<PAGE>
As filed with the Securities and Exchange Commission on January 9, 1996
---
Registration No. 333-18491
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------------------------------
THE FOREFRONT GROUP, INC.
(Exact name of registrant as
specified in its charter)
DELAWARE 76-0365256
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
----------------------------------
1330 Post Oak Boulevard, Suite 1300
Houston, Texas 77056
(713) 961-1101
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
-------------------------------------
JEFFREY R. HARDER
Vice President and General Counsel
The ForeFront Group, Inc.
1330 Post Oak Boulevard, Suite 1300
Houston, Texas 77056
(713) 961-1101
(Name, address, including zip code and telephone number,
including area code, of agent for service)
----------------------------------
COPY TO:
JEFFREY L. WADE, ESQ.
Andrews & Kurth L.L.P.
2170 Buckthorne Place, Suite 150
The Woodlands, Texas 77380
(713) 220-4801
----------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
FROM TIME TO TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement from the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.[ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box.[ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==========================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock ($.01 par
value) . . . . . . . . . . 698,852 shares $5.50 $3,843,686.00 $1,164.75
Common Stock issuable
upon exercise of Common
Stock warrants . . . . . . 4,971 shares $5.50 $ 27,340.50 $ 8.29
- --------------------------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . 703,823 shares $5.50 $3,871,026.50 $1,173.04
==========================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of determining the registration fee.
Calculated on the basis of the average of the high and low reported prices of
the Registrant's Common Stock on the Nasdaq National Market on January 8,
1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
<PAGE>
PROSPECTUS
THE FOREFRONT GROUP, INC.
698,852 SHARES COMMON STOCK
4,971 SHARES COMMON STOCK
ISSUABLE UPON EXERCISE OF COMMON STOCK WARRANTS
This Prospectus relates to the offering of up to 703,823 shares of Common
Stock, par value $.01 per share ("Common Stock"), of The ForeFront Group, Inc.,
a Delaware corporation (the "Company"), by the holders of certain securities of
the Company listed herein under "Selling Stockholders" (the "Selling
Stockholders"). The shares of Common Stock offered hereby (the "Shares") include
up to (i) 470,637 shares of Common Stock issued in connection with the
acquisition by the Company of the assets of BookMaker Corporation, (ii) 125,000
shares of Common Stock issued in connection with the acquisition by the Company
of the assets of Blue Squirrel, Inc., (iii) 103,215 shares of Common Stock
issued upon conversion of shares of preferred stock of the Company issued in
private placements prior to the Company's initial public offering and (iv) 4,971
shares ("Warrant Shares") issuable upon the exercise of warrants ("Warrants") to
purchase Common Stock issued in connection with the private placement of debt or
preferred stock by the Company prior to the Company's initial public offering.
The Company is registering the Shares pursuant to the terms of certain
Registration Rights Agreements (the "Registration Rights Agreements") between
the Company and the Selling Stockholders, but the registration of the Securities
does not necessarily mean that all or any of the Securities will be sold by the
Selling Stockholders.
The Common Stock is quoted on the Nasdaq National Market under the symbol
"FFGI." On January 8, 1997, the last reported sale price per share of the
Common Stock, as quoted on the Nasdaq National Market, was $5.375.
All or part of the Shares may be offered by the Selling Stockholders from
time to time for their own account in transactions on The Nasdaq National
Market, in negotiated transactions or otherwise, at market prices prevailing at
the time of sale, at prices related to such prevailing market prices or at
negotiated prices. The Selling Stockholders may effect such transactions by
selling the Shares to or through broker-dealers and such broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
the Selling Stockholders or the purchasers of the Shares for whom such
broker-dealers may act as agent or to whom they sell as principal or both (which
compensation to a particular broker-dealer might be in excess of customary
commissions).
None of the proceeds from the sale of the Shares by the Selling
Stockholders will be received by the Company, but the Company will receive the
proceeds from the exercise of any warrants by Selling Stockholders. The Company
has agreed to bear certain expenses in connection with the registration and sale
of the Shares being offered by the Selling Stockholders. The Selling
Stockholders and any broker-dealers participating in the distribution of the
Shares may be deemed to be "underwriters" within the meaning of the Securities
Act of 1933, as amended (the "Securities Act"), and any profit on the sale of
Shares by the Selling Stockholders and any commissions received by any such
broker-dealers may be deemed to be underwriting commissions under the Securities
Act.
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" WHICH BEGINS ON PAGE 4.
--------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is January 9, 1997.
<PAGE>
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-3 (the
"Registration Statement"), File No. 333-18491, with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act"), covering the Shares covered by this Prospectus. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits thereto, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. Statements made in
this Prospectus as to the contents of any contract, agreement or other document
referred to hereafter are not necessarily complete. With respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matters involved. The Registration Statement and any amendments thereto,
including exhibits filed or incorporated by reference as a part thereof, are
available for inspection and copying at the Commission's offices as described
above.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information filed with the
Commission by the Company can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the Commission located at 500 West
Madison Street, Room 1400, Chicago, Illinois 60606 and at the 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a site on the World Wide Web at http://www.sec.gov that contains
reports, proxy statements and other information regarding registrants that file
electronically with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company (File No. 0-27438) with the
Commission are by this reference incorporated in and made a part of this
Prospectus: (i) the Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1995; (ii) the Company's Quarterly Reports on Form 10-QSB for
the quarters ended March 31, 1996, June 30, 1996 and September 30, 1996; (iii)
the Company's Registration Statement on Form 8-A filed December 15, 1995; and
(iv) the Company's Current Reports on Form 8-K dated March 18, 1996, June 27,
1996 and August 6, 1996 and Current Reports on Form 8-K/A dated August 23, 1996
and October 4, 1996. All documents filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and prior to the filing of a post-effective amendment which indicates that all
Shares offered hereby have been sold or which deregisters all Shares then
remaining unsold will be deemed to be incorporated by reference in this
Prospectus and to be a part hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
2
<PAGE>
Copies of all documents that are incorporated herein by reference (not
including the exhibits to such documents, unless such exhibits are specifically
incorporated by reference into such documents or into this Prospectus) will be
provided without charge to each person, including any beneficial owner, to whom
this Prospectus is delivered, upon a written or oral request to The ForeFront
Group, Inc., Attention: Corporate Secretary, 1330 Post Oak Boulevard, Suite
1300, Houston, Texas 77056, telephone number (713) 961-1101.
THE COMPANY
The ForeFront Group, Inc. ("ForeFront" or the "Company") 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, as
a result of its acquisition 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 (commercially released in December
1995). The Company's first intranet 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. WebSeeker is the
result of ForeFront's 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), 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(R), 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 purchase of AllMicro (now called ForeFront Direct, Inc.) established an
immediate channel of over 60 sales professionals for ForeFront to market its
family of Internet and intranet products to Web users. AllMicro's product line,
which includes the AllMicro Anti-Virus(TM), The Troubleshooter(TM), The
Discovery Card(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. Additional products such as the CNE Self-Study
Course(TM), and the LAN Certifier(TM), provide computer technicians with
training for certification as network administrators.
3
<PAGE>
The Company delivers its products through multiple distribution channels,
including electronic storefront and other online resellers over the Internet,
original equipment manufacturers ("OEMs"), systems integrators, value added
resellers ("VARs"), catalogs, and direct telemarketing. The Company introduced
its Internet products for purchase from traditional software retailers in the
fourth quarter of 1996. The Company also markets its Internet products through
alliances with other computer software companies that incorporate bundled
versions of the Company's Internet products with the products of such other
companies. To accelerate the acceptance of the Company's products, the Company
has developed strategic alliances with several Internet and software industry
companies, including Microsoft Corporation, Verity, Inc., XcelleNet, Inc. and
AISoft, a wholly owned subsidiary of Seiko-Epson. The Company recently opened
an office in the United Kingdom to distribute its family of Internet products in
the European markets.
The Company continues to focus on the corporate intranet market for future
product development and strategy. Due to changing market conditions, however,
the Company has revised its server development strategy from products focused on
intellectual property management to servers that are based upon or relate to the
Company's existing Internet client products. The Company is continuing to
develop additional productivity applications for the Internet and intranet
markets internally, and will continue to seek to acquire complementary
technologies from outside the Company, via licensing or acquisition, to
accelerate the market entry of the Company's products. Further, the Company
recently announced a significant price reduction and flat fee pricing structure
for RoundTable, in an effort to seed the market for subsequent enterprise server
products.
As of January 8, 1997, the Company had a total of 142 employees, of which
20 were in research and development, 77 were engaged in sales and marketing and
45 were in administration and finance.
The Company was incorporated in Delaware in December 1990. ForeFront's
Internet home page can be located on the Web at http://www.ffg.com/. The
Company's principal executive office is located at 1330 Post Oak Boulevard,
Suite 1300, Houston, Texas 77056 and its telephone number is (713) 961-1101.
4
<PAGE>
RISK FACTORS
The Shares offered hereby are speculative in nature and involve a high
degree of risk. In addition to the other information included elsewhere in this
Prospectus, the following factors should be considered carefully in evaluating
an investment in the Shares offered by this Prospectus.
LIMITED OPERATING HISTORY; ACCUMULATED DEFICIT. Although ForeFront was
founded in 1990 and commenced shipments of its Virtual Notebook System ("VNS")
product in 1992, it did not commence shipment of its initial Internet products
until July 1995. Accordingly, the Company has only a limited operating history
upon which an evaluation of the Company and its prospects can be based. The
Company's prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in their early stage of
development, particularly companies in new and rapidly evolving markets. To
address these risks, the Company must, among other things, respond to
competitive developments, continue to attract, retain and motivate qualified
persons, and continue to upgrade its technologies and commercialize products and
services incorporating such technologies. There can be no assurance that the
Company will be successful in addressing such risks. The Company has incurred
net losses since inception and expects to continue to operate at a loss for the
foreseeable future. As of September 30, 1996, the Company had an accumulated
deficit of approximately $10.5 million. There can be no assurance that the
Company will achieve or sustain profitability.
MARKET RISKS; UNPROVEN ACCEPTANCE OF THE COMPANY'S PRODUCTS; PRICE EROSION;
SECURITY RISKS ASSOCIATED WITH COMMERCIAL USE OF INTERNET; UNCERTAIN ADOPTION OF
INTERNET AS A MEDIUM OF COMMUNICATIONS. The market for the Company's software
has only recently begun to develop, is rapidly evolving and is characterized by
an increasing number of market entrants who have introduced or developed
products and services for over the Internet and private networks. As is typical
in the case of a new and rapidly evolving industry, demand and market acceptance
for recently introduced products and services are subject to a high level of
uncertainty. The industry is young and has few proven products. Moreover,
critical issues concerning the commercial use of the Internet (including
security, reliability, cost, ease of use and access, and quality of service)
remain unresolved and may impact the growth of Internet use. While the Company
believes that its software products offer significant advantages for
communication and information management over the Internet and private networks,
there can be no assurance that communication and information management over the
Internet or private networks will become widespread, or that the Company's
products for communication and information management over the Internet or
private networks will become widely adopted for these purposes.
In particular, the Company's client/desktop software may be subject to
price erosion due to free client/desktop software distributed by online service
providers, other Internet-related software companies, Internet access providers
and others. In addition, computer operating systems companies, such as Microsoft
Corporation ("Microsoft"), International Business Machines Corporation ("IBM")
and Apple Computer, Inc. ("Apple"), are now bundling or are planning to bundle
client software with their operating systems at little or no additional cost to
users, which also may cause the price of the Company's client/desktop products
to decline. Further, market acceptance of the Company's server and integrated
applications software products is substantially dependent upon the adoption of
the Internet and private networks for communications and information management.
The adoption of the Internet for communications and information management,
particulary by those individuals and enterprises which have historically relied
upon alternative means of communication and information management, generally
requires the acceptance of a new way of conducting business and exchanging
information. In particular, enterprises that have already invested substantial
resources in other means of exchanging information may be particularly reluctant
or slow to adopt a new strategy that may make
5
<PAGE>
their existing personnel and infrastructure obsolete. In addition, there can be
no assurance that individual PC users in business or at home will adopt the
Internet for online communication and information management.
Because the markets for the Company's products and services are new and
evolving, it is difficult to predict the future growth rate, if any, and size of
these markets. There can be no assurance that markets for the Company's products
will develop, that the Company's products or services will be adopted, or that
individual PC users in business or at home will use the Internet or private
networks for communication and information management. If markets fail to
develop, develop more slowly than expected or become saturated with competitors,
or if the Company's products do not achieve market acceptance, the Company's
business, operating results and financial condition will be materially adversely
affected.
COMPETITION. The market for Internet-based software and services is new,
intensely competitive, rapidly evolving and subject to rapid technological
change. The Company expects competition to persist, intensify and increase in
the future. Almost all of the Company's current and potential competitors have
longer operating histories, greater name recognition, larger installed customer
bases and significantly greater financial, technical and marketing resources
than the Company. Such competition could materially adversely affect the
Company's business, operating results or financial condition. The Company's
current and potential competitors include browser software vendors, Web server
software and service vendors, PC and Unix software vendors and online service
providers.
Although many Internet browsers and server products do not currently
provide many features or products for application on the Internet such as those
being marketed or developed by the Company, Netscape Communications Corporation
("Netscape") and Microsoft have each recently released new versions of their
respective browsers which incorporate features directly competitive with certain
features of the Company's existing Internet products. It is probable that these
products will incorporate additional functionality competitive with the
Company's products at some point in the future. Both Microsoft and Netscape
incorporate this functionality at little or no additional cost to customers.
Additionally, the online service organizations such as Prodigy Services Co.
("Prodigy"), CompuServe, Inc. ("CompuServe") and America Online, Inc. ("AOL")
provide Internet access through their online services. The Company's client
software products do not offer complete functionality on any online services and
will be at a competitive disadvantage versus products which offer functionality
both on the Internet and on an online service. Additional competition could come
from client/server applications and tools vendors, other database companies,
multimedia companies, document management companies, networking software
companies, network management companies and educational software companies.
There can be no assurance that the Company will be able to compete successfully
against current or future competitors or that competitive pressures faced by the
Company will not materially adversely affect its business, operating results and
financial condition.
6
<PAGE>
Further, in the event that client products incorporated into operating
systems by PC or Unix software vendors gain market acceptance, these
organizations will be better positioned than the Company to sell Internet server
and applications software products. Future competitive product releases may
cause disruptions in orders for the Company's products while users and the
marketplace evaluate the competitive products. The extent of the disruption in
orders and the impact on future orders of the Company's products will depend on
various factors that are not fully known at this time, including the level of
functionality, performance and features included in the final release of these
competitive products and the market's evaluation of competitive products
compared to the then current functionality, performance and features of the
Company's products. In addition, the market for Internet products may be
adversely impacted to the extent that vendors of PC hardware or PC operating
systems incorporate Internet tools, functions or capabilities within their
operating systems or PC hardware and thereby reduce the market for stand-alone
Internet products.
NEW PRODUCT DEVELOPMENT AND TECHNOLOGICAL CHANGE. Substantially all of the
Company's revenues have been derived, and substantially all of the Company's
future revenues are expected to be derived, from the license of its software and
sale of its associated services. Accordingly, broad acceptance of the Company's
software products and services by customers is critical to the Company's future
success, as is the Company's ability to design, develop, test and support new
software products and enhancements on a timely basis that meet changing customer
needs and respond to technological developments and emerging industry standards.
There can be no assurance that the Company will be successful in developing and
marketing new software products and enhancements that meet changing customer
needs and respond to such technological changes or evolving industry standards.
The Company's planned future products will be designed around certain standards,
including, for example, security standards, and current and future sales of the
Company's products will be dependent, in part, on industry acceptance of such
standards. In addition, there can be no assurance that the Company will not
experience difficulties that could delay or prevent the successful development,
introduction and marketing of new products and enhancements, or that its new
products and enhancements will adequately meet the requirements of the
marketplace and achieve market acceptance. The Company will be substantially
dependent in the near future upon its server and integrated applications
software products that are still being developed. Further, there can be no
assurance that, despite testing by the Company and by current and potential
customers, errors will not be found in the Company's products, or, if
discovered, successfully corrected in a timely manner. If the Company is unable
to develop on a timely basis new software products, enhancements to existing
products or error corrections, or if such new products or enhancements do not
achieve market acceptance, the Company's business, operating results and
financial condition will be materially adversely affected.
EVOLVING MULTIPLE DISTRIBUTION CHANNELS; RISK OF ELECTRONIC DISTRIBUTION.
The Company's strategy is to develop multiple distribution channels. The Company
has historically sold its Internet products primarily through direct sales via
the Internet and its VNS electronic notebook through direct sales and OEMs. The
Company has recently begun selling its Internet products through its direct
telemarketing subsidiary in Florida, and introduced its products into retail
outlets in the United States and Europe in the fourth quarter 1996. There can be
no assurance that the Company will be successful in distributing its products
through retail channels or that the Company's telemarketing sales force will be
able to market the Company's Internet products successfully. In addition, the
possibility can occur that conflicts may develop between the Company's multiple
distribution channels over the competitive impact resulting from such multiple
channels. The failure to successfully distribute the Company's Internet products
through the retail channels or by the direct telemarketers, or the development
of a channel conflict, could materially adversely affect the Company's business,
operating results or financial condition.
7
<PAGE>
The Company expects to increasingly utilize OEMs, systems integrators and
Resellers. The Company expects that any material increase in sales through
Resellers as a percentage of total revenues, especially in the percentage of
sales through OEMs and VARs, will adversely affect the Company's average selling
prices and gross margins due to the lower unit prices than are typically charged
when selling through direct channels. Moreover, there can be no assurance that
the Company will be able to attract Resellers that will be able to market the
Company's products effectively and will be qualified to provide timely and
cost-effective customer support and service or that the Company will be able to
manage conflicts among its Resellers. In addition, agreements with Resellers
typically do not restrict Resellers from distributing competing products, and in
many cases may be terminated by either party without cause. Further, in some
cases the Company may grant exclusive distribution rights that are limited by
territory and duration. Consequently, the Company may be adversely affected
should any Reseller fail to adequately penetrate its market segment. The
inability to recruit, manage or retain important OEMs and Resellers, or their
inability to penetrate their respective market segments, could materially
adversely affect the Company's business, operating results or financial
condition.
The Company intends to pursue alliances with Internet software companies,
printer, laptop and other hardware manufacturers, and access providers and other
companies to accelerate the market entry of the Company's Internet products.
There can be no assurance that the Company's existing strategic alliances will
continue or that any future alliances will accelerate the acceptance of the
Company's products or that the Company will be able to pursue or develop further
alliances. The Company plans to expand its field sales force and its
telemarketing organization. There can be no assurance that such internal
expansion will be successfully completed, that the cost of such expansion will
not exceed the revenues generated, or that the Company's sales and marketing
organization will be able to successfully compete against the significantly more
extensive and well-funded sales and marketing operations of many of the
Company's current or potential competitors. The Company's inability to
effectively manage its internal expansion could have a material adverse effect
on the Company's business, operating results or financial condition.
In addition to expanding its direct sales channels, the Company will
continue to distribute its products electronically through the Internet.
Distributing the Company's products through the Internet makes the Company's
software more susceptible than other software to unauthorized copying and use.
The Company has historically allowed and currently intends to continue to allow
potential customers to electronically download its client software for a free
evaluation period. By distributing its products for free evaluation over the
Internet, the Company may have reduced the future demand for its products. If,
as a result of changing legal interpretations of liability for unauthorized use
of the Company's software or otherwise, users were to become less sensitive to
avoiding copyright infringement, the Company's business, operating results and
financial condition would be materially adversely affected.
FLUCTUATIONS IN OPERATING RESULTS AND STOCK PRICE. The Company's future
operating results and stock price could be subject to significant fluctuations
and volatility. The Company's revenues and quarterly operating results may
experience significant fluctuations and be unpredictable as the result of a
number of factors including, among others, introduction of new or enhanced
products by the Company or its competitors, rapid technological changes in the
Company's markets, seasonality of revenues, changes in operating expenses and
general economic conditions. The Company's pattern of revenues and earnings may
also be affected by the phenomenon known as "channel fill." Channel fill occurs
following the introduction of a new product or a new version of a product as
distributors buy significant quantities of the new product or version in
anticipation of sales of such product or version. Following such purchases, the
rate of distributors' purchases often declines, depending on the rates of
purchases by end users or "sell-through." The phenomenon of "channel fill" may
8
<PAGE>
also occur in anticipation of price increases or in response to sales promotions
or incentives, some of which may be designed to encourage customers to
accelerate purchases that might otherwise occur in later periods. Channels may
also become filled simply because the distributors are unable to, or do not,
sell their inventories to retail distribution or end users as anticipated. If
sell-through does not occur at a sufficient rate, distributors will delay
purchases or cancel orders in later periods or return prior purchases in order
to reduce their inventories. In addition, between the date the Company announces
a new version or new product and the date of release, distributors, dealers and
end users often delay purchases, cancel orders or return products in
anticipation of the availability of the new version of the product. Such order
delays or cancellations can cause material fluctuations in revenues from one
quarter to the next. Net revenues may be materially affected favorably or
adversely by these effects.
For the quarter ended September 30, 1996, the Company incurred a net loss
of $2.7 million primarily due to an increase in personnel and recruiting costs,
merger and acquisition costs, continued establishment and expansion of various
distribution channels as well as higher administrative costs as a result of
becoming a public company. This loss also includes one-time charges of $1.56
million of transaction costs associated with the acquisition of AllMicro and
approximately $400,000 for acquisition costs of certain software licensed to the
Company for incorporation in the Company's products. There can be no assurance
that the Company will not suffer additional losses in the future.
The Company also has experienced wide fluctuations in its stock price and
may be subject to significant fluctuations in the future over a short period of
time. The trading price of the Common Stock increased from approximately $8.00
in January 1996 to a high of approximately $21.00 in May 1996 to a low of
approximately $5.00 in November 1996. Fluctuations may be due to factors
specific to the Company, to changes in analysts' estimates, or to factors
affecting the computer industry or the securities markets in general. In
addition, any decrease in revenues or quarterly results, or failure to meet
market expectations, could have an immediate and significant adverse effect on
the trading price of the Common Stock in any given period.
MANAGEMENT OF ACQUISITIONS AND GROWTH. Since completion of its initial
public offering in December 1995, the Company has consummated several
acquisitions. The Company may make additional acquisitions in the future. While
these acquisitions have broadened the Company's product portfolio and sales
distribution channels, the acquisitions have resulted in the Company's competing
with companies and in markets where it has not previously competed. As a result,
there is uncertainty regarding customer acceptance of the combined products.
There can be no assurance that the Company will be successful in realizing
benefits from a broadened product portfolio and sales distribution channels. In
addition, it is critical to the Company's success to integrate effectively the
operations and businesses of the acquired companies, and to utilize effectively
acquired intellectual property.
The rapid execution necessary for the Company to fully exploit the market
opportunities for its products and services requires an effective planning and
management process. To manage its growth, the Company must continue to implement
and improve its operational and financial systems and to expand, train and
manage its employee base. The Company will also be required to manage multiple
relationships with various customers and other third parties. Although the
Company believes that it has made adequate allowances for the costs and risks
associated with this expansion, there can be no assurance that the Company's
systems, procedures or controls will be adequate to support the Company's
operations or that Company management will be able to achieve the rapid
9
<PAGE>
execution necessary to fully exploit the market for the Company's products and
services. The Company's future operating results will also depend on its ability
to expand its sales and marketing organizations, implement and manage new
distribution channels to penetrate different and broader markets and expand its
support organization commensurate with the increasing base of its installed
products. If the Company is unable to manage growth effectively, the Company's
business, operating results and financial condition will be materially adversely
affected.
DEPENDENCE ON THE INTERNET. Although some sales of the Company's products
depend upon the growth of private networks, and the computer technician market,
sales of the Company's products will depend in large part upon a robust industry
and infrastructure for providing Internet access and carrying Internet traffic.
The Internet may not prove to be a viable commercial marketplace because of
inadequate development of the necessary infrastructure, such as a reliable
network backbone or timely development of complementary products, such as high
speed modems. In addition, acceptance of many of the Company's products,
particularly those enabling real-time collaboration, will be dependent upon the
sufficient availability of high-bandwidth on and connections to the Internet.
Because global commerce and online exchange of information on the Internet and
other similar open wide area networks are new and evolving, it is difficult to
predict with any assurance whether the Internet will prove to be a viable
commercial marketplace. There can be no assurance that the infrastructure of
complementary products necessary to make the Internet a viable commercial
marketplace will be developed, or, if developed, that the Internet will become a
viable commercial marketplace. If the necessary infrastructure or complementary
products are not developed, or if the Internet does not become a viable
commercial marketplace, the Company's business, operating results and financial
condition will be materially adversely affected.
PRODUCT RETURNS. Like other manufacturers of package software products,
the Company is exposed to the risk of product returns from distributors and
reseller customers. There can be no assurance that actual returns in excess of
recorded allowances will not result in a material adverse effect on business,
operating results and financial condition.
DEPENDENCE ON KEY PERSONNEL. The Company's performance is substantially
dependent on the performance of its executive officers and key employees, some
of whom have worked in their present positions for only a short period of time.
Given the Company's early stage of development, the Company is dependent on its
ability to retain and motivate high quality personnel, especially its management
and highly skilled development teams. The loss of the services of any of its
executive officers or other key employees could have a material adverse effect
on the business, operating results or financial condition of the Company.
The Company's future success also depends on its continuing ability to
identify, hire, train and retain other highly qualified technical and managerial
personnel. Competition for such personnel is intense, and there can be no
assurance that the Company will be able to attract, assimilate or retain other
highly qualified technical and managerial personnel in the future. The inability
to attract and retain the necessary technical and managerial personnel could
have a material adverse effect upon the Company's business, operating results or
financial condition.
10
<PAGE>
UNCERTAIN PROTECTION OF INTELLECTUAL PROPERTY; THIRD PARTY CLAIMS. The
Company's success and ability to compete is dependent in part upon its
proprietary technology. While the Company relies on trademark, trade secret and
copyright law to protect its technology, the Company believes that factors such
as the technological and creative skills of its personnel, new product
developments, frequent product enhancements, name recognition and reliable
product maintenance are more essential to establishing and maintaining a
technology leadership position. The Company presently has no patents or patent
applications pending. There can be no assurance that others will not develop
technologies that are similar or superior to the Company's technology. The
source code for the Company's proprietary software is protected both as a trade
secret and as a copyrighted work. The Company generally enters into
confidentiality or license agreements with its employees, consultants and
vendors, and generally controls access to and distribution of its software,
documentation and other proprietary information. Despite these precautions, it
may be possible for a third party to copy or otherwise obtain and use the
Company's products or technology without authorization, or to develop similar
technology independently. In addition, effective copyright and trade secret
protection may be unavailable or limited in certain foreign countries, and the
global nature of the Internet makes it virtually impossible to control the
ultimate destination of the Company's products. To license its products, the
Company primarily relies on "shrink wrap" licenses that are not signed by the
end-user and, therefore, may be unenforceable under the laws of certain
jurisdictions. Despite the efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or to
obtain and use information that the Company regards as proprietary. Policing
unauthorized use of the Company's products is difficult. There can be no
assurance that the steps taken by the Company will prevent misappropriation of
its technology or that such agreements will be enforceable. In addition,
litigation may be necessary in the future to enforce the Company's intellectual
property rights, to protect the Company's trade secrets, to determine the
validity and scope of the proprietary rights of others, or to defend against
claims of infringement or invalidity. Such litigation could result in
substantial costs and diversion of resources and could have a material adverse
effect on the Company's business, operating results or financial condition.
There can be no assurance that third parties will not assert patent,
copyright or trademark infringement claims against the Company in the future
with respect to current or future products or that any such assertion may not
require the Company to enter into royalty arrangements, resulting in possible
extensive and costly litigation, or possibly even prohibit the Company from
manufacturing and marketing its products. Furthermore, the intellectual property
issues relating to the Company's products and the Internet in general have not
yet been addressed by judicial authorities in many instances due to the recent
emergence of the Internet, thereby creating a great amount of uncertainty to the
Company should adverse decisions be made by such authorities. The Company's
business, operating results and financial condition could be materially
adversely affected by such factors.
COMPATABILITY WITH NETWORK AND DESKTOP OPERATING SYSTEMS. The Company's
current desktop Internet products are generally available for and compatible
with Microsoft Windows 3.1, Windows 95/NT and Apple Macintosh operating systems.
The Company's RoundTable product is available for and compatible with Windows 95
and Apple Macintosh operating systems, and the associated server is available in
a beta version for and compatible with Windows 95/NT. The Company is developing
versions of RoundTable expressly for use with Windows 3.1 and versions of the
11
<PAGE>
RoundTable Server for UNIX platforms, and anticipates that such versions
will be available in the second quarter of 1997; however, no assurance can be
given that such versions will be developed on a timely basis or at all.
CONCENTRATION OF STOCK OWNERSHIP. Upon completion of this offering, the
present directors, executive officers and their respective affiliates will
beneficially own approximately 37.9% of the outstanding Common Stock. As a
result, these stockholders will be able to exercise significant influence over
all matters requiring stockholder approval, including the election of directors
and approval of significant corporate transactions. Such concentration of
ownership may also have the effect of delaying or preventing a change in control
of the Company.
EFFECT OF CERTAIN CHARTER PROVISIONS; ANTITAKEOVER EFFECTS OF CERTIFICATE
OF INCORPORATION, BYLAWS AND DELAWARE LAW; LIMITATION OF LIABILITY OF DIRECTORS
AND INDEMNIFICATION OF DIRECTORS. The Board of Directors has the authority to
issue up to 5,000,000 shares of Preferred Stock and to determine the price,
rights, preferences, privileges and restrictions, including voting rights, of
those shares without any further vote or action by the stockholders. The rights
of the holders of Common Stock will be subject to, and may be adversely affected
by, the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company, which may have the
effect of making it less likely that a third party would attempt to acquire the
Company. The Company has no present plans to issue shares of Preferred Stock.
Further, certain provisions of Delaware law could delay or make difficult a
merger, tender offer or proxy contest involving the Company. In addition, the
Company's Certificate of Incorporation provides for limitation of liability of
directors and the Company's Bylaws provide for indemnification of directors,
officers, employees and agents to the fullest extent permitted by law.
SECURITY RISKS. While the Company has not included any security protocols
in its current Internet products, the Company believes it will be necessary to
incorporate security protocols in future Internet server products in order to
assure the protection of customers' confidential information. Despite the
incorporation of such technology, the Company's products may be vulnerable to
break-ins and similar disruptions that would jeopardize the security of
information stored in and transmitted through the computer systems of end users
of the Company's products, which may result in significant liability to the
Company and may also deter potential customers. Moreover, the security and
privacy concerns of existing and potential customers, as well as concerns
related to computer viruses, may inhibit the growth of the Internet marketplace
generally, and the Company's customer base and revenues in particular. The
12
<PAGE>
Company currently does not have product liability insurance to protect against
these risks and there can be no assurance that such insurance will be available
to the Company on commercially reasonable terms or at all.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES. There are currently few laws
or regulations directly applicable to access to or 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 with respect to
the Internet. Such laws and regulations may cover issues such as user privacy,
pricing and characteristics and quality of products and services. The
Telecommunications Act of 1996 (the "1996 Act"), which was recently enacted and
the judicial interpretation of which is uncertain, imposes criminal penalties
for transmission of or allowing access to certain obscene communications over
the Internet and other computer services and contains additional provisions
intended to protect minors. In addition, America's Carriers Telecommunication
Association ("ACTA") recently filed a Petition for Declaratory Ruling Special
Relief, and Institution of Rulemaking (the "ACTA Petition") before the Federal
Communications Commission ("FCC"), arguing that the FCC has authority to
regulate the Internet. The ACTA Petition requests the FCC to declare its
authority over interstate and international telecommunications services using
the Internet, to order providers of the aforementioned software to cease the
sale of such software pending a rulemaking, and to institute a rulemaking body
to govern the use of the Internet as a means for providing telecommunications
services. The enactment of the 1996 Act, and of any similar laws or regulations
in the future, may decrease the growth or use of the Internet, which could in
turn decrease the demand for the Company's services and products and increase
the Company's cost of doing business or otherwise have an adverse effect on the
Company's business, operating results and financial condition.
INTERNATIONAL OPERATIONS. The Company has operations in various foreign
locations. International operations are subject to certain risks common to
international activities, such as changes in foreign governmental regulations,
tariffs and taxes, export license requirements, the imposition of trade
barriers, difficulties in staffing and managing foreign operations, and
political and economic instability.
The Company conducts business in various foreign currencies and is
therefore subject to the transaction exposures that arise from foreign exchange
rate movements between the dates that foreign currency transactions are recorded
and the date that they are consummated. The Company is also subject to certain
exposures arising from the translation and consolidation of the financial
results of its foreign subsidiaries. The Company has from time to time taken
limited actions to attempt to mitigate the Company's foreign transaction
exposure. However, there can be no assurance that actions taken to manage such
exposure will be successful or that future changes in currency exchange rates
will not have a material impact on the Company's future operating results. The
Company does not hedge either its translation risk or its economic risk.
INTENTION REGARDING PAYMENT OF COMMON STOCK DIVIDENDS. The Company
anticipates retaining all of its foreseeable future earnings for use in the
expansion and operation of its business, and does not anticipate paying any cash
dividends in the foreseeable future. There can be no assurance that the Company
will pay cash dividends at any time, or that the failure to pay dividends for a
period of time will not adversely affect the market price of the Common Stock.
13
<PAGE>
DILUTION. The Company has made, and may make in the future, acquisitions
using shares of the Common Stock. An acquisition using shares of the Common
Stock would have the effect of reducing the percentage ownership of the Company
by each pre-acquisition stockholder.
SHARES ELIGIBLE FOR FUTURE SALE. The Company currently has outstanding an
aggregate of 6,401,130 shares of Common Stock, assuming no exercise of
outstanding options and warrants, including the shares issuable upon exercise of
the Warrants described in this Registration Statement. Of these shares, an
aggregate of 5,388,028 shares, including the 688,769 shares offered hereby (as
well as the 15,054 shares of Common Stock which includes 4,971 shares which are
issuable upon exercise of the Warrants and 10,083 additional shares which the
Company has agreed to issue to one of the Selling Stockholders), will be freely
tradeable without restriction or further registration under the Securities Act,
unless held by "affiliates" of the Company as that term is defined in Rule 144
under the Securities Act (the "Affiliates"). The remaining 1,013,102 shares of
Common Stock held by existing stockholders are "restricted securities" as that
term is defined in Rule 144 under the Securities Act ("Restricted Shares").
Restricted Shares may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rules 144, 144(k) or 701
promulgated under the Securities Act.
The increase in the number of outstanding shares of Common Stock that are
available for sale without restriction due to the registration of the Shares and
the perception that a substantial number of the Shares may be sold by Selling
Stockholders, or the actual sale of a substantial number of the Shares by
Selling Stockholders, could adversely affect the market price of the Common
Stock.
As of November 30, 1996, the Company had outstanding options to purchase
1,799,349 shares of Common Stock at a weighted average exercise price of
approximately $4.11 per share (the majority of which have not yet vested) issued
to employees, former employees, directors and consultants pursuant to the
Company's stock incentive plans and warrants to purchase 255,664 shares of the
Company's Common Stock at a weighted average exercise price of $6.72 per share.
An aggregate of 2,950,000 shares may presently be issued under such stock
incentive plans. The Company has a registration statement on Form S-8 in effect
covering 1,700,000 of the shares issuable under the stock incentive plans, and
intends to file a registration statement on Form S-8 for the additional
1,250,000 shares promptly following the effective date of this Registration
Statement.
The Company may issue additional capital stock, warrants and/or options to
raise capital in the future. In order to attract and retain key personnel, the
Company may also issue additional securities, including stock options, in
connection with its employee benefit plans. During the terms of such options and
warrants, the holders thereof are given the opportunity to benefit from a rise
in the market price of the Common Stock. The exercise of such options and
warrants may have an adverse effect on the market value of the Common Stock.
Also, the existence of such options and warrants may adversely effect the terms
on which the Company can obtain additional equity financing.
14
<PAGE>
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Securities offered hereby. If and when any of the Warrants are exercised and
Warrant Shares are issued to the Selling Stockholders, the Company will receive
the proceeds from the sale of such Warrant Shares to the Selling Stockholders. A
total of 4,971 of the Warrants are exercisable at $2.82 per share; if all of
the Warrants are exercised, the Company will receive approximately $14,018 in
proceeds. Such amount is intended to be used by the Company for working capital
and other general corporate purposes.
FORWARD LOOKING STATEMENTS
When used herein or in documents incorporated herein by reference, words
like "anticipates," "expects" and similar conditional expressions are intended
to identify forward looking statements. Such statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those expressed in any of the forward-looking statements. Such risks and
uncertainties include, in addition to those set forth under "Risk Factors,"
those noted in the documents incorporated herein by reference.
SELLING STOCKHOLDERS
The following table sets forth the name of each Selling Stockholder, the
number of shares of Common Stock (including the shares issuable upon exercise of
Warrants) beneficially owned by each Selling Stockholder as of the date of this
Prospectus, the number of shares of Common Stock being offered by each Selling
Stockholder hereby, and the percentage of the Company's Common Stock to be
beneficially owned by each Selling Stockholder after the offering (assuming that
all shares subject to this Prospectus are sold). Common Stock ownership
information is based solely upon reports furnished to the Company by the
respective stockholders pursuant to the rules of the Commission.
The shares of Common Stock offered hereby (the "Shares") include up to (i)
470,637 shares of Common Stock issued in connection with the acquisition by the
Company of the assets of BookMaker, (ii) 125,000 shares of Common Stock issued
in connection with the acquisition by the Company of the assets of Blue
Squirrel, (iii) 103,215 shares of Common Stock issued upon conversion of shares
of preferred stock of the Company issued in private placements prior to the
Company's initial public offering and (iv) 4,971 shares issuable upon the
exercise of Warrants to purchase Common Stock issued in connection with the
private placement of debt or preferred stock by the Company prior to the
Company's initial public offering.
BookMaker received 447,637 shares of Common Stock (the "BookMaker Shares")
in connection with the Company's acquisition of substantially all of the assets
of BookMaker, of which a total of 224,099 have been placed in escrow (the
"Escrow Shares") pending the successful completion of several post closing
performance conditions and for pre-closing liabilities. BookMaker has placed the
BookMaker Shares, except for the Escrow Shares, in trust for the benefit of its
shareholders and will distribute the BookMaker Shares to its shareholders on a
pro rata basis following such time as this Registration Statement is declared
effective by the Commission. The Escrow Shares will continue to be held by Texas
Commerce Bank NA as Escrow Agent until their distribution to the Selling
Stockholders entitled to receive such Escrow Shares or their cancellation. As a
result of such distribution, the persons listed below as shareholders of
BookMaker are Selling Stockholders of up to the number of shares of Common Stock
set forth opposite their respective names.
15
<PAGE>
Blue Squirrel received 125,000 shares of Common Stock (the "Blue Squirrel
Shares") in connection with the Company's acquisition of substantially all of
the assets of Blue Squirrel. Blue Squirrel distributed the Blue Squirrel Shares
to its shareholders on a pro rata basis. As a result of such distribution, the
persons listed below as shareholders of Blue Squirrel are Selling Stockholders
of up to the number of shares of Common Stock set forth opposite their
respective names.
As part of the acquisitions of BookMaker and Blue Squirrel and pursuant to
the terms of the Registration Rights Agreements, the Company agreed to use its
best efforts to register the Common Stock issued or distributed to the Selling
Stockholders in connection with the acquisition for offer or sale to the public,
including the Warrant Shares which certain of the Selling Stockholders may
acquire upon exercise of the Warrants. The registration of the Securities,
however, does not necessarily mean that all or any of the Securities will be
sold by the Selling Stockholders. The Shares offered represent all Shares owned
by the respective Selling Stockholders or which may be owned upon their
distribution from escrow.
<TABLE>
<CAPTION>
Number of Shares Shares Beneficial Percentage of
Beneficially Owned Offered Ownership Beneficial Ownership
Selling Stockholder Prior to Offering(1) Hereby After Offering(2) After Offering
------------------- --------------------- ----------- ------------------ --------------------
<S> <C> <C> <C> <C>
Mazner Family Trust(3) 74,321 74,321 --- ---
Tron Black(4) 69,333 62,500 6,833 *
Chris Kirkpatrick(5) 65,662 64,789 833 *
Louis B. Cushman 53,571 53,571 --- ---
Brent and Janet Van Alfen(6) 53,611 48,611 5,000 *
Hal Schectman(7) 48,586 47,753 833 *
Mayfield Software Partners(3) 43,952 43,952 --- ---
Kawasaki Family Trust(3) 34,919 34,919 --- ---
David Helms(3) 34,919 34,919 --- ---
Michael Eagan(3) 33,570 33,570 --- ---
Terrance Morse(3) 29,103 29,103 --- ---
WS Investment Company 92B(3) 26,193 26,193 --- ---
Desktop Solutions 12,917(8) 23,000 --- ---
A. W. Epley III(9) 19,506 19,506 --- ---
Lloyd Chambers(3) 16,868 16,868 --- ---
Walter Wilson(10) 9,753 9,753 --- ---
Frank Goldberg(11) 9,753 9,753 --- ---
Robert Carr(3) 8,552 8,552 --- ---
Erik Hansen(12) 7,862 6,945 917 *
George Norr(13) 7,861 6,944 917 *
John Meyer(3) 7,263 7,263 --- ---
Sheila S. Newar Family Trust(14) 5,851 5,851 --- ---
John Robert Porter(15) 5,851 5,851 --- ---
Bill Gallinger(16) 6,013 5,346 666 *
WS Investment Company 93C(3) 5,234 5,234 --- ---
WSGR Profit Sharing Trust
FBO Steven E. Bochner(3) 3,492 3,492 --- ---
Amelie Porter(17) 3,901 3,901 --- ---
Marilyn McMahon(3) 3,564 3,564 --- ---
Board of Trustees of the Leland
Stanford Junior University(3) 2,673 2,673 --- ---
Stan Otani(18) 2,946 2,613 333 *
WS Investment Company 94A(3) 1,324 1,324 --- ---
Ken Getz(3) 713 713 --- ---
Jeremy Mazner(3) 238 238 --- ---
Timothy Dickenson(3) 238 238 --- ---
</TABLE>
- ----------------
16
<PAGE>
*Indicates less that 0.1%
(1) Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission. In
computing the number of shares beneficially owned by a person and the percentage
ownership of that person, shares of Common Stock subject to options held by that
person that are currently exercisable or exercisable within 60 days of December
18, 1996 are deemed outstanding for the purposes of computing the percentage
ownership of each other person. Except as indicated in the footnotes to this
table and pusuant to applicable community property laws, each stockholder named
in the table has sole voting and investment power with respect to the shares set
forth opposite such stockholder's name.
(2) Assumes that all of the Shares beneficially owned by each Selling
Stockholder and registered under this Registration Statement are sold.
(3) Previously a stockholder of BookMaker.
(4) Previously a stockholder of Blue Squirrel. Includes 6,833 shares which may
be acquired by Mr. Black upon exercise of outstanding options.
(5) Previously a stockholder of BookMaker. Includes 833 shares which may be
acquired by Mr. Kirkpatrick upon exercise of an option.
(6) Previously a stockholder of Blue Squirrel. Includes 5,000 shares which
may be acquired by Mr. Van Alfen, individually, upon exercise of outstanding
options.
(7) Previously a stockholder of BookMaker. Includes 833 shares which may be
acquired by Mr. Schectman upon exercise of an option.
(8) Does not include 10,083 shares which Desktop Solutions may be entitled to
receive as a result of certain consulting services in connection with the
acquisition of BookMaker. These shares, in addition to the shares shown as
beneficially owned by him in the table, are covered by this Prospectus.
(9) Includes 1,776 shares of Common Stock issuable upon the exercise of a
warrant held by Mr. Epley.
(10) Includes 888 shares of Common Stock issuable upon the exercise of a
warrant held by Mr. Wilson.
(11) Includes 888 shares of Common Stock issuable upon the exercise of a
warrant held by Mr.Goldberg.
(12) Previously a stockholder of Blue Squirrel. Includes 917 shares which may be
acquired by Mr. Hansen upon exercise of an option.
(13) Previously a stockholder of Blue Squirrel. Includes 917 shares which may be
acquired by Mr. Norr upon exercise of an option.
(14) Includes 532 shares of Common Stock issuable upon the exercise of a
warrant held by the Sheila S. Newar Family Trust UA January 29, 1990.
(15) Includes 532 shares of Common Stock issuable upon the exercise of a
warrant held by Mr. Porter.
(16) Previously a stockholder of BookMaker. Includes 666 shares which may be
acquired by Mr. Gallinger upon exercise of an option.
(17) Includes 355 shares of Common Stock issuable upon the exercise of a
warrant held by Ms. Porter.
(18) Previously a stockholder of BookMaker. Includes 333 shares which may
be acquired by Mr. Otani upon exercise of an option
17
<PAGE>
PLAN OF DISTRIBUTION
The Securities may be sold from time to time by the Selling Stockholders,
or by pledgees, donees, tranferees or other successors in interest. Such sales
may be made on the Nasdaq National Market, in negotiated transactions, or
otherwise, at prices and at terms then prevailing or at prices related to the
then current market price, or at negotiated prices. The Securities may be
sold by one or more of the following: (a) a block trade in which the
broker-dealer so engaged will attempt to sell the Securities as agent but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker-dealer as principal and resale by such
broker-dealer for its account pursuant to this Prospectus; (c) an exchange
distribution in accordance with the rules of such exchange; and (d) ordinary
brokerage transactions and transactions in which the broker solicits purchasers.
In effecting sales, broker-dealers engaged by the Selling Stockholders may
arrange for other broker-dealers to participate in the resales.
In connection with distributions of the Securities or otherwise, the
Selling Stockholders may enter into hedging transactions with broker-dealers. In
connection with such transactions, broker-dealers may engage in short sales of
the Securities registered hereunder in the course of hedging the positions they
assume with Selling Stockholders. The Selling Stockholders may also sell
Securities short and redeliver the Securities to close out such short positions.
The Selling Stockholders may also enter into option or other transactions with
broker-dealers which require the delivery to the broker-dealer of the Securities
registered hereunder, which the broker-dealer may resell or otherwise transfer
pursuant to this Prospectus. The Selling Stockholder may also loan or pledge the
Securities registered hereunder to a broker-dealer and the broker-dealer may
sell the Securities so loaned or upon a default the broker-dealer may effect
sales of the pledged Securities pursuant to this Prospectus.
Broker-dealers or agents may receive compensation in the form of
commissions, discounts or concessions from Selling Stockholders in amounts to be
negotiated in connection with the sale. Such broker-dealers and any other
participating broker-dealers may be deemed to be "underwriters" within the
meaning of the Securities Act, in connection with such sales and any such
commission, discount or concession may be deemed to be underwriting discounts or
commissions under the Securities Act. In addition, any securities covered by
this Prospectus which qualify for sale pursuant to Rule 144 may be sold under
Rule 144 rather than pursuant to this Prospectus.
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<PAGE>
All Selling Stockholders may agree to indemnify any broker-dealer or agent
that participates in transactions involving sales of the Securities against
certain liabilities, including liabilities arising under the Securities Act.
There is no assurance that any of the Selling Stockholders will offer for
sale or sell any or all of the Securities covered by this Prospectus.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Jeffrey R.
Harder, Vice President and General Counsel of the Company.
EXPERTS
The financial statements included in this Prospectus have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
19
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Arthur Andersen LLP, Independent Public Accountants F-2
Consolidated Balance Sheet F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The ForeFront Group, Inc.:
We have audited the accompanying consolidated balance sheet of The ForeFront
Group, Inc., and subsidiary as of December 31, 1995, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the years ended December 31, 1994 and 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The ForeFront Group,
Inc., and subsidiary as of December 31, 1995, and the results of their
operations and their cash flows for the years ended December 31, 1994 and 1995,
in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Houston, Texas
July 22, 1996
F-2
<PAGE>
THE FOREFRONT GROUP, INC.
CONSOLIDATED BALANCE SHEET--DECEMBER 31, 1995
<TABLE>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,502,223
Securities held to maturity 7,998,417
Accounts receivable, net of
allowance for doubtful accounts of $5,000 118,604
Inventory 116,799
Prepaid expenses and other 45,745
-----------
Total current assets 13,781,788
FURNITURE AND EQUIPMENT, net of accumulated
depreciation of $155,928 204,207
OTHER ASSETS, net 7,743
-----------
Total assets $13,993,738
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 453,082
Accrued liabilities 641,085
Deferred revenues 113,081
-----------
Total current liabilities 1,207,248
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 shares issued 58,382
Additional paid-in capital 16,747,614
Deferred compensation (586,105)
Accumulated deficit (3,431,551)
Treasury stock, 82,145 shares at cost (1,850)
-----------
Total stockholders' equity 12,786,490
-----------
Total liabilities and
stockholders' equity $13,993,738
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
THE FOREFRONT GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31
1994 1995
----------- -----------
<S> <C> <C>
REVENUES:
Licenses $ 4,534,626 $ 5,989,734
Maintenance and services 145,746 52,600
Other 8,524 10,452
----------- -----------
Total revenues 4,688,896 6,052,786
COST OF MAINTENANCE, SERVICES AND PRODUCT LICENSES 1,057,878 1,217,182
----------- -----------
Gross profit 3,631,018 4,835,604
OPERATING EXPENSES:
Research and development 748,427 837,007
Selling and marketing 2,516,010 2,823,587
General and administrative 1,242,791 1,631,703
----------- -----------
Operating loss (876,210) (456,693)
OTHER:
Interest income 36,185 39,859
Interest expense --- (34,997)
----------- -----------
Net loss $ (840,025) $ (451,831)
=========== ===========
NET LOSS PER SHARE $ (.19) $ (.10)
=========== ===========
SHARES USED IN COMPUTING NET LOSS PER SHARE 4,390,388 4,383,490
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
THE FOREFRONT GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Series A Convertible Series B Convertible
Preferred Stock Preferred Stock Common Stock
-------------------- ---------------------- ---------------- Additional
Par Par Par Paid-In
Shares Value Shares Value Shares Value Capital
--------- -------- ---------- --------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993 2,000,000 $ 20,000 --- $ --- 2,670,853 $ 26,708 $2,557,221
PURCHASE OF TREASURY STOCK IN DECEMBER
1994 AT $.02 PER SHARE --- --- --- --- --- --- ---
DISTRIBUTIONS TO STOCKHOLDERS --- --- --- --- --- --- ---
NET LOSS --- --- --- --- --- --- ---
--------- -------- ---------- --------- --------- -------- ----------
BALANCE, December 31, 1994 2,000,000 20,000 --- --- 2,670,853 26,708 2,557,221
ISSUANCE OF COMMON STOCK IN APRIL
1995 PURSUANT TO EXERCISE OF OPTIONS --- --- --- --- 4,440 44 956
ISSUANCE OF SERIES B PREFERRED STOCK
IN SEPTEMBER 1995 AT $1.25 PER SHARE,
net of offering costs of $10,000 --- --- 840,000 8,400 --- --- 1,031,600
ISSUANCE OF PREFERRED STOCK IN
SEPTEMBER 1995 AT $1.25 PER SHARE FOR
CONVERSION OF NOTES PAYABLE --- --- 464,000 4,640 --- --- 575,360
DEFERRED COMPENSATION RELATING
TO ISSUANCE OF CERTAIN STOCK OPTIONS --- --- --- --- --- --- 726,375
AMORTIZATION OF DEFERRED COMPENSATION --- --- --- --- --- --- ---
ISSUANCE OF COMMON STOCK IN CONJUNCTION
WITH INITIAL PUBLIC OFFERING AT $8.00
PER SHARE, net of offering costs
of $1,745,478 --- --- --- --- 1,700,000 17,000 11,837,522
CONVERSION OF ALL PREFERRED STOCK
UPON CLOSING OF INITIAL PUBLIC
OFFERING (2,000,000) (20,000) (1,304,000) (13,040) 1,462,953 14,630 18,410
ISSUANCE OF COMMON STOCK PURCHASE
WARRANTS UPON CLOSING OF INITIAL
PUBLIC OFFERING --- --- --- --- --- --- 170
DISTRIBUTIONS TO STOCKHOLDERS --- --- --- --- --- --- ---
NET LOSS --- --- --- --- --- --- ---
---------- -------- ---------- --------- --------- ------- -----------
BALANCE, December31, 1995 --- --- --- --- 5,838,246 $58,382 $16,747,614
</TABLE>
<TABLE>
<CAPTION>
Deferred Accumulated Treasury
Compensation Deficit Stock Total
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1993 $ --- $ (479,390) $ --- $2,124,539
PURCHASE OF TREASURY STOCK IN DECEMBER
1994 AT $.02 PER SHARE --- --- (1,850) (1,850)
DISTRIBUTIONS TO STOCKHOLDERS --- (805,685) --- (805,685)
NET LOSS --- (840,025) --- (840,025)
------------ ----------- ---------- ----------
BALANCE, December 31, 1994 --- (2,125,100) (1,850) 476,979
ISSUANCE OF COMMON STOCK IN APRIL
1995 PURSUANT TO EXERCISE OF OPTIONS --- --- --- 1,000
ISSUANCE OF SERIES B PREFERRED STOCK
IN SEPTEMBER 1995 AT $1.25 PER SHARE,
net of offering costs of $10,000 --- --- --- 1,040,000
ISSUANCE OF PREFERRED STOCK IN
SEPTEMBER 1995 AT $1.25 PER SHARE FOR
CONVERSION OF NOTES PAYABLE --- --- --- 580,000
DEFERRED COMPENSATION RELATING
TO ISSUANCE OF CERTAIN STOCK OPTIONS (726,375) --- --- ---
AMORTIZATION OF DEFERRED COMPENSATION 140,270 --- --- 140,270
ISSUANCE OF COMMON STOCK IN CONJUNCTION
WITH INITIAL PUBLIC OFFERING AT $8.00
PER SHARE, net of offering costs
of $1,745,478 --- --- --- 11,854,522
CONVERSION OF ALL PREFERRED STOCK
UPON CLOSING OF INITIAL PUBLIC
OFFERING --- --- --- ---
ISSUANCE OF COMMON STOCK PURCHASE
WARRANTS UPON CLOSING OF INITIAL
PUBLIC OFFERING --- --- --- 170
DISTRIBUTIONS TO STOCKHOLDERS --- (854,620) --- (854,620)
NET LOSS --- (451,831) --- (451,831)
------------ ----------- ----------- -----------
BALANCE, December31, 1995 $ (586,105) $(3,431,551) $ (1,850) $12,786,490
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
THE FOREFRONT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31
1994 1995
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (840,025) $ (451,831)
Adjustments to reconcile net loss
to net cash used by operating activities-
Depreciation and amortization 56,994 65,526
Amortization of deferred compensation
related to certain stock options --- 140,270
Changes in operating assets and liabilities-
Decrease in accounts receivable 172,085 61,006
Increase in inventory (7,900) (91,899)
Increase in prepaid expenses and other current assets (15,563) (7,821)
Increase in other assets --- (6,093)
Increase in accounts payable and accrued liabilities 139,810 653,411
Increase (decrease) in deferred revenues 78,385 (3,382)
---------- ----------
Net cash provided (used) by operating activities (416,214) 359,187
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment (114,740) (56,166)
Purchase of marketable securities --- (7,998,417)
---------- ----------
Net cash used by investing activities (114,740) (8,054,583)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock --- 11,854,522
Proceeds from issuance of preferred stock --- 1,040,000
Proceeds from exercise of stock options --- 1,000
Proceeds from issuance of warrants --- 170
Proceeds from notes payable to stockholders and others --- 660,705
Repayments of notes payable to stockholders and others --- (80,705)
Purchase of treasury stock (1,850) ---
Distribution payable 35,000 43,000
Dividend distributions (805,685) (854,620)
---------- -----------
Net cash provided (used) by financing activities (772,535) 12,664,072
---------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,303,489) 4,968,676
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,837,036 533,547
---------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 533,547 $ 5,502,223
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
THE FOREFRONT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS:
The ForeFront Group, Inc. (ForeFront or the Company), is a Delaware corporation
incorporated on December 6, 1990, under the name of Groupwork Systems, Inc. On
August 2, 1991, the name was changed to The ForeFront Group, Inc. The Company
develops and markets Internet software which enables individuals and
organizations to be more productive with information. ForeFront's Internet
software allows users to get Internet information by providing tools that
effectively retrieve, manage and print information from the World Wide Web. In
addition, through its merger with AllMicro, Inc. (AllMicro), a direct
telemarketing company, the Company republishes a number of software products for
personal computer technicians and network administrators.
In connection with the merger with AllMicro on July 22, 1996, which was
accounted for as a pooling of interests, the accompanying consolidated financial
statements give retroactive effect to the merger and, as a result, the
consolidated financial statements are presented as if ForeFront and AllMicro had
been combined for all periods presented.
The Company delivers its products through multiple distribution channels. The
Company currently offers its Internet products via the Internet and through
original equipment manufacturers (OEMs), systems integrators and value-added
resellers (VARs). 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.
ForeFront is developing products and has received limited revenues to date from
Internet software products developed by the Company. The future success of the
Company is dependent upon many factors, including the successful completion of
its product development activities, the development of salable products, the
identification of and penetration of markets for these products, technological
change and risk of obsolescence. See "Risk Factors" elsewhere herein.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Presentation
The accompanying consolidated financial statements include the accounts of The
ForeFront Group, Inc., and its subsidiary. All significant intercompany
transactions and balances have been eliminated in consolidation.
Revenue
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
postdelivery 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.
F-7
<PAGE>
The cost of revenues primarily includes direct labor and certain fixed costs as
they relate to maintenance and services support. Commissions on product sales
are included in selling and marketing expenses. At the initial license date, the
Company recognizes the liability for the estimated cost of warranties and
insignificant postdelivery obligations. An allowance for returns has not been
recorded as management believes that such amount is insignificant.
Furniture and Equipment
Furniture and equipment are carried at cost and depreciated on the straight-line
method using a four-year estimated useful life. Furniture and equipment as of
December 31, 1995, consist of the following:
<TABLE>
<S> <C>
Furniture $ 118,958
Equipment 241,177
-------------
360,135
Less- Accumulated depreciation (155,928)
-------------
Furniture and equipment, net $ 204,207
=============
</TABLE>
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.
Statement of Cash Flows
The Company considers highly liquid investments with a maturity of three months
or less when purchased to be cash equivalents.
In September 1995, the Company issued 464,000 shares of Series B preferred stock
and warrants to purchase 48,369 shares of common stock in settlement of notes
payable to stockholders and others, aggregating $580,000.
Marketable Securities
Securities that the Company has the intent and ability to hold to maturity are
classified as "held to maturity" and reported at amortized cost. Securities that
are held for current resale are classified as "trading securities" and reported
at fair value with unrealized gains and losses included in results of
operations. Securities not classified as either "securities held to maturity" or
"trading securities" are classified as "securities available for sale" and
reported at fair value, with unrealized gains and losses excluded from results
of operations and reported as a separate component of stockholders' equity.
At December 31, 1995, the Company's entire investment portfolio consisted of
securities held to maturity. Securities held to maturity are various types of
government bonds which mature June 20, 1996, and management estimates that the
carrying amount approximates fair value at December 31, 1995.
F-8
<PAGE>
Inventory
Inventory is stated at the lower of cost (first-in, first-out) or market.
Inventory consists primarily of prepackaged software.
Accrued Liabilities
Accrued liabilities as of December 31, 1995, consist of the following:
<TABLE>
<S> <C>
Professional fees $ 71,246
Bonuses 65,000
Insurance 190,000
Distributions payable 113,000
Contingencies 100,000
Other 101,839
-------------
Total accrued liabilities $ 641,085
</TABLE>
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 calculations, 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 as if they were
outstanding for all periods prior to completion of the Company's initial public
offering. Options and warrants granted by the Company prior to September 30,
1994, and not in contemplation of an offering have been excluded from the
calculation of common and common equivalent shares outstanding because such
options and warrants are antidilutive. Shares of convertible preferred stock are
treated as if converted to common stock on the respective dates of original
issuance.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. FEDERAL INCOME TAXES:
The Company has incurred losses since inception and, therefore, has not been
subject to federal income taxes. As of December 31, 1995, the Company has
generated net operating loss carryforwards (NOLs) of approximately $3.6 million
available to reduce future income taxes. These carryforwards begin to expire in
2007. The Company's ability to utilize the carryforwards is expected to be
limited by the "change in ownership," as such term is defined by federal income
tax laws and regulations, that occurred upon the sale of 1,700,000 shares of
common stock in December 1995. The annualized amount of such operating loss
available to offset future taxable income is expected to be approximately
$1,000,000.
F-9
<PAGE>
Effective January 1, 1994, the Company adopted SFAS No. 109, "Accounting for
Income Taxes." SFAS No. 109 requires an asset and liability approach for
financial accounting and reporting for income taxes. Under SFAS No. 109, an NOL
requires the recognition of a deferred tax asset. The adoption of SFAS No. 109
had no material impact on the Company's financial statements due to its
accumulated net losses. As the Company has had cumulative losses and there is no
assurance of future taxable income, a valuation allowance has been established
to fully offset the deferred tax asset at December 31, 1995. The components of
the Company's deferred tax asset as of December 31, 1995, are as follows:
<TABLE>
<S> <C>
Net operating loss carryforwards $ 1,246,000
Research and development tax credit carryforwards 73,073
Accruals not currently deductible (47,692)
---------------
Total deferred tax asset 1,271,381
Less- Valuation allowance (1,271,381)
---------------
Net deferred tax asset $ ---
===============
</TABLE>
AllMicro was an S Corporation for federal income tax purposes. In accordance
with the S Corporation provisions of the Internal Revenue Code, this company's
earnings (losses) are included in the personal tax returns of its stockholders;
therefore, no income tax expense is recorded in the accompanying consolidated
financial statements.
4. STOCKHOLDERS' EQUITY:
In October 1995, the board of directors approved a .44403-for-one reverse stock
split. An amount equal to the decreased par value of the common shares has been
reflected as a transfer from common stock to the additional paid-in capital
account. Retroactive effect has been given to the reverse stock split in
stockholders' equity and in all share and per share data in the accompanying
consolidated financial statements.
In September 1995, the Company's board of directors authorized the management of
the Company to file a registration statement with the Securities and Exchange
Commission permitting the Company to sell shares of its common stock to the
public. The offering of 1,700,000 shares at $8.00 per share was consummated on
December 26, 1995, with all of the preferred stock outstanding automatically
converting into 1,462,953 shares of common stock.
Convertible Notes
In March, April and July 1995, the Company issued senior convertible promissory
notes to certain stockholders, institutions and the former chief executive
officer (the Former Officer) totaling $660,705. The note to the Former Officer
was issued for the remaining amount due of his severance pay in the amount of
$30,705. The notes bore interest at prime plus 2 percent and were due at the
earlier of a common stock offering in which the offering raised at least
$1,000,000 in capital or March 31, 1996.
On September 26, 1995, the Company paid $80,705 in principal to two of the
noteholders and paid interest totaling approximately $35,000 to all of the
noteholders. The remaining principal of $580,000 was converted into 464,000
shares of Series B preferred stock at $1.25 per share in conjunction with the
issuance of Series B preferred stock. The noteholders received warrants to
purchase 48,369 shares of common stock at $2.82 per share pursuant to the note
subscription agreements.
F-10
<PAGE>
Preferred Stock
In June 1992 through November 1992, the Company issued 2,000,000 shares of
Series A preferred stock in exchange for net proceeds totaling $986,605. On
September 26, 1995, the Company issued 1,304,000 shares of Series B preferred
stock for $1.25 per share. The placement included the conversion of $580,000 in
principal of senior convertible notes payable and net cash proceeds of
approximately $924,000.
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. Except
for certain registration rights, all rights, preferences and privileges
associated with the Company's previously outstanding preferred stock were
terminated upon conversion.
Warrants
The Company issued warrants to purchase 37,295 shares of common stock to the
purchasers of the Series B preferred stock. Warrants to purchase 48,369 shares
of common stock were also issued to the senior convertible promissory
noteholders that exchanged notes into shares of Series B preferred stock. The
warrants have a five-year term and allow the holders to purchase 85,664 shares
of common stock at a price of $2.82 per share.
The Company issued warrants to purchase 170,000 shares of common stock to the
underwriters upon the closing of the initial public offering. The purchase price
of the warrants was $.001 per warrant. The warrants have a five-year term from
the date of the consummation of the initial public offering at a price of $9.60
per share.
5. STOCK OPTION PLAN:
On June 16, 1992, the Company's stockholders approved the 1992 Stock Option Plan
(the Plan). Under the Plan, as amended, 1,500,000 shares of common stock have
been reserved for issuance upon exercise of incentive stock options at December
31, 1995. The term of each option is determined by the board of directors with a
maximum term of 10 years from the date of grant, but the options generally vest
over a four-year period. In November 1995, the Company granted options to
purchase 209,480 shares of common stock which vest upon the earlier of 10 years
from the date of grant or the achievement of specified milestones relating to
product releases, corporate alliance revenue and equity financings. In June
1995, the Company amended option agreements providing for the purchase of
125,630 shares of common stock with an original exercise price of $2.82. In
November 1995, the Company granted options to purchase 352,480 shares of common
stock at $5.60 per share; however, the exercise prices were subsequently amended
to $7.00 per share in December 1995. The revised exercise prices were equal to
management's estimated fair value at the amendment dates. At December 31, 1994
and 1995, options to purchase 159,062 shares and 488,014 shares were available
for future grants under the Plan. The Company believes that, at date of grant,
the exercise price approximates fair value except for certain grants in August
and September 1995.
In March 1995, the Company granted nonqualified stock options, which vest over a
four-year period, to a consultant to purchase 56,363 shares of common stock at
$1.13 per share. The weighted average exercise price of all options outstanding
at December 31, 1994 and 1995, was $1.01 and $3.11, respectively.
F-11
<PAGE>
A summary of stock option activity follows:
<TABLE>
<CAPTION>
Options Price
Outstanding Per Share
----------- ------------
<S> <C> <C>
Balance at December 31, 1993 135,596 $.23 - $2.82
Granted 46,179 $2.82
Canceled (30,460) $.23 - $2.82
-----------
Balance at December 31, 1994 151,315 $.23 - $2.82
Granted 1,008,908 $1.13 - $2.82
Canceled (152,677) $.23 - $2.82
Exercised (4,440) $.23
-----------
Balance at December 31, 1995 1,003,106 $.23 - $1.13
===========
Exercisable at-
December 31, 1994 78,607 $.23 - $2.82
===========
December 31, 1995 346,784 $.23 - $1.13
===========
</TABLE>
For options granted in August and September 1995, the Company recognized
compensation expense for the excess of the deemed value for accounting purposes
of the common stock on the date the options were granted ($2.82 per share) over
the $1.13 exercise price of such options. Aggregate deferred compensation of
$726,375 resulted from the issuance of these options, and compensation expense
will be recognized ratably over the vesting period of each option, generally
four years. The Company recognized $140,270 of this amount as compensation
expense for the year ended December 31, 1995.
6. LICENSE AND DISTRIBUTION AGREEMENTS:
The Company has entered into a technology transfer agreement with Baylor College
of Medicine ("Baylor") whereby the Company has an exclusive noncancelable
worldwide license to use and market the technology related to the Virtual
Notebook System ("VNS"). The Company issued 377,425 shares of its common stock,
$.01 par value, to Baylor in exchange for the grant of the exclusive license.
Baylor then transferred a portion of their shares to the development team
employed by Baylor. This agreement, as amended, provides Baylor the right to
continue to use and improve the VNS and related technology and provides
ForeFront the exclusive rights to all such improvements made by Baylor through
December 31, 1995. Baylor also retains the right to conduct further research and
development using the VNS technology.
In November 1993, the Company entered into an agreement with Baylor whereby the
Company provided management and technical services for the implementation of a
telemedicine system for Baylor. The agreement expired in June 1994. Revenues
earned under this agreement totaled $87,500 in 1994.
In August 1993, the Company entered into a three-year agreement with Digital
Equipment Corporation (Digital) whereby Digital would develop and market
solutions based on the Company's VNS product. Under the terms of the agreement,
Digital received a nonexclusive worldwide right to market and support the VNS
for their customers. The Company recognized product revenues of $75,000 during
1994 pursuant to this agreement.
F-12
<PAGE>
7. COMMITMENTS AND CONTINGENCIES:
Royalty Agreements
On July 9, 1996, the Company and Tripos Inc. terminated the strategic
alliance agreement entered into in January 1995 for the Company's VNS product
for which the Company had received a non-refundable $100,000 payment. The
Company paid Tripos $14,285 and agreed to pay a royalty of 10% of any future
revenue received by the Company during the subsequent two year period ending
July 1998 from sales of the VNS in the chemical or pharmaceutical markets up to
an aggregate of $45,715.
Consulting Agreement
In September of 1991, the Company entered into a consulting agreement with the
VNS's principal architect, then a Baylor faculty member (the Principal
Architect). The agreement, as amended in June of 1992, required ForeFront to pay
$1,250 per month for consulting services rendered to the Company by the
Principal Architect for the period from January 1991 through December 1992 and
$2,500 per month from January 1993 through June 1993. Subsequent to June 1993,
the Company continued to pay the Principal Architect on a month-to-month basis
for consulting services. During 1994, the Company paid $30,000 pursuant to this
agreement. No amounts were paid to the Principal Architect during 1995 and the
agreement expired in December 1995. The agreement also contained a noncompete
clause which applied through May of 1996.
During fiscal year 1992, the Principal Architect terminated his employment with
Baylor and became employed by Rice University. Effective August 1, 1992, the
Company entered into a development and site license agreement with Rice
University, granting Rice a nonexclusive, nontransferable license to access,
modify and enhance the source code for ForeFront's VNS product family under the
direction of the Principal Architect. Pursuant to the agreement, the Company has
exclusive rights to all improvements and enhancements to the VNS and related
technology.
Lease Agreement
The Company leases approximately 4,700 square feet of office space pursuant to
an operating lease. The Company paid $71,000 and $62,000 for rent expense in
1994 and 1995, respectively. Subsequent to year end, the lease was amended to
include approximately 10,200 square feet of office space beginning July 1, 1996,
and expiring June 30, 2001. The minimum commitment for this office space is
approximately $153,000 annually.
The Company also executed a new operating lease for its Salt Lake City, Utah,
location for approximately 3,000 square feet of office space beginning August 1,
1996, and expiring July 31, 2001. The minimum commitment for this office space
is approximately $38,700 annually.
Employment Agreements
Effective October 19, 1992, the Company entered into employment agreements with
its current president and executive vice president. The agreements, as
subsequently amended, provide for annual salaries and an annual bonus to each
employee equal to 2.5 percent of the Company's net pretax profits, as defined.
The Company also granted each of the employees fully vested incentive stock
options to purchase 22,201 shares of common stock. In addition, the employees
will receive additional incentive stock options which shall vest according to
continued employment and performance milestones. The agreements also require the
Company to maintain a $1 million life insurance policy on each of the employees
for the benefit of their designated beneficiaries.
Effective December 1, 1995, the Company entered into an employment agreement
with the vice president, sales and marketing. The agreement provides for an
annual salary and quarterly bonuses based on the attainment of certain revenue
and cost amounts, as defined. The Company also granted the employee incentive
stock options to purchase 85,000 shares of common stock, 17,000 of which are
fully vested. The remaining options shall vest according to continued employment
and performance milestones.
F-13
<PAGE>
Effective March 1, 1996, the Company entered into an employment agreement with
an officer of the Company. The agreement provides for an annual salary and bonus
based on the attainment of certain objectives. The Company also granted the
employee incentive stock options to purchase 75,000 shares of common stock,
15,000 shares of which are fully vested. The remaining options shall vest
according to continued employment.
Effective June 7, 1996, the Company entered into an employment agreement with
another officer of the Company. The agreement provides for annual salary and
quarterly bonuses based on the attainment of certain objectives. The Company
also granted the employee incentive stock options to purchase 100,000 shares of
common stock, 20,000 shares of which are fully vested. The remaining options
shall vest according to continued employment.
Effective February 1, 1992, the Company entered into an employment and stock
purchase agreement with the Former Officer. The agreement provided for an annual
salary through May of 1994 and granted the Company the right to acquire a
certain number of common shares held by the Former Officer, which varied with
the duration of the Former Officer's employment. Effective October 25, 1994, the
Former Officer's employment with the Company was terminated. Based on the terms
of the agreement, the Company purchased 82,145 common shares held by the Former
Officer for $1,850. The Company agreed to pay the Former Officer severance pay
equal to six months of his base salary payable in equal semimonthly
installments, and such amount was expensed during 1994. The agreement also
contained a noncompete clause which expired October 31, 1995.
8. ACQUISITIONS SUBSEQUENT TO DECEMBER 31, 1995:
Blue Squirrel, Inc.
On March 8, 1996, the Company acquired the assets of Blue Squirrel, Inc. The
consideration consisted of 125,000 shares of the Company's common stock and
$100,000 in cash to retire debt assumed by the Company. The acquisition has been
accounted for under the purchase method and, accordingly, the operating results
of Blue Squirrel have been included in the operating results since the date of
acquisition. In applying the purchase method, the Company recorded the fair
value of net assets acquired, which included software costs of $71,110, and
recorded a $439,881 charge for acquired research and development costs. Computer
equipment and furniture acquired were capitalized at their estimated fair market
value of $15,465.
Additionally, two stockholders of Blue Squirrel received an option
to purchase 5,000 shares of the Company's common stock at $7.20 per share, which
was in excess of the then-current market price of the Company's common stock.
These options were granted in exchange for each of the two stockholders
executing noncompetition agreements for a two-year period from the closing date.
No value was assigned to the noncompetition agreements as management determined
that their values were not significant.
BookMaker Corporation
On June 12, 1996, the Company acquired the assets of BookMaker Corporation. The
consideration consisted of 248,375 shares of the Company's common stock issued
at closing (the Closing Shares) and 199,262 shares of the Company's common stock
(the Earnout Shares) issued at closing and deposited in escrow to be delivered
to BookMaker subject to satisfaction of certain milestones for the remainder of
1996 and 1997. One-third of the Earnout Shares is subject to release from escrow
on or before April 30, 1997, and the remaining two-thirds of the Earnout Shares
are subject to release on or before April 30, 1998, based upon the revenues and
F-14
<PAGE>
gross profit before income tax of BookMaker's operations after the closing for
the 1996 and 1997 periods, respectively. Any Earnout Shares not earned shall be
forfeited. Of the Closing Shares (the Escrow Shares), 10 percent is held in
escrow for a period of two years from the closing to cover losses due to breach
of representations and warranties. Holders of the Earnout Shares and Escrow
Shares are entitled to voting and dividend rights during the period such shares
are held in escrow. The acquisition has been accounted for under the purchase
method and, accordingly, the operating results of BookMaker have been included
in the operating results since the date of acquisition. The purchase price was
allocated to the assets purchased and the liabilities assumed based upon the
fair values at the date of acquisition. The initial purchase price was allocated
as follows:
<TABLE>
<S> <C>
Working capital, other than cash $ 81,658
Furniture and equipment 25,528
Purchased software 66,900
Other assets 1,500
Acquired research and development 2,358,723
------------
Purchase price, net of cash received $ 2,534,309
</TABLE>
Additionally, the three founders of BookMaker entered into employment agreements
with the Company and received an option to purchase 5,000 shares, 5,000 shares
and 10,000 shares, respectively, of the Company's common stock at fair market
value on the date of issuance. These options were granted in exchange for the
three founders executing noncompetition agreements covering the 18-month period
from the closing date.
AllMicro, Inc.
On July 22, 1996, the Company consummated the merger with AllMicro, Inc.,
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 of AllMicro (the
Stockholders). 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), 10
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 amounts associated with 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 merger and, as a result, the
consolidated financial statements are presented as if ForeFront and AllMicro had
been combined for all periods presented.
F-15
<PAGE>
TABLE OF CONTENTS
Page
----
Available Information . . . . . . . . . . . . . . . . . . . . . 2
Incorporation of Certain Documents By Reference . . . . . . . . 2
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . 5
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . 15
Forward Looking Statements . . . . . . . . . . . . . . . . . . 15
Selling Stockholders. . . . . . . . . . . . . . . . . . . . . . 15
Plan of Distribution. . . . . . . . . . . . . . . . . . . . . . 18
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . 19
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Index to Financial Statements . . . . . . . . . . . . . . . . . F-1
-----------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING
STOCKHOLDERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF ANY OFFER TO BUY, COMMON STOCK BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following expenses will be paid by the Company.
<TABLE>
<S> <C>
SEC Registration Fee $ 1,322
Legal fees and expenses 5,000
Accounting fees and expenses 5,000
Miscellaneous 4,678
-------
TOTAL $16,000
=======
- -----------------
</TABLE>
No expenses in connection with the distribution contemplated by this
Registration Statement will be borne by the Selling Stockholders.
Item 15. Indemnification of Directors and Officers
The Delaware General Corporation Law and the Company's Bylaws provide for
indemnification of the Company's directors and officers for liabilities and
expenses that they may incur in such capacities. In general, directors and
officers are indemnified with respect to actions taken in good faith in a manner
reasonably believed to be in, or not opposed to, the best interests of the
Company, and with respect to any criminal action or proceeding, actions that the
indemnitee had no reasonable cause to believe were unlawful. Reference is made
to the Company's Bylaws filed as Exhibit 3.2 to the Company's Registration
Statement on Form SB-2 (No. 33-997898-D), respectively.
II-1
<PAGE>
ITEM 16. EXHIBITS
The following are filed as exhibits to this Registration
Statement:
Exhibit Number Description
----------- -----------
5.1 Opinion and consent of Company's counsel
23.1 Consent of Company's counsel (contained in
Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP, independent certified
public accountants
+24.1 Power of Attorney. (Included at page II-4)
+27 Financial Data Schedule
- -----------------------
+ Previously filed.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered thereby and the offerings of such securities
at the time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matters has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
which, individually or together, represent a fundamental change
in the information in the registration statement;
II-2
<PAGE>
(iii) To include any additional or changed material
information on the plan of distribution;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
the Registant's Registration Statement on Form S-3 to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Houston, State of
Texas, on this 8th day of January, 1997.
THE FOREFRONT GROUP, INC.
By: /s/ David Sikora
David Sikora
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ David Sikora President and Chief Executive Officer January 8, 1997
- ------------------- (Principal Executive Officer)
David Sikora
/s/ Ernest Rapp* Chief Financial Officer January 8, 1997
- ------------------- (Principal Financial and
Ernest Rapp Accounting Officer)
/s/ Terry Ward* Director January 8, 1997
- --------------------
Terry Ward
/s/ G. Anthony Gorry* Director January 8, 1997
- --------------------
G. Anthony Gorry
/s/ Stephen J. Banks* Director January 8, 1997
- --------------------
Stephen J. Banks
/s/ Grant Dove* Director January 8, 1997
- --------------------
Grant Dove
- --------------------
*David Sikora as Attorney in Fact for each of the above.
II-4
<PAGE>
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Description Page
- -------- ----------- ------------
5.1 Opinion and consent of Company's counsel
23.1 Consent of Company's counsel (contained
in Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP, independent
certified public accountants
+24.1 Power of Attorney. (Included at page II-4)
+27 Financial Data Schedule
- ----------------
+ Previously filed.
January 8, 1997
Board of Directors
The ForeFront Group, Inc.
1330 Post Oak Boulevard, Suite 1300
Houston, Texas 77056
Gentlemen:
I have acted as counsel to The ForeFront Group, Inc., a Delaware
corporation (the "Company") in connection with the Company's Registration
Statement on Form S-3 (the "Registration Statement"), relating to the
registration under the Securities Act of 1933, as amended, of the offer and sale
by the Selling Stockholders identified in the Registration Statement of up to:
(i) 470,637 shares of Common Stock issued or issuable in connection with
the acquisition by the Company of the assets of BookMaker Corporation,
consisting of 460,554 shares that are currently outstanding (the "BookMaker
Shares") and 10,083 shares issuable pursuant to an agreement with Desktop
Solutions, Inc. (the "Additional BookMaker Shares");
(ii) 125,000 shares of Common Stock issued in connection with the
acquisition by the Company of the assets of Blue Squirrel, Inc. (the "Blue
Squirrel Shares");
(iii) 103,215 shares of Common Stock issued upon conversion of shares of
preferred stock of the Company issued in private placements prior to the
Company's initial public offering (the "Conversion Shares"); and
(iv) 4,971 shares ("Warrant Shares") issuable upon the exercise of warrants
("Warrants") to purchase Common Stock issued in connection with the private
placement of debt or preferred stock by the Company prior to the Company's
initial public offering.
As the basis for the opinions hereinafter expressed, I have examined such
corporate records and documents, certificates of corporate and public officials
and such other instruments as I have deemed necessary for the purposes of the
opinions contained herein. As to all matters of fact material to such opinions,
I have relied upon the representations of officers of the Company. I have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to me as originals, and the conformity with the original documents of
all documents submitted to me as copies.
Based upon the foregoing and having due regard for such legal
considerations as I deem relevant, I am of the opinion that (i) the BookMaker
Shares, Blue Squirrel Shares, and Conversion Shares have been duly authorized,
and are fully paid and nonassessable and (ii) and, the Warrant Shares and the
Additional BookMaker Shares have been duly authorized and, when issued in
accordance with the exercise of the Warrants and the agreement relating to the
Additional BookMaker Shares, respectively, will be fully paid and nonassessable.
I hereby consent to the inclusion of this opinion as an exhibit to the
Registration Statement and to the reference to my name under the caption
"Experts" therein.
Very truly yours,
/s/ Jeffrey R. Harder
Jeffrey R. Harder
General Counsel
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated July 22, 1996, and to all references to our Firm included in or
made a part of this Registration Statement.
ARTHUR ANDERSEN LLP
Houston, Texas
January 8, 1997
