Edgar Filing: J2 GLOBAL COMMUNICATIONS INC

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington. D.C. 20549

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FORM 10-K/A

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

For the fiscal year ended December 31, 2001

[_] 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: 0-25965

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j2 GLOBAL COMMUNICATIONS, INC.
(Exact name of Registrant as specified in its charter)

Delaware 51-0371142
(State or Other (I.R.S. Employer
Jurisdiction of Identification Number)
Incorporation or
Organization)

6922 Hollywood Boulevard
Suite 800
Hollywood, California 90028
(Address of principal executive offices)

(323) 860-9200
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.01 par value
(Title of Class)

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Indicate by check mark whether the Registrant (1) has filed all reports
required 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 is not contained herein, and will not be contained, to
the best of the 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. [X]

As of April 16, 2002, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $43,703,008 based upon the
closing sales price of the Common Stock as reported on the Nasdaq National
Market on that date. Shares of Common Stock held by officers, directors and
holders of more than 5% of the outstanding Common Stock have been excluded from
this calculation because such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.

As of April 16, 2002, the Registrant had 10,710,985 common shares
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

The following documents (or parts thereof) are incorporated by reference
into the following parts of this Form 10-K:

(1) Proxy Statement for the 2002 Annual Meeting of Stockholders--Part III Items
10, 11, 12 and 13.

This Report on Form 10-K/A includes 72 pages with the Index to Exhibits
located on page 68.

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TABLE OF CONTENTS

Page
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PART I.

Item 1. Business............................................................................. 3

Item 2. Properties........................................................................... 18

Item 3. Legal Proceedings.................................................................... 19

Item 4. Submission of Matters to a Vote of Security Holders.................................. 19

PART II. OTHER INFORMATION

Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters............ 20

Item 6. Selected Consolidated Financial Data................................................. 21

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 22

Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................... 27

Item 8. Financial Statements and Supplementary Data.......................................... 28

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 50

PART III.

Item 10. Directors and Executive Officers of the Registrant................................... 51

Item 11. Executive Compensation............................................................... 53

Item 12. Security Ownership of Certain Beneficial Owners and Management....................... 64

Item 13. Certain Relationships and Related Transactions....................................... 65

PART IV.

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..................... 68

PART I.

Explanatory Note

This Amended Annual Report on Form 10-K/A is being filed for the sole
purpose of including in this Amended Annual Report, in accordance with
Instruction G(3) to Form 10-K, the items comprising the Part III information
(Items 10, 11, 12, and 13). In all other material respects, this Amended Annual
Report on Form 10-K/A is unchanged from the 2001 Annual Report on Form 10-K.

Item 1. Business

Disclosure Regarding Forward-looking Information

This Report contains forward-looking statements that involve risks and
uncertainties. These statements relate to our future plans, objectives,
expectations and intentions, and the assumptions underlying or relating to any
of these statements. These statements may be identified by the use of words
such as "expect", "anticipate", "estimate", "believe", "intend" and "plan". Our
actual results may differ materially from those discussed in these statements.
Factors that could contribute to such differences include those discussed in
the "Risk Factors" section of this Report.

Although we believe that the expectations reflected in our forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity or performance of achievements. Neither we nor any other person
assumes responsibility for the accuracy and completeness of these statements.
We assume no duty to update any of the forward-looking statement after the date
of this Report or to conform these statements to actual results.

Company Overview

j2 Global Communications, Inc. ("j2 Global", "Our" or "We") provides
outsourced value-added messaging and communications services to individuals and
businesses throughout the world. We offer faxing and voicemail solutions, Web
initiated conference calling, document management solutions and unified
messaging services. We market our services principally under the brand names
"eFax" and "jConnect".

We deliver our services through our global telephony/IP network, which spans
more than 600 cities in 18 countries across 5 continents (including four
capital cities in Latin America where we are in the process of launching
service).

We generate a substantial portion of our revenue from subscribers that pay
through subscription and usage fees. We also generate revenue from advertising
to non-paid subscribers. Our advertising supported subscribers also serve as a
significant source of new paid subscribers.

Our sales organization is organized into three distinct channels: Web,
Corporate and Licensed Services. The Web channel, which today represents the
majority of our revenue, markets eFax and jConnect branded services primarily
to individuals and small businesses through a combination of Internet-based
advertising and third-party sales relationships. The Corporate channel, which
we introduced in 2000 and expect to represent an increasing percentage of our
revenue, markets our services to midsize and large businesses, as well as
government agencies, through a growing in-house sales force. Our Licensed
Services channel seeks to integrate our services and network capabilities into
third party product offerings and to license our intellectual property.

We hold patents covering important aspects of our core inbound messaging
services. Through our Licensed Services channel we have initiated a patent
licensing program in an effort to generate additional revenue and make our
technology available for use by others in the industry. During 2002 we began
taking our document handling software solutions to the market under a variety
of brand names, including "Messenger Plus" and "Papermaster".

For the year ended December 31, 2001, our Web, Corporate and Licensed
Services channel revenues represented 75%, 19% and 6% of our revenue,
respectively. For fiscal years 2000 and 1999, substantially all of our revenue
was generated from our Web channel. In the future, we expect the Corporate
channel to represent a growing proportion of our revenues.

As of March 1, 2002, our Web and Corporate channels had more than 4 million
and 22,000 telephone numbers deployed, respectively.

We operate in the fax, voicemail, conference calling, document management
and unified messaging industries.

Our Solutions

Businesses and individuals are increasingly making use of third parties to
manage their communication and messaging needs. Their goal is to reduce or
eliminate the cost of purchasing and maintaining hardware for fax and voice and
the associated dedicated phone lines. In addition, businesses find that it is
difficult to incorporate state-of-the-art technology in their existing
infrastructure and employ the necessary expertise to maintain and upgrade a
sophisticated messaging system. End users are looking for ways to make sending
and receiving messages less time consuming and more flexible.

We currently offer a fully integrated solution designed to replace or
augment individual and corporate messaging and communications services. We
tailor and brand our solutions to each of our different groups of users for
more cost effective fax, voicemail, conference calling, document management and
unified messaging functionality. Our paid services allow a subscriber to select
a phone number from more than 600 cities around the world and toll-free numbers
are available as well.

We offer the following suite of products and services:

Faxing

Our faxing service provides a user both the ability to receive faxes as an
easy to open e-mail attachment in their existing e-mail box and to send faxes
directly from a PC or e-mail account, or from our Web sites.

Voicemail

Our voicemail service provides a user both the ability to receive voicemails
as an easy to open e-mail attachment in their existing e-mail box and to send
voicemails directly from an e-mail account or from our Web sites.

Conference calling

Our conference calling service, which is currently a bundled offering,
enables the initiation and management of conference calls via the Web.

Document Management

Our document management solutions offerings include (1) a service that
allows registered users to email Web pages, screenshots and other documents as
easy-to-open email attachments, (2) an application for the PC designed to
automate the process of organizing, archiving and retrieving digital versions
of files and (3) a full featured Internet gateway, designed to deliver
documents and data as faxes and alphanumeric pages from email, the Web and
directly from Windows(TM) applications.

Unified Messaging

Our unified messaging service allows a subscriber to utilize their e-mail
box as a single repository to bundle our fax, voicemail and conference calling
features.

We consistently evaluate our branding and product features and offerings in
order to make them as attractive as possible to our current and prospective
customers. For example, in the future we may offer a stand-alone conference
calling product or enhanced voicemail, or may more closely integrate our
document delivery and document management products.

Sales and Marketing

We market our products and services through three distinct sales channels:
Web, Corporate and Licensed Services.

Web channel

The Web channel uses Internet-based advertising and third party sales
relationships to drive customers to our Web sites www.j2.com and www.efax.com.
New paid customers are acquired based on word-of-mouth, upselling advertiser
supported subscribers to paid services and under cost-of-acquisition
arrangements. Advertiser supported subscribers, who receive a service with
limited functionality, are acquired based on word-of-mouth and under
cost-of-acquisition arrangements.

We generate activation, recurring monthly and usage fees from our paid
subscribers, and advertising revenue from our advertising supported
subscribers. Our advertising supported subscribers also serve as a significant
source of new paid subscribers. Once a customer has signed up for an
advertising supported service, we use a lifecycle management process to
encourage them to upgrade to a paid service.

Corporate channel

Our Corporate sales channel, which we formed in late 2000, sells our
services to midsize and large businesses and to government agencies. We
recently expanded our Corporate channel sales force and expect this channel
over time to represent a growing percentage of our revenue. The Corporate
channel consists of a direct sales force whose members are assigned to
particular geographic territories, as well as a telemarketing sales group that
fields telephone inquiries for corporate services.

j2 Global's corporate services can reduce costs for faxing and enhance
efficiency and security. Our sales force uses a proprietary template to analyze
a prospective customer's existing cost of faxing compared to the j2 Global
alternative. As of March 1, 2002, we had more than 800 corporate clients using
more than 22,000 telephone numbers.

Licensed Services channel

Our Licensed Services channel seeks to integrate our services and network
capabilities into third party product offerings and to license our intellectual
property. Service and network integration transactions can take long periods of
time to complete, and we cannot predict when they will occur. In February 2002
we initiated a patent licensing program through this sales channel in an effort
to generate additional revenue and to offer others in our industry the benefits
of our intellectual property.

Global Network and Operations

We have 68 points of presence (POPS) worldwide and a central data center in
Los Angeles. We connect our POPS to our central data center via either a
Virtual Private Network (VPN) or frame relay. Our network is designed to
deliver value-added user applications, customer support, billing and a local
presence in over 600 cities in 18 countries on 5 continents. Our network covers
all major metropolitan areas in the United States, including New York, Los
Angeles and Chicago, and such international business centers as London, Paris,
Milan, Frankfurt, Zurich, Sydney and Tokyo. We are currently in the process of
expanding our network to four capital cities in Latin America.

We obtain telephone numbers from various local carriers throughout the
United States and internationally. As of March 2002, our active and inventoried
telephone numbers are sufficient to satisfy our expected demand for the
foreseeable future. Our ability to continue to acquire additional quantities of
phone numbers in the future will depend on our relationships with our local
carriers, our ability to pay market prices for such phone numbers and the
regulatory environment.

Customer Support Services

Our customer service department provides support to our customers through a
combination of online self-help, email messages and telephone calls. Our
Internet-based online self-help allows customers to resolve simple issues on
their own through knowledge-based tools, eliminating the need to speak to our
customer service representatives. We provide email support 7 days per week, 24
hours per day, and telephone support 15 hours per day on weekdays. Dedicated
telephone support is provided for Corporate customers.

Competition

Competition in the outsourced value-added messaging and communication space
is intense. We face competition from, among others, voice-mail providers, fax
providers, paging companies, Internet service providers, e-mail providers and
telephone companies.

We compete against other companies that provide one or more of the services
that we do. In addition, these competitors may add services to their offerings
to provide messaging and communication services comparable to ours. Future
competition could come from a variety of companies in the messaging and
communications space. Included in this space are major companies that have much
greater resources than we do, have been in operation for many years and have
large subscriber bases. These companies may be able to develop and expand their
communications and network infrastructures more quickly, adapt more swiftly to
new or emerging technologies and changes in customer requirements, take
advantage of acquisition and other opportunities more readily and devote
greater resources to the marketing and sale of their products and services than
we can. There can be no assurance that additional competitors will not enter
markets that we plan to serve or that we will be able to compete effectively.

Patents and Proprietary Rights

We rely on a combination of patent, trademark, trade secret and copyright
law and contractual agreements to protect our proprietary technology and
intellectual property rights.

We have five U.S. patents and multiple pending U.S. and foreign patent
applications covering components of our technology. Patents are sought for
inventions that contribute to our business and technology strategy. We have
obtained patent licenses for certain technologies where such licenses are
necessary or advantageous. Unless and until patents are issued on the
applications pending, no patent rights on those applications can be enforced.
Our trade secrets are protected through formal procedures that include employee
agreements and confidentiality agreements with other entities. We have obtained
U.S. copyright registrations for certain proprietary software.

We own and use a number of trademarks in connection with our products and
services, including eFax, jConnect, j2 and the j2 logo, Hotsend, Papermaster,
Protofax, Email-By-Phone, Documagix, JFAX and the JFAX logo, among others. Many
of these trademarks are registered in the United States and other countries,
and numerous trademark applications are pending in the United States and other
countries, including applications for the mark j2 and the j2 logo.

We hold numerous Internet domain names, including "efax.com", "j2.com" and
"j2global.com". Under current domain name registration practices, no one else
can obtain an identical domain name, but can obtain a similar name, or the
identical name with a different suffix, such as ".net", ".org", or ".biz" or
with a country designation. The relationship between regulations governing
domain names and the laws protecting trademarks and similar proprietary rights
is evolving. Domain names are regulated by non-governmental Internet regulatory
bodies, while trademarks are enforceable under localized national law. However,
the regulation of domain names in the United States and in foreign countries is
subject to change. There are plans to continue to establish additional
top-level domains, appoint additional domain name registrars and/or modify the
requirements for holding domain names in all of the countries in which we
conduct business, and we could be unable to prevent third-parties from
acquiring domain names that infringe or otherwise decrease the value of our
domain names or trademarks.

We have developed substantially all of our software internally, and have
entered into agreements with our software programmers that provide for our
ownership of all software and intellectual property. We have licensed from
third parties some components of our software for unlimited use for one-time,
up-front payments pursuant to written license agreements. Some of our license
agreements provide for a modest additional payment in the event of a subsequent
major upgrade.

Like other technology-based businesses, we face the risk that we will be
unable to protect our intellectual property and other proprietary rights, and
the risk that we will be found to have infringed the proprietary rights of
others.

Government Regulation

There is currently only a small body of laws and regulations directly
applicable to commerce on the Internet. However, due to the increasing
popularity and use of the Internet, it is possible that a number of laws and
regulations may be adopted at the international, federal, state and local
levels with respect to the Internet, covering issues such as user privacy,
freedom of expression, pricing, characteristics and quality of products and
services, taxation, advertising, intellectual property rights, information
security and the convergence of traditional telecommunications services with
Internet communications. Moreover, a number of laws and regulations have been
proposed and are currently being considered by federal, state, local and
foreign legislatures with respect to these issues. The nature of any new laws
and regulations and the manner in which existing and new laws and regulations
may be interpreted and enforced cannot be fully determined. For example, recent
laws affecting the Internet include:

. The Digital Millennium Copyright Act, which provides stronger copyright
protection for software, music and other works on the Internet. Under
this law, Internet service providers ("ISP(s)") and Web site operators
must register with the U.S. Copyright Office to avoid liability for
infringement by their subscribers and must satisfy the conditions for
safe harbor protection contained therein for ISPs.

. The Child Online Protection Act ("COPA"), which prohibits persons from
making harmful communications available to minors. On June 22, 2000, the
Third Circuit Court of Appeals affirmed a preliminary injunction of this
statute, concluding that it violated First Amendment protections in the
U.S. Constitution. Appeal of this decision is presently pending before
the United States Supreme Court.

. The Children's Online Privacy Protection Act ("COPPA"), which requires
certain Web sites and online services to implement specific procedures
and generally to obtain parental consent before collecting, using, or
disclosing personal information from children under 13 years of age.

. Child Protection and Sexual Predator Punishment Act, which imposes
stronger criminal penalties for using the Internet to solicit minors for
sexual purposes and criminalizes sending obscene material to persons
under the age of 16.

. The Internet Tax Nondiscrimination Act, which provides a moratorium on
taxes deemed discriminatory in order to give state and federal lawmakers
time to develop a more comprehensive approach to Internet taxation. The
current federal moratorium is scheduled to expire on November 1, 2003.

. The EU Data Privacy Directive, which requires EU member states to enact
legislation creating strong protections governing the use of personal
data about individuals. One specific provision of the Directive prohibits
the transfer of personal data from an EU country to a non-EU country that
lacks "adequate" data protection laws. Because the EU has determined that
the United States lacks adequate data protection laws, persons failing to
follow certain alternative procedures risk the interruption of data flows
between EU countries and the US.

. Various state and proposed federal anti-spam laws, which restrict the
ability of parties to send unsolicited, commercial e-mail.

In addition, there is substantial uncertainty as to the applicability to the
Internet of existing laws governing issues such as property ownership,
copyrights and other intellectual property issues, taxation, libel, obscenity
and personal privacy. The vast majority of these laws were adopted prior to the
advent of the Internet and, as a result, did not contemplate the unique issues
of the Internet. Future developments in the law might decrease the growth of
the Internet, impose taxes or other costly technical requirements, create
uncertainty in the market or in some other manner have an adverse effect on the
Internet. These developments could, in turn, have a material adverse effect on
our business, prospects, financial condition and results of operations.

We provide our services through data transmissions over public telephone
lines and other facilities provided by telecommunications companies. These
transmissions are subject to regulation by the Federal Communications
Commission ("FCC"), state public utility commissions and foreign governmental
authorities. However, as an Internet messaging services provider, we are not
subject to direct regulation by the FCC or any other governmental agency, other
than regulations applicable to businesses generally. Nevertheless, as Internet
services and telecommunications services converge or the services we offer
expand, there may be increased regulation of our business including regulation
by agencies having jurisdiction over telecommunications services. The FCC has
recently initiated several proceedings to examine the regulatory framework for
the delivery of broadband services. While it is impossible to predict the
outcome, the FCC's inquiry may affect the regulatory requirements for the
transmission of services such as those we provide. The FCC is also reviewing
the system for inter-carrier compensation that may affect the prices we pay for
transmission and switching services, while continued regulation of competition
in the telecommunications industry may have an indirect affect on our services.

Continued regulation arising from telephone number administration may also
make it more difficult for us to obtain necessary numbering resources in a
timely fashion. For instance, the FCC has recently decided to allow states to
petition for authority to adopt specialized area codes, including area codes
that would only contain unified messaging service providers. We intend to seek
reconsideration from the FCC of this decision, and the outcome of this
proceeding could affect our ability to offer services in competition with
incumbents.

The FCC has also ruled that calls to ISPs are jurisdictionally interstate
and that ISPs should not pay access charges applicable to telecommunications
carriers. Several telecommunications carriers are advocating that the FCC
regulate the Internet in the same manner as other telecommunications services
by imposing access fees on ISPs. The FCC is examining inter-carrier
compensation for calls to ISPs, which could affect ISPs' costs and consequently
substantially increase the costs of communicating via the Internet. This
increase in costs could slow the growth of Internet use, decrease the demand
for our services, and increase our costs.

The European Union has adopted legislation which has a direct impact on
business conducted over the Internet and on the use of the Internet. For
example, the United Kingdom Defamation Act of 1996 protects an ISP, under
certain circumstances, from liability for defamatory materials stored on its
servers. However, we note that in a 1999 case a London court found that an ISP
was liable for defamatory statements made by one of its subscribers. The
European Directive on the Protection of Consumers is expected to have a direct
effect on the use

of the Internet for commercial transactions and will create an additional layer
of consumer protection legislation with respect to electronic commerce. In
addition, numerous other regulatory schemes are being contemplated by
governmental authorities in both the United Kingdom and the European Union. As
in the United States, there is uncertainty as to the enactment and impact of
foreign regulatory and legal developments. For instance, in France, a court
recently found that Yahoo! violated French law by failing to prohibit the sale
of Nazi paraphernalia to French citizens through its.com Web site. However, a
U.S. Federal District Court subsequently held that French law does not trump
free expression rights. These developments may have a material and adverse
impact on our business, prospects, financial condition and results of
operations.

Seasonality and Backlog

Our Web channel business is not seasonal to any significant extent, except
as is generally the case for most businesses during extended holiday periods.
Although we have limited operating history, we have experienced and expect to
continue to experience some seasonality with respect to our Corporate channel.

We experience no material backlog.

Research and Development

The market for our services is evolving rapidly, requiring ongoing
expenditures for research and development and timely introduction of new
services and service enhancements. Our future success will depend, in part,
upon our ability to enhance our current services, to respond effectively to
technological changes, to sell additional services to our existing customer
base and to introduce new services and technologies that address the
increasingly sophisticated needs of our customers. We are devoting significant
resources to the development of enhancements to our existing services and to
introduce new services. There can be no assurance that we will successfully
complete the development of new services or features or that current or future
services will satisfy the needs of the market for outsourced messaging,
communications and document management solutions. Further, there can be no
assurance that products or technologies developed by others will not adversely
affect our competitive position or render our services or technologies
noncompetitive or obsolete.

Our research and development expenditures were $2,535,000, $2,762,000 and
$1,829,000 for the fiscal years ended December 31, 2001, 2000 and 1999,
respectively.

Employees

As of March 1, 2002, we employed or contracted a total of 134 employees,
including 6 consultants on a full or part-time basis. We have 90 full-time
salaried personnel and 38 full-time hourly workers. 45 of our employees are
technical staff, reflecting our emphasis on technology.

Our future success will depend, in part, on our ability to continue to
attract, retain and motivate highly qualified technical, marketing and
management personnel. Our employees are not represented by any collective
bargaining unit. We have never experienced a work stoppage. We believe our
relationship with our employees is good.

Reverse Stock Split

On February 8, 2001 we carried out a one for four reverse stock split.
Except as noted, all share and per data are presented on a post split basis.

RISK FACTORS

The following discussion should be read in conjunction with the audited
consolidated financial statements contained herein. In addition to the factors
set forth below, there may be other factors, or factors which arise in the
future, which may affect our future performance and the market prices for our
securities.

Our business is subject to numerous risks

You should consider our prospects in light of the risks, expenses and
difficulties we may encounter, including those frequently encountered by
companies competing in rapidly evolving markets. Among the other risks set
forth in this section, these risks include our ability to:

. Maintain, expand and market and our Web and Corporate channel customer
bases;

. Successfully maintain our advertising and outbound usage revenues;

. Obtain large quantities of non-paying customers on a cost effective
basis, and effectively derive revenues from those users through
advertising to them and selling them paid services;

. Successfully manage our cost structure, including but not limited to our
telecommunication and personnel related expenses;

. On a cost effective basis, retain our current base of telephone numbers
and obtain additional telephone numbers in such quantities and geographic
areas as are necessary to satisfy the demand for our services;

. Successfully protect our intellectual property and avoid infringing the
proprietary rights of others;

. Maintain acceptable levels of service quality and availability;

. Compete with other similar providers with regard to price, service and
functionality;

. Maintain the security of customer information and transmissions through
our network;

. Introduce new services and achieve acceptable levels of return on
investment for those new services; and

. Recruit and retain key personnel.

If we are unable to execute our plans and grow our business, either as a
result of the risks identified in this section or for any other reason, this
failure could have a material adverse effect on our business, prospects,
financial condition and results of operations.

Customers may be unwilling to pay our prices, either because they find
satisfactory free services or because they believe other paid services provide
a better value.

The prices for our paid services are in some cases higher than those charged
by our competitors. We may need to reduce prices for our paid services. We
cannot predict whether we will be able to sustain adequate pricing levels as
competitors introduce competing services, including free services. Our failure
to sustain desired pricing levels would have a material adverse effect on our
business, prospects, financial condition and results of operations.

We may have difficulty in retaining our customers, which may prevent our
long-term success

Our sales, marketing and other costs to acquire new customers have
historically been substantial relative to the monthly fees derived from
subscriptions. Accordingly, we believe that our long-term success depends
largely on our ability to retain our existing customers while continuing to
attract new ones at attractive costs. We

continue to invest significant resources in our systems and network
infrastructure and customer support capabilities to provide satisfactory levels
of service quality and customer service. We cannot be certain that these
expenditures will be sufficient to maintain customer retention. We believe that
competition from companies providing similar services has caused, and may
continue to cause, some of our customers to switch to competitors' services. In
addition, some new customers do not become consistent users of our services
and, therefore, may be more likely to discontinue their subscription. These
factors adversely affect our customer retention rates. Any decline in customer
retention rates could have a material adverse effect on our business,
prospects, financial condition and results of operations.

The markets in which we operate are highly competitive, and we may be unable to
compete successfully against new entrants and established industry competitors
with significantly greater financial resources

Competition in the converging Internet and telecommunications industries is
becoming increasingly intense for each of the industries we operate in. We face
competition for our services from, among others, voice-mail providers, fax
providers, paging companies, Internet service providers, email providers and
telephone companies.

Competitive pressures may impair our ability to maintain profitability. The
increased competition may also make it more difficult for us to successfully
enter into strategic relationships with major companies, particularly if our
goal is to have an exclusive relationship with a particular company.

We compete against other companies that provide one or more of the services
that we do. In addition, these competitors may add services to their offerings
to provide messaging and communication services comparable to ours. Future
competition could come from a variety of companies in the Internet,
telecommunications and traditional faxing industries. These industries include
major companies that have much greater resources than we do, have been in
operation for many years and have large subscriber bases. These companies may
be able to develop and expand their communications and network infrastructures
more quickly, adapt more swiftly to new or emerging technologies and changes in
customer requirements, take advantage of acquisition and other opportunities
more readily and devote greater resources to the marketing and sale of their
products and services than we can. There can be no assurance that additional
competitors will not enter markets that we plan to serve or that we will be
able to compete effectively.

Our business could suffer if we cannot obtain telephone numbers, or if we are
prohibited from obtaining local numbers

Our future success will depend upon our ability to procure large quantities
of telephone numbers in the United States and foreign countries. Our ability to
procure telephone numbers depends on applicable regulations, the practices of
telecommunications carriers that provide telephone numbers and the level of
demand for new telephone numbers. Failure to obtain these numbers in a timely
and cost-effective manner may prevent us from entering some foreign markets or
hamper our growth in domestic markets, and may have a material adverse effect
on our business, prospects, financial condition and results of operations.

Our ability to procure large quantities of phone numbers will be
particularly limited in area codes of large metropolitan areas, and we may at
some point be unable to provide our customers with phone numbers in the most
desirable area codes (e.g., 212 in Manhattan and 171 in London) in such areas,
having to rely instead on new area codes created for these areas. We do not
allow customers of our non-paid services to choose the area code for the phone
number we provide, and to some extent this makes our non-paid services less
attractive, particularly in comparison to our subscription services, or
subscription services provided by others where the customer may select an area
code.

The Federal Communications Commission ("FCC") recently adopted an order
which could also impede our ability to obtain telephone numbers in existing
area codes. The order permits states to apply to the FCC for

authority to implement specialized area codes which would segregate services
such as the ones we provide, along with other services the FCC perceives as
being geographically insensitive, into unique area codes. We have petitioned
the FCC for reconsideration of this decision. The outcome of this petition may
materially affect our operations if it restricts us from obtaining telephone
numbers in area codes that are generally perceived as local by consumers.

In addition, future growth in our subscriber base, together with growth in
the subscriber bases of providers of free fax to e-mail services, will increase
the demand for large quantities of telephone numbers, which could lead to
insufficient capacity and an inability on our part to acquire the necessary
phone numbers to accommodate our future growth.

We may be found to have infringed the intellectual property rights of others,
which could expose us to substantial damages or restrict our operations

We could be subject to claims that we have infringed the intellectual
property rights of others. In addition, we may be required to indemnify our
resellers and users for similar claims made against them. Any claims against us
could require us to spend significant time and money in litigation, pay
damages, develop new intellectual property or acquire licenses to intellectual
property that is the subject of the infringement claims. These licenses, if
required, may not be available at all or on acceptable terms. As a result,
intellectual property claims against us could have a material adverse effect on
our business, prospects, financial conditions and results of operations.

Inadequate intellectual property protections could prevent us from enforcing or
defending our proprietary technology

Our success depends to a significant degree upon our proprietary technology.
We rely on a combination of patents, trademark, trade secret and copyright law
and contractual restrictions to protect our proprietary technology. However,
these measures provide only limited protection, and we may not be able to
detect unauthorized use or take appropriate steps to enforce our intellectual
property rights, particularly in foreign countries where the laws may not
protect our proprietary rights as fully as in the United States. In addition,
we may face challenges to the validity and enforceability of our proprietary
rights and may not prevail in any litigation regarding those rights. Companies
in the messaging industry have experienced substantial litigation regarding
intellectual property. Any litigation to enforce our intellectual property
rights would be expensive and time-consuming, would divert management resources
and may not be adequate to protect our business.

Our operating results may suffer as a result of purchase accounting treatment,
the impact of the possible future impairment of goodwill relating to our
combination with eFax.com and SureTalk.

Under U.S. generally accepted accounting principles, we have accounted for
acquisitions of eFax.com and SureTalk.com using the purchase method of
accounting. Under purchase accounting, we calculated the purchase price for
these companies by recording the market value of our common stock issued in
connection with these transactions, the fair value of the options and warrants
which became options and warrants of the acquired company, and the amount of
direct transaction costs of the transaction. We allocated the cost of each
transaction to the individual assets acquired and liabilities assumed of such
business.

Based on recent accounting pronouncements, beginning in the first quarter of
2002 and continuing on a periodic basis (generally at least once a year), we
are required to determine if the goodwill on our books is impaired. The amount
of purchase cost allocated to goodwill was $15.8 million at December 31, 2001.
Should our future periodic evaluations of goodwill result in an impairment, we
may experience a material loss in the related period of impairment which would
increase our net loss and could have a material and adverse effect on the
market value of our common stock.

Prior to these recent accounting pronouncements which are more fully
described in footnote 2 paragraph (r) of Item 8 "Financial Statements and
Supplementary Data" of this Report, we periodically evaluated whether changes
had occurred that would have required revision of the remaining estimated
useful life of the assigned goodwill or render the goodwill not recoverable. If
such circumstances had arisen, we would use an estimate of the undiscounted
value of expected future operating cash flows to determine whether the goodwill
is recoverable. For the portion of goodwill deemed not recoverable, we would
record a charge, in the period identified, between the difference of the
carrying amount and the estimated undiscounted value of future operating cash
flows.

Our services may become subject to burdensome telecommunications regulation,
which could increase our costs or restrict our service offerings

As a messaging and communications services provider, we are not subject to
direct regulation by the FCC. However, as messaging and communications services
converge and as the services we offer expand, there may be increased regulation
of our business. Therefore, in the future, we may become subject to FCC or
other regulatory agency regulation. Changes in the regulatory environment could
decrease our revenues, increase our costs and restrict our service offerings.

We have experienced rapid growth that has placed a strain on resources and our
failure to manage growth could cause our business to suffer

We have expanded our operations rapidly and intend to continue this
expansion. This expansion has placed, and is expected to continue to place, a
significant strain on managerial, operational and financial resources. To
manage any further growth, we will need to improve or replace our existing
operational, customer service and financial systems, procedures and controls.
Any failure to properly manage these systems and procedural transitions could
impair our ability to attract and service customers, and could cause us to
incur higher operating costs and delays in the execution of our business plan.
In addition, our management may not be able to successfully identify, manage
and exploit existing and potential market opportunities. If we cannot manage
growth effectively, our business and operating results could suffer.

If we fail to expand and upgrade our systems and network infrastructure, our
business may be harmed

We must continue to expand and adapt our network infrastructure as the
number of customers and the volume of messages they transmit or receive
increases. The expansion and adaptation of our systems and network
infrastructure may require substantial financial, operational and management
resources. There can be no assurance that we will be able to expand or adapt
our network infrastructure to meet any additional demand on a timely basis, at
a commercially reasonable cost or at all.

The messaging and communications industry is undergoing rapid technological
changes and new technologies may be superior to the technologies we use

The messaging and communications industry is subject to rapid and
significant technological change. We cannot predict the effect of technological
changes on our business. Additionally, widely accepted standards have not yet
developed for the technologies we use.

We expect that new services and technologies will emerge in the market in
which we compete. These new services and technologies may be superior to the
services and technologies that we use or these new services may render our
services and technologies obsolete. In addition, these services and
technologies may not be compatible or operate in a manner sufficient for us to
execute our business plan, which could have a material adverse effect on our
business, prospects, financial condition and results of operations.

A system failure or breach of system or network security could delay or
interrupt service to our customers

Our operations are dependent on our ability to protect our network from
interruption by damage from fire, earthquake, power loss, telecommunications
failure, unauthorized entry, computer viruses or other events beyond our
control. There can be no assurance that our existing and planned precautions of
backup systems, regular data backups and other procedures will be adequate to
prevent significant damage, system failure or data loss.

Despite the implementation of security measures, our infrastructure may also
be vulnerable to computer viruses, hackers or similar disruptive problems
caused by our customers or other Internet users. Persistent problems continue
to affect public and private data networks, including computer break-ins and
the misappropriation of confidential information. Computer break-ins and other
disruptions may jeopardize the security of information stored in and
transmitted through the computer systems of the individuals and businesses
utilizing our services, which may result in significant liability to us and
also may deter current and potential customers from using our services. Any
damage, failure or security breach that causes interruptions or data loss in
our operations or in the computer systems of our customers could have a
material adverse effect on our business, prospects, financial condition and
results of operations.

Any failure of the Internet as a message transmission medium could harm our
business

Our future success will depend upon our ability to route our customers'
traffic through the Internet and through other data transmission media. For our
services, other data transmission media include fiber optic or copper lines
owned and operated by third parties, with portions of the capacity on these
media being dedicated for our use. Our success is largely dependent upon the
viability of the Internet as a medium for the transmission of documents. We
also depend on the continued operation of a user's e-mail system. To date, we
have transmitted a limited amount of customer traffic. There can be no
assurance that these will prove to be viable communications media, that
document transmission will be reliable or that capacity constraints which
inhibit efficient document transmission will not develop.

We access the Internet and other data transmission media through dedicated
or shared connections to third party service providers. In many cases, we pay
fixed monthly fees for Internet and other access, regardless of our usage or
the volume of our customers' traffic. There can be no assurance that the
current pricing structure for access to and use of these media will not change
unfavorably and, if the pricing structure changes unfavorably, our business,
prospects, financial condition and results of operations could be materially
and adversely affected.

The market may not switch to our services due to concerns about the reliability
of Internet communications, which may significantly impair our business and
prevent the execution of our business plan

Our ability to route existing customers' traffic through the Internet and to
sell our services to new customers may be inhibited by, among other factors,
the reluctance of some customers to switch from traditional fax delivery to
delivery over the Internet, and by widespread concerns over the adequacy of
security in the exchange of information over the Internet. Additionally, there
may be delays in any transmission over the Internet, which may result in our
service being regarded as less timely than a traditional fax delivery. If our
existing and potential customers do not accept delivery through the Internet as
a means of sending and receiving documents via fax, our business, prospects,
financial condition and results of operations would be materially and adversely
affected.

In addition, we face similar risks regarding the market acceptance of the
delivery of customers' voice-mail messages and "real time" voice communications
over the Internet. As a result, our business, prospects, financial condition
and results of operations may be materially and adversely affected.

Our business may be constrained because it supports a limited number of
operating system platforms

Only those users whose computers are run by Windows 3.1, Windows 95, Windows
98, Windows NT, Windows 2000, Macintosh and UNIX operating systems can utilize
our services. Since there are other operating system platforms, we cannot
provide our services to all potential customers for our services. To the extent
other operating systems proliferate in the future, our ability to attract new
customers and keep existing customers could be significantly impaired.

Future acquisitions could result in dilution, operating difficulties and other
harmful consequences

We may acquire or invest in additional businesses, products, services and
technologies that complement or augment our service offerings and customer
base. Since January 2000, we have completed the acquisition of two companies
(SureTalk.com, Inc. and eFax.com) and certain assets of another company
(TimeShift, Inc.). We will need to identify suitable acquisition candidates,
integrate disparate technologies and corporate cultures and manage a
geographically dispersed company. We cannot assure you that we will be able to
do this successfully. Acquisitions could divert attention from other business
concerns and could expose us to unforeseen liabilities. In addition, we may
lose key employees while integrating any new companies. We may pay for some
acquisitions by issuing additional common stock, which would dilute current
stockholders. We may also use cash to make acquisitions. It may be necessary
for us to raise additional funds through public or private financings. We
cannot assure you that we will be able to raise additional funds at any
particular point in the future or on favorable terms. In addition, we will be
required to review goodwill and other intangible assets for impairment in
connection with past and future acquisition which may materially increase
operating expense if an impairment issue is identified.

We may need and be unable to obtain additional funding on satisfactory terms,
which could dilute our stockholders or impose burdensome financial restrictions
on our business

If our capital requirements, cost structure or revenue vary materially from
our current plans, or if unforeseen circumstances occur, we may require
additional financing. This may not be available on a timely basis, in
sufficient amounts or on terms we find acceptable. Any new financing may also
dilute existing stockholders. Any debt financing or other financing of
securities senior to common stock will likely include financial and other
covenants that will restrict our flexibility. At a minimum, we expect these
covenants to include restrictions on our ability to pay dividends on our common
stock. Any failure to comply with these covenants would have a material adverse
effect on our business, prospects, financial condition and results of operation.

We may not be able to respond to technological changes in the messaging,
communications and document management industries

The messaging and communications industry are subject to technological
change, changes in user and customer requirements and preferences, and the
emergence of new industry standards and practices that could render our
existing services, proprietary technology and systems obsolete. We must
continually improve the performance, features and reliability of our services,
particularly in response to competitive offerings. Our success depends, in
part, on our ability to enhance our existing messaging and communications
services and to develop new services, functionality and technology that address
the increasingly sophisticated and varied needs of prospective subscribers. If
we do not properly identify the feature preferences of prospective subscribers,
or if we fail to deliver features that meet the standards of these subscribers,
our ability to market our service successfully and to increase revenues could
be impaired. The development of proprietary technology and necessary service
enhancements entail significant technical and business risks and require
substantial expenditures and lead-time. We may not be able to keep pace with
the latest technological developments. We may also be unable to use new
technologies effectively or adapt services to customer requirements or emerging
industry standards.

If we do not successfully address service design risks, our reputation could be
damaged and our business and operating results could suffer

We must accurately forecast the features and functionality required by
target subscribers. In addition, we must design and implement service
enhancements that meet customer requirements in a timely and efficient manner.
We may not successfully determine customer requirements and may be unable to
satisfy subscriber demands. Furthermore, we may not be able to design and
implement a service incorporating desired features in a timely and efficient
manner. In addition, if customers and end-users do not favorably receive any
new service we launch, our reputation could be damaged. If we fail to
accurately determine customer feature requirements or service enhancements or
to market services containing such features or enhancements in a timely and
efficient manner, our business and operating results could suffer materially.

If regulation of the Internet increases, our business may be adversely affected

There have been various regulations and court cases relating to the
liability of Internet service providers and other online service providers for
information carried on or through their services or equipment, including in the
areas of copyright, indecency, obscenity, defamation and fraud. For example,
federal and state statutes prohibit the online distribution of obscene
materials. The law in this area is unsettled, and there may be new legislation
and court decisions that expose companies such as us to liabilities or affect
our services.

Additional laws and regulations may be adopted with respect to the Internet,
covering issues such as support payments to fund Internet availability,
content, user privacy, pricing, libel, obscene material, indecency, gambling,
intellectual property protection and infringement and technology export and
other controls. Other federal Internet-related legislation has been introduced
which may limit commerce and discourse on the Internet.

Because our services relate principally to the Internet, but convert voice
and fax transmissions into e-mails, we are necessarily exposed to legal or
regulatory developments affecting either Internet services or
telecommunications services. Regulatory developments could cause our business,
prospects, financial condition and results of operations to be materially
adversely affected.

Our software may have defects and we may encounter development delays

Software-based services and equipment, such as our services, may contain
undetected errors or failures when introduced or when new versions are
released. There can be no assurance that, despite testing by us and by current
and potential customers, errors will not be found in our software after
commercial release, or that we will not experience development delays,
resulting in delays in market acceptance, any of which could have a material
adverse effect on our business, prospects, financial condition and results of
operations.

Our success depends on our retention of our executive officers and our ability
to hire and retain additional key personnel

Our success depends on the skills, experience and performance of senior
management and other key personnel, many of whom have worked together for only
a short period of time. The loss of the services of one or more of our
executive officers or other key employees could have a material adverse effect
on our business, prospects, financial condition and results of operations. Our
future success also depends on our continuing ability to attract and retain
highly qualified technical, sales and managerial personnel. Competition for
these personnel is intense, and there can be no assurance that we can retain
our key employees or that we can attract, assimilate or retain other highly
qualified technical, sales and managerial personnel in the future.

The price of our common stock may decline due to shares eligible for future sale

As of March 1, 2002, we had approximately 10.8 million shares of common
stock outstanding. Most of these shares are available for sale, subject to
compliance with Rule 144 in certain cases. Sales of a substantial

number of shares of common stock in the public market could cause the market
price of we common stock to decline.

Anti-takeover provisions could negatively impact our stockholders

Provisions of Delaware law and of our certificate of incorporation and
bylaws could make it more difficult for a third party to acquire control of us.
For example, we are subject to Section 203 of the Delaware General Corporation
Law, which would make it more difficult for another party to acquire us without
the approval of our board of directors. Additionally, our certificate of
incorporation authorizes our board of directors to issue preferred stock
without requiring any stockholder approval, and preferred stock could be issued
as a defensive measure in response to a takeover proposal. These provisions
could make it more difficult for a third party to acquire us even if an
acquisition might be in the best interest of our stockholders.

Our stock price may be volatile or may decline

Our stock price and trading volumes have been volatile and our stock price
has generally declined since our initial public offering on July 23, 1999. We
expect that this volatility will continue in the future due to factors such as:

. Assessments of our progress in adding subscribers, and comparisons of our
results in these areas versus our competitors;

. Variations between our actual results and investor expectations;

. New service or technology announcements by us or others, and regulatory
or competitive developments affecting our markets;

. Investor perceptions of us and comparable public companies;

. Conditions and trends in the communications, messaging and Internet
related industries;

. Announcements of technological innovations and acquisitions;

. Introduction of new services by us or our competitors;

. Developments with respect to intellectual property rights;

. Conditions and trends in the Internet and other technology industries; and

. General market conditions.

In addition, the stock market has from time to time experienced significant
price and volume fluctuations that have affected the market prices for the
common stocks of technology companies, particularly communications companies.
These broad market fluctuations have resulted in a material decline in the
market price of our common stock. In the past, following periods of volatility
in the market price of a particular company's securities, securities class
action litigation has often been brought against that company. We may become
involved in this type of litigation in the future. Litigation is often
expensive and diverts management's attention and resources, which could have a
material adverse effect on our business and operating results.

We may have liability for Internet content and we may not have adequate
liability insurance

As a provider of messaging and communications services, we face potential
liability for defamation, negligence, copyright, patent or trademark
infringement and other claims based on the nature and content of the materials
transmitted via our services. We do not and cannot screen all of the content
generated by our users, and we could be exposed to liability with respect to
this content. Furthermore, some foreign governments, such as Germany, have
enforced laws and regulations related to content distributed over the Internet
that are more strict than those currently in place in the United States.
Although we carry general liability and umbrella liability

insurance, our insurance may not cover claims of these types or may not be
adequate to indemnify us for all liability that may be imposed. There is a risk
that a single claim or multiple claims, if successfully asserted against we,
could exceed the total of our coverage limits. There is also a risk that a
single claim or multiple claims asserted against us may not qualify for
coverage under our insurance policies as a result of coverage exclusions that
are contained within these policies. Should either of these risks occur,
capital contributed by our stockholders may need to be used to settle claims.
Any imposition of liability, particularly liability that is not covered by
insurance or is in excess of insurance coverage, could have a material adverse
effect on our reputation and business and operating results, or could result in
the imposition of criminal penalties.

We could be required to register as an investment company and become subject to
substantial regulation that would interfere with our ability to conduct our
business

As of December 31, 2001, we had cash and cash equivalents of $19.1 million,
principally representing proceeds remaining from our July 23, 1999 initial
public offering. We invest such cash in short and long term instruments
consistent with prudent cash management and not primarily for the purpose of
achieving investment returns. Investment in securities primarily for the
purpose of achieving investment returns could result in our being treated as an
"investment company" under the Investment Company Act of 1940. In addition, the
Investment Company Act requires the registration of companies that are
primarily in the business of investing, reinvesting or trading securities or
that fail to meet certain statistical tests regarding their composition of
assets and sources of income even though they consider themselves not to be
primarily engaged in investing, reinvesting or trading securities.

If we were required to register as an investment company pursuant to the
Investment Company Act, we would become subject to substantial regulation with
respect to our capital structure, management, operations, transactions with
affiliated persons and other matters. Application of the provisions of the
Investment Company Act to us would materially and adversely affect our
business, prospects, financial condition and results of operations.

Our management and board of directors own a significant percentage of our stock
and will be able to exercise significant influence

Our executive officers and directors and principal stockholders together
beneficially own over one third of our common stock, excluding shares subject
to options and warrants that confer beneficial ownership of the underlying
shares. Accordingly, these stockholders will continue to have significant
influence over our affairs. This concentration of ownership could have the
effect of delaying or preventing a change in control or otherwise discouraging
a potential acquirer from attempting to obtain control of us, which in turn
could have a material and adverse effect on the market price of the common
stock or prevent our stockholders from realizing a premium over the market
prices for their shares of common stock.

Terrorist attacks have contributed to economic instability in the United
States; continued terrorist attacks, war or other civil disturbances could lead
to further economic instability and depress our stock price or adversely affect
our business.

On September 11, 2001, the United States was the target of terrorist attacks
of unprecedented scope. These attacks have caused instability in the global
financial markets, and have contributed to volatility in the stock prices of
United States publicly traded companies, such as j2 Global. These attacks have
and may continue to lead to armed hostilities or may lead to further acts of
terrorism and civil disturbances in the United States or elsewhere, which may
further contribute to economic instability in the United States and could have
a material adverse effect on our business, financial condition and operating
results.

Item 2. Properties

We currently lease approximately 28,000 square feet of office space for our
headquarters in Hollywood, California under a lease that expires in January
2010. We lease this space from an entity indirectly controlled by

our Chairman of the Board. We sublease approximately 50% of this space back to
another company, which is also indirectly controlled by our Chairman. This
sublease expires in 2002.

We lease an additional 6,000 square feet of office space in Santa Barbara,
California under a lease which expires in August 2002.

All of our network equipment is housed either at our Los Angeles leased
space or at one of our 68 co-location facilities around the world.

Item 3. Legal Proceedings

We are not currently aware of any legal proceedings or claims that we
believe are likely to have a material adverse effect on our financial position,
results of operations or cash flows.

On October 28, 1999, AudioFAX IP LLC filed a lawsuit against us in the
United States District Court for the Northern District of Georgia asserting the
ownership of certain United States and Canadian patents and claiming that we
were infringing these patents as a result of our sale of enhanced facsimile
services. The suit requested unspecified damages, treble damages due to willful
infringement, and preliminary and permanent injunctive relief.

After reviewing the AudioFAX patents with our business and technical
personnel and outside patent counsel, we concluded that we do not infringe
these patents. However, due to present plans to offer future services that may
fall within the scope of the AudioFAX patents, in November 2001 we purchased a
non-exclusive, perpetual license to the technology covered by these patents and
the lawsuit was dismissed.

Item 4. Submission of Matters to a Vote of Security Holders

We held a Special Meeting of Shareholders on December 20, 2001. There were
11,103,379 shares of our common stock entitled to be voted on November 19,
2001, the record date for the meeting. The following matters were submitted to
our shareholders for a vote at the Special Meeting:

1. To approve a proposal to amend ARTICLE Four of our Amended and
Restated Certificate of Incorporation to reduce the number of authorized
shares of Common Stock from 200 million to 50 million.

The total votes for this proposal were as follows:

For: 8,226,974
Against: 20,057
Abstain: 2,938

2. To approve a proposal to amend Section 3.2 of our Second Amended and
Restated 1997 Stock Option Plan (the "Plan") to increase the number of
options and restricted stock available for issuance under the Plan from 2
million to 2.5 million.

The total votes for this proposal were as follows:

For: 7,749,196
Against: 494,623
Abstain: 6,150

Based on these voting results, the two matters were approved.

Part II

Item 5. Market For the Registrant's Common Equity and Related Stockholder
Matters

Market Information

Our common stock is traded on the Nasdaq National Market under the symbol
"JCOM". The following table sets forth the high and low closing sale prices for
our common stock for the periods indicated, as reported by the Nasdaq National
Market, and reflects our February 2001 one for four reverse stock split:

High Low
------ ------

Year Ended December 31, 2001
First Quarter............ $ 3.13 $ 1.25
Second Quarter........... 4.15 2.05
Third Quarter............ 4.35 2.54
Fourth Quarter........... 4.95 2.40
Year Ended December 31, 2000
First Quarter............ $28.50 $19.50
Second Quarter........... 19.25 5.50
Third Quarter............ 13.75 4.75
Fourth Quarter........... 5.63 1.13

Holders

We had 401 registered stockholders as of December 31, 2001, although there
were a much larger number of beneficial owners.

Dividends

We have never declared or paid cash dividends on our common stock. We intend
to retain earnings to finance future growth and, therefore, do not anticipate
paying cash dividends in the foreseeable future.

Recent Sales of Unregistered Securities

We did not issue any unregistered securities during the fourth quarter of
2001.

Sales of Registered Securities and Use of Proceeds

We completed our initial public offering (the "Offering") of 2,125,000
shares of common stock on July 23, 1999. Our stock is publicly traded on the
NASDAQ National Market under the symbol "JCOM".

The lead underwriters in the offering were Donaldson, Lukfin & Jenrette;
BancBoston Robertson Stephens; CIBC World Markets; and DLJdirect Inc. The
shares of common stock sold in the Offering were registered under the
Securities Act of 1933, as amended, on a Registration Statement on Form S-1
(the "Registration Statement") (File No. 333-76477), which was declared
effective by the SEC on July 22, 1999.

We registered for sale under the Registration Statement a total of 2,125,000
shares of common stock for an aggregate amount of $80,750,000 (based upon the
offering price of $38.00 per share). We sold all 2,125,000 shares for an
aggregate amount of $80,750,000. After deducting underwriting discounts and
commissions of $5,652,500 and expenses of $1,274,000 in connection with the
Offering, we received net proceeds from the Offering of $73.8 million.

Through December 31, 2001, we have used $62.6 million of proceeds from the
Offering for the following purposes: (i) $17.4 million for repayment of
long-term debt in the amount of $10.6 million and redemption of

preferred stock in the amount of $6.8 million, (ii) $8.7 million for expansion
of our worldwide network, (iii) $15.1 million for funding advertising and
marketing activities, (iv) $10.9 million for funding general corporate
expenses, (v) $4.9 million for advances under a note receivable from eFax.com
prior to our acquisition of eFax, and (vi) equity repurchases of $5.6 million.

Subsequent to December 31, 2001, we expect to utilize the remaining $11.2
million of the proceeds from the Offering as part of our general working
capital.

Item 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements and the notes thereto
and the information contained herein in Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations". Historical results
are not necessarily indicative of future results.

Years Ended December 31,
(In thousands, except per share amounts)
-----------------------------------------------------------
2001 2000 1999 1998 1997
----------- ---------- ---------- ---------- ----------

Statement of Operations Data:
Revenues.................................................... $ 33,253 $ 13,933 $ 7,643 $ 3,520 $ 685
Cost of revenue............................................. 13,412 7,312 4,641 3,398 858
----------- ---------- ---------- ---------- ----------
Gross profit (loss)..................................... 19,841 6,621 3,002 122 (173)
Operating expenses:
Sales and marketing..................................... 4,585 8,671 6,355 4,990 1,069
Research and development................................ 2,535 2,762 1,829 1,226 793
General and administrative.............................. 13,921 15,385 7,976 4,948 2,962
Amortization of goodwill and other intangibles.......... 6,924 4,374 -- -- --
Impairment of acquisition related intangibles, net of
other one-time items................................... 597 -- -- -- --
----------- ---------- ---------- ---------- ----------
Total operating expenses................................ 28,562 31,192 16,160 11,164 4,824
Operating loss.............................................. (8,721) (24,571) (13,158) (11,043) (4,997)
Interest and other income................................... 1,045 2,973 1,579 420 215
Interest and other expense.................................. (155) (617) (1,430) (1,353) --
Increase in market value of put warrants.................... -- -- -- (5,256) --
----------- ---------- ---------- ---------- ----------
Loss before income taxes and extraordinary item......... (7,831) (22,215) (13,009) (17,231) (4,782)
Income tax expense.......................................... 4 4 2 2 2
----------- ---------- ---------- ---------- ----------
Loss before extraordinary item.......................... (7,835) (22,219) (13,011) (17,233) (4,784)
Extraordinary item-Loss on extinguishment of debt........... -- -- (4,428) -- --
----------- ---------- ---------- ---------- ----------
Net loss.................................................... (7,835) (22,219) (17,439) (17,233) (4,784)
Premiums on preferred stock redemption...................... -- -- (878) -- --
Cumulative preferred dividends, accretion of discount
attributable to preferred stock, and amortization of
preferred stock issuance costs............................. -- -- (694) (495) --
----------- ---------- ---------- ---------- ----------
Net loss attributable to common stockholders................ $ (7,835) $ (22,219) $ (19,011) $ (17,727) $ (4,784)
=========== ========== ========== ========== ==========
Net loss per common share:
Basic................................................... $ (0.69) $ (2.44) $ (2.71) $ (3.20) $ (1.22)
Diluted................................................. $ (0.69) $ (2.44) $ (2.71) $ (3.20) $ (1.22)
Weighted average shares outstanding......................... 11,279,647 9,121,236 7,024,748 5,545,490 3,934,583

Years Ended December 31,
(In thousands, except per share amounts)
----------------------------------------
2001 2000 1999 1998 1997
------- ------- ------- -------- ------

Balance Sheet Data:
Cash and cash equivalents................ $19,087 $23,824 $12,256 $ 7,279 $ 23
Working capital.......................... 16,112 19,676 36,555 6,735 58
Total assets............................. 49,056 65,305 58,625 10,513 2,613
Long term debt and put warrants.......... 28 416 1,537 12,455 --
Redeemable common and preferred stock (1) -- 7,065 7,820 9,317 --
Total stockholders equity (deficiency)... $41,140 $46,057 $45,147 $(13,317) $1,618

--------
(1) See note 4 of the notes to the consolidated financial statements for the
conditions applicable to the redeemable securities

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

In addition to historical information, the following discussion and analysis
of management contains forward-looking statements. These forward-looking
statements involve risks, uncertainties and assumptions. The actual results may
differ materially from those anticipated in these forward-looking statements as
a result of many factors, including but not limited to those discussed below,
the results of any acquisition we may complete and in the section in this
Report entitled "Risk Factors". Readers are cautioned not to place undue
reliance on these forward-looking statements, which reflect management's
opinions only as of the date hereof. j2 Global undertakes no obligation to
revise or publicly release the results of any revision to these forward-looking
statements. Readers should carefully review the risk factors described in this
document as well as in other documents we file from time to time with the
Securities and Exchange Commission, including the Quarterly Reports on Form
10-Q and any Current Reports on Form 8-K to be filed by us in fiscal year 2002.

Overview

j2 Global Communications, Inc. ("j2 Global", "Our" or "We") provides
outsourced value-added messaging and communications services to individuals and
businesses throughout the world. We offer faxing and voicemail services, Web
initiated conference calling services, document management solutions and
unified messaging services. We market our services principally under the brand
names "eFax" and "jConnect".

We organize our marketing and sales efforts into three distinct channels:
Web, Corporate and Licensed Services. Each of these channels has a defined
business plan and has developed cost of acquisition metrics for analyzing
potential transactions.

Our core services, each of which operates in large and distinct markets,
include faxing, voicemail, conference calling, unified communications and
document management. These are services already used by business people.
Therefore, the challenge becomes not one of changing behavior, but rather one
of educating prospective customers that we offer a more secure, efficient and
cost-effective solution.

For the year ended December 31, 2001, our Web, Corporate and Licensed
Services channel revenues represented 75%, 19% and 6% of our revenues,
respectively. During fiscal years ended 2000 and 1999, substantially all of our
revenue was generated from our Web channel. In the future, we expect the
Corporate channel to represent a growing proportion of our revenues.

As of March 1, 2002, our Web and Corporate channels had more than 4 million
and 22,000 telephone numbers deployed, respectively.

Our sales and marketing expenses primarily consist of personnel costs and
payments to third parties for customer acquisitions. Prior to mid fiscal year
2000, we relied heavily on marketing and advertising relationships that
required substantial payments without regard to number of customers acquired.
For the second half of fiscal 2000 forward, our sales and marketing and
customer acquisition expenses primarily occur only after the acquisition of a
paid subscriber. As a result, our marketing relationships with third parties
primarily consist of revenue share type of arrangements.

We intend to continue to invest in the development of new services and
features and extend and upgrade our network as necessary to satisfy existing
and expected future demand for our solutions.

As we enter 2002, our goal is to continue to execute our business plan,
which is focused on providing easy to use applications that enhance the lives
and businesses of our customers. Although we cannot guarantee the success of
our business plan, we expect our sales and marketing expenses and investments
in new services and services under development to improve our ability to add
new customers, including paid subscribers. We expect that increased paid and
advertising supported subscribers will result in increased revenue. We
anticipate this increased revenue to be partially offset by additional expenses
incurred, and for some periods additional expenses may more than offset this
increased revenue.

While we currently believe the expectations set forth in this Report are
achievable, we are subject to several risks, any of which could cause these
expectations to not be achieved. See the "Risk Factors" section of this Report
for a description of these risks.

Discussion of Critical Accounting Policies

In the ordinary course of business, we have made a number of estimates and
assumptions relating to the reporting of results of operations and financial
condition in the preparation of our financial statements in conformity with
accounting principles generally accepted in the United States of America
("GAAP"). Actual results could differ significantly from those estimates under
different assumptions and conditions. We believe that the following discussion
addresses our most critical accounting policies, which are those that are most
important to the portrayal of our financial condition and results and require
management's most difficult, subjective and complex judgments, often as a
result of the need to make estimates about the effect of matters that are
inherently uncertain.

Revenue recognition. Our revenue substantially consists of monthly
recurring and usage based subscription fees. In accordance with GAAP and with
Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No.
101, "Revenue Recognition in Financial Statements" which clarifies certain
existing accounting principles for the timing of revenue recognition and
classification of revenues in the financial statements, we defer the portions
of monthly recurring and usage based fees collected in advance and recognize
them in the period earned. Additionally, we defer and recognize subscriber
activation fees and related direct incremental costs over a subscriber's
estimated useful life.

Valuation of long-lived and intangible assets and goodwill. We assess the
impairment of identifiable intangibles, long-lived assets and related goodwill
and enterprise level goodwill whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Factors we consider
important which could individually or in combination trigger an impairment
review include the following:

. significant underperformance relative to expected historical or projected
future operating results;

. significant changes in the manner of our use of the acquired assets or
the strategy for our overall business;

. significant negative industry or economic trends;

. significant decline in our stock price for a sustained period; and

. our market capitalization relative to net book value.

When we determine that the carrying value of intangibles, long-lived assets
and related goodwill and enterprise level goodwill may not be recoverable based
upon the existence of one or more of the above indicators of impairment, we
measure any impairment based on a projected discounted cash flow method using a
discount rate determined by our management to be commensurate with the risk
inherent in our current business model. Net intangible assets, long-lived
assets and goodwill amounted to $23.8 million as of December 31, 2001.

In 2002, Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets" became effective and as a result, we
will cease to amortize approximately $15.8 million of goodwill. We had recorded
approximately $5.4 million of goodwill amortization during 2001 and would have
recorded the same amount during 2002. In lieu of amortization, we are required
to perform an initial impairment review of our goodwill in 2002 and an annual
impairment review thereafter. We expect to complete our initial review during
the first quarter of 2002.

We currently do not expect to record an impairment charge upon completion of
the initial impairment review. However, there can be no assurance that at the
time the review is completed a material impairment charge will not be recorded.

Results of Operations

Years Ended December 31, 2001, 2000 and 1999

The following table sets forth, for the years ended December 31, 2001, 2000
and 1999, information derived from our statements of operations as a percentage
of revenues. This information should be read in conjunction with the
consolidated financial statements and related notes included elsewhere in this
document.

Years Ended
December 31, 2001
----------------
2001 2000 1999
---- ---- ----

Revenue....................................................................... 100% 100% 100%
Cost of revenue............................................................... 40 52 61
--- ---- ----
Gross Profit............................................................... 60 48 39
Operating expenses:
Sales and marketing........................................................ 14 62 83
Research and development................................................... 8 20 24
General and administrative................................................. 42 110 104
Amortization of goodwill and other intangibles............................. 21 31 --
Impairment of acquisition related intangibles, net of other one time items. 2 -- --
--- ---- ----
Total operating expenses................................................... 86 224 211
Operating Loss................................................................ (26) (176) (172)
Interest and other income..................................................... (3) (21) (21)
Interest and other expense.................................................... -- 4 19
Increase in market value of put warrants...................................... -- -- --
--- ---- ----
Loss before income taxes and extraordinary item............................ (24) (159) (170)
Income tax expense............................................................ -- -- --
--- ---- ----
Loss before extraordinary item............................................. (24) (159) (170)
Extraordinary item............................................................ -- -- (58)
--- ---- ----
Net Loss...................................................................... (24) (159) (228)
=== ==== ====

Revenue Items

Revenue. Revenue was $33.3 million, $13.9 million and $7.6 million for the
years ended 2001, 2000 and 1999, respectively. The increase in revenue from
2000 to 2001 was due primarily to an increased number of subscriptions
principally through our acquisition of eFax.com in November 2000, as well as a
price increase to eFax subscribers effective February 2001. The increase in
revenue from 1999 to 2000 was due primarily to increases in the number of
subscriptions from direct marketing and strategic alliances. Our number of
subscriptions (both paid and free) were greater than 4 million as of December
31, 2001 and 2000 and greater than 400,000 as of December 31, 1999. For these
years our primary source of revenue was derived from monthly fees from paid
subscriptions.

For the year ended December 31, 2001, our Web, Corporate and Licensed
Services channel revenue represented 75%, 19% and 6% of our revenue,
respectively. During fiscal years ended 2000 and 1999, substantially all of our
revenue was generated from our Web channel.

Cost of revenue. Cost of revenue is primarily comprised of costs associated
with data and voice transmission, telephone numbers, customer service, online
processing fees and equipment depreciation. Cost of revenue was $13.4 million
or 40% of revenue, $7.3 million or 52% of revenue and $4.6 million or 61% of
revenue for the years ended December 31, 2001, 2000 and 1999, respectively. The
increases in cost of revenue reflect the cost of building and expanding our
server and networking infrastructure and customer services to accommodate the
growth of our subscriber base. Cost of revenue as a percentage of revenue
decreased from year to year as a result of the increases in revenue over the
same periods, relative to the fixed costs to support that revenue.

Operating Expenses

Sales and Marketing. For 2001 our sales and marketing costs consisted
primarily of payments to sales and marketing personnel, advertising,
consulting, promotions, public relations, trade shows and business development.
For 2000 and 1999 our sales and marketing costs consisted primarily of payments
with respect to strategic alliances, sales and marketing personnel,
advertising, consulting, promotions, public relations, trade shows and business
development. Sales and marketing expenses were $4.6 million or 14% of revenue,
$8.7 million or 62% of revenue and $6.4 million or 83% of revenue for the years
ended December 31, 2001, 2000 and 1999, respectively.

The increase from 1999 to 2000 in sales and marketing expenses primarily
reflects an increase in marketing payments as a result of strategic
relationships with leading Internet and telecommunications companies, and an
increase in expenses with respect to sales and marketing personnel. The
decrease from 2000 to 2001 resulted primarily from our reevaluation of our
return on investment with respect to online advertising arrangements requiring
fixed payments. Prior to mid fiscal year 2000, we relied heavily on marketing
and advertising relationships that required substantial payments without regard
to number of customers acquired. For the second half of fiscal 2000 and on a go
forward basis, we expect our sales and marketing customer acquisition expenses
to substantially occur only after the acquisition of a paid subscriber. As a
result, our marketing relationships with third parties will primarily consist
of revenue share type of arrangements.

Amounts expensed under agreements with online service providers are included
in sales and marketing expense. For the years ended December 31, 2001, 2000 and
1999, total amounts expensed were zero, $4,435,628 and $2,220,320 respectively.
As of December 31, 2001 there are no future annual fixed payments associated
with any arrangements with online service providers.

Research and Development. Our research and development costs consist
primarily of personnel related costs. Research and development costs were $2.5
million or 8% of revenue, $2.8 million or 20% and $1.8 million

or 24% of revenue for the years ended December 31, 2001, 2000 and 1999,
respectively. Research and development costs primarily reflect personnel
related expenses. Research and development costs as a percentage of revenue
decreased from year to year as a result of increases in revenue over the same
periods. The increase from 1999 to 2000 was due to the building up of our
personnel to support our growing business.

General and Administrative. Our general and administrative costs consist
primarily of personnel related expenses, professional services and occupancy
costs. General and administrative costs were $13.9 million or 42% of revenue,
$15.4 million or 110% of revenue and $8.0 million or 104% of revenue for the
years ended December 31, 2001, 2000 and 1999, respectively. The increase in
general and administrative costs from 1999 to 2000 were primarily due to
increases in personnel as well as increased professional fees. The decrease in
general and administrative costs from 2000 to 2001 were primarily due to higher
fiscal 2000 expenses relating to an equity investment in an unconsolidated
subsidiary, realized loss on sale of an investment and stock based compensation
expense. Our core general and administrative costs remained consistent from
2000 to 2001.

Our stock compensation expense, which is included in general and
administrative, is comprised of amortization of deferred compensation of
$236,000, $443,000 and $390,000 for the years ended December 31, 2001, 2000 and
1999, respectively.

Amortization of Goodwill and Other Intangibles. Amortization of goodwill
and other intangibles increased to $6.9 million in 2001, from $4.4 million in
2000 and zero in 1999. The increase in amortization expense during fiscal 2001
is attributable to our acquisition of eFax.com in November of 2000. The
increase in amortization expenses from 1999 to 2000 is attributable to
acquisitions of SureTalk.com and TimeShift, Inc. in the first quarter of 2000.

Impairment of Acquisition Related Intangibles, Net of Other One Time
Items. On March 6, 2000, we acquired substantially all of the assets of
TimeShift, Inc, a closely-held Internet technology company based in San
Francisco, California for $1.1 million in common stock, valued at the average
closing price at the acquisition date.

A substantial portion of the allocation of TimeShift's assets was classified
as an intangible asset related to a favorable operating lease. During the
fourth quarter of fiscal 2001 we determined that that this asset was
permanently impaired due to continuing weakness in the San Francisco commercial
real estate market. As a result, in that quarter we wrote off the remaining
asset value of $752,000.

Additionally, we had two other one time claim items related to the
TimeShift, Inc. acquisition, netting to $155,000 of income.

Interest and Other Income. Our interest and other income is primarily
related interest earned on cash and cash equivalents and marketable securities.
Interest and other income was $1,045,000, $2,973,000 and $1,579,000 for the
years ended December 31, 2001, 2000 and 1999, respectively.

Interest and Other Expense. Our interest and other expense was $155,000,
$618,000 and $1,431,000 for the years ended December 31, 2001, 2000 and 1999,
respectively. For fiscal years 2001 and 1999, interest and other expense was
primarily related to interest on capital lease obligations and long-term debt.
For fiscal 2000, interest and other expense was primarily related to interest
on capital lease obligations and long-term debt, equity in the loss of a joint
venture and a permanent impairment of a corporate debt security.

Income Taxes. As of December 31, 2001, the Company has Federal and state
net operating losses (NOL) carryforwards of approximately $115 million and $43
million, respectively. These NOL carryforwards will expire through year 2021
for Federal NOLs and 2011 for state NOLs. In addition, the Company has Federal
and state research and development tax credits of $711,000 and $822,000
respectively, which will expire through year 2021 for federal purposes and
indefinitely for state purposes.

Liquidity and Capital Resources

At December 31, 2001, our primary source of liquidity consisted of $19.1 in
cash and cash equivalents.

Net cash provided by (used in) operating activities was $1,679,000,
$(11,931,000) and $(12,091,000), for the years ended December 31, 2001, 2000
and 1999, respectively. For 2001 the net cash provided primarily resulted from
our net loss from operations, offset by depreciation charges, amortization of
acquisition related goodwill and other intangibles and noncash compensation and
impairment charges. For 2000, the principal uses of cash were to fund our net
loss from operations, offset by depreciation charges, amortization of
acquisition related goodwill and other intangibles and prepaid expenses. The
principal uses of cash for 1999 were to fund our net loss from operations,
partially offset by increases in accounts payable and decreases in payments to
strategic alliances.

Net cash provided by (used in) investing activities was $645,000,
$24,421,000 and $(39,316,000), for the years ended December 31, 2001, 2000 and
1999, respectively. The principal sources in 2001 were for redemptions of
investments, offset by purchases of furniture, fixtures and equipment, and
intangible assets. Net cash provided by investing activities in 2000 was due to
maturities of investments offset by purchases of property and equipment and the
acquisition of eFax.com. The principal uses in 1999 were for purchases of
current and non-current investments, and the purchases of furniture, fixtures
and equipment.

Net cash (used in) provided by financing activities was $(7,062,000),
$(922,000) and $56,514,000, for the years ended 2001, 2000 and 1999,
respectively. Net cash used in 2001 was due to repurchases of common stock and
repayments of loans payable. Net cash used in 2000 was primarily due to
repayments of loan and capital leases payable. The net increase in 1999 was
primarily due to the $73.9 million raised in our initial public offering,
reduced by repayments of senior subordinated debt and preferred stock of $10.6
million and $6.8 million, respectively.

We finance a portion of our operating technology equipment and office
equipment through capital leasing and loan arrangements. Amounts due under
these arrangements were $682,000 and $2,164,000 at December 31, 2001 and 2000,
respectively.

We currently anticipate that our existing cash balances and short and long
term investments will be sufficient to meet our anticipated needs for working
capital and capital expenditures for at least the next 12 months.

Contractual Obligations and Commercial Commitments

The following table summarizes the Company's obligations and commitments as
of December 31, 2001:

Payments Due by Period (in thousands)
-------------------------------------
Contractual Cash Obligations Total Less Than 1 Year 1-3 Years 4-5 Years After 5 Years
---------------------------- ------ ---------------- --------- --------- -------------

Long-Term Debt........ $ 428 $ 400 $ 28 $ -- $ --
Capital Leases........ 254 254 -- -- --
Operating Leases...... 3,935 1,102 1,039 714 1,080
------ ------ ------ ---- ------
$4,617 $1,756 $1,067 $714 $1,080
====== ====== ====== ==== ======

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The following discussion of the market risks we face contains
forward-looking statements. Forward-looking statements are subject to risks and
uncertainties. Actual results could differ materially from those discussed in
the forward-looking statements.

We believe that our exposure to market risk related to changes in interest
rates and foreign currency exchange rates is not significant, primarily because
our indebtedness under financing arrangements has fixed interest rates and our
transactions are generally denominated in US dollars. However, we invest our
cash primarily in high grade, short-term, interest-bearing securities. Our
return on these investments is subject to interest rate fluctuations.

We do not have derivative financial instruments for hedging, speculative or
trading purposes.

Item 8. Financial Statements and Supplementary Data

Independent Auditors' Report

The Board of Directors
j2 Global Communications, Inc.:

We have audited the accompanying consolidated balance sheets of j2 Global
Communications, Inc. and subsidiaries as of December 31, 2001 and 2000 and the
related consolidated statements of operations, stockholders' equity
(deficiency) and cash flows for each of the years in the three-year period
ended December 31, 2001. In connection with our audits of the consolidated
financial statements, we also have audited the financial statement schedule.
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 financial
statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. 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 financial position of j2 Global
Communications, Inc. and subsidiaries as of December 31, 2001 and 2000 and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly in all material respects, the information set forth therein.

/s/ KPMG LLP
Los Angeles, California
February 15, 2002

j2 Global Communications, Inc.

Consolidated Balance Sheets
December 31, 2001 and 2000

2001 2000
ASSETS ------------ ------------

Cash and cash equivalents.................................................. $ 19,087,053 $ 23,824,402
Short-term investments..................................................... -- 1,962,627
Accounts receivable,
net of allowances of $1,104,000 and $1,112,000, respectively............. 3,615,099 2,362,772
Prepaid expenses........................................................... 471,413 1,203,387
Other current assets....................................................... 826,539 924,106
------------ ------------
Total current assets.................................................... 24,000,104 30,277,294
Furniture, fixtures and equipment, net..................................... 6,066,012 6,214,303
Goodwill, net.............................................................. 15,778,099 20,758,726
Other purchased intangibles, net........................................... 1,967,859 2,944,643
Long-term investments...................................................... -- 2,320,170
Other assets............................................................... 1,244,127 2,789,623
------------ ------------
Total assets............................................................ $ 49,056,201 $ 65,304,759
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses...................................... $ 4,877,198 $ 5,297,030
Deferred revenue........................................................... 1,406,122 1,485,201
Current portion of capital lease payable................................... 253,854 295,138
Current portion of long-term debt.......................................... 400,587 1,284,719
Accrued exit costs......................................................... 898,472 2,105,922
Other...................................................................... 52,000 133,728
------------ ------------
Total current liabilities............................................... 7,888,233 10,601,738
Capital lease obligations.................................................. -- 167,650
Long-term debt............................................................. 27,896 416,388
------------ ------------
Total liabilities....................................................... 7,916,129 11,185,776
Redeemable common stock; issued and outstanding 551,925 shares at December
31, 2000 (redemption value of $7,064,633 at December 31, 2000)........... -- 7,064,633

Common stock subject to put option (26,250 shares at December 31, 2000).... -- 997,500

Stockholders' Equity:
Common stock, $0.01 par value. Authorized 50,000,000 and 200,000,000 shares
at December 31, 2001 and 2000, respectively; total issued and outstanding
10,727,722 and 10,997,402 shares at December 31, 2001 and 2000,
respectively, excluding 551,925 issued as redeemable at December 31, 2000
and 26,250 shares subject to a put option at December 31, 2000........... 115,807 109,974

Additional paid in capital................................................. 115,331,548 110,667,271
Notes receivable from stockholders......................................... (287,096) (486,821)
Treasury Stock, at cost.................................................... (3,721,534) (760,618)
Unearned compensation...................................................... -- (1,008,809)
Accumulated Deficit........................................................ (70,298,653) (62,464,147)
------------ ------------
Net stockholders' equity................................................... 41,140,072 46,056,850
------------ ------------
Total liabilities and stockholders' equity................................. $ 49,056,201 $ 65,304,759
============ ============

j2 Global Communications, Inc.

Consolidated Statements of Operations
Years Ended December 31, 2001, 2000 and 1999

2001 2000 1999
----------- ------------ ------------

Revenue:
Subscriber...................................................... $31,286,462 $ 13,593,731 $ 7,643,442
Other........................................................... 1,966,201 339,615 --
----------- ------------ ------------
33,252,663 13,933,346 7,643,442
Cost of revenue:
Subscriber...................................................... 12,961,846 7,092,778 4,640,668
Other........................................................... 450,000 219,343 --
----------- ------------ ------------
13,411,846 7,312,121 4,640,668

Gross profit.................................................... 19,840,817 6,621,225 3,002,774

Operating expenses:
Sales and marketing............................................. 4,584,795 8,671,124 6,354,522
Research and development........................................ 2,534,958 2,761,742 1,828,873
General and administrative...................................... 13,921,518 15,384,594 7,976,221
Amortization of goodwill and other intangibles.................. 6,924,314 4,374,224 ---
Impairment of acquisition related intangibles, net of other one
time items.................................................... 596,824 -- --
----------- ------------ ------------
Total operating expenses........................................ 28,562,409 31,191,684 16,159,616

Operating loss..................................................... (8,721,592) (24,570,459) (13,156,842)

Other income (expenses):
Interest and other income....................................... 1,045,492 2,973,412 1,578,507
Interest and other expense...................................... (154,706) (617,707) (1,430,894)
----------- ------------ ------------

Loss before income taxes and extraordinary item................. (7,830,806) (22,214,754) (13,009,229)

Income tax expense................................................. 4,000 4,052 1,500

Loss before extraordinary item.................................. (7,834,806) (22,218,806) (13,010,729)
Extraordinary item--Loss on extinguishment of debt................. -- -- (4,428,374)
----------- ------------ ------------

Net loss........................................................... (7,834,806) (22,218,806) (17,439,103)
----------- ------------ ------------

Premiums on preferred stock redemption............................. -- -- (877,721)
Cumulative preferred dividends, accretion of discount attributable
to preferred stock, and amortization of preferred stock issuance
costs............................................................ -- -- (694,150)
----------- ------------ ------------

Net loss attributable to common stockholders....................... $(7,834,806) $(22,218,806) $(19,010,974)
=========== ============ ============

Basic and diluted net loss per common share........................ $ (0.69) $ (2.44) $ (2.71)
=========== ============ ============

Weighted average shares outstanding................................ 11,279,647 9,121,236 7,024,748
=========== ============ ============

j2 Global Communications, Inc.
Consolidated Statements of Stockholders' Equity (Deficiency)
Years Ended December 31, 2001, 2000 and 1999

Accumulated Notes
Common Stock Additional Treasury Stock Other Receivable
------------------- Paid-in ------------------ Accumulated Comprehensive from
Shares Amount Capital Shares Amount Deficit Income Stockholders
---------- -------- ------------ ------- --------- ------------ ------------- ------------

Balance, December 31, 1998..... 5,524,999 $ 55,250 $ 12,439,542 -- $ -- $(22,806,238) $ -- $(2,499,000)
========== ======== ============ ======= ========= ============ ============= ===========
Issuance of common stock
(public offering)............. 2,098,750 20,988 72,805,504 -- -- -- -- --
Exercise of stock options...... 11,906 105 41,443 -- -- -- -- --
Amortization of costs of
mandatorily redeemable
preferred stock............... -- -- -- -- -- -- -- --
Dividends on mandatorily
redeemable preferred stock.... -- -- (553,064) -- -- -- -- --
Amortization of warrants....... -- -- -- -- -- -- -- --
Amortization of preferred
stock discount................ -- -- (134,994) -- -- -- -- --
Accretion to common stock
redemption.................... -- -- (1,818,658) -- -- -- -- --
Unearned compensation.......... -- -- 1,323,476 -- -- -- -- --
Amortization of unearned
compensation.................. -- -- -- -- -- -- -- --
Repayments of notes receivable. -- -- -- -- -- -- -- 219,381
Conversion of put warrants..... -- -- 6,318,000 -- -- -- -- --
Retirement of preferred stock.. -- -- (2,058,971) -- -- -- -- --
Unrealized gain on investment.. -- -- -- -- -- -- 649,046 --
Net loss....................... -- -- -- -- -- (17,439,103) -- --
---------- -------- ------------ ------- --------- ------------ --------- -----------
Balance, December 31, 1999..... 7,635,655 $ 76,343 $ 88,362,278 -- $ -- $(40,245,341) $ 649,046 $(2,279,619)
========== ======== ============ ======= ========= ============ ========= ===========
Issuance of common stock....... 2,976,077 29,774 17,564,566 -- -- -- -- --
Issuance of warrants for the
acquisition of eFax.com....... -- -- 1,558,725 -- -- -- -- --
Acquisition of treasury stock.. -- -- -- (62,733) (760,618) -- -- 760,618
Exercise of stock options and
warrants...................... 365,670 3,657 86,599 -- -- -- -- --
Stock issued for reduction of
note payable.................. -- -- 3,069,162 -- -- -- -- --
Unearned compensation.......... 20,000 200 422,200 -- -- -- -- --
Amortization of unearned
compensation.................. -- -- (396,259) -- -- -- -- --
Repayments of notes receivable. -- -- -- -- -- -- -- 132,179
Unrealized loss on investment.. -- -- -- -- -- -- (649,046) --
Reclassification of shareholder
notes......................... -- -- -- -- -- -- -- 900,001
Net loss....................... -- -- -- -- -- (22,218,806) -- --
---------- -------- ------------ ------- --------- ------------ --------- -----------
Balance, December 31, 2000..... 10,997,402 $109,974 $110,667,271 62,733 $(760,618) $(62,464,147) $ -- $ (486,821)
========== ======== ============ ======= ========= ============ ============= ===========

Stockholders'
Unearned Equity Comprehensive
Compensation (Deficiency) Income (Loss)
------------ ------------- -------------

Balance, December 31, 1998..... $ (506,202) $(13,316,647) $(17,233,033)
=========== ============ ============
Issuance of common stock
(public offering)............. -- 72,826,492 --
Exercise of stock options...... -- 41,548 --
Amortization of costs of
mandatorily redeemable
preferred stock............... -- (33,857) --
Dividends on mandatorily
redeemable preferred stock.... -- (553,064) --
Amortization of warrants....... -- (101,137) --
Amortization of preferred
stock discount................ -- -- --
Accretion to common stock
redemption.................... -- (1,818,658) --
Unearned compensation.......... (1,323,476) -- --
Amortization of unearned
compensation.................. 414,236 414,235 --
Repayments of notes receivable. -- 219,381 --
Conversion of put warrants..... -- 6,318,000 --
Retirement of preferred stock.. -- (2,058,971) --
Unrealized gain on investment.. -- 649,046 649,046
Net loss....................... -- (17,439,103) (17,439,103)
----------- ------------ ------------
Balance, December 31, 1999..... $(1,415,442) $ 45,147,265 $(16,790,057)
=========== ============ ============
Issuance of common stock....... -- 17,594,327 --
Issuance of warrants for the
acquisition of eFax.com....... -- 1,558,725 --
Acquisition of treasury stock.. -- -- --
Exercise of stock options and
warrants...................... -- 90,269 --
Stock issued for reduction of
note payable.................. -- 3,069,162 --
Unearned compensation.......... (422,400) -- --
Amortization of unearned
compensation.................. 829,033 432,774 --
Repayments of notes receivable. -- 132,179 --
Unrealized loss on investment.. -- (649,046) (649,046)
Reclassification of shareholder
notes......................... -- 900,001 --
Net loss....................... -- (22,218,806) (22,218,806)
----------- ------------ ------------
Balance, December 31, 2000..... $(1,008,809) $ 46,056,850 $(22,867,852)
=========== ============ ============

j2 Global Communications, Inc.
Consolidated Statements of Stockholders' Equity (Deficiency)
Years Ended December 31, 2001, 2000 and 1999

Accumulated Notes
Common Stock Additional Treasury Stock Other Receivable
------------------ Paid-in -------------------- Accumulated Comprehensive from
Shares Amount Capital Shares Amount Deficit Income Stockholders
---------- ------- ----------- -------- ---------- ----------- ------------- ------------

Issuance of common stock..... 5,061 51 5,761 -- -- -- -- --
Unearned compensation........ -- -- (772,636) -- -- -- -- --
Amortization of unearned
compensation................ -- -- -- -- -- -- -- --
Sale of redeemable common
stock....................... 300,003 3,000 3,837,035 -- -- -- -- --
Conversion of redeemable
stock to treasury........... 251,922 2,519 3,222,079 (251,922) (911,024) -- -- --
Repurchase of common stock... -- -- -- (149,826) (485,480) -- -- --
Issuance of shares under
employee stock purchase
plan........................ -- -- -- 8,839 24,484 -- -- --
Purchase of common shares
and outstanding warrants.... -- -- (2,625,200) (397,224) (1,588,896) -- -- --
Repayments of notes
receivable.................. -- -- -- -- -- -- -- 24,370
Valuation reserve on notes
receivable.................. -- -- -- -- -- -- -- 175,355
Conversion of puttable shares 26,250 263 997,237 -- -- -- -- --
Net loss..................... -- -- -- -- -- (7,834,806) -- --
---------- ------- ----------- -------- ---------- ----------- ------------- --------
Balance, December 31, 2001... 11,580,638 115,807 115,331,548 852,866 (3,721,534) (70,298,653) -- (287,096)
========== ======= =========== ======== ========== =========== ============= ========

Unearned Stockholders' Comprehensive
Compensation Equity Income (Loss)
------------ ------------- -------------

Issuance of common stock..... -- 5,812 --
Unearned compensation........ 772,636 -- --
Amortization of unearned
compensation................ 236,173 236,173 --
Sale of redeemable common
stock....................... -- 3,840,035 --
Conversion of redeemable
stock to treasury........... -- 2,313,574 --
Repurchase of common stock... -- (485,480) --
Issuance of shares under
employee stock purchase
plan........................ -- 24,484 --
Purchase of common shares
and outstanding warrants.... -- (4,214,096) --
Repayments of notes
receivable.................. -- 24,370 --
Valuation reserve on notes
receivable.................. -- 175,355 --
Conversion of puttable shares -- 997,500 --
Net loss..................... -- (7,834,806) (7,834,806)
------- ---------- ----------
Balance, December 31, 2001... -- 41,140,072 (7,834,806)
======= ========== ==========

j2 Global Communications, Inc.

Consolidated Statements of Cash Flows
Years Ended December 31, 2001, 2000 and 1999

2001 2000 1999
----------- ------------ ------------

Cash flows from operating activities:
Net loss............................................................... $(7,834,506) $(22,218,806) $(17,439,103)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization.......................................... 9,457,966 6,581,473 959,421
Extraordinary item-loss on early extinguishment of debt................ -- -- 4,428,374
Equity in loss of joint venture........................................ -- 417,773 82,227
Amortization of notes payable discount................................. -- -- 525,621
Amortization of unearned compensation.................................. 236,173 406,633 414,235
Realized loss on disposal of marketable equity securities.............. -- 255,000 --
Compensation expense in exchange for note reduction.................... 380,769 370,000 219,381
Impairment of intangible assets........................................ 752,000 -- --
Changes in assets and liabilities, net of effects of business combinations:
Decrease (increase) in:
Accounts receivable.................................................... (1,229,349) (788,357) (162,317)
Interest receivable.................................................... 125,600 344,778 (551,966)
Prepaid expenses....................................................... 1,112,113 2,047,512 (1,725,234)
Other assets........................................................... 466,910 672,612 356,921
(Decrease) increase in:
Accounts payable....................................................... (419,832) 471,289 680,544
Deferred revenue....................................................... (79,079) (252,903) 109,982
Accrued exit costs..................................................... (1,207,450) -- --
Other current liabilities.............................................. (81,728) (238,221) 11,408
----------- ------------ ------------
Net cash provided by (used in) operating activities.................... $ 1,679,597 $(11,931,217) $(12,090,546)
Cash flows from investing activities:
Purchase of furniture, fixtures, and equipment......................... (2,717,404) (3,035,905) (2,395,673)
Purchase of intangible asset........................................... (600,000) -- --
Redemption (purchase) of investments, net.............................. 4,282,797 32,311,566 (36,420,192)
Investment in joint venture............................................ -- -- (500,000)
Acquisition of businesses net of cash received......................... -- (4,854,392) --
Advance of note receivable............................................. (500,800) -- --
Other.................................................................. 180,323 -- --
----------- ------------ ------------
Net cash provided by (used in) investing activities.................... $ 644,916 $ 24,421,269 $(39,315,865)
Cash flows from financing activities:
Proceeds from issuance of common stock................................. -- -- 73,824,413
Issuance of notes receivable from stockholders......................... -- 50,000 --
Redemption of preferred stock.......................................... -- -- (6,817,700)
Exercise of stock options.............................................. 5,812 103,763 41,126
Proceeds from issuance of notes payable................................ -- -- 703,667
Repayment of notes and capital lease obligations payable............... -- -- (11,367,481)
Repayment of loans payable............................................. (1,481,558) (1,075,900) --
Repurchase of common stock............................................. (5,586,116) -- --
----------- ------------ ------------
Net cash provided by (used in) financing activities.................... $(7,061,862) $ (922,137) $ 56,384,025
----------- ------------ ------------
Net increase (decrease) in cash and cash equivalents................... $(4,737,349) $ 11,567,915 $ 4,977,654
Cash and cash equivalents at beginning of year......................... 23,824,402 12,256,487 7,278,873
----------- ------------ ------------
Cash and cash equivalents at end of year............................... $19,087,053 $ 23,824,402 $ 12,256,487
=========== ============ ============
Cash paid during the year for:
Income taxes........................................................... $ 4,000 $ 4,052 $ 1,500
Interest............................................................... $ 154,706 $ 393,832 $ 609,945

j2 GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999

(1) Organization

j2 Global Communications, Inc. ("j2 Global" or the "Company") provides
outsourced value-added messaging and communications services to individuals and
businesses throughout the world. The Company's services are delivered through
the Company's global telephony/IP network, which spans more than 600 cities in
18 countries across 5 continents (including four capital cities in Latin
America where we are in the process of launching service).

The Company offers faxing and voicemail services, Web initiated conference
calling services, document management solutions and unified messaging services.
Through three distinct sales channels--Web; Corporate; and Licensed
Services--the Company has more than 4 million active phone numbers. The Company
markets its services principally under the brand names "eFax" and "jConnect".

(2) Summary of Significant Accounting Policies

(a) Principles of Consolidation

The consolidated financial statements include the accounts of j2 Global and
its direct and indirect wholly-owned subsidiaries; eFax.com, Inc.,
SureTalk.com, Inc., JFAX.DE, Inc., Documagix, Inc. and ProtoDyne, Inc. All
intercompany accounts and transactions have been eliminated in consolidation.

(b) Revenue recognition

Our revenue substantially consists of monthly recurring and usage based
subscription fees, which are primarily paid in advance by credit card. In
accordance with GAAP and with Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" which clarifies certain existing accounting principles for the
timing of revenue recognition and classification of revenues in the financial
statements, we defer the portions of monthly recurring and usage based fees
collected in advance and recognize them in the period earned. Additionally, we
defer and recognize subscriber activation fees and related direct incremental
costs over a subscriber's estimated useful life.

Research and development costs are expensed as incurred. Costs for software
development incurred subsequent to establishing technological feasibility, in
the form of a working model, are capitalized and amortized over their estimated
useful lives. To date, software development costs incurred after technological
feasibility has been established have not been material.

(d) Cash Equivalents

The Company considers all highly liquid temporary cash investments with
original maturities of three months or less to be cash equivalents.

j2 GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(e) Marketable Securities

Marketable securities include highly liquid investments with original
maturities in excess of three months but less than one year. The Company's
noncurrent marketable securities consist of investments with original
maturities in excess of one year to 18 months. All marketable securities except
an equity investment are classified as held to maturity and, accordingly, are
carried at cost, which approximates market value.

As of December 31, 1999, an equity investment in a foreign publicly traded
company was classified as available for sale and had a gross unrealized gain of
$649,046 which is classified as a separate component of stockholders' equity.
For the year ended December 31, 2000, the entire unrealized gain was reversed
and the Company recorded a realized loss of $178,000. Such loss is included in
interest and other expense in the accompanying fiscal 2000 statement of
operations. As of December 31, 2001 and 2000 marketable securities are
summarized follows:

Years Ended December 31,
--------------------------
2001 2000
------------ ------------

Government Agencies............................ $ 7,300,000 $ 4,600,000
Commercial Paper............................... -- 8,538,611
Corporate Bonds................................ 301,535 5,117,316
Money Market Accounts.......................... $ 11,485,518 $ 9,851,272
------------ ------------
Total Marketable Securities.................... 19,087,053 28,107,199
Less:
Amounts classified as Cash and Cash Equivalents (19,087,053) (23,824,402)
Less:
Current Marketable Securities.................. -- (1,962,627)
------------ ------------
Noncurrent Marketable Securities............... $ -- $ 2,320,170
============ ============

(f) Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market.
At December 31, 2000, inventories are primarily comprised of finished goods

(g) Goodwill

Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over periods to be
benefited, ranging from 2 to 7 years. As of December 31, 2001 and 2000
accumulated amortization was $ 6.9 million and $4.4 million, respectively. No
goodwill existed prior to fiscal 2000.

Other intangible assets include primarily the eFax brand name and patent
license fees, which are amortized on a straight-line basis over 7 to 10 years.

Prior to the recent accounting pronouncements of SFAS numbers 141 and 142 as
more fully described in section (q) "New Accounting Pronouncements" in this
footnote, the Company periodically evaluated whether changes had occurred that
would have required revision of the remaining estimated useful life of the
assigned goodwill or render the goodwill impaired. If such circumstances had
arisen, the Company would use an estimate of the undiscounted value of expected
future operating cash flows to determine whether the goodwill is
impaired. For the portion of goodwill deemed not impaired, the Company would
record a charge, in the period identified, between the difference of the
carrying amount and the estimated undiscounted value of future operating cash
flows.

j2 GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(h) Furniture, Fixtures and Equipment

Furniture, fixtures and equipment are stated at cost. Equipment under
capital lease are stated at the present value of the minimum lease.
Depreciation is calculated using the straight-line method over the estimated
useful lives of the assets ranging from three to five years. Equipment under
capital leases and leasehold improvements are amortized on a straight-line
basis over the shorter of the lease term or their estimated useful lives.

(i) Income Taxes

Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. The realizability of the deferred tax asset is assessed
throughout the year and a valuation allowance is established accordingly.

(j) Accounting for Stock Options

The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees", and related interpretations to account for its
fixed plan stock options. These interpretations include FASB Interpretation No.
44, "Accounting for Certain Transactions involving Stock Compensation an
interpretation of APB Opinion No. 25" issued in March 2000. Under this method,
compensation expense is recorded on the date of grant only if the current
market price of the underlying stock exceeded the exercise price. SFAS No. 123,
"Accounting for Stock-Based Compensation", established accounting and
disclosure requirements using a fair value-based method of accounting for
stock-based employee compensation plans. As allowed by SFAS No. 123, the
Company has elected to continue to apply the intrinsic value-based method of
accounting described above, and has adopted the disclosure requirements of SFAS
No. 123.

The Company accounts for option grants to non-employees using the guidance
of SFAS No. 123 and Emerging Issues Task Force (EITF) No. 96-18, whereby the
fair value of such options is determined using the Black-Scholes option pricing
model at the earlier of the date at which the non-employee's performance is
complete or a performance commitment is reached.

(k) Use of Estimates

The Company has made a number of estimates and assumptions relating to the
reporting of assets and liabilities, and revenues and expenses, and disclosure
of contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.

(l) Impairment of Long-Lived Assets

The Company accounts for long lived assets in accordance with the provision
of SFAS No. 121, "Accounting for the Impairment of Long Lived Assets and for
Long Lived Assets to be disposed of." This statement requires that long-lived
assets and certain unidentifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be

j2 GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets that are to
be disposed of are reported at the lower of the carrying amount or fair value
less costs to sell.

(m) Fair Value of Financial Instruments

SFAS No. 107, "Disclosure about Fair Value of Financial Instruments",
requires entities to disclose the fair value of financial instruments, both
assets and liabilities recognized and not recognized on the balance sheet, for
which it is practicable to estimate fair value. SFAS No. 107 defines fair value
of a financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties. As of December 31,
2001 and 2000, the carrying value of cash and cash equivalents, accounts
receivable, interest receivable, accounts payable, accrued expenses, interest
payable and customer deposits approximate fair value due to the short- term
nature of such instruments. The carrying value of long-term debt and notes
payable, approximate fair value as the related interest rates approximate rates
currently available to the Company.

(n) Loss Per Share of Common Stock

The Company has adopted SFAS No. 128, "Earnings Per Share". Basic net loss
per share is computed using the weighted average number of common shares
outstanding during the period. Dividends on Preferred Stock and amortization of
Preferred Stock issuance costs and mandatory redemption value increase the net
loss for determining basic and diluted net loss per share attributable to
Common Stock. Diluted net loss per share excludes the effect of common stock
equivalents, because their effect would be anti-dilutive.

(o) Reclassifications

Certain reclassifications have been made to the 1999 and 2000 consolidated
financial statements to conform to the 2001 presentation.

(p) Segment Reporting

The Company operates in one reportable segment: unified messaging and
communications services and document management solutions, which provide
delivery of fax and voice messages via the telephone and Internet networks. The
Company's services are distributed over the Internet and thus the Company
considers that it operates in one geographic segment.

(q) New Accounting Pronouncements

In June 2001, the FASB issued SFAS No. 141, Business Combinations, (SFAS No.
141) and SFAS No. 142, Goodwill and Other Intangible Assets (SFAS No. 142).
SFAS No. 141 requires that the purchase method of accounting be used for all
business combinations. SFAS No. 141 specifies criteria that intangible assets
acquired in a business combination must meet to be recognized and reported
separately from goodwill. SFAS No. 142 will require that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually in accordance with the
provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets
with estimable useful lives be amortized over their respective estimated useful
lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 121 and subsequently, SFAS No. 144 after its adoption.

The Company adopted the provisions of SFAS No. 141 as of July 1, 2001, and
SFAS No. 142 is effective January 1, 2002. Goodwill and intangible assets
determined to have an indefinite useful life acquired in a

j2 GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

purchase business combination completed after June 30, 2001, but before SFAS
No. 142 is adopted in full, are not amortized. Goodwill and intangible assets
acquired in business combinations completed before July 1, 2001 continued to be
amortized and tested for impairment prior to the full adoption of SFAS No. 142.

Upon adoption of SFAS No. 142, the Company is required to evaluate its
existing intangible assets and goodwill that were acquired in purchase business
combinations, and to make any necessary reclassifications in order to conform
with the new classification criteria in SFAS No. 141 for recognition separate
from goodwill. The Company will be required to reassess the useful lives and
residual values of all intangible assets acquired, and make any necessary
amortization period adjustments by the end of the first interim period after
adoption. If an intangible asset is identified as having an indefinite useful
life, the Company will be required to test the intangible asset for impairment
in accordance with the provisions of SFAS No. 142 within the first interim
period. Impairment is measured as the excess of carrying value over the fair
value of an intangible asset with an indefinite life. Any impairment loss will
be measured as of the date of adoption and recognized as the cumulative effect
of a change in accounting principle in the first interim period.

In connection with SFAS No. 142's transitional goodwill impairment
evaluation, the Statement requires the Company to perform an assessment of
whether there is an indication that goodwill is impaired as of the date of
adoption. To accomplish this, the Company must identify its reporting units and
determine the carrying value of each reporting unit by assigning the assets and
liabilities, including the existing goodwill and intangible assets, to those
reporting units as of January 1, 2002. The Company will then have up to six
months from January 1, 2002 to determine the fair value of each reporting unit
and compare it to the carrying amount of the reporting unit. To the extent the
carrying amount of a reporting unit exceeds the fair value of the reporting
unit, an indication exists that the reporting unit goodwill may be impaired and
the Company must perform the second step of the transitional impairment test.
The second step is required to be completed as soon as possible, but no later
than the end of the year of adoption. In the second step, the Company must
compare the implied fair value of the reporting unit goodwill with the carrying
amount of the reporting unit goodwill, both of which would be measured as of
the date of adoption. The implied fair value of goodwill is determined by
allocating the fair value of the reporting unit to all of the assets
(recognized and unrecognized) and liabilities of the reporting unit in a manner
similar to a purchase price allocation, in accordance with SFAS No. 141. The
residual fair value after this allocation is the implied fair value of the
reporting unit goodwill. Any transitional impairment loss will be recognized as
the cumulative effect of a change in accounting principle in the Company's
statement of operations.

As of the date of adoption of SFAS No. 142, the Company had unamortized
goodwill of $15.8 million and unamortized identifiable intangible assets of
$2.0 million, all of which will be subject to the transition provisions of SFAS
No. 142. Amortization expense related to goodwill was $5.4 million and $3.0
million for the years ended December 31, 2001 and 2000, respectively. Because
of the extensive effort needed to comply with adopting SFAS No. 141 and No.
142, it is not practicable to reasonably estimate the impact of adopting the
Statements on the Company's financial statements at the date of this report,
including whether it will be required to recognize any transitional impairment
losses as the cumulative effect of a change in accounting principle.

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations (SFAS No. 143). SFAS No. 143 requires the Company to record the
fair value of an asset retirement obligation as a liability in the period in
which it incurs a legal obligation associated with the retirement of tangible
long-lived assets that result from the acquisition, construction, development
and/or normal use of the assets. The Company also records a corresponding asset
which is depreciated over the life of the asset. Subsequent to the initial
measurement of the asset retirement obligation, the obligation will be adjusted
at the end of each period to reflect the passage of time and changes in the
estimated future cash flows underlying the obligation. The Company is required
to adopt SFAS No. 143 on January 1, 2003.

j2 GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets (SFAS No. 144). SFAS No. 144 addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. This Statement requires that long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If the carrying
amount of an asset
exceeds its estimated future cash flows, an impairment charge is recognized by
the amount by which the carrying amount of the asset exceeds the fair value of
the asset. SFAS No. 144 requires companies to separately report discontinued
operations and extends that reporting to a component of an entity that either
has been disposed of (by sale, abandonment, or in a distribution to owners) or
is classified as held for sale. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell. The Company was
required to adopt SFAS No. 144 on January 1, 2002.

(r) Statements of Cash Flows

Supplemental disclosure of noncash investing and financing activities is
included in notes 4, 6, 8, and 14.

(3) Furniture, Fixtures and Equipment

Furniture, fixtures and equipment, stated at cost, at December 31, 2001 and
2000 consisted of the following:

2001 2000
----------- -----------

Computer and related equipment................ $10,787,127 $10,243,451
Furniture and equipment....................... 360,402 1,485,181
Capital leases--computer and related equipment 1,019,994 693,573
Leasehold improvements........................ 817,198 1,091,551
----------- -----------
12,984,721 13,513,756
Less accumulated depreciation and amortization (6,918,711) (7,299,453)
----------- -----------
$ 6,066,012 $ 6,214,303
=========== ===========

Included in accumulated amortization at December 31, 2001 and 2000 is
$853,279 and $557,311, respectively, related to capital leases. Amortization
expense related to capital leases aggregated $124,876, $176,642 and $121,072
for the years ended December 31, 2001, 2000 and 1999 respectively.

(4) Redeemable Securities and Stockholders' Equity

(a) Private Placement Offering

In June 1998, the Company completed a private placement offering of Senior
Subordinated Notes ("Notes"), Common Stock (Common Shares) and Series A Usable
Redeemable Preferred Stock ("Preferred Shares") with 3,125,000 detachable
warrants ("Warrants") for proceeds aggregating $15,000,000 before offering
expenses. The Offering consisted of the following components:

. Notes and Common Shares

$10,000,000 principal amount of Notes together with 551,925 puttable Common
Shares were issued for combined proceeds of $10,000,000. The Notes bore
interest at 10% per annum and were due on June 30, 2004. In accordance with the
Notes, the Company issued additional interest notes together with a
proportionate number of additional Common Shares in lieu of interest payments
for the period July through December 1998. The Common Shares issued in this
transaction, including shares issued in connection with interest notes, were
subject to certain put rights by the holders at $12.80 per share upon a change
of control on or before July 1, 2003. Accordingly, the Common Shares issued in
the transaction are shown as redeemable securities in the accompanying 2000
consolidated balance sheet. The Company accreted to the redemption

j2 GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

amount (fair market value) of the Common Shares through a charge to additional
paid-in capital using the straight line method. The Notes and Common Shares
were recorded at their fair values at the date of issuance of $4,955,269 and
$5,044,731, respectively. The discount attributable to the Notes was amortized
to interest expense over the term of the Notes using the interest method.

On July 30, 1999, the Company redeemed all of the Notes for $10,591,000,
which included the $10,000,000 principal amount, $511,000 in additional
interest notes and $85,000 in accrued interest. In connection with this
redemption, the Company recognized an extraordinary item loss of $4,428,000.

During June 2001, the Company closed an off-market purchase of 251,922 of
the puttable Common Shares for $911,024 in cash (redeemable security value of
$3,224,598). The fair value paid for these Common Shares, and the difference
between their fair value and their carrying value, were recorded as treasury
stock and additional paid in capital, respectively, in the stockholders' equity
section in the accompanying 2001 consolidated balance sheet.

Also during June 2001, the holder of the remaining 300,003 puttable Common
Shares sold those Shares to a third party unaffiliated with the Company. In
connection with this sale, the put feature associated with these Common Shares
was eliminated and, as such, the Company has reclassified the carrying value of
these shares of $3,840,035 to stockholders equity in the accompanying 2001
balance sheet.

As of December 31, 2001, none of the Notes or puttable Common Shares were
outstanding.

. Preferred Shares and Warrants

The Company issued 5,000 Preferred Shares having a stated value of
$5,000,000, together with Warrants to acquire 781,250 shares of the Company's
Common Stock for an exercise price of $9.60 per share, for combined proceeds of
$5,000,000. The Preferred Shares were entitled to cumulative dividends at 15%
per annum based on the stated value and accrued and unpaid dividends. Until and
including the dividend payment date falling on June 30, 2005, the Company had
the option of accruing dividends or paying in cash. The Warrants ("preferred
share warrants") are subject to certain "put" rights by the holders upon a
change of control of the Company. The preferred share warrants are exercisable
by the holders at $9.60 per share at any time until June 30, 2005. From date of
issuance through August 1999 the Company accreted to the mandatory redemption
amount through a charge to additional paid-in capital using the straight line
method.

In connection with the placement of Notes, Warrants and Preferred and Common
Shares, an additional 67,187 warrants were issued to the placement agent
("placement agent warrants"). Such warrants carry the same exercise price and
put features as the preferred share warrants

Effective January 1, 1999, holders of a majority of the Warrants agreed to
eliminate the fair market value put feature in exchange for nominal
consideration. As a result of the elimination of the put feature, the Company
reclassified the put warrant liability of $6,318,000 to additional paid in
capital.

In August 1999, the Company redeemed all of the Preferred Shares for
$6,818,000, including premiums of $878,000 (115% of stated value plus
cumulative unpaid dividends) and accrued dividends of $940,000.

In February and March 2000, the Company issued a total of 347,367 shares of
its Common Stock to investors who had received preferred share and placement
agent warrants. These investors exercised their rights to exercise the Warrants
on a cashless basis, exchanging Warrants to purchase 570,310 shares of the
Company's Common Stock (including all placement agent warrants) for 347,367
shares of the Company's Common Stock.

j2 GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

In June 2001, the Company repurchased additional preferred share warrants to
purchase 117,188 shares of the Company's Common Stock for an immaterial amount.

At December 31, 2001, there remained outstanding Warrants to purchase a
total of 160,939 shares of the Company's Common Stock, all of which are
preferred share warrants.

(b) Stock Repurchase Program

In June 2001, the Company announced that its Board of Directors had approved
a stock repurchase program pursuant to which, through December 31, 2001, the
Company was authorized to repurchase up to $2 million of its common stock
through one or more open or off-market transactions. As of October 31, 2001,
the Company had purchased an aggregate of $1.3 million in common stock under
the program.

In the fourth quarter of 2001, the Company purchased an additional 422,224
common shares and 656,250 common share equivalents for an aggregate purchase
price of $4,306,006, and expanded the existing stock repurchase program to
permit these purchases. The Company's stock repurchase program expired on
December 31, 2001.

The Company may in the future approve additional repurchase programs as it
deems appropriate and in the best interests of the Company and its shareholders.

As of December 31, 2001 and 2000, Notes receivable from stockholders issued
in connection with sales of Common Stock aggregated $287,096 and $486,821,
respectively. As of December 31, 2001 and 2000 these Notes were secured by
77,820 and 80,881 shares, respectively, of the Company's common stock and bore
interest at rates ranging from 4.25% to 7%. At December 31, 2001, these Notes
had maturity dates ranging from December 2000 to July 2002. The Company is
pursuing collection of overdue notes.

(5) Related Party Transactions

(a) Lease and Related Cost Sharing Arrangements

During the last three fiscal years, the Company has entered into several
transactions with companies that are affiliated with the Chairman of the
Company's Board of Directors. These transactions arose because the Company and
these firms affiliated with the Company's Chairman have maintained offices at
the same location, and consist primarily of lease and related cost sharing
arrangements.

During 1999, the Company subleased office space for its headquarters from
CIM Group, LLC ("CIM") a company controlled by the Company's Chairman. During
this same period, the Company shared office-related expenses with CIM and also
with Orchard Capital Corporation and Orchard Telecom, Inc. which are also
controlled by our Chairman. For fiscal 1999, CIM, Orchard Capital Corporation
and Orchard Telecom, Inc. incurred approximately $320,000 in expenses on behalf
of the Company (consisting of rent, telecommunications expenses, routine office
expenses and shared personnel expenses). The Company has reimbursed these
entities in full. For fiscal 1999, the Company incurred approximately $210,000
in similar expenses on behalf of CIM, Orchard Capital Corporation and Orchard
Telecom, Inc. The Company has been reimbursed for these expenses in full.

In 2000, the Company moved its headquarters to their present location, and
entered into a lease with CIM/Hollywood, LLC, an entity indirectly controlled
by the Company's Chairman. At the same time, the Company subleased
approximately 26% of this space to CIM and in 2001 increased the space
subleased to CIM to 50%.

j2 GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

During 2000 and continuing to the present, the Company has shared
office-related expenses with CIM and Orchard Capital Corporation. For fiscal
2001 and 2000, respectively, the Company received approximately $264,000 and
$140,000 under the sublease and incurred approximately $66,000 and $316,000 in
expenses (consisting of telecommunications, shared personnel and routine office
expenses) on behalf of CIM and Orchard Capital Corporation. As of December 31,
2001 and 2000, these entities affiliated with our Chairman owed the Company
$57,000 and $80,000, respectively. These amounts are included in other current
assets in the accompanying December 31, 2001 and 2000 balance sheets.

We believe that the leases and subleases referred to above were entered into
at prevailing market rates, and that all cost-sharing arrangements were based
on actual amounts paid to third parties without markup or markdown.

(b) Consulting Services

The Company engages the consulting services of its Chairman through an
agreement with Orchard Capital Corporation, a company controlled by our
Chairman. For the years ended December 31, 2001, 2000 and 1999, the Company
paid Orchard Capital $144,000, $189,000 and $275,000, respectively, for these
services.

In July 2001 the Company loaned $500,000 to its President in connection with
his engagement of employment. This loan is secured by a second mortgage on a
home purchased by our President following his relocation to Southern
California. The note is due July 2006 or at an earlier date based on certain
employment agreement conditions, as defined. The note bears interest at rates
ranging from 4.88% to prime plus 3%, as defined.

As of December 31, 2001 and 2000, the Company had an unsecured note
receivable aggregating $519,000 and $900,000 respectively, due from Boardrush
Media LLC, a related party. The note bears interest at 6.32%, is due in January
2005, and is being repaid through consulting services.

(6) Agreements with Online Service Providers

Amounts expensed under agreements with online service providers are included
in sales and marketing expense. For the years ended December 31, 2001, 2000 and
1999, total amounts expensed were zero, $4,435,628 and $2,220,320,
respectively. As of December 2001, agreements with all significant online
service providers had expired.

Expenses were typically allocated through impressions and various service
banners throughout a particular site. As the impressions were utilized, the
Company expensed the associated value of these impressions in the period
incurred. Additional sign-up bounty fees and commissions were expensed at the
time of the customer subscription and recording of customer revenue.

In July 1999, the Company entered into a two year marketing agreement with
Infobeat LLC ("Infobeat") a wholly-owned subsidiary of Sony Music Entertainment
Inc. ("Sony"). The agreement provided for Infobeat to incorporate a certain
number of ad impressions, as defined, in the Infobeat e-mail service over the
term of the contract. In consideration for the services provided by Infobeat,
the company made a one year advance payment of $997,500. Concurrent with the
Company's payment to Infobeat, the agreement provided for Sony to purchase an
equal amount of the Company's common stock at the July 23, 1999 initial public
offering ("IPO") date.

Under the agreement, Infobeat was permitted, based on certain conditions, to
put a portion of the IPO shares back to the Company. As a result of such a put
feature associated with the shares, the Company classified the $997,500 of Sony
common stock outside of stockholders equity in the accompanying December 31,
2000

j2 GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

consolidated balance sheet. In September 2001 such put feature expired, and
accordingly the Company reclassified the $997,500 to common stock and
additional paid in capital in the accompanying December 31, 2001 consolidated
balance sheet.

(7) Income Taxes

The income tax provision for all years presented is comprised of state
minimum tax expense.

Deferred tax assets and liabilities result from differences between the
financial statement carrying amounts and the tax bases of existing assets and
liabilities. The significant components of deferred income taxes are as follows:

Years Ended December 31,
----------------------------------------
2001 2000 1999
------------ ------------ ------------

Deferred tax assets:
Net operating loss carryforwards. $ 41,597,000 $ 41,022,000 $ 13,846,000
Tax credit carryforwards......... 1,533,000 643,000 --
Accrued expenses................. 1,355,000 1,231,000 70,000
Other............................ -- 173,000 --
------------ ------------ ------------
$ 44,485,000 $ 43,069,000 $ 13,916,000
Less valuation allowance......... (44,485,000) (43,069,000) (13,916,000)
------------ ------------ ------------
Net deferred assets.............. $ -- $ -- $ --
============ ============ ============

The Company has recorded a valuation allowance in the amount set forth above
for certain deductible temporary differences and net operating loss
carryforwards where it is not more likely than not the Company will receive
future tax benefits. The net change in the valuation allowance for the years
ended 2001, 2000 and 1999 was $1,416,000, $29,153,000 and $6,926,000,
respectively.

As of December 31, 2001, the Company has Federal and state net operating
losses (NOL) carryforwards of approximately $115 million and $43 million,
respectively. These NOL carryforwards will expire through year 2021 for Federal
and 2011 for state. In addition, the Company has Federal and state research and
development tax credits of $711,000 and $822,000, respectively, which will
expire through year 2021 for Federal purposes and indefinately for state
purposes.

The Tax Reform Act of 1986 imposed substantial restrictions on the
utilization of net operating losses in the event of an "ownership change" of a
corporation. Accordingly, the Company's ability to utilize net operating losses
may be limited as a result of such an "ownership change", as defined in the
Internal Revenue Code. The
net operating loss carryforwards attributable to the eFax.com and SureTalk.com
subsidiaries before their acquisition by the Company may be further limited
according to these provisions.

Income tax expense differs from the amount computed by applying the Federal
corporate income tax rate of 34% to loss before income taxes as follows (in
percentages):

Years ended December 31,
----------------------
2001 2000 1999
----- ----- -----

Statutory tax rate........... (34.0)% (34.0)% (34.0)%
Change in valuation allowance 18.1% 30.5% 39.7%
State income taxes, net...... (6.0)% (6.0)% (6.0)%
Non deductible goodwill...... 30.0% 5.6% --
Other........................ (8.1)% 3.9% 0.3%
----- ----- -----
Effective tax rate........ 0.0% 0.0% 0.0%
===== ===== =====

j2 GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(8) Stock Option and Employee Stock Purchase Plans

(a) Stock Option Plan

In November 1997, the Board of Directors adopted the j2 Global
Communications Inc. 1997 Stock Option Plan, ("The 1997 Plan"), which has twice
been amended and restated. Under the 1997 Plan, 2,500,000 authorized shares of
common stock are reserved for issuance of options and restricted stock. An
additional 210,000 shares were authorized for issuance of options outside the
1997 Plan. Options under the 1997 Plan may be granted at exercise prices
determined by the Board of Directors, provided that the exercise prices shall
not be less than the fair market value of the Company's common stock on the
date of grant for incentive stock options and not less than 85% of the fair
market value of the Company's common stock on the date of grant for
nonstatutory stock options. At December 31, 2001 and 2000, 572,848 and 298,990
options were exercisable under and outside of the 1997 Plan, at a weighted
average exercise price of $6.16 and $23.87, respectively, and no shares of
restricted stock were outstanding. Stock options generally expire after 10
years and vest over a three to four year period. In connection with the grant
of 762,000 options during 1999 the Company recorded $1,323,476 of deferred
compensation cost as these options were granted at exercise prices below the
respective market values at the dates of grant. The deferred compensation cost
was amortized to expense over a three year vesting period of such options using
the straight line method. As of December 31, 2001, there was no remaining
unamortized deferred compensation cost related to these options. During the
year ended December 31, 2001 $236,000 was amortized to compensation expense and
$772,000 of the associated options was credited to additional paid in capital.

At December 31, 2001, there were 879,072 additional options and shares of
restricted stock available for grant under the 1997 Plan and no additional
shares available for grant outside of the 1997 Plan. The per share
weighted-average fair value of stock options granted during 2001, 2000, and
1999 were $1.77, $3.00, and $14.82, respectively, on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions: risk-free interest rate of 4.0% for 2001 and 5.5% for the years
2000 and 1999, respectively, volatility rate of 50%, and an expected life of 5
years.

The Company applies APB Opinion No. 25 in accounting for the 1997 Plan and,
accordingly, except for below market stock option compensation reflected in the
accompanying statements of stockholders equity, no compensation cost using the
intrinsic value method has been recognized for its stock option grants in the
consolidated financial statements. Had the Company determined compensation cost
based on the fair value at the grant date for its stock options under SFAS No.
123, the Company's net loss attributable to common shareholders for fiscal
2001, 2000 and 1999 would have been increased to the pro forma amounts
indicated below:

2001 2000 1999
---------- ------------ ------------

Net loss attributable to common stockholders As reported $7,834,806) $(22,218,806) $(19,010,974)
========== ============ ============
Pro forma $8,823,099 $ 24,775,958 $(20,686,600)
========== ============ ============
Basic loss per common share................. As reported (0.69) (2.44) (2.71)
========== ============ ============
Pro forma (0.78) (2.72) (2.96)
========== ============ ============
Diluted loss per common share............... As reported (0.69) (2.44) (2.71)
========== ============ ============
Pro forma (0.78) (2.72) (2.96)
========== ============ ============

j2 GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following is a summary of stock option activity:

Number of Weighted-average
shares exercise price
--------- ----------------

Options outstanding at December 31, 1998 602,725 $ 6.12
Granted.......................... 379,125 24.56
Exercised........................ (10,552) 3.84
Canceled......................... (24,986) 10.40
---------
Options outstanding at December 31, 1999 946,312 13.48
Granted.......................... 1,214,601 18.66
Exercised........................ (13,379) 6.64
Canceled......................... (682,213) 9.93
---------
Options outstanding at December 31, 2000 1,465,321 19.49
Granted.......................... 1,085,231 3.67
Exercised........................ -- 0.00
Canceled......................... (719,624) 31.76
---------
Options outstanding at December 31, 2001 1,830,928 $ 5.16

At December 31, 2001, the exercise prices of options ranged from $2.19 to
$296.05 with a weighted-average remaining contractual life of 8.48 years.

Options Exercisable
-----------------------------------------------------------------
Weighted Weighted Number Weighted
Number Average Average Exercisable Average
Outstanding Remaining Exercise December 31, Exercise
Range of Exercise Prices December 31, 2001 Contractual Life Price 2001 Price
------------------------ ----------------- ---------------- -------- ------------ --------

$ 2.19 - $ 2.80 214,500 7.03 $ 2.49 122,379 $ 2.71
3.20 - 3.20 147,814 5.28 3.20 147,814 3.20
3.75 - 3.75 532,231 9.99 3.75 -- 0.00
3.95 - 3.95 47,000 9.49 3.95 -- 0.00
4.01 - 4.01 250,000 9.52 4.01 -- 0.00
4.10 - 6.88 253,192 9.07 5.31 40,307 6.34
7.20 - 7.99 124,071 5.55 7.32 110,236 7.24
8.25 - 8.25 211,918 8.23 8.25 112,989 8.25
9.60 - 296.05 50,202 7.37 24.97 39,123 18.88
$ 2.19 - $296.05 1,830,928 8.48 $ 5.16 572,848 $ 6.16

At December 31, 2001, 2000 and 1999, 572,848, 1,530,417 and 1,180,690
options, respectively, were exercisable.

(b) Employee Stock Purchase Plan

In May of 2001 the Company established the j2 Global Communications, Inc.
2001 Employee Stock Purchase Plan (the "Purchase Plan"), which provides for the
issuance of a maximum of 500,000 shares of Common Stock. Eligible employees can
have up to 15% of their earnings withheld, up to certain maximums, to be used
to purchase shares of the Company's Common Stock at certain plan-defined dates.
The price of the Common Stock purchased under the Purchase Plan for the
offering periods will be equal to 90% of the lower of the fair market value of
the Common Stock on the commencement date of each three-month offering period
or the specified purchase date. During 2001, 8,839 shares were purchased at a
price of $2.77 per share. As of December 31, 2001, 491,161 shares were
available under the Purchase Plan for future issuance.

j2 GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(9) Long-Term Debt

Long-term debt consists of the following:

December 31, December 31,
2001 2000
------------ ------------

Loan payable secured by certain computer equipment bearing interest at 15%.
Monthly principal and interest payments of $26,086 from April 1998
to April 2001.................................................................. $ -- $ 154,141
Loan payable secured by certain computer equipment bearing interest at 15%.
Monthly principal and interest payments of $5,879 from December 1998 to
December 2001................................................................. $ -- 75,809
Loan payable secured by certain computer equipment bearing interest at rates
ranging from 17.17% to 17.74%. Monthly principal and interest payments range
from $2,867 to $31,077 from June 30, 1999 to March, 2003...................... 351,003 645,263
Unsecured Loan payable bearing interest at 5.92%. Monthly principal and interest
payments are $65,746 from July 1999 to February 2002.......................... 77,480 825,894
--------- -----------

$ 428,483 $ 1,701,107

Less current installments of long-term debt..................................... (400,587) (1,284,719)
--------- -----------
Long term debt, excluding current installments........................... $ 27,896 $ 416,388
========= ===========

At December 31, 2001, annual maturities of long-term debt are as follows:

2002 $400,587
2003 27,896
--------
$428,483
========

(10) Employee Benefit Plan

The Company has a 401(k) savings plan covering substantially all of its
employees. Eligible employees may contribute through payroll deductions. To
date, the Company has not matched employee contributions to the 401(k) savings
plan.

(11) Commitments and Contingencies

(a) Leases

The Company leases certain facilities and equipment under noncancelable
capital and operating leases which expire at various dates through 2010. The
Company sub-leases a portion of its corporate facilities to a related party.
The sub-lease expires December 31, 2002 and requires monthly payments of
approximately $24,000 plus rata share of common expenses.

j2 GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Future minimum lease payments at December 31, 2001, under non-cancelable
operating leases (with initial or remaining lease terms in excess of one year)
and future minimum capital lease payments, are as follows:

Capital Operating
leases leases
--------- ----------

Fiscal year:
2002.................................................... $ 258,360 $1,101,893
2003.................................................... -- 595,250
2004.................................................... -- 443,763
2005.................................................... -- 353,280
2006.................................................... -- 360,106
Thereafter.............................................. -- 1,080,317
--------- ----------
Total minimum lease payments................................ $ 258,360 3,934,609
==========
Less amounts representing interest............................. (4,506)
---------
Present value of net minimum lease payments................. 253,854
Less current installments of obligations under capital lease... (253,854)
---------
Obligations under capital leases excluding current installments $ --
=========

Rental expense for the years ended December 31, 2001, 2000 and 1999 was
$561,125, $295,431 and $346,515, respectively.

(12) Loss Per Share

As discussed in note 1, the Company adopted SFAS No. 128 for all periods
presented. The following table illustrates the computation of basic and diluted
loss per common share under the provisions of SFAS No. 128:

Year ended December 31
---------------------------------------
2001 2000 1999
----------- ------------ ------------

Numerator--numerator for basic and diluted loss per common
share:
Net loss..................................................... $(7,834,806) $(22,218,806) $(17,439,103)
Premiums on Preferred Stock.................................. -- -- (877,721)
Dividends on Preferred Stock................................. -- -- (553,064)
Accretion to Preferred Stock redemption...................... -- -- (141,086)
----------- ------------ ------------
Numerator for basic and diluted loss per common share........ $(7,834,806) $(22,218,806) $(19,010,974)

Denominator:
Denominator for basic loss per common share--weighted average
number of common shares outstanding during the period...... 11,279,647 9,121,236 7,024,748
----------- ------------ ------------
Denominator for diluted loss per common share................ 11,279,647 9,121,236 7,024,748
----------- ------------ ------------
Basic loss per common share.................................. $ (0.69) $ (2.44) $ (2.71)
Diluted loss per common share................................ $ (0.69) $ (2.44) $ (2.71)
=========== ============ ============

The computation of diluted loss per share for each of the years in the
three-year period ended December 31, 2001 excludes the effects of incremental
common shares attributable to the assumed exercise of outstanding common stock
options and warrants because their effect would be antidilutive. Redeemable
common shares outstanding have been included in the computation of both basic
and diluted loss per share.

j2 GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(13) Litigation

The Company is not currently aware of any legal proceedings or claims that
the Company believes are likely to have a material adverse effect on the
Company's financial position, results of operations or cash flows.

On October 28, 1999, AudioFAX IP LLC filed a lawsuit against us in the
United States District Court for the Northern District of Georgia asserting the
ownership of certain United States and Canadian patents and claiming that the
Company was infringing these patents as a result of its sale of enhanced
facsimile services. The suit requested unspecified damages, treble damages due
to willful infringement, and preliminary and permanent injunctive relief.

After reviewing the AudioFAX patents with the Company's business and
technical personnel and outside patent counsel, the Company concluded that it
did not infringe these patents. However, due to present plans to offer future
services that may fall within the scope of the AudioFAX patents, in November
2001 the Company purchased a non-exclusive, perpetual license to the technology
covered by these patents and the lawsuit was dismissed.

(14) Business acquisitions

SureTalk.com, Inc.

On January 26, 2000, the Company acquired all of the outstanding stock of
SureTalk.com, Inc. for $12 million in common stock, valued at an average
closing price at the acquisition date. SureTalk.com, Inc. was a closely held
Internet-based faxing, messaging and communications company based in Carlsbad,
California. The acquisition was accounted for as a purchase transaction with
substantially all of the purchase price allocated to goodwill and other
purchased intangibles, which the Company amortized from the date of acquisition
through December 31, 2001 based on a 2 to 3 year life. See Note (2)(q) for the
effect of goodwill amortization in future periods.

TimeShift, Inc.

On March 6, 2000, the Company acquired substantially all of the assets of
TimeShift, Inc. for $1.1 million in common stock, valued at the average closing
price at the acquisition date. TimeShift was a closely held Internet technology
company based in San Francisco, California. A substantial portion of the
allocation of TimeShift's assets was classified as an intangible asset related
to a favorable operating lease. During the fourth quarter of fiscal 2001 we
determined that that this asset was permanently impaired due to continuing
weakness in the San Francisco commercial real estate market. As a result, in
that quarter we wrote off the remaining asset value of $752,000.

eFax.com, Inc.

On November 29, 2000, the Company acquired all of the outstanding stock of
eFax.com, Inc. for $8.2 million, including $5.8 million in common stock valued
at the average closing price at the acquisition date, $0.8 million in
acquisition costs, and $1.6 million in common stock warrants valued at their
fair value at the acquisition date. eFax.com was a leading provider of unified
messaging and communications services. The acquisition was accounted for under
the purchase method of accounting and, accordingly, the assets and liabilities
were recorded based upon their fair value at the date of acquisition. In
connection with this acquisition, the Company recorded approximately $16.1
million in goodwill and other intangible assets, which the Company amortized
from the date of acquisition through December 31, 2001 based on a 7 year life.
See Note (2)(q) for the effect of goodwill amortization in future periods.

j2 GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The operations of the above acquired companies are included is in the
results of operations and cash flows of the Company from the date of the
acquisition forward. The following unaudited pro forma information has been
prepared assuming that the acquisition of SureTalk and eFax.com had taken place
at the beginning of the respective periods presented. The pro forma financial
information is not necessarily indicative of the combined results that would
have occurred had the acquisitions taken place at the beginning of the period,
nor is it
necessarily indicative of results that may occur in the future. The pro forma
effect of the TimeShift transaction is immaterial for all periods presented and
therefore is not included in the pro forma information.

Pro Forma for the
Years Ended December 31,
------------------------------------
2000 1999
-------- --------
(in thousands, except per share data
(unaudited)

Revenue......................... $ 23,117 $ 12,631
Loss from operations............ (24,773) (52,145)
Net loss........................ (22,422) (57,732)
Basic and diluted loss per share $ (1.95) $ (5.48)

In connection with the acquisition of eFax.com, the Company incurred
acquisition integration expenses for the incremental cost to exit and
consolidate activities at eFax locations, to involuntarily terminate eFax
employees and for other activities of eFax with j2 Global. Generally accepted
accounting principles require that these integration expenses, which are not
associated with the generation of future revenues and have no future economic
benefit, be reflected as assumed liabilities in the allocation of the purchase
price to the net assets required. The components of the acquisition integration
liabilities included in the purchase price allocation are as follows:

Accrued Exit Costs

eFax Duplicate eFax Duplicate Workforce Occupancy
Phone Operations Information Systems Reductions Costs Total
---------------- ------------------- ---------- --------- -------
(In thousands)

Balance November 29, 2000
(eFax.com acquisition date) $ 1,204 $ 675 $ 380 $ 386 $ 2,645
Utilized-fiscal 2000......... (134) (75) (300) (30) (539)
-------- ----- ----- ----- -------
Balance December 31, 2000.... $ 1,070 $ 600 $ 80 $ 356 $ 2,106
Adjustments.................. -- (570) 252 118 (200)
Utilized..................... (518) (30) (332) (128) (1,008)
-------- ----- ----- ----- -------
Balance December 31, 2001.... $ 552 0 0 346 $ 898
======== ===== ===== ===== =======

j2 GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Certain aspects of the integration plan will be refined as actual cost
information is obtained. Adjustments to the estimated acquisition integration
liabilities based on these refinements will be included in the allocation of
the purchase price of eFax.com if the adjustment is determined within the
purchase price allocation period. Such adjustments will be (1) incurred as a
reduction of net income if the ultimate amount of the liability exceeds the
estimate or (2) recorded as a reduction of goodwill if the ultimate account of
the liability is below the estimate.

(15) Quarterly Results (unaudited)

The following tables contain selected unaudited statement of operations
information for each quarter of 2001 and 2000. The Company believes that the
following information reflects all normal recurring adjustments necessary for a
fair presentation of the information for the periods presented. The operating
results for any quarter are not necessarily indicative of results for any
future period.

Year Ended December 31, 2001
(in thousands except per share data)
-----------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
----------- ----------- ----------- -----------

Net sales........................................... $ 9,580 $ 8,597 $ 7,863 $ 7,212
Gross profit........................................ 6,123 5,210 4,800 3,707
Net loss............................................ 1,628 1,457 1,709 3,040
Basic and diluted loss per share (1)................ $ 0.15 $ 0.13 $ 0.15 $ 0.26
Shares used in computation of basic and diluted loss
per share......................................... 10,872,421 11,239,198 11,483,292 11,513,744

Year Ended December 31, 2000
(in thousands except per share data)
-------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------

Net sales............................................... $ 4,794 $ 3,266 $ 3,008 $ 2,865
Gross profit............................................ 2,229 1,557 1,332 1,503
Net loss................................................ 5,076 5,908 5,935 5,300
Basic and diluted loss per share (1).................... $ 0.51 $ 0.66 $ 0.66 $ 0.61
Shares used in computation of basic and diluted loss per
share................................................. 9,860,475 9,005,894 9,004,053 8,671,975

--------
(1) The sum of the per share amounts may not equal per share amounts reported
for year to date periods. This is due to changes in the number of weighted
average shares outstanding and the effects of rounding for each period.

(16) Reverse Stock Split

On February 8, 2001 we carried out a one for four reverse stock split.
Except as noted, all share and per share rata are presented on a post split
basis.

Item 9. Changes In And Disagreements With Accountants On Accounting And
Financial Disclosure

None.

PART III

Item 10. Directors and Executive Officers of the Registrant

Directors

The names of our directors, their ages at April 16, 2002, and certain other
information about them are set forth below:

Director
Name Age Principal Occupation Since
---- --- -------------------- --------

Richard S. Ressler (1) 44 President, Orchard Capital Corporation 1997
John F. Rieley 59 Entrepreneur 1995
Michael P. Schulhof (1) (2) 59 Private Investor 1997
Robert J. Cresci (1) (2) 58 Managing Director of Pecks Management Partners Ltd. 1998
Douglas Y. Bech (2) 56 Chairman and CEO of Raintree Resorts International, Inc. 2000

--------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee

There are no family relationships among any of the directors or executive
officers of the Company.

Richard S. Ressler has been Chairman of the Board and a director since 1997.
He is the Managing Member of Orchard/JFAX Investors, LLC, one of the Company's
principal stockholders. He was the Chief Executive Officer of the Company from
March 1997 until January 2000. Mr. Ressler is the founder and President of
Orchard Capital Corporation, a firm that provides investment capital and advice
to companies in which Orchard Capital or its affiliates have made investments.
He has been a principal of Orchard Capital since 1994. Mr. Ressler is a
co-founder and principal of CIM Group, LLC, a real estate investment,
development and management company. He has been a principal of CIM Group since
1994. Mr. Ressler has been the Chairman of the Board of MAI Systems
Corporation, a software and network computing company, since 1995. He served as
MAI's chief executive officer from 1995 to 1997. Since March 2000, Mr. Ressler
has been Chairman of the Board of Express One International, Inc., an ACMI
(aircraft, crew, maintenance and insurance) operator of cargo aircraft.

John F. Rieley is a co-founder and has been a director of the Company since
1995. From December 1995 when the Company was founded until March 1997, he held
various offices with the Company. Since March 1997, he has provided consulting
services to the Company under an agreement between the Company and Boardrush
Media LLC. He has managed, marketed and consulted on other projects in the
media field, the airline industry and in public affairs.

Michael P. Schulhof has been a director of the Company since 1997. Mr.
Schulhof is a private investor in the media, communications and entertainment
industry. From 1993 to 1996, he was President and Chief Executive Officer of
Sony Corporation of America. Mr. Schulhof is a trustee of Brandeis University,
the Lincoln Center for the Performing Arts, New York University Medical Center
and the Brookings Institution. He is a member of the Council on Foreign
Relations and the Investment and Services Policy Advisory Committee to the U.S.
Trade Representative. Mr. Schulhof is a director of SportsLine, USA, Inc., an
Internet-based sports media company.

Robert J. Cresci has been a director of the Company since 1998. Mr. Cresci
has been a Managing Director of Pecks Management Partners Ltd., an investment
management firm, since 1990. Mr. Cresci currently serves on the boards of
Sepracor, Inc., Aviva Petroleum Ltd., Film Roman, Inc., Castle Dental Centers,
Inc., Candlewood Hotel Co., Inc., SeraCare Life Sciences, Inc., Learn2
Corporation and several private companies.

Douglas Y. Bech has served as a director of the Company since November 2000.
From August 1988 through November 2000, he served as a director of eFax.com.
Since August 1997, Mr. Bech has served as Chairman and Chief Executive Officer
of Raintree Resorts International, Inc., a company that owns and operates
luxury vacation ownership resorts. Mr. Bech was a founding partner of and,
since August 1994, has served as a Managing Director of Raintree Capital, LLC,
a merchant banking firm. From October 1994 to October 1997, he was a partner of
Akin, Gump, Strauss, Hauer & Feld, L.L.P., a law firm.

Executive Officers

The following sets forth certain information regarding the Company's
executive officers (ages are as of April 16, 2002):

Scott M. Jarus, 46, has been President of the Company since July 2001. Prior
to joining the Company, Mr. Jarus was the President and Chief Operating Officer
of OnSite Access, a premier building-centric integrated communications
provider, from 1998 to 2001. From 1994 to 1998, Mr. Jarus held various senior
management positions in the telecommunications industry, including serving as
Senior Vice President of Operations at RCN Telecom, and was co-founder and Vice
President of Multimedia Medical Systems, Inc. For nine years prior to 1994, Mr.
Jarus served in various senior management positions, including Vice President
of Operations of Metromedia Communications.

Nehemia Zucker, 45, has been the Company's Chief Financial Officer since
1996, and since December 2000 has also served as the Company's Chief Marketing
Officer. Prior to joining the Company in 1996, he was Chief Operations Manager
of Motorola's EMBARC division, which packages CNBC and ESPN for distribution to
paging and wireless networks. From 1980 to 1996, Mr. Zucker held various
positions in finance, operations and marketing at Motorola in the United States
and abroad.

Leo D'Angelo, 39, has been the Company's Chief Technology Officer since
March 2000. Mr. D'Angelo previously held the position of founder and Chief
Technology Officer at TimeShift, Inc., a developer of technology for accessing
and managing communications services via the Internet. The Company acquired the
assets of TimeShift on March 1, 2000. Before founding TimeShift in 1997, Mr.
D'Angelo was responsible for the design and implementation of Fidelity
Investments' equity trading floor.

R. Scott Turicchi, 38, has been the Company's Executive Vice President,
Corporate Development since March 2000. He served as a director of the Company
from 1998 through 2000. From 1990 to 2000, Mr. Turicchi was a Managing Director
in Donaldson, Lufkin & Jenrette Securities Corporation's investment banking
department. At DLJ, he was responsible for corporate finance activities,
including public equity offerings, high grade and high yield debt offerings,
private equity placements and mergers and acquisitions advisory services.

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers (as defined in Rule 16a-1(f)), directors and persons who own more than
ten percent (10%) of a registered class of the Company's equity securities to
file reports of ownership and changes in ownership with the SEC. Such persons
are required by SEC regulations to furnish the Company with copies of all
Section 16(a) forms they file. Based solely on the Company's review of the
copies of such forms received by the Company and written representations from
certain reporting persons that they have complied with the relevant filing
requirements, the Company believes that all filing requirements applicable to
its officers, directors and ten percent (10%) stockholders were complied with
during the fiscal year ended December 31, 2001.

Item 11. Executive Compensation

Summary Compensation Table

The following table shows, as to the Company's President (principal
executive officer), and each of the Company's other four most highly
compensated executive officers who were serving as executive officers at the
end of the last fiscal year, information concerning all compensation paid for
services to the Company in all capacities during the last three fiscal years.

Long Term Compensation
Annual ---------------------------
Compensation Securities
------------------ Underlying All Other
Name and Principal Position Year Salary($) Bonus($) Options(#) Compensation($)
--------------------------- ---- --------- -------- ---------- ---------------

Scott M. Jarus (1) . . . . . . . . . . . . . . 2001 124,015 -- 250,000 --
President 2000 -- -- -- --
1999 -- -- -- --

Richard S. Ressler (2) . . . . . . . . . . ... 2001 144,000 -- 262,500 --
Chairman and Former Chief Executive Officer 2000 176,750 -- 12,500 --
1999 237,500 -- 125,000(3) --

Nehemia Zucker . . . . . . . . . . . . . ..... 2001 196,634 14,438 17,625 --
Chief Financial and Marketing Officer 2000 172,019 35,000 17,792 --
1999 150,000 43,125 5,125(4) --

R. Scott Turicchi . . . . . . . . . . . . .... 2001 160,897 18,563 12,500 --
Executive VP, Corp Dev 2000 181,731 -- 212,500(5) --
1999 -- -- 10,000(5) --

Leo D'Angelo . . . . . . . . . . . . . . . ... 2001 174,400 14,438 5,000 --
Chief Technology Officer 2000 140,577 -- 30,000 --
1999 -- -- -- --

--------
(1) Mr. Jarus joined the Company in July 2001.
(2) Mr. Ressler is an employee of Orchard Capital Corporation, which provides
his services to the Company through a consulting agreement. Mr. Ressler
served as the Company's Chief Executive Officer from March 1997 until
January 2000. See "--Report of the Compensation Committee of the Board of
Directors on Executive Compensation" beginning on page 58 for a description
of the terms of the Orchard Capital consulting agreement.
(3) Mr. Ressler elected to exchange these options for an equal grant of options
in 2001 pursuant to the Company's offer to exchange, which is described in
the Tender Offer Statement on Schedule TO filed by the Company with the
Securities and Exchange Commission on May 22, 2001, as amended by Amendment
Nos. 1 and 2 thereto filed with the SEC on June 13, 2001 and October 5,
2001, respectively (the "Offer to Exchange"). In accordance with the Offer
to Exchange, these options were canceled effective June 25, 2001 and the
Company issued Mr. Ressler an equal number of replacement options on
December 28, 2001, which replacement options are included in the 2001
totals.
(4) Mr. Zucker elected to exchange these options for an equal grant of options
in 2001 pursuant to the Offer to Exchange (as defined under Note (3),
above). In accordance with the Offer to Exchange, these options were
canceled effective June 25, 2001 and the Company issued Mr. Zucker an equal
number of replacement options on December 28, 2001, which replacement
options are included in the 2001 totals.
(5) Pursuant to an amendment to Mr. Turicchi's employment agreement, effective
July 9, 2001 all of these options were canceled with the exception of
80,000 of those granted in 2000, which were fully vested as of July 9, 2001
and remain outstanding.

Options Granted in Last Fiscal Year

The following table provides certain information regarding stock options
granted during the fiscal year ended December 31, 2001 to the Company's
executive officers named in the Summary Compensation Table, to all current
executive officers as a group, to all current directors who are not executive
officers as a group and to all other employees as a group. As required by SEC
rules, the table sets forth the hypothetical gains that would exist for the
shares subject to such options based on assumed annual compounded rates of
stock price appreciation during the option term.

Individual Grants
---------------------------------------------------------------
Potential Realizable
Number of % of Total Value at Assumed
Securities Options Annual Rates of Stock
Underlying Granted To Exercise Price Appreciation of
Options Employees Price Option Term(1)
Granted In Fiscal ($/SH) Expiration ---------------------
(#) (2) Year (3) (4)(5) Date 5%($) 10%($)
---------- ---------- -------- ---------- ------- ---------

Richard S. Ressler . . . . . . . . . . . . . . . . ... 262,500 24.19% 3.75 12/28/11 619,068 1,568,840
Nehemia Zucker . . . . . . . . . . . . . . . . . ..... 17,625 1.62% 3.75 12/28/11 41,566 105,336
Leo D'Angelo . . . . . . . . . . . . . . . . . . . ... 5,000 0.46% 3.75 12/28/11 11,792 29,883
R. Scott Turicchi . . . . . . . . . . . . . . . . . .. 12,500 1.15% 3.75 12/28/11 29,479 74,707
Scott M. Jarus . . . . . . . . . . . . . . . . . . . . 250,000 23.04% 4.01 07/28/11 630,467 1,597,727

Total Grants
---------------------------------------------------------------
Potential Realizable
Number of % of Total Value at Assumed
Securities Options Annual Rates of Stock
Underlying Granted To Exercise Price Appreciation of
Options Employees Price Option Term(1)
Granted In Fiscal ($/SH) Expiration ---------------------
(#) (2) Year (3) (4)(5) Date 5% ($) 10% ($)
---------- ---------- -------- ---------- ------- ---------

All current executive officers as a
group (5 officers)............................... 297,625 27.43% 3.75 12/28/11 701,905 1,778,766
250,000 23.04% 4.01 07/28/11 630,467 1,597,727
All current directors who are not executive
officers as a group (4 directors) . . . . . . . . 80,266 7.40% 3.75 12/28/11 189,295 479,712
All other employees as a group..................... 94,250 8.69% 4.10 11/21/11 243,020 615,862
61,750 5.69% 3.95 06/28/11 153,394 388,733
154,340 14.22% 3.75 12/28/11 363,988 922,418
15,000 1.38% 2.19 01/03/11 19,821 49,769
1,250 0.12% 2.19 11/06/10 1,652 4,147
70,500 6.50% 2.19 11/29/10 93,159 233,914
25,000 2.30% 2.19 02/22/11 33,035 82,948
1,250 0.12% 2.19 10/09/10 1,652 4,147
2,500 0.23% 2.19 12/18/10 3,304 8,295

(1) The potential realizable value illustrates value that might be realized
upon exercise of options immediately prior to the expiration of their
terms, assuming the specified compounded rates of appreciation of the
market price per share from the date of grant to the end of the option
term. Actual gains, if any, on stock option exercise are dependent upon a
number of factors, including the future performance of the Company's common
stock and the timing of option exercises, as well as the optionee's
continued employment through the vesting period. The gains shown are net of
the option exercise price, but do not include deductions for taxes and
other expenses payable upon the exercise of the option or for sale of
underlying shares of the Company's common stock. There can be no assurance
that the amounts reflected in this table will be achieved.
(2) All stock options granted have 10-year terms and are exercisable with
respect to twenty-five percent (25%) of the shares covered thereby on the
anniversary of the date of grant, with full vesting occurring four years

following the date of grant. See "--Employment Contracts, Termination of
Employment and Change of Control Agreements" and "--1997 Stock Option Plan"
beginning on pages 55 and 56, respectively, for provisions regarding
acceleration of the vesting of options.
(3) The Company granted stock options representing 1,004,965 shares of the
Company's common stock in the fiscal year ended December 31, 2001,
including all options granted to Mr. Ressler but excluding options granted
to the Company's other directors.
(4) Options were granted at an exercise price equal to the market value of the
Company's common stock as listed on The Nasdaq National Market.
(5) The exercise price and tax withholding obligations may be paid in cash and,
subject to certain conditions or restrictions, by delivery of already-owned
shares.

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values

The following table sets forth the number of shares covered by unexercised
stock options held by the Company's executive officers as of December 31, 2001,
and the value of "in-the-money" stock options, which represents the positive
spread between the exercise price of a stock option and the market price of the
shares subject to such option as of December 31, 2001. No options were
exercised by any of the Company's executive officers during the year ended
December 31, 2001.

Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal In-The-Money Options at
Year-End (#) Fiscal Year-End ($)(1)
Name Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------------------- -------------------------

Richard S. Ressler . . . . . . . . . . . . . . . ..... 3,125 / 271,875 0 / 315,000
Scott M. Jarus . . . . . . . . . . . . . . . . . . . . 0 / 250,000 0 / 235,000
Nehemia Zucker . . . . . . . . . . . . . . . . . ..... 70,073 / 30,969 109,375 / 21,150
R. Scott Turicchi . . . . . . . . . . . . . . . . .... 80,000 / 12,500 0 / 15,000
Leo D'Angelo . . . . . . . . . . . . . . . . . . . ... 7,500 / 22,500 0 / 6,000

--------
(1) Value is based on the $4.95 per share closing price of the Company's common
stock on the Nasdaq National Market on December 31, 2001, less the exercise
price.

Director Compensation

The Company does not pay fees to its directors for performance of their
duties as directors of the Company. The Company does reimburse directors for
their out-of-pocket expenses incurred in connection with attendance at board
and committee meetings of the Company. The Company's directors are eligible to
participate in the Company's 1997 Stock Option Plan. In December 2001, Messrs.
Bech, Cresci, Rieley, Schulhof and Ressler were each granted 12,500 options to
purchase shares of the Company's common stock at an exercise price of $3.75 per
share. No options were exercised by any of the Company's directors in 2001. See
"--1997 Stock Option Plan" beginning on page 56 for a description of the terms
of the Company's 1997 Stock Option Plan.

The services of Richard S. Ressler, formerly as Chief Executive Officer and
currently as Chairman, are provided to the Company pursuant to a consulting
agreement. See "--Report of the Compensation Committee of the Board of
Directors on Executive Compensation" beginning on page 58 for a description of
the terms of that agreement.

Employment Contracts, Termination of Employment and Change of Control
Arrangements

The Company currently has employment contracts with each of Messrs. Jarus,
Turicchi and Zucker. The Company also has consulting agreements with Orchard
Capital Corporation, which supplies the services of Mr. Ressler, and with
Boardrush Media LLC, which supplies the services of John F. Rieley, a director
and co-founder, and Jens Muller, a former director and a co-founder. See
"--Report of the Compensation Committee of

the Board of Directors on Executive Compensation" beginning on page 58 for a
description of the terms of the Orchard Capital consulting agreement, and see
"Certain Relationships and Related Transactions--Certain Transactions"
beginning on page 65 for a description of the terms of the Boardrush consulting
agreement.

Mr. Jarus' Contract. Mr. Jarus entered into an employment agreement with
the Company upon joining the Company as President on July 8, 2001. Under this
agreement, Mr. Jarus receives a base salary of $270,000 per year and is
eligible to participate in the Company's executive bonus program. He also is
entitled to participate in all of the Company's benefits programs and to
reimbursement of up to $60,000 for relocation expenses. If the Company
terminates his employment constructively or for any reason other than cause,
Mr. Jarus is entitled to severance and continued participation in the Company's
health insurance coverage for six months following the date of termination.
These severance and continued health insurance coverage obligations would cease
in the event Mr. Jarus were to become employed by another company during this
period.

Also pursuant to this employment agreement, the Company loaned Mr. Jarus
$500,000 towards the purchase of a home in the Los Angeles area. The loan is
secured by a second mortgage on Mr. Jarus' Los Angeles home. The mortgage is
zero coupon, bears interest at the rate of 4.88% per annum and is payable in
full on or before July 8, 2006. If Mr. Jarus voluntary terminates his
employment with the Company or is terminated for cause, he will be required to
repay the full balance of the loan amount within 60 days of his last date of
employment with the Company. If Mr. Jarus is terminated without cause or is
constructively terminated, he will be required to pay the balance of the
mortgage no later than the date that is one-year following his last day of
employment with the Company.

In accordance with this agreement, the Company issued Mr. Jarus options to
purchase 250,000 shares of the Company's common stock at an exercise price of
$4.01 per share, which was the closing price of the Company's common stock on
the Nasdaq National Market on the trading day preceding his date of employment.
The agreement provides for accelerated vesting of Mr. Jarus' options if he is
terminated without cause or constructively terminated within one year following
a change in control of the Company. Mr. Jarus' options are governed by the
Company's 1997 Stock Option Plan. See "--1997 Stock Option Plan" beginning on
page 56 for a description of the terms of the Company's 1997 Stock Option Plan.

Mr. Turicchi's Contract. On July 9, 2001, the Company and Mr. Turicchi
terminated Mr. Turicchi's existing employment agreement and entered into a new
employment agreement to reduce the number of hours per week that Mr. Turicchi
is required to work for the Company and to proportionately reduce his salary.
Under this new agreement, which terminates July 9, 2002, Mr. Turicchi is
required to work for the Company at least 20.1 hours per week and his base
annual compensation was reduced from $225,000 to $112,500. In the event that
Mr. Turicchi's employment is terminated by the Company without cause prior to
July 9, 2002, the Company is required to continue to pay his base salary and
benefits through July 9, 2002. Mr. Turicchi is entitled to participate in all
of the Company's benefits programs, but does not accrue any vacation or sick
time. He is permitted to engage in other business or to accept other employment.

Under this new employment agreement, Mr. Turicchi agreed to cancel all but
80,000 of the 212,500 stock options he owned as of July 9, 2001, and the
Company agreed that these 80,000 remaining options would become immediately
vested. These options have an exercise price of $8.24 per share.

Mr. Zucker's Contract. This employment agreement has no specified term and
is terminable at will by either party, but provides for severance payments
equal to six months' salary in the event of a termination by the Company
without cause. This agreement provide for accelerated vesting of Mr. Zucker's
employee stock options in the event of a change in control of the Company.

1997 Stock Option Plan

The Company's 1997 Stock Option Plan was adopted by the Board of Directors
and approved by the stockholders in November 1997. In May 2001, the Company
amended and restated the 1997 Stock Option Plan to permit the issuance of
restricted stock under the plan. A total of 2,500,000 shares of the Company's
common

stock have been reserved for issuance under the plan. As of April 16, 2002,
options to purchase 1,838,763 shares of common stock were outstanding under the
plan, 37,390 shares had been issued upon exercise of previously granted options
and no shares of restricted stock were outstanding under the plan.

The plan provides for grants to employees, including officers and employee
directors, of "incentive stock options" within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended, and for grants of nonstatutory
stock options and restricted stock awards to employees, including officers and
employee directors, and consultants, who may be non-employee directors.

The plan is administered by the Compensation Committee of the Company's
Board of Directors. The plan administrator determines the terms of the options
granted and restricted stock awarded, including the exercise price of each
option, the number of shares subject to each option and covered by each
restricted stock award and the vesting of each option and restricted stock
award. The plan administrator also has the full power to select the individuals
to whom options and restricted stock will be granted and to make any
combination of grants to any participants.

Options generally have a term of 10 years. For options granted in 1999 and
prior years, one-third of the options vest on the one-year anniversary of the
grant date and each of the remaining one-third portions of the options vest on
each annual anniversary of the grant date thereafter. For options granted after
1999, one-quarter of the options vest on the one-year anniversary of the grant
date and each of the remaining one-quarter portions of the options vest on each
annual anniversary of the grant date thereafter.

The option exercise price may not be less than the higher of the par value
or one hundred percent (100%) of the fair market value of the Company's common
stock on the date of grant; provided, however, that nonstatutory options may be
granted at exercise prices of not less than the higher of the par value or
eighty-five percent (85%) of the fair market value on the date the option is
granted. In the case of an incentive option granted to a person who at the time
of the grant owns stock representing more than ten percent (10%) of the total
combined voting power of all classes of the Company's common stock, the option
exercise price for each share of common stock covered by such option may not be
less than one hundred ten percent (110%) of the fair market value of a share of
the Company's common stock on the date of grant of such option.

In the event of a sale of all or substantially all of the Company's assets,
or the Company's merger with or into another corporation, each option and each
share of restricted stock will become immediately exercisable in full unless
the Board of Directors determines that the holder has been offered
substantially identical replacement options or replacement shares of restricted
stock, as the case may be, and a comparable position at the acquiring company.

2001 Employee Stock Purchase Plan

The Company's 2001 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors and approved by the stockholders in May and
June 2001, respectively. A total of 500,000 shares of the Company's common
stock have been reserved for issuance under the Purchase Plan. As of April 16,
2002, 19,624 shares had been issued under the Purchase Plan and 480,376 shares
were available for future issuance. The Purchase Plan is administered by the
Compensation Committee of the Company's Board of Directors.

The Purchase Plan is implemented through sequential offerings, each of which
is referred to as an "Offering," the terms of which are referred to herein as
"Offering Periods." Generally, each such Offering Period is for three months
duration or such other duration as the Compensation Committee shall determine,
provided, however, that no Offering Period may exceed 27 months in duration.
Offering Periods commence on or about February 1, May 1, August 1 and November
1 of each year and end on or about the next April 30, July 31, October 31 and
January 31, respectively, occurring thereafter. The initial Offering Period
commenced on August 1, 2001 and ended on October 31, 2001.

The purchase price per share for an Offering under the Purchase Plan is
ninety percent (90%) of the lesser of (a) the fair market value of a share of
common stock on the commencement of the Offering, or (b) the fair market value
of a share of common stock on the date of purchase. Notwithstanding the
foregoing, the Compensation Committee, in its sole discretion, may change the
purchase price at which each share of common stock may be acquired in an
Offering so long as the purchase price is not less than eighty-five percent
(85%) of the lesser of (x) the fair market value of a share of common stock on
the commencement of the Offering, or (y) the fair market value of a share of
common stock on the date of purchase.

By executing an agreement to participate in the Purchase Plan, an eligible
employee is entitled to purchase shares under the Purchase Plan, hereafter
referred to as a "Purchase Right". The Purchase Right consists of an option to
purchase a maximum number of shares of common stock determined by either
dividing fifteen percent (15%) of such eligible employee's compensation during
the Offering Period by the purchase price of a share of common stock for such
Offering Period or by dividing $12,500 by the fair market value of a share of
common stock on the last date of such Offering Period, whichever is less. If
the aggregate number of shares to be purchased upon exercise of Purchase Rights
granted in the Offering would exceed the maximum aggregate number of shares
available for issuance under the Purchase Plan, the Compensation Committee
would make a pro rata allocation of shares available in a uniform and equitable
manner. Unless the employee's participation is discontinued, his or her right
to purchase shares is exercised automatically at the end of each Offering
Period.

Any employee of the Company or of any parent or subsidiary corporation of
the Company designated by the Compensation Committee for inclusion in the
Purchase Plan is eligible to participate in an Offering under the Purchase Plan
so long as the employee has been employed by the Company or any designated
parent or subsidiary corporation of the Company for at least 30 days and is
customarily employed at least 20 hours per week and five months per calendar
year. However, no employee who owns or holds options to purchase, or as a
result of participation in the Purchase Plan would own or hold options to
purchase, five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any parent or subsidiary
corporation of the Company is entitled to participate in the Purchase Plan. In
addition, no employee is entitled to purchase more than $25,000 worth of stock
(determined based on the fair market value of the shares at the time such
rights are granted) under all employee stock purchase plans of the Company in
any calendar year.

Notwithstanding anything to the contrary set forth in any of the Company's
filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), that might incorporate
future filings, including this Annual Report, in whole or in part, the
following Report of the Compensation Committee, the Audit Committee Report and
the Stock Performance Graph which follows shall not be deemed to be "Soliciting
Material," is not deemed "filed" with the SEC and shall not be incorporated by
reference into any filings under the Securities Act or Exchange Act whether
made before or after the date hereof and irrespective of any general
incorporation language in such filings.

Report of the Compensation Committee of the Board of Directors on Executive
Compensation

General. The Compensation Committee of the Company's Board of Directors
recommends and approves changes to the Company's compensation policies and
benefits programs, administers the Company's stock option and employee stock
purchase plans, including approving stock option grants, and otherwise seeks to
ensure that the Company's compensation philosophy is consistent with the
Company's best interests and is properly implemented. The Committee currently
is comprised of two independent non-employee directors and one non-employee
director who also provides services to the Company pursuant to a consulting
agreement with his employer.

Compensation Philosophy. The goals of the Company's compensation program
are to align compensation with the Company's overall business objectives and
performance, to foster teamwork and to enable the Company to attract, retain
and reward employees who contribute to its long-term success. The Committee
also seeks to establish compensation policies that allow the Company
flexibility to respond to changes in its business environment.

Compensation Components. Compensation for the Company's executives
generally consists of salary, participation in an executive bonus program, and
stock option and restricted stock awards. The Committee assesses past
performance and anticipated future contribution of each executive officer in
establishing the total amount and mix of each element of compensation.

Salary. Base salaries are evaluated annually for all executive officers. In
determining appropriate salary levels for such officers, the Compensation
Committee considers, among other factors, the officer's scope of
responsibility, prior experience, past performance and data on prevailing
compensation levels in relevant markets for executive talent.

Bonus Programs. The Company has established two "bonus" programs - one for
executives and eligible managers, and the other for all other employees not
eligible for the executive plan.

. Executive Bonus Program.

The bonus program for the Company's executives and eligible managers is
designed to encourage and reward senior management for (a) attaining
Company-wide financial goals, (b) improving the financial and operational
health of the Company, and (c) meeting or exceeding individually defined goals
and objectives for each executive and eligible manager. The Company's
Compensation Committee administers this program. Under this program, the
Company will establish a "bonus pool" in an amount that will vary based upon
the Company achieving specific pre-defined financial criteria. If the Company
achieves 100% of these goals, the bonus pool will equal 25% of the total annual
base salaries of all eligible participants. The bonus pool can increase or
decrease based upon greater than or less than 100% of these criteria being
satisfied. The total amount of the pool, and the amount to be distributed to
each participant, will be determined by the Compensation Committee after public
release of the Company's 2002 year-end audited financial statements. The
Compensation Committee is not obligated to distribute the entire accrued bonus
pool, although it expects to do so.

. Employee Bonus Program.

The bonus program for all of the Company's employees (other than those
eligible for the Executive Bonus Program) is designed to encourage and reward
extraordinary performance. It is referred to by the Company as its "Reward &
Recognition Program". Under this program, the Company will accrue throughout
2002 an amount equal to 5% of the total annual base salaries and hourly
compensation for all employees (except those eligible for the Executive Bonus
Program). The timing and amount of each individual reward is determined by the
employee's senior manager, with the concurrence of the Company's President.
Awards may occur at any time throughout the year, and are based on an
individual's singular contribution or the contribution of a group of
individuals who work as a team. As this pool is intended to reward
"exceptional" effort or accomplishment, there is no guarantee that the entire
accrued bonus pool will actually be awarded.

Stock Options and Restricted Stock. Stock option and restricted stock
awards are designed to align the interests of executives with the long-term
interests of the stockholders. The Compensation Committee approves option
grants and restricted stock awards subject to vesting periods to retain
executives and encourage sustained contributions. For options granted prior to
2000, the vesting period was usually over a three-year period or as to 100% of
the grant on the third anniversary of the grant. Effective January 1, 2000, the
typical vesting period was changed to a four-year period or as to 100% of the
grant on the fourth anniversary of the grant. The exercise price of options is
generally the market price on the date of grant.

Compensation of the Company's President and Chairman. Mr. Jarus joined the
Company as President in July 2001. His services are provided to the Company
pursuant to an employment agreement. See "--Employment Contracts, Termination
of Employment and Change of Control Arrangements" beginning on page 55 for a
description of the terms of his employment agreement. Pursuant to his
employment agreement, upon joining the Company Mr. Jarus was granted options to
purchase 250,000 shares of the Company's common

stock at an exercise price of $4.01 per share. See "--1997 Stock Option Plan"
beginning on page 56 for a description of the terms of the Company's 1997 Stock
Option Plan. The terms of Mr. Jarus' employment agreement were determined by
the Compensation Committee based upon various subjective factors, such as Mr.
Jarus' responsibilities, qualifications and years of experience.

Mr. Ressler's services as Chairman, and formerly as Chief Executive Officer,
have been provided pursuant to a consulting arrangement with Orchard Capital
Corporation, a company controlled by Mr. Ressler, who is also a Member and the
Manager of Orchard/JFAX Investors, LLC, one of the Company's principal
stockholders. Under this consulting arrangement, the Company paid Orchard
Capital $200,000 per year through June 30, 1999 and $275,000 per year from July
1, 1999 though March 31, 2000, in each case payable in equal monthly payments,
for the services of Mr. Ressler. These arrangements were not pursuant to a
written agreement. Effective April 1, 2000, Orchard Capital's compensation was
reduced to $144,000 per year, and Orchard Capital's revised consulting
arrangement was reflected in a new written agreement. This agreement was
amended effective April 1, 2001 to extend it for consecutive six-month periods,
and was again amended in December 2001 to increase Orchard Capital's
compensation back to the original $275,000 per year. The agreement is
terminable by either party by written notice delivered at least 30 days prior
to commencement of the next 6-month term.

As a director, Mr. Ressler is eligible to participate in the Company's 1997
Stock Option Plan. In December 2001, he was granted options to purchase 262,500
shares of the Company's common stock at an exercise price of $3.75 per share.
125,000 of these options were granted in place of an equal number of options
canceled in June 2001 by Mr. Ressler under the Company's offer to exchange,
which is described in the Tender Offer Statement on Schedule TO filed by the
Company with the SEC on May 22, 2001, as amended by Amendment Nos. 1 and 2
thereto filed with the SEC on June 13, 2001 and October 5, 2001, respectively.
12,500 of these options were granted to Mr. Ressler for his service on the
Company's Board of Directors. The remaining 125,000 of these options were
granted in connection with the December 2001 amendment to the Orchard Capital
consulting arrangement. See "--1997 Stock Option Plan" for a description of the
terms of the Company's 1997 Stock Option Plan.

Other than reimbursement for reasonable expenses incurred in connection with
the services Orchard Capital renders to the Company, neither Orchard Capital
nor Mr. Ressler receives any other compensation from the Company.

The initial and revised compensation amounts payable to Orchard Capital
pursuant to this consulting arrangement have been determined by the
Compensation Committee (with Mr. Ressler abstaining) based upon various
subjective factors such as Mr. Ressler's responsibilities, qualifications,
years of experience, individual performance and perceived contributions to the
Company. The December 2001 compensation increase from $144,000 to $275,000 per
year, as well as the grant of 125,000 additional stock options to Mr. Ressler
in December 2001, were based on a formal compensation survey and analysis
conducted by a third party compensation consultant at the request of the
Compensation Committee.

Submitted by the Compensation Committee of the
Board of Directors,

Robert J. Cresci
Michael P. Schulhof
Richard S. Ressler

Audit Committee Report

The Audit committee of the Company's Board of Directors consists of three
non-employee directors, Douglas Y. Bech, Robert J. Cresci and Michael P.
Schulhof, each of whom has been determined to be independent under the National
Association of Securities Dealers' Listing Standards. The Audit Committee is a

standing committee of the Board of Directors and operates under a written
charter adopted by the Board of Directors. Among its other functions, the Audit
Committee recommends to the Board of Directors the selection of the Company's
independent accountants.

Management is responsible for the Company's internal controls and the
financial reporting process. The independent accountants are responsible for
performing an independent audit of the Company's consolidated financial
statements in accordance with generally accepted accounting principles in the
United States and to issue a report thereon. The Audit Committee's
responsibility is to monitor and oversee these processes.

During fiscal 2001, the Audit Committee met with the senior members of the
Company's financial management team and the independent accountants. The Audit
Committee's agenda is established by the Audit Committee's chairman and senior
members of the Company's financial management team. The Audit Committee had
private sessions with the Company's independent accountants, at which candid
discussions of financial management, accounting and internal control issues
took place. The Audit Committee has reviewed with management and the
independent accountants the audited consolidated financial statements in this
Annual Report, including a discussion of the quality, not just the
acceptability, of the accounting principles, the reasonableness of significant
judgments and the clarity of disclosures in the consolidated financial
statements. Management represented to the Audit Committee that the Company's
consolidated financial statements were prepared in accordance with generally
accepted accounting principles. The Audit Committee discussed with the
independent accountants matters required to be discussed by Statement on
Auditing Standards No. 61, "Communication with Audit Committees."

The Company's independent accountants also provided to the Audit Committee
the written disclosure required by Independence Standards Board Standard No. 1,
"Independence Discussions with Audit Committees." The Committee discussed with
the independent accountants that firm's independence and considered whether the
non-audit services provided by the independent accountants are compatible with
maintaining its independence.

Based on the Audit Committee's discussion with management and the
independent accountants, and the Audit Committee's review of the representation
of management and the report of the independent accountants to the Audit
Committee, the Audit Committee recommended that the Board of Directors include
the audited consolidated financial statements in this Annual Report on Form
10-K for the year ended December 31, 2001.

Submitted by the Audit Committee of the Company's
Board of Directors,

Douglas Y. Bech
Robert J. Cresci
Michael P. Schulhof

Compensation Committee Interlocks and Insider Participation

The Company's Compensation Committee currently consists of Messrs. Cresci,
Schulhof and Ressler. The Company has no interlocking relationships or other
transactions involving any of its Compensation Committee members that are
required to be reported pursuant to applicable SEC rules. One of the Company's
former officers, Richard S. Ressler, but no current officer, serves on the
Compensation Committee.

Performance Graph

The following graph compares, for the period that the Company's common stock
has been registered under Section 12 of the Exchange Act (which commenced July
23, 1999), the cumulative total stockholder return for the Company, the Nasdaq
Telecommunications Index and an index of companies that the Company has
selected and justified as its peer group. The graph assumes that $100 was
invested on July 23, 1999 in the Company's common stock at the initial public
offering price of $38 per share and in each of the indexes, and assumes
reinvestment of any dividends. No dividends have been declared or paid on the
Company's common stock. The stock price performance on the following graph is
not necessarily indicative of future stock price performance.

Companies in the peer group index include Deltathree Inc., Easylink Services
Corporation (formerly Mail.com, Inc.), I-Link Corporation, iBasis Inc., PTEK
Holdings, Inc., TeraGlobal Communications Corp. and Tumbleweed Communications
Corp. The Company believes that the peer group index provides a representative
group of companies in the outsourced messaging and communications industry.

[THE PERFORMANCE GRAPH IS SET FORTH ON THE FOLLOWING PAGE.]

COMPARISON OF CUMULATIVE TOTAL RETURN AMONG j2 GLOBAL COMMUNICATIONS, INC.,
PEER GROUP INDEX AND NASDAQ TELECOMMUNICATIONS INDEX
[CHART]

j2 GLOBAL NASDAQ
COMMUNICATIONS, INC. PEER GROUP TELECOM INDEX
-------------------- ---------- -------------
7/23/99 $100.00 $100.00 $100.00
7/31/99 90.79 89.14 96.08
8/31/99 72.37 74.37 93.75
9/30/99 52.30 78.46 93.86
10/31/99 45.72 75.82 111.40
11/30/99 61.51 104.81 123.36
12/31/99 70.72 124.32 152.54
1/31/00 63.16 149.76 148.34
2/29/00 55.92 178.02 171.43
3/31/00 52.63 165.71 165.55
4/30/00 27.63 69.34 133.78
5/31/00 15.79 56.31 113.39
6/30/00 16.78 94.77 139.80
7/31/00 26.97 68.93 120.39
8/30/00 15.13 80.58 124.92
9/30/00 13.82 65.35 109.66
10/31/00 10.20 28.79 93.76
11/30/00 6.58 20.22 69.81
12/31/00 2.96 19.59 69.62
1/31/01 8.22 17.44 83.50
2/28/01 7.07 11.91 59.26
3/31/01 6.09 9.11 49.29
4/30/01 6.95 9.56 53.23
5/31/01 10.00 11.07 50.74
6/30/01 10.92 11.72 46.81
7/31/01 10.53 8.82 42.12
8/31/01 9.21 7.42 35.95
9/30/01 8.92 6.43 30.51
10/31/01 8.32 6.65 31.77
11/30/01 10.39 8.23 36.22
12/31/01 13.03 9.37 34.80
1/31/02 12.11 10.03 30.97
2/28/02 14.55 8.17 25.12
3/31/02 23.68 8.54 26.10

The following table lists the data points used in preparing the performance
graph.

Measurement Date j2 GLOBAL COMMUNICATIONS, INC. PEER GROUP COMPOSITE INDEX NASDAQ TELECOM INDEX
---------------- ------------------------------ -------------------------- --------------------

7/23/1999 $100.00 $100.00 $100.00
7/31/1999 $ 90.79 $ 89.14 $ 96.08
8/31/1999 $ 72.37 $ 74.37 $ 93.75
9/30/1999 $ 52.30 $ 78.46 $ 93.86
10/31/1999 $ 45.72 $ 75.82 $111.40
11/30/1999 $ 61.51 $104.81 $123.36
12/31/1999 $ 70.72 $124.32 $152.54
1/31/2000 $ 63.16 $149.76 $148.34
2/29/2000 $ 55.92 $178.02 $171.43
3/31/2000 $ 52.63 $165.71 $165.55
4/30/2000 $ 27.63 $ 69.34 $133.78
5/31/2000 $ 15.79 $ 56.31 $113.39
6/30/2000 $ 16.78 $ 94.77 $139.60
7/31/2000 $ 26.97 $ 68.93 $120.39
8/30/2000 $ 15.13 $ 80.58 $124.92
9/30/2000 $ 13.82 $ 65.35 $109.66
10/31/2000 $ 10.20 $ 28.79 $ 93.76
11/30/2000 $ 6.58 $ 20.22 $ 69.81
12/31/2000 $ 2.96 $ 19.59 $ 69.62
1/31/2001 $ 8.22 $ 17.44 $ 83.50
2/28/2001 $ 7.07 $ 11.91 $ 59.26
3/31/2001 $ 6.09 $ 9.11 $ 49.29
4/30/2001 $ 6.95 $ 9.56 $ 53.23
5/31/2001 $ 10.00 $ 11.07 $ 50.74
6/30/2001 $ 10.92 $ 11.72 $ 46.81
7/31/2001 $ 10.53 $ 8.82 $ 42.12
8/31/2001 $ 9.21 $ 7.42 $ 35.95
9/30/2001 $ 8.92 $ 6.43 $ 30.51
10/31/2001 $ 8.32 $ 6.65 $ 31.77
11/30/2001 $ 10.39 $ 8.23 $ 36.22
12/31/2001 $ 13.03 $ 9.37 $ 34.80
1/31/2002 $ 12.11 $ 10.03 $ 30.97
2/28/2002 $ 14.55 $ 8.17 $ 25.12
3/31/2002 $ 23.68 $ 8.54 $ 26.10

Item 12. Security Ownership of Certain Beneficial Owners and Management

Security Ownership of Certain Beneficial Owners

The following table sets forth certain information that has been provided to
the Company with respect to beneficial ownership of shares of the Company's
common stock as of April 16, 2002 for each person who is known by the Company
to own beneficially more than five percent (5%) of the outstanding shares of
the Company's common stock:

Number of Percentage
Name and Address Shares of Class
---------------- --------- ----------

Richard S. Ressler . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,740,097(1) 34.5%
c/o Orchard Capital Corporation
6922 Hollywood Boulevard, 9th Floor
Los Angeles, CA 90028
Michael J.G. Gleissner . . . . . . . . . . . . . . . . . . . . . . . . . . ..... 1,344,279 12.6%
12340 NE 6th Court
Miami, FL 33161

--------
(1) Consists of 3,277,957 shares of stock owned by Orchard/JFAX Investors, LLC,
250,000 shares of stock owned by Richard S. Ressler, 97,561 shares of the
Company common stock owned by The Ressler Family Foundation, 77,079 shares
of stock which Orchard/JFAX Investors may purchase pursuant to warrants
which are exercisable in full at this time and options owned by Mr. Ressler
to acquire 37,500 shares of the Company common stock that are exercisable
within 60 days of April 16, 2002. Mr. Ressler is the manager of
Orchard/JFAX Investors and a trustee of The Ressler Family Foundation, but
has disclaimed beneficial ownership of any shares of stock in which he has
no pecuniary interest.

Security Ownership of Management

The following table sets forth the beneficial ownership of the Company's
common stock as of April 16, 2002 by each director, by each executive officer
named in the Summary Compensation Table beginning on page 53 and by all such
directors and executive officers as a group.

Number of Shares Approximate
Name(1) Beneficially Owned(2) Percentage
------- --------------------- -----------

Richard S. Ressler . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... 3,740,097(3) 34.5%
Douglas Y. Bech . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 5,418(4) *
Robert J. Cresci . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,750(5) *
John F. Rieley . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,750(6) *
Michael P. Schulhof . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...... 278,276(7) 2.5%
Scott M. Jarus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,309(8) *
Nehemia Zucker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... 141,237(9) 1.3%
R. Scott Turicchi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 115,938(10) 1.1%
Leo D'Angelo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... 15,000(11) *
All directors, director nominees and named executive
officers as a group (9 persons)..................................................... 4,440,775 40.9%

--------
* Less than 1%
(1) The address for all executive officers, directors and director nominees is
c/o j2 Global Communications, Inc., 6922 Hollywood Blvd., Suite 800, Los
Angeles, CA 90028.
(2) As of April 16, 2002, 10,710,985 shares of the Company's common stock were
outstanding.

(3) Consists of 3,277,957 shares of stock owned by Orchard/JFAX Investors, LLC,
250,000 shares of stock owned by Richard S. Ressler, 97,561 shares of the
Company's common stock owned by The Ressler Family Foundation, 77,079
shares of stock which Orchard/JFAX Investors may purchase pursuant to
warrants which are exercisable in full at this time and options owned by
Mr. Ressler to acquire 37,500 shares of the Company's common stock that are
exercisable within 60 days of April 16, 2002. Mr. Ressler is the manager of
Orchard/JFAX Investors and a trustee of The Ressler Family Foundation, but
has disclaimed beneficial ownership of any shares of the Company's common
stock in which he has no pecuniary interest.
(4) Consists of 5,351 shares of the Company's common stock and options to
acquire 67 shares of the Company's common stock that are exercisable within
60 days of April 16, 2002.
(5) Consists of options to acquire 8,750 shares of the Company's common stock
that are exercisable within 60 days of April 16, 2002.
(6) Consists of 43,750 shares of the Company's common stock and options to
acquire 15,000 shares of the Company's common stock that are exercisable
within 60 days of April 16, 2002.
(7) Consists of 65,776 shares of the Company's common stock, vested warrants to
acquire 210,000 shares of the Company's common stock and options to acquire
2,500 shares of the Company's common stock that are exercisable within 60
days of April 16, 2002.
(8) Consists of 14,809 shares of the Company's common stock and options to
acquire 62,500 shares of the Company's common stock that are exercisable
within 60 days of April 16, 2002.
(9) Consists of 65,435 shares of the Company's common stock and options to
acquire 75,802 shares of the Company's common stock that are exercisable
within 60 days of April 16, 2002.
(10) Consists of vested warrants to acquire 35,938 shares of the Company's
common stock and options to acquire 80,000 shares of the Company's common
stock that are exercisable within 60 days of April 16, 2002.
(11) Consists of options to acquire 15,000 shares of the Company's common stock
that are exercisable within 60 days of April 16, 2002.

Item 13. Certain Relationships and Related Transactions

Certain Transactions

Indebtedness of Officers and Directors. The following directors, officers
and beneficial owners of more than five percent (5%) of the Company's common
stock are indebted to the Company:

. As of December 31, 2001, Scott M. Jarus was indebted to the Company in
the amount of $512,000. This debt represents the $500,000 principal
amount plus accrued interest of a loan made by the Company to Mr. Jarus
on July 9, 2002 in connection with his engagement of employment. In
accordance with his employment agreement, Mr. Jarus used the proceeds of
this loan towards the purchase of a home in the Los Angeles area. The
loan is secured by a second mortgage on that home. See "Executive
Compensation--Employment Contracts, Termination of Employment and Change
of Control Arrangements" beginning on page 55 for a description of the
terms of this loan.

. As of December 31, 2001, Nehemia Zucker was indebted to the Company in
the amount of $134,777. This debt represents the $100,000 principal
amount plus accrued interest of a loan advanced to Mr. Zucker on April
11, 1997. The loan matures on May 31, 2002 and bears interest at the rate
of 6.32% per annum. However, interest is not paid periodically, but
rather is accrued and added to principal each September 30th and March
31st. This note is secured by a pledge of 55,000 shares of the Company's
common stock owned by Mr. Zucker.

. As of December 31, 2001, Boardrush Media LLC ("Boardrush") was indebted
to the Company in the amount of $520,000. The Company advanced this loan
to Boardrush on March 17, 1997 and the principal amount of the loan was
originally $2,250,000. This loan matures on January 1, 2005 and bears
interest at the rate of 6.32% per annum, with interest payments offset
against amounts owed by the Company to Boardrush under the consulting
agreement described below.

Consulting Agreements. The Company has entered into the following
consulting agreements with directors, officers and beneficial owners of more
than five percent (5%) of the Company's common stock:

. The Company is a party to a consulting agreement with Boardrush dated
March 17, 1999, as amended in July 2000 and again in October 2001 (the
"Boardrush Agreement"). Jens Muller, a co-founder and former director of
the Company, is the Manager and therefore the controlling person of
Boardrush. Pursuant to the Boardrush Agreement, Boardrush provides the
services of Mr. Muller and John F. Rieley, a current director of the
Company and also a co-founder, to the Company for a maximum of two days
each per month. The Boardrush Agreement runs for a term ending on the
earlier of the date the Boardrush loan described above is repaid in full,
and January 1, 2005. Until March 17, 1999, the Company paid Boardrush
$400,000 per year, payable in equal monthly payments, pursuant to the
Boardrush Agreement. From and after March 17, 1999, Boardrush's
compensation under the Boardrush Agreement consists of forgiveness of
interest and principal under the loan described above, with principal
reductions being made pro rata over the period from March 17, 1999
through January 1, 2005.

Boardrush has the right to repay the loan at any time either in cash or in
the Company's common stock valued at the then current market price. On July 27,
2000, Boardrush prepaid $760,000 of the loan by delivering to the Company
approximately 62,500 shares of the Company's common stock, valued at $12.125
per share. As a result of this prepayment, and in accordance with the Boardrush
Agreement, the following occurred: (a) the requirement in the Boardrush
Agreement that Boardrush repay the loan with the proceeds of any sale of the
Company's common stock after it has received in excess of $6 million was
terminated, and (b) Boardrush's pledge of 731,250 shares of the Company's
common stock was extinguished.

. Richard S. Ressler's services as Chairman, and formerly as Chief
Executive Officer, have been provided pursuant to a consulting
arrangement with Orchard Capital Corporation, a company controlled by Mr.
Ressler. Mr. Ressler is also a member and the manager of Orchard/JFAX
Investors, LLC, one of the Company's principal stockholders. See
"Executive Compensation--Report of the Compensation Committee of the
Board of Directors on Executive Compensation" beginning on page 58 for a
description of the terms of this consulting arrangement.

Shared Space and Services. The Company currently leases approximately
28,000 square feet of office space for its headquarters in Hollywood,
California under a lease that expires in January 2010. The Company leases the
space from CIM/Hollywood, LLC, a limited liability company indirectly
controlled by the Company's Chairman, Richard S. Ressler. The Company subleases
approximately one-half of this space to CIM Group, LLC, an entity indirectly
controlled by Mr. Ressler. This sublease expires in 2002 and the Company's
share of the monthly rent is approximately $24,000.

The Company also shares and prorates certain administrative costs with these
and other entities controlled by Mr. Ressler. These costs include amounts for
shared personnel and routine office and telephone expenses, and are paid based
on actual amounts paid to third parties without markup or markdown.

Investments in the Company by Officers, Directors and Principal
Stockholders. Between December 1995 and March 1997, the Company issued a total
of 1,727,500 shares of common stock to the Company's founders, Messrs. Muller
and Rieley, 1,343,750 of which were canceled in March 1997 and reissued to
Boardrush). Also in March 1997, the Company issued 2,515,000 shares of common
stock to Orchard/JFAX Investors, LLC, and 55,000 shares of common stock to
Nehemia Zucker. In connection with these issuances, the Company entered into a
registration rights agreement with those investors. Under this agreement, the
investors have the right to participate in registrations initiated by the
Company, but do not have the right to demand that the Company effect a
registration. These registration rights will expire on March 17, 2007.

In June 2001, the Company repurchased 251,922 shares of common stock and a
warrant to acquire 117,188 shares of common stock for $911,000 in cash from an
investor group advised by Pecks Management Partners Ltd. ("Pecks") consisting
of Declaration of Trust for Defined Benefit Plans of Zeneca Holdings, Inc.,
Declaration

of Trust for Defined Benefit Plans of ICI American Holdings, Inc., Delaware
State Employees' Retirement Fund and the J.W. McConnell Family Foundation.
Robert J. Cresci, one of the Company's directors, is a Managing Director of
Pecks. At the same time, Pecks sold 300,003 shares of the Company's common
stock to a third party unaffiliated with the Company. Prior to disposing of
these shares and warrants, Pecks had a right to cause the Company to repurchase
these shares for $12.80 per share and to purchase these warrants for $6.40 per
underlying share upon a change of control of the Company. In connection with
Pecks' June 2001 sale of these shares and warrants, these repurchase rights
were canceled.

In July 1998, in connection with a preferred stock issuance (which preferred
stock was repurchased in 1999), the Company issued warrants to acquire a total
of 781,250 shares of the Company's common stock to the following entities: (a)
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), which acted as
placement agent for the offering; (b) affiliates of DLJ; (c) R. Scott Turicchi,
the Company's Executive Vice President of Corporate Development; (d)
Orchard/JFAX Investors, LLC; and (e) Pecks. As stated above, the Company
repurchased the warrants issued to Pecks in June 2001. The remaining warrants,
which have an exercise price of $9.60 per share, expire July 1, 2005. Each of
the warrant holders has a right to cause the Company to repurchase these
warrants for $6.40 per underlying share upon a change of control of the Company.

The Company believes that the transactions described above were made on
terms no less favorable than could have been obtained from third parties. All
transactions were negotiated at arms' length. The Company intends to have all
future transactions between the Company and its officers, directors and
affiliates be approved by a majority of disinterested members of the Company's
Board of Directors or one of its committees, as appropriate, in a manner
consistent with Delaware law and the fiduciary duties of the Company's
directors.

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) 1. Financial Statements.

The following financial statements are filed as a part of this report:

Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity (Deficiency)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Schedule II--Valuation and Qualifying Accounts

All other schedules are omitted because they are not required or the
required information is shown in the financial statements or notes thereto.

3. Exhibits

The following exhibits are filed with this Report or are incorporated herein
by reference as indicated below (numbered in accordance with Item 601 of
Regulation S-K). The Company shall furnish copies of exhibits for a reasonable
fee (covering the expense of furnishing copies) upon request.

Exhibit
No. Exhibit Title
------- -------------

3.1 Certificate of Incorporation, as amended and restated (1)

3.1.1 Certificate of Designation of Series B Convertible Preferred Stock (3)

3.1.2 Certificate of Amendment to Amended and Restated Certificate of Incorporation (4)

3.1.3 Certificate of Amendment to Amended and Restated Certificate of Incorporation (10)

3.1.4 Certificate of Amendment to Amended and Restated Certificate of Incorporation (10)

3.2 By-laws, as amended and restated (1)

4.1 Specimen of common stock certificate (6)

9.1 Securityholders' Agreement, dated as of June 30, 1998, with the investors in the June and July 1998
private placements (1)

10.1 j2 Global Communications, Inc. Second Amended and Restated 1997 Stock Option Plan (8)

10.2 j2 Global Communications, Inc. 2001 Employee Stock Purchase Plan (7)

10.3 Letter Agreement dated April 1, 2001 between j2 Global and Orchard Capital Corporation (5)

10.3.1 Amendment dated December 31, 2001 to Letter Agreement dated April 1, 2001 between j2 Global
and Orchard Capital Corporation (10)

10.4 Employment Agreement for Scott Jarus dated June 20, 2001 (9)

10.4.1 Promissory Note Secured by Deed of Trust, issued by Scott Jarus and Rebecca Jarus to j2 Global on
July 19, 2001 (9)

10.4.2 Deed of Trust granted by Scott Jarus and Rebecca Jarus to j2 Global on July 19, 2001 (9)

10.4.3 Redemption Agreement dated June 20, 2001 among j2 Global and the Shareholders referred to
therein (9)

Exhibit
No. Exhibit Title
------- -------------

10.5 Stock Purchase Agreement dated December 13, 2001 among j2 Global and the Shareholders referred
to therein (10)

10.6 Employment Agreement for Nehemia Zucker, dated March 21, 1997 (1)

10.6.1 Promissory Note issued by Nehemia Zucker to JFAX Communications, Inc. on April 11, 1997, due
March 31, 2001 (1)

10.7 Consulting Agreement for Boardrush Media LLC, dated as of March 17, 1997 (1)

10.7.1 Modification Agreement between Boardrush Media, LLC and j2 Global (5)

10.7.2 Second Modification Agreement between Boardrush Media, LLC and j2 Global (10)

10.7.3 Second Amended and Restated Promissory Note issued by Boardrush LLC to j2 Global dated
January 1, 2000 due December 31, 2004 (10)

10.8 Put Rights, for the benefit of the investors in the June and July 1998 private placements (1)

10.9 Registration Rights Agreement dated as of June 30, 1998 with the investors in the June and July
1998 private placements (1)

10.10 Registration Rights Agreement dated as of March 17, 1997 with Orchard/JFAX Investors, LLC,
Boardrush LLC (Boardrush Media LLC), Jaye Muller, John F. Rieley, Nehemia Zucker and
Anand Narasimhan (1)

10.11 Stock Option Agreement, dated as of January 24, 1997, by and among JFAX Communications, Inc.
and Michael P. Schulhof (2)

10.12 Letter, dated as of June 30, 1998, to Michael P. Schulhof from Richard S. Ressler regarding the
Stock Option Agreement, dated as of January 24, 1997, between JFAX Communications, Inc. and
Michael P. Schulhof (2)

10.13 Purchase Agreement dated as of July 2, 1998, relating to $5 million of preferred stock and
Warrants (2)

10.13.1 Consent to Amendment of Purchase Agreement, dated as of April 16, 1999 (2)

10.13.2 Form of warrant pursuant to such Purchase Agreement (2)

10.14 Investment Agreement among JFAX Communications, Inc., Jens Muller, John F. Rieley and
Boardrush LLC and Orchard/JFAX Investors, LLC and Richard S. Ressler, dated as of March 14,
1997 and effective as of March 17, 1997 (2)

21.1 List of subsidiaries of j2 Global (10)

23.1 Consent of KPMG LLP (10)

--------
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 filed with the Commission on April 16, 1999, Registration No. 333-76477.
(2) Incorporated by reference to the Company's Amendment No. 1 to Registration
Statement on Form S-1 filed with the Commission on May 26, 1999,
Registration No. 333-76477.
(3) Incorporated by reference to the Company's Report on Form 10-K filed with
the Commission on March 30, 2000. (5)
(4) Incorporated by reference to the Company's Registration Statement on Form
S-3 with the Commission on December 29, 2000, Registration No. 333-52918.
(5) Incorporated by reference to the Company's Report on Form 10-K/A filed with
the Commission on April 30, 2001
(6) Incorporated by reference to the Company's Report on Form 10-Q filed with
the Commission on May 15, 2001.

(7) Incorporated by reference to the Company's Registration Statement on Form
S-8 filed with the Commission on July 12, 2001, Registration No. 333-64986.
(8) Incorporated by reference to the Company's Amended Registration Statement
on Form S-8 filed with the Commission on July 17, 2001, Registration No.
333-55402.
(9) Incorporated by reference to the Company's Report on Form 10-Q filed with
the Commission on August 13, 2001.
(10) Incorporated by reference to the Company's Report on Form 10-K filed with
the Commission on April 1, 2002.

(b) Reports on Form 8-K during the fourth quarter of 2001:

Item Description Filing Date
---- ----------- ----------------

5,7 Regulation FD disclosure regarding third quarter 2001 financial results October 23, 2001

5,7 Regulation FD disclosure of materials presented during third quarter 2001 earnings October 24, 2001
conference call

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused the report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 29th day of
April, 2002.

Signature Title
--------- -----

/s/ SCOTT M. JARUS President (Principal
----------------------------- Executive Officer)
Scott M. Jarus

/s/ NEHEMIA ZUCKER
----------------------------- Chief Financial Officer
Nehemia Zucker (Principal Financial Officer)

/s/ GREGGORY KALVIN
----------------------------- Vice President Finance
Greggory Kalvin (Principal Accounting Officer)

/s/ RICHARD S. RESSLER Chairman of the Board and a
----------------------------- Director
Richard S. Ressler

/s/ JOHN F. RIELEY Director
-----------------------------
John F. Rieley

/s/ MICHAEL P. SCHULHOF Director
-----------------------------
Michael P. Schulhof

/s/ ROBERT J. CRESCI Director
-----------------------------
Robert J. Cresci

/s/ DOUGLAS Y. BECH Director
-----------------------------
Douglas Y. Bech

j2 GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(in thousands)

Additions:
Balance at Charged to Balance
Beginning Costs and Deductions: Reclassifications at End of
Description of Period Expenses Write-offs And other (a) Period
----------- ---------- ---------- ----------- ----------------- ---------

Year Ended December 31, 2001:
Allowance for Doubtful Accounts $1,112 $309 $(10) $(307) $1,104
Year Ended December 31, 2000:
Allowance for Doubtful Accounts $ -- $178 $(34) $ 968 $1,112
Year Ended December 31, 1999:
Allowance for Doubtful Accounts $ -- $ -- $ -- $ -- $ --

--------
(a) Amounts related to accounts receivable from the acquisition of eFax.com.