-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PEUJhZYkWXf1JkEfezWKcXTHUk1PAyNlg6/ltWEZ510DOUpud3PPGcNeligIXxZW BGqJ++MVP+yJvizFT3Ckdg== /in/edgar/work/20000829/0000891554-00-002098/0000891554-00-002098.txt : 20000922 0000891554-00-002098.hdr.sgml : 20000922 ACCESSION NUMBER: 0000891554-00-002098 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000620 ITEM INFORMATION: FILED AS OF DATE: 20000829 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRONTLINE COMMUNICATIONS CORP CENTRAL INDEX KEY: 0001040850 STANDARD INDUSTRIAL CLASSIFICATION: [7374 ] IRS NUMBER: 133950283 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 001-15673 FILM NUMBER: 713013 BUSINESS ADDRESS: STREET 1: ONE BLUE HILL PLAZA STREET 2: STE 1548 CITY: PEARL RIVER STATE: NY ZIP: 10965 BUSINESS PHONE: 9146238553 MAIL ADDRESS: STREET 1: ONE BLUE HILL PLAZA STREET 2: STE 1548 CITY: PEARL RIVER STATE: NY ZIP: 10965 FORMER COMPANY: FORMER CONFORMED NAME: EASY STREET ONLINE INC DATE OF NAME CHANGE: 19970820 8-K/A 1 0001.txt AMENDMENT NO. 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A (Amendment No. 1) CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of Earliest Event Reported): June 20, 2000 FRONTLINE COMMUNICATIONS CORPORATION. (Exact name of registrant as specified in its charter) Delaware 000-24223 13-3950283 (State or other jurisdiction (Commission (I.R.S. Employer of incorporation) File Number) Identification No.) One Blue Hill Plaza, Pearl River, New York 10965 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (914) 623-8553 Not Applicable Former name or former address, if changed since last report Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. The following financial statements and pro forma financial information omitted from the Company's Report on Form 8-K for the event dated June 20,2000 filed with the Commission on July 5, 2000 in reliance upon instructions 7(a) (4) and 7(b)(2) of Form 8-K, are filed herewith. (a) Financial Statements of Business Acquired. Financial Statements of DelaNET, Inc. (i) Report of Independent Certified Public Accountants. (ii) Financial Statements as of December 31, 1999 and for the years ended December 31, 1999 and 1998. (iii) Unaudited Financial Statements as of March 31, 2000 and for the three months ended March 31, 2000 and 1999. (b) Pro Forma Financial Information. Unaudited Pro Forma Condensed Combined Financial Statements for Frontline Communications Corporation. (i) Introduction (ii) Pro Forma Combined Statements of Operations for the year ended December 31, 1999 and for the three months ended March 31, 2000 (iii) Notes to Pro Forma Combined Statements of Operations (c) Exhibits Reference is made to exhibits previously filed with the Securities and Exchange Commission as Exhibits to the Company's Report on Form 8-K filed with the Commission on July 5, 2000. Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this amendment to be signed on its behalf by the undersigned thereunto duly authorized. Dated: August 29, 2000 By: -------------------------------------- Vasan Thatham Principal Financial Officer and Vice President DelaNET, Inc. Financial Statements Years Ended December 31, 1999 and 1998 DelaNET, Inc. ================================================================================ Financial Statements Years Ended December 31, 1999 and 1998 F-1 DelaNET, Inc. Contents ================================================================================ Report of independent certified public accountants F-3 Financial statements: Balance sheet F-4 Statements of operations F-5 Statements of stockholders' deficit F-6 Statements of cash flows F-7 Notes to financial statements F-8 - F-17 F-2 Report of Independent Certified Public Accountants To the Board of Directors of Frontline Communications Corporation We have audited the accompanying balance sheet of DelaNET, Inc. (the "Company") as of December 31, 1999, and the related statements of operations, stockholders' deficit and cash flows for each of the years in the two-year period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As further described in Note 10 to the financial statements, subsequent to December 31, 1999, substantially all of the assets of the Company were acquired by Frontline Communications Corporation. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of DelaNET, Inc. as of December 31, 1999, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 1999, in conformity with generally accepted accounting principles. The financial statements for the year ended December 31, 1998, which were previously audited and reported on by another auditor, have been restated herein, as described in Note 9 to the financial statements. New York, New York July 31, 2000 F-3 DelaNET, Inc. Balance Sheet ================================================================================
December 31, 1999 - ------------------------------------------------------------------------------------- Assets Current: Cash $ 55,969 Accounts receivable, less allowance for doubtful accounts of $26,000 80,925 - ------------------------------------------------------------------------------------- Total current assets 136,894 Property and equipment, net (Notes 3 and 4) 327,712 Intangibles, net of accumulated amortization of $11,825 (Note 2) 57,425 Other 11,936 - ------------------------------------------------------------------------------------- $ 533,967 ===================================================================================== Liabilities and Stockholders' Deficit Current liabilities: Accounts payable $ 354,800 Accrued payroll and other current liabilities 115,003 Due to stockholders (Note 6) 232,389 RaveNet obligation (Note 2) 26,000 Current portion of capital lease obligations (Note 4) 75,275 Deferred revenue 334,534 - ------------------------------------------------------------------------------------- Total current liabilities 1,138,001 Capital lease obligations, less current portion (Note 4) 88,875 - ------------------------------------------------------------------------------------- Total liabilities 1,226,876 - ------------------------------------------------------------------------------------- Commitments and contingencies (Notes 4, 5 and 8) Stockholders' deficit: Common stock, $0.10 par value, 400,000 shares authorized; 400,000 shares issued and outstanding 40,000 Additional paid-in capital 657,774 Accumulated deficit (1,390,683) - ------------------------------------------------------------------------------------- Total stockholders' deficit (692,909) - ------------------------------------------------------------------------------------- $ 533,967 =====================================================================================
See accompanying notes to financial statements. F-4 DelaNET, Inc. Statements of Operations ================================================================================ Year ended December 31, 1999 1998 - -------------------------------------------------------------------------------- Revenues $ 1,191,278 $ 717,732 - -------------------------------------------------------------------------------- Costs and expenses: Cost of revenues (Note 5) 865,317 442,981 Selling, general and administrative (Note 6) 583,386 318,111 Noncash compensation (Note 6) 384,000 10,000 Depreciation and amortization 141,785 76,474 - -------------------------------------------------------------------------------- Total costs and expenses 1,974,488 847,566 - -------------------------------------------------------------------------------- Loss from operations (783,210) (129,834) Interest expense (37,962) (30,070) - -------------------------------------------------------------------------------- Net loss $ (821,172) $ (159,904) ================================================================================ See accompanying notes to financial statements. F-5 DelaNET, Inc. Statements of Stockholders' Deficit ================================================================================
Years ended December 31, 1999 and 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Common stock Additional Total ---------------------- paid-in Accumulated stockholders' Shares Amount capital deficit deficit - ----------------------------------------------------------------------------------------------------------------------------------- Balance, January 1, 1998 91,280 $ 9,128 $ 62,872 $ (409,607) $ (337,607) Issuance of common stock 11,520 1,152 (1,152) -- -- Issuance of common stock in settlement of stockholder loans (Note 6) 92,708 9,271 222,503 -- 231,774 Issuance of common stock for compensation (Note 6) 4,000 400 9,600 -- 10,000 Net loss -- -- -- (159,904) (159,904) - ----------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1998 199,508 19,951 293,823 (569,511) (255,737) Issuance of common stock for compensation (Note 6) 200,492 20,049 363,951 -- 384,000 Net loss -- -- -- (821,172) (821,172) - ----------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1999 400,000 $ 40,000 $ 657,774 $(1,390,683) $ (692,909) ===================================================================================================================================
See accompanying notes to financial statements. F-6 DelaNET, Inc. Statements of Cash Flows ================================================================================
Year ended December 31, 1999 1998 - ------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net loss $(821,171) $(159,904) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 141,785 76,474 Allowance for doubtful accounts (33,000) 49,000 Noncash compensation 384,000 10,000 Changes in assets and liabilities, net of effects of acquisition of businesses: Accounts receivable 132,955 (200,830) Other assets (8,437) (3,500) Accounts payable 262,092 69,956 Accrued payroll and other current liabilities 39,171 38,167 Deferred revenue 140,179 78,797 - ------------------------------------------------------------------------------------------------- Net cash provided by (used in) operating activities 237,574 (41,840) - ------------------------------------------------------------------------------------------------- Cash flows from investing activities: Acquisition of property and equipment (73,800) (72,636) Acquisition of businesses, net of cash acquired (20,250) (20,000) - ------------------------------------------------------------------------------------------------- Net cash used in investing activities (94,050) (92,636) - ------------------------------------------------------------------------------------------------- Cash flows from financing activities: Repayments of notes payable (30,847) (8,255) Payment on RaveNet obligation (3,000) -- Net proceeds from stockholder loans 17,158 168,364 Repayments of capital lease obligations (70,866) (27,311) - ------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities (87,555) 132,798 - ------------------------------------------------------------------------------------------------- Net increase (decrease) in cash 55,969 (1,678) Cash, beginning of year -- 1,678 - ------------------------------------------------------------------------------------------------- Cash, end of year $ 55,969 $ -- ================================================================================================= Supplemental disclosure of cash flow information: Interest paid $ 37,962 $ 30,070 ================================================================================================= Supplemental disclosures of non-cash investing and financing activities: Capital lease obligations incurred for the purchase of equipment $ 133,495 $ 69,892 Notes payable issued for the purchase of intangible assets $ -- $ 29,000 ================================================================================================= Supplemental disclosure of non-cash financing activities: Common stock issued in settlement of stockholder loans $ -- $ 231,774 =================================================================================================
See accompanying notes to financial statements. F-7 DelaNET, Inc. Notes to Financial Statements ================================================================================ 1. Summary of Significant Accounting Policies Organization and Basis of Presentation DelaNET, Inc. (the "Company") was incorporated on May 17, 1996 under the laws of the State of Delaware. The Company is an internet service provider serving the greater Delaware area, including parts of Pennsylvania and New Jersey. As further described in Note 10, subsequent to December 31, 1999, substantially all of the assets of the Company were acquired by Frontline Communications Corporation. No adjustments have been made in these financial statements as a result of such acquisition. Revenue Recognition Revenue related to internet services is recognized over the period in which services are provided. Deferred revenue represents prepaid subscription fees by subscribers. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Property and Equipment Property and equipment are stated at cost. Depreciation and amortization is calculated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful lives of the assets. Property and equipment under capital leases is stated at the present value of minimum lease payments and is amortized using the straight-line method over the shorter of the lease term or the estimated useful lives of the assets. F-8 DelaNET, Inc. Notes to Financial Statements ================================================================================ Years ------------------------------------------------------------------------ Computer equipment 3-5 Furniture and fixtures 7 Leasehold improvements 3 ======================================================================== Intangibles Intangibles consist of purchased customer bases. Amortization is calculated using the straight-line method over five years, the expected benefit period. Long-Lived Assets In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," long-lived assets, such as property and equipment and intangibles, are evaluated for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows from the use of such assets. Through December 31, 1999, the Company has not recorded any such impairment. Income Taxes The Company has elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. As such, the Company is not subject to Federal or state income taxes directly. Income or loss of the Company passes through to the individual stockholders. Unaudited pro forma income tax information included in Note 6 is presented in accordance with SFAS No. 109, "Accounting for Income Taxes," as if the Company had been subject to Federal and state income taxes for the years ended December 31, 1999 and 1998. F-9 DelaNET, Inc. Notes to Financial Statements ================================================================================ Advertising All costs associated with advertising services are expensed as incurred. Advertising expense of approximately $58,000 and $13,000 for the years ended December 31, 1999 and 1998, respectively, is included in selling, general and administrative expenses. Financial Instruments and Concentration of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and accounts receivable. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of customers comprising the Company's customer base and the relatively minor balances of each individual account. At December 31, 1999, the fair value of the Company's financial instruments approximate their carrying value based on their terms and interest rates. Comprehensive Income (Loss) The Company has no components of comprehensive income or expense. Accordingly, the Company's comprehensive loss and net loss are equal for all periods presented. Recent Accounting Pronouncement In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which requires entities to recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. SFAS No. 133, as amended by SFAS No. 137, is effective for all fiscal years beginning after June 15, 2000. The Company does not presently enter into any transactions involving derivative financial instruments and, accordingly, does not anticipate the new standard will have any effect on its financial statements. F-10 DelaNET, Inc. Notes to Financial Statements ================================================================================ In March 2000, the FASB issued Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation," an interpretation of APB Opinion No. 25 ("FIN No. 44"). FIN No. 44 clarifies the application of APB Opinion No. 25 for certain issues including: (a) the definition of an employee for purposes of applying APB Opinion No. 25, (b) the criteria for determining whether a plan qualifies as a noncompensatory 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. In general, FIN No. 44 is effective July 1, 2000. The Company does not expect the adoption of FIN No. 44 to have a material impact on its financial position or results of operations. 2. Acquisitions On December 23, 1998, the Company entered into a stock purchase agreement (the "Agreement") with RaveNet Systems, Inc. ("RaveNet") to acquire 100% of the outstanding common stock of RaveNet in exchange for $20,000 and an obligation to pay an additional $80,000 within six months from the date of the Agreement. As of December 31, 1999, the Company had paid the $20,000 and an additional $3,000 and was in negotiations to reduce the overall original purchase price. In accordance with a settlement agreement entered into in May 2000 between the Company and the former RaveNet stockholders, the purchase price was deemed to be $49,000, all of which was allocated to purchased customer base, included in intangibles to be amortized over five years, the expected benefit period. The remaining obligation to RaveNet of $26,000 is reflected in the financial statements as of December 31, 1999 and was subsequently paid in May 2000. F-11 DelaNET, Inc. Notes to Financial Statements ================================================================================ On June 30, 1999, the Company entered into an asset purchase agreement with New World Internet Providers, Inc. ("New World") to acquire the customer base and assume certain liabilities of New World in exchange for $10,000. The customer base, with a value of $20,250, is included in intangibles to be amortized over five years, the expected benefit period. 3. Property and Equipment Property and equipment consists of the following: December 31, 1999 --------------------------------------------------------------------------- Computer equipment $ 547,295 Furniture and fixtures 10,076 Leasehold improvements 22,037 --------------------------------------------------------------------------- 579,408 Less: Accumulated depreciation and amortization (251,696) --------------------------------------------------------------------------- Total $ 327,712 =========================================================================== Included in computer equipment is equipment under capitalized leases with costs of $274,680 and accumulated amortization of $115,870 at December 31, 1999. 4. Leases The Company leases certain computer and office equipment under capitalized leases, and office space under noncancelable operating leases, expiring at various dates through 2002. F-12 DelaNET, Inc. Notes to Financial Statements ================================================================================ Future minimum annual lease payments under capitalized leases as of December 31, 1999 are as follows: --------------------------------------------------------------------------- 2000 $105,485 2001 44,116 2002 58,688 --------------------------------------------------------------------------- Total minimum lease payments 208,289 Less: Amount representing interest (44,139) --------------------------------------------------------------------------- Present value of minimum lease payments 164,150 Less: Current portion (75,275) --------------------------------------------------------------------------- $ 88,875 =========================================================================== Future minimum lease commitments under a noncancelable operating lease as of December 31, 1999 are approximately $15,000 and $7,000 for the years ended December 31, 2000 and 2001, respectively. Rent expense for the years ended December 31, 1999 and 1998 amounted to approximately $19,000 and $12,000, respectively. 5. Major Vendors During the years ended December 31, 1999 and 1998, the Company purchased a significant portion of its cost of revenues from a few major vendors. During the year ended December 31, 1999, purchases from three vendors totaled 32%, 24% and 11% of the Company's total cost of revenues. During the year ended December 31, 1998, purchases from four vendors totaled 18%, 15%, 14% and 12% of the Company's total cost of revenues. Additionally, the Company has entered into service agreements through 2004 with certain of its vendors. Annual commitments under such agreements aggregate approximately $150,000, $112,000, $71,000, $71,000 and $43,000 for the years ending December 31, 2000 through 2004, respectively. In connection with the asset purchase agreement, as described in Note 10, commitments under such service agreements have been assumed by Frontline Communications Corporation as of June 20, 2000. F-13 DelaNET, Inc. Notes to Financial Statements ================================================================================ 6. Related Party Transactions During 1999 and 1998, certain stockholders of the Company incurred various operating expenses on behalf of the Company. These amounts have been recorded as expenses by the Company in the periods incurred. Amounts due to stockholders, which are short-term and noninterest-bearing, totaled $232,389 at December 31, 1999. During 1999, the Company issued 200,492 shares of its common stock, with a fair value of $384,000, to two of its officers/stockholders, which has been charged to the Company's 1999 operations as noncash compensation. During 1998, the Company issued 92,708 shares of its common stock, with a fair value of $231,774, as settlement of certain amounts due to stockholders. During 1998, the Company issued 4,000 shares of its common stock, with a fair value of $10,000, to two employees, which has been charged to the Company's 1998 operations as noncash compensation. During 1999, cash compensation to three officers/stockholders totaled $36,000. During 1998, there was no such cash compensation to those individuals. F-14 DelaNET, Inc. Notes to Financial Statements ================================================================================ 7. Income Taxes (Unaudited) As a Subchapter S corporation, the Company is not subject to Federal or state income taxes directly. Unaudited pro forma income tax expense (recovery) which would have resulted if the Company was a C corporation for income tax reporting purposes, differs from the amounts that would result from applying the Federal statutory rate of 34% as follows: December 31, 1999 1998 --------------------------------------------------------------------------- Federal income taxes (recoveries) computed at the statutory rate $(279,198) (34.0)% $(54,367) (34.0)% State income taxes (recoveries), net of Federal benefit (45,164) (5.5) (8,795) (5.5) Change in valuation allowance 324,000 39.5 63,000 39.5 Other 362 -- 162 -- --------------------------------------------------------------------------- Total $ -- --% $ -- --% =========================================================================== Temporary differences that give rise to the components of pro forma deferred tax assets and liabilities as described above are approximately as follows: December 31, 1999 --------------------------------------------------------------------------- Deferred tax assets: Net operating loss carryforward $ 434,000 Accounts receivable 10,000 Deferred revenue 132,000 --------------------------------------------------------------------------- Gross deferred tax assets 576,000 Deferred tax liability: Property and equipment (27,000) --------------------------------------------------------------------------- Net deferred tax asset 549,000 Valuation allowance (549,000) --------------------------------------------------------------------------- Net deferred tax asset $ -- =========================================================================== F-15 DelaNET, Inc. Notes to Financial Statements ================================================================================ 8. Legal Proceedings The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material effect on the Company's financial position, results of operations or liquidity. 9. Restatement During the course of the audit of the Company's financial statements for the year ended December 31, 1999, and the re-audit of the financial statements for the year ended December 31, 1998, the Company became aware of certain required adjustments, primarily in the accounts payable, RaveNet obligation and accounts receivable balances as of December 31, 1998. The financial statements for the year ended December 31, 1998 have been restated to reflect these adjustments, as summarized below: --------------------------------------------------------------------------- Net loss - as previously reported $(208,000) Adjustments - increase (decrease): Additional cost of revenues (75,000) Allowance for doubtful accounts 78,000 Reversal of write-off of intangible asset 50,000 Other (4,904) --------------------------------------------------------------------------- Net loss - as adjusted $(159,904) =========================================================================== F-16 DelaNET, Inc. Notes to Financial Statements ================================================================================ 10. Subsequent Event On June 20, 2000 (the "Closing Date"), pursuant to an Asset Purchase Agreement, substantially all of the assets of the Company were acquired by Frontline Communications Corporation ("Frontline") for consideration of approximately $3,697,000, subject to certain adjustments, as follows: (1) $1,750,000 cash paid to the Company on the Closing Date; (2) $250,000 placed in escrow on the Closing Date, to be distributed in accordance with an escrow agreement; (3) 200,000 shares of unregistered common stock of Frontline, valued at $321,400; (4) a convertible promissory note in the principal amount of $728,600 (the "Convertible Promissory Note"); and (5) the assumption of approximately $647,000 of liabilities. The principal amount of the Convertible Promissory Note is payable in full on June 20, 2003, with the right of early repayment, and bears interest at a rate of 4% per annum, payable semi-annually commencing on December 20, 2000. Pursuant to the Convertible Promissory Note, Frontline will have the option to convert the principal amount and any unpaid accrued interest into unregistered shares of common stock of Frontline, at a conversion rate of $8 per share, if, at any time during the term of the Convertible Promissory Note, the closing price of the common stock of Frontline equals or exceeds $10 per share. F-17 DelaNET, Inc. Financial Statements For the period ended March 31, 2000 DelaNET, Inc. Table of contents Financial Statements (unaudited): Condensed Balance Sheets 1 Condensed Statements of Operations 2 Condensed Statements of Cash flows 3 Notes to Condensed Financial Statements 4 DelaNET, Inc. Condensed Balance Sheet
March 31, December 31, 2000 1999 (1) ----------- ----------- (Unaudited) ASSETS Current: Cash $ 79,012 $ 55,969 Accounts receivable, net of allowance for doubtful accounts 110,035 80,925 Prepaid expenses and other 1,530 -- ----------- ----------- Total current assets 190,577 136,894 Property and equipment, net 407,160 327,712 Intangibles, net 52,969 57,425 Other 11,936 11,936 ----------- ----------- $ 662,642 $ 533,967 =========== =========== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable and accrued expenses $ 515,393 $ 469,803 Due to stockholders 232,389 232,389 RaveNet obligation 26,000 26,000 Deferred revenue 339,886 334,534 Current portion of capitalized lease obligations 70,000 75,275 ----------- ----------- Total current liabilities 1,183,668 1,138,001 Capitalized lease obligations, net of current portion 153,873 88,875 ----------- ----------- Total liabilities 1,337,541 1,226,876 ----------- ----------- Stockholders' deficit: Common Stock, $.01 par value, 400,000 authorized, 400,000 issued and outstanding 40,000 40,000 Additional paid-in capital 657,774 657,774 Accumulated deficit (1,372,673) (1,390,683) ----------- ----------- Total stockholders' deficit (674,899) (692,909) ----------- ----------- $ 662,642 $ 533,967 =========== ===========
(1) The condensed balance sheet at December 31, 1999 is derived from audited financial statements at that date. See notes to condensed financial statements. -1- DelaNET, Inc. Condensed Statements of Operations (Unaudited) Three months ended March 31, March 31, 2000 1999 --------- --------- Revenues $ 531,106 $ 250,263 Costs and expenses: Cost of revenues 356,372 194,262 Selling, general and administrative 149,626 126,159 Depreciation and amortization 28,256 23,455 --------- --------- Total costs end expenses 534,254 343,876 --------- --------- Loss from operations (3,148) (93,613) Other income (expense): Interest expense (11,118) (9,538) Other income 32,276 -- --------- --------- Net income (loss) $ 18,010 ($103,151) ========= ========= See notes to condensed financial statements. -2- DelaNET, Inc. Condensed Statements of Cash Flows (Unaudited)
Three months ended March 31, March 31, 2000 1999 --------- --------- Cash flows from operating activities: Net income (loss) $ 18,010 ($103,151) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 28,256 23,455 Changes in assets and liabilities net of effect of acquisition of businesses Accounts receivable (29,110) (11,744) Prepaid expenses and other assets (1,530) (100) Accounts payable and accrued expenses 45,580 161,084 Deferred revenue 5,352 70,944 --------- --------- Net cash provided by operating activities 66,558 140,488 --------- --------- Cash flows from investing activities: Acquisition of property and equipment (18,135) (12,682) --------- --------- Net cash used in investing activities (18,135) (12,682) --------- --------- Cash flows from financing activities: Repayments of capital lease obligations (25,380) (16,607) --------- --------- Net cash used in financing activities (25,380) (16,607) --------- --------- Net increase in cash 23,043 111,199 Cash, beginning of period 55,969 -- --------- --------- Cash, end of period $ 79,012 $ 111,199 ========= ========= Supplemental information: Approximate interest paid during the period $ 11,000 $ 9,500 Capital lease obligations incurred for the purchase of equipment $ 86,000 $ 11,000
See notes to condensed financial statements. -3- DelaNET, Inc. Notes to Condensed Financial Statements (Unaudited) March 31, 2000 NOTE A-BASIS OF PRESENTATION The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the management, the accompanying financial statements include all normal recurring adjustments considered necessary for the fair presentation of the results for interim periods. These unaudited interim financial statements should be read in conjunction with the audited financial statements included elsewhere in this Form 8-K/A. The results for the interim periods are not necessarily indicative of the results to be expected for an entire year or any future periods. NOTE B- SUBSEQUENT EVENT On June 20, 2000 (the' Closing Date"), pursuant to an Asset Purchase Agreement, substantially all of the assets of the Company were acquired by Frontline Communications Corporation ("Frontline") for consideration of approximately $3,697,000, subject to certain adjustments, payable as follows: (1) $1,750,000 cash was paid to the Company on the Closing Date; (2) $250,000 was placed in escrow on the Closing Date to be distributed in accordance with an escrow agreement; (3) 200,000 shares of unregistered common stock of Frontline, valued at $321,400; (4) a convertible promissory note in the principal amount of $728,600 (the" Convertible Promissory Note") ; and (5) the assumption of approximately $647,000 of liabilities. The principal amount of the Convertible Promissory Note is payable in full on June 20, 2003, with the right of early payment, and bears interest at a rate of 4% per annum, payable semi-annually commencing on December 20,2000. Pursuant to the Convertible Promissory Note, Frontline will have the option to convert the principal amount and any unpaid accrued interest into unregistered shares of common stock of Frontline, at a conversion price of $8 per share, if, at any time during the term of the Convertible Promissory Note, the closing price of the common stock of Frontline equals or exceeds $10 per share. No adjustments have been made in these financial statements as a result of such acquisition by Frontline. -4- Frontline Communications Corporation and DelaNET, Inc. Unaudited Pro Forma Combined Financial Information On June 20, 2000 (the "Closing date"), pursuant to an Asset Purchase Agreement, Frontline Communications Corporation ("Frontline") acquired substantially all of the assets of DelaNET, Inc. ("Delanet") for consideration of approximately $3,697,000, subject to certain adjustments, payable as follows: (1) $1,750,000 cash was paid to Delanet on the Closing Date; (2) $250,000 was placed in escrow on the Closing Date, to be distributed in accordance with an escrow agreement; (3) 200,000 shares of unregistered common stock of Frontline, valued at $321,400 (4) a convertible promissory note in the principal amount of $728,600 (the "Convertible Promissory Note"); and (5) the assumption of approximately $647,000 of liabilities. The principal amount of the Convertible Promissory Note is payable in full on June 20, 2003, with the right of early payment, and bears interest at a rate of 4% per annum, payable semi annually commencing on December 20, 2000. Pursuant to the Convertible Promissory Note, Frontline will have the option to convert the principal amount and any unpaid accrued interest into unregistered shares of common stock of Frontline, at a conversion price of $8 per share, if, at any time during the term of the Convertible Promissory Note, the closing price of the common stock of Frontline equals or exceeds $10 per share. The accompanying unaudited Pro Forma Combined Statements of Operations have been derived from Frontline's and Delanet's statements of operations for the year ended December 31, 1999 and for the three months ended March 31, 2000. Adjustments have been made to such information to give effect to the Delanet acquisition and assumed public sale of Series B Convertible Redeemable preferred stock by Frontline for $2 million issued in February 2000 to fund the cash portion of the acquisition as if each of the transactions had occurred as of the beginning of the earliest period covered by these Pro Forma Combined Statements of Operations. The unaudited Pro Forma Combined Statements of Operations have been included as required and allowed by the rules of the Commission and are provided for informational purposes only. The Pro Forma Statements of Operations do not purport to be indicative of the results of the operations which would have been obtained if the acquisition had been effected on the date indicated or which may be obtained in the future. The accompanying unaudited Pro Forma Combined Statements of operations should be read in conjunction with the respective historical financial statements of Frontline and that of Delanet which are contained elsewhere herein. A consolidated balance sheet subsequent to the Closing Date was included in Frontline's unaudited interim financial statements as of June 30, 2000, as filed on Form 10-QSB on August 14,2000. As such no pro forma balance sheet is provided herein. Page 1 FRONTLINE COMMUNICATIONS CORPORATION and DELANET, Inc. Pro Forma Combined Statement of Operations For the year ended December 31, 1999 (Unaudited)
Historical Pro Forma Pro Forma Frontline DelaNet Adjustments Note Combined ------------ ------------ ------------ --------------- ------------ Revenues $ 2,975,213 $ 1,191,278 $ 4,166,491 ------------ ------------ ------------ Costs and expenses: Cost of revenues 2,015,824 865,317 2,881,141 Selling, general and administrative 5,235,711 583,386 56,000 1 5,875,097 Depreciation and amortization 1,764,373 141,785 1,311,321 2 3,217,479 Non-cash compensation charge 754,220 384,000 (384,000) 1 754,220 ------------ ------------ ------------ ------------ 9,770,128 1,974,488 983,321 12,727,937 ------------ ------------ ------------ ------------ Loss from operations (6,794,915) (783,210) (983,321) (8,561,446) Other income (expense): Interest and other income 82,411 82,411 Interest expense (44,754) (37,962) (82,716) ------------ ------------ ------------ ------------ Net loss (6,757,258) (821,172) (983,321) (8,561,751) ------------ ------------ ------------ ------------ Preferred dividends 80,000 3 80,000 ------------ ------------ ------------ ------------ Net loss applicable to common shares ($ 6,757,258) ($ 821,172) ($ 1,063,321) ($ 8,641,751) ============ ============ ============ ============ Loss per common share-basic and diluted ($ 1.90) ($ 2.30) ============ ============ Weighted average number of common shares outstanding- basic and diluted 3,550,231 4 3,750,231 ============ ============
Page 2 FRONTLINE COMMUNICATIONS CORPORATION and DELANET, Inc. Pro Forma Combined Statement of Operations For the three months ended March 31, 2000 (Unaudited)
Historical Pro Forma Pro Forma Frontline DelaNet Adjustments Note Combined ------------ ------------ ------------ --------------- ------------ Revenues $ 934,654 $ 531,106 $ 1,465,760 ------------- ------------- ------------- Costs and expenses: Cost of revenues 592,527 356,372 948,899 Selling, general and administrative 1,553,918 149,626 14,000 1 1,717,544 Depreciation and amortization 661,463 28,256 327,830 2 1,017,549 ------------- ------------- ------------- ------------- 2,807,908 534,254 341,830 3,683,992 ------------- ------------- ------------- ------------- Loss from operations (1,873,254) (3,148) (341,830) (2,218,232) Other income (expense): Interest and other income 93,299 32,276 125,575 Interest expense (38,616) (11,118) (49,734) ------------- ------------- ------------- ------------- Net loss (1,818,571) 18,010 (341,830) (2,142,391) ------------- ------------- ------------- ------------- Dividends related to beneficial conversion feature of preferred stock 5,856,497 5,856,497 Preferred dividends 62,747 9,556 3 72,303 ------------- ------------- ------------- ------------- Net loss applicable to common shares ($ 7,737,815) $ 18,010 ($ 351,386) ($ 8,071,191) ============= ============= ============= ============= Loss per common share-basic and diluted ($ 1.73) ($ 1.73) ============= ============= Weighted average number of common shares outstanding- basic and diluted 4,462,909 4 4,662,909 ============= =============
Page 3 Frontline Communications Corporation and DelaNET, Inc. Unaudited Pro Forma Combined Financial Information Pro Forma adjustments The Pro Forma Adjustments to the Unaudited Pro Forma Statements of Operations are as follows: 1. To adjust historical compensation of officers to compensation per consulting agreements entered into at date of acquisition. 2. To reflect amortization of acquired intangibles, using estimated useful life of 3 years. 3. To record the dividend payable on Series B Convertible Redeemable preferred stock. 4. The weighted average number of shares have been adjusted for issuance of 200,000 shares of Frontline's common stock for Delanet acquisition. Page 4 -----END PRIVACY-ENHANCED MESSAGE-----