COVENANTS.

7.1 Confidentiality. Each Member acknowledges that during the term of
this

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Agreement it will have access to confidential information, including,
without limitation, (i) pricing information and information concerning the
Company's marketing techniques and methods, (ii) the terms of the Company's
existing contracts with suppliers, service bureaus or vendors, (iii) information
pertaining to the Company's customers and their requirements, (iv) information
concerning the management and assembly of the Company's data base, and (v) any
other of the Company's trade secrets (all of the foregoing is referred to as
"Confidential Information") which is not in the public domain and which has been
or will be acquired, developed or assembled by the Company at its expense. Each
Member agrees, for so long as the Company continues to engage in the active
conduct of business, including the business described in Schedule B of this
Agreement or any other business which the Company hereafter conducts, that it
shall not reveal, divulge or make known Confidential Information (other than in
the conduct of the Company's business) to any person, firm, corporation or other
business organization, and shall not directly or indirectly use for its own
benefit, or for the benefit of anyone else, any Confidential Information.

7.2 Non-Competition. Each Member agrees, for so long as the Member owns
a Percentage Interest in the Company and for a period of two (2) years
thereafter, not to (i) directly or indirectly, endeavor to entice away from the
employ of the Company or the other Member or otherwise interfere with the
relationship of the Company or the other Member with any individual, partner,
firm, corporation or other business organization which is employed by the
Company or by the Member or is otherwise performing services for the Company or
the Members, or (ii) acquire a direct or indirect interest in, or act as an
owner, manager, partner, shareholder, joint venturer, or consultant to any other
person or entity which competes with the business of the Company.

7.3 Blue-Pencilling. In the event that any provision of this Section 7
shall be deemed unenforceable, invalid, or overbroad in whole or in part for any
reason, then any tribunal, forum or court with jurisdiction over these matters
is hereby requested and instructed to reform such provision to provide for the
maximum competitive restraints upon a Member's activities (in time, product, and
geographic area) which may then be legal and valid, and consent to such
reformation is hereby granted.

7.4 Injunctive Relief. Each Member agrees that any violation of this
Section 7 by a Member is likely to cause irreparable injury to the Company for
which any remedy at law would be inadequate, and the Company and the other
Member shall be entitled to preliminary, permanent, and other injunctive relief
against any breach by a Member of the provisions of this Section 7. In the event
of a violation of any of the provisions of this Section 7, the period of
restriction referred to therein shall be extended to a period of time equal to
that period beginning on the date when such violation commenced and ending when
the activities constituting that violation shall be finally terminated.

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Section 8 DISSOLUTION.

8.1 Causes of Dissolution. Each Member expressly waives any right which
he might otherwise have to dissolve the Company except as set forth in this
Section 8. The Company shall be dissolved upon the first to occur of the
following:

(a) The bankruptcy or dissolution of a Member;

(b) The approval by the Members of the dissolution of
the Company;

(c) The election of either Member to dissolve the
Company, in the event that the Company, at any
such time, has ceased doing any business;

(d) The occurrence of any other circumstance which,
under the Act, would require that the Company
be dissolved;

(e) The Members, in their sole discretion, determine
that a rule, ordinance, regulation, statute or
government pronouncement has or may be enacted
that would make any aspect of this Agreement or
the activities conducted by the Company unlawful
or eliminate or substantially reduce, either
directly or indirectly, the benefits that would
accrue to the Members with respect to continuing
the Company's business operations; or

(f) November 30, 2046.

8.2 Reconstitution.

(a) If the Company is dissolved as a result of an
event described in Section 8.1(a), the Company may be reconstituted and its
business continued if, within ninety (90) days after the date of dissolution,
the reconstitution is approved by the Members. If the Company is reconstituted
and its business continued, any departing Member is entitled to receive any
distribution to which it is entitled up to the date which caused the dissolution
and it shall receive, within a reasonable time after such reconstitution, the
fair value of its Interest as of the date of the dissolution.

(b) The fair value of the departing Member's Interest
under Section 8.2(a) shall be determined by an appraisal firm nominated by the
remaining Members. Such

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determination shall be delivered to the departing Member. If the departing
Member shall object thereto, the department Member shall notify the Company in
writing of such objection within ten (10) days following actual receipt of such
determination. In such event the departing Member shall select an appraisal firm
to make such determination and it shall deliver its determination to the Company
within ninety (90) days following the date of its objection to the remaining
Members' determination. If the remaining Members shall object to the departing
Member's appraiser's determination, the remaining Members shall notify the
departing Member in writing of such objection with ten (10) days following
actual receipt of the departing Member's determination. If the remaining Members
and departing Members are then unable to agree on a determination, then an
appraiser shall be selected by the two firms originally selected whose
determination will then be binding on the remaining Members and the departing
Member. The cost of the third appraiser shall be borne one-half by the remaining
Members and one-half by the departing Members, unless the determination by the
third appraiser differs by more than five percent (5%) from the original two
determinations, in which case the party to whom the determination is less
favorable shall pay the entire costs of such third appraiser.

8.3 Liquidation.

(a) Upon the occurrence of any event requiring
dissolution as set forth in Section 8.1, if the business of the Company is not
continued by the remaining Members pursuant to Section 8.2, the Company shall
immediately execute and deliver to the Secretary of State a statement of its
intent to dissolve. Upon filing the statement of intent to dissolve, the Company
shall cease to carry on its business and shall wind up its affairs and
liquidate.

(b) In the course of the dissolution and winding up
the affairs of the Company, the Management Committee shall cause to be prepared
a full and accurate inventory of all of the Company's assets and shall determine
its liabilities and income, both gross and net for the purpose of dividing the
Profits or Losses and the Net Available Cash of the Company, as applicable.
Every effort shall me made to sell the assets of the Company for cash so that
the distribution may be made to the Members in cash. If the company's assets or
any part of them cannot be reduced to specie within a reasonable time or without
reasonable loss, the Members holding a majority of Interest may make such
arrangements for the disposition and liquidation of such assets or any part of
them, and for the proportionate distribution of said assets or any part of them,
or of the resultant proceeds, as will be most propitious, fair and reasonable
under the facts and circumstances then present. If the Company's assets include
notes secured by mortgages or deeds of trust on properties which the Company has
sold, said notes and mortgages or deeds of trust may be distributed in kind to
the Members if the Members may legally accept the same, and shall be valued at
one hundred percent (100%) of the unpaid principal balance of said notes, plus
accrued interest at the time of such distribution. Unless all of the members

21
<PAGE> 22
EXECUTION COPY 6/25/96

otherwise agree in writing, each Member shall receive a proportionate share of
each of those assets which are to be distributed in kind.

8.4 Distribution of Assets. The proceeds from the liquidation or sale
of the Company's assets shall be applied as follows:

(a) To creditors of the Company, other than Members,
in the order determined by the Management
Committee, but, in any event, in accordance
with law; and

(b) To the Members in accordance with Section 5.2.

Section 9 INDEMNIFICATION

9.1 Indemnification of Members and Managers. The Company shall
indemnify and hold harmless any Member or Manager from and against any and all
claims and demands for which they are not liable pursuant to Section 3.14 above.

Section 10 MISCELLANEOUS

10.1 Notices. All notices given pursuant to this Agreement shall be in
writing and shall be deemed effective when personally delivered or when placed
in the United States mail, registered or certified with return receipt
requested, or when sent by prepaid telegram or facsimile followed by
confirmatory letter. For purposes of notice, the addresses of the Members shall
be as stated under their names on the attached Schedule "A"; provided, however,
that each Member shall have the right to change its address with notice
hereunder to any other location by the giving of thirty (30) days notice to the
Company in the manner set forth above.

10.2 Governing Law. This Agreement shall be governed by and construed
in accordance with the substantive federal laws of the United States and the
laws of the State of Delaware.

10.3 Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the Members, and their respective heirs, legal
representatives, successors and

22
<PAGE> 23
EXECUTION COPY 6/25/96

permitted assigns; provided, however, that nothing contained herein shall negate
or diminish the restrictions set forth in Section 7.

10.4 Construction. Every covenant, term, and provision of this
Agreement shall be construed simply according to its fair meaning and not
strictly for or against any Member. The failure by any party to specifically
enforce any term or provision hereof or any rights of such party hereunder shall
not be construed as the waiver by that party of its rights hereunder. The waiver
by any party of a breach or violation of any provision of this Agreement shall
not operate as, or be construed to be, a waiver of any subsequent breach of the
same or other provision hereof.

10.5 Entire Agreement. This Agreement contains the entire agreement
among the Company and the Members relating to the subject matter hereof, and all
prior agreements relative hereto which are not contained herein are terminated.

10.6 Amendments. This Agreement may be amended or modified by the
written approval of all of the Members.

10.7 Severability. This Agreement is intended to be performed in
accordance with, and only to the extent permitted by, all applicable laws,
ordinances, rules and regulations. If any provision of this Agreement or the
application thereof to any person or circumstance shall, for any reason and to
any extent, be invalid or unenforceable, but the extent of such invalidity or
unenforceability does not destroy the basis of the bargain among the Members as
expressed herein, the remainder of this Agreement and the application of such
provision to other Persons or circumstances shall not be affected thereby, but
rather shall be enforced to the greatest extent permitted by law.

10.8 Gender and Number. Whenever required by the context, as used in
this Agreement, the singular number shall include the plural and the neuter
shall include the masculine or feminine gender, and vice versa.

10.9 Schedules. Each Schedule to this Agreement is incorporated herein
for all purposes.

10.10 Additional Documents. Each Member agrees to perform all further
acts and execute, acknowledge and deliver any documents that may be reasonably
necessary, appropriate or desirable to carry out the provisions of this
Agreement.

23
<PAGE> 24
EXECUTION COPY 6/25/96

10.11 Section Headings. The section headings appearing in this
Agreement are for convenience of reference only and are not intended, to any
extent or for any purpose, to limit or define the text of any section.

10.12 Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original but all of which shall constitute but one
document.

IN WITNESS WHEREOF, the Company and Members have executed this
Agreement as of the date first above written.

COMPANY:

QUINTEL CELLULAR LLC

By:
----------------------------------------
, Member

MEMBERS:

QUINTEL ENTERTAINMENT, INC.

By:
----------------------------------------
Its President

PARAGON CELLULAR SERVICES, INC.

By:
---------------------------------------
Its President

<PAGE> 25

EXECUTION COPY 6/25/96

SCHEDULE A

<TABLE>
<CAPTION>
INITIAL PERCENTAGE
MEMBER AND ADDRESS: CAPITAL CONTRIBUTION: INTEREST
- ------------------- --------------------- --------
<S> <C> <C>
Quintel Entertainment, Inc. $18,750.00 cash 50%
One Blue Hill Plaza
Pearl River, NY 10965

Paragon Cellular Services, Inc. $18,750.00 cash 50%
16805 U.S. Highway 19N
Clearwater, FL 34624
</TABLE>

<PAGE> 26

EXECUTION COPY 6/25/96

SCHEDULE B

BUSINESS OF THE COMPANY

The purpose of the Company shall be to sell, lease and market, at retail or
wholesale, cellular telephones and cellular telephone service, including access
and airtime required in respect thereof.

<PAGE> 27

EXECUTION COPY 6/25/96

SCHEDULE C

CERTIFICATE OF FORMATION

CERTIFICATE OF FORMATION OF

QUINTEL CELLULAR LLC

1. The name of the limited liability company is QUINTEL CELLULAR LLC.

2. The address of its registered office in the State of Delaware is
__________________________. The name of its registered agent at such address is
__________________________.

IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Formation of QUINTEL CELLULAR LLC this ______ day of ____________.

-------------------------------------
Authorized Person

<PAGE> 28

EXECUTION COPY 6/25/96

SCHEDULE D

EXAMPLE OF OPERATION OF FORMULA FOR DILUTION UNDER
PARAGRAPH 4.3(B)

Assume that the Members agree that the Members should loan or
contribute an aggregate of $1,000,000 to the Company, thereby requiring
that each Member provide $500,000.00 to the Company on the terms agreed
upon by the Members. Assume further that Quintel provides $500,000.00
but Paragon provides only $200,000.00. Assume that each Member has
theretofore made capital contributions of $18,750.00. In this example,
Paragon is "deficient" by $300,000.00, because Paragon was required to
provide $500,000.00 but only provided $200,000.00. Paragon's Percentage
Interest would then be adjusted as follows:

50% - [ 1.5 x Amount of Deficiency ]
----------------------------------------------
Total Capital + Cash Call
of All Members Made on Deficient
Member

.50 - [ 1.5 x [.50 x 300 ]
---------------
37.5 + 500 =

.50 - [1.5 x [.50 x .5581395 ] =

.50 - [1.5 x .279070 ] =

.50 - .418605 =

.081395 or 8.1395%

In this example, Paragon's 50% Percentage Interest is reduced to
8.1395%, and Quintel's Percentage Interest would be increased to
91.8605%.

<PAGE> 1

EXHIBIT 10.29.2

AMENDMENT NUMBER ONE TO
LIMITED LIABILITY COMPANY AGREEMENT
OF QUINTEL CELLULAR LLC

This AMENDMENT NUMBER ONE dated JANUARY 27, 1998 to a Limited
Liability Company Agreement (the "Agreement") is entered into as of July 3,
1996, by and between Quintel Entertainment, Inc., with its principal place of
business at One Blue Hill Plaza, Pearl River, New York 10965 ("Quintel"), and
Paragon Cellular Services, Inc., with its principal place of business at 16805
U.S. Highway 19N, Clearwater, FL 34024 ("Paragon"):

1. Capitalized terms are used herein with the same meaning as are ascribed
thereto in the Agreement.

2. EFFECTIVE AS OF JULY 3, 1996, SECTION 5.4 OF THE AGREEMENT IS CORRECTED
TO STATE THAT THE REPORTING PERIOD FOR TAX PURPOSES SHALL BE A CALENDAR
YEAR ENDING ON DECEMBER 31 IN EACH YEAR, AND THE FISCAL YEAR FOR OTHER
PURPOSES SHALL END ON NOVEMBER 30.

3. Paragon and Quintel acknowledge that as of December 31, 1997:

i. Quintel has advanced a total of $500,000.00 on
account of the Quintel Loan and the Additional
Quintel Loan referred to in Section 4.1 of the
Agreement on the dates and in the amounts set forth
on the Schedule annexed hereto; and

ii. Quintel has also advanced an additional $1,618,945.00
as a loan to the Company on the dates and in the
amounts set forth on the Schedule annexed hereto
(such $1,618,945.00 OF loans, the Initial Quintel
Loan, the Additional Quintel Loan and any other loans
made by Quintel to the Company and referred to in
Section 3 below shall be referred to collectively as
the "Quintel Loans").

4. The parties anticipate that additional funds will be required for the
conduct of the Company's business, and Quintel has agreed to waive its
right to request Paragon to contribute a portion of the additional
funds required pursuant to Section 4.3 of the Agreement and has agreed
to provide such additional funds as it determines to be necessary from
time to time for the conduct of the Company's business on the following
terms and conditions:

<PAGE> 2

i. all such additional funds provided by Quintel will be
loaned to the Company as Quintel Loans, and will be
provided by Quintel in its sole and absolute
discretion;

ii. Section 4.1(a)(i) and (ii) and Section 4.1(b) of the
Agreement are hereby amended to provide that the
terms of repayment of the Quintel Loans, including
the Initial Quintel Loan and the Additional Quintel
Loan shall be as follows:

(1) Mandatory prepayments of principal and
interest on the Quintel Loans shall be made
in equal quarterly installments in an amount
equal to twenty (20%) percent of the
Company's retained earnings if retained
earnings as determined by the Company for
the preceding financial quarter are at least
$250,000 or seventy-five (75%) of the
Company's retained earnings if retained
earnings as determined by the Company for
the preceding financial quarter are greater
than $500,000;

(2) Notwithstanding the above, minimum principal
payments of the greater of $10,000.00 or
five (5%) percent of the Company's retained
earnings determined on a semi-annual basis
shall be made semi-annually commencing
January 1, 1997; and

(3) notwithstanding the above or any other
provisions of the Agreement, the Quintel
Managers, may, in their discretion, cause
the Company to prepay principal and interest
on the Quintel Loans to the extent of Net
Available Cash, and, in such event, such
prepayments shall be made prior to any
distributions of Net Available Cash under
Sections 5.2(a) and (c) of the Agreement,
subject, however, to the provisions of
Section 5.2(d) of the Agreement which
requires the Company to distribute an amount
equal to forty (40%) percent of the amount
of the Company's profits allocated to each
Member for tax purposes.

iii. effective JANUARY 1, 1997 the Percentage Interest of
Paragon and Quintel shall be as follows:

Member Percentage Interest

<PAGE> 3

Quintel Sixty-five percent (65%)
Paragon Thirty-five percent (35%)

iv. Quintel hereby waives its right under Section 4.3 of
the Agreement to request Paragon to contribute a
portion of any additional funds required by the
Company, and waives any right to provide additional
capital or loans under the provisions of Section
3.2(c) of the Agreement.

5. Nothing herein shall prevent Quintel from proposing that financing for
the operations of the Company be obtained from third parties, subject
to all of the other terms of the Agreement, including Section 3.1.

6. SECTION 5.3 OF THE AGREEMENT IS AMENDED TO PROVIDE AS FOLLOWS,
EFFECTIVE JULY 26, 1996:

A. LOSSES SHALL BE ALLOCATED TO EACH MEMBER IN ACCORDANCE WITH
THEIR RESPECTIVE PERCENTAGE INTERESTS IN THE COMPANY, UNTIL
EACH MEMBER'S CAPITAL ACCOUNT EQUALS ZERO; AND THEREAFTER

B. ONE HUNDRED PERCENT (100%) OF LOSSES SHALL BE ALLOCATED TO
QUINTEL; PROVIDED, HOWEVER, THAT IF, AFTER A MEMBER'S CAPITAL
ACCOUNT IS REDUCED TO ZERO, ADDITIONAL CAPITAL CONTRIBUTIONS
ARE MADE BY SUCH MEMBER TO THE COMPANY, LOSSES SHALL
THEREAFTER BE ALLOCATED TO THE MEMBERS IN PROPORTION TO THEIR
RESPECTIVE CAPITAL ACCOUNTS UNTIL EACH MEMBER'S CAPITAL
ACCOUNT EQUALS ZERO; AND

C. PROFITS SHALL BE ALLOCATED TO THE MEMBERS IN PROPORTION TO
THEIR RESPECTIVE NEGATIVE CAPITAL ACCOUNTS UNTIL SUCH TIME AS
ALL MEMBERS' CAPITAL ACCOUNTS EQUAL ZERO; AND, THEREAFTER,

D. PROFITS SHALL BE ALLOCATED TO THE MEMBERS IN ACCORDANCE WITH
THEIR RESPECTIVE PERCENTAGE INTERESTS IN THE COMPANY.

7. SECTION 8.3 OF THE AGREEMENT IS AMENDED TO PROVIDE THAT UPON
DISSOLUTION AND LIQUIDATION OF THE COMPANY, EACH MEMBER WHO HAS A
NEGATIVE CAPITAL ACCOUNT SHALL CONTRIBUTE CAPITAL TO THE COMPANY IN AN
AMOUNT SUFFICIENT SO THAT SUCH MEMBER'S CAPITAL ACCOUNT EQUALS ZERO.
ALL QUINTEL LOANS SHALL BE REPAID IN FULL PRIOR TO ANY DISTRIBUTION OF
NET AVAILABLE CASH OR ANY OTHER COMPANY PROPERTY TO THE MEMBERS

<PAGE> 4

UPON SUCH DISSOLUTION AND LIQUIDATION.

8. Except as provided for in this Amendment, the Agreement remains in
full force and effect.

IN WITNESS WHEREOF, the Company and Members have executed this Amendment as of
the date first above written.

COMPANY:

QUINTEL CELLULAR LLC

By:
---------------------------------------
CHARLES R. DARST, Member

MEMBERS:

QUINTEL ENTERTAINMENT, INC.

By:
---------------------------------------
Its President

PARAGON CELLULAR SERVICES, INC.

By:
---------------------------------------
CHARLES R. DARST

<PAGE> 5
4. Seller represents that at the closing of title, or date of possession,
whichever is later, the plumbing (except for children's bathroom), heating and
electrical systems (except for some outside outlets), sump pump, burglar alarm
system, air conditioning systems, pool & sprinkler system, and appliances will
be in working order, with the roof free of leaks, and the pool free of cracks &
leaks. This representation shall not survive the delivery of the deed as set
forth herein. The limit of Seller's liability for non-working appliances is the
market value of such appliances in their condition on the date of this contract.
Purchasers may have the sump pump and burglar system inspected within fifteen
days hereof. Purchasers may have the air conditioning system, pool, pool filter
& heater, & sprinklers inspected prior to closing when weather permits.

22. The purchaser shall have leave the following addition personal property
which was not listed in paragraph #18 of the printed contract of sale; all wall
to wall carpeting, master bedroom built-in cabinet, alarm system, central vacuum
cleaning system & gas BBQ with pole in ground (not operable). The Seller shall
provide keys for all doors including the French doors in the kitchen and family
room and copies of all warranties, if any, for all new appliances and the air
conditioning fan coil units, and the existing (no) termite inspection. The
Seller shall remove the dishwasher and refrigerator from the basement.

<PAGE> 1
Exhibit 17

VINCENT TESE
C/O BEAR, STEARNS & CO., INC.
245 PARK AVENUE - 19TH FLOOR
NEW YORK, NY 10167

February 24, 1998

Mr. Jeffery Schwartz, CEO
Quintel Entertainment
One Blue Hill Plaza - 5th Floor
Pearl River, NY 10965

Dear Jeff:

As per our conversation of several weeks ago, I am in the process of launching a
new business. In addition, I am presently on the Board of five business
corporations and three charitable ones and I must start limiting my activities.
Therefore, I decided I must resign as a Director of Quintel effective
immediately.

I wish you every success and continued good fortune.

With kind regards,

Sincerely,

/s/ Vincent Tese
-----------------------------------
Vincent Tese

<PAGE> 1

EXHIBIT 21

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. Creative Direct Marketing, Inc. Delaware

5. Quintel Hair Products, Inc. Delaware

6. Quintel Products, Inc. Delaware

7. Quintelco., Inc. Delaware

8. Quintel Psychic Zone, Inc. Delaware

9. Quintel LaBuick Products, LLC Delaware

10. Quintel Cellular, LLC Delaware

11. Quintelcomm, Inc. Delaware

12. Quintel Financial Information Services, Inc. Delaware

<ARTICLE> 5
<LEGEND>
This schdeule contains summary information extracted from the Quintel
Entertainment, Inc. and Subsidiaries Consolidated Financial Statement as
presented in the Company's Form 10-K for the year ended November 30, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<CASH> 10,063,717
<SECURITIES> 24,730,706
<RECEIVABLES> 46,310,960
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 95,460,377
<PP&E> 1,257,452
<DEPRECIATION> 215,662
<TOTAL-ASSETS> 115,998,775
<CURRENT-LIABILITIES> 51,785,689
<BONDS> 0
0
0
<COMMON> 18,649
<OTHER-SE> 63,687,648
<TOTAL-LIABILITY-AND-EQUITY> 115,998,775
<SALES> 191,374,936
<TOTAL-REVENUES> 191,374,936
<CGS> 149,821,363
<TOTAL-COSTS> 149,821,363
<OTHER-EXPENSES> 18,880,769
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 80,763
<INCOME-PRETAX> 24,433,397
<INCOME-TAX> 10,069,616
<INCOME-CONTINUING> 22,672,804
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,363,781
<EPS-PRIMARY> $.76
<EPS-DILUTED> $.76

</TABLE>