SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________________________
FORM 10-KSB
(Mark one)
[X] Annual report under section 13 or 15(d) of the Securities Exchange Act of
1934
For the fiscal year ended June 30, 2000
OR
[_] Transition report under section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition Period from _______ to _______
Commission file number 0-25389
Forefront, Inc.
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(Name of small business issuer in its charter)
Nevada 98-0199128
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
540 N. Tamiami Trail
Sarasota, Florida 34236
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (941) 954-1144
Securities registered under Section
12(b) of the Act:
(Title of Class) Name of exchange on which registered
None None
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Securities registered under
Section 12(g) of the Act: Common Stock, $0.0002 per share
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(Title of class)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.
Registrant's revenues for its most recent fiscal year: $NIL
The aggregate market value of the voting stock held by non-affiliates of the
registrant on September 29, 2000, computed by reference to the closing price of
that date, was $53,089,443, assuming solely for purposes of this calculation
that all directors and executive officers of the issuer are "affiliates." This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
On September 29, 2000, giving pro forma effect to an October 27, 2000
five-for-one forward stock split, the registrant had 75,002,930 shares of
Common Stock, par value $0.0002 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: None
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): Yes [ ] No [X]
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FOREFRONT, INC.
INDEX TO
ANNUAL REPORT ON FORM 10-KSB
FOR YEAR ENDED JUNE 30, 2000
PART I PAGE
<S> <C> <C>
Item 1 Description of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2 Description of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 4 Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . .. 14
PART II
Item 5 Market for Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . . 14
Item 6 Management's Discussion and Analysis of Financial Condition and Results of Operations . . . 15
Item 7 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Item 8 Changes In and Disagreements With Accountants on Accounting and Financial Disclosure . . . . 22
PART III
Item 9 Directors, Executive Officers, Promoters and Control Persons; Compliance With
Section 16(a) of the Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Item 10 Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Item 11 Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . 26
Item 12 Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . 27
Item 13 Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
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THE COMPANY
Forefront, Inc. (the "Company" or "Forefront"), a Nevada corporation, was formed
in July, 1998, under the name Anyox Resources Inc. The Company is a
development-stage company with its core business focused on the research and
development of new Web-based technologies. The Company also provides creative
production services in connection with developing online 30-second commercial
spot advertisements. Anyox Resources was a development-stage company engaged in
the exploration of minerals. On March 15, 2000, Anyox Resources entered into a
Share Exchange Agreement (the "Agreement") with Web Partners, Inc. ("WPI"), a
Florida corporation formed in September, 1998, and two of WPI's primary
shareholders, Wyly Wade and Mark Gray. The Agreement allowed Anyox Resources to
acquire WPI.
As a result of the Agreement, the management of WPI effectively took control of
Anyox Resources, and the two WPI principals, Mr. Wade and Mr. Gray, became major
shareholders of the Company. As a result of the merger, Anyox Resources changed
its name to Forefront, Inc. and its trading symbol from "ANYX" to "FFNT" to
reflect the decision to focus its business activities solely on the Web-based
technologies developed by WPI. The name change was effected through an
amendment and restatement of Anyox Resources' articles of incorporation and
bylaws by the board of directors and shareholders of Anyox Resources.
Based upon adoption of the amendment and restatement of the articles of
incorporation by the shareholders, the Company's board of directors created a
special class of preferred stock, entitled Class A Preferred Stock, consisting
of 200,000 shares that have the power, among other things, to control the
election of directors and any amendment of the Company's articles of
incorporation and bylaws. Mr. Wade and Mr. Gray each hold 100,000 shares of the
Class A Preferred Stock.
In order to transfer the remainder of the WPI shares to the Company, on May 25,
2000, the shareholders of WPI and Forefront Technologies, Inc., a wholly owned
subsidiary of the Company, approved an Agreement and Plan of Merger merging WPI
with and into Forefront Technologies. Upon the effective date of the merger,
WPI ceased to exist and all of its assets and liabilities became those of
Forefront Technologies. The overall plan called for each stockholder of WPI to
receive two (2) shares of the Company's stock for each one (1) share of WPI
stock that they own. The Company's shares issued in connection with the
acquisition of WPI are "restricted securities" subject to Rule 144 of the
Securities Act of 1933, as amended. All of the former WPI shareholders now hold
shares of Common Stock of the Company.
INDUSTRY BACKGROUND
Over the last several years, the marketplace has had high expectations for
business opportunities on the Internet. These expectations have been reflected
in the investments into the Internet made by traditional companies, and the
market capitalization of many new Web-based companies. The popularity of the
Internet has been well documented in recent years. The International Data
Corporation ("IDC") has estimated that there were over 51 million Web users in
the United States and over 97 million worldwide at the end of 1998. Since that
time the number has continued to grow. As a medium, it is the fastest growing
new medium in history reaching 50 million users in only five years. This is
compared to 10 years for cable TV, 13 years for broadcast TV and 38 years for
radio.
With an increasing number of users, the Internet is also gaining in importance
as a medium for advertising. Computer time is the leading activity that takes
people away from watching television, the currently preferred means used by
advertisers to reach an audience. Yet despite the rapidly growing Internet
audience, there are still barriers that have kept Internet advertising from
reaching its full potential. Marketers are still trying to gauge Internet
advertising's overall effectiveness, and to identify which techniques are most
effective.
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According to the Internet Advertising Bureau ("IAB"), in 1998, $201 billion was
spent on advertising in the United States on all types of media. Of that, only
$1.9 billion was spent on Internet advertising. While this number is currently
small in comparison to broadcast television ($39.5 billion), Internet
advertising has grown quickly from about $266 million in 1996 to its current
level. According to the IAB, for the second quarter of 1999, Internet
advertising revenues reached $934 million, marking the fourteenth consecutive
quarter of growth. These figures mark a 35% increase over the first quarter of
1999. The second quarter 1999 figures are a 97% increase from the second
quarter of 1998. At this level of growth, the Internet advertising industry is
on pace to reach $4 billion in annual spending for 1999. (Source: IAB Internet
Advertising Revenue Report, 1999 First-Quarter Results.) Still, this places the
Internet far behind the majority of sectors in the $200 billion advertising
industry, including magazines, cable TV and broadcast television. This raises
the possibility of tremendous remaining potential for Internet advertising.
The Internet is the first medium to promise an increased accountability as to
the effectiveness of an ad campaign. While tools for tracking such information
have improved, there is still no universal standard for measuring an audience.
Advertisers currently rely on a combination of three types of standardized
measurement tools to measure their return on investments and plan future
campaigns:
Site-centric - Site-based. Tracks site visitor activity when user
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clicks on an ad.
Ad-centric - Ad server-based. Allows advertisers to track
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effectiveness across multiple sites.
User-centric - Sample-based. Relies on panel-based sampling
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techniques.
Site-centric and Ad-centric reporting are both maintained by the publishers and
ad networks, which can be a conflict of interest. Thus, measurement auditing by
an independent third party becomes essential for verification. For reliable
auditing, it is essential to have established standards. To accomplish this, a
number of organizations have been formed to address this problem. One such
organization is FAST Forward (a committee born out of Future of Advertising
Stakeholders) which released the FAST Principles of Online Audience Measurement
in early 1999. In September, 1997, the IAB Media Measurement Task Force
produced a document titled "Metric and Methodology." Both propose guidelines
for the measurement of online advertising data.
Further reflecting the demand by advertisers for lessening the up-front risk of
Internet advertising is the popularity of hybrid pricing. Hybrid pricing
combines impression click-based pricing and performance-based compensation.
This provides online publishers with the up-front valuation of its audience and
with back-end revenue sharing. Advertisers also benefit by receiving discounted
up-front costs. This pricing structure may help bring new advertisers to the
Internet, who recognize the potential of Internet advertising, but who are not
yet comfortable with current methods of reaching Web users.
Companies with a presence on the Internet, but not engaged in e-commerce, rely
on advertising as their primary, if not only, source of Internet-generated
revenue. E-commerce companies also rely on advertising to supplement their
e-commerce sales. While on-line advertising has experienced tremendous growth
during the past several years, that growth has not translated into profits for
these companies. Many advertisers and agencies are not comfortable with current
methods for advertising via the Internet, nor available audience measurement
tools. Furthermore, results of the currently preferred method of advertising,
banner ads, have been inconclusive at best, and show major ineffectiveness at
worst. Advertisers are generally more comfortable with traditional means of
reaching their audience, especially through print, television and radio. Still,
Internet advertising is in its infancy, and is only beginning to find its true
potential.
INTERNET ADVERTISING TECHNOLOGIES / TECHNIQUES
Currently, there are a number of Internet advertising technologies or techniques
in use. The most prominent techniques are banner ads, sponsorship,
interstitials and emails. Banner ads are most prevalent. Emails to customers,
while the least employed technique, have been measured to be the most effective
in eliciting a response from the customers. The following are brief summaries
of each technology or technique:
Banner Ads. Banner ads are typically inch-high "banners" that are found on
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the top or bottom of a Web page. They can contain a company name, logos,
pictures and slogans. They can be static or animated with moving characters or
pictures. When a user clicks on the banner it takes the user to another
Web-site. Although they are the most commonly employed form of Internet
advertising, they are the least likely to elicit a response.
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Sponsorships. An advertiser may choose to "sponsor" a Web-site, helping
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the online publisher by funding the site in exchange for advertising. This
typically requires an up-front payment by the advertiser, whether or not there
is a sale generated by the advertising. Sponsorships provide a valuable
association between brand and content.
Interstitials. Interstitials are advertisements that appear as Web users
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switch between Web pages. Interstitials are the industries first answer to the
lack of audio and video in Internet advertising. However, interstitials have
grown out of favor with consumers as they may take as long as two minutes to
download. Current interstitials require substantial download time and therefore
may degrade a user's speed of receiving other Web content. Therefore, many
portals require such interstitial ads to be "click-based" where a user must
request the ad.
Email. Email is one of the cheapest and most effective methods of Internet
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advertising. Email provides for direct advertising to select customers. Yet,
emails only comprise a very small percentage of Internet advertising. This is
due to the intrusiveness of the email to consumers, and the resistance by
consumers to "spam" and clutter.
Others. Other forms of Internet advertising include superstitials, rich
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media expanding banners and affiliations. Superstitials are interstitials that
reduce download time by downloading to a Web user's browser's short-term memory.
Rich media banners include video and audio to bring information to the consumer
without leaving the current Web-site. Affiliate deals split an advertiser's
revenues with a Web-site operator in exchange for free advertising. Still,
these forms of advertising are restricted by there own disadvantages. For
instance, superstitials still require download time and move the Web user from
their original Web-site. Rich media banners require download time, cover
Web-site content, and have been reported to cause Web-sites to crash. (Source:
"Advertising that clicks", The Economist, October 9, 1999, pp. 71-73.)
THE COMPANY'S PRODUCTS AND SERVICES
The Company's technology toolkit fills the needs of both Internet companies and
advertisers. The Company's array of technologies was designed to deliver a
complete online advertising platform. The system is comprised of a 30-second
commercial for major brand advertisers, and a system of audience measurement and
commercial delivery verification. This platform provides familiar media
advertising tools for major brand managers, coupled with the interactivity of
the Internet.
CyberSpots are 30-second online, interactive-multimedia commercial spots, which
reach the audience quickly and with minimal interruptions using the Company's
Instant On User Interface technology. Delivery Verification Technology ("DVT")
allows for the most advanced feedback to measure the delivery of each
advertisement. By offering CyberSpots, Internet companies can provide effective
and measurable advertising to advertisers previously reluctant to participate in
Internet advertising. The Company's products and services help advertisers
reach Web users via a method more similar to traditional means of reaching the
audience, while being able to measure the results of the advertisement to a
degree not currently available by any other method.
The Company's Products
Instant On User Interface ("IOUi"). IOUi is a Web-based software technology
developed by the Company. Version 1.1 of the technology has been developed to
support popular browsers without the use of media players, plug-ins or software
attachments of any type, including the following platforms: HTML 3, HTML 4,
Perl, JAVA and JAVAScript. Management plans to develop Version 1.2 to support
popular browsers in concert with media players, including the following
platforms: Flash and SMIL. Version 1.3 is also in development and plans to
support XML, among other media enhancements.
The operating methodology allows a Web user to access specialized content in a
number of formats from a Web server with little or no delay across multiple
networks at most modem speeds (28.8 and above). One of the proprietary
applications of the IOUi technology is the CyberSpot.
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IOUi technology is a unique combination of existing Web technologies requiring
no specialized hardware, browser or player software. Deployment of content
utilizing IOUi requires no modification of standard PC, Macintosh or WebTV
platforms in order to receive "instant on" content delivery. The technology
lives solely on a proprietary CyberSpot server.
CyberSpots. CyberSpots are Web-based commercial spots, typically 30
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seconds in duration, although shorter or longer formats may be supported. The
commercials may be automatically launched in a number of applications, including
when a user clicks on a banner ad, or when a user enters a Web URL containing a
link to a CyberSpot server. Additionally, CyberSpot may be launched at any
point when a user must wait online, such as during an E-Commerce credit card
authorization or while down loading a file.
Commercials in beta testing loaded and commenced autoplay in less than two
seconds, with all modem speeds tested (28.8 or better), using popular browsers.
The CyberSpot technology empowers the advertiser (at the advertiser's option) to
take control of the user's browser for the duration of the commercial, making
play of the CyberSpot "uninterruptable". Should advertisers wish to allow users
to exit their CyberSpot commercial prior to completed play, the advertiser may
elect to enable a user exit button. Utilizing the IOUi technology, the Web-site
is downloaded in the background during the playback of a CyberSpot. This has
the net effect of allowing full use of the commercial playtime for site content
download and / or site navigation. The end result is the virtual elimination of
"world wide wait" delays online.
CyberSpot creative treatments for advertisers and/or site operators are produced
in a proprietary methodology. The commercials may be displayed in an array of
sizes and resolutions ranging up to full screen. Additionally, CyberSpots have
the ability to playback many sub-components, which may include certain types of
audio tracks including music.
Delivery Verification Technology ("DVT"). DVT is separate from the IOUi
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technology and the CyberSpot copyrighted commercial methodology. Developed by
the Company, DVT provides the first online advertising measurement system that
verifies audience reach and spot delivery. Television advertisers rely on
Nielsen / Arbitron audience measurement systems that are estimated from
electronically gathered survey samples. Print advertisers rely on audited
circulation distribution of periodicals without confirmation of specific ad
viewership. The CyberSpot DVT rises to the level of certified mail return
receipt confirmation. The technology operates via a return verification message
that is triggered from the online user's PC, Mac or WebTV once the CyberSpot has
been received and fully played.
DVT provides advertisers with reliable, real-time confirmation of audience reach
and spot delivery. The CyberSpot DVT allows multiple measurement points at the
commencement, completion and key measurement points throughout the CyberSpot
commercial. In essence, the CyberSpot DVT allows audience monitoring of spot
commercials on a scaleable level of detail.
The CyberSpot DVT relies on completed spot playback, not simply file receipt, to
trigger its proprietary return message system, giving advertisers complete
audience measurement and spot delivery verification.
Target Market and Distribution
Specific markets and client groups identified by the Company include advertising
agencies, advertising measurement companies, Internet portals, e-commerce
companies and consumer product companies with a desire to optimize their
Internet presence. The Company plans to market its technologies through
licensing agreements with companies that have existing sales and service
infrastructure. The Company does not plan to sell online advertising directly
to end-users or compete directly with its distribution channels.
Internet Advertising
The Company has developed unique CyberSpot sponsorship formats, which provide
the least intrusive user experience. Market research studies have demonstrated
increased ad retention from program sponsorship spots to be greater than other
Internet adverting media. Furthermore, online sponsorship, as a promotional
tool, has increasingly grown in recent years. Advantages to online sponsorship
include the following: (1) a lower cost alternative for companies primarily
seeking branding / awareness; (2) they are fixed, which results in a higher
possibility of ad exposure for the advertiser; and (3) they offer the advertiser
exclusivity and the right of first refusal for future opportunities.
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Traditional advertising agencies are currently in a rapid expansion of their
Internet advertising services. In her introductory address as the American
Association of Advertising Agencies' (AAAA), incoming Chairman, Shelly Lazarus,
called the Internet "the greatest new medium since television." Ms. Lazarus'
agency, Ogilvy & Mather Worldwide, spawned its own interactive media arm, Ogilvy
Interactive, which, according to Ms. Lazarus in the agencies' Annual Report,
grew 600% in 1998. Due to the integration of advertising mediums, Ogilvy
Interactive is Ogilvy's single fastest growing division. Other traditional
advertising agencies, including Young & Rubicam Inc., Cordiant Communications
Group PLC, and Grey Advertising, Inc., have reported significant acquisitions or
growth in their Internet advertising divisions. These companies are actively
pursuing opportunities to establish and grow their Internet advertising services
in order to provide their clients with an "integrated" advertising solution.
Internet advertising allows the agency to reach a mass-market while at the same
time providing a customizable pitch.
Web Boutique Firms
The traditional advertising agencies are not the only potential customers in
this field. Web-boutique firms, such as DoubleClick, 24/7 Media and Flycast
Communications, have established themselves as leading providers of Internet
advertising technology, and planning and tracking online media campaigns. While
these companies currently offer products that might compete with the Company,
deficiencies in current online advertising delivery and measurement may render
them potential customers of the Company's improved technology.
Advertising Measurement Companies
DVT attempts to track for advertisers the number of times their advertisement is
viewed. One of the main reasons advertisers are not spending more money on
online advertising is that they have not been able to get an accurate accounting
of ads delivered.
Some of the technological challenges facing the market result from the reliance
on server-based tracking. When Web users call up a page, they may not wait for
all ads and content to load. The user might never have seen an ad fully
displayed. A server tracking system would count the above example as a "hit" or
"page viewed". In other instances, content never arrives and appears as a
"server busy" on-screen message or simply locks up. Online advertisers have
constantly been dealing with the issue of ad delivery confirmation. Drop-off
rates are as high as 42% between ads that were served but never arrived at the
browser, according to a study by OgilvyOne and Thinking Media published in the
August-September 1999 issue of The Advertiser, the magazine of the Association
of National Advertisers. In addition, the confirmation of display duration is
another potentially important measure for online ads just as it is for
broadcast.
Another server-based tracking shortcoming is related to caching. Caching is the
local storage of recently viewed Web pages for faster access. When the user
wants to revisit a Web page, the browser doesn't need to retrieve the full page
from the Internet. Internet Service Provider's ("ISP's"), such as AOL,
regularly "cache" Web content and later serve the site to multiple users. This
process causes the underreporting of the number of times a viewer actually views
a Web page or an ad. The server-based technical approach to accurately
retrieving such data is not fully developed, leaving opportunities for existing
or new companies to introduce improved products.
The Company's DVT is a client-based tracking system. The Company believes it
provides a more reliable standard for audience measurement than the current
server-based systems. DVT licensees will be able to offer their clients
confirmation that Web pages, banner ads and CyberSpots have been fully
downloaded and displayed on each unique user's terminal. Furthermore, the DVT
measures pages that did not load on the user's desktop, measures those pages
that are cached, and tracks user interactivity with loaded Web pages using an
active message back technology. These real-time verifications can be
incorporated into a company's billing and accounting system, saving the company
the costs and time needed to bill its clients.
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Other DVT Uses
DVT also has potential commercial applications outside measuring the delivery of
advertisements to consumers. For example, DVT can be used to notify email
senders that an email has been delivered to the recipient's email address. This
is particularly applicable to email delivery outside an organization or email
provider. Another potential application for DVT involves fraud detection and
prevention. DVT can be used to monitor the loading of software and report back
to the developer that the software has been loaded on a particular computer.
The developer can then determine whether the software was reloaded on other
computers. DVT can also be used to determine if multiple copies of the same
licensed software are running at the same time. Finally, DVT may also be used
to verify copyright and content usage. For example, DVT can measure how many
times a licensed article has been loaded on a licensed site.
E-Commerce Companies
According to Forrester Research, Inc., Internet commerce in the trade of hard
goods will grow from $43 million in 1998 to $1.3 trillion by 2003, or an annual
growth rate of 99%. Currently, computing and electronics companies lead the
trade. However, these increases should be realized in all industries from cars
to utilities to food and agriculture.
Companies entering Internet commerce face two challenges: (1) the cost of
setting up and maintaining the site and (2) building the brand recognition to
draw customers to the site. The Company's technology toolkit can aid these
companies with their Internet commerce challenges.
Building the brand name must extend beyond the boundaries of the company's Web
site. The Company's products enable it to offer a cross-medium marketing
strategy that encompasses the customer response and advertising efficiency
measurements detailed in the above agency and measurement company descriptions.
Furthermore, online companies have unique advantages over other retailers.
First, Web users accessing an e-commerce site are typically looking for
information or making a purchase. For those looking for information, the
CyberSpots offer the best way to inform the consumer about the products using an
audio and visual message. These are particularly helpful in customer retention
of information, further enhanced by the fact that the customer sought out the
information, and is therefore more attentive to the message than the average
television viewer would be to a traditional commercial. Another advantage of
the online retailer is provided by the download times available while the
company performs such tasks as credit card verification. A company can further
develop its brand by providing to the customer information about new or related
products, or customer service information. The Company's measurement tools
enable it to monitor which products or services elicit the most responses.
These CyberSpots help the Company to target and broaden its product offerings,
increase sales, and promote repeat business through better service.
Part of the expense of setting up and maintaining an Internet commerce site is
tied to marketing costs. Aside from the Company's pricing structure that
enables it to limit its up-front risk and expense, there are unique revenue
opportunities offered by the CyberSpots. One way to recoup the costs of
Internet commerce would be to cross-market targeted products. For instance, an
airline makes a sale to a customer for two tickets to Aspen, Colorado. While
the airline is confirming the customer's credit card and frequent flier program
information, a cross-marketed CyberSpot plays to the customer promoting area
hotels or ski packages. This offers an e-commerce company the opportunity for
increased revenues to offset the cost of initiating Internet commerce.
Furthermore, the Company's advertising measurement tool enables it to monitor
whether the promotions were fully received, viewed and interacted with by a
consumer.
RESEARCH AND DEVELOPMENT
The Company has spent $1,200,000 on research and development over the past
fiscal year, working on several research and development projects that it
believes will revolutionize the Rich Media and Audit/Reporting fields. The
Company's research and development team has made improvements and advances that
will be integrated into future releases of both CyberSpot and DVT. The Company
believes that these improvements further the overall goals of higher quality and
smaller file size that the Company has achieved with the release of CyberSpot
and DVT 2.0.
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SALES AND MARKETING
The Company had limited activity prior to entering into the Share Exchange
Agreement with Web Partners, Inc. in March of this year. The sales and
marketing strategies discussed here relate to Forefront Technologies, Inc.
(formerly Web Partners, Inc.) a wholly owned subsidiary of Forefront, Inc.
CyberSpot was the first technology ready to be marketed. Initially, in the fall
of 1999, the marketing focus was on portals and advertising agencies. Although
there was considerable interest in the CyberSpot technology, reticence was
recognized and it became apparent that to effectively market CyberSpot, evidence
of audience response would have to be documented. The Company developed Pilot
Agreements with several companies to beta test CyberSpot and prove the
effectiveness of the product. Beta Testing evidence showed CyberSpot broke
records in Internet advertising click through rates. Product exposure through
print advertising, and trade shows as well as networking for domestic and
international business relationships has resulted in the expansion of the
marketing focus to include wireless and email opportunities. The Company
expanded the sales and marketing efforts to include a second product, Delivery
Verification Technology (DVT). Considerable time and energy has been invested
in developing a sales and marketing strategy to move the company beyond
the development stage to the deployment stage.
BUSINESS DEVELOPMENT STRATEGY
The Company believes that favorable product reviews and word-of-mouth among
creative, sales, marketing, and Internet professionals are critical in creating
greater awareness and commercial acceptance of its products. The Company
promotes its products principally through ongoing contacts with industry press,
analysts, and participation in trade shows. These efforts typically include
close contact with art and graphics professionals to generate increased
awareness and to obtain feedback on the features and functionality of its
products. In addition, the Company seeks to generate awareness of its products
through selective advertising in industry publications.
The Company will continue to develop business relationships overseas: including
Japan, South Africa, and Europe. The Company believes that the creation of a
reseller program will allow for the expansion of CyberSpot distribution while
keeping sales, general and administrative cost low, and be a compliment to the
direct sales effort. In addition, the Company will use aggressive public
relations and publicity campaigns to expand awareness of Forefront, CyberSpot
and to compliment the expanded advertising effort. As the Company develops
contracts and business relationships with e-commerce companies, B2B, and B2C,
the Company will continue to refine sales and marketing models as needed to meet
client needs.
POTENTIAL REVENUE-DRIVERS
The Company intends to generate revenue from licensing fees, creative /
production fees and a technology license-based on a cost-per-play model or
cost-per-action model. The Company plans to produce and distribute CyberSpot
production software that will enable global production of CyberSpots by
advertisers, agencies and web development firms. The Company intends to license
its family of technologies within the U.S., Asia and Europe.
The Company's revenue model currently focuses on four distinct revenue-drivers:
(1) the development of CyberSpot ads, (2) the delivery of CyberSpot ads, (3)
CyberSpot enterprise licensing and (4) DVT licensing. The following sections
provide more specific information on each revenue-driver.
Ad Development Fees / Creative Services. Clients are charged an hourly
-------------------------------------------
rate plus materials to build CyberSpot ads. This is standard practice in the
advertising industry. The estimated cost to an advertiser for the development
of a CyberSpot ad ranges from $4000 to 30,000. With the development of the
Company's proprietary CyberSpot production software, advertising agencies and
development firms may bring production in-house.
CyberSpot Delivery. In addition to the development fee, advertisers are
-------------------
responsible for a per-play license fee, or a cost-per-action license fee. The
per-play fee is volume sensitive.
CyberSpot Licensing. One of the Company's strategies involves licensing
--------------------
its technology toolkit to e-commerce groups, ad agencies, web developers,
portals, etc. These groups can use the technology to develop customized
CyberSpots regarding their sites, products and organizations. For example, an
automobile manufacturer can create a CyberSpot that allows a Web surfer to
instantly download and start playing video-like images, audio and text
information on a particular car. The CyberSpot can also be made interactive,
thus allowing the surfer to change colors, interiors and other options. The
Company intends to distribute this product without charge primarily through
the Internet and to license each user. The Company also intends to charge the
licensee on a per play model. CyberSpots produced by licensees will be hosted
by the Company or its strategic ad delivery partner. The Company also intends
to provide product training and technical support to licensees. The Company
does not currently plan to sell the toolkit through retail channels.
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DVT Industry Licensing. DVT has begun to develop into a stand-alone
------------------------
product. The Company has received requests for information from several
audience measurement companies, including Nielsen Media Research, Arbitron and
Media Metrix. However, it is too early in the process to ascertain the eventual
outcome of these discussions. In order to provide the complete solution that
the advertisers need, the Company intends to license the DVT technology to one
or two major measurement companies such as Nielsen Media Research, Arbitron or
Media Metrix. Combining DVT with these type organizations and their extensive
measurement backgrounds and infrastructure could position DVT as the standard
for online advertising measurement.
The Company anticipates that the DVT license agreements will include a
technology transfer fee plus an ongoing royalty. The royalty will be based on
either a per measurement occurrence or a percentage of applicable revenues. The
Company's projections currently do not include any revenue from potential DVT
Licensing.
COMPETITION
The Company's competition in the online advertising industry comes from three
primary groups: (1) rich media companies, (2) advertisement delivery / sales
companies and (3) advertisement measurement companies. This is a young industry
with a majority of its players being formed within the last two to three years.
The growth of this industry has created opportunities for media and technology
companies. Some of these companies are developing and testing a number of new
banner advertising technologies, which are designed to make the traditional
banner ad more flexible, advanced and effective. Generally referred to as "rich
media," these ads incorporate an expanding array of animations, audio, pull down
menus, pop-up boxes and interactivity. While some companies are developing this
new banner technology, other companies are focusing on ad outsourcing and
placement services and still others are creating new technologies to better
track Internet advertisements.
Rich Media
The advertisement industry defines rich media as messages that contain more
sophisticated programming than the "plain-vanilla" banner ads. The most popular
form of rich media is Java applets, which can be read by browsers that are used
by more than 90% of the Web users. Less than 0.5% of Web users surveyed said
that they clicked on banner ads, while rich media banners with sound, 3-D
graphics and interactive capabilities have experienced up to 15% click-through
rates, according to a recent IAB survey.
The greatest problems experienced with rich media advertisements are that they
are slow and unreliable, which keeps many Web sites from running rich media
advertisements. Some top sites still will not accept rich media, and at least
half of the top sites still refuse to accept rich media ads from third-party ad
servers such as DoubleClick, 24/7 Media and CMGI's AdSmart. ZDNet and
EarthWeb's Developer sites insist on serving their own rich media ads, and CNet
refuses to take any Java ads at all, according to Valandra.
Yahoo! is another site that has been reluctant in accepting rich media ads,
including those with Shockwave technology. The portal does accept ads with
HTML, JAVAScript and JPEG images, and puts Flash, Enliven and Intervu ads on
selected areas of its site.
Audience research that has found that most of the area's visitors have the
capabilities to experience the ads. However, rich media technologies offer more
capability than what the existing networks can handle, says Jim Nail, an analyst
at Forrester Research. Rich media companies will have to find solutions to deal
with the limitations of existing networks for the next several years. In fact,
the new broadband technology will only reach about a quarter of the Internet
population by 2004.
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Meanwhile, many advertising companies are working to improve rich media
solutions so that even Web surfers with a 28.8-Kbps modem connection can
download the ads fast and reliably. Below are some of the Company's competitors
who are making efforts to do just that:
Unicast's Superstitial(TM) - is an advertisement that downloads the rich
-----------------------
media content onto a viewer's hard-drive cache while a Web page is being viewed.
When the viewer clicks on one of the internal links on the site, a rich media ad
(e.g., a movie preview) will pop up and read its content from the cache. Once
the ad has finished playing, the content is flushed out of the cache. This
player-based technology requires substantial download time and is in its second
year of beta testing. Superstitial(TM) has been tested by a number of portals
and, due to the lengthy download time, is not automatically playable, but is
available only when a user "requests" a commercial. (www.unicast.com)
---------------
iWeb's iNotes(TM) - has patent-pending technology enabling ISP's to deliver
-------------
rich media advertisements, e-commerce announcements and customer service
messages directly to subscribers' screens whenever and wherever they are online,
irrespective of the Web site they are visiting. The technology does not require
the download or installation of application software. Since iNotes(TM) messages
do not depend on the Web page being viewed, ISP's and advertisers can directly
target their audiences based on demographics and geography. (www.iweb.com)
------------
Enliven(R) - is a rich media advertisement that utilizes Macromedia(R)
-------
Director(R) to provide multimedia and interactivity capabilities including
animation, sound and video, all within the host site. Enliven(R) uses streaming
media, which downloads the beginning of the file, starts playback and then
streams the remainder of the file in the background while the file continues to
play. (www.enliven.com)
---------------
Advertisement Delivery / Sales
Advertisement delivery / sales companies manage their customer's online
advertising and marketing efforts from start to finish. These companies
maintain a sales force, deliver targeted advertising to their client's site,
control an advertiser's reach and frequency, deliver reports of advertiser
performance, and manage invoicing and payment. By alleviating these efforts,
companies can focus on developing and maintaining their sites and other aspects
of their business. A majority of smaller companies do not have the resources
available to perform an effective sales operation, therefore advertisement
delivery / sales companies have the ability to increase their customer's site
revenues and profits through broadening the ability to reach potential
advertisers. Below are brief descriptions of some of the companies who perform
these services:
DoubleClick, Inc. - provides comprehensive Internet advertising for
-----------------
marketers and Web publishers by selling advertising space on approximately 1,300
Web sites and delivers those ads using its Dynamic Advertising Reporting and
Targeting ("DART") patented technology. DoubleClick's DART tracks and reports
audience behavior to predict which ads will get the most response and makes sure
potential buyers see ads they're likely to find appealing. The technology also
provides detailed reports of Web traffic and ad effectiveness for both
advertisers and Web publishers. By combining technology and media expertise,
DoubleClick centralizes planning, execution, control, tracking and reporting for
online media campaigns. (www.doubleclick.com)
---------------------
24/7 Media, Inc. - is an Internet advertiser and marketer who provides
-----------------
online ad outsourcing services to Web site operators and online ad placement
services to advertisers. More than 300 Web sites, which form the 24/7 Network,
contract exclusively with 24/7 Media to outsource their online advertising
functions. The company also provides online ad outsourcing to ContentZone, a
group of more than 2,500 small to medium-sized Web sites. Furthermore,
advertisers and ad agencies contract 24/7 Media to create online ad programs,
which are carried by members of its 24/7 Network and ContentZone. The company
offers banner ads, direct email, sponsorships, promotions and e-commerce
services. (www.247media.com)
----------------
Advertising Measurement Companies
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The majority of the companies currently offering Internet advertising
verification use server-based tracking systems. However, new technologies are
being developed which now allow advertisers to better track the results of
Internet advertising. Specifically, Thinking Media now offers a client-based
system that could directly compete with the Company's DVT. Below are brief
descriptions of some of the companies who have developed tracking technology:
Thinking Media's ActiveTrack(SM) - uses a patented technique called
------------------------------
"Client-Side Tracking." This real-time tracking and reporting system confirms
the delivery of the ad to the browser (not the server), the duration of the ad's
display, and other key measurements. ActiveTrack(SM) uses an executable file,
or program, which loads into the browser along with the ad and vanishes when the
viewer leaves the page on which the ad appears. ABC Interactive confirmed that
the ActiveTrack(SM) technology works and that the data delivered and measured by
Thinking Media is auditable. (www.thethinkingmedia.com)
------------------------
Nielsen / NetRatings - audience measurement and analysis service is jointly
--------------------
offered by Nielsen Media Research and NetRatings, Inc. Nielsen // NetRatings'
audience tracking technology provides the ability to automatically measure ad
banner viewing and clicking (BannerTrack), e-commerce activity (CommerceTrack),
cached page views (CacheTrack), page loading times, and user demographics.
(www.nielsen-netratings.com)
--------------------------
The Company's Competitive Advantage
The most frequently used form of online advertising is the inch high banner ad.
Banner ads can be either static or animated and, when clicked, take the user to
another Web site. While banner ads are the most ubiquitous form of advertising,
they are also the least likely to elicit a response with "click-through" rates
averaging less than 0.5%. Banner content is limited to its inch high container,
while CyberSpots are full screen dynamic, multimedia Web commercials that load
and play in less than two seconds.
Other forms of online advertising currently used include rich media
superstitials, interstitials and expanding banners and sponsorship. Rich media
ads account for less than 5% of all online advertisements and are generally
considered slow to download and unreliable. Furthermore, certain top sites will
not accept rich media ads or will place them on a special page. CyberSpot
incorporates all of the advantages of the rich media form including video-like
images, audio and interactivity and none of the disadvantages. Since CyberSpots
load and commence play in less than two seconds, there is no "world wide wait"
for the ad to be played. Furthermore, the small "foot print" of CyberSpot, in
terms of file size, allows for greater speed and reliability without degrading
the content providers Web page load time. The Company has also developed unique
CyberSpot sponsorship formats that will provide the least intrusive user
experience.
INTELLECTUAL PROPERTY RIGHTS
The Company has filed for U.S. patent protection for a family of technologies
that include its IOUi, CyberSpots, and DVT technologies. The Company relies on
a combination of copyright and trademark laws, trade secrets, software security
measures, license agreements and nondisclosure agreements to protect its
proprietary rights. Much of the Company's proprietary information may not be
secured by means of patent, copyright, domain registration, or trade or service
mark.
The Company's ability to enforce its rights will be critical to its success once
it has established an identity and reputation with advertisers and Internet
users.
To date, the Company has not received notification that its services or products
infringe the proprietary rights of third parties. Third parties, however, could
make such claims of infringement in the future. The Company cannot be certain
that others will not develop substantially equivalent or superseding proprietary
technology, or that equivalent services will not be marketed in competition with
its services, thereby substantially reducing the value of its proprietary
rights. Furthermore, there can be no assurance that any confidentiality
agreements between the Company and its employees or any license agreements with
its customers will provide meaningful protection for its proprietary information
in the event of any unauthorized use or disclosure of such proprietary
information.
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EMPLOYEES
As of June 30, 2000, the Company had thirty-one employees and four independent
contractors. Of these employees, one was classified as an executive officer.
None of the employees are subject to a collective bargaining agreement.
Subsequent to the fiscal year end, June 30, 2000, the Company has broadened its
marketing strategy from direct selling to include resellers. This change in
strategy, as well as cash flow issues, resulted in a reduction in support
personnel. Additionally, due to funding issues, several technical personnel
have voluntarily resigned. Until funding is secured, the Company will operate
with a skeleton staff of ten full-time employees. When funding is secured, the
Company will rehire the technical staff and two additional support personnel.
ITEM 2. DESCRIPTION OF PROPERTY
-----------------------------------
The Company leases its corporate headquarters located at 540 N. Tamiami Trail,
Sarasota, Florida, 34236. Telephone number (941) 954-1144. The lease commenced
on November 15, 1999, and was scheduled to expire on November 14, 2000, however,
funding constraints resulted in non-payment of the lease, and the lease was
terminated effective July 28, 2000. The Company currently leases approximately
6,700 square feet at an average monthly rent of approximately $11,000 on a
month-to-month basis. The Company is currently involved in an eviction
proceeding, which is discussed more thoroughly in Item 3 below. The Company
believes that these facilities will not be suitable for the operation of its
business for the near future and is exploring new options. The location could be
replaced without significant disruption to business operations. Due to funding
issues, the facilities are not insured against perils commonly covered by
business insurance policies.
ITEM 3. LEGAL PROCEEDINGS
----------------------------
The Company is not presently a party to any material pending legal or
administrative proceedings, and its property is not subject to any such
proceedings, except as described below, and as may be incurred in the ordinary
course of business.
The Company is involved in an eviction proceeding brought by its landlord (540
North Trail Corporation) for non-payment of rents due under the lease with
Forefront Technologies, Inc. (formerly Web Partners, Inc.). The Eviction
Summons was served on October 11, 2000. A stipulation was filed on October 19,
2000, and the Company has received an extension from the landlord on the writ of
possession. As of this filing approximately $63,000 is past due and represents
six months of rent.
An investor who provided $500,000 in bridge loans to the Company has delivered a
notice of default and demand for payment of the bridge loans. According to
their terms, the bridge loans were due in March 2000. Although the Company may
have counterclaims against the investor, any litigation would be costly and
distract the Company's management from its primary task of running the business.
An investor who bought shares in the stock market has verbally alleged that one
of the Company's founders misrepresented the Company's prospects to induce him
to purchase the Company's common stock. If the investor follows through on a
verbal threat to initiate a lawsuit, the Company would be forced to defend the
litigation, which would be costly and distract the Company's management from its
primary task of running the business.
An investor who bought shares in the stock market has threatened to bring a
lawsuit against the Company if the Company moves from the OTC Bulletin Board to
the Pink Sheets. If the investor follows through on a verbal threat to initiate
a lawsuit, the Company would be forced to defend the litigation, which would be
costly and distract the Company's management from its primary task of running
the business.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------------------------
The Company called a special meeting of shareholders for June 5, 2000. The
shareholders were requested to approve the amended and restated articles of
incorporation, which included the following changes to the existing articles of
incorporation:
1. Changed the Company's name from Anyox Resources Inc. to Forefront, Inc;
2. Created blank-check preferred stock;
3. Created staggered terms for directors of the Company;
4. Limited removal of directors to the annual meeting of shareholders or Board
action; and
5. Limited the authority to call a special meeting to the Board of Directors.
The shareholders also were requested to ratify the Board of Directors' selection
of Christopher, Smith, Leonard, Bristow, Stanell & Wells, P.A., as independent
auditors of the Company for the fiscal year ended June 30, 2000.
The above actions were taken on May 25, 2000 by written consent of shareholders
after notice was given to the shareholders through a proxy statement filed with
the Securities and Exchange Commission on April 25, 2000. The actions were
consented to by 10,500,000 out of 20,028,500 shares.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
-------------------------------------------------------------------------
The Company's common stock initially began trading on the Over-the-Counter
Bulletin Board (OTC-BB) under the symbol "ANYX" on February 24, 2000. The
Company's name change from Anyox Resources to Forefront, Inc. was effective May
30, 2000, and the Company's common stock began trading under its new symbol
"FFNT" on June 6, 2000. The first table sets forth the range of the high and
low bid prices for the first quarter, covering the period of February 24, 2000
through March 31, 2000, as quoted by the Nasdaq Trading and Market Services.
The second table sets forth the range of high and low sales prices of the
Company's common stock, as quoted by FinancialWeb.com for the second quarter,
covering the period of April 1, 2000 to June 30, 2000. All figures included in
the table have been divided by five to reflect the five for one forward stock
split, which occurred on October 27, 2000.
High Low
---------------------
2/24/00 - 3/31/00 $ 3.4625 $1.25
High Low
---------------------
4/1/00 - 6/30/00 $ 2.850 $0.45
On June 30, 2000, the Company's common stock was held by approximately eighty
four shareholders of record and for an indeterminate number of investors through
nominee or street name accounts with brokers.
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The Company has not paid dividends in prior years and has no plans to pay
dividends in the near future. Any payment of dividends would depend upon the
Company's pattern of growth, profitability, financial condition, and such other
factors as the Board of Directors may deem relevant.
RECENT SALES OF UNREGISTERED SECURITIES
In March 2000, the Company concluded a private placement offering of its Common
Stock. On completion of the offering, a total of 2,250,000 shares of its Common
Stock were issued at $0.85 per share for total proceeds of $1,912,500.00. The
Company believes the offer and sale of the Common Stock were exempt from
registration under Rule 506 or Regulation D and / or Regulation S of the
Securities Act of 1933, as amended (the "Act"). All of the investors were
accredited investors who reside outside of the United States.
In March 2000, the Company entered into a Share Exchange Agreement with Web
Partners, Inc. ("WPI") and two of its primary shareholders, (Messrs, Gray and
Wade). The Agreement provided for the Company to acquire WPI. Under the
Agreement, Messrs. Gray and Wade each exchanged 1,000,000 shares of their WPI
stock for 2,000,000 shares of restricted common stock of the Company (4,000,000
total shares). The transaction was exempt from registration under Rule 506 of
Regulation D of the Act.
In May 2000, as part of the Share Exchange Agreement and Agreement and Plan of
Merger between the Company and WPI, the Company exchanged its Common Stock for
the remaining Common Stock of WPI. Each share of WPI was exchanged for two
shares of the Company. The Company issued a total of 6,947,254 shares of common
stock to former shareholders of WPI (including Messrs. Gray and Wade). The
offer and issuance was exempt from registration under Rule 506 of Regulation D
of the Act.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
-------------------------------------------------
This Form 10-KSB contains forward-looking statements. The words "anticipate",
"believe", "expect", "plan", "intend", "estimate", "project", "could", "may",
"foresee", and similar expressions identify forward-looking statements that
involve risks and uncertainties. You should not place undue reliance on forward
looking statements in this Form 10-KSB because of their inherent uncertainty.
The following discussion and analysis should be read in conjunction with the
Financial Statements and Notes thereto and other financial information included
in this Form 10-KSB. Actual results could differ materially from the results
discussed in the forward-looking statements.
PLAN OF OPERATION -BACKGROUND
Forefront, Inc. (the "Company"), was formerly named Anyox Resources, Inc.
("Anyox"). Anyox, a Nevada corporation, was formed in 1998 and operated as an
early development stage company until March, 2000 when it acquired 57% of Web
Partners, Inc. ("WPI"), a Florida corporation. The remaining 43% minority
interest was subsequently acquired in May 2000. At that time, WPI was merged
into a subsidiary of Anyox; Forefront Technologies, Inc. ("Forefront Tech")
which took on the assets, liabilities and business of WPI. Anyox changed its
name to Forefront, Inc. At that time, Forefront Tech (formerly WPI) was an
early development stage company, which was formed in September 1998 and began
operations in August 1999. Forefront Tech's core business is focused on the
research and development of new web-based technologies. Forefront Tech also
provides creative production services in connection with developing online
30-second commercial spot advertisements. Neither business unit has had any
revenue to date. Forefront Tech had accumulated approximately $4,517,839 in
deficits through June 30, 2000. Due to minority interest accounting, the
Company reported only $2,014,224 of this accumulated deficit at June 30, 2000.
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The nature of these deficits is discussed in the results of operations section
below. Forefront Tech's technology toolkit is designed to deliver a complete
online advertising platform. The toolkit is comprised of a 30-second on-line
commercial spot system, called a CyberSpot, and an audience measurement and
commercial delivery verification system, called Delivery Verification Technology
("DVT"). CyberSpots are Web-based interactive multi-media commercial spots.
Forefront Tech intends to generate revenue from licensing fees, creative /
production fees and a technology license based on a cost-per-play model.
Forefront Tech plans to produce and distribute CyberSpot production software
that will enable global production of CyberSpots by advertisers, agencies and
web development firms. Forefront Tech plans to license its family of
technologies within the U.S., Asia and Europe.
Forefront Tech's revenue model currently focuses on four distinct revenue
drivers: (1) the development of CyberSpot ads; (2) the delivery of CyberSpot
ads; (3) CyberSpot enterprise licensing; and (4) DVT licensing. Each revenue
driver has associated variable expenses. Ad production variable costs are
comprised entirely of human resources. A certain number of personnel are needed
to produce and test each ad. DVT variable costs are also comprised entirely of
human resources. The DVT team will be responsible for marketing the DVT
technology and identifying additional applications for the technology. The
CyberSpot per play variable cost is comprised of the fee charged by the ad
delivery strategic partner. Development of the toolkit is the largest expense
item included in the operating expenses. Executive and operational team salaries
and benefits, CyberSpot licensee technical support, legal fees and advertising
also account for a significant portion of the operating expenses.
RESULTS OF OPERATIONS:
REVENUE
The Company was involved in the exploration and development of mineral
properties. Since inception, the property has generated no revenue and the
property was never developed because of the lack of financing. The Company's
future revenue stream is based on its 100% owned subsidiary Forefront Tech.
Through June 30, 2000, Forefront Tech has recognized no revenue but has
contracts, orders, and letters of intent from customers. In addition, Forefront
Tech is presently producing commercial spot advertisements that may generate
future revenue. Revenue recognition in the final quarter of calendar year 2000
and beyond will depend upon the status of the projects at that time and the
applicable revenue recognition accounting standards.
EXPENSES
For the year ended June 30, 2000, the Company expended approximately $4,500,000
compared to spending of $20,000 for the period July 13, 1998 (inception) through
June 30, 1999. During both periods the expenses were administrative in nature.
On an ongoing basis, the Company expects to incur expenses typical to an OTC
Bulletin Board entity, including accounting fees, legal fees, filing fees and
transfer agent fees. The Company has no full time employees and is managed on a
day to day basis with staff from Forefront Tech, with Forefront Tech absorbing
all personnel and indirect costs.
The $4,500,000 amount has been reduced by the minority interest for Forefront
Tech (formerly WPI) shareholders other than the Company, of $2,500,000. Although
WPI was organized in 1998, it did not start meaningful operations until July
1999. Since that time, some of the major spending areas have been advertising
expenses of $162,000 and other selling, general, and administrative expenses of
$2,500,000, research and development cost approximated $1,200,000 and
depreciation and amortization $624,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company and Forefront Tech (formerly WPI) individually financed their
operations to date with a series of Regulation D offerings of their respective
shares of capital stock, generally for cash. The combined operations had net
working capital deficit of $1,770,000 at June 30, 2000. The current liabilities
of $1,851,000 at June 30, 2000, include $500,000 of bridge financing from a
shareholder group, $106,000 of bridge financing from two company founders, and
accounts payable of $826,733. One portion of the accounts payable, $318,243 at
June 30, 2000, is payable to a Forefront Tech consulting firm founded by a
director of the Company. This consulting has been in the areas typical to a
16
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development stage company and has included assistance with business plan
development, pricing models, and intellectual property. These services were
contracted for in the ordinary course of business, prior to the director being
appointed to the Company's board of directors, and management believes the
pricing and terms were as favorable as that which could have been obtained from
an independent third party.
The Company's estimated monthly cash requirements approximate $275,000. This
amount may decrease as revenue is generated. However, like most other
development stage companies, Forefront Tech and the Company may not generate
cash from operations for a number of quarters, if at all. The Company
experienced severe cash flow deficiencies starting in June 2000 and effectively
ran out of money during the summer.
As discussed in more detail under "Risk Factors", the Company is in immediate
need of capital due to significant cash flow deficiency and may not continue as
a going concern. The Company has no cash to run its operations. It has built
up an additional estimated $750,000 of past due payroll and vendor liabilities
since June 30, 2000. As discussed in the "Properties" section, the company is
under an eviction notice for its corporate headquarters. If the Company is
evicted, it expects to relocate with minimal impact to operations, providing
there is cash available to fund the relocation. In short, the Company requires
an immediate cash infusion or may have to suspend operations, with one
alternative being to seek protection under the appropriate Federal Bankruptcy
procedures. Please read the Risk Factors below.
In recognition of this issue, the Company is continually searching for sources
of additional financing and pursuing venture capital investors. Although the
competition for funding is strong, the Company believes it has unique,
protectable technology. It also believes its public status will be appealing
for potential venture capital investors to execute their respective exit
strategies. Should the Company be unable to continue as a going concern, the
assets and liabilities listed in the accompanying financial statements would
require restatement on a liquidation basis which would differ materially from
the values as a going concern.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS No. 133). SFAS No. 133 requires companies to recognize all
derivatives contracts as either assets or liabilities in the balance sheet and
to measure them at fair value. If certain conditions are met, a derivative may
be specifically designated as a hedge, the objective of which is to match the
timing of gain or loss recognition on the hedging derivative with the
recognition of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii) the earnings effect
of the hedged forecasted transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized in income in the period of
change. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000.
Historically, the Company has not entered into derivatives contracts either to
hedge existing risks or for speculative purposes. Accordingly, the Company does
not expect adoption of the new standard on January 1, 2001 to affect its
financial statements.
In December 1999, the SEC staff released Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 provides
interpretive guidance on the recognition, presentation and disclosure of revenue
in the financial statements. SAB 101 must be applied to the financial
statements no later than the quarter ending September 30, 2000. The Company
does not believe that the adoption of SAB 101 will have a material affect on the
Company's financial results.
In March 2000, the Financial Accounting Standards Board issued Interpretation
No. 44 ("FIN 44") Accounting for Certain Transactions Involving Stock
Compensation, an Interpretation of APB Opinion No. 25. FIN 44 clarifies the
application of APB No. 25 for (a) the definition of employee for purposes of
applying APB No. 25, (b) the criteria for determining whether a plan qualifies
as a non-compensatory plan, (c) the accounting consequences of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 1, 2000.
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In March 2000, EITF 00-2 "Accounting for Web Site Development Costs" was
released. EITF 00-2 provides guidance on how an entity should account for costs
involved in such areas as planning, developing software to operate the web site,
graphics, content, and operating expenses. EITF 00-2 is effective for web site
development costs incurred for fiscal quarters beginning after June 30, 2000.
STATUS OF OPERATIONS
The Company has signed four reseller agreements to distribute CyberSpots to
clients. The CyberSpots will create revenue for the Company in three ways: 1)
CyberSpot creative fees; 2) Charges per clicks or number of times CyberSpot
plays; and 3) Charges for customer responses or cost per action model.
RISK FACTORS
Shareholders and prospective purchasers of the Company's Common Stock should
carefully consider the following risk factors in addition to the other
information appearing in this Annual Report on Form 10-KSB.
IF THE COMPANY ELECTS TO DECLARE BANKRUPTCY OR IS FORCED INTO BANKRUPTCY,
SHAREHOLDERS MAY LOSE THEIR ENTIRE INVESTMENT.
Because Forefront has no cash to run its operations and has significant
outstanding obligations, it may elect to declare bankruptcy or be forced into
bankruptcy. If the Company goes into Chapter 11, existing shareholder
investments may be diluted substantially or be completely lost through
satisfaction of creditor claims. If a Chapter 11 reorganization is not
successful, the Company may be forced into Chapter 7, in which case shareholders
may lose their investment completely.
Industry Risks
THE COMPANY'S ABILITY TO GENERATE REVENUE DEPENDS UPON THE USE OF THE
INTERNET AND THE COMPANY'S ABILITY TO PROVIDE A USEFUL PRODUCT.
18
<PAGE>
The Internet promotes and is a product of rapidly changing technology. New
technologies, standards and customer demands may make the technology currently
relied on for Internet advertising obsolete. Changes in technology and
protocols may require additional expenditures to adapt products to the new
marketplace. Software that filters the information and graphics presented to
Web users may be further developed, requiring additional product updates and
advancements. Furthermore, Internet companies depend on the reliability of the
Internet infrastructure. Significant breakdowns in the Internet infrastructure
might lower confidence in the medium and adversely affect the industry.
There are other technological risks to consider as well. Concerns over the
fallibility of information technology resources are an ever-present reality. As
CyberSpots and DVT become more widely used, there is always the issue of
maintaining the servers to handle projected advertising volume. Finally, as
Internet user tracking becomes more developed, concerns over security may cause
regulators to place certain restrictions on this technology. Until, and if, the
Company is granted patent protection for its technology there will continue to
be the risk that a competitor could reverse engineer its technology.
The Internet may not be able to support the demands placed on it by continued
growth. Forefront is highly dependent on the Internet to provide its products
and services to the marketplace. Clients who employ the Internet for
advertising could experience service degradation or latency because of
overworked search engines which could slow the distribution of the CyberSpot
over the Internet and interfere with a user's access. In this case, the
tendency of a dissatisfied customer might be to blame the advertiser rather than
the ISP.
GOVERNMENT REGULATION OF THE INTERNET MAY NEGATIVELY IMPACT FOREFRONT'S
ABILITY TO PROVIDE THE MARKETPLACE WITH ITS PRODUCTS AND SERVICES.
The laws and regulations applicable to the Internet will directly impact
Forefront because its products and services are heavily dependent on use of the
Internet as a means of advertising. These laws and regulations are still
evolving and unclear and have the potential of damaging Forefront's business.
No specific laws are pending that will have a negative impact on the Internet.
However, any laws pertaining to the Internet, if enacted, could potentially have
a negative impact on the marketplace for Forefront's products and services due
to either an impact on the Internet audience or an impact on the clients who use
Forefront's products and services to convey their video images through the
Internet to an audience.
Company Risks
THE COMPANY IS IN IMMEDIATE NEED OF CAPITAL DUE TO A SIGNIFICANT CASH FLOW
DEFICIENCY AND MAY NOT CONTINUE AS A GOING CONCERN.
Forefront has no cash to run its operations. Forefront will need further
funding in order to continue as a going concern. If it fails to secure further
funding, Forefront will cease to do business and shareholder investments may be
completely lost.
THE COMPANY HAS RECEIVED A NOTICE OF DEFAULT THAT COULD SUBJECT IT TO
COSTLY LITIGATION AND FORCE THE SALE OF ITS BUSINESS.
An investor who provided $500,000 in bridge loans to the Company has delivered a
notice of default and demand for payment of the bridge loans. According to
their terms, the bridge loans were due in March and April 2000. If the investor
initiates a lawsuit and prevails, the Company would be forced to sell its
principal assets to pay off its liabilities. In such a case, holders of the
Company's Common Stock might lose their entire investment. (See Legal
Proceedings)
THE COMPANY HAS RECEIVED A VERBAL THREAT OF SECURITIES LITIGATION THAT
COULD SUBJECT IT TO COSTLY LITIGATION AND FORCE THE SALE OF ITS BUSINESS.
An investor who bought shares in the stock market has verbally alleged that one
of the Company's founders misrepresented the Company's prospects to induce him
to purchase its stock. If the investor follows through on a verbal threat to
initiate a lawsuit and he prevails, the Company would be forced to sell its
principal assets to pay off its liabilities. In such a case, holders of the
Company's Common Stock might lose their entire investment.
19
<PAGE>
THE COMPANY IS CONTROLLED BY WYLY WADE AND MARK GRAY THROUGH THEIR CLASS A
PREFERRED STOCK, SO IT IS UNLIKELY THAT INVESTORS WILL REALIZE A CONTROL
PREMIUM FOR THEIR SHARES IN THE EVENT OF A PROPOSED TAKEOVER.
Because of the control Wyly Wade and Mark Gray hold through their Class A
Preferred Stock, an outside investor would not be able to take over control of
the Company by means of a tender offer. As a result, Wyly Wade and Mark Gray
will be in a position to demand for themselves any control premium a potential
purchaser might otherwise pay to the shareholders generally by means of a tender
offer.
THE COMPANY IS A DEVELOPMENT STAGE COMPANY AND, AS SUCH, HAS A LIMITED
OPERATING HISTORY AND MAY NOT BE ABLE TO GENERATE ENOUGH REVENUE TO SUSTAIN
ITS BUSINESS OPERATIONS.
The Company is young and in its development stage. The likelihood of success of
the Company must be considered in the light of the problems, expenses,
difficulties, complications, and delays frequently encountered in connection
with the startup and growth of a business and the environment in which the
company operates. The Company may cease operations and your investment may be
completely lost.
Because the Company has yet to achieve its intended level of business
operations, it is uncertain whether it will be successful in overcoming the
substantial risks of operating the business. The Company has had only minimal
net revenues to date, and there can be no assurance of adequate net revenues in
the future. The Company may never become profitable, and if it does achieve
profitability, it cannot be certain that it will remain profitable nor that
profits will increase in the future. The auditors of the Company have expressed
doubt about the ability of the Company to continue as a going concern. Should
the Company fail to become profitable or secure financing, it may cease
operations and your investment may be completely lost.
THE COMPANY FACES INTENSE COMPETITION FROM A MULTITUDE OF COMPETITORS.
The Company is in direct competition with established companies in the same
market. The primary competitors are other Internet advertising technology
companies and other advertising mediums. Additionally, other companies not
presently in competition with the business of the Company may enter the market
targeted by the Company. The Company can anticipate competition in its efforts
to establish itself in targeted markets and to expand into new markets. There
can be no assurance that the Company will be able to compete successfully with
existing or new competitors, some of which may possess more financial resources
and name recognition than the surviving entity.
THE COMPANY MAY NOT BE ABLE TO MAINTAIN A COMPETITIVE POSITION DUE TO THE
PACE AT WHICH THE MARKETPLACE IS CHANGING.
The demand for the Company's products and services may rapidly decline if the
marketplace for its products and services changes. The Company's success is
dependent on its ability to adjust to change and meet new demands. Since the
marketplace for the Company's products is relatively new, it may not be able to
predict the changes that will occur and may not be able to modify or update its
products and services in time to prevent a decline in its share of the market.
The marketplace for web-based advertising may become saturated or alternative
methods of advertising may make the Company's technology obsolete. Predicting
the level of demand for the Company's services is difficult and dependent upon
its ability to adjust to change and meet new demands.
THE COMPANY DEPENDS UPON A SMALL NUMBER OF KEY PERSONS TO IMPLEMENT ITS
BUSINESS PLAN, WHICH EMPLOYEES THE COMPANY MAY BE UNABLE TO RETAIN.
The Company depends on a relatively small number of key employees to implement
its business plan, the loss of any of whom may affect its ability to provide the
required quality of service and technical support necessary to achieve and
maintain a competitive market position. There is no assurance that these
individuals will continue to manage the Company's affairs in the future. The
Company may not generate sufficient revenue to adequately compensate its highly
skilled employees and thereby may not be able to maintain its competitive
position.
20
<PAGE>
THE COMPANY DOES NOT HAVE PRODUCT LIABILITY INSURANCE.
The Company has not acquired liability insurance with respect to provision of
its products and services. Without insurance to cover damages resulting from
liability claims stemming from its products or services, the Company must
shoulder any award of damages against it which could significantly affect its
business operations if the award is substantial.
THE COMPANY REQUIRES ADDITIONAL CAPITAL TO SUSTAIN ITS OPERATIONS.
The Company needs more capital than it has available to it or can expect to
generate through sales of its products and services. The Company must
continually expand and upgrade its infrastructure and systems to ensure high
levels of service.
Investment Risks
SPECIAL VOTING POWERS OF CLASS A PREFERRED STOCK OF THE COMPANY HELD BY
WYLY WADE AND MARK GRAY DILUTES THE VOTING POWER OF OTHER STOCKHOLDERS
OF THE COMPANY.
The Class A Preferred Stock issued to Wyly Wade and Mark Gray has special voting
powers that dilute the voting power of other stockholders of the Company. They
are able to determine the outcome of any vote in respect of all key decisions
affecting the Company, and they could exercise poor business judgment or put
their interests ahead of those of the shareholders generally.
THE COMPANY MAY ISSUE MORE OF ITS COMMON STOCK WHICH COULD HAVE THE EFFECT
OF FURTHER DILUTING THE PERCENTAGE INTEREST OF CURRENT SHAREHOLDERS.
A substantial portion of the 840,000,000 authorized shares of Forefront are
unissued. The Board of Directors of the Company, subject to the consent of Wyly
Wade and Mark Gray, has the power to issue shares without stockholder approval.
The Company fully intends to issue additional common shares or preferred shares
if necessary in order to acquire products, properties, businesses or for any
other corporate purposes. Any additional issuances of shares by the Company
from its authorized but unissued shares would have the effect of further
diluting the percentage interest of existing shareholders.
WYLY WADE AND MARK GRAY CONTROL THE ISSUANCE OF PREFERRED STOCK THEREBY
PREVENTING A CHANGE IN CONTROL OF THE COMPANY.
Preferred shares may be issued in series from time to time with such
designation, rights, preferences and limitations as the Board of Directors of
Forefront may determine by resolution. The Board of Directors of Forefront has
issued Class A Preferred Stock with dilutive or voting preferences to delay,
defer or prevent a change in control of the Surviving Corporation. In addition,
the concentration of control over Forefront's voting power and common shares in
Wyly Wade and Mark Gray could prevent any change in control of Forefront not
acceptable to Wyly Wade and Mark Gray. The Board of Directors may not authorize
the issuance of additional Preferred Stock without the consent of Wyly Wade and
Mark Gray. As a result of these provisions, Wyly Wade and Mark Gray will
control whether any change in control occurs, and in any contested change in
control, they may exercise poor business judgment or put their interests ahead
of those of the shareholders generally.
21
<PAGE>
THE COMPANY DOES NOT HAVE PREEMPTIVE OR CUMULATIVE RIGHTS IN CONNECTION
WITH ITS COMMON STOCK.
There are no preemptive rights in connection with the Company's common shares.
Cumulative voting in the election of directors is not permitted. In addition,
the Class A Preferred Stock has special voting powers in any election of
directors or proposal to remove a director. As a result, investors in the
Company's Common Stock will effectively have no influence over the management of
the Company.
THE COMPANY DOES NOT ANTICIPATE PAYING DIVIDENDS TO COMMON SHAREHOLDERS IN
THE FORESEEABLE FUTURE WHICH MAKES INVESTMENT IN THE COMPANY SPECULATIVE OR
RISKY.
The Company has not paid dividends on its common stock and does not anticipate
paying dividends on its common stock in the foreseeable future. The Board of
Directors has sole authority to declare dividends payable to the Company's
shareholders. The fact that the Company has not and does not plan to pay
dividends indicates that it must use all of its funds generated by operations
for reinvestment in its operating activities and also emphasizes that the
Company may not continue as a going concern. Investors must evaluate an
investment in the Company solely on the basis of anticipated capital gains.
ESTIMATES AND FINANCIAL INFORMATION IN THIS FORM 10-KSB.
Some of the information in this Form 10-KSB consists of and relies upon
evaluations and estimates made by management and other professionals. Even
though management believes in good faith that such estimates are reasonable,
based upon market studies and data provided by sources knowledgeable in the
field, there can be no assurance that such estimates will ultimately be found to
be accurate or even based upon accurate evaluations. Any management errors in
evaluations or estimates could have a significant negative effect upon the
Company's profitability or even its viability.
LIMITED LIABILITY OF EXECUTIVE OFFICERS AND DIRECTORS.
The Company's Articles of Incorporation and Bylaws contain provisions that limit
the liability of directors for monetary damages and provide for indemnification
of officers and directors under certain circumstances. These provisions may
discourage shareholders from bringing a lawsuit against the directors for
breaches of fiduciary duty and may also reduce the likelihood of derivative
litigation against directors and officers even though such action, if
successful, might otherwise have benefited the shareholders. In addition, a
shareholder's investment in the Company may be adversely affected to the extent
that costs of settlement and damage awards against the officers or directors are
paid by the Company pursuant to the indemnification provisions of the Articles
of Incorporation and Bylaws. The impact on a shareholder's investment in terms
of the cost of defending a lawsuit may deter a shareholder from bringing suit
against one of the Company's officers or directors.
ITEM 7. FINANCIAL STATEMENTS
-------------------------------
Financial statements and supplementary data are set forth on pages F-1 through
F-22.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
--------------------------------------------------------------------------------
FINANCIAL DISCLOSURE
---------------------
As reported in a Form 8-K, filed March 21, 2000, the Company announced a change
in accountants. From its inception on July 13, 1998, the Company's (Anyox
Resources Inc.) principal accountant had been Andersen Andersen & Strong, L.C.
of Salt Lake City, Utah. Effective March 15, 2000, the Board of Directors of the
Company approved a change of accountants. On March 15, 2000, management of the
Company dismissed Andersen Andersen & Strong, L.C. and engaged Christopher,
Smith, Leonard, Bristow, Stanell & Wells, P.A. of Bradenton, Florida, as its
independent public accountants to audit its financial statements formerly
audited by Andersen Andersen & Strong, L.C.
22
<PAGE>
The Company believes that for the period ended January 31, 1999, and the fiscal
year ended June 30, 1999, the Company and Andersen Andersen & Strong, L.C. did
not have any disagreement on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which
disagreement, if not resolved to the satisfaction of Andersen Andersen & Strong,
L.C. would have caused it to make reference in connection with its report on the
Company's financial statements to the subject matter of the disagreement. The
report of Andersen Andersen & Strong, L.C. on the Company's financial statements
for the period ended January 31, 1999 and for the fiscal year ended June 30,
1999 did not contain an adverse opinion or a disclaimer of opinion, but did
contain a qualification that the financial statements were prepared under the
assumption that the Company will continue as a going concern. On March 20,
2000, Andersen Andersen & Strong, L.C. furnished a letter addressed to the
Securities and Exchange Commission stating agreement with the above statements.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
-----------------------------------------------------------------------------
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
--------------------------------------------------------
The following table sets forth the name, age and position of each Executive
Officer and Director of the Company:
Name Age Position
---- --- --------
Santu Rohatgi 51 President, Chief Financial Officer, Secretary,
Treasurer and Director
Bruce Benson 46 Director
David Kennedy 42 Director
Mark Burchill 33 Director
Santu Rohatgi was elected as a director, effective March 15, 2000. Bruce Benson
and David Kennedy were elected as directors, effective March 16, 2000. Mark
Burchill was elected a director, effective March 22, 2000. Each director will
serve until the next annual meeting of shareholders and their respective
successors are elected and qualified. Each officer serves, at the pleasure of
the board of directors, for a term of one year and until his successor is
elected at the annual meeting of the board of directors and is qualified.
EXECUTIVE OFFICERS, DIRECTORS AND OTHER SIGNIFICANT EMPLOYEES OF THE COMPANY:
SANTU ROHATGI - PRESIDENT, CHIEF FINANCIAL OFFICER, SECRETARY, TREASURER AND
DIRECTOR
Santu Rohatgi has had ten years of management experience at AT&T, where he held
various management positions, including financial planning management of
start-up Internet Commerce Services; Manager of Support Operations; Director of
Operations, Northeast Division; and Director of Finance & Administration, New
England Region. He also ran a consulting services company for small and medium
size businesses in the area of information technology, business automation and
operations. He received an MA from Patna University in India, an MBA from
Eastern New Mexico University and a Masters Certificate in Project Management
from George Washington University. He is a Certified Project Management
Professional (PMP).
BRUCE BENSON - DIRECTOR
Bruce Benson oversees all aspects of iWeb, a privately held Internet startup
that provides enabling technologies and services for Web advertising that bring
Internet ad revenues to ISPs. Before joining iWeb, Benson was
Executive Vice President of Corporate Strategy and Technology of Young &
Rubicam, where he was responsible for Internet strategy and managed the global
coordination of Y & R's technological resources. Prior to joining Y & R, Mr.
Benson was with Sony Music as a Senior Vice President in several capacities,
where he worked to develop long-range strategies for the company, including
early stage Internet plays. Before his work at Sony, Benson was a Partner at
Price Waterhouse where he was largely responsible for the launch of their
thriving Entertainment and Media Practice. He received a BS in mathematics from
the University of Houston.
23
<PAGE>
DAVID KENNEDY - DIRECTOR
David Kennedy is a founder of TDRC Group, the largest intellectual property
consulting company in the nation. At TDRC, where his clients range from Fortune
100 companies to start-up ventures, he assists Internet and technology companies
formulate their strategic direction based upon maximizing the value of their
intellectual capital. Mr. Kennedy sits on the board of several Internet related
companies and is on the Advisory Board of an intellectual property venture
capital fund. Before founding TDRC, he was a senior partner in an international
consulting firm and was the partner in charge of the technology transfer and
patent licensing division. He received a BBA in accounting and is a Certified
Public Accountant in the state of Georgia.
MARK BURCHILL - DIRECTOR
Mr. Burchill was a founding partner of 24/7 Media, one of the largest global
Internet marketing companies and the largest Internet advertising network. Upon
his departure in January, 2000, 24/7 Media had 42 offices in over 20 countries.
Mr. Burchill is credited with growing the network into one of the largest-reach
vehicles on the Internet as well as expanding 24/7 Media's presence around the
world to Europe, Asia and Latin America. In 1995, he co-founded Petry
Interactive, an Internet marketing company, which was one of the three companies
that merged to become 24/7 Media. As the Director of Strategic Development for
Petry Media in 1994, Burchill lived and worked in Hong Kong, laying the
groundwork for a joint venture Asian ad sales company with Pearson PLC. Mr.
Burchill began his career in the media department of Young & Rubicam in New
York, where he worked on top national and local accounts such as
Colgate-Palmolive, American Home Products and NYNEX. Mr. Burchill holds a
Masters of Business Administration from UCLA.
SIGNIFICANT EMPLOYEES
MICHAEL E. TOMLINSON - VP SALES AND MARKETING
Mr. Tomlinson has held President and Vice President positions at the corporate,
area and division levels for the 20 years. He had a career of increasingly
responsible and highly successful General Management, Sales and Marketing
assignments with Lenox, Pepsi-Cola Company and Procter and Gamble both in the
field and at headquarters. Most recently, he was President of Benchmark
Associates, a consulting company specializing in Internet and Telemarketing
Start-Up Companies. He has a proven ability to consistently exceed business
targets and produce impressive operating and financial results. Mr. Tomlinson
graduated from the University of Memphis with a BBA in Marketing and a BBA in
Management.
WYLY T. WADE -INVENTOR/FOUNDER, DIRECTOR OF TECHNOLOGY
Mr. Wade has had 10 years experience with computer technology and eBusiness,
including former director of Cambridge Technology Partners, an $800M player in
the integrated solutions arena; also Senior Engineer, Project Manager &
Technical Team Designer with Lotus and CompuAdd. Mr. Wade as also one of two
Class A preferred Stock shareholders. He owns 100,000 Class A Preferred shares,
which afford him substantial control of the Company as discussed above.
SIGNIFICANT SHAREHOLDERS
MARK GRAY - INVENTOR/FOUNDER, CLASS A SHAREHOLDER
Mr. Gray is one of two Class A Preferred Stock shareholders. He owns 100,000
Class A Preferred Shares, which afford him substantial control of the Company as
discussed above. Mr. Gray was previously a significant employee of the Company,
but he no longer works with the Company. Mr. Gray founded and was President of
Outlet Mall Network, a private company attempting to become a television
shopping channel. Outlet Mall Network filed for bankruptcy in February 2000,
and has been ordered liquidated.
COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT
Directors and officers of the Company are required by Section 16(a) of the
Securities Exchange Act of 1934 to report to the Securities and Exchange
Commission their transactions in, and beneficial ownership of, the Company's
common stock, including any grants of options to purchase common stock. To the
best of the Company's knowledge, Santu Rohatgi, Bruce Benson, David Kennedy,
Mark Burchill, Mark Gray and Wyly Wade have not filed Forms 3 and have not
reported any other transactions on Form 4 or Form 5 prior to June 30, 2000. Mr.
Rohatgi, Mr. Benson, Mr. Kennedy, Mr. Burchill, and Mr. Wade have indicated
that they intend to comply with Section 16(a) in the future with respect to the
shares they own.
ITEM 10. EXECUTIVE COMPENSATION
----------------------------------
The following table sets forth the compensation we have paid to Santu Rohatgi
(President and Chief Financial Officer) and to two affiliates of the Company,
Wyly Wade and Mark Gray for the fiscal year ended June 30, 2000. No other
executive officers received more than $100,000 in the fiscal year ended June 30,
2000. The Company does not currently have a long term compensation plan and
does not grant any long term compensation to its executive officers or employees
. The table does not reflect certain personal benefits, which in the aggregate
are less than ten percent of each Named Executive Officer's salary and bonus.
No other compensation was granted for this fiscal year ended June 30, 2000.
24
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation
----------------------------------
Other
Name Annual
and Compen- All Other
Principal Sation Compen-
Position Year Salary ($) Bonus ($) ($) sation ($)
(1) (2)
------------- ---- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Santu 2000 $ 79,615.42 $20,571.92 $ 0 $20,324.92
Rohatgi
(President/
CFO)
Mark Gray 2000 $ 79,615.42 $86,467.83 $ 0 $18,117.03
(Business
Develop-
ment)
Wyly Wade 2000 $ 79,615.42 30,264.21 $ 0 $14,770.43
(Director of
Tech-
nology)
------------- ---- ----------- ----------- --------- -----------
<FN>
(1) Bonus figures included in the schedule above include payments under the
Success By Objective Bonus (SBO) and, in the case of Mark Gray, merit bonuses
for his efforts in putting together the merger of WPI (now Forefront
Technologies, Inc.) and Anyox Resources, Inc. (now Forefront, Inc.). The SBO
bonuses are paid monthly with quarterly and annual goals and objectives set and
reviewed quarterly.
(2) Other compensation includes monies expended for health, life, and other
related benefits as well as company owned vehicles. Effective July 2000, cash
outlay for company vehicles is covered by the individual assigned the company
vehicle.
</TABLE>
COMPENSATION OF DIRECTORS
Directors are not compensated for their service as directors. All directors
are reimbursed for any reasonable expenses incurred in the course of fulfilling
their duties as a director of the Company.
EMPLOYMENT CONTRACTS
Employment contracts in place at this time are agreements put in place by WPI
prior to the effective date of the Share Exchange Agreement. The Compensation
Committee of the Board of Directors is currently reviewing those contracts and
drafting new agreements. The contracts currently in place are as follows:
25
<PAGE>
EMPLOYMENT CONTRACTS FOR SANTU ROHATGI, PRESIDENT AND CFO, WYLY WADE, DIRECTOR
OF TECHNOLOGY, MARK GRAY, BUSINESS DEVELOPMENT:
The terms of the agreement are 48 months beginning in March 2000; Base salary
is $180,000 per year increased by 6% or the CPI each year, whichever is greater;
Success By Objective bonus at 20% of base salary; any other bonuses approved by
the board; WPI stock options; a company vehicle; health and other appropriate
benefits. All contracts provide for salary continuation, under certain
conditions, as defined for the length of the contract.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------------------------
The following table sets forth as of September 29, 2000, certain information
known to the Company regarding the beneficial ownership of the Company's common
stock, and as adjusted to reflect the share ownership for (i) each executive
officer or director of the Company who beneficially owns shares; (ii) each
shareholder known to the Company to beneficially own five percent or more of the
outstanding shares of its common stock; and (iii) all executive officers and
directors as a group. Share ownership interest, have been adjusted to reflect
the October 27, 2000 five-for-one forward stock split. The Company believes
that the beneficial owners of the common stock listed below, based on
information furnished by such owners, have sole investment and voting power with
respect to such Shares, subject to community property laws where applicable.
The individuals listed in the table are accessible at the following addresses:
Santu Rohatgi: 540 N. Tamiami Trail, Sarasota, Florida 34236
Wyly Wade: Same as above.
Mark Gray: 330 S. Pineapple Ave. Sarasota, Florida 34236.
David Kennedy: One Midtown Plaza, 1360 Peachtree St., N.E., Suite 800, Atlanta,
GA 30309
Mark Burchill: 25 E. 10th St. New York, NY 10003
Bruce Benson: 245 Fifth Avenue, Suite 1704, New York, NY 10016
<TABLE>
<CAPTION>
PRINCIPAL STOCKHOLDERS
AMOUNT AND
NATURE OF PERCENTAGE OF COMMON
NAME BENEFICIAL OWNER SHARES OUTSTANDING
-------------------- ---------------------
<S> <C> <C>
(I) DIRECTORS, EXECUTIVE OFFICERS AND BENEFICIAL OWNERS
Santu Rohatgi- President, Secretary, Treasurer and Director 2,020,000 shares (1) 2.6%
------------------------------------------------------------- -------------------- ---------------------
David Kennedy - Director 250,000 shares *
------------------------------------------------------------- -------------------- ---------------------
Bruce Benson - Director 0 shares *
------------------------------------------------------------- -------------------- ---------------------
Mark Burchill - Director 0 shares *
------------------------------------------------------------- -------------------- ---------------------
Wyly Wade 11,332,500 shares 14.8%
(2)
------------------------------------------------------------- -------------------- ---------------------
Mark Gray 12,845,840 shares 16.8%
(3)
------------------------------------------------------------- -------------------- ---------------------
(II) ALL DIRECTORS AND OFFICERS AS A GROUP (5 INDIVIDUALS) 13,602,500 17.5%
------------------------------------------------------------- -------------------- ---------------------
<FN>
*Less than 1%
(1) Includes 1,333,330 options that the Company has a contractual obligation to
grant to Mr. Rohatgi once it has a registration statement on Form S-8 in place.
(2) Includes 500,000 shares of common stock that could be obtained by
converting 100,000 Class A Preferred Shares and 1,312,000 options that the Company
has a contractual obligation to grant to Mr. Wade once it has a registration
statement on Form S-8 in place.
26
<PAGE>
(3) Includes 500,000 shares of common stock, than could be obtained by
converting 100,000 Class A Preferred Shares and 1,312,000 options that the Company
has a contractual obligation to grant to Mr. Gray once it has a registration
statement on Form S-8 in place, and 1,513,340 shares owned by CyberQuest Group,
Inc. of which Mr. Gray is a major shareholder.
</TABLE>
CHANGE IN CONTROL
The Company is not aware of any arrangement that would upset the control
mechanisms currently in place. Although it is conceivable that a third party
could attempt a hostile takeover of the Company, the Company has not received
notice of any such effort.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------------------------------------------------------------
David Kennedy, a Director, is an owner of a company named Technology & Dispute
Resolution Consulting, Inc. ("TDRCI"). On October 20, 1999, the Company entered
into an agreement with TDRCI whereby TDRCI is to provide professional services
for marketing and business plan expenses. During the fiscal year, the total
cost incurred under this agreement was $430,743.
<TABLE>
<CAPTION>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
------------------------------------------------
EXHIBIT INDEX
EXHIBIT
NUMBER
-------
DESCRIPTION
-----------
<S> <C>
2.1* Share Exchange Agreement
2.2** Agreement and Plan of Merger
3.1*** Amended and Restated Articles of Incorporation
3.2 Amended and Restated Bylaws
4.1 Specimen Stock Certificate for Shares of Common Stock of the Company
4.2*** Class A Preferred Stock Designation of Rights and Preferences
10.1 Technology & Dispute Resolution Consulting, Inc. Agreement
10.2 Lease
10.3 Employment Contract with Santu Rohatgi
10.4 Employment Contract with Wyly Wade
10.5 Employment Contract with Mark Gray
16.1**** Letter from Anderson Anderson & Strong LLP
27.1 Financial Data Schedule
<FN>
* Filed as an Exhibit to a report by the Company on a Form 8-K, filed March 30,
2000, and incorporated herein by this reference.
27
<PAGE>
** Filed as an Exhibit to a report by the Company on a Form 8-K, filed June 8,
2000, and incorporated herein by this reference.
*** Filed as an Appendix to the Company's Definitive Proxy Statement, filed
April 25, 2000, and incorporated herein by this reference.
**** Filed as an Exhibit to a report by the Company on a Form 8-K, filed March
21, 2000, and incorporated herein by this reference.
</TABLE>
REPORTS ON FORM 8-K
The following reports on Form 8-K were filed by the Company during the fourth
quarter ended June 30, 2000:
Forefront, Inc. Report on Form 8-K dated May 25, 2000, and filed on June 8, 2000
--------------------------------------------------------------------------------
with the Securities and Exchange Commission.
------------------------------------------------
On June 8, 2000, the Company filed a Form 8-K to report under Item 2 that on
May 25, 2000, shareholders of Web Partners, Inc. ("Web Partners") and
shareholders of the Company's wholly-owned subsidiary, Forefront Technologies,
Inc. ("Forefront Technologies"), approved an Agreement and Plan of Merger
merging Web Partners with and into Forefront Technologies. Under the Agreement,
Web Partners ceased to exist, and all of its assets and liabilities became those
of Forefront Technologies. In addition, under Item 7, the Company filed the
financial statements of Web Partners required by Regulation S-B, Item 310(c) and
the pro forma financial statements required by Regulation S-B, Item 310(d). The
financial statements of Web Partners contain the following: (1) Report of
Independent Auditors, dated October 29, 1999; (2) Balance Sheets as of January
31, 2000 (unaudited) and October 25, 1999; (3) Income Statements for the three
months ended January 31, 2000 (unaudited) and the period ended October 25, 1999;
(4) Statements of Cash Flows for the three months ended January 31, 2000
(unaudited and the period ended October 25, 1999; (5) Statements of Stockholders
Equity for the period ended October 25, 1999; and (6) Notes to Financial
Statements (unaudited as to periods after October 25, 1999). The pro forma
financial statements contain the following: (1) Pro Forma Balance Sheet as of
March 31, 2000 (unaudited); and (2) Pro Forma Income Statements for the nine
months ended March 31, 2000, and the year ended June 30, 1999 (unaudited).
28
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FOREFRONT, INC.
By: /s/ Santu Rohatgi
---------------------------
Santu Rohatgi
President and Chief Financial Officer
Date: November 14, 2000
-------------------------
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Santu Rohatgi Date: November 14, 2000
------------------------------- -------------------
Santu Rohatgi
President, Chief Financial
Officer, Secretary, Treasurer
and Director
By: /s/ Bruce Benson Date: November 14, 2000
------------------------------- -------------------
Bruce Benson
Director
By: /s/ David Kennedy Date: November 14, 2000
------------------------------- -------------------
David Kennedy
Director
By: Date:
------------------------------- -------------------
Mark Burchill
Director
29
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Independent Certified Public Accountants Report . . . . . . . . . . . . . . .F-1
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Stockholders' Equity . . . . . . . . . . . . . . F-4
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . F-5
Notes to Financial Statements (audited) . . . . . . . . . . . . . F-6 - F-21
<PAGE>
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
FINANCIAL STATEMENTS
JUNE 30, 2000
<PAGE>
================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
FINANCIAL STATEMENTS
JUNE 30, 2000
FROM JULY 13, 1998 (INCEPTION) TO JUNE 30, 2000
================================================================================
TABLE OF CONTENTS
-----------------
PAGE
----
INDEPENDENT AUDITOR'S REPORT F-1
FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS F-2
CONSOLIDATED STATEMENTS OF OPERATIONS F-3
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
NOTES TO FINANCIAL STATEMENTS F-6 - F-21
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE STOCKHOLDERS OF FOREFRONT, INC.
AND SUBSIDIARY
SARASOTA, FLORIDA
We have audited the accompanying consolidated balance sheet of Forefront, Inc.
and Subsidiary as at June 30, 2000 and the related consolidated statements of
operations, cash flows and shareholders' equity 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. The 1999 financial statements were audited by other auditors whose
report dated September 27, 1999 expressed an unqualified opinion on those
statements. The other auditors' report included an explanatory paragraph that
described the going concern issue described in NOTE 1 to the consolidated
financial statements.
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 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Forefront, Inc. and
Subsidiary as of June 30, 2000, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in NOTE 1 to
the consolidated financial statements, the Company has incurred a significant
operating loss for the year and has an accumulated deficit at the end of the
year of $2,014,224, which raises substantial doubt about its ability to continue
as a going concern. Management's plans in regard to these matters are also
described in NOTE 1. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/S/ CHRISTOPHER, SMITH, LEONARD,
BRISTOW, STANELL & WELLS, P.A.
------------------------------------------
CHRISTOPHER, SMITH, LEONARD,
BRISTOW, STANELL & WELLS, P.A.
November 7, 2000
F - 1
<PAGE>
<TABLE>
<CAPTION>
================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
================================================================================
ASSETS
JUNE 30, JUNE 30,
2000 1999
------------ ----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 3,615 $ 1,283
Due from related party - Note 12 55,826 -0-
Prepaid expenses 21,734 -0-
------------ ----------
Total current assets 81,175 1,283
Property and equipment, net - NOTE 1, 5 628,583 -0-
Other Assets - Note 1
Goodwill - net - NOTE 6 7,091,997 -0-
Deposits 7,577 -0-
Capitalized software costs less accumulated amortization
of $13,338 74,916 -0-
Patent rights, less accumulated amortization of $38,599 38,822 -0-
------------ ----------
Total other assets - NOTE 6 7,213,312 -0-
------------ ----------
TOTAL ASSETS $ 7,923,070 $ 1,283
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 508,490 $ 1,833
Accounts payable - related party - NOTE 12 318,243 3,482
Accrued liabilities 172,572 -0-
Current portion of capital leases - NOTE 11 54,626 -0-
Current portion of long-term debt - NOTE 10 191,686 -0-
Notes payable - Note 9 500,000 -0-
Notes payable - related party - NOTE 9 106,000 -0-
------------ ----------
Total current liabilities 1,851,617 5,315
Long-term debt - NOTE 10 -0- -0-
Long-term capital lease liability - Note 11 -0- -0-
Commitments and contingencies - Note 16 -0- -0-
Stockholders' equity (deficit) - Note 15
Preferred stock, $0.001 par value, 200,000 shares
authorized; 200,000 shares issued and outstanding 200 -0-
Class A - Common stock, $0.001 par value, 200,000,000
shares authorized; 22,667,254 issued, 15,090,011
and 10,028,500 outstanding, respectively 15,091 10,029
Additional paid-in capital 8,070,386 6,121
Deficit accumulated during the development stage (2,014,224) (20,182)
------------ ----------
Total stockholders' equity (deficit) 6,071,453 (4,032)
------------ ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,923,070 $ 1,283
============ ==========
</TABLE>
================================================================================
The accompanying notes are an integral part of these financial statements.
F - 2
<PAGE>
<TABLE>
<CAPTION>
================================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
================================================================================================
JULY 13, 1998
YEAR ENDED JUNE 30, (INCEPTION TO)
2000 1999 JUNE 30, 2000
--------------------- --------------- ---------------
<S> <C> <C> <C>
REVENUES
Interest $ 2,574 $ -0- $ 2,574
EXPENSES
Selling general and administrative 2,676,838 20,182 2,697,020
Research and development 1,199,367 -0- 1,199,367
Depreciation and amortization 624,026 -0- 624,026
--------------------- --------------- ---------------
4,500,231 20,182 4,520,413
--------------------- --------------- ---------------
NET (LOSS) BEFORE MINORITY SHARE (4,497,657) (20,182) (4,517,839)
LESS: MINORITY SHARE OF OPERATIONAL
LOSSES 2,503,615 -0- 2,503,615
--------------------- --------------- ---------------
NET (LOSS) $ (1,994,042) $ (20,182) $ (2,014,224)
===================== =============== ===============
BASIC AND FULLY DILUTED LOSS PER SHARE $ (0.16) $ (0.00) $ (0.19)
===================== =============== ===============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 12,759,928 8,122,000 10,479,721
===================== =============== ===============
</TABLE>
================================================================================
The accompanying notes are an integral part of these financial statements.
F - 3
<PAGE>
<TABLE>
<CAPTION>
======================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
======================================================================================
DEFICIT
ACCUMULATED
CAPITAL STOCK PREFERRED STOCK ADDITIONAL DURING THE
--------------------- ---------------- PAID IN DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE
----------- -------- ------- ------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance - July 13, 1998 (date of inception) -0- $ -0- -0- $ -0- -0- $ -0-
Common Stock issued for cash at $0.001
- September 18, 1998 10,000,000 10,000 -0- -0- -0- -0-
Common Stock issued for cash at $0.10
- October 21, 1998 28,500 29 -0- -0- 2,821 -0-
Capital contributions by officers - expenses -0- -0- -0- -0- 3,300 -0-
Net operating loss - Period from July 13,
1998 to June 30, 1999 -0- -0- -0- -0- -0- (20,182)
----------- -------- ------- ------- ------------ -------------
BALANCE - JUNE 30, 1999 10,028,500 10,029 -0- -0- 6,121 (20,182)
----------- -------- ------- ------- ------------ -------------
Capital contributions by officers -0- $ -0- -0- $ -0- 1,860 $ -0-
Common Stock issued for 57% interest in
subsidiary - March 9, 2000 4,000,000 4,000 -0- -0- 3,537,12 -0-
Common Stock issued for sale
- March 28, 2000 6,000,000 6,000 -0- -0- 5,094,000 -0-
Common Stock returned through default
of subscriptions on March 28, 2000
- returned June 20, 2000 (3,750,000) (3,750) -0- -0- (3,183,750) -0-
Common Stock issued for 38% interest
in subsidiary - June 23, 2000 2,638,754 2,639 -0- -0- 2,449,062 -0-
Common Stock issued for remaining 5%
interest in subsidiary
- June 30, 2000 372,757 373 -0- -0- 316,471 -0-
Cost of issues -0- -0- -0- -0- (154,499) -0-
Common Stock returned in exchange for
certain mineral reights, valued at
par - June 30, 2000 (4,000,000) (4,000) -0- -0- 4,000 -0-
Preferred Stock issued in exchange for
Common Stock at par June 30, 2000 (200,000) (200) 200,000 200 -0- -0-
Net Operating Loss -0- -0- -0- -0- -0- (1,994,042)
----------- -------- ------- ------- ------------ -------------
BALANCE - JUNE 30, 2000 15,090,011 $15,091 200,000 $ 200 $ 8,070,386 $ (2,014,224)
=========== ======== ======= ======= ============ =============
</TABLE>
================================================================================
The accompanying notes are an integral part of these financial statements.
F - 4
<PAGE>
<TABLE>
<CAPTION>
================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 2000, 1999 AND SINCE ITS INCEPTION
================================================================================
JULY 13, 1998
YEAR ENDED JUNE 30, (INCEPTION TO)
2000 1999 JUNE 30, 2000
------------ --------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(4,497,657) $(20,182) $ (4,517,839)
Adjustment to reconcile net loss to
net cash used in operating activities
Minority interest in net loss of
consolidated subsidiary - net of capital 1,222,385 -0- 1,222,385
Depreciation and amortization 624,026 -0- 624,026
Expenses in-kind -0- 3,300 3,300
Changes in operating assets and liabilities
(Increase) in due from Cyberquest (55,826) -0- (55,826)
Increase in prepaid expenses (21,734) -0- (21,734)
(Increase) in deposits (7,577) -0- (7,577)
Increase in accounts payable 821,417 5,315 826,732
Increase in accrued liabilities 172,573 -0- 172,573
------------ --------- ---------------
Net cash (used) in operating activities (1,742,393) (11,567) (1,753,960)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (404,576) -0- (404,576)
Intangible asset expenditures (165,674) -0- (165,674)
------------ --------- ---------------
Net cash (used) in investing activities (570,250) -0- (570,250)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable 606,000 -0- 606,000
Payments on long-term debt (40,549) -0- (40,549)
Capital lease payments (17,349) -0- (17,349)
Issuance of common stock 5,262 12,850 18,112
Proceeds from equity investors net of
issue costs 1,761,611 -0- 1,761,611
------------ --------- ---------------
Net cash provided by financing activities 2,314,975 12,850 2,327,825
------------ --------- ---------------
NET INCREASE IN CASH 2,332 1,283 3,615
CASH - BEGINNING OF PERIOD 1,283 -0- -0-
------------ --------- ---------------
CASH - END OF PERIOD $ 3,615 $ 1,283 $ 3,615
============ ========= ===============
SUPPLEMENTAL INFORMATION
-----------------------------------------------
Cash paid for interest $ 6,611 $ -0- $ 6,611
============ ========= ===============
Cash paid for income taxes $ -0- $ -0- $ -0-
============ ========= ===============
</TABLE>
NON-CASH OPERATING ACTIVITIES
-------------------------------
For the year ended June 30, 1999, officers contributed recorded expenses of
$3,300
For the year ended June 30, 2000, the Company acquired fixed assets totaling
$304,210 through the issuance of long-term debt and capital lease obligations.
The Company also recorded Goodwill through the issuance of equity of $7,584,000.
================================================================================
The accompanying notes are an integral part of these financial statements.
F - 5
<PAGE>
================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000, 1999 AND FROM
JULY 13, 1998 (INCEPTION) TO JUNE 30, 2000
================================================================================
NOTE 1 - GOING CONCERN
--------------
These financial statements are prepared on a going-concern basis which
assumes that the Company will realize its assets and discharge its
liabilities in the normal course of business. The Company incurred an
operating loss of $1,994,042 for the year ended June 30, 2000 (1999 -
$20,182) and reported a deficit at that date of $2,014,224 (1999 -
$20,182). In addition, projected cash flows from the Company's current
operations are not sufficient to finance the Company's current and
projected working capital requirements. The circumstances together
with the requirements to continue investing in research and
development activities to meet the Company's growth objectives and
without assurance of broad commercial acceptance of the Company's
products, lend some doubt as to the ability of the Company to continue
in normal business operations. In recognition of this issue, the
Company continues to attempt to obtain additional debt and equity
financing to raise the required capital. The ability of the Company to
continue as a going concern is dependent upon obtaining adequate
sources of financing and developing and maintaining profitable
operations. Should the Company be unable to continue as a going
concern, assets and liabilities would require restatement on a
liquidation basis which would differ materially from the going concern
basis.
NOTE 2 - NATURE OF OPERATIONS
----------------------
Forefront, Inc. and Subsidiary (the "Company") is a development stage
company formed in the State of Nevada on July 13, 1998. The Company
was originally incorporated as Anyox Resources, Inc. On May 25, 2000,
the Company amended its Articles of Incorporation and changed it name
to Forefront, Inc. The Company was originally organized for the
purpose of acquiring and developing mineral properties. During the
year, the Company acquired Web Partners, Inc. which substantially
changed the nature of the Organization. Subsequent to this purchase,
the Company is engaged in research and development of new web based
technologies. The Company is in the process of filing for United
States patent protection for a family of technologies which allow the
rapid development of online, thirty second commercial spot
advertisements, providing online advertisers with the first reliable
audience delivery verification system. The Company's business is
predominately based in the United States.
The Company is in the development stage and its efforts through June
30, 2000 have been principally devoted to organizational activities,
research and development of its technologies and raising capital.
Management anticipates incurring substantial additional losses as it
pursues its research and development efforts.
F - 6
<PAGE>
================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 2000, 1999 AND FROM
JULY 13, 1998 (INCEPTION) TO JUNE 30, 2000
================================================================================
NOTE 2 - NATURE OF OPERATIONS - CONTINUED
------------------------------------
Fiscal Year
-----------
The Company maintains its accounting records on a fiscal year basis
ending on June 30th.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------------
Use of Estimates
----------------
The preparation of consolidated 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 consolidated financial statements, and
the reported amounts of revenue and expenses during the periods.
Estimates are used for, but not limited to, the accounting for
doubtful accounts, depreciation and amortization, taxes and
contingencies. Despite management's best effort to establish good
faith estimates, actual results may differ from these estimates.
Revenue Recognition
--------------------
The Company will contract with customers for providing online, thirty
second commercial spot advertisements. Revenues are generally
recognized when a fixed period license agreement has been signed, the
software product has been developed, there are no uncertainties
surrounding product acceptance, the fees are fixed and determinable,
and collection is considered probable. For customer license
agreements, which meet these recognition criteria, the portion of the
fees related to software licenses will generally be recognized in the
current period, while the portion of the fees related to services is
recognized as the services are performed. However, for the period
ending June 30, 2000, the Company had not entered into any contracts
for the sale or use of its products.
Principles of Consolidation
-----------------------------
These consolidated financial statements have been prepared by
management in accordance with generally accepted accounting principles
and include the accounts of Forefront, Inc. and Forefront Technology,
Inc. (its wholly owned subsidiary.) All intercompany accounts and
transactions have been eliminated.
F - 7
<PAGE>
================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 2000, 1999 AND FROM
JULY 13, 1998 (INCEPTION) TO JUNE 30, 2000
================================================================================
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
------------------------------------------------------------
Cash and Cash Equivalents
----------------------------
Cash equivalents may consist of highly liquid short-term investments
with original maturities at the date of acquisition of 90 days or less
and are recorded at cost. The Company did not have any cash
equivalents as of the balance sheet dates.
Fair Value of Financial Instruments
---------------------------------------
At June 30, 2000 and 1999, Forefront had the following financial
instruments: cash, advances receivable, accounts payable and accrued
liabilities. The carrying value of all such accounts are considered by
management to approximate their fair market value based on their
liquidity or based on their short-term nature.
Property and Equipment
------------------------
Property and equipment are recorded at cost less accumulated
depreciation. Depreciation of property and equipment is provided using
the following rates and methods:
Computer software 2 year straight line
Computer hardware and equipment 3 year straight line
Automobiles 3 year straight line
Furniture and fixtures 5 year straight line
Leasehold improvements are amortized using the straight line method
over three years.
Goodwill, Intangibles and Other Assets
------------------------------------------
Goodwill, core technology and other intangible assets are carried at
cost less accumulated amortization and are being amortized on a
straight line basis over the economic lives of the respective assets,
generally from one to three years.
Impairment of Long-Lived Assets
----------------------------------
Forefront makes periodic reviews for the impairment of long-lived
assets including goodwill and other intangibles whenever events or
changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Under Statement of Financial Accounting
Standard ("SFAS") No. 121, an impairment loss would be recognized when
estimates of undiscounted future cash flows expected to result from
the use of an asset and its eventual disposition are less than its
carrying amount. No such impairment losses have been identified by
Forefront for the years ended June 30, 2000 and 1999.
F - 8
<PAGE>
================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 2000, 1999 AND FROM
JULY 13, 1998 (INCEPTION) TO JUNE 30, 2000
================================================================================
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
------------------------------------------------------------
Research and Development Costs
---------------------------------
Research and development costs, which consist primarily of software
development costs, are expensed as incurred. SFAS No. 86 "Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed," provides for the capitalization of certain software
development costs after technological feasibility of the software is
established. Under Forefront's current practice of developing new
products and enhancements, the technological feasibility of the
underlying software is not established until substantially all product
development is complete, including the development of a working model.
As of June 30, 2000, total capitalized software costs of $88,254 has
been recorded. Amortization of these costs for 2000 were $13,338 with
accumulated amortization of $13,338.
Concentration of Credit Risk
-------------------------------
Financial instruments that potentially subject Forefront to a
concentration of credit risk consist principally of cash and cash
equivalents and advances receivable. Cash and cash equivalents are
custodied with high quality financial institutions. Forefront's future
customer base is expected to cross many different geographic areas
throughout North America, Europe and the Asia Pacific and consists of
companies in a variety of industries. Forefront does not require
collateral or other security to support credit sales, but will provide
for an allowance for bad debts based on historical experience and
specifically identified risks.
At June 30, 2000, the Company has incurred substantial research and
development, marketing and promotional activities from CyberQuest
Group, Inc., a related party. The Company's concentration for such
services have been critical to the operations of Forefront, Inc. and
Subsidiary to date. This relationship has been terminated as of June
30, 2000.
Foreign Currency Translation
------------------------------
The functional currency of Forefront and its subsidiary is the U.S.
dollar. Assets and liabilities denominated in other than the U.S.
dollar are translated using the exchange rates prevailing at the time
of transaction. Consequently, no gains or losses occurred during the
reporting period.
F - 9
<PAGE>
================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 2000, 1999 AND FROM
JULY 13, 1998 (INCEPTION) TO JUNE 30, 2000
================================================================================
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
------------------------------------------------------------
Foreign Currency Translation - Continued
--------------------------------------------
During 1999, part of the transactions of the Company were completed in
Canadian dollars and have been translated to US dollars as incurred,
at the exchange rate in effect at the time, and therefore, no gain or
loss from the translations is recognized. As of the balance sheet
dates, Forefront had no outstanding forward contracts.
Advertising
-----------
Forefront expenses for advertising costs as they are incurred.
Advertising expense is included in selling, general and administrative
expenses and amounted to $161,755 for the year ended June 30, 2000. No
advertising costs were incurred for the prior periods presented.
Income Taxes
-------------
Forefront accounts for income taxes under the provision of SFAS No.
109, "Accounting for Income Taxes." This statement provides for a
liability approach under which deferred income taxes are provided
based upon currently enacted tax laws and rates. Valuation allowances
are established, when necessary, to reduce deferred tax assets to the
amounts expected to be realized.
Share-Based Compensation
-------------------------
As permitted under SFAS No. 123, "Accounting for Stock-Based
Compensation," Forefront accounts for employee stock options in
accordance with Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees." Compensation charges arise
from those situations where options are granted at an exercise price
lower than the deemed fair value of the underlying common shares.
These amounts are amortized as charges to operations over the vesting
periods of the individual stock options. Stock options issued to
outside consultants are valued at their fair value and charged to the
consolidated statement of loss in the period in which the services are
rendered. The Company did not issue any stock based compensation
awards during the year.
F - 10
<PAGE>
================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 2000, 1999 AND FROM
JULY 13, 1998 (INCEPTION) TO JUNE 30, 2000
================================================================================
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
------------------------------------------------------------
Earnings (Loss) Per Common Share
------------------------------------
Basic earnings per share is computed by dividing net income (loss)
available to common shareholders by the weighted average number of
common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution of securities by including other
common share equivalents, including stock options and redeemable
convertible preferred shares, in the weighted average number of common
shares outstanding for a period, if dilutive. Pro forma earnings per
share is computed by dividing net income (loss) by the weighted
average number of common shares outstanding and the weighted average
redeemable convertible preferred shares outstanding as if such shares
were converted into common shares and had been outstanding since July
1, 1999. The following tables sets forth the computation of basic and
diluted, and pro forma basic and diluted earnings (loss) per share:
YEARS ENDED JUNE 30,
-------------------------
2000 1999
------------ -----------
NET INCOME (LOSS) $(1,994,042) $ (20,182)
============ ===========
Weighted average number of
common shares outstanding 12,759,928 8,122,000
Dilutive effect of:
Stock options -0- -0-
Convertible preferred shares -0- -0-
------------ -----------
DILUTED WEIGHTED AVERAGE NUMBER
OF SHARES 12,759,928 8,122,000
============ ===========
Pro forma adjustment for
convertible preferred shares -0- -0-
------------ -----------
Pro forma basic and diluted
weighted average number of shares 12,759,928 8,122,000
============ ===========
Earnings (loss) per share
Basic $ (0.16) $ (0.00)
Diluted $ (0.16) $ (0.00)
Pro Forma Basic and Diluted $ (0.16) $ (0.00)
F - 11
<PAGE>
================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 2000, 1999 AND FROM
JULY 13, 1998 (INCEPTION) TO JUNE 30, 2000
================================================================================
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
------------------------------------------------------------
Comprehensive Income
---------------------
SFAS No. 130, Reporting Comprehensive Income, establishes standards
for the reporting and display of comprehensive income and its
components (revenue, expenses, gains and losses) in a full set of
general-purpose financial statements. Forefront adopted SFAS No. 130
in 1999. Forefront has no comprehensive income items other than the
net earnings (loss), in any of the periods presented.
Recent Accounting Pronouncements
----------------------------------
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments and hedging activities.
SFAS No. 133 requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position
and measure those instruments at fair value. The FASB subsequently
issued SFAS No. 137 which delayed the required effective date for
adoption of SFAS No. 133 to fiscal years beginning after June 15,
2000. Forefront will adopt SFAS No. 133 as amended by SFAS No. 137 in
the first quarter of fiscal year 2001. Forefront does not expect that
adoption of this standard will have a material effect on its
consolidated financial position or results of operations. In March
2000, the FASB issued FASB Interpretation No. 44 ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation."
Forefront will be required to adopt FIN 44 Effective July 1, 2000 with
respect to certain provisions applicable to new awards, exchanges of
awards in a business combination, modifications to outstanding awards,
and changes in grantee status that occur on or after that date. FIN 44
addresses practice issues related to the application of APB Opinion
No. 25, "Accounting for Stock Issued to Employees." Forefront does not
expect the application of FIN 44 to have a material impact on its
consolidated financial position or results of operations. In December
1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101") and amended it in March 2000. Forefront is
currently reviewing the provisions of SAB 101 and has not fully
assessed the impact of its adoption. While SAB 101 does not supercede
the software industry specific revenue recognition guidance, which
Forefront believes it is in compliance with, the SEC Staff has
recently informally indicated its views that SAB 101 may change
current interpretations of software revenue recognition requirements.
Such SEC interpretations could result in companies recording a
cumulative effect of a change in accounting principle. Forefront is
required to adopt SAB 101 no later than the fourth quarter of fiscal
2001.
F - 12
<PAGE>
================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 2000, 1999 AND FROM
JULY 13, 1998 (INCEPTION) TO JUNE 30, 2000
================================================================================
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
------------------------------------------------------------
Reclassifications
-----------------
Certain prior period amounts have been reclassified to conform with
the current period presentation.
NOTE 4 - BUSINES COMBINATIONS
---------------------
During the year ended June 30, 2000, Forefront completed the
acquisition described below which was accounted for under the purchase
method of accounting. Accordingly, the results of operations of the
acquisition are included in the consolidated statement of operations
as of the first day of the year as allowed by Accounting Research
Bulletin No. 51, and the related assets and liabilities were recorded
based upon their respective fair value at the date of acquisition.
Web Partners, Inc.
--------------------
Effective March 15, 2000, Anyox Resources, Inc. entered into a share
exchange agreement acquiring 57% of Web Partners, Inc. (WPI), a
Florida corporation that engages in research and development of new
web based technologies. Anyox paid an aggregate price of $4,050,000
all through the issuance of 4,000,000 shares of its common stock.
Effective May 25, 2000, Anyox acquired the remaining 43% of the
outstanding stock of WPI for an additional price of $3,534,000 at such
time the entity became a wholly owned subsidiary. This interest was
acquired through the issuance of 3,011,511 shares.
Simultaneously with the acquisition of the remaining minority
interest, WPI merged into Web Partners of Nevada (a Nevada
Corporation) and Anyox Resources, Inc. changed its name to Forefront,
Inc. (Forefront). Web Partners of Nevada (WPN) is a wholly-owned
subsidiary of Forefront, Inc. Also on May 25, 2000, WPN amended its
Articles of Incorporation to change the name of the corporation to
Forefront Technologies, Inc. (FTI).
Anyox paid an aggregate purchase price of $7,584,000 consisting of
7,011,511 shares of common stock. The total consideration, including
the acquisition costs, was allocated based on estimated fair values on
the acquisition dates as follows:
F - 13
<PAGE>
================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 2000, 1999 AND FROM
JULY 13, 1998 (INCEPTION) TO JUNE 30, 2000
================================================================================
NOTE 4 - BUSINES COMBINATIONS - CONTINUED
-----------------------------------
LIABILITIES ASSUMED
Operating payables $766,000
Short-term debt obligations 1,588,000
Other liabilities 95,000
----------
2,449,000
ASSETS ACQUIRED
Equipment and furnishings $ 401,000
Core developed technology 43,000
Other assets 381,000
----------
825,000
Net identifiable liabilities acquired 1,624,000
Stock issued (7,011,511 at $0.85) 5,960,000
----------
PURCHASE PRICE $7,584,000
==========
Consideration assumption of net liabilities $1,621,000
Fair value of common shares issued $5,960,000
==========
The fair value of the common shares of Forefront was determined by
taking the most recent stock sale price identified in a private
placement offering just prior to the acquisition of $0.85 per share.
The purchase price will be increased by the estimated fair value of
the future stock options of Forefront to be exchanged for the Web
Partners, Inc. options outstanding pursuant to the share exchange
agreement which will be valued at the time of granting the options.
Purchased in Process Research and Development
--------------------------------------------------
No allocation of the purchase price was allocated to any in process
research and development charges in that no independent valuation was
performed in assessing and allocating a value to such costs.
Consequently, no identifiable value could be determined.
NOTE 5 - PROPERTY AND EQUIPMENT
------------------------
JUNE 30, 2000
--------------
Computer software $ 34,870
Computer equipment 281,982
Automobiles 232,235
Furniture and fixtures 98,059
Leasehold improvements 61,640
--------------
708,786
Accumulated depreciation 80,203
--------------
NET BOOK VALUE $ 628,583
==============
F - 14
<PAGE>
================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 2000, 1999 AND FROM
JULY 13, 1998 (INCEPTION) TO JUNE 30, 2000
================================================================================
NOTE 6 - GOODWILL, INTANGIBLES AND OTHER ASSETS
--------------------------------------
Goodwill $ 7,583,884
Patent rights 77,421
------------
7,661,305
Accumulated amortization (530,486)
------------
NET BOOK VALUE $ 7,130,819
============
Amortization includes the amortization of goodwill and patent rights
over a three-year and one year period, respectively, on the straight
line method.
NOTE 7 - CAPITALIZED SOFTWARE
---------------------
The Company capitalized costs of materials and consultants, incurred
in developing internal-use computer software once technological
feasibility is attained. Technological feasibility is attained when
software products reach Beta release. Costs incurred prior to the
establishment of technological feasibility are charged to product
development expense.
The establishment of technological feasibility and the ongoing
assessment of recoverability of capitalized software development costs
require considerable judgment by management with respect to certain
external factors, including, but not limited to, anticipated future
revenues, estimated economic life and changes in software and hardware
technologies.
Upon the general release of the software product to customers,
capitalization ceases and such costs are amortized (using the
straight-line method) on a product by product basis over the estimated
life which is generally two years.
All research and development expenditures are charged to research and
development expense in the period incurred.
Capitalized software costs and accumulated amortization as of June 30,
2000 and related software amortization expense for the period then
ended was as follows:
2000
---------
Capitalized software:
Internally developed $ 88,254
Accumulated amortization (13,338)
---------
$ 74,916
=========
Amortization expense $ 13,338
=========
F - 15
<PAGE>
================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 2000, 1999 AND FROM
JULY 13, 1998 (INCEPTION) TO JUNE 30, 2000
================================================================================
NOTE 8 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
--------------------------------------------
The Components of accounts payable and accrued liabilities were as
follows:
JUNE 30,
----------------
2000 1999
-------- ------
Accounts payable $926,790 $5,315
Accrued compensation 29,750 -0-
Other accrued liabilities 42,765 -0-
-------- ------
$999,305 $5,315
======== ======
NOTE 9 - SHORT-TERM NOTES PAYABLE
--------------------------
Forefront has obtained short term financing to provide operating
capital during 2000. This liability is made up of the following notes:
JUNE 30, 2000
--------------
Note payable - due on demand bearing
interest at 0% (See NOTE 15) $ 500,000
==============
Note payable - related party due on
demand bearing interest at 9.5% (See
NOTE 15) $ 56,000
Note payable - related party due on
demand bearing interest at 9.5% (See
NOTE 15) 50,000
--------------
$ 106,000
==============
NOTE 10 - LONG-TERM DEBT
---------------
The Company has long-term debt as of June 30, 2000 consisting of the
following:
Note payable - Financial Institution,
payable in 36 monthly installments of
1,298, bearing interest at 9.16%.
This note is collateralized by an
automobile. $79,596
Note payable - Financial Institution,
payable in 36 monthly installments of
$1,197, bearing interest at 9.17%.
This note is collateralized by an
automobile. 68,836
F - 16
<PAGE>
================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 2000, 1999 AND FROM
JULY 13, 1998 (INCEPTION) TO JUNE 30, 2000
================================================================================
NOTE 10 - LONG-TERM DEBT - CONTINUED
--------------------------
Note payable - Financial Institution,
payable in 36 monthly installments of
$1,119, bearing interest at 10.18%.
This note is collateralized by an
automobile. 43,254
----------
191,686
Less current portion: (191,686)
----------
$ -0-
==========
Due to the financial condition of the Company as of and subsequent to
the balance sheet, the Company defaulted on these loans and are
considered payable on demand by lending institutions.
NOTE 11 - CAPITALIZED LEASES
-------------------
During the period, the Company purchased equipment under two capital
leases in the amount of $71,975. Monthly payments of $854 and $1,493
are due over three and two-year periods, respectively, bearing a
capital lease rate of 9% to 16% annually. These leases mature in 2002
and 2003.
Due to the financial condition of the Company as of and subsequent to
the balance sheet, the Company defaulted on these leases and are
considered payable on demand by leasing companies.
Leased assets included in property and equipment are recorded at a
cost of $71,975 less accumulated depreciation of $2,581.
NOTE 12 - RELATED PARTY TRANSACTIONS
----------------------------
The Company has loans from two shareholders for $50,000 and $56,000,
respectively, for a total of $106,000. All notes bear annual interest
at 9.5% per year and each note is due 12 months from the note
agreement dates. At June 30, 2000, interest expense approximated $300.
F - 17
<PAGE>
================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 2000, 1999 AND FROM
JULY 13, 1998 (INCEPTION) TO JUNE 30, 2000
================================================================================
NOTE 12 - RELATED PARTY TRANSACTIONS- CONTINUED
----------------------------------------
The Company has entered into an agreement with CyberQuest Group, Inc.,
a related party, for certain professional services related to the
development of the Company's technologies. The companies are related
through common ownership and control. Costs incurred under this
agreement at June 30, 2000 approximated $781,349, and at the balance
sheet date, the Company has accounts receivable from CyberQuest Group,
Inc. of $55,826. This agreement was terminated on December 12, 1999 by
both parties.
The Company also purchased certain fixed assets and rented other
property from CyberQuest during the fiscal year ended June 30, 2000 in
the amount of $60,000 and $5,400, respectively.
The Company engaged the professional services of a firm owned by a
member of the Board of Directors for marketing and business plan
expenses. Total costs incurred for the year ended June 30, 2000 were
$430,743 of which $318,243 is unpaid as of June 30, 2000.
During 1999, related parties acquired 40% of the common stock issued
for cash. A loan was received by the Company from a related party of
$1,833 with no due date or interest. See Note 14 regarding purchase of
mineral leases from a related party.
NOTE 13 - INCOME TAXES
-------------
At June 30, 2000, the Company has incurred operating losses for tax
purposes of approximately $2,000,000. These losses will be available
to offset income in future years. The Company has fully reserved the
tax benefit of the operating losses because the likelihood of
realization of the benefit cannot be established. For tax purposes,
the Company has elected to report using a June 30 year end.
As part of the acquisition of 57% of the outstanding stock of Web
Partners, Inc. on March 15, 2000, the Company also has available
approximately $2,205,000 of net operating loss carryforwards that are
subject to certain annual limitations under Internal Revenue Code.
These losses were incurred prior to the ownership change.
F - 18
<PAGE>
================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 2000, 1999 AND FROM
JULY 13, 1998 (INCEPTION) TO JUNE 30, 2000
================================================================================
NOTE 13 - INCOME TAXES - CONTINUED
---------------------------
The Company's income tax provision has been determined as follows:
2000 1999
----------- --------
Net loss before taxes $1,994,042 $20,182
=========== ========
Income taxes at 38.5% $ 767,706 $ 7,770
Decrease resulting from permanent
non-deductible expense (4,780) -0-
Tax benefit of losses not recognized
in the accounts, included in
valuation reserve (762,926) (7,770)
----------- --------
$ -0- $ -0-
=========== ========
At June 30, 2000, the Company has approximately $4,199,000 of
non-capital losses available for income tax purposes. These losses a
YEAR AMOUNT
----- ------
2014 $ 20,182
2015 4,178,818
----------
4,199,000
==========
NOTE 14 - MINERAL LEASES
---------------
The Company acquired mineral leases for $1.00 from, a related party,
known as Fame #1 and #2 located near the former town site of Anyox,
British Columbia, Canada.
The claims have not been proven to have a commercially minable ore
reserve and therefore all costs for exploration and retaining the
properties have been expensed.
The claims may be retained by the Company only upon a yearly payment,
or an equal amount of assessment work, of $2,750cn which is due
starting September 25, 2000. The amounts due for September 25, 1999
have been paid.
These leases have been disposed of pursuant to the merger dated May
25, 2000 with Web Partners, Inc.
F - 19
<PAGE>
================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FROM JULY 13, 1998 (INCEPTION) TO JUNE 30, 2000
================================================================================
NOTE 15 - CAPITALIZATION
--------------
The Company has been capitalized from funding raised through the
issuance of the Company's Common Stock for cash and intangible assets
in the amount of $8,085,477. Costs of the subscription approximated
$154,500 and are treated as a reduction of additional paid-in capital.
Preferred Stock
----------------
The Company has authorized the issuance of 200,000 shares of Preferred
Stock, par value $0.001 per share. The Board of Directors of the
Company has broad discretion to create one or more series of preferred
stock and to determine the rights, preferences and privileges of any
such series. This stock has a preference in involuntary liquidation
compared to all other classes of common stock. At June 30, 2000,
200,000 shares of preferred stock have been issued.
Notes Payable
--------------
Notes payable at June 30, 2000 consisted of the following:
The Company has issued $500,000 of notes payable dated February 3,
2000 through March 6, 2000 which carry no interest, payable 30 days
after receipt of funds. These notes are convertible by the holder at
maturity, the holder can convert this debenture to Common Stock at
thirty-seven and one half cents ($.375) per share.
As of the balance sheet date, these notes have been extended thirty
(30) days.
Notes payable to executives bearing interest at nine and one-half
percent (9.5%) per annum. These notes are demand notes totaling
$106,000.
NOTE 16 - COMMITMENTS AND CONTINGENCIES
-------------------------------
As part of the merger agreement with Web Partners, Inc. on May 25,
2000, the Company is obligated to make its best efforts to implement a
stock option plan and match, in similar terms, the options previously
available to Web Partners, Inc. shareholders and vendors approximating
2,041,000 options. The Web Partners plan was terminated at the merger
date. The Company has not yet completed the required Securities and
Exchange Commission filings as of the balance sheet date.
F - 20
<PAGE>
================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FROM JULY 13, 1998 (INCEPTION) TO JUNE 30, 2000
================================================================================
NOTE 16 - COMMITMENTS AND CONTINGENCIES - CONTINUED
---------------------------------------------
Accordingly, no new options have been granted. This contingency may
effect the reported acquisition costs of Web Partners, Inc. in the
future when the stock option grants are issued.
NOTE 17 - SUBSEQUENT EVENTS
------------------
Due to the deteriorating cash position of the Company, several debt
agreements have been defaulted upon and have been reclassified as
current liabilities on the balance sheet. The cash deficiencies
delayed the ability to commence the year end audit and has resulted in
the Company being out of compliance with certain SEC regulations. This
may impact the ability of the Company to obtain additional capital.
Subsequent to the balance sheet date, the Company is involved in
litigation with respect to unpaid vendor invoices of the Company in
the amount of $14,000. This amount has been properly reported as of
the balance sheet date.
NOTE 18 - PRO FORMA INFORMATION
-----------------------
The presentation for the consolidated financial statements has been
presented as of the first day of the fiscal year. The subsidiary
acquired was formed in September of 1998 but remained dormant with no
activity until August 1, 1999. Consequently, no pro-forma disclosure
is applicable for the fiscal year ended June 30, 1999.
NOTE 19 - OPERATING LEASES
-----------------
The Company has operating leases for office facilities on a
month-to-month basis as of June 30, 2000. Total lease expenses
incurred for the year under these leases approximated $97,000.
NOTE 20 - PENDING OR THREATENED LITIGATION
-----------------------------------
The Company is in default of substantially all of its obligations with
vendors and lenders as of the date of the auditors' report.
Consequently, the Company may have future claims assessed against it
as a result of these defaults. Additionally, the Company may be
subject to litigation regarding the Company's trading status and
alleged representations made by Company officials to certain
investors. The Company has received notices regarding these issues but
no formal legal proceeding has been filed. No provisions have been
made for any litigation in that such amounts are not known or
estimable.
F - 21
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<S> <C>
2.1* Share Exchange Agreement
2.2** Agreement and Plan of Merger
3.1*** Amended and Restated Articles of Incorporation
3.2 Amended and Restated Bylaws
4.1 Specimen Stock Certificate for Shares of Common Stock of the Company
4.2*** Class A Preferred Stock Designation of Rights and Preferences
10.1 Technology & Dispute Resolution Consulting, Inc. Agreement
10.2 Lease
10.3 Employment Contract with Santu Rohatgi
10.4 Employment Contract with Wyly Wade
10.5 Employment Contract with Mark Gray
16.1**** Letter from Anderson Anderson & Strong LLP
27.1 Financial Data Schedule
</TABLE>
* Filed as an Exhibit to a report by the Company on a Form 8-K, filed March 30,
2000, and incorporated herein by this reference.
** Filed as an Exhibit to a report by the Company on a Form 8-K, filed June 8,
2000, and incorporated herein by this reference.
*** Filed as an Appendix to the Company's Definitive Proxy Statement, filed
April 25, 2000, and incorporated herein by this reference.
**** Filed as an Exhibit to a report by the Company on a Form 8-K, filed March
<PAGE>
