<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM 8-K/A
(Amendment No. 2)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): October 9, 1998
---------------
FRONTLINE COMMUNICATIONS CORP.
(Exact name of registrant as specified in its charter)
Delaware 0-24223 13-3950283
- - ---------------------------- ----------- ------------------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
One Blue Hill Plaza, Pearl River, New York 10965
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (914)623-8553
-------------
Not Applicable
- - --------------------------------------------------------------------------------
Former name or former address, if changed since last report
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
The following financial statements and pro forma financial information
omitted from the Company's Report on Form 8-K for the event dated October 9,
1998 filed with the Commission on October 13, 1998, in reliance upon
instructions 7(a)(4) and 7(b)(2) of Form 8-K, are filed herewith.
(a) Financial Statements of the Businesses Acquired.
Financial Statements of WOWFactor, Inc. as of December 31,
1997.
(i) Independent Auditors Report
(ii) Financial statements as of December 31, 1997 and for
each of the two years in the period ended December 31,
1997
(iii) Financial statements for the nine months ended
September 30, 1998 and 1997 (unaudited)
Financial Statements of Roxy Systems, Inc. d/b/a Magic Carpet
as of December 31, 1997.
(i) Independent Auditors Report
(ii) Financial statements as of December 31, 1997
(iii) Financial statements for the nine months ended
September 30, 1998 and 1997 (unaudited)
(b) Pro Forma Financial Information.
Unaudited Pro Forma Condensed Consolidated Financial
Statements for Frontline Communications, Corp.
(i) Introduction
(ii) Pro forma condensed combined financial statements as of
September 30, 1998 and for the nine months ended
September 30, 1998 and 1997*
(iii) Notes to financial statements*
(c) Exhibits
Reference is made to the Exhibits previously filed with the Securities
and Exchange Commission as Exhibits to the Company's Report on Form 8-K filed
with the Commission on October 13, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: December 23, 1998
FRONTLINE COMMUNICATIONS CORP.
By /s/ Samuel Gilner
------------------------------
Name: Samuel Gilner
Title: Chief Accounting Officer
<PAGE>
WOWFactor, Inc.
Financial Statements
Years Ended December 31, 1997 and 1996
F-1
<PAGE>
WOWFactor, Inc.
Contents
================================================================================
Report of independent certified public accountants F-3
Financial statements:
Balance sheet F-4
Statements of operations F-5
Statements of stockholders' deficit F-6
Statements of cash flows F-7
Summary of business and significant accounting policies F-8
Notes to financial statements F-9
F-2
<PAGE>
Report of Independent Certified Public Accountants
WOWFactor, Inc.
Montclair, New Jersey
We have audited the accompanying balance sheet of WOWFactor, Inc. as of December
31, 1997 and the related statements of operations, stockholders' deficit and
cash flows for each of the two years in the period ended December 31, 1997.
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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of WOWFactor, Inc. as of December
31, 1997, and the results of its operations and its cash flows for each of the
two years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
BDO Seidman, LLP
New York, New York
December 18, 1998
F-3
<PAGE>
WOWFactor, Inc.
Balance Sheet
================================================================================
December 31, 1997
- - --------------------------------------------------------------------------------
Assets
Equipment, net (Note 1) $ 12,170
================================================================================
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable $ 31,668
Accrued expenses 25,301
Notes payable (Note 2) 60,000
- - --------------------------------------------------------------------------------
Total current liabilities 116,969
- - --------------------------------------------------------------------------------
Stockholders' deficit:
Common stock, no par value - 100 shares
authorized, issued and outstanding (Note 2) 657,263
Accumulated deficit (762,062)
- - --------------------------------------------------------------------------------
Total stockholders' deficit (104,799)
- - --------------------------------------------------------------------------------
$ 12,170
================================================================================
See accompanying summary of business and significant accounting
policies and notes to financial statements.
F-4
<PAGE>
WOWFactor, Inc.
Statements of Operations
================================================================================
Year ended December 31, 1997 1996
- - --------------------------------------------------------------------------------
Net sales $ 4,754 $ 25
Cost of sales 47,676 34,369
- - --------------------------------------------------------------------------------
Gross margin (42,922) (34,344)
- - --------------------------------------------------------------------------------
Operating expenses:
Selling, general and administrative 96,173 95,976
Noncash compensation (Note 3) 234,000 259,000
- - --------------------------------------------------------------------------------
Total operating expenses 330,173 354,976
- - --------------------------------------------------------------------------------
(373,095) (389,320)
Other income:
Interest income - 353
- - --------------------------------------------------------------------------------
Net loss (373,095) (388,967)
Accumulated deficit, beginning of year (388,967) -
- - --------------------------------------------------------------------------------
Accumulated deficit, end of year $(762,062) $(388,967)
================================================================================
See accompanying summary of business and significant
accounting policies and notes to financial statements.
F-5
<PAGE>
WOWFactor, Inc.
Statements of Stockholders' Deficit
================================================================================
Years ended December 31, 1997 and 1996
- - --------------------------------------------------------------------------------
Capital Accumulated
stock deficit Total
- - --------------------------------------------------------------------------------
Balance, January 1, 1996 $ - $ - $ -
Net loss - (388,967) (388,967)
Capital contributions (Notes 2(b) and 3) 327,140 - 327,140
- - --------------------------------------------------------------------------------
Balance, December 31, 1996 327,140 (388,967) (61,827)
Net loss - (373,095) (373,095)
Capital contributions (Notes 2(b) and 3) 330,123 - 330,123
- - --------------------------------------------------------------------------------
Balance, December 31, 1997 $657,263 $(762,062) $(104,799)
================================================================================
See accompanying summary of business and significant
accounting policies and notes to financial statements.
F-6
<PAGE>
WOWFactor, Inc.
Statements of Cash Flows
(Note 3)
================================================================================
Year ended December 31, 1997 1996
- - --------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss $(373,095) $(388,967)
- - --------------------------------------------------------------------------------
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 8,121 5,088
Capital contributed through performance
of services 234,000 259,000
Change in assets and liabilities:
(Increase) decrease in:
Accounts payable 13,462 18,206
Accrued expenses (8,883) 34,184
- - --------------------------------------------------------------------------------
Total adjustments 246,700 316,478
- - --------------------------------------------------------------------------------
Net cash used in operating
activities (126,395) (72,489)
- - --------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of equipment - (25,379)
- - --------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of notes 25,000 35,000
Contributions of capital - cash 96,123 68,140
- - --------------------------------------------------------------------------------
Net cash provided by financing
activities 121,123 103,140
- - --------------------------------------------------------------------------------
Net increase (decrease) in cash (5,272) 5,272
Cash, beginning of year 5,272 -
- - --------------------------------------------------------------------------------
Cash, end of year $ - $ 5,272
================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ - $ -
Income - -
================================================================================
See accompanying summary of business and significant
accounting policies and notes to financial statements.
F-7
<PAGE>
WOWFactor, Inc.
Summary of Business and Significant Accounting Policies
================================================================================
Business WOWFactor, Inc. (the "Company") which was
incorporated in 1995, and commenced business as an
internet web-based Company providing consumer and
business goods and services, focusing on women
business owners.
Use of Estimates The preparation of the financial statements in
conformity with generally accepted accounting
principles requires management to make estimates
and assumptions that affect the reported amounts
of assets and liabilities and disclosure of
contingent assets and liabilities at the date of
the financial statements and the reported amounts
of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
Equipment and Equipment is stated at cost. Depreciation is
Depreciation computed using the double declining balance method
over the estimated useful lives of the assets of
five years.
Income Taxes The Company is taxed as an S corporation under the
provisions of the Internal Revenue Code. The
stockholder's report the Company's taxable income
or loss in their personal income tax returns.
Accordingly, Federal as well as State of New
Jersey income taxes or benefits are not reflected
in the financial statements.
Deferred taxes are inconsequential as a result of
the Company's tax status.
Revenue Recognition Revenues were derived from various
internet related services and are recognized in
the month in which services are provided.
F-8
<PAGE>
WOWFactor, Inc.
Notes to Financial Statements
================================================================================
1. Equipment Equipment, as presented on the balance sheet, is as
follows:
December 31, 1997
--------------------------------------------------------
Equipment $ 25,379
Less: Accumulated depreciation (13,209)
--------------------------------------------------------
$ 12,170
--------------------------------------------------------
2. Related Party (a) The Company has outstanding, at December 31, 1997,
Transactions noninterest bearing notes payable to a related
party totaling $60,000. These notes were repaid
during 1998.
(b) In 1997 and 1996, shareholders made cash capital
contributions of $96,123 and $68,140,
respectively.
(c) The Company's operations are conducted at the home
of the principal stockholder at no expense to the
Company. Management has determined that the cost
of such space cannot be reasonably estimated and
has therefore chosen not to disclose such
information.
3. Noncash During 1997 and 1996, the Company recognized contributed
Compensation capital in lieu of the payments of salaries and fees to
certain stockholders. The amounts recognized as expense
and contributed capital in the financial statements were
$234,000 and $259,000 in 1997 and 1996, respectively.
F-9
<PAGE>
WOWFactor, Inc.
Notes to Financial Statements
================================================================================
4. Subsequent Event On October 9, 1998, the Company entered into an
agreement with Frontline Communications Corporation (the
"Purchaser") whereby ten (10) shares of Series A
Convertible Preferred Stock of the Purchaser ("Series A
Preferred"), convertible on July 15, 1999 into common
stock, par value $0.1 per share, having a market value
of $1,000,000 on the conversion date, were transferred
in consideration of all the authorized, issued and
outstanding shares of the Company's common stock. The
conversion feature, however, provides for a limitation
that under no circumstances shall the Series A Preferred
stock be convertible into the Purchaser's common stock
aggregating more than 250,000 shares. In connection with
the transactions, stock options were granted to the
Company's former shareholders to be exercised on July
15, 1999 under the conditions that (a) if the
Purchaser's common stock has a market value on July 15,
1999 of less than $3.00 per share, up to 100,000 shares
may be purchased under the option or (b) if the
Purchaser's common stock has a market value of less than
$4.00 per share but greater than $3.00 per share,
options to purchase will be limited to 50,000 shares.
F-10
<PAGE>
WOWFactor, Inc.
Financial Statements
For the period ended September 30, 1998
<PAGE>
WOWFactor, Inc.
Table of contents
Financial statements:
Balance sheet page 1
Statement of operations page 2
Statement of stockholders' deficit page 3
Statement of cash flows page 4
Notes to financial statements page 5
<PAGE>
WOWFactor, Inc.
Balance Sheet
================================================================================
September 30,
1998
-------------
(Unaudited)
ASSETS
Current:
Cash and cash equivalents $ 129
------------
Total current assets 129
Equipment, net 8,515
------------
TOTAL ASSETS $ 8,644
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current:
Accounts payable and accrued expenses $ 43,000
Notes payable 60,000
------------
Total current liabilities 103,000
------------
Total liabilities 103,000
------------
Stockholders' deficit
Common stock, no par value, 100 shares authorized, 684,037
issued and outstanding
Accumulated deficit (778,393)
------------
Total stockholders' deficit (94,356)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 8,644
============
See accompanying notes to financial statements. Page 1
<PAGE>
WOWFactor, Inc.
Statements of Operations
================================================================================
For the nine months
ended September 30,
---------------------------------
(Unaudited)
1998 1997
----------- -----------
Net Sales 29,029 2,318
Cost of sales 3,293 46,576
----------- -----------
Gross Margin 25,736 (44,258)
Operating expenses:
Selling, general and administrative 42,056 89,258
----------- -----------
Loss from operations (16,320) (133,516)
Other Income(expense):
Interest expense 11
----------- -----------
Net loss (16,331) (133,516)
=========== ===========
See accompanying notes to financial statements. Page 2
<PAGE>
WOWFactor, Inc.
Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
================================================================================
Nine months
ended September 30,
---------------------------------
(Unaudited)
1998 1997
----------- -----------
Cash flow from operating activities:
Net Loss $ (16,331) $ (133,516)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 3,655 4,738
Changes in assets and liabilities:
(Increase) decrease in:
Notes receivable
Prepaid expenses and other
Other assets
Accounts payable and accrued expenses (13,969) 8,658
Notes payable -- 25,000
--------- ---------
Net cash used by operating activities (26,645) (95,120)
Cash flows from investing activities:
Acquisition of equipment
--------- ---------
Net cash used by operating activities -- --
Cash flows from financing activities:
Proceeds from stockholder loans -- 89,848
Proceeds from sale of common stock and
warrants 26,774
--------- ---------
Net cash used by financing activities 26,774 89,848
--------- ---------
Net increase (decrease) in cash and cash
equivalents: 129 (5,272)
Cash, beginning of period -- 5,272
--------- ---------
Cash, end of period $ 129 $ --
========= =========
See accompanying notes to financial statements Page 3
<PAGE>
WOWFactor, Inc.
Statement of Stockholders' Deficit
Nine months ended September 30, 1998
- - --------------------------------------------------------------------------------
Accumulated
Capital stock deficit Total
- - --------------------------------------------------------------------------------
Balance, January 1, 1998 $ 657,263 $ (762,062) $ (104,799)
Net loss 0 (16,331) (16,331)
Capital contributions 26,774 0 26,774
- - --------------------------------------------------------------------------------
Balance, September 30, 1998 $ 684,037 $ (778,393) $ (94,356)
================================================================================
See accompanying notes to financial statements. Page 4
<PAGE>
WOWFactor, Inc.
Notes to Financial Statements
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Accordingly, they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements.
In the opinion of management, the accompanying unaudited financial statements
include all adjustments, consisting of normal recurring accruals, considered
necessary for the fair presentation of the results for interim periods.
Operating results for the nine months ended September 30, 1998 are not
necessarily indicative of the results to be expected for the full year ending
December 31, 1998.
<PAGE>
Roxy Systems, Inc.,
D/B/A Magic Carpet
Financial Statements
Year Ended December 31, 1997
F-1
<PAGE>
Roxy Systems, Inc.,
D/B/A Magic Carpet
Contents
- - --------------------------------------------------------------------------------
Report of independent certified public accountants F-3
Financial statements:
Balance sheet F-4
Statement of operations F-5
Statement of stockholder's deficit F-6
Statement of cash flows F-7
Summary of business and significant accounting policies F-8
Notes to financial statements F-9
F-2
<PAGE>
Report of Independent Certified Public Accountants
Roxy Systems, Inc., D/B/A Magic Carpet
Middletown, New York
We have audited the accompanying balance sheet of Roxy Systems, Inc., D/B/A
Magic Carpet as of December 31, 1997 and the related statements of operations,
stockholder's deficit and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Roxy Systems, Inc., D/B/A Magic
Carpet at December 31, 1997, and the results of its operations and its cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
Certified Public Accountants
New York, New York
December 22, 1998
F-3
<PAGE>
Roxy Systems, Inc.,
D/B/A Magic Carpet
Balance Sheet
================================================================================
December 31, 1997
- - --------------------------------------------------------------------------------
Assets
Current:
Accounts receivable, less allowance for
doubtful accounts of $10,000 $ 2,686
Property and equipment, net (Note 1) 21,080
Other 774
-------------------------------------------------------------------------------
$ 24,540
================================================================================
Liabilities and Stockholder's Deficit
Current liabilities:
Accounts payable and accrued expenses $ 46,387
Due to stockholder (Note 2) 15,860
-------------------------------------------------------------------------------
Total current liabilities 62,247
- - --------------------------------------------------------------------------------
Stockholder's deficit:
Common stock, no par value - shares authorized,
issued and outstanding 100 80,000
Accumulated deficit (117,707)
-------------------------------------------------------------------------------
Total stockholder's deficit (37,707)
- - --------------------------------------------------------------------------------
$ 24,540
================================================================================
See accompanying summary of business and significant accounting
policies and notes to financial statements.
F-4
<PAGE>
Roxy Systems, Inc.,
D/B/A Magic Carpet
Statement of Operations
================================================================================
Year ended December 31, 1997
- - --------------------------------------------------------------------------------
Net sales $ 180,569
Cost of sales 157,542
- - --------------------------------------------------------------------------------
Gross profit 23,027
Operating expenses:
Selling, general and administrative 79,740
- - --------------------------------------------------------------------------------
Net loss (56,713)
Accumulated deficit, beginning of year (60,994)
- - --------------------------------------------------------------------------------
Accumulated deficit, end of year $(117,707)
================================================================================
See accompanying summary of business and significant accounting
policies and notes to financial statements.
F-5
<PAGE>
Roxy Systems, Inc.,
D/B/A Magic Carpet
Statement of Stockholder's Deficit
================================================================================
Year ended December 31, 1997
- - --------------------------------------------------------------------------------
Accumulated
Capital stock deficit Total
- - --------------------------------------------------------------------------------
Balance, January 1, 1997 $80,000 $ (60,994) $ 19,006
Net loss - (56,713) (56,713)
- - --------------------------------------------------------------------------------
Balance, December 31, 1997 $80,000 $(117,707) $(37,707)
================================================================================
See accompanying summary of business and significant accounting
policies and notes to financial statements.
F-6
<PAGE>
Roxy Systems, Inc.,
D/B/A Magic Carpet
Statement of Cash Flows
================================================================================
Year ended December 31, 1997
- - --------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss $(56,713)
- - --------------------------------------------------------------------------------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 6,770
Allowance for doubtful accounts 10,000
Change in assets and liabilities:
Increase in:
Accounts receivable (12,686)
Other assets (774)
Increase in accounts payable and accrued expenses 31,795
- - --------------------------------------------------------------------------------
Total adjustments 35,105
- - --------------------------------------------------------------------------------
Net cash used in operating activities (21,608)
Cash flows from investing activities:
Purchase of equipment (3,850)
Cash flows from financing activities:
Advances received from stockholder 20,836
- - --------------------------------------------------------------------------------
Net decrease in cash (4,622)
Cash, beginning of year 4,622
- - --------------------------------------------------------------------------------
Cash, end of year $ -
================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ -
Income taxes -
================================================================================
See accompanying summary of business and significant accounting
policies and notes to financial statements.
F-7
<PAGE>
Roxy Systems, Inc.,
D/B/A Magic Carpet
Summary of Business and Significant Accounting Policies
================================================================================
Business Roxy Systems, Inc., D/B/A Magic Carpet (the
"Company") is an internet service provider that
offers "dial-up" Internet access primarily to
individual subscribers. The Company provides
subscribers with direct access to a wide range of
Internet applications and resources, including
electronic mail, world wide web sites and regional
and local information and data services.
Use of Estimates The preparation of the financial statements in
conformity with generally accepted accounting
principles requires management to make estimates
and assumptions that affect the reported amounts
of assets and liabilities and disclosure of
contingent assets and liabilities at the date of
the financial statements and the reported amounts
of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
Property, Equipment and Equipment is stated at cost. Depreciation is
Depreciation computed over the estimated useful lives of the
assets by the straight-line method for property
and equipment.
Revenue Revenue from monthly Internet service are
recognized in the month in which services are
provided.
Income Taxes The Company is taxed as an S corporation under the
provisions of the Internal Revenue Code. The
stockholder reports the Company's taxable income
or loss in his personal income tax return.
Accordingly, Federal as well as New York State
income taxes or benefits are not reflected in the
financial statements.
Deferred taxes are inconsequential as a result of
the Company's tax status.
F-8
<PAGE>
Roxy Systems, Inc.,
D/B/A Magic Carpet
Notes to Financial Statements
================================================================================
1. Property and Property and equipment, as presented on the
Equipment, Net balance sheet, is as follows:
December 31, 1997
--------------------------------------------------
Equipment $ 31,825
Furniture and fixtures 2,025
--------------------------------------------------
33,850
Less: Accumulated depreciation (12,770)
--------------------------------------------------
$ 21,080
==================================================
2. Related Party The stockholder of the Company has made advances
Transactions to the Company totaling Transactions $15,860 at
December 31, 1997. These advances were in the form
of noninterest-bearing notes that are due on
demand.
The Company's operations are conducted at the home
of a relative of the stockholder on a
month-to-month basis at a rate of $100 per month.
3. Subsequent Event On October 9, 1998, the Company transferred all
assets, trademarks, service marks, patents,
contracts and similar rights to Frontline
Communications Corp., (the "Purchaser"). Pursuant
to the agreement, the Purchaser assumed up to
$60,348 in past due obligations of the Company.
Additionally, a two year noncompete agreement was
executed by the Company and all stockholders,
partners, owners, officers and directors of the
Company, as relating to the ownership, operations
of, or employment in an Internet service provider
or other web services company directly competing
with purchaser. In consideration thereof, the
Company received $100,000.
F-9
<PAGE>
Roxy Systems, Inc.
d/b/a Magic Carpet
Financial Statements
For the period ended September 30, 1998
<PAGE>
Roxy Systems, Inc.
Table of contents
Financial statements:
Balance sheet page 1
Statement of operations page 2
Statement of stockholders' deficit page 3
Statement of cash flows page 4
Notes to financial statements page 5
<PAGE>
Roxy Systems, Inc. d/b/a Magic Carpet
Balance Sheet
- - --------------------------------------------------------------------------------
September 30,
1998
-------------
(Unaudited)
ASSETS
Current:
Cash and cash equivalents $ 4,261
Accounts receivable, less allowance for doubtful accounts
of $10,000 20,255
---------
Total current assets 24,516
Equipment, net 22,938
Other assets 36,850
---------
TOTAL ASSETS $ 84,304
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current:
Notes payable $ --
Accounts payable and accrued expenses 75,686
Due to stockholder --
---------
Total current liabilities 75,686
---------
Notes payable-long term portion --
Total liabilities 75,686
Stockholders' deficit:
Capital stock 90,000
Accumulated (deficit) (81,382)
---------
Total stockholders' equity (deficit) 8,618
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 84,304
=========
See accompanying notes to financial statements. Page 1
<PAGE>
Roxy Systems, Inc. d/b/a Magic Carpet
Statements of Operations
- - --------------------------------------------------------------------------------
For the nine months
ended September 30,
------------------------
(Unaudited)
1998 1997
--------- ---------
Net sales $ 192,038 $ 133,172
Cost of sales 129,521 124,503
--------- ---------
Gross Profit 62,517 8,669
Operating expenses:
Selling, general and administrative 73,783 50,078
--------- ---------
Net loss $ (11,266) $ (41,409)
========= =========
See accompanying notes to financial statements. Page 2
<PAGE>
Roxy Systems, Inc. d/b/a Magic Carpet
Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
- - --------------------------------------------------------------------------------
Nine months
ended September 30,
-------------------
(Unaudited)
1998 1997
---- ----
Cash flow from operating activities:
Net Loss $ (1,215) $(41,409)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 6,175 0
Allowance for doubtful accounts 0 0
Officer salary contributed to capital 10,000 (12,062)
Changes in assets and liabilities:
Accounts receivable (17,569) (6,953)
Other assets 774 (124)
Accounts payable and accrued expenses 29,299 62,965
-------- --------
Net cash used by operating activities 27,464 2,417
Cash flows from investing activities:
Acquisition of equipment (7,343) (3,788)
-------- --------
Net cash used by operating activities (7,343) (3,788)
Cash flows from financing activities:
Repayments of stockholder and bank loans (15,860) (3,024)
-------- --------
Net cash used by financing activities (15,860) (3,024)
-------- --------
Net increase (decrease) in cash and cash equivalents: $ 4,261 $ (4,395)
Cash, beginning of period 0 4,622
-------- --------
Cash, end of period $ 4,261 $ 227
======== ========
See accompanying notes to financial statements Page 4
<PAGE>
Roxy Systems, Inc.
d/b/a Magic Carpet
Notes to Financial Statements
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Accordingly, they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements.
In the opinion of management, the accompanying unaudited financial statements
include all adjustments, consisting of normal recurring accruals, considered
necessary for the fair presentation of the results for interim periods.
Operating results for the nine months ended September 30, 1998 are not
necessarily indicative of the results to be expected for the full year ending
December 31, 1998.
<PAGE>
Frontline Communications Corp.,
WOWFactor, Inc. and Roxy Systems, Inc.
Unaudited Pro Forma Combined Financial Information
On October 9, 1998, Frontline Communications Corp. ( the Company ) acquired all
of the outstanding shares of common stock of WOWFactor, Inc. ( WOW ) and the
business and substantially all of the assets of Roxy Systems, Inc. ( Roxy )
The $ 1,050,000 purchase price for WOW which includes $ 50,000 for estimated
accrued acquisition costs , consisted of 10 shares of Series A Convertible
Preferred Stock of the Company, convertible on July 15, 1999 into common stock ,
par value $ .01 per share, having a market value of $ 1,000,000 on the
conversion date. The conversion feature provides for no more than 250,000 shares
of common stock to be issued. In case the market value of the Company's common
stock on July 15, 1999 is less than $ 3.00 per share or less than $ 4.00 per
share but more than $ 3.00 per share , the former shareholders of WOW can
exercise options granted to purchase up to 100,000 and 50,000 shares ,
respectively. The $ 190,000 purchase price for the business and substantially
all of the assets of Roxy included a $ 160,000 cash payment to Roxy and $ 30,000
of estimated accrued acquisition costs. The acquisitions have been accounted for
as a purchase with the results of WOW and Roxy to be included in the
consolidated financial statements of the Company from the date of acquisition.
The unaudited pro forma combined balance sheet as of September 30, 1998 assumes
that the acquisitions occurred on September 30, 1998 and includes the September
30, 1998 historical balance sheets of the Company, WOW and the acquired assets
of Roxy and adjusted for the pro forma effects of these acquisitions. The
unaudited pro forma combined statements of operations for the nine months ended
September 30, 1998 and the year ended December 31, 1997 assumes that the
acquisitions had occurred on January 1, 1997 and includes the historical
statements of operations of the Company, WOW and Roxy for the periods presented
adjusted for the pro forma effects of the acquistions.
The unaudited pro forma condensed combined financial statements have been
included as required and allowed by the rules of the Commission and are provided
for informational purposes only. The pro forma statements of operations do not
purport to be indicative of the results which would have been obtained if the
acquisitions had been effected on the date indicated or which may be obtained in
the future. The unaudited pro forma condensed combined statements of operations
are based on management's current estimate of the fair value of the securities
issued to the former owners of WOW.
The accompanying unaudited pro forma condensed combined financial statements
should be read in conjunction with the respective historical financial
statements of the Company and those of WOW and Roxy which are contained
elsewhere herein.
<PAGE>
Frontline Communications Corp., WOWFactor, Inc. and Roxy Systems, Inc.
Pro Forma Combined Balance Sheet
September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Frontline Roxy WOW Pro Forma Note Pro Forma
Comm. Systems, Inc Factor,Inc. Adjustments A Combined
<S> <C> <C> <C> <C> <C> <C>
Assets
Current :
Cash and cash equivalents $ 4,268,796 $ 129 $ (160,000) 1 $ 4,108,925
Accounts receivable, net 11,889 $ 30,255 42,144
Notes receivable 103,895 103,895
Prepaid expenses and other current assets 41,569 41,569
Deferred registration costs
Total current assets 4,426,149 30,255 129 (160,000) 1 4,296,533
Equipment, net 287,679 9,127 8,515 305,321
Other assets:
Intangibles, net 1,294,974 1 1,294,974
Other 49,062 49,062
Total Assets $ 4,762,890 $ 39,382 $ 8,644 $ 1,134,974 5,945,890
Liabilities and Stockholders' Equity
Current:
Notes payable $ 60,000 $ 60,000
Accounts payable and accrued expenses $ 65,838 43,000 80,000 188,838
Deferred revenue 35,692 35,692
Total current liabilities 101,530 103,000 80,000 284,530
Notes payable-long-term portion 168,600 168,600
Total liabilities 270,130 103,000 80,000 453,130
Net assets acquired 39,382 (39,382) --
Stockholders' Equity
Preferred stock 1,000,000 1 1,000,000
Common stock 32,480 657,263 (657,263) 1 32,480
Additional paid-in-capital 7,438,525 26,774 (26,774) 1 7,438,525
Accumulated deficit (2,709,632) (778,393) 778,393 1 (2,709,632)
Treasury stock (264,113) (264,113)
Stock subscriptions receivable (4,500) (4,500)
Total Stockholders' Equity 4,492,760 - (94,356) 1,094,356 5,492,760
Total Liabilities and Stockholders' Equity $ 4,762,890 $ 39,382 $ 8,644 1,134,974 5,945,890
</TABLE>
<PAGE>
Frontline Communications Corp., WOWFactor,Inc. and Roxy Systems, Inc.
Pro Forma Combined Statement of Operations
Nine Months Ended Sept. 30, 1998
( Unaudited )
<TABLE>
<CAPTION>
Frontline Roxy WOW Pro Forma Note Pro Forma
Comm. Systems, Inc. Factor,Inc. Adjustments A Combined
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 369,972 $ 192,037 $ 29,029 $ 591,038
Cost of revenues 339,137 129,521 3,293 471,951
Gross profit 30,835 62,516 25,736 119,087
-
Operating expenses: -
-
Selling, general & administrative 677,956 73,782 42,067 290,496 2,3 1,084,301
Total operating expenses 677,956 73,782 42,067 290,496 1,084,301
Loss from operations (647,121) (11,266) (16,331) (290,496) (965,214)
Other income ( expense)
Interest expense (27,912) (27,912)
Interest income 64,949 64,949
Other
Net loss $ (610,084) $ (11,266) $ (16,331) $ (290,496) $ (928,177)
Loss per share of common stock (0.25) (0.34)
Weighted average number of shares 2,471,077 2,721,077
</TABLE>
<PAGE>
Frontline Communications Corp., WOWFactor, Inc. and Roxy Systems, Inc.
Pro Forma Combined Statement of Operations
The Year Ended December 31, 1997
( Audited )
<TABLE>
<CAPTION>
Frontline Roxy WOW Pro Forma Note Pro Forma
Comm. Systems, Inc. Factor,Inc. Adjustments Combined
<S> <C> <C> <C> <C> <C>
Revenues $ 321,706 $ 180,569 $ 4,754 $ 507,029
Cost of revenues 251,928 157,542 47,676 457,146
Gross profit 69,778 23,027 (42,922) - 49,883
Operating expenses:
Selling, general & admin. 540,883 79,740 96,173 387,328 2,3 1,104,124
Non-cash compensation charge 1,537,000 234,000 1,771,000
Total operating expenses 2,077,883 79,740 330,173 387,328 2,875,124
Loss from operations (2,008,105) (56,713) (373,095) (387,328) (2,825,241)
Other income ( expense)
Interest expense (28,421) (28,421)
Interest income
Other (891) (891)
Net Loss $(2,037,417) $ (56,713) $ (373,095) $ (387,328) $(2,854,553)
Loss per share of common stock $ (1.67) $ (1.94)
Weighted average number of shares 1,218,000 1,468,000
</TABLE>
<PAGE>
Frontline Communications Corp.,
WOWFactor, Inc and Roxy Systems, Inc.
Unaudited Pro Forma Combined Financial Information
Note A
The pro forma adjustments to the unaudited pro forma condensed combined
financial statements are as follows:
1. To reflect issuance of $1,000,000 of preferred stock to the former owners
of WOW, a $ 160,000 payment for the assets of Roxy, and accrued
acquisition costs of approximately $ 80,000, the acquisition of
intangibles and elimination of WOW's equity accounts.
2. To reflect amortization of acquired intangibles, using estimated useful
lives of 3 to 5 years.
3. To adjust historical compensation of officer to compensation per
employment agreements entered into at date of acquisition.
4. The weighted average number of shares have been adjusted by 250,000 shares
to reflect the conversion of the preferred shares into common stock as if
the conversion had occurred on January 1, 1997.
