As filed with the Securities and Exchange Commission on April 18, 2000.
Registration No. 333-
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 25, 2003
REGISTRATION NO. 333-______
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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FRONTLINE COMMUNICATIONS CORPORATION
(Exact name(Name of registrantRegistrant as specifiedSpecified in its charter)
Delaware One Blue Hill Plaza,Its Charter)
DELAWARE 13-3950283
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification Number)
ONE BLUE HILL PLAZA, 7th Floor 13-3950283
(state or other Pearl River, New YorkFLOOR
PEARL RIVER, NEW YORK 10965
(IRS employer
jurisdiction(845) 623-8553
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of (914) 623-8553 identification
incorporation (Address, including zip code, number)
or organization) and telephone number, including
area code, of registrant's
principal executive offices)
----------
StephenRegistrant's Principal Executive Offices)
STEPHEN J. Cole-Hatchard, Chief Executive Officer
Frontline Communications Corporation
One Blue Hill Plaza,COLE-HATCHARD
CHIEF EXECUTIVE OFFICER
FRONTLINE COMMUNICATIONS CORPORATION
ONE BLUE HILL PLAZA, 7th Floor
Pearl River, New YorkFLOOR
PEARL RIVER, NEW YORK 10965
(914)(845) 623-8553
(Name, address, including zip code,Address, Including Zip Code, and telephone number,
including area code,Telephone Number, Including
Area Code, of agentAgent for service)
----------
Copies to:
Robert J. Mittman, Esq.
Blank Rome Tenzer GreenblattService)
COPY TO:
SEAN P. MCGUINNESS, ESQ.
SWIDLER BERLIN SHEREFF FRIEDMAN, LLP
The Chrysler Building
405 Lexington Avenue
New York, New York 10174
Telephone No. (212) 885-5000
Telecopier No. (212) 885-5001
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this registration statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|3000 K STREET, N.W. SUITE 300
WASHINGTON, D.C. 20007
TELEPHONE: (202) 424-7500
FACSIMILE: (202) 295-8478
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
- ------------------------------------------------------------------------------
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans,as amended, check the following box. |X|[ ]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legal facsimile thereof, pursuant to Item 11(a) of
this Form, check the following box: [ X ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_| ____[ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_| _____[ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|[ ]
2
CALCULATION OF REGISTRATION FEE
Proposed Maximum Proposed Maximum
Title of each Class of Securities to be Amount to be Offering Price Per Aggregate Amount of
Registered Registered Share(1) Offering Price(1) Registration Fee
====================================================================================================================================
PROPOSED MAXIMUM
TITLE OF SHARES AMOUNT TO BE AGGREGATE PRICE PER PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED UNIT (1) OFFERING PRICE (1) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01
per share 237,440(2)(3) $2.50 $593,600.00
- ------------------------------------------------------------------------------------------------------------------------------------3,494,999 $ .53 $ 1,852,349 $ 149.86
Common Stock, par value $.01
per share, issuable pursuant
to the terms of a convertible
promissory note 462,000 .25 115,500 9.34
Common Stock, par value $.01
per share, issuable upon
exercise of public warrants 1,840,000(4) $4.80 $8,832,000.00
- ------------------------------------------------------------------------------------------------------------------------------------220,000 .42 92,400 7.48
Common Stock, par value $.01
per share, issuable upon
exercise of private placement
warrants 18,534(4) $6.07 $112,501.38
- ------------------------------------------------------------------------------------------------------------------------------------300,000 .40 120,000 9.71
Common Stock, par value $.01
per share, issuable upon
exercise of private placement
warrants 21,662(4) $13.85 $300,018.70
- ------------------------------------------------------------------------------------------------------------------------------------125,000 .08 10,000 0.81
Common Stock, par value $.01
per share, issuable upon
exercise of underwriter's
warrants 151,300(4) $6.60 $998,580.00
- ------------------------------------------------------------------------------------------------------------------------------------750,000 .01 7,500 0.61
Common Stock, par value $.01
per share, issuable upon
exercise of underwriter's
warrants 160,000(4) $7.92 $1,267,200.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total $12,103,900.08 $3,195.43
====================================================================================================================================1,666,666 .30 500,000 40.45
TOTAL REGISTRATION FEE 218.26
(1) Estimated, pursuant to Rule 457(c), solely for the purpose of
calculating the registration fee based on the closing priceaverage of the high and
low prices for the common stock, as reported on the American Stock
Exchange Market on April 13, 2000
(2) Includes upNovember 21, 2003.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
3
SUBJECT TO COMPLETION - DATED NOVEMBER 25, 2003
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to 95,596 additionalsell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
FRONTLINE COMMUNICATIONS CORPORATION
7,018,665 SHARES OF COMMON STOCK
This prospectus relates to the resale of 7,018,665 shares of common
stock as may become
issuable pursuant to certain repricing provisions.
(3) Pursuant to Rule 416by the selling shareholders named in this prospectus. The 7,018,665 shares
of the Securities Act, there are also being registered
hereunder additional shares as may beour common stock offered by this prospectus were issued to the selling
shareholders becausein six separate transactions. See - Summary of any future stock dividends, stock distributions, stock splits or
similar capital readjustments.
(4) Pursuant to Rule 416Transactions - The
Offering, at page 25. The selling shareholders will receive all of the Securities Act, there are being registered
additional shares as may become issuable pursuant to the anti-dilution
provisions of the warrants.
----------
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
PROSPECTUS
2,428,936 SHARES
FRONTLINE COMMUNICATIONS CORPORATION
COMMON STOCK
This Prospectus covers 1,840,000 sharesproceeds
from any sales of common stock, $.01 par value, of
Frontline Communications Corporation, issuable upon exercise of 1,840,000
redeemable common stock purchase warrants included in the units sold in the
Company's 1998 public offering. Each public warrant entitles the registered
holder thereof to purchase until May 13, 2003, one share of Common Stock at an
exercise price of $4.80 per share.
This prospectus also relates to an offering by certain selling stockholders
of an aggregate of up to 141,844 shares of our issued and outstanding common
stock. In addition, this prospectus also relates to the offering by certain of
these selling stockholders and a placement agent of an aggregate of 40,196
shares issuable upon exercise of outstanding private placement warrants and up
to 95,596 additional shares which may be issuable upon repricing rights granted
to these selling stockholders in connection with our December 1999 private
placement. Finally, this prospectus also relates to up to 311,300 shares which
may be issued upon the exercise of underwriter's warrants issued to the
underwriter of our initial public offering. All of the shares of common stock
described in this paragraph are being offered for resale by the selling
stockholders pursuant to this prospectus.
The common stock may be offered from time to time by the selling
stockholders through ordinary brokerage transactions in the over-the-counter
markets, in negotiated transactions or otherwise, at market prices prevailing at
the time of sale or at negotiated prices and in other ways as described in the
"Plan of Distribution." We will not receive any of the proceeds.
Assuming that all of the warrants held by selling stockholders are exercised, we
will realize proceeds fromof approximately $729,900.
The selling shareholders may sell the saleshares of common stock at various
times and in various types of transactions, including: block transactions,
directly to purchasers through agents, brokers, dealers or underwriters, and
sales "at the market" to or through a market maker or an existing trading market
or otherwise. Sales not covered by this prospectus may also be made pursuant to
Rule 144 or another applicable exemption under the Securities Act of 1933.
Shares may be sold at the market price of the common stock at the time of a
sale, at prices relating to the market price over a period of time, or at prices
negotiated with the buyers of the shares.
The selling shareholders will pay all brokerage fees and commissions
and similar expenses. Under the terms of our registration rights agreements with
the selling stockholders.
If allshareholders, we are required to pay legal, accounting and other
expenses relating to the registration of the public warrants, private placement warrantsshares with the Securities and
underwriter's
warrants are exercised, of which there can be no assurance, the Company would
receive gross proceeds of up to $11,510,300. Any proceeds received by the
Company from such exercises will be used for working capital and general
corporate purposes.
TheExchange Commission.
Our common stock is traded on the American Stock Exchange under the
symbol "FNT"."FNT." On April 3, 2000,November 21, 2003, the closinglast reported sale price of thefor our common
stock as reported
by AMEX was $2.50.
An investment$0.53 per share.
----------------
Investing in theour common stock is speculative and involves a high degree of risk. See "Risk Factors"You
should consider carefully the risk factors beginning on Page 6.page 12 of this
prospectus before making a decision to purchase our stock.
----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacydetermined if this
prospectus is truthful or accuracy of this prospectus.complete. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is _______, 2000._________________, 2003.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by Frontline Communications
Corporation with the Securities and Exchange Commission are incorporated herein
by reference and shall be deemed a part of this prospectus:
(1)o Annual Reportreport on Form 10-KSB for the fiscal year ended December 31,
1999;
(2)2002, filed on April 15, 2003, amendment filed on October 6,
2003;
o Quarterly report on Form 10-QSB for the quarter ended March
31, 2003, filed on May 13, 2003;
o Quarterly report on Form 10-QSB for the quarter ended June 30,
2003, filed on August 19, 2003, amendment filed on October 3,
2003;
o Quarterly report on Form 10-QSB for the quarter ended
September 30, 2003, filed on November 14, 2003;
o Form 8-Ks filed on March 31, 2003, April 18, 2003, May 20,
2003 and September 30, 2003, and amendments thereto, filed May
6, 2003, June 17, 2003, June 18, 2003 and October 6,2003;
o Definitive Proxy Statement on Form 14A filed on November 13,
2003; and
o The description of our common stock contained in our
Registration Statement on Form 8-A, declared effective May 5,
1998, together with any amendment or report filed with the SEC
for the purpose of updating the description.
All documents we file pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, after the date of this prospectus and
before the termination of the offering of the securities hereby shall be deemed
to be incorporated by reference in this prospectus and to be a part of this
prospectus on the date of filing of the documents. Any statement incorporated in
this prospectus shall be deemed to be modified or superseded for purposes of
this prospectus to the extent that a statement contained in this prospectus or
in any other subsequently filed document which also is, or is deemed to be,
incorporated by reference in this prospectus modifies or supersedes the
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this prospectus or the
registration statement of which it is a part.
4
This prospectus incorporates documents by reference with respect to
Frontline Communications Corporation that are not presented herein or delivered
herewith. These documents are available without charge to any person, including
any beneficial owner of our securities, to whom this prospectus is delivered,
upon written or oral request to Amy Wagner-Mele, Esq., Frontline Communications
Corporation, One Blue Hill Plaza, 7th6th Floor, Pearl River, New York 10965,
telephone: (914)(845) 623-8553.
Frontline Communications Corporation is subject to the informational
requirements of the Exchange Act. We file reports, proxy statements and other
information with the SEC. These reports and other information can also be read
and copied at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. Our electronic
filings made through the SEC's electronic data gathering, analysis and retrieval
system are publicly available through the SEC's worldwide web site
(http://www.sec.gov).
2
PROSPECTUS SUMMARY
ThisTHE BUSINESS
The following is a summary highlights certaindescription of our business and of the
business of Proyecciones y Ventas Organizadas, S.A. de C.V., ("Provo"), a
company we acquired in April 2003. Because this is a summary, it does not
contain all the information contained elsewhere in this
prospectus.about us that may be important to you. You should
read the entire prospectus carefully, including ourmore detailed information and the financial statements and related
notes which are incorporated by reference in this prospectus.
Our Acquisition of Provo
On April 3, 2003, we acquired all of the outstanding stock of Provo, a
company organized and especiallyexisting under the risks describedlaws of Mexico, in exchange for 220,000
shares of our convertible preferred stock and a $20,000,000 secured promissory
note. We are currently seeking shareholder approval of the conversion of our
Series E convertible preferred stock, which is held by the former stockholders
of Provo, into shares of our common stock. Upon receipt of such approval, we
anticipate that 133,445 shares of the Series E convertible preferred stock
(comprising approximately 60.7% of the originally outstanding Series E
convertible preferred stock) will automatically be converted into 13,344,514
shares of common stock, representing 49.5% of the then outstanding common stock,
and that the amount due on the $20,000,000 secured promissory note also will be
reduced by 60.7% to $7,860,000. The remainder of the Series E convertible
preferred stock will remain outstanding and be subject to optional conversion by
its holders from time to time, except that that no share of Series E convertible
preferred stock will be converted into common stock if as a result of such
conversion the shares of common stock issuable to the two former Provo
stockholders and any entity directly or indirectly controlled by them upon such
conversion would exceed 49.5% of the issued and outstanding common stock upon
the effectiveness of the conversion.
5
If our shareholders do not approve the conversion of the Series E
convertible preferred stock into common stock, the $20,000,000 note will become
due and payable in accordance with its terms. The note is secured by
substantially all of our assets, including the capital stock of Provo. In the
event that we are unable to pay the note as it becomes due, the former
stockholders of Provo may initiate actions against us, which may include
foreclosure on their collateral consisting of substantially all of our assets.
We do not believe that the collateral underlying the $20,000,000 note is
sufficient to satisfy the note. If the collateral is insufficient to satisfy our
obligation under "Risk Factors."
The Company
Ourthe note, and we are unable to negotiate a settlement with the
former stockholders of Provo, we may be forced to seek bankruptcy protection. We
believe that the significant additional liabilities that we will incur if our
stockholders fail to approve the conversion of the Series E convertible
preferred stock will have a material adverse effect on our business and the
interests of our stockholders.
For a more detailed discussion of our acquisition of Provo, see the
Definitive Proxy Statement on Form 14A, filed November 13, 2003, which is
incorporated herein by reference.
Description of Frontline's Business
General
We are a fullregional Internet service provider ("ISP") providing Internet
company. We provide Internet-access, web hosting, website design, and related services productsto residential and
solutions tosmall business customers on a national basis. We offer our
customers a single point of contact for a complete business solution to their
Internet needs. Our primary focus is to provide small and medium-sized
businesses with Internet services designed to help these businesses maximizethroughout the potential of the Internet and achieve a competitive advantage in their markets.
We provide our customers with a wide array of Internet access alternatives and
Website development and Internet Website presence services. Our strategy is to
expand our geographic presence, our customer and revenue base and our Web
hosting and broadband capabilities.
The broad acceptance of the Internet has created numerous opportunities for
businesses to improve their competitive position in their markets. We believe
the small and medium-sized business market generally offers significant
opportunity for the growth of our business because of the large number of these
businesses throughout theNortheast United States and, their growing presence on the
Internet. Small and medium-sized businesses are increasingly seeking third-party
service providersthrough a
network partnership agreement, Internet access to help them create, build and implement their Internet
strategy. The analysis, design and implementationcustomers nationwide.
Primarily through 18 acquisitions, we grew our monthly revenue from
$30,000 as of an effective Internet
solution require a range of skills, expertise and technology that only a limited
number of small and medium-sized businesses possess. In response to these needs
and the growth of the Internet as a vehicle for sales and services, we have
developed a full array of services designed to address all of the Internet
service requirements of our small and medium-sized business customers.
We intend to continue to acquire additional Internet service businesses in
order to grow our access, development and presence services. Since October 1998 primarily through 11 acquisitions, including regionalto approximately $400,000 as of December 31, 2002.
During that same period, we expanded our owned Internet service providersaccess geographic
footprint from the New York/New Jersey metropolitan area, to a region that now
includes Delaware, Eastern Pennsylvania and Web development, hostingNorthern Virginia. At December 31,
2002, we owned and related companies, we increased our customer
baseoperated 12 points-of-presence ("POPs") which, when combined
with 1,100 POPs licensed from 2,000 to over 16,000 customers and now havethird parties, provide us with the enhanced capability to
provide the access, development and presence services necessary to assist small
and medium-sized business customers. We have expanded our access services
nationally to include approximately 800 points of presence (POPs), nine of which
we own and the rest of which we license, capable of providing Internet access
services to approximately 72%serve over 75% of the U.S. population.
During 2002, we concentrated our efforts and resources primarily on
restructuring our operations to reduce costs, increase operating efficiency and
improve customer service. As a result of our restructuring, we reduced our staff
from approximately 70 employees at March 2001 to 31 as of April 1, 2003, and
closed two regional offices, consolidating those functions into our Pearl River,
New York headquarters.
We streamlined our product offerings, eliminating certain low margin
products and services, and added a broadband one-way satellite Internet access
product line to our group of services. We also offer significant
national high-speed access, including Digital Subscriber Line (DSL) throughstandardized our alliances with Covad Communications Corp.product pricing,
and Network Access Solutions, Inc. In
addition, as oneraised the monthly rates to most of our subsidiaries is a licensed competitive local exchange
carrier (CLEC) in New York, New Jerseydial-up access customers to between
$17.95 and Pennsylvania, we anticipate that we
will be able to reduce,$19.95 per month, depending on a relative basis, our overall communications costs by
the endterm of 2000. We intend to expand our network infrastructure and increase our
Internet access subscriber base by continuing to acquire other Internet service providers with a high concentration of small and medium-sized business
customers.
In addition to growth by acquisition, we have engaged in more traditional
marketing and advertising directed at the small and medium-sized business
market. In the northeast United States, where our sales force is currently
located and where we own nine POPs, we are building brand equity in our
Frontline.net operations, targeted at business generally. Throughout the United
States, we target women-owned businesses with our WOWFactor.com marketing brand
and Website and retail business with our iShopNetworks.com (formerly Channel
iShop.com) marketing brand and Website. We anticipate that our WOWFactor.com and
3
iShopNetworks.com marketing efforts will continue nationally, and our
Frontline.net branding will grow geographically, as our POPs and sales force
expand our footprint.purchased.
We were formed induring February 1997 as a Delaware corporation under the
name Easy Street Online, Inc. We changed our name to Frontline Communications
Corporation in July 1997. Our principal executive offices are located at One
Blue Hill Plaza, Pearl River, New York 10965, and our telephone number is (914)(845)
623-8553. Our Internet Website iscorporate websites are located at www.frontline.net. WOWFactor's
Website is located at www.wowfactor.com. iShopNetworks, Inc.'s Website, which we
expect to launch in the second quarter of 2000, will be located at
www.iShopNetworks.com.www.frontline.net and
www.fcc.net. Information inon these Websites is not part of this prospectus.prospectus .
Unless the context indicates otherwise, the terms "Frontline," "we," "our," "the
Company" and "us" in this prospectus include the operations of our
wholly-owned subsidiaries, CLECFrontline
Communications Corporation and iShop Networks,its wholly owned subsidiaries, WowFactor, Inc.
We have made applications,
FNT Communications Corp., and CLEC Communications Corp.
6
Competition
Our competitors for federal trademark registration and claim
rightsInternet access services in the following trademarks: WOWFactor; WOWFactor Women onUnited States include
international and national telecommunications providers, such as America Online,
Time Warner Cable, Verizon, Earthlink, United Online (NetZero and Juno brands)
and Covad Communications, as well as regional Internet service providers, such
as Best Web Corporation, Fastnet Inc. and LogicalNet Corporation. Our national
competitors have significantly greater financial, technical, marketing and other
resources than we do, and our share of the Web;
Frontline.net; Frontline.net Effortless E-Commercemarket compared to theirs is too
small to quantify. We believe that our market share in the region in which we
operate is less than 1%. Many of our current and Internet Access (namefuture competitors possess a
wide range of products and logo); Effortless E-Commerce & Internet Access; and Frontline Communications
Corp. We have received a noticecollective new product development capabilities that
exceed ours. For example, some of allowance from the U.S. Patent and Trademark
Office with respectour competitors, such as Time Warner Cable,
offer access to the following marks: WOWFactor.comInternet via cable modem. We do not possess the technical
capability to offer such a service.
Increased competition could result in significant price competition,
which in turn could result in significant price reductions in some of our
product offerings, most notably Internet access and WOWFactor design.
All other trademarksweb hosting. In addition,
increased competition for new customers could result in increased sales and
service marks usedmarketing expenses and related customer acquisition costs, which could
materially adversely affect our operating results. We may not have the financial
resources, technical expertise or marketing and support capabilities to compete
successfully, and the software, services or technologies developed by others may
render our products, services or technologies obsolete or less marketable.
Properties
Our executive offices are located in this prospectus arePearl River, New York, where we
lease approximately 12,000 square feet of space through a lease that expires in
August of 2004. We also lease approximately 2,700 square feet of space in
Babylon, New York that was assumed in connection with our purchase of PNM group,
Inc. (d/b/a) Planet Media. The lease expires in August of 2005. The aggregate
annual rent of the property
of their respective owners. The information on our Websitestwo offices is notapproximately $308,000.
In 2001, as a part of our Restructuring Program, we closed our regional
offices in Delaware and Virginia and have terminated the leases with the
landlords. We lease approximately 2,400 square feet in Howell, New Jersey under
a lease that expires in May 2004 and provides for monthly rental of
approximately $3,500. We have closed our office at this prospectus.
4location and are
attempting to terminate the lease.
We also lease space (typically, less than 100 square feet) in various
geographic locations to house the telecommunications equipment for each of our
POPs. Leases for the POPs have various expiration dates through June 2004.
Aggregate annual rentals for POPs are approximately $6,000.
Employees
We currently employ 28 full-time individuals, 24 of whom are located at
our Pearl River, New York headquarters. The remaining employees are located at
the Babylon, New York facility.
Current Corporate Structure
We are currently organized to take advantage of both Frontline and
Provo's strengths, by making the Provo US division (formerly Frontline's
Internet service division) responsible for the continued provision of Internet
service products and the development of the Provo payroll card technology. The
Provo Mexico division will remain responsible for the sales and distribution of
pre-paid calling cards, and will take on the responsibility of selling and
distributing the payroll card in the US and Latin America. A corporate division,
consisting primarily of former Frontline officers, will be responsible for
overall corporate operations, such as finance, acquisitions, and SEC reporting
obligations.
7
Description of Provo's Business
General
Provo was formed in October 1995 by Ventura Martinez Del Rio, Sr., as a
private company headquartered in Mexico City. Provo was formed to distribute
prepaid (Ladatel) public telephone cards for Telefonos de Mexico, S.A.
("Telmex"), which were introduced in 1995. Telmex is the dominant
telecommunications provider in Mexico. Provo quickly became the leading
distributor of Ladatel cards and has maintained its leading position, which
currently stands at approximately 7% of the nationwide market. Provo also
distributes Multifon prepaid landline telephone time provided by Telmex and
prepaid Digital PCS cellular airtime provided by Radiomovil Dipsa, S.A. de C.V.
("Telcel"). Telcel is the dominant provider of cellular airtime in Mexico.
Provo rapidly grew its sales of prepaid calling time to more than $101
million in 2002. Currently, Telcel airtime sales represent about 30% of Provo's
total annual sales, up significantly from 10% in 2000. Telcel airtime is
expected to represent an increasing proportion of Provo's sales as Ladatel sales
have begun to level off.
Provo's principal office is located at Quintana Roo 28, Colonia Roma Sur,
06760, Mexico City, Mexico, and its telephone number is 011 52 55 5264-6442.
Products
The Offering
Common stock offered............. 2,428,936 shares,purpose of which 1,840,000the services that Provo Mexico currently resells in Mexico
is to allow individuals who either do not own a land line phone or cell phone or
are issuable upon exercisenot able to enter into continuous service contracts for these services, to
make calls on an as-needed basis, in a convenient and affordable manner.
Telmex calling time is offered via Ladatel cards in increments of 30, 50
and 100 pesos. Calling time is stored in a simple, single-purpose smart chip and
"burns off" as it is used. Mechanisms housed within public warrants,
351,496 are issuable upon exercisetelephones charge
used calling time against the electronic balance stored in the card until no
calling time remains. At this point, a new card must be purchased. Prior to the
advent of warrantsthese calling cards in 1995 in Mexico, public phones were coin-based.
Such coin-based phones often broke down or were the subject of significant theft
problems. The prepaid card program implemented by Telmex largely has remedied
these problems.
Prepaid Multifon calling time is offered via personal identification
number (PIN)-based access. Multifon time is sold to groups of residents who
share a common phone in a building such as an apartment building.
Telcel calling time is also offered via PIN-based access. Telcel calling
time is sold in increments of 100, 200, or 500 pesos. Users must own or share a
phone to use this service. A PIN must be entered prior to making the first call.
A central switch maintained by Telcel tracks remaining calling time. Users must
repurchase a new block of time with a new PIN every time they exhaust their
prepaid cellular calling time.
In addition, Provo plans to launch a payroll card product in the U.S. and
Mexico within the next two months. The Provo payroll card will enable employers
to directly deposit an employee's earnings onto a bank card. The card will serve
as a credit, debit and cash transfer card. Provo's revenue from the sale of the
card will derive from a percentage of transaction fees on the employer and
employee side. Provo plans to market the product to employers of unbanked
Spanish speaking workers in the U.S. and Latin America.
8
Description of Revenues and Commissions
Provo has relied on Telmex to finance much of its sales growth over the
past eight years, through its provision of a credit line to Provo. Telmex
requires all of its distributors to pay for all resold calling time using cash
or their credit line with Telmex when it is ordered. Various surplus properties
owned by Provo, its principals and its business partners have been pledged to
guarantee Provo's credit lines with Telmex.
The average discount Provo receives related to purchases of minutes from
Telmex using credit is approximately 10.8% (credit-based discounts for 30-, 50-
and 100-peso cards range from 10.0% to 12.0%). This compares to an average
discount rate of approximately 13.8% related to purchases of minutes paid for
entirely with cash (cash-based discounts for 30-, 50- and 100-pesos cards range
from 13.0% to 15.2%). Starting on March 10, 2003, Provo effectively stopped
purchasing calling cards using its credit lines with Telmex. All of Provo's
purchases from Telmex are currently paid for in cash. The shift from
credit-based purchases to cash-based purchases has increased Provo's profit
margins on the selling stockholdersproducts it purchases from Telmex, however its revenue from these
products has and 95,596will continue to decrease due to Provo's current cash
constraints.
Provo allows its external agent, distributor and point of sale partners
to retain combined commissions or discounts that typically range from 8% to 9%.
Provo pays its internal sales team members commissions of 3% to 5%. Its
distributor network is responsible for collecting approximately 50% of card sale
proceeds and remitting the proper net proceed amounts to Provo within 21 days of
taking delivery of new cards. The other half of Provo's sales are issuable upon exercisecollected
directly by Provo or remitted to Provo via daily deposits by Provo's agents to
company-owned bank accounts. Provo has established strict remittance rules to
ensure that the distributors to whom it extends credit will pay all amounts owed
to Provo on a timely basis.
Provo's distribution network includes several large retail chains,
including Wal-Mart, Carrefour and Office Max. In addition, Provo distributes its
cards in convenience stores, drug stores, restaurants, lottery stands, newspaper
and magazine stands and other general stores.
Competition
Approximately 140 distributors sell prepaid calling time purchased from
Telmex and Telcel in Mexico. Provo currently maintains the largest market share
position for prepaid calling time in Mexico, at approximately 10%. The next two
largest competitors that sell prepaid calling time in Mexico are Tarjetas Del
Noreste and DiCasa, each with a market share position of certain repricing rights givenapproximately 6% to certain
selling stockholders.
Common stock outstanding......... 5,213,091 shares.
Use7%.
Telmex has attempted to curb the size of Proceeds.................. Assuming that allProvo in the past, by converting
sub-distributors of Provo to direct distributors for Telmex. In these instances,
Telmex has agreed to pay Provo royalties to compensate Provo for the migration
of its sub-distributors upstream.
Subsidiaries
Provo currently operates as a group of seven affiliated companies.
Telmex required Provo Mexico to form some of the warrants heldentities because of its
dominant presence in certain markets. On March 31, 2003, Provo acquired from
members of the Martinez del Rio family, the controlling majority of the capital
stock of the following subsidiaries: FS Provo, S.A. de C.V.; Proyecciones y
Ventas Organizadas del D.F., S.A. de C.V.; Proyecciones y Ventas Organizadas de
Occidente, S.A. de C.V.; Tilgo, S.A. de C.V.; Tarnor, S.A. de C.V. and PTL
Administradora, S.A. de C.V. Provo's audited financial statement results include
the combined total of each these companies' results, as an affiliated group.
In October 2002, Provo formed Provo US, Inc., a Delaware corporation
wholly-owned by the selling stockholders are exercised, we
will realize gross proceeds of approximately
$11,510,300 whichProvo. Provo US is currently a shell company with no operations.
It is expected that Provo US will be used for working
capital and potential acquisitions. We will
not receive any new projects that Provo may
initiate in the United States.
9
Employees
Provo currently has 39 direct full-time employees. Provo subcontracts
personnel services from SAPROV, S.C., an affiliated company. Provo currently
receives from SAPROV, S.C. services of approximately 69 full-time employees. In
addition, Provo has a network of 52 independently-owned distributorships that
collectively employ more than 400 sales people. Provo, in conjunction with its
distributors, has developed an extensive distribution network that includes more
than 20,000 point-of-sale locations.
Properties
Provo's executive offices are located in Mexico City, Mexico where Provo
uses approximately 7,700 square feet of office space. Provo's executive offices
were transferred to Telmex as part of the proceedsTelmex settlement described below.
Until November 30, 2003 Provo may use the executive offices free of rent. Telmex
has offered Provo to rent it the executive offices after November 30, 2003 for a
monthly rent of 69,156 pesos (approximately $6,230 at the current exchange
rate). Provo is currently considering whether to rent this facility from Telmex.
Provo also leases approximately 6,000 square feet of office space in
Mexico City, Mexico, where Provo houses its accounting and human resources
departments. The lease expires on August 31, 2005 and the saleannual rent is 336,000
pesos ($30,270 at the current exchange rate). Unless otherwise noted, all
exchange rates used herein are made at the official exchange rate on October 29,
2003 equal to 11.10 pesos for each $1.
In addition, Provo leases small offices in 16 cities throughout Mexico
where it maintains regional sales and distribution offices. Provo's regional
offices are located in the following Mexican cities: Monterrey, Nuevo Leon;
Torreon, Coahuila; Monclova, Coahuila; Chihuahua, Chihuahua; Los Mochis,
Sinaloa; Guamuchil, Sinaloa; Navojoa, Sonora; Ciudad Obregon, Sonora; Agua
Prieta, Sonora; Durango, Durango; Tepic, Nayarit; Jalapa, Veracruz; Cordoba,
Veracruz; Veracruz, Veracruz; Teziutlan, Puebla; and Queretaro, Queretaro. The
aggregate annual rent for these leases is approximately $39,000.
Provo's subsidiary, FS Provo, S.A. owns approximately 946 acres of
common stockundeveloped land in El Chamal, Tamaulipas, Mexico. The land has been pledged to
Telmex to secure part of Provo's credit lines with Telmex. In addition, Provo
and its subsidiaries Proyecciones y Ventas Organizadas del D.F., S.A. de C.V.,
F.S. Provo, S.A. de C.V. and Tilgo, S.A. de C.V., own seven pieces of forest
land totaling approximately 605 acres in San Gabriel, San Luis Potosi, Mexico.
This land also has been pledged to Telmex to secure part of Provo's credit lines
with Telmex.
Telmex Settlement
In order to significantly enhance its operating margins and to position
itself for renewed sales growth, on March 10, 2003, Provo entered into a
settlement agreement with Telmex, whereby Provo transferred five non-revenue
generating properties to Telmex in exchange for offsets to its credit lines with
Telmex for 46,650,504 pesos ($4,202,748 at the current exchange rate). The
Telmex settlement agreement also provides for the transfer to Telmex of Provo's
corporate headquarters in Mexico City. The Telmex settlement agreement converted
the balance of Provo's credit line with Telmex into a number of term loans with
varying re-payment schedules. Under the settlement agreement, a payment in the
principal amount of 40,000,000 pesos ($3,603,604 at the current exchange rate)
due and payable on or before September 9, 2003. In September 2003, the agreement
was amended to extend the due date to November 10, 2003. Provo is currently
negotiating with Telmex a further extension to this agreement. This payment
bears interest at a variable rate equal to the Mexican Interbank Equilibrium
Rate multiplied by a factor of 1.3; the selling
stockholders.
AMEX symbol...................... FNT
Risk Factors..................... You should readcurrent interest rate is approximately
6.9% per annum. Finally, the "Risk Factors" section
beginningsettlement agreement provides for 54 monthly
payments of 746,526 pesos each ($67,255 at the current exchange rate), which
will be due and payable by Provo to Telmex commencing on page 6July 10, 2003 and
continuing until January 10, 2008. The monthly payments bear interest at a
variable rate equal to the Mexican Interbank Equilibrium Rate multiplied by a
factor of 1.3; the current interest rate is approximately 6.9% per annum.
10
On September 9, 2003, Telmex and Provo entered into an amendment to the
settlement agreement, whereby Telmex agreed to increase the value assigned to
certain properties previously transferred by Provo thereby further reducing
Provo's total indebtedness by 7,763,182 pesos ($699,385 at the current exchange
rate). This amount will reduce the number of monthly payments payable under the
settlement. No monthly payments have been made to date. We are currently in
negotiation with Telmex to extend the November repayment date and reschedule the
repayment terms of the entire line of credit. If we are unable to renegotiate
the term of our debt to Telmex, Telmex may cease to provide us with products,
may refuse to do business with us or may otherwise attempt to collect the debt.
Should Telmex take any such action, our operations would be adversely affected.
The Offering
Common stock offered................................. 7,018,665 shares, of which 3,061,666 are issuable upon
exercise of warrants owned by five of the selling
stockholders, and 462,000 are issuable pursuant to the
terms of a convertible promissory note.
Common stock outstanding............................. 13,784,146 shares.
Use of Proceeds...................................... Assuming that all of the warrants held by the selling
stockholders are exercised, we will realize gross
proceeds of approximately $729,900, which will be used
for working capital. We will not receive any of the
proceeds from the sale of common stock by the selling
stockholders.
American Stock Exchange symbol....................... FNT
Risk Factors......................................... You should read the "Risk Factors" section beginning on
page 12 and the other cautionary statements in this
prospectus to ensure that you understand the risks associated
with an investment in our common stock.
Cautionary Note Regarding Forward-Looking Statements
This prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. We intend
the forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements in these sections. All statements regarding our
expected financial position and operating results, our business strategy and our
plans are forward-looking statements. These statements can sometimes be
identified by our use of words such as "may," "anticipate," "expect," "intend,"
"believe," "estimate" or similar expressions. Our expectations in any
forward-looking statements may not turn out to be correct. Our actual results
could be materially different from our expectations. Important factors that
could cause our actual results to be materially different from our expectations
include those discussed under "Risk Factors." We have no obligation to update
these statements to reflect events and circumstances after the date of this
prospectus.
511
RISK FACTORS
The shares offered hereby involve a high degree of risk. Each prospective
investorYou should carefully consider the following risk factors before
makingpurchasing our common stock. The risks and uncertainties described below are not
the only ones we face. There may be additional risks and uncertainties that are
not known to us or that we do not consider to be material at this time. If the
events described in these risks occur, our business, financial condition and
results of operations would likely suffer. This prospectus contains
forward-looking statements that involve risks and uncertainties. Our actual
results may differ significantly from the results discussed in the
forward-looking statements. This section discusses the business risk factors
that might cause those differences.
RISK FACTORS
In addition to the other information provided or incorporated by
reference in this document, you should consider the following information
carefully.
Risks Related to Our Acquisition of Provo
If our stockholders fail to approve conversion of the Series E preferred stock,
we will incur significant additional liabilities.
If our stockholders do not approve Proposals 1 and 3 (as set forth in the
Definitive Proxy Statement on Form 14A, filed November 13, 2003) by January 31,
2004, the Series E preferred stock will remain outstanding on a non-convertible,
non-voting basis, and the $20,000,000 note issued to the former stockholders of
Provo will become due and payable in accordance with its terms. The note will
become due and payable in full on the fifteenth day following the earlier of
January 31, 2004 or the date upon which our stockholders reject Proposal 1
and/or Proposal 3. The note is secured by substantially all of our assets,
including the capital stock of Provo. In the event that we are unable to pay the
note as it becomes due, the former stockholders of Provo may initiate actions
against us, which may include foreclosure on their collateral consisting of
substantially all of our assets. We do not believe that the collateral
underlying the $20,000,000 note is sufficient to satisfy the note. If the
collateral is insufficient to satisfy our obligation under the note, and we are
unable to negotiate a settlement with the former stockholders of Provo, we may
be forced to seek bankruptcy protection. We believe that the significant
additional liabilities that we will incur if our stockholders fail to approve
Proposals 1 and 3 will have a material adverse effect on our business and the
interests of our stockholders.
The former stockholders of Provo will control a substantial amount of our common
stock.
If our stockholders approve the conversion of the Series E preferred
stock, 10,008,385 shares (approximately 37.1%) of our common stock will be held
by our Chairman, Ventura Martinez del Rio, Sr. and 3,336,129 shares
(approximately 12.4%) of our common stock will be held by his son, Ventura
Martinez del Rio, Jr., President of the Provo Mexico Division. In addition, Mr.
Martinez del Rio, Sr. will retain 64,916 shares of our Series E convertible
preferred stock, optionally convertible into 6,491,615 shares of our common
stock, and Mr. Martinez del Rio, Jr. will retain 21,639 shares of our Series E
convertible preferred stock, optionally convertible into 2,163,871 shares of
common stock, in each case subject to the 49.5% ownership limitation described
above.
12
We may not successfully integrate and manage the operations of Provo, which
could adversely affect future earnings.
As a result of our acquisition of Provo, Provo has become our
wholly-owned subsidiary. Provo has an investment decision.operating history, but not under Frontline
management. Failure to manage the combined company successfully may negatively
affect our operating results. The risks of this acquisition include the
following:
o management will have to divert time, attention and resources
to integrate the businesses;
o Provo may have unexpected problems or risks in operations,
personnel, technology or credit;
o we may lose Provo's current customers or employees;
o new management may not work smoothly with existing employees
or customers;
o the assimilation of new operations, sites and personnel could
divert resources from existing operations;
o management may be unable to operate successfully in an
international environment; and
o we may have trouble instituting and maintaining uniform
standards, controls, procedures and policies.
We can make no assurances that we will be able to successfully integrate
acquired businesses or operations that we have acquired, including Provo, or
that we may acquire in the future. In addition, we may not achieve the
anticipated benefits from our acquisitions. If we fail to achieve the
anticipated benefits from such acquisitions, we may incur increased expenses and
experience a shortfall in our anticipated revenues and we may not obtain a
satisfactory return on our investment.
We have a history of losses prior to the acquisition of Provo and anticipate
that we will continue tomay incur losses in the future.
Since our inception and prior to our acquisition of Provo, we have
incurred significant losses. For the years ended December 31, 19982001 and 1999,2002, our
net losses were $1,744,099$7,029,287 and $6,757,258.
We had an accumulated deficit$787,525, respectively. Although Provo has been a
profitable company for a number of $10,600,905years, we have little experience as a
combined company and a working capital deficiency of
$1,640,344 as of December 31, 1999. We expect to incur operating losses as we
incur increased operating costs associated with expanding our customer base,
establishing additional POPs and increasing our e-commerce and Website design
services. We may not be able to achieve profitability or, if achieved, maintain
profitability for any extended period of time.
We expect that our net losses will continue for the next several years, as our recent acquisitions have resulted in our having net intangible assets of
$4,146,107 at December 31, 1999. These intangible assets are being amortized
over a period of three years and will result in additional losses in each of the
next three years. Wecombined
business. Moreover, we intend to engage in additional strategic acquisitions in
the future using a significant portion of the net proceeds of this offering.future. Future acquisitions may similarly result inreduce our recording large amounts of
intangible assets and incurring the related net losses as these intangible
assets are amortized.
In order to become profitable,profitability. We can make no
assurances that we will needachieve or sustain profitability as a combined company
or generate sufficient operating income to implementmeet our business plan
successfully, including attracting new customers for our Internet servicesworking capital, capital
expenditure and increasing the coveragedebt service requirements, and efficiency of our Pops.
The success of our business plan depends upon our ability to attract and
retain significant numbers of customers, consolidate our POPs and establish and
equip additional POPs on a timely and cost effective basis. At the same time, we
will need to hire and retain skilled management, technical, marketing and other
personnel and continue to expand our product and service offerings. In addition,
there is limited information available concerning the potential performance or
market acceptance of our Internet access or other services. We may not be able
to implement our business plan successfully, and we may also encounter
unanticipated expenses, problems or technical difficulties which could
materially delay the implementation of our business plan.
We have recently expanded our marketing focus and have begun to offer additional
products and services, both of which may place a significant strain on us.
Historically, we marketed our Internet access services to individual
customers, and the majority of our revenues to date has been generated from
individual customers. In electing to expand our target market, we decided to
market our services aggressively to small and medium-sized businesses and
increase our product offerings to provide a variety of e-commerce services to
small and medium-sized businesses, including Website design and development and
Internet Website presence services. As we expanded our marketing focus and
product offerings relatively recently, we have a limited relevant operating
history which you can use to evaluate our performance to date and future
prospects. As a company with a relatively new focus in a rapidly evolving
industry, we may encounter many expenses, delays and problems which we lack the
experience to identify or quantify at this time.
The expansion of our target markets and product offerings will continue to
place significant demands on the time and attention of our senior management and
involve significant financial and other costs, including
6
building necessary network infrastructures, marketing and promoting our new
products and services and hiring personnel to provide these new services. We may
not be able to enter new markets and offer new services successfully, and we may
not be able to undertake these activities while maintaining sufficient levels of
customer service to retain our existing customers, either of which would have a
material adverse effect on us, our reputation and our operations.
We are pursuing a strategy of rapid growth through acquisitions, which may
strain our operations and which we may not be able to manage effectively.
We are pursuing aggressive and rapid growth through the acquisition of
other Internet service providers and companies involved in related
Internet-based businesses such as Website design and e-commerce services.
However, we may not be able to successfully consummate any attempted
acquisitions or integrate any acquired businesses into our operations, and
acquired businesses may not perform as we expect. Our rapid growth has in the
past placed, and may continue to place, a significant strain on our business
resources. Implementing our current growth strategy will create significant
demands on the time and attention of our senior management and will involve
significant financial and other costs, including identifying and investigating
acquisition candidates, negotiating acquisition agreements and integrating the
acquired businesses with our existing operations and personnel. Any future
acquisitions will also result in higher capital expenditures and operating
expenses for us.
Our ability to manage our planned future growth through acquisitions will
depend upon several factors, including our success in hiring and retaining
qualified management, technical and marketing personnel; effectively maintaining
high levels of customer service required to retain customers while undertaking
expansion; and expanding our network infrastructure capacity to service a
growing customer base. If we fail to achieve any of these factors, our business,
financial condition, results of operations and the market price of our
securities could be materially adversely affected.
We may need to seek additional financing in the future in order to carry out our
business plan.
Implementing our current business plan will require significant capital.
Based on our current plans and assumptions relating to our business strategy, we
anticipate that our cash on hand, expected revenues and the net proceeds of our
recent offering of series B convertible redeemable preferred stock will satisfy
our capital requirements until approximately February 2001. However, if our
plans change, if our assumptions prove to be inaccurate, or if the net proceeds
of that offering otherwise prove to be insufficient for our needs, we may be
forced either to seek additional financing sooner than we currently anticipate
or to curtail our operations.
In the past, we have relied on the issuance of equity securities and
borrowings to finance our operations. Sources of financing may not be available
to us in the future on commercially reasonable terms or at all. Our business
plan and proposed expansion would be adversely affected if we are unable to do not obtain
financing when needed.
The Internet services industry is relatively new and evolving, and any
significant changes in it may adversely affect us.
The Internet services industry is characterized by rapidly changing
technology, frequent introductions of new services and products, evolving
industry standards and a high rate of business failures. Our business is also
subject to fundamental changes in the way Internet services are delivered. We
cannot predict the rate at which the market for our products and services will
grow, how quickly consumer tastes may change or whether new products will result
in market saturation. The evolving nature of the market for Internet services
may adversely affect our ability to attract new customers. Any significant
decline in demand for Internet
7
connectivity services either generally or in particular target markets would
have a substantial adverse effect on our business and prospects.
Currently, Internet services are accessed primarily by computers and are
delivered by telephone lines. However, if the Internet becomes widely accessible
by other media, or if customer requirements change the way Internet access is
provided, we may have to acquire or develop new technology or modify our
existing technology to accommodate these developments. Attempting to keep our
services current with recent technological advances may require substantial time
and expense, and we may not be able to adapt our Internet service business to
alternate access devices and conduits. We may not be able to identify new
product and service opportunities as they arise or develop or bring new products
and services to market in a timely manner. To the extent that high-speed
Internet access is increasingly delivered by telephone and cable companies, our
business could be materially adversely affected.
Significant increases in attrition rates of our dial-up access subscribers and
business customers would adversely affect our operating results.
Dial-up access subscribers are permitted to discontinue our services
without penalty for any reason. From December 1997 through December 31, 1999,
the number of our customers increased from 1,500 to approximately 16,000, which
may result in an increase in our dial-up access subscriber attrition rate. A
significant increase in the attrition rate of our dial-up access subscribers,
including as a result of our recent shift in business emphasis,so, this
would have a material adverse effect on our business, financial condition and
results of operations.
We may not realize anticipated operating results.
In particular, becauseefficiencies, which could hurt our
current expansion strategy emphasizes marketing
our Internet services to businesses, the lossprofitability.
As a result of our business customers wouldacquisition of Provo, we expect to improve our
operations by reducing costs, expanding services and integrating administrative
functions. We may not realize these operating efficiencies or may not realize
them as soon as anticipated. If we do not realize operating efficiencies as
anticipated, our profitability may be adversely affected.
Unanticipated costs relating to our acquisition of Provo could reduce our future
results of operations.
We believe that we have reasonably estimated the likely costs of
integrating the operations of Frontline and Provo. However, the possibility
exists that unexpected transaction costs such as taxes, fees or professional
expenses, or unexpected future operating expenses such as increased personnel
costs or increased taxes, as well as other types of unanticipated adverse
developments, could have a material adverse effect on the results of operations
and financial condition of the combined company. If unexpected costs are
incurred, the acquisition could adversely affect our results of operations and
earnings per share.
13
Frontline and Provo have incurred and will continue to incur significant
impact on our operations. Customerstransaction expenses and integration-related costs in connection with the
acquisition transaction.
Frontline and Provo expect to incur charges to operations to reflect
costs associated with combining the operations of businesses we acquire
may also terminate their relationships with these businesses after we acquire
them.
We have limited experience in marketing our servicesthe two companies and
limited marketing and
customer support resources.
Our success depends to a significant degree on our ability to attract and
retain new customers. We have limited marketing experience and limited
marketing, customer supporttransaction fees and other resources.costs related to our acquisition of Provo. Some of
these costs will be expenses subsequent to the consummation of our acquisition
of Provo and will adversely affect the results of the combined company and could
adversely impact the market price of our common stock. In connection with the
transaction, Frontline and Provo anticipate expenses of approximately $500,000.
Integration-related costs will be recognized as those actions take place
subsequent to our acquisition of Provo. There can be no assurance that
realization of efficiencies anticipated from the integration of the businesses,
will offset additional expenses in the near term, or at all.
Risks Related to Our business plan will alsoBusiness
We require us to expand our customer service and support capabilitiesadditional financing in order to satisfy increasing customer demands. We mayfund working capital requirements,
capital expenditures and general corporate expenses.
Our current cash flow is insufficient to fund working capital
requirements, capital expenditures and general corporate expenses. Our ability
to fund these requirements is therefore dependent upon our securing additional
sources of financing, such as the Fusion Capital transaction. If we are unable
to consummate this transaction we will not be able to successfully expandmeet our customer service or support capabilities, and our marketing effortsoperating capital
needs on an ongoing basis. In addition, the Fusion Capital transaction may not
result in initial or continued acceptancebe
terminated if we default under the terms of our Internet services.
We may not haveagreement with Fusion Capital.
For a summary of the financial resources, technical expertise or marketingterms of our agreement with Fusion Capital, see the
Definitive Proxy Statement on Form 14A filed November 13, 2003, incorporated
herein by reference, at page 67.
Competition is significant in all of our lines of business and support capabilitiesis expected to
withstand intense competition in the Internet services
industry.intensify.
The market for Interneteach of our current and expected products and services is
intensely competitive, and we expect that competition will intensify in the
future. There are no substantial barriers to entry, and this industry isthese industries are
characterized by rapidly increasing numbers of new market entrants and new
Internet products and services.
Provo's three closest competitors in Mexico - Tarjetas del Noreste,
DiCasa and Distribuidora Dana - each account for approximately 6-7% of the
market share for prepaid calling cards in Mexico, compared to Provo's 10% market
share. More than 100 resellers of prepaid calling time currently canvass the
market in Mexico. Our competitors for Internet access services in the United
States include many large companies
thatinternational and national telecommunications providers, such as
America Online, Time Warner Cable, Verizon, Earthlink, United Online (NetZero
and Juno brands) and Covad Communications, as well as regional Internet service
providers, such as Best Web Corporation, Fastnet Inc. and LogicalNet
Corporation. Our national competitors have significantly greater market presence and financial,
technical, marketing and other resources than we do.do, and our share of the market
compared to theirs is too small to quantify. We compete with international,
nationalbelieve that our market share in
the region in which we operate is less than 1%. Many of our current and regional commercial Internet service providers; established online
services companiesfuture
competitors possess a wide range of products and collective new product
development capabilities that currentlyexceed ours. For example, some of our competitors,
such as Time Warner Cable, offer Internet access; computer hardware and
software and other technology companies; national long distance carriers;
regional Bell operating companies; and cable operators. New competitors,
including large computer hardware and software, media, cable and
telecommunications companies, have also increased their focus onaccess to the Internet access market.via cable modem. We also compete with smaller
8
Internet service providers indo
not possess the northeast United States that seektechnical capability to provide
Internet access services to individuals and small businesses.
Our competition in the market for Internet services includes other Internet
service firms, technology integrators and strategic consulting firms. If we
increase our CLEC services to third parties, we will become subject to
competition from other CLECs and local telephone companies. Furthermore,
telecommunications providers with which we currently compete and may compete in
the future may have the ability to bundle Internet access with local and long
distance telecommunications services. This bundling of services may make it
difficult for us to compete effectively with the telecommunications providers
and may result in pricing pressure that could have an adverse effect on our
business, financial condition and results of operations.offer such a service.
Increased competition could result in significant price competition,
which in turn could result in significant price reductions.reductions in some of our
product offerings, most notably Internet access and web hosting. In addition,
increased competition for new customers could result in increased sales and
marketing expenses and related customer acquisition costs, which could
materially adversely affect our operating results. We may not be able to offset the effects
of any such price reductions or increased expenses through an increase in the
number of our customers or higher revenue from enhanced services. We may not
have the financial
resources, technical expertise or marketing and support capabilities to compete
successfully, and the software, services or technologies developed by others may
render our products, services or technologies obsolete or less marketable.
Computer viruses15
We are dependent on many vendors and suppliers and their financial difficulties
may adversely affect our business.
We depend on many vendors and suppliers to conduct our business. For
example, Provo purchases prepaid calling cards exclusively from Telmex and
Telcel. If either entity terminated its relationship with Provo, Provo would not
have access to its principal products and its primary source of revenue would be
adversely affected. While Provo may be able to purchase prepaid calling cards
from other regional Mexican telecommunications providers, it is unlikely that
they could re-establish themselves as a leading distributor of prepaid calling
cards if Telmex or software errors may disruptTelcel refused to do business with them.
We purchase telecommunications services from various telecommunications
companies and competitive local exchange carriers in the United States, such a
Covad Communications, Focal Communications and DSL.net, Inc. Many of these third
parties have experienced substantial financial difficulties in recent months,
including difficulty in raising the necessary capital to maintain their
operations subject usand in some cases leading to a riskbankruptcies and liquidations. To the
extent that we rely on these third parties for services we need in order to sell
our products, the financial difficulties of loss, or expose us to liability.
Computer viruses may cause our systems to incur delays or other service
interruptions. In addition, the inadvertent transmission of computer viruses or
software errors in new services or products not detected until after their
releasethese companies could expose us tohave a
material risk of loss or litigationadverse effect on our business and possible
liability. If a computer virus affecting our systems is highly publicized, our
reputation could be materially damaged andprospects. While we could lose revenues.
We lack effective methods for protecting our proprietary information.
We have no registered copyrights or patents or patent applications pending.
We do not have any proprietary applications software. We rely on a combination
of copyright and trademark laws, trade secrets, software security measures,
license agreements and nondisclosure agreements to protect our proprietary
information. It may be possible for unauthorized third partiesable to
copy aspects
of, or otherwise obtain and use, our proprietary information. We employ
confidentiality agreements with our employees and non-disclosure agreements with
third-party vendors, but these agreements may not provide meaningful protection
of our proprietary informationcomparable services from other telecommunications providers in the event
any of any unauthorized use or
disclosure of such information. Inappropriate use of the Internet by third
partiesour suppliers ceased to supply us with services, there can be no
assurance that we could also potentially jeopardize the security of confidential
information stored in our computer system relating to our customers,obtain replacement services at prices which could
subjectwould allow
us to third party liability and cause losses to us ormaintain our customers or
deter potential customers from using our services.
Third parties could claim that we infringe upon their intellectual property.
Our products, services and brand names may be found to infringe valid
copyrights, trademarks or other intellectual property rights held by third
parties. Any claims of infringement, with or without merit, could be time
consuming to defend, result in costly litigation, divert management attention,
require us to enter into costly royalty or licensing arrangements, compel us to
modify our technologies or services or prevent us from using important
technologies or services, any of which could damage our business and financial
condition.
9
profit margins.
We may not be able to provide Internet access formaintain our dial-up access subscribersprofitability if our telecommunications carriers raisesuppliers reduce their
ratescommissions or if they cease doing business with us.
Our business substantially depends on the capacity, affordabilityavailability of pre-paid
calling cards and security of our telecommunications networks. Only a small number of
telecommunications providers offer the network services we require. There has
been significant consolidation in the telecommunications industry,discounts and further
consolidation could makecommissions given to us dependent on an even smaller number of providers. In
addition, our telecommunications carriers may not be ableby Telmex and
Telcel. Access to provide the
capacity and security we require for our networks. Most of our
telecommunications services are provided pursuant tocalling-cards is obtained through short-term agreements that
theour providers can terminate, significantly modify or elect not to renew.
Any or all of our current telecommunications service providers could decide
not to provide us with service at rates acceptable to us, or at all, which would
prevent us from being able to provide Internet access to our dial-up access
subscribers.
Our operating margins are sensitive to variations in priceswhole-sale
commissions given by Telmex and Telcel. Any or all of the
telecommunications services we purchase.our current suppliers
could decide to reduce whole-sale commissions, which would prevent us from
distributing large numbers of cards and would materially reduce our business
operations and profitability.
Our businesssales could be harmedadversely affected if minimum
connection charges increase or become more prevalent. In addition, the
availability and pricingwe lose any of telecommunications services varies geographically,
and we may not be able to obtain new or substitute telecommunications services
in desired geographic areas on commercially reasonable terms, or at all.
We may loseour largest customers,
if our service providers do not deliver acceptable service
quality.
We relythey materially reduce their reliance on telecommunications companies and other third partiesdistributors or if they are unable
to provide
data communications capacity. These providers may experience disruptions in
service or may have limited capacity, which could disrupt our services.pay amounts due.
If third-party service providers deliver unacceptable service or fail to provide
the communications capacity we require, as a result of a natural disaster,
operational disruption or other reasons, the qualityany of our Internet access
service would suffer, andlargest customers in Mexico were to stop or materially
reduce their purchasing from us, or were unable to pay our invoices, our
financial results could experience service disruptions and
might become dissatisfied with our Internet access service.be adversely affected. During fiscal 2002, Provo's top
five customers in the aggregate accounted for approximately 17% of Provo's
sales. We generally do not have control overlong term contracts with our retailer customers
or minimum purchase requirements. In addition, there is the network reliabilitypossibility that our
larger customers could bypass distributors and the qualitybegin purchasing calling cards
directly from Telmex or Telcel. The concentration of service of these third
parties and may not be able to provide consistently Internet access for our
dial-up access subscribers. Any accident, incident or system failure that causes
interruptions in our operations could have a material adverse effect on our
ability to provide Internet servicessales to our largest
customers and, in turn, our
business, financial condition and results of operations. In addition, if the
third-party service provider from which we lease the use of nationwide POPs were
to terminate its agreement with us and we were unable to locate an alternative
access provider, we would be unable to offer nationwide Internet access to
customers outside of the northeast United States.
Our operations requirealso exposes us to use significant resources in expanding and
protecting our network infrastructure and computer equipment.
Our operations depend uponcredit risks associated with the capacity, reliability and securityfinancial
viability of our network infrastructure.customers. We will be requiredbelieve that our sales to expand our network infrastructure
to accommodate increasing numbers of users and the range of information they may
wish to access as we increase our operations. Expanding our network
infrastructurelargest customers
will continue to demandrepresent a significant financial, operational and
management resources, and we may not be able to expand our network
infrastructure to meet potential demand on a timely basis, at a commercially
reasonable cost, or at all. Service interruptions could also occur if usageportion of our systems exceeds their capacity.
The success of our operations also depends on our ability to protect our
computer equipment against damage from fire, power failures, telecommunications
outages, natural disasters and similar events. Our network infrastructure is
vulnerable to break-ins, vandalism, security breaches and similar disruptions
from unauthorized tampering with our computer systems. These or other problems
caused by third parties could lead
10
to material delays or interruptions in service to consumers, which would affect
our reputation and business operations.sales.
We relydepend on strategic relationships with third parties.
16
We depend on agreements and arrangements with a variety of third party
partners, including, Telmex, Telcel and our network of distributors in Mexico as
well as certain providers of high-speed access capability and other CLECs.competitive
local exchange carriers in the United States. The loss of any of our existing
strategic relationships or any inability to create new strategic partnerships in
the future would cause disruptions to our business, reduce any competitive
advantages that these relationships may provide over our competitors and
adversely affect our ability to expand our operations. In addition, some of the
third parties with which we seek to enter into relationships may view us as a
competitor and refuse to do business with us.
The legalWe have numerous sub-distributors in Mexico and regulatory environment that pertainsthey may divert or delay net
sales receipts from the point of sale.
Provo relies on its large network of sub-distributors to the Internet is uncertain
and may change.
Uncertainty and new regulations relating to the disseminationcollect a
substantial portion of information over the Internet could increase our costs of doing business, slow
the growth of the Internet or subject us to liability,its revenues. Should any of which could
adversely affect our business and prospects. There are currently few laws and
regulations directly governing accessthese sub-distributors decide
to or commerce on the Internet. The legal
and regulatory environment that pertainsattempt to the Internet is uncertain and may
change.
We may become subjectdivert or delay their remittance to burdensome government regulation which could
increase our costs of doing business and/or subject us to liability.
New and existing laws mayProvo, Provo's need for
consistent interim cash flow would be interpreted to cover issues which include:
o content;
o user privacy;
o pricing controls;
o consumer protection;
o libel and defamation;
o copyright and trademark protection;
o characteristics and quality of services;
o sales and other taxes; and
o other claims based on the nature and control of Internet materials.
In addition, changes in the regulatory environment relating to the Internet
access industry, including regulatory changes which affect telecommunication
costs or our proposed CLEC services, could increase the likelihood or scope of
competition from local and regional telephone companies or others.
11
We may experience reduced revenue, loss of clients and harm to our reputation in
the event of unexpected network interruptions caused by system failures.
Our servers and software must accommodate a high volume of traffic. We have
experienced minor system interruptions in the past andadversely affected. Moreover, we believe that system
interruptions may occur from time to time in the future. Any substantial
increase in demands on our services will require us to spend capital and
resources to expand and adapt our network infrastructure. If we are unable to
add additional software and hardware to accommodate increased demand, we could
experience unanticipated system disruptions and slower response times. Our
business interruption insurance may not
adequately compensate us for any losses
that may occur duebe able to any failuresrecover the diverted funds. Significant diversions or delays in
our system or interruptions in our
services.
If we are unable to attract and retain qualified management and other personnel,
our business and operations could suffer.
Our success depends on the personal effortsreceipts of our key personnel. The loss
of the services of these individualsfunds by Provo, could have a material adverse effect on our
business, financial condition and results of operations.
A disruption in the operations of our key shippers could cause a decline in our
sales or a reduction in our earnings.
We are dependent on a number of commercial freight carriers to deliver
our products to our sub-distributors and customers. If the operations of these
carriers are disrupted for any reason, we may be unable to deliver our products
to our customers on a timely basis. If we cannot deliver our products in an
efficient and timely manner, our sales and profitability will suffer. While the
choice of carriers is a fact based determination depending on a customer's
characteristics, we currently rely on Autobuses Estrella Blanca, S.A. de C.V. to
deliver approximately 42% of our products.
We are dependent on effective billing, customer service and information systems
and we may have difficulties in developing, maintaining and enhancing these
systems.
Sophisticated back office information and processing systems are vital to
our growth and our ability to control and monitor costs, bill and service
customers, initiate, implement and track customer orders and achieve operating
efficiencies. Since our inception, we have also been engaged in developing and
integrating our essential information systems consisting of our billing system,
our sales order entry system and our customer implementation system. In
addition, we continue to integrate the systems of each of our acquired
businesses, including Provo. These are challenging projects because all of these
systems were developed by different vendors and must be coordinated through
custom software and integration processes. Our sales and other core operating
and financial data are generated by these systems and the accuracy of this data
depends on the quality and progress of the system integration project. Although
we have made progress in our system integration efforts, we have not completed
it and we may experience additional negative adjustments to our financial and
operating data as we complete this effort. These adjustments have not had a
material adverse effect on our financial or operating data to date but until we
complete the entire project we cannot assure you that any such adjustments
arising out of our systems integration efforts will not have a material adverse
effect in the future. If we are unable to develop, acquire and integrate our
operations and financial systems, our customers could experience delays in
delivery of products or services, billing issues and/or lower levels of customer
service. We also cannot assure you that any of our systems will be successfully
implemented on a timely basis or at all or will perform as expected. Our failure
to successfully implement these systems would have a material adverse effect on
our business and prospects.
In order to remain profitable, we will need to implement our business plan
successfully, including increasing our customer bases in Mexico and the United
States and incorporating new lines of business in an effective manner.
17
The success of our business plan depends upon our ability to retain and
increase our customer base for prepaid calling cards; attract and retain
significant numbers of customers for our Internet business; and consolidate new
lines of business on a timely and cost effective basis. At the same time, we
will need to hire and retain skilled management, technical, marketing and other
personnel and continue to expand our product and service offerings. We may not
be able to implement our business plan successfully, and we may also encounter
unanticipated expenses, problems or technical difficulties which could
materially delay the implementation of our business plan.
We have recently expanded our marketing focus and have begun to offer
additional products and services, both of which may place a significant strain
on us. The expansion of our product offerings will continue to place significant
demands on the time and attention of our senior management and involve
significant financial and other costs, including marketing and promoting our new
products and services and hiring personnel to provide these new services. We may
not be able to enter new markets and offer new services successfully, and we may
not be able to undertake these activities while maintaining sufficient levels of
customer service to retain our existing customers, either of which would have a
material adverse effect on us, our reputation and our operations.
Our inability to manage our growth effectively could adversely affect our
business.
Our future performance depends on our ability to continue to sell our
products, effectively roll-out our proposed products and services, implement our
business strategy and effectively manage our growth. Our planned growth and
expansion will place significant demands on our management and operations. Our
ability to manage this growth successfully will depend on:
o expanding our management resources, infrastructure,
information and reporting systems and controls;
o expansion, training and management of our employee base,
including attracting and retaining skilled personnel;
o evaluating new markets;
o evaluating new acquisition opportunities;
o monitoring operations; and
o controlling costs.
If we are not successful in managing our growth effectively or
maintaining the quality of our service, our business, financial condition and
results of operations could be materially adversely affected.
Our Mexican subsidiaries conduct a majority of our operations and own a majority
of our operating assets.
Our Mexican subsidiaries conduct a majority of our operations, account
for a majority of our revenues and own a majority of our operating assets. As a
result, our ability to make any dividend payments on our common stock depends on
the performance of the businesses owned by our subsidiaries and such
subsidiaries' ability to distribute funds to us. Under Mexican law, Mexican
companies must retain part of their profits to establish certain legal reserves
prior to distributing any dividends to their stockholders. In addition, any
dividends received from our subsidiaries in Mexico may be subject to withholding
taxes in Mexico.
The rights of holders of our common stock may be subordinated to the
rights of our subsidiaries' lenders. A default by a subsidiary under its debt
obligations would likely result in a block on distributions from the affected
subsidiary to us. In the event of bankruptcy, liquidation or dissolution of a
subsidiary and following payment of its liabilities, our subsidiary may not have
sufficient assets remaining to make payments to us as a stockholder or
otherwise. As of September 30, 2003, Provo and its subsidiaries had outstanding
indebtedness, excluding payables to related parties, of approximately $8.1
million.
18
We are heavily dependent on our senior management.
We believe that the success of our business strategy and our ability to
operate profitably depend on the continued employment of our senior management
team. Our business is managed by a small number of key management and operating
personnel who have been involved in our operation in the United States and the
operation of our subsidiaries in Mexico. As we pursue our strategy to grow
through acquisitions our need for qualified personnel may increase further.
In addition, employees of
businesses we acquire in the future may terminate their relationships with these
businesses after we acquire them. Our success also depends on our ability to
hire and retain additional qualified management, marketing, technical, financial
and other personnel. Competition for qualified personnel is intense, and we may
notcannot assure you that we
will be able to hireretain our key employees or that we can attract or retain additionalother
qualified personnel.
The market pricepersonnel in the future. We only maintain key person life insurance
for $1,000,000 each on the lives of Stephen Cole-Hatchard and Nicko Feinberg.
Risks Related to Our Stock
Our substantial leverage could adversely affect our common stock may be highly volatile.
The market priceability to run our business.
Our total outstanding indebtedness as of September 30, 2003 was
approximately $8.9 million, substantially all of which is secured indebtedness.
Of this amount, we repaid $96,539 in principal and $19,861 in interest on or
about November 25, 2003, and are obligated to pay approximately $325,000 to IIG
Equity Opportunities Fund, Ltd. on December 31, 2003 and were obligated to pay
40,000,000 pesos ($3,660,590 at the current exchange rate) to Telmex on November
10, 2003. We are currently in negotiations with Telmex to restructure these
debts so that they are payable within a longer term. We lack the funds to pay
these obligations when they become due. If we cannot generate sufficient cash
flow or otherwise obtain the funds necessary to make required payments on our
common stock may be highly volatile, as has
recently been the caseindebtedness, or if we otherwise fail to comply with the securities of other companies, particularly
Internet companies. Factors such asvarious covenants
governing our operating results, announcements by us
or our competitors, introduction of new products or technologies by us or our
competitors and various factors affecting the securities markets generally may
have a significant impact on the market price of our common stock. Since the
conversion price of the series B convertible redeemable preferred stock that was
the subject of our recent public offering is less than the market price of the
common stock at the time of that offering, it will increase our net loss
applicable to common shareholders by approximately $6,148,000 in the first
quarter of 2000, which could affect the market price of our common stock.
Additionally, in recent years the stock markets have experienced a high level of
price and volume volatility, and market prices for the securities of many
companies have experienced wide price fluctuations which have not necessarily
been related to the operating performance of such companies.
Our common stock could be delisted from its trading market if we fail to
maintain certain requirements.
Our common stock is currently listed on the American Stock Exchange. In
order to continue to be listed on the American Stock Exchange,indebtedness, we will be in default under the terms of our
indebtedness. If we are in default, the holders of certain of our indebtedness
may accelerate the maturity of the specific indebtedness which could cause us to
default on other debt obligations. In addition, if we are in default, Telmex may
suspend delivery of prepaid calling cards to us.
Therefore, in order to satisfy our debt obligations, we are currently
pursuing additional sources of financing, including potential sources for debt
and equity financing (or a combination of the two), and are exploring the
possibility of selling some of our assets (such as our dial-up subscriber base),
so that we will have sufficient funds to pay our debts as they become due. There
can be no assurance, however, that such financing will be available on terms
that are acceptable to us, or on any terms. Our ability to arrange financing and
the cost of the financing will depend on many factors including:
o general economic and capital markets conditions;
o conditions in the retail, telecommunications and Internet
industries;
o regulatory developments;
o investor confidence and credit availability from banks and
other lenders;
o the success of our business plan; and
o tax and securities laws that affect raising capital.
If we cannot obtain the additional funding we require, we will make
substantial reductions in the scope and size of our operations, in order to
conserve cash until such funding is obtained. We also may be required to continue to achieve specified maintenance criteria. If we become
unable to maintainseek
protection under the continued listing requirements at any time on the
American Stock Exchange, our securities could be delisted, we might not qualify
for inclusion on the Nasdaq SmallCap Market, and trading in the delisted
securities, if any, would thereafter be conducted in the non-Nasdaq
overthe-counter market. As a result, investors in our securities could find it
more difficult to dispose of or obtain accurate quotations as to the market
value of our securities.
If we fail to keep our common or preferred stock on Nasdaq or the American
Stock Exchange and the trading price were to fall below $5.00 per share, trading
of the stock would become subject to the Securities
12
and Exchange Commission's penny stock rules. The penny stock rules require
additional disclosure by broker-dealers in connection with any trades involving
penny stock. If any of our securities were deemed to be a penny stock, the
additional burdens imposed upon broker-dealers by such requirements could
discourage broker-dealers from effecting transactions in our securities, which
could severely limit the ability of purchasers in this offering to sell our
securities in the secondary market.bankruptcy laws.
We have a significant number of outstanding options warrants and convertible
securitieswarrants which could
depress the market price of our common stock and could interfere with our
ability to raise capital in the future.
19
As of April 3, 2000,November 25, 2003, we had outstanding options and warrants to
purchase 4,214,3435,702,866 shares of our common stock at exercise prices ranging from
$2.00$0.01 to $13.85$8.50 per share. We have also granted repricing rights to purchase up to an
aggregate of 141,200 additional shares of our common stock. We have outstanding
857,900 shares of preferred stock outstanding convertible into shares of our
Common Stock at an initial price of $4.41 per share (equivalent to a conversion
rate of 3.4 shares of common stock for each share of preferred stock). To the extent that the outstanding options warrants or repricing rightswarrants
are exercised,
or the preferred stock is converted, dilution to the percentage of ownership of our stockholders will
occur. Any sales in the public market of the shares underlying such options warrants, repricing rights and
convertible preferred
stockwarrants may adversely affect prevailing market prices for our common stock.
Moreover, the terms upon which we will be able to obtain additional equity
capital may be adversely affected, since the holders of outstanding options and
warrants can be expected to exercise them at a time when we would in all
likelihood be able to obtain any needed capital on terms more favorable to us
than those provided in the outstanding options and warrants.
Conversion of the Series B convertible redeemable preferred stock, Series E
convertible preferred stock and Series D convertible preferred stock will result
in substantial dilution.
We or certainare currently requesting our stockholders to consider and vote upon,
among other things, the issuance of shares of our supplierscommon stock upon conversion
of the Series B convertible redeemable preferred stock, Series E convertible
preferred stock and Series D convertible preferred stock. Subject to such
stockholder approval, such Series B convertible redeemable preferred stock,
Series E convertible preferred stock and Series D convertible preferred stock
will be converted into a total of 18,880,294 shares of common stock (after
giving effect to the proposed two-for-three reverse stock split). Holders of
common stock will therefore experience dilution of their investment upon
conversion of our Series B convertible redeemable preferred stock, Series E
convertible preferred stock and Series D convertible preferred stock. In
addition, if our agreement with Fusion Capital is approved, we may experience problems withissue up to
10,000,000 additional shares of common stock to Fusion Capital, thereby
resulting in further dilution of our common stockholders' interests.
The reverse stock split may have a negative impact on stockholders who own less
than 100 shares.
We are also currently seeking shareholder approval of a two-for-three
stock split. The reverse stock split might result in some stockholders owning
"odd lots" of less than 100 shares of Common Stock. Brokerage commissions and
other costs of transactions in odd lots may be higher, particularly on a
per-share basis, than the Year 2000.
We dependcost of transactions in even multiples of 100 shares.
The possibility also exists that stockholder liquidity may be adversely affected
by the reduced number of shares which would be outstanding if the reverse split
is effected, particularly if the price per share of the common stock begins a
declining trend after the reverse split is effected.
Our stock price has been volatile and future sales of substantial numbers of our
shares could have an adverse affect on third party telecommunicationsthe market price of our shares.
The market price of shares of our common stock has been volatile. The
price of our common stock may continue to fluctuate in response to a number of
events and hardware suppliersfactors, such as:
o our ability to maintain and uponincrease our accessprofitability;
o changes in revenues and expense levels;
o the amount of our cash resources and our ability to obtain
additional funding;
o our ability to service our debt;
o announcements of new lines of business, business developments,
technological innovations or new products by us or our
competitors;
o changes in government regulation; and
o the success of the integration of past and future
acquisitions.
20
Any of these events may cause the price of our shares to fall, which may
adversely affect our business and financing opportunities. In addition, the
stock market in general and the uninterrupted operationmarket prices for Internet companies in
particular have experienced significant volatility that often has been unrelated
to the operating performance or financial conditions of such companies. These
broad market and industry fluctuations may adversely affect the trading price of
our stock, regardless of our operating performance or prospects.
Future sales of our stock by insiders may adversely affect our stock price.
Many of our outstanding shares are "restricted securities" under the
federal securities laws, and such shares are or will be eligible for sale
subject to restrictions as to timing, manner, volume, notice and the
availability of current public information regarding Frontline. If our
shareholders approve the conversion of Series E convertible preferred stock and
Series D convertible preferred stock, which consent we are currently seeking, a
significant majority of our common stock will be held by the former stockholders
of Provo and by our founding management team. Sales of substantial amounts of
stock in the public market or sales of stock by our insiders or the perception
that these sales could occur, could depress the prevailing market price for all
of our securities. Sales of substantial amounts of stock by these stockholders
in the public market may also make it more difficult for us to sell equity
securities or equity-related securities in the future at a time and price that
we deem appropriate and, to the extent these sales depress our common stock
price.
Our stock may be delisted from the American Stock Exchange, and that could
affect its market price and liquidity.
We are required to meet certain financial tests to maintain the listing
of our common stock on the American Stock Exchange. The American Stock Exchange
has advised us that, our acquisition of Provo, as currently structures, does not
require review under the new listing standards of the Internet.exchange. The combined
company is required to meet the standards set forth by the exchange for
continued listing. If our stock price, stockholder's equity, income or market
cap were to fall below the standards set by the exchange, we may not be able to
maintain our American Stock Exchange listing. If we do not remain listed on the
American Stock Exchange, the market price and liquidity of our common stock
could be impaired. The delisting of our common stock could also deter
broker-dealers from making a market in or otherwise generating interest in our
common stock and could adversely affect our ability to attract investors in our
common stock and raise additional capital. As a result of these factors, the
value of our common stock could decline significantly, and our stockholders
could lose some or all of their investment.
Risks Related to Operating in Foreign Markets
Our business in Mexico presents unique economic and regulatory risks.
A significant portion of our assets and revenues are and will be located
in Mexico. Our business, therefore, is affected by prevailing conditions in the
Mexican economy and is, to a significant extent, vulnerable to economic
downturns and changes in government policies. The Mexican government exercises
significant influence over many aspects of the Mexican economy. Accordingly, the
Mexican government's actions and the policies established by legislative e,
executive or judicial authorities in Mexico may affect the Mexican economy. We
cannot assure you that future economic, political or diplomatic developments in
or affecting Mexico will not:
o impair our business, results of operations, financial
condition and liquidity (including our ability to obtain
financing);
o materially and adversely affect the market price of our
securities (including the shares of our common stock); or
o negatively affect our ability to meet our obligations.
21
We operate in foreign markets and are exposed to risks in those markets that may
adversely affect our performance.
Our growth strategy involves operations in several new international
markets. The following are certain risks inherent in doing business on an
international level, any of which could have not
experienced anya material adverse effect on our
business, interruptionsfinancial condition and results of operations:
o regulatory limitations restricting or supplierprohibiting us from
providing our services or selling our products;
o unexpected changes in regulatory requirements, tariffs,
customs, duties and other trade barriers;
o difficulties in staffing and managing foreign operations;
o political risks;
o fluctuations in currency exchange rates and restrictions on
repatriation of earnings;
o delays from Year 2000
problemscustomers or government agencies;
o dependence upon local suppliers in international markets;
o potentially adverse tax consequences resulting from operating
in multiple jurisdictions with different tax laws; and
o an economic downturn in the countries in which we expect to datedo
business.
A majority of our revenues are received in foreign currencies. Changes in
current exchange rates could adversely affect our business.
We generate a majority of our revenues in currencies other than the U.S.
dollar, and thus are subject to fluctuations in exchange rates. We may become
subject to exchange control regulations that might restrict or prohibit the
conversion of our revenue into U.S. dollars. The occurrence of any such factors
could have not discovered any Year 2000 problems in internal
computer systemsa material to our operations. However,adverse effect on our business, would be
materially adversely effected if any interruptions infinancial condition and
results of operations as well as our ability to service result from an
inability of third party systems or our internal computer systems to recognize
the year 2000.
13
dollar denominated
liabilities.
USE OF PROCEEDS
Assuming that all of the warrants held by selling stockholders are
exercised, we will realize proceeds of approximately $11,510,300.$729,900, all of which will
be used for working capital. We have agreed to pay certain expenses in
connection with this offering, currently expected to be approximately $15,000. Proceeds will be used for working capital and
potential acquisitions.$25,000.
We will not receive any of the proceeds from the sale of common stock by the
selling stockholders.
22
DESCRIPTION OF CAPITAL STOCK
General
We are currently authorized to issue 25,000,000 shares of common stock,
par value $.01 per share, and 2,000,000 shares of preferred stock, par value
$.01 per share. As of April 3, 2000,the date of this prospectus, there were 5,213,091are 13,784,146 shares
of common stock outstanding, and 875,900496,445 shares of preferred stock outstanding designated as
seriesSeries B convertible redeemable
preferred stock.stock outstanding, 35,500 shares of Series D convertible preferred
stock outstanding and 220,000 shares of Series E convertible preferred stock
outstanding.
Common Stock
The holders of our common stock are entitled to one vote for each share
held of record on all matters to be voted on by stockholders. There is no
cumulative voting with respect to the election of directors, with the result
that the holders of more than 50% of the shares voting for the election of
directors can elect all of the directors then up for election. The holders of
common stock are entitled to receive dividends when, as and if declared by the
Board of Directors out of funds legally available therefor. In the event of
liquidation, dissolution or winding up of our company, the holders of common
stock are entitled to share in all assets remaining which are available for
distribution to them after payment of liabilities and after provision has been
made for each class of stock, if any, having preference over the common stock.
Holders of shares of common stock have no conversion, preemptive or other
subscription rights, and there are no redemption provisions applicable to the
common stock. All of the outstanding shares of common stock are, and the shares
of common stock issuable upon exercise of warrants held by selling stockholders
will be, fully paid and nonassessable.
Preferred Stock
We are authorized to issue 2,000,000 shares of preferred stock from time
to time in one or more series, in all cases ranking senior to the common stock
with respect to payment of dividends and in the event of the liquidation,
dissolution or winding-up of our company. There are currently 875,900 sharesThe Board of preferred
stock outstanding, designated as series B convertible redeemable preferred
stock. The BoardDirectors has the power,
without stockholder approval, to issue shares of one or more series of preferred
stock, at any time, for such consideration and with such relative rights,
privileges, preferences and other terms as the Board of Directors may determine,
including terms relating to dividend rates, redemption rates, liquidation
preferences and voting, sinking fund and conversion or other rights. The rights
and terms relating to any new series of preferred stock could adversely affect
the voting power or other rights of the holders of the common stock or could be
utilized, under certain circumstances, as a method of discouraging, delaying or
preventing a change in control of our company.
14
In February 2000, we issued approximately 1,200,000 shares of Series B Convertible Redeemable Preferred Stock
General
In January 2000, our Board of Directors approved the issuance of series B
convertible redeemable preferred stock and the filing of a Certificate of
Designation with the Secretary of State of the State of Delaware for a new
series of preferred stock, $.01 par value, consisting of upin an underwritten public offering in
order to 1,250,000 shares.
This description is only a summary of the terms of the seriesraise capital. Our Series B convertible redeemable preferred stock that is
qualified in its entirety bycurrently traded on the rights,
preferences and limitations set forth inAmerican Stock Exchange under the Certificatesymbol FNT.PR. As of
Designation. If you
wish to review further information regarding theOctober 31, 2003, there were 496,445 shares of Series B preferred stock
see the
rights, preferences and limitations set forth in the Certificateoutstanding. We are currently seeking shareholder approval of Designation,
a copy of which is attached as an exhibit to the registration statementmandatory
conversion proposal relating to the sale of our seriesSeries B convertible redeemable preferred
stock.
Ranking
The preferred stock, ranks senior to our common stock in right of payment of
dividends and distributions upon liquidation, dissolution or winding up of our
company. The preferred stock also ranks senior to any other class of preferred
stock establishedwhich, if approved, would result in the future, unless the holdersconversion of a majorityall of the
outstanding shares of thisSeries B convertible redeemable preferred stock vote in favorat a
conversion ratio of the establishment of
a class of preferred stock that ranks senior or equal to this preferred stock.
Dividends
Holders of shares of preferred stock will be entitled to receive annual
cumulative dividends of $.60 per share, out of legally available funds, payable
semi-annually on June 30 and December 31 of each year, commencing June 30, 2000.
The dividends will be payable either in cash or in6 shares of common stock in
our sole discretion (except that dividends payable upon a redemptionper share of theSeries B convertible
redeemable preferred stock, which if approved will be payable onlyresult in cash). Dividends will accrue and are
cumulative from the date of first issuance of the preferred stock and will be
payable to holders of record as they appear on our stock books on the record
dates to be fixed by the Board of Directors. The number of shares of common
stock to be issued as a dividend will be based on the average closing sales
price of the common stock on the five trading days immediately preceding the
record date for each dividend. No fractional shares of common stock will be
issued. Instead, we will pay the cash equivalent of any fractional share. We
anticipate that payments of dividends on our preferred stock will be made by
issuing additional shares of common stock for the foreseeable future.
Liquidation Preference
In the event of any liquidation, dissolution or winding up of our company,
holders of shares of preferred stock will be entitled to receive, out of legally
available assets, a liquidation preference of $15.00 per share, plus an amount
equal to any accrued and unpaid dividends up to the payment date, before any
payment or distribution will be made to the holders of common stock or any other
capital stock that ranks junior to the preferred stock. Holders of shares of the
preferred stock will not be entitled to receive any liquidation preference on
their shares until the liquidation preference of any senior capital stock has
been paid in full.
Optional Redemption
If at any time after the date of issuance of preferred stock, the closing
sales price of the common stock has been $8.80 or more for any 15 consecutive
trading days, we may, at our option, by giving notice to the
15
holders of preferred stock at any time during the five business days after the
last trading day in the 15 day trading period, redeem all of the preferred stock
for $15.00 plus the amount of accrued and unpaid dividends.
We will also have the option, at any time more than 180 days after the date
of issuance of the preferred stock, to redeem all of the preferred stock for
cash. The redemption price will depend on the date of the redemption, as
follows:
If the date of the redemption is more than 180 days after the date of
issuance of the preferred stock, we may redeem all of the preferred stock for
$22.50, plus the amount of accrued and unpaid dividends.
If the date of the redemption is more than 12 months after the date of
issuance of the preferred stock, we may redeem all of the preferred stock for
$18.75, plus the amount of accrued and unpaid dividends.
If the date of the redemption is more than 24 months after the date of
issuance of the preferred stock, we may redeem all of the preferred stock for
$17.25, plus the amount of accrued and unpaid dividends.
If the date of the redemption is more than 36 months after the date of
issuance of the preferred stock, we may redeem all of the preferred stock for
$16.50, plus the amount of accrued and unpaid dividends.
Conversion
The preferred stock is convertible into shares of common stock at any time
up to the day before the date fixed for redemption. Shares of common stock are
issuable upon conversion of a share of preferred stock at an initial price of
$4.41 (equivalent to a conversion rate of 3.4 shares of common stock for each
share of preferred stock). The conversion rate is subject to adjustment for
stock splits, reverse stock splits and other similar capitalization changes.
Also, the conversion rate is subject to adjustment for the issuance of
rights or
warrants to holders of common stock entitling them to purchase common stock at a
price below the then-current market price, and for extraordinary dividends to
holders of stock junior or equal to the preferred stock. There are no other
provisions protecting against dilution of preferred stock resulting from the
sale of common stock at a price below the conversion rate or the then current
market price of our securities. No fractional shares of common stock will be
issued. Instead, we will pay the cash equivalent of any fractional shares.
Voting Rights
Generally, the holders of preferred stock will not be entitled to voting
rights unless required by law or except as to matters affecting their rights as
preferred stockholders, including the issuance of stock ranking on a parity with
or senior to the preferred stock upon liquidation or dissolution of our company.
If dividends on the preferred stock are in arrears and unpaid for six or
more dividend periods (whether or not consecutive), then the Board of Directors
will be increased by two members, who will be elected by the holders of the
then-outstanding shares of preferred stock. These voting rights will continue
until all dividends in arrears on the preferred stock are paid in full, or the
preferred stock is redeemed. In any case, the voting rights will terminate if at
any time there are fewer than 25,000 shares of preferred stock outstanding.
After the voting rights are terminated, the terms of the directors elected by
the preferred stockholders will terminate and the size of the Board of Directors
will be reduced by two members.
In connection with any vote where holders of preferred stock have the right
to vote, each outstanding share of preferred stock will be entitled to one vote.
16
Public Warrants
There are currently outstanding public warrants to purchase 1,840,0001,985,780 shares of our common stock at a price(after giving effect to the proposed
two-for-three reverse stock split).
23
On April 3, 2003, we acquired all of $4.80 per share at any time until May
13, 2003.
We may redeem the public warrants at any time,capital stock of Provo for
220,000 shares of our Series C convertible preferred stock. In November 2003 we
issued 220,000 shares of Series E convertible preferred stock in exchange for
the Series C convertible preferred stock held by the former shareholders of
Provo. The Series E convertible preferred stock is convertible, upon notice of not less than
30 days, at a price of $.10 per public warrant, provided that the closing bid
quotationshareholder
approval, into up to 22,000,000 shares of our common stock, on all 20 trading days ending onprovided that at no
time shall the former shareholders of Provo own in excess of 49.5% of our
outstanding common stock. Also in connection with our acquisition of Provo, we
also issued 35,500 shares of our Series D cconvertible preferred stock to
certain of our executive officers and directors, certain Provo employees and
other third day
priorparties. The Series D convertible preferred stock is convertible,
upon shareholder approval, into 3,550,000 shares of our common stock. We are
currently seeking shareholder approval of a conversion proposal relating to the
day onSeries E convertible preferred stock, which if approved will result in 134,445
of the 220,000 outstanding shares of Series E convertible preferred being
converted into approximately 13,344,514 shares of our common stock (after giving
effect to the proposed two-for-three reverse split. The remaining shares of
Series E convertible preferred stock will remain outstanding and subject to
optional conversion whenever the former shareholders of Provo's share ownership
drops below 49.5% of our outstanding common stock. Finally, we give notice has been at least $7.20. The public
warrant holders shall haveare currently
seeking shareholder approval of a conversion proposal relating to the rightSeries D
convertible preferred stock, which if approved will result in all 35,500
outstanding shares of Series D convertible preferred stock will be converted
into 3,550,000 shares of our common stock (after giving effect to exercise their public warrants until the close of business on the date fixed for redemption.proposed
two-for-three reverse split).
Transfer Agent and Warrant Agent
The transfer agent and registrar for our common stock and series B
convertible redeemable preferred stock and the warrant agent for our public
warrants is American Stock
Transfer and Trust Company, 40 Wall Street, New York, New York 10005.
24
SELLING STOCKHOLDERS
An aggregate of 141,844 shares of our common stock may be offered and sold
pursuant to this prospectus, comprised of 135,870 shares owned by certain
selling stockholders who purchased such shares in our December 1999 private
placement and 5,974 shares owned by a consultant. An aggregate of 40,196 shares
of common stock issuable upon the exercise of private placement warrants may be
offered and sold pursuant to this prospectus by certain of these selling
stockholders and a placement agent who received private placement warrants in
connection with the 1999 private placement. In addition, up to 311,300 shares of
our common stock issuable upon exercise of underwriter's warrants may be offered
by selling stockholders.
Of the private placement warrants, 21,662 entitle the holders thereof to
purchase one share of our common stock at an exercise price of $13.85 per share
until March 2002 and 18,534 entitle the holders to purchase one share of our
common stock at an exercise price of $6.07 per share until December 2002. Of the
underwriter's warrants, 151,300 entitle the holders to purchase one share of our
common stock at an exercise price of $6.60 per share until May 2003 and 160,000
entitle the holders to purchase one share of our common stock at an exercise
price of $7.92 per share until May 2003.
The following table sets forth certain information as of the date of this
ProspectusNovember 24,
2003, relating to the selling stockholders. None of the selling stockholders has
ever held any position or office with us or had any material relationship with
us, except that Werbel-Roth Securities, Inc. was the
underwriter of our initial public offering.
17
us.
Shares Beneficially Owned After Offering
--------------
Shares Beneficially Owned
Prior to Offering Shares Being After Offering(1)
Name of Beneficial Owner Prior to OfferingNumber Percent Offered Number Percent
- ---------------------------------- ----------------- ------------------- ------- ------------ ------ -------
Canadian Advantage Limited Partnership 115,819 84,024 40,460
Michael Brown 187,500 1.4% 187,500 0 0%
Donald MacIntire 187,500 1.4% 187,500 0 0%
IIG Equity Opportunities Fund, Ltd. 500,000 3.6% 500,000 0 0%
Fusion Capital Fund II, LLC 1,302,000 (2) 9.0% 802,000 500,000 (2) 3.5%
William T. Ritger 483,333 (3) 3.5% 483,333 0 0%
Platinum Partners Value Arbitrage Fund, LP 650,000 (4) 4.7% 650,000 0 0%
James Nicholson 125,000 (5) * Aberdeen Avenue LLC 94,438 84,023 19,080 *
Merchant Bancorp of America 13,615 8,019 5,596 *
Werbel-Roth Securities, Inc. 111,300 111,300 -- --
Howard Roth 90,000 90,000 -- --
Lawrence Feirstein 20,000 20,000 -- --
Myron Sayer 10,000 10,000 -- --
Comprehensive Capital Corporation 80,000 80,000 -- --
Martin Janis 5,974 5,974 -- --125,000 0 0%
Scarborough Ltd. 4,083,332 (6) 25.2% 4,083,332 0 (6) 0%
- ----------
* Less than one percent.
This table does not give effect to any------------
(1) Based on 13,784,146 shares of Common Stock thatoutstanding.
(2) Includes 462,000 which may be issued in accordance with the terms of a
convertible promissory note, and 220,000 shares issuable upon exercise
of warrants.
(3) Includes 150,000 shares issuable upon exercise of warrants.
(4) Includes 150,000 shares issuable upon exercise of warrants.
(5) Includes 125,000 shares issuable upon exercise of warrants.
(6) Includes 2,416,666 shares issuable upon exercise of warrants. Excludes
1,250,000 shares underlying warrants which may be issued upon exercise
of currently outstanding warrants.
* Less than 1%
25
SUMMARY OF TRANSACTIONS
The Offering
IIG Equity Opportunites Fund, Ltd.
On April 2, 2003, we entered into a bridge financing whereby we
borrowed $550,000 from IIG Equity Opportunities Fund, Ltd., an unaffiliated
lender. The loan is evidenced by a secured promissory note that bears interest
at the rate of 14% per annum and is secured by substantially all of our assets.
In addition, two of our executive officers, Nicko Feinberg and Stephen J.
Cole-Hatchard pledged shares of our common stock owned by them as additional
collateral to IIG Equity. In addition, Mr. Cole-Hatchard has personally
guaranteed the repayment of the promissory note, and mortgaged certain repricing rights grantedpersonal
real estate as collateral for the bridge loan. Mr. Cole-Hatchard's personal
guarantee is limited to Canadian Advantage
Limited Partnershipthe assets mortgaged by him and Aberdeen AvenueIIG Equity has
no-recourse against his other assets.
In connection with the bridge financing, we issued 500,000 shares of
our common stock to IIG Equity as additional consideration. The promissory note
is repayable at the earlier of July 2, 2003 or upon our obtaining financing
collateralized by Provo's accounts receivable. On June 19, 2003, we amended this
agreement to extend its due date from July 2, 2003 to August 1, 2003. On
September 30, 2003, we repaid $125,000 and amended this agreement to extend its
due date from August 1, 2003 to October 3, 2003. In November 2003, we repaid an
additional $96,539 principal and $19,861 in interest due under the note and
entered into an agreement with the noteholder to extend the term of the note to
December 31, 2003.
Concurrently with the execution of the bridge loan agreement, we
entered into a Registration Rights Agreement with IIG Equity which obligates us
to file a registration statement covering the 500,000 shares of our common stock
issued to IIG Equity as additional consideration.
Delanet, Inc.
On June 20, 2000, we purchased substantially all of the assets of
Delanet, Inc., a company in the business of selling dial-up, DSL, leased-line
and dedicated Internet access. As part of the purchase price, we issued a
promissory note to Delanet in the principal amount of $728,600. The note
provided for semi-annual interest payments and payment in full of all principal
and outstanding interest on June 20, 2003.
On March 27, 2003, we entered into a settlement agreement and release
with the two shareholders of Delanet, Inc., Donald MacIntire and Michael Brown,
in which we settled our obligation under the promissory note for $200,000 cash
and 375,000 shares of our common stock, of which 187,500 were issued to Mr.
MacIntire and 187,500 were issued to Mr. Brown. Under the terms of the
settlement, we are obligated to include the settlement shares in this
registration statement.
Fusion Capital Fund II, LLC
On July 1, 2003, we entered into an additional transaction with Fusion
Capital Fund II, LLC, in which we issued to Fusion Capital a convertible
promissory note in the principal amount of $110,000. The note bears an interest
rate of 10% per annum. The entire principal and any unpaid interest is due on
December 31, 2005. Fusion Capital has the right, at its option, on or prior to
December 31, 2005 to convert the principal amount of the note, together with all
accrued interest thereon in accordance with the provisions of and upon
satisfaction of the conditions contained in the note, into fully paid and
non-assessable shares of our common stock at a conversion price of $.25 per
26
share. Also in connection with this sale, we issued to Fusion Capital warrants
to acquire 220,000 shares of its common stock at an exercise price of $0.42. Our
agreement with Fusion Capital obligates us to include the shares issuable upon
conversion of the note and exercise of the warrants in this registration
statement.
William T. Ritger
On August 1, 2003, we entered into a stock purchase agreement with
William T. Ritger, in which we sold 333,333 shares of our common stock for
$100,000. We also issued 150,000 warrants exercisable at $.40 per share to Mr.
Ritger as additional consideration, the warrants are offered hereby.exercisable at the option
of the holder during a period of five years.
Concurrently with the execution of the Stock Purchase agreement, we
entered into a Registration Rights Agreement with Mr. Ritger which obligates us
to include the 333,333 shares of our common stock issued to Mr. Ritger under the
stock purchase agreement and the 150,000 shares which may be issued upon the
exercise of warrants in this registration statement.
Platinum Partners Value Arbitrage Fund, LP
On September 16, 2003, we entered into a stock purchase agreement with
Platinum Partners Value Arbitrage Fund, LP, in which we sold 500,000 shares of
our common stock for $150,000. We also issued 150,000 warrants exercisable at
$.40 per share to Platinum Partners as additional consideration , the warrants
are exercisable at the option of the holder during a period of five years..
Concurrently with the execution of the Stock Purchase agreement, we
entered into a Registration Rights Agreement with Platinum Partners which
obligates us to include the 500,000 shares of our common stock issued to
Platinum Partners under the stock purchase agreement and the 150,000 shares
which may be issued upon the exercise of warrants in this registration
statement.
James Nicholson
In June 2002, we entered into a securities purchase agreement with James
Nicholson whereby Mr. Nicholson purchased a $25,000 convertible promissory note
from us. We also issued 125,000 warrants exerciseable at $.08 per share to Mr.
Nicholson as additional consideration, , the warrants are exercisable at the
option of the holder during a period of five years. In October 2003, we entered
into an agreement with Mr. Nicholson whereby we agreed to include the 125,000
shares of common stock issuable upon the exercise of the warrants in this
registration statement.
Scarborough Ltd.
On November 25, 2003, we entered into a subscription agreement with
Scarborough Ltd in which we sold 1,666,666 shares of our common stock for
$500,000. Pursuant to the subscription agreement, we also issued 750,000
warrants exerciseable at $.01 per share to Scarborough Ltd. as additional
consideration (the "A Warrants"). The A Warrants are exerciseable at the option
of the holder for a period of three years. We also issued to Scarborough Ltd.
with a warrant to purchase an additional 1,666,666 shares of our common stock at
a purchase price of $0.30 per share (the "B Warrants"). The B Warrants are
exerciseable within forty-five days of the date of this registration statement,
which date may be extended for an additional forty five days pursuant to the
terms of the B Warrant. Upon exercise of the B Warrants, we will also issue to
Scarborough Ltd. a warrant to purchase an additional 1,250,000 shares of our
common stock at $0.01 per share (the "B2 Warrants"). The B Warrants and the B2
Warrants are only exerciseable if our shareholders approve the terms of the B
Warrants and the B2 Warrants.
Under the terms of the subscription agreement, we are obligated to
include the 1,666,666 shares of our common stock issued to Scarborough Ltd., the
750,000 shares which may be issued upon the exercise of the Warrants, and the
1,666,666 shares which may be issuable in the event the B2 warrants are issued
and exercised, in this registration statement.
27
PLAN OF DISTRIBUTION
Sales of the shares may be made from time to time by the selling
stockholders. Such sales may be made on the American Stock Exchange, and the
Nasdaq SmallCap Market, in another
over-the-counter market, or on anothera national securities exchange, any of which may
involve crosses and block transactions, in privately negotiated transactions or
otherwise or in a combination of such transactions at prices and onat terms then
prevailing or at prices related to the then current market price, or at
privately negotiated prices. In addition, any shares covered by this prospectus
which qualify for sale pursuant to Section 4(1) of the Securities Act of 1933 or
Rule 144 promulgated thereunder may be sold under such provisions rather than
pursuant to this prospectus. Without limiting the generality of the foregoing,
the shares may be sold in one or more of the following types of transactions:
o a block trade in which the broker-dealer so engaged will
attempt to sell the shares as agent but may position and
resell a portion of the block as principal to facilitate the
transaction;
o purchases by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to this
prospectus;
o an exchange distribution in accordance with the rules of such
exchange;
18
o ordinary brokerage transactions and transactions in which the
broker solicits purchasers; and
o face-to-face transactions between sellers and purchasers
without a broker-dealer. In effecting sales, brokers or
dealers engaged by the selling stockholders may arrange for
other brokers or dealers to participate in the resale.
Brokers or dealers may receive compensation in the form of commissions,
discounts or concessions from selling stockholders in amounts to be negotiated
in connection with the sale. Such brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933 in connection
with such sales and any such commission, discount or concession may be deemed to
be underwriting discounts or commissions under the Securities Act of 1933.
Compensation to be received by broker-dealers retained by the selling
stockholders in excess of usual and customary commissions, will, to the extent
required, be set forth in a supplement to this prospectus. Any dealer or broker
participating in any distribution of the shares may be required to deliver a
copy of this prospectus, including a supplement, to any person who purchases any
of the shares from or through such dealer or broker.
During such time as they may be engaged in a distribution of the shares
the selling stockholders are required to comply with Regulation M promulgated
under the Securities Exchange Act of 1934. With certain exceptions, Regulation M
precludes any selling stockholder, any affiliated purchasers and any
broker-dealer or other person who participates in such distribution from bidding
for or purchasing, or attempting to induce any person to bid for or purchase any
security which is the subject of the distribution until the entire distribution
is complete. Regulation M also prohibits any bids or purchases made in order to
stabilize the price of a security in connection with the distribution of that
security. All of the foregoing may affect the marketability of the common stock.
It is possible that a significant number of shares may be sold and,
accordingly, such sales or the possibility thereof may have a depressive effect
on the market price of our common stock.
28
LEGAL MATTERS
Blank Rome Tenzer Greenblatt LLP, New York, New York,Amy Wagner-Mele, our Executive Vice President and General Counsel, will
pass upon the validity of the common stock.
EXPERTS
Our financial statements as of December 31, 19992002 and for the two years
then ended incorporated by reference in this prospectus have been included in
reliance upon the report of BDO Seidman,Goldstein Golub and Kessler LLP, independent
accountants, given upon the authority of that firm as experts in accounting and
auditing.
The financial statements of Proyecciones y Ventas Organizadas, S. A.
de C. V. incorporated by reference in this Prospectus have been audited by BDO
Hernandez Marron y Cia., S.C., independent certified public accountants, to the
extent and for the periods set forth in their report incorporated herein by
reference, and are incorporated herein in reliance upon such report given upon
the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
Frontline Communications Corporation has filed with the SEC, a
Registration Statement with respect to the securities offered by this
prospectus. This prospectus, filed as part of such Registration Statement, does
not contain all of the information set forth in, or annexed as exhibits to, the
Registration Statement, portions of which have been omitted in accordance with
the rules and regulations of the SEC. For further information with respect to
Frontline Communications Corporation and this offering, reference is made to the
Registration Statement, including exhibits filed therewith, which may be read
and copied at the SEC at Room 1024, Judiciary Plaza,
19
450 Fifth Street, N.W.,
Washington, D.C. 20549, and at its regional offices: 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, 13th Floor,
New York, New York 10048. You can obtain copies of these materials at prescribed
rates from the Public Reference Room of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. Our electronic
filings made through the SEC's electronic data gathering, analysis and retrieval
system are publicly available through the SEC's worldwide web site
(http://www.sec.gov).
2029
================================================================================
We have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this prospectus. You must not
rely on any unauthorized information or representations. This prospectus does
not offer to sell or buy any shares in any jurisdiction where it is unlawful.
The information in this prospectus is current only as of its date.
---------------------------
TABLE OF CONTENTS
Page
----
Incorporation of Certain Documents by Reference .................................... 4
Prospectus Summary .........................................................Summary...................................... 4
Risk Factors ...............................................................Factors............................................ 12
Use of Proceeds ............................................................Proceeds......................................... 22
Description of Capital Stock ...............................................Stock............................ 23
Selling Stockholders .......................................................Stockholders.................................... 25
Plan of Distribution .......................................................Distribution.................................... 28
Legal Matters ..............................................................
Experts ....................................................................Matters........................................... 29
Experts................................................. 29
Where You Can Find Additional Information ..................................
----------
================================================================================
================================================================================
2,428,936Information.......................... 29
----------------------------
7,018,665 Shares
FRONTLINE COMMUNICATIONS CORPORATION
Common Stock
-----------------------
PROSPECTUS
----------
___________, 2000
================================================================================-------------
________________, 2003
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
SEC registration $3,195.43$ 218.26
Printing and engraving costs *2,000.00
Legal fees and expenses *10,000.00
Accounting fees and expenses *10,000.00
Miscellaneous *2781.74
----------
Total *
- ----------
* To be filed by amendment.$25,000.00
==========
Item 15. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law (the "DGCL")
contains the provisions entitling the Registrant's directors and officers to
indemnification from judgments, fines, amounts paid in settlement, and
reasonable expenses (including attorney's fees) as the result of an action or
proceeding in which they may be involved by reason of having been a director or
officer of the Registrant. In its Certificate of Incorporation, the Registrant
has included a provision that limits, to the fullest extent now or hereafter
permitted by the DGCL, the personal liability of its directors to the Registrant
or its stockholders for monetary damages arising from a breach of their
fiduciary duties as directors. Under the DGCL as currently in effect, this
provision limits a director's liability except where such director (i) breaches
his duty of loyalty to the Registrant or its stockholders, (ii) fails to act in
good faith or engages in intentional misconduct or a knowing violation of law,
(iii) authorizes payment of an unlawful dividend or stock purchase or redemption
as provided in Section 174 of the DGCL, or (iv) obtains an improper personal
benefit. This provision does not prevent the Registrant or its stockholders from
seeking equitable remedies, such as injunctive relief or rescission. If
equitable remedies are found not to be available to stockholders in any
particular case, stockholders may not have any effective remedy against actions
taken by directors that constitute negligence or gross negligence.
The Certificate of Incorporation also includes provisions to the effect
that (subject to certain exceptions) the Registrant shall, to the maximum extent
permitted from time to time under the law of the State of Delaware, indemnify,
and upon request shall advance expenses to, any director or officer to the
extent that such indemnification and advancement of expenses is permitted under
such law, as may from time to time be in effect. In addition, the By-Laws
require the Registrant to indemnify, to the full extent permitted by law, any
director, officer, employee or agent of the Registrant for acts which such
person reasonably believes are not in violation of the Registrant's corporate
purposes as set forth in the Certificate of Incorporation. At present, the DGCL
provides that, in order to be entitled to indemnification, an individual must
have acted in good faith and in a manner he or she reasonably believed to be in
or not opposed to the Registrant's best interests.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to any charter provision, by-law, contract, arrangement,
statute or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore, unenforceable.
ItemITEM 16. Exhibits
5 Opinion of Blank Rome Tenzer Greenblatt LLP *
23.1 Consent of BDO Seidman, LLP
23.2 Consent of Blank Rome Tenzer Greenblatt LLP (included in Exhibit 5) *
24EXHIBITS.
EXHIBIT NUMBER NOTES DESCRIPTION OF DOCUMENT
- -------------- ----- -----------------------
5.1 A Opinion of Amy Wagner-Mele
Employment Agreements with Messrs. Stephen Cole-Hatchard and Nicko
10.1 B Feinberg
10.2 C Employment Agreement with Vasan Thatham
10.3 D 2001 Stock Incentive Plan
10.4 B 1997 Stock Option Plan of the Company
10.5 B Office Lease between Registrant and Glorious Sun Robert Martin LLC
10.6 C Amendment No. 1 to Office Lease
10.7 C Amendment No. 2 to office Lease
10.8 E Asset Purchase Agreement dated June 20, 2000 among Frontline
Communications Corp., Delanet, Inc., Michael Brown and Donald McIntire
10.9 E Asset Purchase Agreement dated June 20, 2002 among Frontline
Communications Corp., Delanet, Inc., Michael Brown and Donald McIntire
Addendum to Amended and Restated Stock Purchase Agreement between
10.10 F Frontline Communications Corporation, Proyecciones y Ventas Organizadas,
S.A., Ventura Martinez Del Rio, Sr. and Ventura Martinez Del Rio, Jr.,
dated April 3, 2003
Registration Rights Agreement dated April 3, 2003 between Frontline
10.11 F Communications, Ventura Martinez Del Rio, Sr., and Ventura Martinez Del
Rio, Jr.
10.12 F Security Agreement dated April 3, 2002 between Frontline Communications,
Ventura Martinez Del Rio, Sr. and Ventura Martinez Del Rio, Jr.
Secured Promissory Note dated April 3, 2002 between Frontline
10.13 F Communications, Ventura Martinez Del Rio, Sr. and Ventura Martinez Del
Rio, Jr.
Term Loan and Security Agreement among Frontline Communications,
10.14 F Proyecciones y Ventas Organizadas, S.A., and IIG Equity Opportunities
Fund Ltd.
Pledge Agreement between Stephen J. Cole-Hatchard, Nicko Feinberg,
10.15 F Elizabeth Feinberg and IIG Equity Opportunities Fund Ltd. Dated April 3,
2003
Registration Rights Agreement between Frontline Communications
10.16 F Corporation and IIG Equity Opportunities Fund Ltd dated April 3, 2003
Limited guarantee agreement dated April 3, 2003 between Stephen J.
10.17 F Cole-Hatchard and IIG Equity Opportunities Fund Ltd dated April 3, 2002
Mortgage by Stephen J. Cole-Hatchard in favor of IIG Equity
10.18 F Opportunities Fund Ltd dated April 3, 2003
10.19 F Mortgage and Security Agreement by Stephen J. Cole-Hatchard in favor of IIG
Equity Opportunities Fund Ltd. dated April 3, 2003
10.20 F Subordination Agreement between 8% Promissory Note Holders and IIG Equity
Opportunities Fund Ltd. dated April 3, 2003
10.21 A Covnertible Note dated as of July 1, 2003 between the Registrant
and Fusion Capital, LLC
10.22 A Stock Purchase Agreement dated as of August 1, 2003 between the Registrant
and William Ritger
10.23 A Registration Rights Agreement dated as of August 1, 2003 between the
Registrant and William Ritger
10.24 A Warrant issued by the Registrant to William Ritger dated August 1, 2003
10.25 A General Release dated as of March 27, 2003 between the Registrant and
Delanet, Inc.
10.26 A Stock Purchase Agreement dated as of September 16, 2003 between the
Registrant and Platinum Partners Value Arbitrage Fund, LP
10.27 A Registration Rights Agreement dated as of September 16, 2003 between the
Registrant and Platinum Partners Value Arbitrage Fund, LP
10.28 A Warrant agreement dated as of September 16, 2003 between the Registrant to
Platinum Partners Value Arbitrage Fund, LP.
10.29 A Subscription Agreement dated as of June 2, 2002 between the Registrant and
James Nicholson
10.30 A Warrant agreement dated as of June 2, 2002 between the Registrant and James
Nicholson
10.31 A Subscription Agreement dated as of November 25, 2003 between the Registrant
and Scarborough, Ltd.
10.32 A Warrant Agreement dated as of November 25, 2003 between the Registrant and
Scarborough, Ltd.
10.33 A Warrant Agreement dated as of November 25, 2003 between the Registrant and
Scarborough, Ltd.
21.1 A Subsidiaries of the Registrant
23.1 A Consent of Goldstein Golub Kessler LLP
23.2 A Consent of BDO Hernandez and Marron, y Cia.
23.3 A Consent of Amy Wagner-Mele (included in Exhibit 5.1)
24.1 A Power of Attorney (included on the Signature page)
- --------------------------------
A Filed herewith.
B Incorporated by reference to the applicable exhibit contained in the
signature page of this registration
statement)Company's Registration Statement on Form SB-2 (file no. 333-34115).
- ----------
* To beC Incorporated by reference to the applicable exhibit contained in the
Company's Registration Statement on Form SB-2 (file no. 333-92969).
D Incorporated by reference to Appendix B to the Registrant's definitive
proxy statement on Schedule 14A with the SEC on July 3, 2001.
E Incorporated by reference to the applicable exhibit contained in the
Company's Current Report on Form 8-K dated June 20, 2002.
F Incorporated by reference to the applicable exhibit contained in the
Company's Annual Report on Form 10-KSB for the year ended December 31,
2002.
G Incorporated by reference to the applicable exhibit contained in the
Company's definitive proxy statement on Schedule 14A filed by amendment.with the SEC
on November 13, 2003
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act; and
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided, however, that paragraphs (i) and (ii) above do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 and Section 15(d) of the Exchange Act that are incorporated by
reference in the registration statement.
(2) That, for purposes of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) That, for purposes of determining any liability under the
Securities Act, each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section 15(d) of
the Exchange Act) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(5) That, insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrantRegistrant certifies that it has reasonable grounds to believe that it meets all
of the requirements offor filing on Form S-3 and has duly caused this Registration
Statementregistration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of PearlPearl; River, State of New York, on April 14, 2000.November 24, 2003.
FRONTLINE COMMUNICATIONS CORPORATION
By: /s/ Stephen J. Cole-Hatchard
---------------------------------------------------------------------------------
Stephen J. Cole-Hatchard
President and Chief Executive Officer
Each(Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below on this Registration Statement hereby constitutes and appoints Stephen J. Cole-Hatchard as his true and lawfulor
her attorney-in-fact, and agent, with full power of substitution for him and in his
name, place and stead, in any and all
capacities, (until revoked in writing) to sign any and all amendments (includingto this registration statement,
including, but not limited to, post-effective amendments and amendments
thereto)any and all new
registration statements filed pursuant to Rule 462 under the Securities Act of
1933 in connection with or related to the offer contemplated by this
Registration Statement on Form S-3 of Frontline Communications
Corporationregistration statement, as amended, and to file the same, with all exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission.Commission, hereby ratifying and confirming our signatures as they may be signed
by our said attorney to said registration statement and any and all amendment
thereto.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:indicated.
Signature Title Date
- --------- ----- ----
/s/ StephenVENTURA MARTINEZ DEL RIO, SR. Chairman of the Board November 25, 2003
---------------------------------
Ventura Martinez Del Rio, Sr.
/s/ STEPHEN J. Cole-HatchardCOLE-HATCHARD Chief Executive Officer President and April 14, 2000
- --------------------------- Director November 25, 2003
--------------------------------- (Principal Executive Officer)
Stephen J. Cole-Hatchard
/s/ Nicko Feinberg Chief Information Officer, Executive Vice April 14, 2000
- --------------------------- President of TechnologyNICKO FEINBERG President-U.S. Operations and Director November 25, 2003
---------------------------------
Nicko Feinberg
/s/ Michael Olbermann Executive Vice President of Operations and April 14, 2000
- --------------------------- Director
Michael Olbermann
/s/ Vasan ThathamVASAN THATHAM Chief Financial Officer and Executive Vice April 14, 2000
- --------------------------- President November 25, 2003
--------------------------------- (Principal Financial and Accounting Officer)
Vasan Thatham
/s/ VENTURA MARTINEZ DEL RIO, JR. President-Mexico Operations and Director November 25, 2003
---------------------------------
Ventura Martinez Del Rio, Jr.
/s/ RONALD C. SIGNORE Director November 25, 2003
---------------------------------
Ronald C. Signore
/s/ WILLIAM A. BARRON Director November 25, 2003
---------------------------------
William A. Barron
November 25, 2003
/s/ MIGUEL MADERO Director
---------------------------------
Miguel Madero
INDEX TO EXHIBITS
EXHIBIT NUMBER NOTES DESCRIPTION OF DOCUMENT
- -------------- ----- -----------------------
5.1 A Opinion of Amy Wagner-Mele
Employment Agreements with Messrs. Stephen Cole-Hatchard and Nicko
10.1 B Feinberg
10.2 C Employment Agreement with Vasan Thatham
10.3 D 2001 Stock Incentive Plan
10.4 B 1997 Stock Option Plan of the Company
10.5 B Office Lease between Registrant and Glorious Sun Robert Martin LLC
10.6 C Amendment No. 1 to Office Lease
10.7 C Amendment No. 2 to office Lease
10.8 E Asset Purchase Agreement dated June 20, 2000 among Frontline
Communications Corp., Delanet, Inc., Michael Brown and Donald McIntire
10.9 E Asset Purchase Agreement dated June 20, 2002 among Frontline
Communications Corp., Delanet, Inc., Michael Brown and Donald McIntire
Addendum to Amended and Restated Stock Purchase Agreement between
10.10 F Frontline Communications Corporation, Proyecciones y Ventas Organizadas,
S.A., Ventura Martinez Del Rio, Sr. and Ventura Martinez Del Rio, Jr.,
dated April 14, 2000
- ---------------------------3, 2003
Registration Rights Agreement dated April 3, 2003 between Frontline
10.11 F Communications, Ventura Martinez Del Rio, Sr., and Ventura Martinez Del
Rio, Jr.
10.12 F Security Agreement dated April 3, 2002 between Frontline Communications,
Ventura Martinez Del Rio, Sr. and Ventura Martinez Del Rio, Jr.
Secured Promissory Note dated April 3, 2002 between Frontline
10.13 F Communications, Ventura Martinez Del Rio, Sr. and Ventura Martinez Del
Rio, Jr.
Term Loan and Security Agreement among Frontline Communications,
10.14 F Proyecciones y Ventas Organizadas, S.A., and IIG Equity Opportunities
Fund Ltd.
Pledge Agreement between Stephen J. Cole-Hatchard, Nicko Feinberg,
10.15 F Elizabeth Feinberg and IIG Equity Opportunities Fund Ltd. Dated April 3,
2003
Registration Rights Agreement between Frontline Communications
10.16 F Corporation and IIG Equity Opportunities Fund Ltd dated April 3, 2003
Limited guarantee agreement dated April 3, 2003 between Stephen J.
10.17 F Cole-Hatchard and IIG Equity Opportunities Fund Ltd dated April 3, 2002
Mortgage by Stephen J. Cole-Hatchard in favor of IIG Equity
10.18 F Opportunities Fund Ltd dated April 3, 2003
10.19 F Mortgage and Security Agreement by Stephen J. Cole-Hatchard in favor of IIG
Equity Opportunities Fund Ltd. dated April 3, 2003
10.20 F Subordination Agreement between 8% Promissory Note Holders and IIG Equity
Opportunities Fund Ltd. dated April 3, 2003
10.21 A Convertible Note dated as of July 1, 2003 between the Registrant
and Fusion Capital, LLC
10.22 A Stock Purchase Agreement dated as of August 1, 2003 between the Registrant
and William A. Barron
/s/ Ronald C. Signore Director April 14, 2000
- ---------------------------
Ronald C. SignoreRitger
10.23 A Registration Rights Agreement dated as of August 1, 2003 between the
Registrant and William Ritger
10.24 A Warrant issued by the Registrant to William Ritger dated August 1, 2003
10.25 A General Release dated as of March 27, 2003 between the Registrant and
Delanet, Inc.
10.26 A Stock Purchase Agreement dated as of September 16, 2003 between the
Registrant and Platinum Partners Value Arbitrage Fund, LP
10.27 A Registration Rights Agreement dated as of September 16, 2003 between the
Registrant and Platinum Partners Value Arbitrage Fund, LP
10.28 A Warrant agreement dated as of September 16, 2003 between the Registrant to
Platinum Partners Value Arbitrage Fund, LP.
10.29 A Subscription Agreement dated as of June 2, 2002 between the Registrant and
James Nicholson
10.30 A Warrant agreement dated as of June 2, 2002 between the Registrant and James
Nicholson
10.31 A Subscription Agreement dated as of November 25, 2003 between the Registrant
and Scarborough, Ltd.
10.32 A Warrant Agreement dated as of November 25, 2003 between the Registrant and
Scarborough, Ltd.
10.33 A Warrant Agreement dated as of November 25, 2003 between the Registrant and
Scarborough, Ltd.
21.1 A Subsidiaries of the Registrant
23.1 A Consent of Goldstein Golub Kessler LLP
23.2 A Consent of BDO Hernandez and Marron, y Cia.
23.3 A Consent of Amy Wagner-Mele (included in Exhibit 5.1)
24.1 A Power of Attorney (included on the Signature page)
- --------------------------------
A Filed herewith.
B Incorporated by reference to the applicable exhibit contained in the
Company's Registration Statement on Form SB-2 (file no. 333-34115).
C Incorporated by reference to the applicable exhibit contained in the
Company's Registration Statement on Form SB-2 (file no. 333-92969).
D Incorporated by reference to Appendix B to the Registrant's definitive
proxy statement on Schedule 14A with the SEC on July 3, 2001.
E Incorporated by reference to the applicable exhibit contained in the
Company's Current Report on Form 8-K dated June 20, 2002.
F Incorporated by reference to the applicable exhibit contained in the
Company's Annual Report on Form 10-KSB for the year ended December 31,
2002.
G Incorporated by reference to the applicable exhibit contained in the
Company's definitive proxy statement on Schedule 14A filed with the SEC
on November 13, 2003