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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
/x/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-27438
The ForeFront Group, Inc.
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(Exact name of small business issuer as specified in its charter)
Delaware 76-0365256
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1330 Post Oak Blvd., Suite 1300
Houston, Texas 77056
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(Address of principal executive offices)
Issuer's telephone number: (713) 961-1101
Check whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the
past 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 / /
Number of shares of the issuer's Common Stock outstanding as
of November 4, 1996: 6,371,130
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information, and
pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and notes disclosures
normally included in annual consolidated financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to those rules
and regulations, although the Company believes that the
disclosures made herein are adequate to make the information
presented not misleading. These consolidated financial
statements should be read in conjunction with the financial
statements for the year ended December 31, 1995 included in the
Company's 1995 Form 10-KSB filed pursuant to Section 15(d) of the
Securities Exchange Act of 1934.
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The ForeFront Group, Inc.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
------------ -------------
(unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,502,223 $ 8,600,991
Securities held to maturity 7,998,417 ---
Accounts receivable, net of
allowance of $5,000 and
$54,000 118,604 1,318,252
Interest receivable --- 35,924
Inventory 116,799 343,277
Prepaid expenses 45,745 191,078
Intangible assets, net of
accumulated amortization
of $-0- and $47,715 --- 202,285
------------ -------------
Total current assets 13,781,788 10,691,807
FURNITURE AND EQUIPMENT, net of
accumulated depreciation of
$155,928 and $270,882 204,207 876,915
PURCHASED SOFTWARE, net of
accumulated amortization of
$-0- and $33,451 --- 104,559
OTHER ASSETS 7,743 45,367
------------ -------------
Total assets $ 13,993,738 $ 11,718,648
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 453,082 $ 1,595,091
Accrued liabilities 641,085 1,097,971
Current portion of deferred
revenue 113,081 337,198
------------ -------------
Total current liabilities 1,207,248 3,030,260
Deferred revenue, net of current
portion --- 30,375
------------ -------------
Total liabilities 1,207,248 3,060,635
------------ -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value,
5,000,000 shares authorized,
none outstanding --- ---
Common stock, $.01 par value,
20,000,000 shares authorized,
5,838,246 and 6,450,692 shares
issued, 5,756,101 and 6,144,448
shares outstanding 58,382 62,265
Additional paid-in capital 16,747,614 19,575,277
Deferred compensation (586,105) (403,110)
Accumulated deficit (3,431,551) (10,574,569)
Treasury stock, 82,145 shares
at cost (1,850) (1,850)
------------ -------------
Total stockholders'
equity 12,786,490 8,658,013
------------ -------------
Total liabilities and
stockholders' equity $ 13,993,738 $ 11,718,648
============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
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The ForeFront Group, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
1995 1996 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET REVENUES:
Licenses and royalties $ 1,500,904 $ 3,578,786 $ 4,449,997 $ 9,386,290
Maintenance and services 13,934 14,964 52,167 71,244
----------- ----------- ----------- -----------
Total revenues 1,514,838 3,593,750 4,502,164 9,457,534
COST OF MAINTENANCE, SERVICES
AND PRODUCT LICENSES 309,227 707,275 879,174 1,805,601
----------- ----------- ----------- -----------
Gross profit 1,205,611 2,886,475 3,622,990 7,651,933
OPERATING EXPENSES:
Research and development 214,702 1,215,853 600,813 2,149,832
Selling and marketing 774,223 2,013,049 2,038,482 4,870,270
General and administrative 420,738 2,455,167 1,080,749 3,903,705
Acquired research and
development costs --- --- --- 2,798,604
----------- ----------- ----------- -----------
Operating loss (204,052) (2,797,594) (97,054) (6,070,478)
OTHER:
Interest income 9,870 111,790 15,495 432,422
Interest expense (22,780) --- (34,997) ---
----------- ----------- ----------- -----------
Net loss $ (216,962) $(2,685,804) $ (116,556) $(5,638,056)
=========== =========== =========== ===========
NET LOSS PER SHARE $ (0.05) $ (0.44) $ (0.03) $ (0.95)
=========== =========== =========== ===========
SHARES USED IN COMPUTING NET
LOSS PER SHARE 4,319,465 6,119,516 4,304,733 5,949,484
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
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The ForeFront Group, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
1995 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (116,556) $ (5,638,056)
Adjustments to reconcile net loss to
net cash used by operating
activities:
Depreciation and amortization 42,619 196,120
Non-cash acquired research and
development costs --- 2,798,604
Compensation expense and amortization
of deferred compensation related
to certain stock options 71,713 167,276
Provision for doubtful accounts --- 49,000
Changes in operating assets and liabilities
(Net of Blue Squirrel and BookMaker
asset acquisitions):
Increase in receivables (51,208) (1,074,181)
(Increase) decrease in prepaid expenses 2,018 (126,955)
Increase in inventory (96,164) (164,521)
Increase in other assets (187,916) (322,048)
Increase (decrease) in accounts payables (270) 1,124,172
Increase in accrued liabilities 313,399 126,246
Increase in current and long term
deferred revenue 12,140 232,492
------------ ------------
Net cash used by operating activities: (10,225) (2,631,851)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of securities held
to maturity --- 7,998,417
Purchase of furniture and equipment (46,497) (746,669)
Cash paid for Blue Squirrel asset
acquisition --- (128,018)
Net cash received from BookMaker
acquisition --- 77,234
------------ ------------
Net cash provided (used) by investing
activities (46,497) 7,200,964
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 1,000 34,617
Proceeds from preferred stock 1,040,000 ---
Proceeds from notes payable to stockholders
and others 660,705 ---
Repayments of notes payable to stockholders
and others (80,705) ---
Distributions to stockholders (699,757) (1,504,962)
------------ ------------
Net cash provided (used) by financing
activities 921,243 (1,470,345)
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 864,521 3,098,768
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 533,547 5,502,223
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,398,068 $ 8,600,991
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
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The ForeFront Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(Unaudited)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The consolidated balance sheet at September 30, 1996 and the related
statements of operations for the three month and nine month and cash flows for
the nine month periods ended September 30, 1996 and 1995 include the
accounts of The ForeFront Group, Inc. and its wholly owned subsidiaries
("ForeFront" or the "Company") and are unaudited. All intercompany accounts
and transactions have been eliminated in consolidation.
These unaudited interim consolidated financial statements should be read
in conjunction with the December 31, 1995 financial statements and related
notes. The unaudited interim financial statements reflect all adjustments
which are, in the opinion of management, necessary for a fair statement of
results for the interim periods presented and all such adjustments are of a
normal recurring nature. Interim results are not necessarily indicative of
results for a full year.
Cash, Cash Equivalents and Marketable Securities
The Company considers highly liquid investments with a maturity of 3
months or less when purchased to be cash equivalents. At September 30, 1996,
the Company's entire investment portfolio consisted of U.S. government debt
securities which mature October 3, 1996 and October 24, 1996, and are classified
as cash and cash equivalents.
Purchased Software
Purchased software results from the acquisition of the assets of Blue
Squirrel, Inc. (Blue Squirrel) in March 1996 and BookMaker Corporation
("BookMaker") in June, 1996 and is recorded at cost. Amortization is
calculated on the straight-line method over the estimated lives of the
products, which in these instances are 18-24 months.
Revenues
Software licensing revenue is recognized upon delivery to the customer
and the receipt and acceptance of a signed contract or order if there are no
significant post-delivery obligations. For sales which provide for upgrades
for a one year period, the portion of the sale associated with the upgrade is
unbundled and recognized as the upgrade is provided. Maintenance contract
revenues are priced separately and recognized ratably over the terms of the
agreements. Consulting service revenues, which include development and
professional fees, are recognized as the services are rendered.
Expenses
The cost of maintenance, services and product licenses includes
purchases of materials and labor costs associated with providing post contract
support. Commissions on product sales are included in selling and marketing
expenses.
Research and Development
Research and development costs are expensed as they are incurred.
Statement of Financial Accounting Standards (SFAS) No. 86, "Accounting for the
Costs of Computer Software to Be Sold, Leased or Otherwise Marketed,"
requires capitalization of certain software development costs subsequent to
the establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon completion
of a working model. Costs incurred by the Company between completion of the
working model and the point at which the product is ready for general release
have been insignificant.
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Net Loss Per Share
The Company's net loss per share is based on the weighted average number
of common shares outstanding, adjusted as described as follows. With one
exception, common equivalent shares are excluded from the per share
calculation, as the effect of their inclusion is antidilutive. Pursuant to
Securities and Exchange Commission Staff Accounting Bulletins, all common,
preferred and common equivalent shares issued during the twelve months
preceding or in contemplation of the Company's initial public offering (using
the treasury stock method and the initial public offering price of $8 per
share) have been included in the calculation of common and common
equivalent shares outstanding for all periods prior to 1996.
Shares of convertible preferred stock are treated as if converted to
common stock on the respective dates of original issuance. In December 1995,
concurrent with the closing of the Company's initial public offering, all
shares of Series A and Series B Preferred Stock were converted into 1,462,953
shares of the Company's Common Stock at a conversion rate of one share of Common
Stock for every 2.26 shares of Series A Preferred Stock and one share of
Common Stock for every 2.256 shares of Series B Preferred Stock. All rights,
preferences and privileges associated with the Company's previously outstanding
preferred stock were terminated upon conversion.
2. INITIAL PUBLIC OFFERING
On December 26, 1995, the Company completed an initial public offering
of 1,700,000 common shares at $8.00 per share. Proceeds from the IPO were
approximately $11,854,522 of cash, net of underwriting costs and other
offering costs of $1,745,478. The Company issued warrants to purchase 170,000
shares of common stock at a price of $9.60 per share to the underwriters upon
closing of the initial public offering. The purchase price of the warrants
was $.001 per warrant. The warrants have a five-year term beginning twelve
months from the date of the consummation of the initial public offering. See
Liquidity and Capital Resources included elsewhere herein.
3. MERGER
On July 22, 1996, the Company consummated the acquisition of AllMicro, Inc.
("AllMicro") pursuant to the terms of the Agreement and Plan of Reorganization,
dated as of July 19, 1996 (the "Merger Agreement") by and among the Company,
AllMicro Acquisition Corporation, AllMicro and the stockholders
(the "Stockholders") of AllMicro. The acquisition was effected by way of a
merger (the "Merger") of a wholly-owned subsidiary of the Company with and into
AllMicro. As a result of the Merger, AllMicro became a wholly-owned subsidiary
of the Company. The Merger was treated as a pooling of interests for accounting
purposes. Pursuant to the Merger Agreement, the Stockholders received an
aggregate of 1,056,152 shares of common stock, $.01 par value of the Company
("ForeFront Common Stock"), ten percent of which was placed in escrow to
satisfy claims of the Company that may arise for any breach of the
representations and warranties made by AllMicro and the Stockholders in the
Merger Agreement. The escrow shares will be released upon the filing of audited
financial statements for 1996 by ForeFront, except for pending claims.
The shares of the Company's Common Stock were issued to the Stockholders
pursuant to an exemption from registration under Section 3(a)(10) of the
Securities Act of 1933, as amended (the "Securities Act"). The Stockholders
have also been granted certain other piggyback registration rights under
certain circumstances. In addition, any sales of ForeFront Common Stock by
the Stockholders must be in compliance with the volume limitations of Rule
145 under the Securities Act.
As a result of the pooling of interests, the accompanying consolidated
financial statements give retroactive effect to the acquisition, and as a
result, the consolidated financial statements are presented as if ForeFront and
AllMicro had been combined for all periods presented.
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4. COMMITMENTS AND CONTINGENCIES
Lease Agreements
The Company executed a new operating lease for its Palo Alto, California
location for approximately 4,000 square feet of office space beginning
September 1, 1996 and expiring August 30, 1999. The minimum commitment for
this office space is approximately $79,000 annually.
The Company executed a new operating lease for its Clearwater, Florida
location for approximately 16,000 square feet of office space beginning
January 1, 1997 and expiring December 31, 2002. The minimum commitment for
this office space is approximately $185,000 annually.
Item 2. Management's Discussion and Analysis Or Plan of Operation.
Overview
The Quarterly Report on Form 10-QSB contains forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of
the Securities Exchange Act of 1934. Actual results could differ materially
from those projected in the forward-looking statements as a result of a number
of important factors. For a discussion of important factors that could affect
the Company's results, please refer to the financial statement line item
discussions below. Readers are also encouraged to refer to the Company's
1995 Annual Report on Form 10-KSB and Quarterly Report on Form 10-QSB for the
first and second quarters of 1996, previously filed, for further discussion
of the Company's business and the risks and opportunities attendant thereto.
ForeFront develops and markets Internet software which enables individuals
and organizations to be more productive with information. ForeFront's Internet
software allows users to get the maximum value from Internet information, by
providing tools that effectively retrieve, manage and print information from
the World Wide Web. In addition, through its purchase of AllMicro, Inc.,
("AllMicro"), a direct telemarketing company, the Company republishes a
number of software products for personal computer technicians and network
administrators.
The Company launched its first two Internet products in 1995: GrabNet(TM),
a tool that enables client capture and organization of information from the
World Wide Web (the "Web") (commercially released in July 1995), and
WebWhacker(TM), a product that enables the storage of information captured from
the Web for off-line use and distribution (released commercially in
December 1995). The Company's third Internet product, RoundTable(TM), was
commercially launched in mid-1996. RoundTable provides realtime, Web-based
multimedia conferencing over standard Internet connections.
Through its acquisition of Blue Squirrel, Inc. ("Blue Squirrel") in
March 1996, ForeFront added WebSeeker(TM), a meta searching program available to
Internet users that delivers search reports for over 20 common search engines
and the corresponding Web pages directly to the user's desktop (commercially
released in September 1996). WebSeeker is the result of ForeFront's new Salt
Lake City development team and integrating the technology of Blue Squirrel's
main product, SqURL, with ForeFront technology.
The Company's newest product, WebPrinter(TM) (commercially released in
October 1996), is the result of the acquisition of BookMaker Corporation
("BookMaker"). WebPrinter adds an important dimension to ForeFront's existing
line of content retrieval and delivery tools, allowing users to print
information on the Web in a booklet format, thereby creating a personalized
publication from the Web. The BookMaker acquisition also added ClickBook(TM), a
Windows and Macintosh utility program that turns virtually any laser or inkjet
printer into a printing press, enabling users to transform documents into
professional-quality, double-sided booklets.
The acquisition of AllMicro (now called ForeFront Direct, Inc.) established
an immediate channel of over 60 sales professionals for ForeFront to market its
family of Internet productivity products to Web users. AllMicro's
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product line, which includes the AllMicro Anti-Virus(TM), The
Troubleshooter(TM), The Discovery Card(TM), The CNE Self-Study Course(TM), LAN
Certifier(TM), Rescue Data Recovery(R) and WinWorks(TM), enables computer users
and technicians to troubleshoot, tune and enhance the performance of their
networks and personal computers.
The Company delivers its products through multiple distribution channels,
including electronic storefront and other online resellers over the Internet,
through original equipment manufacturers ("OEMs"), systems integrators, value
added resellers ("VARs"), catalogs, traditional software retailers and direct
telemarketing. Commencing in the fourth quarter of 1996, the Company launched
its Find It, Get It, Print It retail campaign and began retail distribution
through Ingram Micro (wholesale), Egghead, Best Buy, CompUSA, MicroCenter and
other retailers. The Company also intends to seek alliances with other computer
software companies to incorporate bundled versions of the Company's Internet
products in the products of such other companies. The Company
recently opened an office in the United Kingdom to distribute its family of
Internet products in the European markets.
Results of Operations
Nine Months Ended September 30, 1995 and 1996
The Company's revenues increased 110% from $4,502,164 in the nine months
ended September 30, 1995 to $9,457,534 in the comparable 1996 period. The
Company's revenues for the 1995 period were primarily comprised of license
revenue and maintenance and service revenues from the VNS product and direct
sales of PC and utility software. During the comparable period for 1996, the
Company's revenues were primarily comprised of license revenue from its
desktop and collaborative products and direct sales of PC and utility software.
The Company entered into various OEM and other licensing agreements with
several large established industry companies. License revenue of $1,270,817
was recognized in the nine months ended September 30, 1996 from such agreements.
Additionally, $124,808 of revenue related to these agreements has been
deferred in accordance with SOP 91-1 for other insignificant obligations due
to the licensees. This deferred revenue will be recognized over the terms of
the agreements, generally 12-36 months, from the time of execution. In
addition, $170,500 of license revenues which provide for upgrades for a one
year period have been deferred in the current period and will be recognized
as the obligation is fulfilled.
The Company's research and development expenses increased by 258% from
$600,813 in the nine months ended September 30, 1995 to $2,149,832 in the
comparable 1996 period. The increase is primarily due to additional research
and development personnel for the Company's new Internet line of products and
includes a one-time charge of approximately $410,000 due to the purchase of
several software licenses intended for future product development. The
Company expects its research and development expenses to continue to increase
during 1996, reflecting anticipated increased expenses related to increased
product development.
Selling and marketing costs increased by 139% from $2,038,482 in the nine
months ended September 30, 1995 to $4,870,270 in the comparable 1996 period.
The increase is primarily due to increased sales personnel and sales
commissions, and the continued establishment and expansion of various
distribution channels. The Company expects to increase its sales and marketing
expenses as it expands marketing efforts in its current and future
distribution channels.
General and administrative costs increased by 261% from $1,080,749 in the
nine months ended September 30, 1995 to $3,903,705 in the comparable 1996
period. The increase is due to increased personnel and recruiting costs,
merger and acquisition activity as well as higher administrative costs as a
result of becoming a public company. This increase also includes a one-time
charge of $1.56 million of transaction costs associated with the acquisition
of AllMicro.
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During March 1996, the Company acquired the assets of Blue Squirrel, a
Utah based company, and during June 1996, the Company acquired the assets of
BookMaker, a California based company. The Company recorded the fair market
value of net assets acquired, which included purchased software of $71,110
and $66,900, respectively, and recorded a charge of $439,881 and $2,358,723,
respectively, for acquired research and development costs.
During July 1996, the Company acquired AllMicro which was accounted for
as a pooling of interests. As a result of the Merger, AllMicro became a wholly
owned subsidiary of ForeFront. The accompanying consolidated financial
statements give retroactive effect to the acquisition and the consolidated
financial statements are presented as if ForeFront and AllMicro had been
combined for all periods presented.
Three Months Ended September 30, 1995 and 1996
The Company's revenues increased 137% from $1,514,838 in the three months
ended September 30, 1995 to $3,593,750 in the comparable 1996 period. The
Company's revenues for the 1995 period were primarily comprised of license
revenue and maintenance and service revenues from the VNS product and direct
sales of PC and utility software. During the comparable period for 1996, the
Company's revenues were primarily comprised of license revenue from its
desktop and collaborative products and direct sales of PC and utility software.
The Company entered into various OEM and other licensing agreements with
several large established industry players. License revenue of $516,887 was
recognized in the quarter ended September 30, 1996 from such agreements.
Additionally, $69,083 of revenue related to these agreements has been
deferred in accordance with SOP 91-1 for other insignificant obligations due to
the licensees. This deferred revenue will be recognized over the terms of the
agreements, generally 12-36 months, from the time of execution. In addition,
$58,000 of license revenues which provide for upgrades for a one year period
have been deferred in the current period and will be recognized as the
obligation is fulfilled.
The Company's research and development expenses increased by 466% from
$214,702 in the three months ended September 30, 1995 to $1,215,853 in the
comparable 1996 period. The increase is primarily due to additional research
and development personnel for the Company's new Internet line of products and
includes a one-time charge of approximately $410,000 due to the purchase of
several software licenses intended for future product development. The
Company expects its research and development expenses to continue to increase
during 1996, reflecting anticipated increased expenses related to increased
product development.
Selling and marketing costs increased by 160% from $774,223 in the three
months ended September 30, 1995 to $2,013,049 in the comparable 1996 period.
The increase is primarily due to increased sales personnel and sales
commissions, and the continued establishment and expansion of various
distribution channels. The Company expects to increase its sales and
marketing expenses as it expands marketing efforts in its current and future
distribution channels.
General and administrative costs increased by 484% from $420,738 in the
three months ended September 30, 1995 to $2,455,167 in the comparable 1996
period. The increase is due to increased personnel and recruiting costs,
merger and acquisition activity as well as higher administrative costs as a
result of becoming a public company. This increase also includes a one-time
charge of $1.56 million of transaction costs associated with the acquisition
of AllMicro.
During July 1996, the Company acquired AllMicro which was accounted for
as a pooling of interests. As a result of the Merger, AllMicro became a
wholly owned subsidiary of ForeFront. The stockholders received an aggregate
of 1,056,152 shares of Common Stock, ten percent of which was placed in
escrow to satisfy claims of the Company that may arise for any breach of the
representations and warranties made by AllMicro and the Stockholders. As a
result of the pooling of interests, the accompanying consolidated financial
statements give
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retroactive effect to the acquisition and the consolidated
financial statements are presented as if ForeFront and AllMicro had been
combined for all periods presented.
Liquidity and Capital Resources
At September 30, 1996 the Company had cash and cash equivalents of
$8,600,991 and working capital of $7,661,547. The Company has financed
approximately $5.4 million of cash used in operating activities from 1992
through September 1996, primarily through the issuance of approximately
$957,000 of preferred stock in 1992, $1.6 million of common stock in 1993 and
$1.6 million of preferred stock and notes payable converted into
preferred stock and $11,855,000 of common stock in 1995.
The Company believes that the net proceeds from the initial public
offering in December 1995, together with available funds and revenues will be
sufficient to meet its anticipated cash needs for operations, working capital
and capital expenditures through mid 1998. Thereafter, if cash generated by
operations is insufficient to satisfy the Company's liquidity requirements, the
Company may seek to sell additional equity or debt securities or obtain
credit facilities. The sale of additional equity or convertible debt
securities will result in additional dilution to the Company's stockholders.
There can be no assurance that the Company will be able to raise such
capital when needed or on terms favorable to the Company.
The Company's liquidity will be reduced as amounts are expended for
continuing research and development, expansion of sales and marketing activities
and development of its administrative function. The Company's liquidity
could also be reduced if significant amounts were expended for equipment or to
license or acquire proprietary technology owned by others or to legally
defend its proprietary technology. Additionally, depending upon market
conditions or future business opportunities, the Company may decide to issue
additional equity or debt securities for cash or to acquire assets or
technology of others. The working capital of the Company may also be used to
acquire such assets or technology, reducing the funds available for
alternative use.
As a result of the Company's limited operating history, the Company does
not have historical financial data for a significant number of periods on which
to base planned operating expenses. Accordingly, the Company's expense levels
are based in part on its expectations as to future revenues. However, the
Company typically operates with no backlog. As a result, quarterly sales and
operating results generally depend on the volume and timing of and ability to
fulfill orders received within the quarter, which are difficult to forecast.
The Company may be unable to adjust spending in a timely manner to compensate
for any unexpected revenues shortfall. Accordingly, any significant
shortfall of demand for the Company's products and services in relation to
the Company's expectations would have an immediate adverse impact on the
Company's business, operating results and financial condition. In addition,
the Company plans to increase its operating expenses to fund greater levels
of research and development, increase its sales and marketing operations,
develop new distribution channels and broaden its customer support
capabilities. To the extent that such expenses precede or are not
subsequently followed by increased revenues, the Company's business, operating
results and financial condition will be materially adversely affected.
The Company expects to experience significant fluctuations in future
quarterly operating results that may be caused by many factors, including
demand for the Company's products, introduction or enhancement of products
by the Company and its competitors, market acceptance of new products, mix
of distribution channels through which products are sold, mix of products and
services sold, and general economic conditions. As a result, the Company
believes that period-to-period comparisons of its results of operations are
not necessarily meaningful and should not be relied upon as any indication of
future performance. Due to all of the foregoing factors, it is likely that
in some future quarter the Company's operating results will be below the
expectations of public market analysts and investors. In such event, the price
of the Company's Common Stock would likely be materially adversely affected.
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PART II. OTHER INFORMATION
Item 2. Changes in Securities
On July 17, 1996, the Board of Directors of the Company adopted an
amendment to Section 2.2 of the Company's Bylaws which permits stockholders of
the Company holding in excess of ten percent (10%) of the outstanding voting
securities to call a special meeting of the stockholders of the Company.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Number Exhibit
2.1 Agreement and Plan of Reorganization
among the Company, AllMicro Acquisition
Corporation, AllMicro, Inc. and the
Shareholders listed on the execution pages
thereto, dated July 19, 1996 (incorporated
by reference to the exhibit attached to the
Company's Current Report on Form 8-K as
filed with the Securities and Exchange
Commission on August 6, 1996).
10.1 Employment Agreement between the Company and
Michael Kaplan, dated July 22, 1996.
10.2 The Company's 1996 Non-Qualified Stock
Option Plan
11.1 Statement regarding computation of net loss per share
27 Financial Data Schedule
(b) Reports on Form 8-K.
A report was filed on June 27, 1996, as amended by a
Form 8-K/A filed on August 23, 1996, in connection with
the Company's acquisition of BookMaker Corporation on
June 12, 1996.
A report was filed on August 6, 1996, as amended by a
Form 8-K/A on October 4, 1996, in connection with the
Company's acquisition of AllMicro, Inc. on July 22,
1996.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
The ForeFront Group, Inc.
Date: November 14, 1996 By: /s/ David Sikora
David Sikora
President and Chief Executive
Officer
Date: November 14, 1996 By: /s/ Ernest D. Rapp
Ernest D. Rapp
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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