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Amendment to a previously filed 10KSB

10KSB/A







                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  ------------


                                  FORM 10-KSB/A
                                (Amendment No. 2)


[X] Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of
    1934.

         For the fiscal year ended December 31, 2002

                                       OR

[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange Act
    of 1934.

             For the transition period from _________ to ___________

                        Commission File Number 001-15673

                      FRONTLINE COMMUNICATIONS CORPORATION
                 ----------------------------------------------
                 (Name of Small Business Issuer in Its Charter)



                                                      
            Delaware                                        13-3950283
---------------------------------                        ----------------
  (State or Other Jurisdiction                           (I.R.S. Employer
  of Incorporation or Organization)                      Identification No.)

One Blue Hill Plaza, P.O. Box 1548, Pearl River, New York             10965
----------------------------------------------------------           -------
        (Address of principal executive offices)                  (Zip Code)



                                 (845) 623-8553
                ------------------------------------------------
                (Issuer's Telephone Number, Including Area Code)

    Securities registered pursuant to Section 12(b) of the Exchange Act:



                                     
     Title of each class                Name of each exchange on which registered

         Series B Convertible Redeemable                American Stock Exchange
         Preferred Stock, $.01 par value

         Common Stock, $.01 par value                   American Stock Exchange



    Securities registered pursuant to Section 12(g) of the Exchange Act:

    Common Stock Purchase Warrants

Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best 


 





of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]

The issuer's revenues for the year ended December 31, 2002 were $5,047,098.

The aggregate market value of the voting and non-voting common equity held by
non-affiliates as of April 3, 2003 was $1,808,932. As of April 3, 2003, there
were 10,169,972 shares of the issuer's Common Stock outstanding.

                      Documents Incorporated by Reference:

                                      None.




 






         The Form 10-KSB of Frontline Communications Corp. for the year ended
December 31, 2002 is being amended in response to a comment letter from the
Securities and Exchange Commission staff related to another filing.
Specifically, we have added additional disclosure regarding 1) the factors that
led us to acquire Proyecciones y Ventas Organizadas, S.A. de C.V. and the
anticipated impact of the acquisition on our business; and 2) competition in our
marketplace. This amendment does not include any material changes in our
financial statements other than expanded footnote disclosures. All other
information in the originally filed form 10-KSB was presented as of the April
14, 2003 filing date, or earlier as indicated, and has not been updated in this
amended filing.




                                     PART I


Item 1. Description of Business.

Overview

         Frontline Communications Corporation is a regional Internet service
provider ("ISP") providing Internet access, web hosting, website design, and
related services to residential and small business customers throughout the
Northeast United States and, through a network partnership agreement, Internet
access to customers nationwide.

         Primarily through 18 acquisitions, we grew our monthly revenue from
$30,000 as of October 1998 to approximately $400,000 per month at December 31,
2002. During that same period, we expanded our owned Internet access geographic
footprint from the New York/New Jersey metropolitan area, to a region that now
includes Delaware, Eastern Pennsylvania, and Northern Virginia. At December 31,
2002, we owned and operated eight points-of-presence ("POPs") which, when
combined with 1,100 POPs licensed from third parties, provide us with the
capability to serve over 75% of the U.S. population.


         In 2000, the downturn in the stock market relating to Internet stocks,
the growth of our competitors, and the introduction of new Internet access
products, such as high-speed cable access, began to have a negative impact on
our business. Specifically, the company found it increasingly difficult to raise
money in the equity marketplace, and the resulting lack of capital impeded the
growth of our business.


         During year 2002, we concentrated our efforts and resources primarily
on restructuring our operations to reduce costs, increasing operating efficiency
and improving customer service. As a result of our restructuring, we reduced our
staff from approximately 70 employees at March 2001 to 31 as of March 31, 2003,
and closed two regional offices, consolidating those functions into our Pearl
River, New York headquarters.

         We also streamlined our product offerings in 2002, 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 standardized our
product pricing, and raised the monthly rates to most of our dial-up access
customers to between $17.95 and $19.95 per month, depending on the term of
service purchased.


         After engaging in these aggressive restructuring efforts during 2000
and 2001, in 2002 our board of directors determined that the best alternative to
attempt to preserve 





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the continued economic viability of the company was to acquire a company with a
larger revenue base and greater potential for growth than us.

         In the fourth quarter of 2002, we entered into negotiations with
Proyecciones y Ventas Organizadas, S.A. de C.V., a corporation organized under
the laws of the Republic of Mexico ("Provo"). Provo had 2002 audited revenue of
approximately $100 million, an international presence, and an expanding product
line, and thus met our criteria for an acquisition candidate. In April 2003,
after several months of arm's length negotiations, we completed our acquisition
of Provo. See - Recent Developments, beginning on page 3. 

         Frontline Communications Corporation was formed during 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 (845) 623-8553. Our corporate websites are
located at www.frontline.net and www.fcc.net. PlanetMedia'sm''s Internet website
is located at www.pnetmedia.com. Information on these Websites is not part of
this report. Unless the context indicates otherwise, the terms "Frontline","
"we," "our," "the Company" and "us" in this report include the operations of
Frontline Communications Corporation and its wholly owned subsidiaries,
WowFactor, Inc., FNT Communications Corp., Inc. and CLEC Communications Corp.

Recent Developments 

         On April 3, 2003, we completed the acquisition of all of the issued and
outstanding stock of Proyecciones y Ventas Organizadas, S.A. de C.V., a
corporation organized under the laws of the Republic of Mexico ("Provo"). Provo
and its subsidiaries are engaged in distribution of prepaid calling card and
cellular phone airtime in Mexico. We believe that our acquisition of Provo will
enhance our potential to realize improved long-term operating results and to
achieve a stronger financial position. We believe that our acquisition of Provo
will yield the following potential benefits:

     o    Additional significant yearly revenues and strong operating profits.
          Provo had 2002 audited revenue of approximately $100 million, an
          increase of 20x over Frontline's 2002 audited revenue.

     o    An increased ability to participate in international transactions and
          allow us to expand our service offering. We believe that Provo's
          strong Mexican market presence will enable us to offer our Internet
          access products in Mexico and other Latin American markets. In
          addition, Provo plans to launch additional products in the U.S. and
          Mexico, which we expect will augment our current revenue lines.

     o    An enhanced our ability to raise cash, which has been inhibited by the
          adverse market conditions for technology and Internet companies
          prevailing during the past 24 months. Our acquisition of Provo will
          result in a more diversified product portfolio, which we believe will
          make us more attractive to potential investors. The addition of
          Provo's revenue stream to our current revenue stream will also aid us
          in seeking additional financing.







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     o    The transaction will increase our profile as a communications company.
          The combined product offering of Internet service bundled with
          telephone service will make us more competitive in the
          telecommunications market.


         We issued to the two stockholders of Provo (the "Sellers") 220,000
shares of our Series C Convertible Preferred Stock Series C Convertible
Preferred Stock. Each share of Series C Convertible Preferred Stock
automatically converts into 150 shares of our common stock upon receipt of the
approval of our stockholders of (i) the issuance of shares of common stock upon
conversion of the Series C Convertible Preferred Stock (ii) an increase in our
authorized common stock to 75 million shares and (iii) a 1 for 1.5 share reverse
split of our common stock. As a result, if our shareholder approvals are
obtained, we will issue 33 million shares of common stock (before giving effect
to the proposed reverse split) to the Sellers and a change of control of our
company will occur.

         In the event we do not receive shareholder approval on or prior to July
18, 2003 or such later date as agreed to by the holders of a majority of the
Series C Convertible Preferred Stock, and which date shall be extended for a
period of up to 30 days due to the actions or inactions of the Securities and
Exchange Commission or American Stock Exchange in connection with the Company
seeking shareholder approval, the Series C Convertible Preferred Stock will not
convert into common stock and the compensation payable to the Sellers shall be
increased by $20,000,000, payable in the form of a Note. The increase in the
purchase price will be effected as a result of our obligations arising under the
Note. The Note is a $20,000,000 principal amount promissory note we issued to
the Sellers in connection with the acquisition, which only takes effect if the
Series C Convertible Preferred Stock is not converted into common stock by the
date set forth in the Stock Purchase Agreement. The Note bears interest at the
rate of 8% per annum, is due and payable 15 days after it becomes effective and
is secured by substantially all of our assets including the capital stock of
Provo issued to us in the transaction. If the repayment obligations under the
Note become effective and the Company is not able to repay the Acquisition Note
when due and the Sellers foreclose on the shares pledged as collateral then the
Sellers will regain control of Provo. Moreover, after a foreclosure the Company
may remain obligated to the Sellers if the value of the collateral is
insufficient to cover the Company's obligations under the Acquisition Note. 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
shareholders fail to approve the items set forth above will have a material
adverse effect on our business and the interests of our shareholders.

         Each share of Series C Convertible Preferred Stock has a liquidation
preference of $.01 per share and ranks senior to our common stock but pari
passu to our Series B preferred stock. The holders of Series C Convertible
Preferred Stock have no voting rights, except (i) as required by law and (ii)
the holders of Series C Convertible Preferred Stock vote separately as to (a)
any amendment, alteration or repeal of the certificate of designation of Series
C Convertible Preferred Stock if the rights, preferences or privileges of the
Series C Convertible Preferred Stock are affected and (b) the creation,
authorization or issuance by our company of any stock on parity with, or senior
to the Series C Convertible Preferred Stock as to dividends, liquidation,
redemption, conversion, voting or assets, or any increase in the amount of
authorized shares of any such stock ("Senior Stock"). In addition, prior to the
Conversion Date, we may not do any of the following:





                                       4



 





         (i)   authorize any merger or certain other business combination
               transactions;

         (ii)  take any action which would result in our voluntary or
               involuntary dissolution or winding-up;

         (iii) amend, repeal or add any provision to our certificate of
               incorporation or by-laws if it would materially adversely effect
               the holders of Series C Convertible Preferred Stock;

         (iv)  issue any options, warrants or other securities convertible into
               or exchangeable for Senior Stock;

         (v)   incur, refinance or amend the terms of any indebtedness or any
               other obligation for the payment of money in an aggregate amount
               of $1,000,000; or

         (vi)  enter into any agreement for the sale of our securities or any
               capital financing transaction in which the Company issues capital
               stock or other securities at per share (or effective per share
               price) less than $1.50.

         In connection with the acquisition, we issued an aggregate of 35,500
shares of our Series D Convertible Preferred Stock (the "Series D Preferred") to
certain brokers, finders and insiders in accordance with the terms of certain
consulting agreements. See Item 12- Certain Relationships and Related
Transactions. 

         In April 2003, we borrowed $550,000 from an unaffiliated entity and
issued a secured promissory note to the lender. The Note bears interest of 14%
per annum and is secured by substantially all of our assets. Two of our
officers, Mr. Nicko Feinberg and Mr. Stephen J. Cole-Hatchard have pledged
shares of our common stock owned by them as additional collateral to the lender.
In addition, Mr. Cole-Hatchard has personally guaranteed the repayment of the
note. In connection with the financing, we issued 500,000 shares of our common
stock to the lender as additional consideration. The note is repayable at the
earlier of 90 days or upon financing of Provo's accounts receivable. Out of the
proceeds, we used $200,000 to settle a promissory note, issued as part of a
business acquisition, in the principal amount of $728,600. The balance of the
$728,600 promissory note was repaid through issuance of 375,000 shares of our
common stock to the promissory note holders.

Provo's Business

         Provo was formed in 1995 as a private company with headquarters in
Mexico City. Its primary business is the sale and distribution of prepaid
Latadel public calling cards for Telmex, the dominant telecommunications
provider in Mexico. Provo is also engaged in the sale and distribution of
Multifon prepaid landline telephone time provided by Telmex and prepaid digital
PCS cellular airtime provided by TelCel. TelCel is the dominant provider of
cellular airtime in Mexico. Sales of Provo's pre-paid calling cards account for
approximately 10% of all such sales in Mexico.

         Provo distributes its products through a network of approximately 60
independently-owned distributorships that collectively employ more than 400
sales people. Provo also employs its own in-house sales staff. Provo and its
distributors have established a distribution network that includes over 20,000
point-of-sale locations.

         Provo competes with approximately 40 other distributors who also
wholesale prepaid calling time purchased from Telmex and TelCel throughout
Mexico. Two other distributors, Tarjetas Del Noreste and DiCasa, maintain market
positions comparable to Provo's.



                                       5



 




         All of Provo's revenues are currently generated in Mexico. As a result,
Provo's business may involve certain considerations and risks not typically
associated with those of domestic origin as a result of, among other factors,
the level of governmental supervision and regulation of foreign businesses, the
possibilities of political or economic instability and volatility in currency
exchange rates.

Acquisitions in Year 2000

         In 2000, we acquired substantially all of the assets of The PressRoom
Online Services, Application Resources Information Services, Inc d/b/a Way
Communications, The First Street Corporation, Wizardnet, Inc., Delanet, Inc.
(internet access service providers) and PNM Group, Inc., a Web design company.
We also acquired certain customers of Double D Network Services, Inc. pursuant
to an agreement whereby we paid Double D a referral fee for each Double D
customer who signed up for our dial-up service.

Internet Products and Services

         Our products and services are focused around three key Internet
business areas - access, presence, and development.

Internet Access Products

     o    Dial-Up Accounts: Frontline offers residential and business dial-up
          and ISDN Internet access on a national basis. Customers may order
          these products on our websites or by calling our 800 number. Utilizing
          our branded software, available via CD or downloadable from our
          website, customers can quickly order and activate a new account,
          billable to the client's credit card. The standard Frontline dial-up
          product provides clients two Internet e-mail addresses, a customizable
          homepage, access to our Customer Service telephone support center, and
          the latest access tools including browsers from Netscape and
          Microsoft.

     o    Satellite Access: In late 2001, Frontline launched a line of broadband
          one-way satellite access products primarily for residential users. The
          satellite service provides customers with download speeds
          approximately 10 times faster than standard dial up accounts, uses a
          dial-up line for outbound service, and starts at $34.99 per month. A
          standard dial-up account is included with the service for outbound
          traffic and backup for downloading.

     o    DSL: We are a reseller of Digital Subscriber Line high-speed Internet
          access services for DSL.net, Inc., and Covad Communications Company.
          We offer Digital Subscriber Line, ISDN Digital Subscriber Line,
          Asymmetric Digital Subscriber Line and Symmetric Digital Subscriber
          Line services in the Mid-Atlantic and Northeast United States. These
          products provide our residential and business customers with
          high-speed dedicated Internet connectivity at an affordable cost.

     o    Dedicated Access: Frontline offers high-speed, high-bandwidth
          dedicated leased lines to customers, principally for business users
          who require high-speed internet connectivity 24 hours a day, seven
          days a week.

Internet Presence Products

     o    Virtual Website hosting: We offer virtual website hosting services to
          residential and small business customers who require 24 hour presence
          on the Internet. By renting space on our Internet servers, customers
          avoid costly hardware 




                                       6



 




          investment, maintenance, and other costs associated with operating
          their own servers. Marketed partly under our brand name FrontHost'sm',
          the Company's hosting services include domain name registration,
          e-mail addresses, file upload and download capability and statistical
          logs.

     o    Dedicated Hosting: Frontline offers website hosting and maintenance
          services to clients wishing to rent secure web-servers. In addition,
          Frontline offers co-location services to those customers preferring to
          install their own equipment at our facilities and connect their
          systems directly to the Internet.

     o    FrontHost'sm': Our do-it-yourself web hosting service, which includes
          the "Website Wizard" products, assists customers in developing and
          hosting their own Websites and e-commerce `stores' by using our
          FrontHost'sm' user-friendly tools. The product line is simple, self
          service, and economical.

Internet Development Services

     o    Website design services: PlanetMedia'sm', our website design,
          consulting, and development division, assists business customers with
          Internet marketing strategy, graphic design and layout, writing and
          editing and Website information architecture (including Website
          navigation and searching systems). Our in-house professionals provide
          full life-cycle support to customers: from the design phase through
          website installation and maintenance.

Marketing and Sales

         We currently handle sales and marketing utilizing in-house staff,
including our customer service and technical groups. We market and sell our
products through direct sales efforts, and a network of external, commissioned
resellers we refer to as "Value Added Resellers" (VARs).

         Marketing activities focus primarily on regional efforts such as radio,
trade and local business print media, as well as local event marketing in each
of the different areas in which we have a physical presence, which includes the
East coast from Virginia through the New York metropolitan area.

POPS and Network infrastructure

         Our Internet access network is comprised primarily of a Company-managed
network and third-party POPs provided primarily through an agreement with
Megapop, Inc. The Company believes that this combination of owned and leased
access enables Frontline to most economically provide Internet access services
to its customers on a national level while leveraging the competitive advantages
associated with the Company's own, uniquely-located, POPs.

         Broadband access to the Internet for Company-managed POPs is provided
through high speed T1, T3, or Ethernet connections supplied under contracts with
national broadband suppliers such as Verio, Inc. and by certain regional
broadband suppliers such as Focal, Inc., and AboveNet, Inc. DSL access is
similarly provided through direct connections or reseller agreements with Covad
Communications Company and DSL.net, Inc.

         Network and service delivery stability is provided through the use of
redundant computing and server facilities located at our larger owned POPs. We
have duplicate bandwidth access at each of our major locations. We have
installed backup power supply,




                                       7



 




remote alarm, computer virus protection, and monitoring software throughout our
network, which is monitored 24 hours a day, 7 days-a-week.

Customer and Product Support Services

            We believe that reliable customer and product support is critical to
retaining existing subscribers and in attracting new customers. We provide the
following Customer and Product support services:

          o    Toll-free, live telephone assistance available seven days a week,
               during peak load hours (10 hours per day; 8 hours on weekends);

          o    Email-based assistance available seven days a week;

          o    Internet help at our www.fcc.net Web site;

          o    Fax support for higher-end business hosting customers.

         In 2001, we consolidated our Howell, New Jersey and Pearl River, New
York customer service centers into the Pearl River location. All calls and
emails for customer service are now received in Pearl River, of which we receive
approximately 300, from both residential and business customers, per day.

Product and Service Development

         Our Product Service Division develops proprietary applications, and
reviews new technologies and third-party software products that are incorporated
into our network and service products. A revised, interactive website
(www.fcc.net) was activated by us during February 2001. In addition, a new
broadband one-way satellite system was developed and launched in late 2001, and
we distributed updated dial-up access CDs to our sales force and customers
during March 2001, December 2001, and March 2002.

Industry and Competition 

          The market for Internet access, hosting, and web design and
development services is highly competitive, rapidly evolving, and subject to
technological change. There are no substantial barriers to entry, and we expect
that competition will increase.

       Our competitors for Internet access services in the United States include
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 market is relatively small compared
to theirs. Our regional competitors have market shares that our comparable to
ours. Many of our current and future competitors possess a wide range of
products and collective new product development capabilities that exceed ours.
For example, some of our competitors, such as Time Warner Cable, offer access to
the Internet 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 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 





                                       8



 





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.

            We believe that competition is likely to increase and that existing
or future competitors may develop or offer services that are superior to ours at
a lower price. These factors could have a material adverse effect on our
business, financial condition, and results of operations.

Company Strategy and Restructuring Program 

         During 1998, the Company announced, as a strategic goal, to become a
leading provider of Internet access, development, and presence services for
small and medium-sized businesses throughout the United States. To achieve this
objective, we embarked on a program to expand our network infrastructure and
internet dial-up access subscriber base by acquiring local and regional ISPs,
utilizing acquired web-portal and e-commerce websites as a vehicle to promote
the sale of our Internet services, and developing co-marketing alliances with
value-added partners.

         During the period between October 1998 and September 2000, Frontline
acquired 18 companies, and as a result grew our monthly revenue from $30,000 to
approximately $400,000 per month at December 31, 2002, and acquired two
web-portal websites: WoWFactor.com'r' and iShopNetworks'sm'.

         Marketplace and technological changes during the year 2000 caused us to
revise our strategy and restructure our operations during the last two quarters
of the year 2000, in 2001 and 2002. We refined our product offerings to exclude
numerous low margin products and services as well as those which were no longer
in high demand, and raised our standard pricing for dial up customers to between
$17.95 and $19.95 per month. As a result, our actual customer count decreased,
while our revenue remained fairly constant. In an effort to offset the reduction
in customers, we added a broadband satellite access product line in late 2001.

         In addition, the marketplace failure of many so-called dot-com
companies and our inability to cost-effectively market our core products through
our owned websites resulted in our decision to abandon the use of web-portals as
a primary marketing tool of the Company. As a result, during January 2001, we
announced the sale of a majority of our equity interest in iShopNetworks, Inc.
and the closure of our WoWFactor.com'r' web-portal. We also announced that we
would cease funding our subsidiary, CLEC Communications Corp.

         In 2001 and 2002 the DSL market also suffered turmoil with many
substantial DSL providers entering bankruptcy or ceasing operations. As a
result, we sustained a loss of certain DSL customers and revenues. However, we
continue offering the DSL product line through Covad Communications Company and
DSL.net, Inc.

         During the last quarter of 2000, we commenced a restructuring program
(the "Restructuring Program") designed to consolidate our operations and improve
cost-effectiveness, combine personnel of our key products and customer service
divisions to leverage our manpower skills, and upgrade our access network
infrastructure. As of March 31, 2003, we have accomplished the following in
connection with our Restructuring Program:



                                       9



 




          o    Total workforce reduction of about 75%, from a high of
               approximately 120 employees to 31 employees as of March 31, 2003.

          o    Elimination of our marginal products and services, reducing the
               number of discrete product offerings from over 100 to
               approximately 25;

          o    Upgrading and improvement of our user-friendly website
               (www.fcc.net) promoting our products and services, and allowing
               for on line ordering;

          o    Development of a third-party network of selling agents (VARs) for
               the sales and marketing of our products and services, which had
               approximately 130 Frontline VARs registered as of March 14, 2003;

          o    Closure of two of our four offices and the consolidation of two
               owned POPs;

          o    Integration of our Product and Customer Service Divisions at our
               Pearl River, New York headquarters including closure of our
               Howell, New Jersey Call Center; and

          o    Discontinuation of expenditures related to our CLEC
               Communications Corp. subsidiary.

         We intend to continue our efforts to reduce costs, without sacrificing
the levels of service we provide to our customers, while adjusting our business
strategy, where necessary, in response to changing technology, market
conditions, and financial matters.

Trademarks and Service Marks

         We have filed an application for Federal Trademark Registration and
claim rights to the following mark: Frontline Communications Corp. We have been
granted Federal Trademark Registrations for the following trademarks:
Frontline.net and Frontline.net Effortless E-Commerce and Internet Access (name
and two logos). All other trademarks and service marks used in this report are
the property of their respective owners.

Industry Regulation

         The following summary of regulatory developments and legislation
relating to our Internet business does not describe all present and proposed
federal, state and local regulations and legislation affecting us and our
industry. Other proposed and existing federal, state and local legislation and
regulations are currently the subject of judicial proceedings, legislative
hearings and administrative proposals which could change the manner in which our
industry operates. Neither the outcome of these proceedings, nor their impact
upon us or our industry, can be predicted at this time.

         Internet Service Provider Regulation. Currently, few U.S. laws or
regulations specifically regulate communications or commerce over the Internet.
However, changes in the regulatory environment relating to the Internet
connectivity market, including regulatory changes which directly or indirectly
affect telecommunications costs or increase the likelihood or scope of
competition from the regional Bell operating companies or other
telecommunications carriers, could affect the prices at which we may 




                                       10


 




sell our services and impact competition in our industry. Congress and the
Federal Communications Commission will likely continue to explore the potential
regulation of the Internet. For instance, the Federal Communications Commission
may subject certain services offered by ISPs to regulation as
"telecommunications service", which could result in us being subject to
universal service fees, regulatory fees and other fees imposed on regulated
telecommunications providers, which could cause our costs of doing business to
increase substantially.

         Future laws and regulations could be adopted or modified to address
matters such as user privacy, copyright and trademark protection, pricing,
consumer protection, child protection, characteristics and quality of Internet
services, libel and defamation, and sales and other taxes. Internet-related
legislation and regulatory policies are continuing to develop, and we could be
subject to increased regulation in the future. Laws or regulations could be
adopted in the future that may decrease the growth and expansion of the
Internet's use, increase our costs, or otherwise adversely affect our business.

         In 1998, Congress passed the Digital Millennium Copyright Act. That act
provides numerous protections from certain types of copyright liability to
Internet service providers that comply with its requirements. We have adopted
policies and procedures in accordance with the act, however, to the extent that
we have not met those requirements, third parties could seek recovery from us
for copyright infringements caused by our Internet customers.

         The law relating to the liability of Internet service providers for
information carried on or disseminated through their networks is currently
unsettled. It is possible that claims could be made against Internet service
providers for defamation, negligence, copyright or trademark infringement or on
other theories based on the nature and content of the materials disseminated
through their networks. We could be required to implement measures to reduce our
exposure to potential liability, which could include the expenditure of
resources or the discontinuance or modification of certain product or service
offerings. Costs that may be incurred as a result of contesting any claims
relating to our services or the consequent imposition of liability could have a
material adverse effect on our financial condition, results of operations and
cash flow.

Employees

         As of March 31, 2003, we had 31 full-time employees including 4
executive officers. We also engage part-time employees from time to time. None
of our employees are represented by a union. We consider our employee relations
to be good. Provo and its affiliates have 135 employees, 134 of whom are full
time.


Item 2. Description of Property

         Our executive offices are located in Pearl 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 2003. The aggregate
annual rent of the two offices is approximately $308,000.



                                       11



 




         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 location 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 2003).
Aggregate annual rentals for POPs are approximately $6,000.

         Provo's principal office is a leased building located in Mexico City.
Provo also leases 16 additional smaller offices at various locations throughout
Mexico, where it maintains staff dedicated to sales and distribution.


Item 3. Legal Proceedings

         The Company is subject to various proceedings in the normal course of
its business. We do not anticipate any substantial impact or effect on the
Company from any such proceedings.


Item 4. Submission of Matters to a Vote of Security Holders

         Not applicable.


                                     PART II


Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

         Market Information. Commencing on February 7, 2000 our Common Stock has
been listed on the American Stock Exchange ("AMEX") under the symbol "FNT". From
May 14, 1998 until February 7, 2000, our Common Stock was traded on the NASDAQ
SmallCap Market under the symbol "FCCN". The following table sets forth, for the
periods indicated, the range of the high and low closing prices for the Common
Stock as reported by AMEX.





Fiscal Year Ended December 31, 2002                  High                       Low
-----------------------------------                  ----                       ---

                                                                         
First Quarter                                        .29                       .14

Second Quarter                                       .31                       .15

Third Quarter                                        .43                       .14

Fourth Quarter                                       .36                       .13



Fiscal Year Ended December 31, 2001                  High                       Low
-----------------------------------                  ----                       ---

                                                                         
First Quarter                                        .31                       .18

Second Quarter                                       .59                       .18

Third Quarter                                        .27                       .15

Fourth Quarter                                       .38                       .15








                                       12



 




         The number of record holders of our Common Stock was 237 as of April 3,
2003. We believe that there are in excess of 2,700 beneficial owners of our
Common Stock.

         Dividend Policy. To date, we have not declared or paid any cash
dividends on our common stock. The payment of dividends on our common stock, if
any, in the future is within the discretion of the Board of Directors and will
depend upon the Company's earnings, its capital requirements and financial
condition and other relevant factors such as the rights of holders of capital
stock that ranks senior with respect to dividends, such as our Series B
Convertible Redeemable Preferred Stock. We presently intend to retain any
earnings to finance our business and do not expect to declare or pay any cash
dividends on our common stock in the foreseeable future.

         Holders of our Series B Convertible Redeemable Preferred Stock are
entitled to receive annual cumulative dividends of $.60 per share payable
semi-annually in June and December of each year. The dividends are paid in cash
or in shares of Common Stock, at our discretion. In June and December 2002, our
directors elected not to declare a dividend on our Series B Convertible
Redeemable Preferred Stock. Accrued expense at December 31, 2002 includes
$297,867 representing unpaid dividends.

Changes in Securities and Use of Proceeds

         During the three months ended December 31, 2002, we issued 51,000
shares of common stock upon conversion of 15,000 shares of Series B Convertible
Redeemable preferred stock. The foregoing shares were issued pursuant to
exemptions from registration under Sections 3(a)(9) and 4(2) of the Securities
Act of 1933.

 Equity Plan Compensation Information

The following table sets forth information as of December 31, 2002 regarding
compensation plans under which our equity securities are authorized for
issuance.





Plan Category                       Number of               Weighted-                 Number of
                                    Securities to be        average                   securities remaining
                                    issued upon             exercise price            available for future
                                    exercise of             of outstanding            issuance under
                                    outstanding             options, warrants         equity compensation
                                    options, warrants       and rights                plans (excluding
                                    and rights                                        securities reflected
                                                                                      in column (a))
                                          (a)                 (b)                       (c)
                                                                             
Equity compensation plans
approved by security holders (1)    1,289,000                 $2.81                     556,500

Equity compensation plans not
Approved by security holders (2)    1,676,300                 $3.00
                                    ---------                 -----                     -------
Total                               2,965,300                 $2.92                     556,500
                                    =========                 =====                     =======




(1) Pursuant to our 1997 Stock Option Plan.



                                       13



 




(2) Outstanding warrants to acquire shares of common stock. The
    warrants expire at various times through 2005 and the warrant
    holders have certain anti-dilution rights. Excludes warrants to
    acquire 1,840,000 shares of common stock sold in our initial
    public offering.


Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.

         Safe Harbor Statement under the Private Securities Litigation Reform
Act of 1995: The Statements contained in this Item 6 and elsewhere in this Form
10-KSB which are not historical facts are "forward looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended and Section
21E of the Securities Exchange Act of 1934. These "forward looking statements"
are subject to a number of known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of the
Company to be materially different from any future results, performance or
achievements expressed or implied by such forward looking statements. Such risk
factors include, but are not limited to, risks associated with the Company's
ability to attract and retain new subscribers, ability of the Company to
successfully integrate newly acquired subscribers and business entities into its
operations, ability to manage any future growth, uncertainties regarding future
operating results, risks relating to changes in the market for internet
services, regulatory and technological changes, possible inability to protect
proprietary rights, changes in consumer preferences and demographics,
competition, reliance on telecommunication carriers, ability to expand the
Company's network structure, ability to obtain any necessary future financing,
unfavorable general economic conditions, uncertainty of customer and supplier
plans and commitments, the risks related to the acquisition of Provo and the
ability to maintain the American Stock Exchange and Nasdaq Small Cap Market
listing of the Company's securities and other risks detailed in this report and
in the Company's other Securities and Exchange Commission filings. The words
"believe", "expect", "anticipate", "intend" and "plan" and similar expressions
identify forward-looking statements, which speak only as of the date they were
made. We undertake no obligation to update any forward-looking statements
contained in this report.

Overview

         During 2002 and 2001, a significant part of our revenues were derived
from providing Internet access services to individuals and businesses. These
revenues were comprised principally of recurring revenues from our customer
base, leased line connections and various ancillary services. We charge
subscription fees, which are billed monthly, quarterly, semi-annually or
annually in advance, typically pursuant to pre-authorized credit card accounts.
The balance of our revenues during those periods were derived from website
design, development and hosting services.

         Monthly subscription service revenue for Internet access is recognized
over the period in which services are provided. Fee revenues for website design,
development and hosting services are recognized as services are performed.
Deferred revenue represents prepaid access fees by customers.

Restructuring Program.



                                       14



 




         In October 2000, we initiated a Restructuring Program designed to,
among other things, reduce our operating losses. The program consists of
reductions of personnel, reduction in marketing and promotional expenses,
consolidation of certain operations, exit from certain marginal product lines
not related to our core business, and closure of regional offices.

         We believe that the Restructuring Program and related cost reductions,
will permit us to maintain service quality to our customers while our more
focused product offering portfolio will enhance our ability to grow our revenue
base. To date we have realized significant cost reductions. However, there can
be no assurance that the Restructuring Program will achieve the desired results,
that there will not be any disruption of any services offered by us, or
resulting loss of revenues from reduced product lines and marketing
expenditures. The restructuring program was substantially completed by December
31, 2002.

Results of Operations

Comparison of Years ended December 31, 2002 and 2001:

Revenues. Revenues decreased for the year ended December 31, 2002 by $1,456,022
or 22.4% over the prior year. The decrease in revenues were in part due to
closure of our unprofitable satellite offices and due to lesser website
development work performed by us in 2002. We anticipate that our revenues will
decrease in 2003.

Cost of Revenues. For the year ended December 31, 2002, cost of revenues
decreased by $989,617 to $2,493,337. As a percentage of revenues, cost of
revenues decreased to 49.4% from 53.6%. The decrease in cost of revenues was due
to cost reductions realized through our Restructuring Program. We anticipate
that our cost of revenue in absolute dollars will decrease in 2003.

Selling, General and Administrative. For the year ended December 31, 2002
selling, general and administrative expenses decreased by $1,414,183. As a
percentage of revenues, selling, general and administrative expenses decreased
from 59.4% in 2001 to 48.5% in 2002. The decrease in selling, general and
administrative expenses was due to cost reductions realized through our
Restructuring Program. The principal component of the decrease was in payroll
and related costs due to workforce reduction.

Depreciation and Amortization. For the year ended December 31, 2002,
depreciation and amortization decreased by $2,198,543 to $745,135. The decrease
was due to reduced amortization resulting from our intangibles written off as
impaired in the fourth fiscal quarter of 2001.

Non cash compensation charges. In September 2001, we granted 1,376,700
restricted shares of our common stock to our employees under the Company's 2001
Stock Incentive Plan. Accordingly, $206,505 representing the fair value of the
shares granted, was charged to operations as a non-cash compensation charge.
During 2002, we recognized a non-cash compensation charge of $58,500 for shares
issued in exchange for services from consultants.

Impairment of intangibles. During the year ended December 31, 2001, due to
changes in circumstances, we determined that the carrying amount of intangible
assets of The PressRoom Online Services, Wizardnet, Inc., Delanet and PNM Group,
which we acquired in 2000, were impaired. Accordingly we recorded an impairment
charge of approximately $2,800,000 on these assets.



                                       15




 





Interest Expense. Interest expense for 2002 was $95,417 compared to an interest
expense of $131,778 for 2001. Interest expense decreased in 2002 due to
decreased debt levels.

Net loss. As a result of the foregoing, for the year ended December 31, 2002,
net loss decreased by 88.8% or $6,241,762 to $787,525 compared to a net loss of
$7,029,287 in 2001. We incurred significant losses as revenues generated were
not sufficient to offset the substantial up-front expenditures and operating
costs associated with attracting and retaining additional customers.

Liquidity and Capital Resources.

         Our working capital deficiency at December 31, 2002 was $2,655,722
compared with a working capital deficiency of $1,725,323 at December 31, 2001.
The increase in working capital deficiency was primarily due to the effect of a
promissory note that is payable in June 2003 in the principal amount of $728,600
becoming a current liability and also from operating losses.

         Our primary capital requirements are to fund acquisition of customer
bases and related Internet businesses, install network equipment, and working
capital. To date, we have financed our capital requirements primarily through
issuance of debt and equity securities. We currently do not have any bank lines
of credit. The availability of capital resources is dependent upon many factors,
including, but not limited to, prevailing market conditions, interest rates, and
our financial condition.

         In June 2002, we completed a private placement of 8% promissory notes
and received proceeds of $200,000 (including $50,000 from our Officers and
Directors). The promissory notes bear interest at 8% and mature in three years
from the date of issuance. We have the option to convert the principal amount
due under the promissory notes into shares of our common stock at a conversion
price of $4.80 per share, under certain circumstances, as defined in the
agreement with the promissory note holders, such as the market price of our
common stock exceeding $6 per share. We also issued to the note holders warrants
to purchase an aggregate of 1,000,000 shares of our common stock at an exercise
price of $.08 per share. Out of the proceeds, $75,000 was allocated as the value
of the warrants and deducted from the current value of the notes payable in the
accompanying balance sheet (Discount). The debt issue discount arising from the
value of the warrants is being amortized as additional interest over the life of
the promissory notes.

         As discussed in Item 1-Business, in April 2003, we acquired Provo. If
we receive the Requisite Approvals from our stockholders, which will result in
the obligations under the Acquisition Note not becoming effective, we believe
that the addition of Provo's operations to our operations will enable us to meet
our obligations as they come due and that we will be able to continue as a going
concern. If we are unable to obtain the Requisite Approvals from our
stockholders which will result in our being liable to the Sellers under the
Acquisition Note, then we will need additional financing in 2003 to continue
operations as currently conducted. We have no available standby sources of
financing and there can be no assurance that any additional financing will be
available to us on acceptable terms, or at all.

                                       16


 




Critical Accounting Policies and Estimates

         Our discussion and analysis of our financial conditions and results of
operations is based upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America ("GAAP"). The preparation of these financial statement requires us to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an ongoing basis, we evaluate our estimates, including those
related to revenue recognition, accounts receivable, long-lived assets and
income taxes. We base our estimates on historical experience and on various
other assumptions that are believed to be reasonable under the current
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.

         We believe the following critical accounting policies affect our
significant judgment and estimates use in preparation of our consolidated
financial statements.

Revenue Recognition

During 2002 and 2001, a significant part of our revenues were derived from
providing Internet access to individuals and businesses. These revenues were
comprised principally of recurring revenues from our customer base, leased line
connections and various ancillary services. We charge subscription fees, which
are billed monthly, quarterly, and semi-annually or annually in advance,
typically pursuant to pre-authorized credit card accounts. The balance of our
revenues during those periods were derived from website design, development and
hosting services.

Monthly subscription revenue for Internet access is recognized over the period
in which services are provided. Fee revenue for website design, development and
hosting services are recognized as services are performed. Deferred revenue
represents prepaid access fees by customers.

Accounts Receivable

Accounts receivable are reported at their outstanding unpaid principal balances
reduced by an allowance for doubtful accounts. We estimate doubtful accounts
based on historical bad debts, factors related to specific customers' ability to
pay, and current economic trends. We write off accounts receivable against the
allowance when a balance is determined to be uncollectible.

Long-Lived Assets

We assess the impairment of long-lived assets, which include property and
equipment, intangibles and customer bases when events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable through the estimated undiscounted future cash flows from the use of
these assets. When any such impairment exists, the related assets will be
written down to fair value.

Income Taxes

Our net deferred tax assets, consisting of primarily federal and state net
operating loss carry forwards, have been offset by a full valuation allowance.
In determining the

                                       17


 




need for a valuation, we review both positive and negative evidence, including
current and historical operating results. Based upon our assessment of all
available evidence, we have concluded that it is more likely than not that
deferred tax assets will not be realized.


I
tem 7. Financial Statements.

         The financial statements appear in a separate section of this report
following Part III.


Item 8. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure.

         Information regarding the Company's change in accountants may be found
in the Company's Form 8-K for the event dated January 10, 2001.


                                    PART III


Item 9. Directors, Executive Officers, Promoters and Control Persons;
        Compliance with Section 16(a) of the Exchange Act.

         The directors and executive officers of the Company are as follows:




Name                               Age      Position
----                               ---      --------
                                      
Ventura Martinez Del Rio, Sr.       53      Chairman of the Board

Stephen J. Cole-Hatchard            45      Chief Executive Officer and Director

Nicko Feinberg                      31      President, U.S. Operations and Director

Vasan Thatham                       45      Vice President and Chief
                                            Financial Officer

Amy Wagner-Mele                     34      Executive Vice President,
                                            Secretary and General Counsel

Ventura Martinez Del Rio, Jr.       29      President, Mexican Operations and Director

Ronald C. Signore                   42      Director

William A. Barron                   53      Director

Miguel Madero                       54      Director



         Ventura Martinez Del Rio, Sr. has been our Chairman since April of
2003. Mr. Martinez Del Rio, Sr. earned an undergraduate degree in Economics from
the Universidad Anahuac in Mexico in 1972 and an MBA from the University of
Texas in 1974. He is currently the president of the Texas EX's in Mexico, a
widely popular alumni

                                       18



 





organization. From 1983 to 1994, Mr. Martinez Del Rio, Sr. served in many
executive leadership roles for the Mexican National Lottery, developing a vast
business contact network that includes numerous senior Mexican government
officials and the leaders of numerous senior Mexican government officials and
the leaders of numerous prominent retail organizations throughout Mexico. He
founded Provo in October of 1995. Mr. Martinez Del Rio, Sr. has served as
chairman of the board of Provo since its inception.

         Stephen J. Cole-Hatchard has been our Chief Executive Officer since
August 1997. Mr. Cole-Hatchard was our Vice President of Finance from February
1997 to August 1997, our President from August 1997 to July 2001, our Chairman
from August 1997 to April 2003 and has been one of our directors since February
1997. Mr. Cole-Hatchard was Chief Financial Officer of Hudson Technologies,
Inc., a refrigerant services company specializing in recovery and
decontamination services, from 1993 to 1996, and has been a licensed attorney
since 1988.

         Nicko Feinberg founded our Company in 1995, has been a director since
November 1996, and was appointed as President, U.S Operations in April 2003. He
was our Executive Vice President of Technology from November 1996 to July 2001,
Chief Information Officer from August 1997 to July 2001 and President and Chief
Operating Officer from July 2001 to April 2003. Mr. Feinberg was a Sales Manager
and, from April 1991 to April 1994, a Sales Account Executive for Microage
Computer Outlet, Inc., a company engaged in computer sales.

         Vasan Thatham has been our Vice President and Chief Financial Officer
since February 1999. From 1994 through 1998, Mr. Thatham was Vice President and
Chief Financial Officer of Esquire Communications Ltd., a company engaged in
providing legal support services.

         Amy Wagner-Mele has been our Vice President and General Counsel since
December 1998 and our Secretary since September 1998, and was our Vice
President, Secretary and Corporate Counsel from September 1998 to December 1998.
From September 1997 to August 1998, Ms. Wagner-Mele was an associate with the
law firm of Winston & Strawn. From 1993 to August 1997, Ms. Wagner-Mele was an
associate with the law firm of Podvey, Sachs, Meanor, Catenacci, Hildner &
Cocoziello, P.C.

         Ventura Martinez Del Rio, Jr. has been our director since April 2003
and was appointed as President, Mexican operations in April 2003. Mr. Ventura
Martinez Del Rio, Jr. earned a BBA degree from the Universidad Anahuac in Mexico
in 1994 and a graduate degree in business from Ipade Business School ("IBS").
IBS is a highly-regarded (business management school based in Mexico City. He
joined Provo in 1996 as its Chief Operating Officer, co-led the company through
its rapid growth from 1996 to 2001 and was named its Chief Executive Officer in
2001.

         Ronald C. Signore has been one of our directors since December 1997.
Mr. Signore has been a partner in the accounting firm of Gray, Signore & Co.,
LLP for more than the past five years.

         William A. Barron has been one of our directors since January 2000.
Prior to retirement, Mr. Barron served as Vice President and Chief Financial
Officer of Hudson Technologies, Inc. from July 1996 to March 1997. Prior to
that, Mr. Barron was President and Chief Operating Officer for Diagnostek, Inc.,
a pharmacy benefit management company, from May 1994 to October 1995 and
Executive Vice President and

                                       19



 





Chief Financial Officer for Diagnostek, Inc. from March 1993 to April 1994. From
February 2001 through July 2001, as part of the Restructuring Program, Mr.
Barron served as interim Vice President and Chief Operating Officer of the
Company.

Miguel Madero has been our director since April 2003. Mr. Miguel Madero earned a
BA in Industrial Engineering from the Universidad Iberoamericana in Mexico City
in 1971, and obtained an MBA from the University of Texas at Austin in 1975. In
September 1985, he co-founded Fomento y Direccion Economica, S.A. de C.V., a
financial advisory and investment banking firm in Mexico City where he currently
serves as a Managing Director. Mr. Madero sits on the Board of Directors of
Credito Inmobiliario S.A. de C.V., a real estate financing company in Mexico.

         All directors hold office until the next annual meeting of stockholders
for the ensuing year or until their successors have been duly elected and
qualified. Officers are elected annually by the Board of Directors and serve at
the discretion of the Board.


Item 10. Executive Compensation.

         The following table sets forth compensation paid to our Chief Executive
Officer and our two other most highly compensated executive officers (each of
whom was serving at the end of our fiscal year ended December 31, 2002) during
the years ended December 31, 2002, 2001 and 2000. No other executive officer of
the Company received aggregate compensation which exceeded $100,000 during the
year ended December 31, 2002. We refer to these three executive officers as our
"Named Executives".




                                                                             Long-Term Compensation
                                                                                     Awards
                                                                              Securities Underlying
Name and Principal Position           Year       Salary       Bonus              Options/SAR (#)
---------------------------           ----       ------       -----              ---------------
                                                                        
Stephen J. Cole-Hatchard              2002     $112,482
 Chief Executive Officer              2001      114,423      67,725  (1)            52,000
                                      2000      117,692      34,500                 25,000

Nicko Feinberg                        2002     $107,761
  President                           2001      109,518      49,175  (2)            52,000
                                      2000      110,000      24,500                 27,000

Vasan Thatham                         2002     $105,265
 Chief Financial Officer              2001      109,518      15,051  (3)            27,000
                                      2000      110,000      18,500                 12,000



(1)      Includes $43,725 representing the fair market value on the date of the
         award of 291,500 shares of common stock issued under our 2001 Stock
         Incentive Plan.

(2)      Includes $35,175 representing the fair market value on the date of the
         award of 234,500 shares of common stock issued under our 2001 Stock
         Incentive Plan.

                                       20


 





(3)      Includes $13,425 representing the fair market value on the date of the
         award of 89,500 shares of common stock issued under our 2001 Stock
         Incentive Plan.

         The following table sets forth information regarding options granted
during the year ended December 31, 2002 to our Named Executives:

               Options/SAR Grants in Year Ending December 31, 2002




                                     Number of Shares      % of Total
                                     Underlying            Options/SAR
                                     Options/ SARs         Granted          Exercise Price         Expiration
                                     Granted               in Year            $/share)                Date
                                     -------               -------            --------                ----
                                                                                          
Stephen J.Cole-Hatchard                     _                   _                _                      _

Nicko Feinberg                              _                   _                _                      _

Vasan Thatham                               _                   _                _                      _



         The following table sets forth information concerning the number of
options owned by our Named Executives, the value of any in-the-money unexercised
options as of December 31, 2002 and information concerning options exercised by
our Named Executives during the year ended December 31, 2002:

           Aggregated Option Exercises and Year-End Option/SAR Values




                            Shares                         Number of Securities         Value of Unexercised
                           Acquired       Value           Underlying Unexercised             In-The-Money
                          On Exercise  Realized ($)     Options/SARs at 12/31/2002    Options/SARs at 12/31/2002
                          -----------  ------------     --------------------------    --------------------------
                                                        Exercisable  Unexercisable   Exercisable    Unexercisable
                                                        -----------  -------------   -----------    -------------
                                                                                  
Stephen J.Cole-Hatchard        0            $0            302,000                      $2,080

Nicko Feinberg                 0            $0            245,000                      $2,080

Vasan Thatham                  0            $0            100,000                      $1,080



         The year-end values for unexercised in-the-money options represent the
positive difference between the exercise price of the options and the year-end
market value of our common stock. An option is "in-the-money" if the year-end
fair market value of our common stock exceeds the option exercise price. The
closing sale price of our common stock on December 31, 2002 was $.26.

Employment Agreements

                                       21


 





         The Board of Directors has approved the adoption of employment
agreements between the Company and/or its affiliates and Messrs. Thatham,
Feinberg, Martinez del Rio Jr., Cole-Hatchard and Martinez del Rio Sr. that
provide for an annual base compensation of not less than $115,000, $120,000,
$120,000, $150,000 and $150,000, respectively. The agreements will provide for
certain base salary increases in the event the Company completes an equity
financing in excess of $7,000,000, and for certain bonuses in the event the
Company achieves certain revenue objectives. The agreements will also allow for
such bonuses as the Board of Directors may, in its sole discretion, from time to
time determine. The employment agreements with Messrs. Thatham, Feinberg,
Martinez Del Rio Jr., Cole-Hatchard and Martinez Del Rio Sr. will expire in
April 2005 subject to automatic successive one year renewals unless either we or
the employee gives notice of intention not to renew the agreement. With the
exception of Mr. Martinez del Rio Sr., the employment agreements will provide
for employment on a full-time basis, and each of the agreements will contain a
provision that the employee will not compete or engage in a business competitive
with our current or anticipated business during the term of the employment
agreement and for a period of two years thereafter.

         All of the employment agreements will provide that the employees shall
be paid additional compensation equal to 295% of their annual base salary in the
event of a change of ownership or effective control of our company (as defined
in the agreements). The anticipated change in control as a result of the
acquisition of Provo will not trigger the additional compensation clauses of the
employment agreements.

Director Compensation

         Each of our non-employee directors received $6,000 in 2002 for
attending Board Meetings.

1997 Stock Option Plan

         In February 1997, our Board of Directors and stockholders adopted our
1997 Stock Option Plan, pursuant to which 500,000 shares of common stock were
reserved for issuance upon exercise of options. In June 2000, the Board of
Directors and our stockholders approved an amendment to increase to 2,000,000
the number of shares of common stock available for issuance upon exercise of
options under the stock option plan. Our stock option plan is designed to serve
as an incentive for retaining qualified and competent employees, directors and
consultants.

         Our Board of Directors or a committee of our Board administers our
stock option plan and is authorized, in its discretion, to grant options under
our stock option plan to all eligible employees, including our officers,
directors (whether or not employees) and consultants. Our stock option plan
provides for the granting of both "incentive stock options" (as defined in
Section 422 of the Internal Revenue Code of 1986, as amended) and non-qualified
stock options. Options can be granted under our stock option plan on such terms
and at such prices as determined by the Board of Directors or its committee,
except that the per share exercise price of options will not be less than the
fair market value of the common stock on the date of grant. In the case of an
incentive stock option granted to a stockholder who owns stock possessing more
than 10% of the total combined voting power of all of our classes of stock, the
per share exercise price will not be less than 110% of the fair market value on
the date of grant. The aggregate fair market value (determined on the date of
grant) of the shares

                                       22



 





covered by incentive stock options granted under our stock option plan that
become exercisable by a grantee for the first time in any calendar year is
subject to a $100,000 limit.

         Options granted under our stock option plan will be exercisable during
the period or periods specified in each option agreement. Options granted under
our stock option plan are not exercisable after the expiration of 10 years from
the date of grant (five years in the case of incentive stock options granted to
a stockholder owning stock possessing more than 10% of the total combined voting
power of all of our classes of stock) and are not transferable other than by
will or by the laws of descent and distribution.

2001 Stock Incentive Plan

         In June and July 2001, our Board of Directors and stockholders,
respectively, adopted our 2001 Stock Incentive Plan ("Incentive Plan") pursuant
to which the grant of any or all of the following types of awards may be made
under the Incentive Plan (collectively, "Awards"): (1) stock options, (ii)
restricted stock, (iii) deferred stock and (iv) other stock-based awards. Awards
may be granted singly, in combination, or in tandem, as determined by the
administrators of the Incentive Plan. A total of 1,800,000 shares of our common
stock, subject to anti-dilution adjustment as provided in the Incentive Plan,
have been reserved for distribution pursuant to the Incentive Plan. The maximum
number of shares of common stock that may be issued upon the grant of an Award
to any individual participant cannot exceed 500,000 shares during the term of
the Incentive Plan.

         The Incentive Plan can be administered by our Board of Directors or a
committee consisting of two or more non-employee members of the Board of
Directors appointed by the Board. The Board or the committee will determine,
among other things, the persons to whom Awards will be granted, the type of
Awards to be granted, the number of shares subject to each Award and the share
price. The Board or the committee will also determine the term of each Award,
the restrictions or limitations thereon, and the manner in which each such Award
may be exercised or, if applicable, the extent and circumstances under which
common stock and other amounts payable with respect to an Award will be
deferred. Unless sooner terminated, the Incentive Plan will expire at the close
of business on June 20, 2011.

         The Incentive Plan provides for the grant of both incentive stock
options and non-qualified stock options. The exercise price of an incentive
stock option or a non-qualified stock option will not be less than the fair
market value of the shares underlying the option on the date the option is
granted, provided, however, that the exercise price of an incentive stock Option
granted to a stockholder who possesses more than 10% of the combined voting
power of all classes of our stock may not be less than 110% of such fair market
value. The aggregate fair market value (determined at the time the option is
granted) of the shares of common stock covered by an incentive stock option
granted under the Incentive Plan that become exercisable by a grantee for the
first time in any calendar year cannot exceed $100,000.

         The Incentive Plan contains anti-dilution provisions authorizing
appropriate adjustments in certain circumstances. Shares of Common Stock subject
to Awards which expire without being exercised or which are cancelled as a
result of the cessation of employment are available for further grants. Options
become exercisable in such amounts, at such intervals and upon such terms and
conditions as the Board of Directors or the Committee provides.

                                       23


 





         Under the Incentive Plan, the Board or the Committee may grant shares
of restricted Common Stock either alone or in tandem with other Awards.
Restricted and Deferred Stock awards give the recipient the right to receive a
specified number of shares of common stock, subject to such terms, conditions
and restrictions as the Board or the Committee deems appropriate.

         Other Stock-Based Awards, which may include performance shares and
shares valued by reference to the performance of the Company or any parent or
subsidiary of the Company, may be granted under the Incentive Plan either alone
or in tandem with other Awards.


Item 11. Security Ownership of Certain Beneficial Owners and Management.

         The following table sets forth certain information, as of April 3, 2003
relating to the beneficial ownership of shares of Common Stock by: (i) each
person or entity who is known by the Company to own beneficially five percent or
more of the outstanding Common Stock; (ii) each of the Named Executives; (iii)
each of the Company's directors; and (iv) all directors and executive officers
of the Company as a group.




Name of Beneficial Owner                Number of Shares                                Percentage
                                        Beneficially Owned (1)
                                                                                    
Nicko Feinberg                                  866,500                   (2)               8.2%
Stephen J. Cole-Hatchard                      1,066,718                   (3)              10.0%
Ronald Signore                                  329,032                   (4)               3.2%
William Barron                                  178,972                   (5)               1.7%
Ventura Martinez Del Rio, Sr.                      -                                          -
Ventura Martinez Del Rio, Jr.                      -                                          -
Miguel Madero                                      -                                          -
Vasan Thatham                                   195,500                   (6)               1.9%
All Directors and Executive
Officers as a group (nine persons)            2,942,222                   (7)              25.5%



(1)   Unless otherwise indicated, we believe that all persons named in the table
      have sole voting and investment power with respect to all shares of Common
      Stock beneficially owned by them.
(2)   Includes warrants to purchase 125,000 shares of Common Stock and options
      to purchase 245,000 shares of Common Stock. The address of Mr. Feinberg is
      c/o the Company at One Blue Hill Plaza, 7th Floor, Pearl River, New York
      10965
(3)   Includes 144,000 shares held by the Cole-Hatchard Family Limited
      Partnership, of which Mr. Cole-Hatchard is a general partner, options to
      purchase 302,000 shares of Common Stock and 171,530 shares of Common Stock
      issuable upon exercise of 50,450 shares of Series B Preferred Stock. The
      address of Mr. Cole-Hatchard is c/o the Company.
(4)   Includes warrants to purchase 125,000 shares of Common Stock and options
      to purchase 80,000 shares of Common Stock.
(5)   Includes options to purchase 87,000 shares of Common Stock and 680 shares
      of Common Stock issuable upon conversion of 200 Shares of Series B
      Preferred Stock.
(6)   Includes options to purchase 100,000 shares of Common Stock.
(7)   Includes options and warrants to purchase 1,214,000 shares of Common Stock
      and 172,210 shares of Common Stock issuable upon exercise of 50,650 shares
      of Series B Preferred Stock.

                                       24


 






Item 12. Certain Relationships and Related Transactions.

         In June 2002, Mr. Nicko Feinberg and Mr. Ronald Signore, our current
directors, purchased $50,000 in aggregate principal amount of promissory notes
pursuant to our June 2002 private placement, and received warrants to purchase
250,000 shares, in aggregate, of our common stock at an exercise price $.08 per
share. These purchases were all on terms and conditions identical to those of
the other investors in the private placement. 

         In connection with the acquisition of Provo, we issued to 18
individuals an aggregate of 35,500 shares of our Series D Convertible Preferred
Stock including 10,000 shares to Stephen J. Cole-Hatchard, our Chairman of the
Board and Chief Executive Officer, 10,000 shares to Nicko Feinberg, our
President U.S Operations, and a director, 5,000 shares of Series D to Joseph
Donohue, a then director, 1,000 shares to Vasan Thatham, our Vice President and
Chief Financial Officer and 1,000 shares to Amy Wagner-Mele, our Executive Vice
President and General Counsel. 

         Each share of Series D Convertible Preferred Stock is convertible into
150 shares of common stock upon receipt of the approval by our shareholders of
(i) the issuance of common stock upon conversion of the Series D Convertible
Preferred Stock, (ii) an increase in our authorized common shares to 75 million
and (iii) a 1 for 1.5 reverse split of our common stock . Accordingly, if our
shareholders approvals are obtained, the Series D Preferred will convert into an
aggregate of 5,325,000 shares of common stock (without giving effect to the
proposed reverse split), of which 1,500,000 shares will be issued to Mr.
Cole-Hatchard, 1,500,000 shares will be issued to Mr. Feinberg, 750,000 shares
will be issued to Mr. Donahue, 150,000 shares to Mr. Thatham and 150,000 shares
to Ms. Mele.


         In April 2003, we borrowed $550,000 from an unaffiliated entity
("Lender") and issued a secured promissory note ("Note") to the lender. The Note
bears interest of 14% and is secured by substantially all of our assets. Two of
our officers, Messrs. Nicko Feinberg and Stephen J. Cole-Hatchard have pledged
shares of common stock owned by them in our company as additional collateral to
the lender. In addition, Mr. Cole-Hatchard has personally guaranteed the
repayment of the Note.


Item 13. Exhibits, Lists and Reports on Form 8-K.

         (a) Exhibits 

2.1      Amended and Restated Stock Purchase Agreement between Frontline
         Communications Corporation, Proyecciones y Ventas Organizadas, S.A.,
         Ventura Martinez del Rio Requejo and Ventura Martinez del Rio Arrangoz
         dated April 3, 2003. ****


3.1      Certificate of Incorporation of the Company.+


                                       25



 





3.2      Certificate of Amendment of the Certificate of Incorporation of the
         Company.+++

3.3      Certificate of Amendment of the Certificate of Incorporation of the
         Company.*

3.4      By-Laws of the Company.+

4.1      Certificate of Designation of Series A preferred stock.++

4.2      Certificate of Designation of Series B cumulative convertible preferred
         stock.*


4.3      Certificate of Designation of Series C convertible preferred stock.****

4.4      Certificate of Designation of Series D convertible preferred stock.****


10.1     Employment Agreements with Messrs. Stephen Cole-Hatchard and Nicko
         Feinberg.+#

10.2     Employment Agreement with Vasan Thatham.*#

10.3     2001 Stock Incentive Plan.***#

10.4     1997 Stock Option Plan.+#

10.5     Office Lease between the Company and Glorious Sun Robert Martin LLC.+

10.6     Amendment No. 1 to Office Lease.*

10.7     Amendment No. 2 to Office Lease.*

10.8     Asset Purchase Agreement dated June 20, 2000 among Frontline
         Communications Corp., Delanet, Inc., Michael Brown and Donald
         McIntire.**

10.9     Asset Purchase Agreement dated June 20, 2000 among Frontline
         Communications Corp., Delanet, Inc., Michael Brown and Donald
         McIntire.**

10.10    Addendum to Amended and Restated Stock Purchase Agreement between
         Frontline Communications Corporation, Proyecciones y Ventas
         Organizadas, S.A., Ventura Martinez Del Rio, Sr. and Ventura Martinez
         Del Rio, Jr. dated April 3, 2003. ****


10.11    Registration Rights Agreement dated April 3, 2003 between Frontline
         Communications, Ventura Martinez Del Rio, Sr. and Ventura Martinez Del
         Rio, Jr..****

10.12    Security Agreement dated April 3, 2003 between Frontline
         Communications, Ventura Martinez Del Rio, Sr. and Ventura Martinez Del
         Rio Jr.. ****


                                       26


 





10.13    Secured Promissory Note dated April 3, 2003 between Frontline
         Communications, Ventura Martinez Del Rio, Sr. and Ventura Martinez Del
         Rio, Jr.. ****


10.14    Term Loan and Security Agreement among Frontline Communications,
         Proyecciones y Ventas Organizadas, S.A., and IIG Equity Opportunities
         Fund Ltd. ****

10.15    Pledge Agreement between Stephen J. Cole-Hatchard, Nicko Feinberg,
         Elizabeth Feinberg and IIG Equity Opportunities Fund Ltd Dated April 3,
         2003. ****

10.16    Registration Rights Agreement between Frontline Communications
         Corporation and IIG Equity Opportunities Fund Ltd dated April 3, 2003.
         ****

10.17    Limited guarantee agreement dated April 3, 2003 between Stephen J.
         Cole-Hatchard and IIG Equity Opportunities Fund Ltd dated April 3,
         2003. ****

10.18    Mortgage by Stephen J. Cole-Hatchard in favor of IIG Equity
         Opportunities Fund Ltd dated April 3, 2003.****

10.19    Mortgage and Security Agreement by Stephen J. Cole-Hatchard in favor of
         IIG Equity Opportunities Fund Ltd dated April 3, 2003. ****

10.20    Subordination Agreement between 8% Promissory Note Holders and IIG
         Equity Opportunities Fund Ltd dated April 3, 2003. ****


21.1     Subsidiaries of the Company.

23.1     Consent of Goldstein Golub and Kessler LLP.

31.1     Certification by Stephen J. Cole-Hatchard pursuant to Rule 13a-14(a)
         of the Securities Exchange Act of 1934.

31.2     Certification by Vasan Thatham pursuant to Rule 13a-14(a) of the 
         Securities Exchange Act of 1934.

32.1     Certification of Stephen J. Cole-Hatchard pursuant to Section 906 of
         the Sarbanes-Oxley Act of 2002.

32.2     Certification of Vasan Thatham pursuant to Section 906 of the 
         Sarbanes-Oxley Act of 2002.

(Footnotes from previous page)

---------------

*    Incorporated by reference to the applicable exhibit contained in the
     Company's Registration Statement on Form SB-2 (file no.333-92969).

+    Incorporated by reference to the applicable exhibit contained in the
     Company's Registration Statement on Form SB-2 (file no. 333-34115).

++   Incorporated by reference to the applicable exhibit contained in the
     Company's Current Report on Form 8-K dated October 9, 1998.

                                       27


 





+++  Incorporated by reference to applicable exhibit contained in the Company's
     Quarterly Report on Form 10-QSB for the quarterly period ended June 30,
     1999.

**   Incorporated by reference to the applicable exhibit contained in the
     Company's Current Report on Form 8-K dated June 20, 2000.

***  Incorporated by reference to Appendix B to the Registrant's definitive
     proxy statement on Schedule 14A filed with the SEC on July 3, 2001.

**** Incorporated by reference to applicable exhibit contained in the Company's
     Annual Report on Form 10-KSB for the fiscal year ended December 31, 2002.

#    Denotes a management compensation plan or arrangement. 

         (b) Reports on Form 8-K filed during the quarter ended December 31,
2002:

         Not applicable.


Item 14. Controls and Procedures

         Within 90-day period prior to the filing of this report, an evaluation
was carried out under the supervision and with participation of our management,
including the Chief Executive Officer ("CEO") and Chief Financial Officer
("CFO"), of the effectiveness of our disclosure controls and procedures. Based
on that evaluation, the CEO and CFO have concluded that our disclosure controls
and procedures are effective to ensure that the information required to be
disclosed by us in reports that we file or submit under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and forms.
Subsequent to the date of their evaluation, there were no significant changes in
our internal controls or other factors that could significantly affect the
internal controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.

                                       28



 





                                   SIGNATURES


         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly signed this report on its behalf
by the undersigned, thereunto duly authorized on the 6th day of October 2003.


                         FRONTLINE COMMUNICATIONS CORPORATION

                         By: /s/ Stephen J. Cole-Hatchard
                         -------------------------------------------------
                         Stephen J. Cole-Hatchard, Chief Executive Officer

In accordance with the requirements of the Securities Exchange Act of 1934, this
report was signed by the following persons in the capacities and on the dates
stated. 




Signature                                   Title                               Date
---------                                   -----                               ----
                                                                          
/s/ Ventura Martinez Del Rio, Sr.
--------------------------------
Ventura Martinez Del Rio, Sr.               Chairman of the Board               October 6  2003

/s/ Stephen J. Cole-Hatchard
--------------------------------            Chief Executive Officer,            October 6, 2003
Stephen J. Cole-Hatchard                    and Director (Principal
                                            Executive Officer)

/s/ Nicko Feinberg
--------------------------------            President U.S. Operations           October 6, 2003
Nicko Feinberg                              and Director

/s/ Vasan Thatham
--------------------------------            Chief Financial Officer             October 6, 2003
Vasan Thatham                               and Vice President (Principal
                                            Financial and Accounting Officer)

/s/ Ventura Martinez Del Rio, Jr.
--------------------------------
Ventura Martinez Del Rio, Jr.               President Mexico Operations         October 6, 2003
                                            and Director

/s/ Ronald C. Signore
--------------------------------            Director                            October 6, 2003
Ronald C. Signore

/s/ William A. Barron
--------------------------------            Director                            October 6, 2003
William A. Barron




                                       29


 




FRONTLINE COMMUNICATIONS

CORPORATION AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2002




 







                                                                     
Independent Auditor's Report                                            F-1

Consolidated Financial Statements:

   Balance Sheet                                                        F-2
   Statement of Operations                                              F-3
   Statement of Stockholders' Equity (Deficiency)                       F-4
   Statement of Cash Flows                                           F-5 - F-6
   Notes to Consolidated Financial Statements                        F-7 - F-18






 




INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
Frontline Communications Corporation

We have audited the accompanying consolidated balance sheet of Frontline
Communications Corporation and Subsidiaries (the "Company") as of December 31,
2002 and the related consolidated statements of operations, stockholders' equity
(deficiency), and cash flows for each of the two years in the period then ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Frontline
Communications Corporation and Subsidiaries as of December 31, 2002, and the
results of their operations and their cash flows for each of the two years in
the period then ended, in conformity with accounting principles generally
accepted in the United States of America.
 
In April 2003, as discussed in note 10 of the notes to consolidated financial
statements, the Company entered into an agreement with the stockholders of
Proyecciones y Ventas Organizadas, S.A. de C.V. ("Provo"), a corporation
organized under the laws of the Republic of Mexico to acquire Provo. Upon
completion of the transaction described in note 10 and the approval of the
proposed stock conversion by the Company's stockholders, it is expected that the
stockholders of Provo will control the Company.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note 1 of the
notes to consolidated financial statements, the Company has suffered recurring
losses from operations, has a working capital deficiency and a stockholders'
deficiency, which raise substantial doubt about its ability to continue as a
going concern. Management's plans regarding those matters are also described in
note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
 
/s/ Goldstein Golub Kessler LLP
-------------------------------
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
 
February 20, 2003, except for note 10,

as to which the date is April 3, 2003


                                                                             F-1



 




                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                                      CONSOLIDATED BALANCE SHEET





--------------------------------------------------------------------------------------------------------------------
December 31, 2002
--------------------------------------------------------------------------------------------------------------------
                                                                                                       
ASSETS
Current:
   Cash and cash equivalents                                                                        $        208,502
   Accounts receivable, less allowances for doubtful accounts of $25,000                                     212,397
   Prepaid expenses and other                                                                                 57,778
--------------------------------------------------------------------------------------------------------------------
     Total current assets                                                                                    478,677
Property and Equipment, net                                                                                  671,013
Other                                                                                                        108,877
--------------------------------------------------------------------------------------------------------------------
     Total Assets                                                                                   $      1,258,567
====================================================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
   Accounts payable                                                                                 $        765,749
   Accrued expenses                                                                                          903,710
   Current portion of long-term debt                                                                         940,202
   Deferred revenue                                                                                          524,738
--------------------------------------------------------------------------------------------------------------------
     Total current liabilities                                                                             3,134,399
Long-term Debt, less current portion                                                                          11,453
Promissory notes Payable (face value $200,000, including $50,000 payable to officers and
   directors), net of unamortized discount of $58,333                                                        141,667
--------------------------------------------------------------------------------------------------------------------
     Total liabilities                                                                                     3,287,519
--------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies
Stockholders' Deficiency:
   Preferred stock - $.01 par value; authorized 2,000,000 shares, issued and outstanding 496,445
     shares (liquidation preference of $7,446,675)                                                             4,964
   Common stock - $.01 par value; authorized 25,000,000 shares, issued 9,940,424 shares                       99,404
   Additional paid-in capital                                                                             36,204,292
   Accumulated deficit                                                                                   (37,466,196)
--------------------------------------------------------------------------------------------------------------------
                                                                                                          (1,157,536)
   Treasury stock, at cost, 645,452 shares                                                                  (871,416)
--------------------------------------------------------------------------------------------------------------------
     Stockholders' deficiency                                                                             (2,028,952)
--------------------------------------------------------------------------------------------------------------------
     Total Liabilities and Stockholders' Deficiency                                                 $      1,258,567
=====================================================================================================================





                 See notes to Consolidated Financial Statements



                                                                             F-2



 




                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                            CONSOLIDATED STATEMENT OF OPERATIONS





-------------------------------------------------------------------------------------------------------------------
Year ended December 31,                                                                    2002            2001
-------------------------------------------------------------------------------------------------------------------
                                                                                                        
Revenue                                                                                 $ 5,047,098     $ 6,503,120
-------------------------------------------------------------------------------------------------------------------
Costs and expenses:
   Cost of revenue                                                                        2,493,337       3,482,954
   Selling, general and administrative                                                    2,446,816       3,860,999
   Depreciation and amortization, includes $175,238 and $185,311 related to costs of
     revenue                                                                                745,135       2,943,678
   Impairment of intangibles                                                                     --       2,827,993
   Noncash compensation charge                                                               58,500         206,505
-------------------------------------------------------------------------------------------------------------------
                                                                                          5,743,788      13,322,129
-------------------------------------------------------------------------------------------------------------------
   Loss from operations                                                                    (696,690)     (6,819,009)
Other income (expense):
   Interest income                                                                            7,796          53,887
   Interest expense                                                                         (95,417)       (131,778)
   Loss on disposal of property and equipment                                                (3,214)       (132,387)
-------------------------------------------------------------------------------------------------------------------
Net loss                                                                                   (787,525)     (7,029,287)
Preferred dividends                                                                         297,867         320,910
-------------------------------------------------------------------------------------------------------------------
Net loss available to common stockholders                                               $(1,085,392)    $(7,350,197)
===================================================================================================================
Loss per share - basic and diluted                                                      $     (0.12)    $     (1.00)
===================================================================================================================
Weighted-average number of shares outstanding - basic and diluted                         9,119,533       7,333,221
===================================================================================================================





                 See notes to Consolidated Financial Statements


                                                                             F-3



 




                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)






----------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 2002 and 2001
----------------------------------------------------------------------------------------------------------------------------
                                       Preferred Stock    Common Stock 
                                       ---------------   ----------------                                         Total
                                                                           Additional   Treasury              Stockholders'
                                                                             Paid-in   Accumulated     Stock     Equity
                                       Shares   Amount    Shares  Amount     Capital     Deficit      at Cost  (Deficiency)
---------------------------------------------------------------------------------------------------------------------------
                                                                                                
Balance at December 31, 2000           597,800  $5,978  7,164,793 $71,648 $35,570,119  $(29,030,607) $(860,539)  $5,756,599
Purchase of treasury stock, at cost                                                                                        
   (6,800 shares)                           --      --         --      --          --            --     (4,113)      (4,113)
Conversion of Series B preferred                                                                                           
   stock                               (70,700)   (707)   240,380   2,404      (1,697)           --         --           --
Common stock issued for services            --      --  1,376,700  13,767     192,738            --         --      206,505
Dividends on preferred stock                --      --    779,324   7,793     313,117      (320,910)        --           --
Net loss                                    --      --         --      --          --    (7,029,287)        --   (7,029,278)
---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001           527,100   5,271  9,561,197  95,612  36,074,277   (36,380,804)  (864,652)  (1,070,296)
Purchase of treasury stock, at cost                                                                                        
   (28,806 shares)                          --      --         --      --          --            --     (6,764)      (6,764)
Common stock issued for services            --      --    275,000   2,750      55,750            --         --       58,500
Conversion of Series B preferred
   stock                               (30,655)   (307)   104,227   1,042        (735)           --         --           --
Dividends on preferred stock                --      --         --      --          --      (297,867)        --     (297,867)
Warrants issued with promissory                                                                                            
   notes payable                            --      --         --      --      75,000            --         --       75,000 
Net loss                                    --      --         --      --          --      (787,525)        --     (787,525)
---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2002           496,445  $4,964  9,940,424 $99,404 $36,204,292  $(37,466,196) $(871,416) $(2,028,952)
===========================================================================================================================




                 See notes to Consolidated Financial Statements


                                                                             F-4



 




                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                            CONSOLIDATED STATEMENT OF CASH FLOWS





-----------------------------------------------------------------------------------------------------------------
 Year ended December 31,                                                                  2002           2001
-----------------------------------------------------------------------------------------------------------------
                                                                                                         
 Cash flows from operating activities:
    Net loss                                                                            $(787,525)    $(7,029,287)
    Adjustments to reconcile net loss to net cash provided by (used in) operating
      activities:
      Depreciation and amortization                                                       745,135       2,943,678
      Debt discount amortization                                                           16,667              --
      Noncash compensation charge                                                          58,500         206,505
      Impairment of intangibles                                                                --       2,827,993
      Loss on disposal of property and equipment                                            3,214         132,387
      Changes in operating assets and liabilities:
        Decrease in marketable securities                                                      --       1,808,210
        Decrease in accounts receivable                                                    51,860         312,567
        (Increase) decrease in prepaid expenses and other                                 (24,755)         93,675
        (Increase) decrease in other assets                                                (4,488)         10,597
        Decrease in accounts payable and accrued expenses                                (390,355)       (563,729)
        Decrease in deferred revenue                                                      (90,612)       (474,854)
-----------------------------------------------------------------------------------------------------------------
          Net cash provided by (used in) operating activities                            (422,359)        267,742
-----------------------------------------------------------------------------------------------------------------
 Cash flows from investing activities:
    Acquisition of property and equipment                                                 (14,895)        (51,148)
    Proceeds from disposal of property and equipment                                        5,000          51,886
-----------------------------------------------------------------------------------------------------------------
          Net cash provided by (used in) investing activities                              (9,895)            738
-----------------------------------------------------------------------------------------------------------------
 Cash flows from financing activities:
    Principal payments on long-term debt                                                 (155,014)       (442,915)
    Proceeds from issuance of promissory notes payable                                    200,000              --
    Payments to acquire treasury stock                                                     (6,764)         (4,113)
-----------------------------------------------------------------------------------------------------------------
            Net cash provided by (used in) financing activities                            38,222        (447,028)
-----------------------------------------------------------------------------------------------------------------
 Net decrease in cash and cash equivalents                                               (394,032)       (178,548)
 Cash and cash equivalents at beginning of year                                           602,534         781,082
-----------------------------------------------------------------------------------------------------------------
 Cash and cash equivalents at end of year                                               $ 208,502     $   602,534
=================================================================================================================
 Supplemental disclosure of cash flow information:
    Cash paid during the year for interest                                              $  83,000     $   132,000
=================================================================================================================



                                                                     (continued)


                                  See notes to Consolidated Financial Statements


                                                                             F-5



 




                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                            CONSOLIDATED STATEMENT OF CASH FLOWS





-----------------------------------------------------------------------------------------------------------------
 Year ended December 31,                                                                      2002         2001
-----------------------------------------------------------------------------------------------------------------
                                                                                                    
Supplemental schedule of noncash investing and financing activities:
    Warrants issued with promissory notes payable                                           $ 75,000           --
=================================================================================================================
    Capital lease obligations incurred                                                            --     $ 48,098
=================================================================================================================
    Dividends on Series B preferred stock paid in common stock or accrued                   $297,867     $320,910
=================================================================================================================
    Common stock issued for services                                                      $   58,500           --
=================================================================================================================




                                  See notes to Consolidated Financial Statements


                                                                             F-6






 




                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                        NOTE TO CONSOLIDATED FINANCIAL STATEMENT
--------------------------------------------------------------------------------

1. SUMMARY OF SIGNIFICANT     Frontline Communications Corporation ("Frontline"
   ACCOUNTING POLICIES:       or the "Company") is an Internet company that
                              offers Internet access; Web site development and
                              Internet presence services.

                              The accompanying consolidated financial statements
                              have been prepared assuming that the Company will
                              continue as a going concern. The Company has
                              suffered recurring losses from operations, has a
                              net working capital deficiency of $2,655,722 and a
                              stockholders' deficiency of $2,028,952 at December
                              31, 2002. These factors raise substantial doubt
                              about its ability to continue as a going concern.
                              Management has entered into an agreement with the
                              stockholders of Proyecciones y Ventas Organizadas,
                              S.A. de C.V. ("Provo"), a corporation organized
                              under the laws of the Republic of Mexico to
                              acquire Provo. This agreement, which is discussed
                              in note 10, is expected to transfer control of the
                              Company to the stockholders of Provo upon approval
                              by the Frontline stockholders. The Company's
                              operations will then include the historical
                              operations of the Company and the operations of
                              Provo, which is engaged in the distribution of
                              calling card and cellular phone airtime in Mexico.
                              Management of the Company feels that the addition
                              of Provo to the operations of the Company will
                              enable it to continue to meet its obligations as
                              they come due and to continue as a going concern.
                              The consolidated financial statements do not
                              include any adjustments that might result from the
                              outcome of this uncertainty.

                              The consolidated financial statements include the
                              accounts of the Company and its wholly owned
                              subsidiaries. Intercompany balances and
                              transactions have been eliminated.

                              In preparing the consolidated financial statements
                              in conformity with accounting principles generally
                              accepted in the United States of America,
                              management is required to make estimates and
                              assumptions that affect the reported amounts of
                              assets and liabilities and the disclosure of
                              contingent assets and liabilities at the date of
                              the consolidated financial statements, and the
                              reported amount of revenue and expenses during the
                              reporting period. Actual results could differ from
                              those estimates. Many of the Company's estimates
                              and assumptions used in the financial statements
                              are related to the Company's industry, which is
                              subject to rapid technological change. It is
                              reasonably possible that changes may occur in the
                              near term that would affect management's estimates
                              with respect to the carrying values of property
                              and equipment and intangibles.

                              Monthly subscription service revenue for Internet
                              access is recognized over the period in which
                              services are provided. Fee revenue for Web site
                              development and Internet Web site presence
                              services are recognized as services are performed.
                              Deferred revenue represents prepaid access fees by
                              subscribers.



                                                                             F-7



 






                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                        NOTE TO CONSOLIDATED FINANCIAL STATEMENT
--------------------------------------------------------------------------------

                              Accounts receivable are reported at their
                              outstanding unpaid principal balances reduced by
                              an allowance for doubtful accounts. The Company
                              estimates doubtful accounts based on historical
                              bad debts, factors related to specific customers'
                              ability to pay, and current economic trends. The
                              Company writes off accounts receivable against the
                              allowance when a balance is determined to be
                              uncollectible.

                              Property and equipment is stated at cost, less
                              accumulated depreciation and amortization.
                              Depreciation and amortization is computed over the
                              estimated useful lives of the assets using the
                              straight-line method.

                              Intangible assets consisted of purchased customer
                              bases. Amortization was computed using the
                              straight-line basis over three years. The
                              intangible was fully amortized at December 31,
                              2002. Amortization expense for the years ended
                              December 31, 2002 and 2001 amounted to $140,738
                              and $2,255,310, respectively.

                              Long-lived assets, such as property and equipment,
                              intangibles and customer bases, are evaluated for
                              impairment when events or changes in circumstances
                              indicate that the carrying amount of the assets
                              may not be recoverable through the estimated
                              undiscounted future cash flows from the use of
                              these assets. When any such impairment exists, the
                              related assets will be written down to fair value.
                              During the year ended December 31, 2001, goodwill
                              and purchased customer bases were written down by
                              $2,827,993, due to impairment of such assets.

                              Intangible assets consisted primarily of purchased
                              customer base. The Company reviewed each
                              acquisition separately to determine the number of
                              customers remaining from the original purchase
                              date. For acquisitions where less than 50% of the
                              original customers remained, the intangible asset
                              was deemed impaired. Discounted cash flows of the
                              remaining customers were then used to determine
                              fair value. In all instances, the expected cash
                              flow from such customers was less than the
                              expected cost of sales. Therefore, the intangible
                              assets of $2,705,868 representing purchased
                              customer base was deemed fully impaired and
                              written down to zero. Additionally, there was
                              unamortized goodwill remaining on the our purchase
                              of PNET of $422,125. PNET has had a lack of
                              operating profit from the date of acquisition and
                              was not expected to generate positive cash flows.
                              Accordingly, the remaining goodwill has been
                              written down to zero, after reducing goodwill by a
                              $300,000 gain on the settlement of a note payable
                              to the former owners of PNET.



                                                                             F-8



 





                              Deferred income taxes are provided on differences
                              between the financial reporting and income tax
                              bases of assets and liabilities based upon
                              statutory tax rates enacted for future periods.
                              Valuation allowances are established when
                              necessary to reduce deferred tax assets to the
                              amount expected to be realized.

                              Financial instruments which potentially subject
                              the Company to concentrations of credit risk
                              consist principally of temporary cash investments
                              and trade accounts receivable. The Company's cash
                              investments are placed with high credit quality
                              financial institutions and may, at times, exceed
                              the amount of federal deposit insurance.
                              Concentrations of credit risk with respect to
                              trade receivables are limited due to the large
                              number of customers comprising the Company's
                              customer base.





                                                                             F-9



 





                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                        NOTE TO CONSOLIDATED FINANCIAL STATEMENT
--------------------------------------------------------------------------------

                              The Company considers all highly liquid money
                              market instruments purchased with an original
                              maturity of three months or less to be cash
                              equivalents.

                              The Company applies Accounting Principles Board
                              Opinion No. 25, Accounting for Stock Issued to
                              Employees, and related interpretations by
                              recording compensation expense for the excess of
                              fair market value over the exercisable price per
                              share, as of the date of the grant, in accounting
                              for its stock options.

                              SFAS No. 123 requires the Company to provide pro
                              forma information regarding net loss and net loss
                              per share as if compensation cost for the
                              Company's stock options had been determined in
                              accordance with the fair-value-based method
                              prescribed in SFAS No. 123. The Company estimates
                              the fair value of each stock option at the date of
                              the grant using the Black Scholes option-pricing
                              model with the following weighted-average
                              assumptions used for options in 2001:




 
                              Year ended December 31, 2001
                              --------------------------------------------------
                                                                   
                              Risk-free interest rate                   4.65%
                              Expected life                          5 years
                              Expected volatility                        169%
                              Dividend yield                            None
                              --------------------------------------------------




                              No stock options were issued to employees during
                              2002. Accordingly, no Black Scholes assumptions
                              were used in 2002.

                              Under the accounting provisions of SFAS No. 123,
                              the Company's net loss and loss per share would
                              have been increased to the pro forma amounts
                              indicated below:




                              Year  ended December 31,                      2002           2001
                              -------------------------------------------------------------------------
                                                                                           
                              Netloss available to common
                               stockholders:
                                 As reported                             $(1,085,392)   $(7,350,197)
                                 Stock-based compensation using the
                                   fair value method                         (55,991)      (100,110)
                              -------------------------------------------------------------------------
                                 Pro forma                                (1,141,383)    (7,450,307)
                              Net loss per share (basic and diluted):
                                 As reported                                   (0.12)         (1.00)
                                 Pro forma                                     (0.13)         (1.02)
                              -------------------------------------------------------------------------




                              All costs associated with advertising services are
                              expensed in the period incurred. Advertising
                              expense was approximately $43,000 and $130,000 for
                              the years ended December 31, 2002 and 2001,
                              respectively.

                              The Company follows SFAS No. 128, Earnings per
                              Share, which provides for the calculation of
                              "basic" and "diluted" earnings per share ("EPS").
                              Basic EPS includes no dilution and is computed by
                              dividing income or loss available to common
                              stockholders by the weighted-average number of
                              common shares outstanding for the period. Diluted
                              earnings per share reflect the potential dilution
                              that could occur through the effect of common
                              shares issuable upon exercise of stock options and
                              warrants and convertible securities.





                                                                            F-10



 





                              Potential common shares have not been included in
                              the computation of diluted EPS since the effect
                              would be antidilutive. At December 31, 2002, there
                              were 4,862,100 options and warrants outstanding
                              and preferred stock convertible into 1,687,963
                              shares of common stock that could potentially
                              dilute basic EPS in the future.






                                                                            F-11



 





                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                        NOTE TO CONSOLIDATED FINANCIAL STATEMENT
--------------------------------------------------------------------------------
  
                              In November 2002, the EITF issued EITF Issue No.
                              00-21, Revenue Arrangements with Multiple
                              Deliverables, which addresses certain aspects of
                              the accounting by a vendor for arrangements under
                              which it will perform multiple revenue-generating
                              activities. Specifically, EITF Issue No. 00-21
                              addresses how to determine whether an arrangement
                              involving multiple deliverables contains more than
                              one unit of accounting. EITF Issue No. 00-21 is
                              effective for the Company for revenue arrangements
                              entered into beginning July 1, 2003. The Company
                              does not expect the adoption of EITF Issue No.
                              00-21 to have a material impact on its 2003
                              consolidated financial statements.

                              The Company does not believe that any other
                              recently issued, but not yet effective, accounting
                              standards, if currently adopted, will have a
                              material effect on the Company's consolidated
                              financial position or results of operations.

2. PROPERTY AND               Property and equipment, at cost, consists of the
   EQUIPMENT:                 following at December 31, 2002:





                                                                                       Estimated
                                                                                        Useful
                                                                                         Life
                              --------------------------------------------------------------------
                                                                                     
                              Computer and office equipment             $ 2,611,297        3 to 5
                                                                                            years
                              Furniture and fixtures                         74,825       5 years
                              Leasehold improvements                        149,365    Lease term
                              --------------------------------------------------------------------
                                                                          2,835,487
                              Less accumulated depreciation and 
                                 amortization                            (2,164,474)
                              --------------------------------------------------------------------
                                                                        $   671,013
                              ====================================================================



                              Depreciation and amortization for the years ended
                              December 31, 2002 and 2001 amounted to
                              approximately $604,000 and $689,000, respectively.

3. ACCRUED EXPENSES:          Accrued expenses consist of the following at
                              December 31, 2002:
 


                                                                            
                              Accrued Internet connection and             $355,363
                              telephone
                              Lease cancellations and related costs         98,750
                              Dividends payable                            297,867
                              Accrued professional fees                     46,268
                              Accrued wages and salaries                    82,896
                              Other                                         22,566
                              -----------------------------------------------------
                                                                          $903,710
                              =====================================================



4. LONG-TERM DEBT:            Long-term debt consists of the following at
                              December 31, 2002:



                                                                        
                              Present value of net minimum lease           $223,055
                                 payments (a)
                              Promissory note payable (b)                   728,600
                              ------------------------------------------------------
                                                                            951,655
                              Less current portion                          940,202
                              ------------------------------------------------------
                                                                           $ 11,453
                              ======================================================






                                                                            F-12



 





                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                        NOTE TO CONSOLIDATED FINANCIAL STATEMENT
--------------------------------------------------------------------------------

                              (a)  The Company leases computer and other
                                   equipment under capital leases. The assets
                                   acquired under capital leases have a cost of
                                   approximately $1,155,000 and accumulated
                                   depreciation of approximately $887,000 as of
                                   December 31, 2002.

                              The following is a schedule of future minimum
                              lease payments under capitalized leases, together
                              with the present value of the net minimum lease
                              payments at December 31, 2002:




                              Year ending December 31,
                              ------------------------
                                                                        
                                         2003                               $222,073
                                         2004                                 10,958
                                         2005                                  1,279
                              -------------------------------------------------------
                              Total minimum lease payments                   234,310
                              Less amount representing interest               11,255
                              -------------------------------------------------------
                              Present value of net minimum lease             223,055
                                 payments
                              Less current portion                           211,602
                              -------------------------------------------------------
                                 Long-term lease obligations                $ 11,453
                              =======================================================




                              (b)  A promissory note, issued as part of a
                                   business acquisition, in the principal amount
                                   of $728,600. The promissory note bears
                                   interest at 4% and is payable in June 2003.
                                   The Company has the option to convert the
                                   principal amount due under the promissory
                                   note to shares of its common stock at a
                                   conversion price of $8 per share
                                   (significantly greater than the market value
                                   of the common stock at the acquisition date),
                                   under certain circumstances, as defined in
                                   the acquisition agreement, such as the market
                                   price of the Company's common stock exceeding
                                   $10 per share. See note 10.

                                   The carrying amount of the Company's
                                   long-term debt approximates fair value using
                                   the Company's estimated incremental borrowing
                                   rate.




                                                                            F-13



 





                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                        NOTE TO CONSOLIDATED FINANCIAL STATEMENT
--------------------------------------------------------------------------------

5. PROMISSORY NOTES:          In June 2002, the Company completed a private
                              placement of 8% promissory notes and received
                              proceeds of $200,000 (including $50,000 from
                              officers and directors). The promissory notes bear
                              interest at 8% and mature in three years from the
                              date of issuance. The Company has the option to
                              convert the principal amount due under the
                              promissory notes into shares of its common stock
                              at a conversion price of $4.80 per share, under
                              certain circumstances, as defined in the agreement
                              with the promissory note holders, such as the
                              market price of the Company's common stock
                              exceeding $6 per share. The Company also issued to
                              the note holders warrants to purchase an aggregate
                              of 1,000,000 shares of its common stock at an
                              exercise price of $.08 per share. Out of the
                              proceeds, $75,000 was allocated as the value of
                              the warrants and is recorded as a discount on the
                              notes payable in the accompanying consolidated
                              balance sheet. The discount is being amortized as
                              additional interest over the terms of the
                              promissory notes. At December 31, 2002, the
                              promissory notes payable included on the
                              accompanying consolidated balance sheet amounting
                              to $141,667 are net of unamortized discounts of
                              $58,333. The fair value of the notes approximates
                              the carrying amount based on rates available to
                              the Company.

6. COMMITMENTS AND            The Company rents office space and equipment under
   CONTINGENCIES:             operating lease agreements expiring at various
                              dates through 2005. Future minimum rental payments
                              required under operating leases are approximately
                              as follows:





                              Year ending December 31,
                              ------------------------
                                                                        
                                         2003                              $379,000
                                         2004                               226,000
                                         2005                                 5,000
                              ------------------------------------------------------
                                                                           $610,000
                              ======================================================



                              Rental expense was approximately $341,000 and
                              $438,000 for the years ended December 31, 2002 and
                              2001, respectively.

                              In connection with the Company's lease for its
                              main office space, the Company has opened an
                              irrecoverable letter of credit with a bank for
                              approximately $65,000 in lieu of a security
                              deposit.

7. STOCK OPTIONS:             The Company has a stock option plan (the "Plan")
                              which authorizes the issuance of incentive options
                              and nonqualified options to purchase up to
                              2,000,000 shares of common stock. The Plan has a
                              10-year term. The board retained the authority to
                              determine the individuals to whom, and the times
                              at which, stock options would be granted, along
                              with the number of shares, vesting schedule and
                              other provisions related to the stock options.

                              A summary of the status of the Company's stock
                              option plan as of December 31, 2002 and 2001, and
                              changes during the years ended on those dates, is
                              presented below:



                                                                            F-14



 



 
                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                        NOTE TO CONSOLIDATED FINANCIAL STATEMENT
--------------------------------------------------------------------------------




                              December 31,                        2002                  2001
                              ------------------------------------------------------------------------
                                                                     Weighted-             Weighted-
                                                                      average               average
                                                                     Exercise               Exercise
                                                           Shares      Price     Shares      Price
                                                          ---------- ---------- ---------- -----------
                                                                                    
                              Outstanding at beginning
                                 of year                  1,458,900     $2.67   1,347,768     $4.19
                              Granted                                             445,000      0.22
                              Forfeited                    (169,900)     1.68    (333,868)     4.97
                              ------------------------------------------------------------------------
                              Outstanding at end of year  1,289,000     $2.81   1,458,900     $2.67
                              ========================================================================
                              Options exercisable at 
                                 year-end                 1,289,000     $2.81   1,442,900     $2.64
                              ========================================================================
                              Weighted-average fair
                                 value of options
                                 granted during the
                                 year                            --        --          --     $0.21
                              ========================================================================


 
                              The following table summarizes information about
                              stock options outstanding and exercisable at
                              December 31, 2002:





                                                           Options Outstanding and Exercisable
                                                         ----------------------------------------
                                                                                     Weighted-
                                                         Outstanding at  Remaining    average
                                   Range of              December 31,    Contractual   Exercise
                              Exercise Prices                2002           Life        Price
                              -------------------------------------------------------------------
                                                                                 
                              $0.22 to $1.00                   501,000     3.1 years       $0.31
                              $1.00 to $2.50                   184,800            .9        2.37
                              $2.50 to $4.00                    97,000            .8        3.58
                              $4.00 to $6.00                   433,200          1.95        5.16
                              $6.00 to $6.75                    73,000           1.1        6.10
                              -------------------------------------------------------------------
                                                             1,289,000                     $2.81
                              ===================================================================



8. STOCKHOLDERS' EQUITY       In April 2000, the Company's board of directors
   (DEFICIENCY):              authorized the Company to purchase up to
                              $1,000,000 worth of its common stock from time to
                              time, as the Company deems appropriate, through
                              open market purchases or in privately negotiated
                              transactions. As of December 31, 2002, the Company
                              had acquired 413,932 shares of common stock for an
                              aggregate consideration of approximately $607,000.

                              In September 2001, the Company granted 1,376,700
                              restricted shares of its common stock to its
                              employees under the Company's 2001 Stock Incentive
                              Plan. Accordingly, $206,505, representing the fair
                              value of the shares granted, was charged to
                              operations as a noncash compensation charge.

                              During 2001, the Company issued: (i) 240,380
                              shares of common stock upon conversion of 70,700
                              shares of Series B Convertible Redeemable
                              preferred stock, and (ii) 779,324 shares of common
                              stock as dividends to the holders of Series B
                              Convertible Redeemable preferred stock.



                                                                            F-15



 




                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                        NOTE TO CONSOLIDATED FINANCIAL STATEMENT
--------------------------------------------------------------------------------

                              In May 2002, the Company entered into a consulting
                              agreement for marketing services and issued to the
                              consultant 250,000 shares of common stock as
                              consideration for the services rendered by the
                              consultant. Accordingly, $50,000, representing the
                              fair value of the shares issued, was charged to
                              operations.

                              In June 2002, the Company issued, in a private
                              sale of 8% promissory notes, warrants to purchase
                              an aggregate of 1,000,000 shares of its common
                              stock at an exercise price of $.08 per share.

                              In August 2002, the Company entered into a
                              consulting agreement for marketing services and
                              issued to the consultant 25,000 shares of common
                              stock as consideration for the services rendered
                              by the consultant. Accordingly, $8,500,
                              representing the fair value of the shares issued,
                              was charged to operations.

                              During 2002, the Company issued 104,227 shares of
                              common stock upon conversion of 30,655 shares of
                              Series B Convertible Redeemable preferred stock.

                              In addition, at December 31, 2002, other warrants
                              to purchase 2,516,300 shares of common stock were
                              outstanding and exercisable at prices ranging
                              between $4.80 and $8.50 per share, expiring at
                              various times through 2004.


9. INCOME TAXES:              At December 31, 2002, the tax effects of loss
                              carryforwards and the valuation allowance that
                              give rise to deferred tax assets are as follows:



                                                                       
                              Net operating losses                        $ 7,650,000
                              Less valuation allowance                     (7,650,000)
                              --------------------------------------------------------
                                 Deferred tax assets                      $     - 0 -
                              ========================================================




                              The provision (benefit) for income taxes differs
                              from the amount computed using the federal
                              statutory rate of 34% as a result of the
                              following:




                              December 31,                                        2002     2001
                              -------------------------------------------------------------------
                                                                                       
                              Federal statutory rate                                (34)%    (34)%
                              Increase in valuation allowance                        34       34
                              -------------------------------------------------------------------
                                                                                   - 0 -%   - 0 -%
                              ===================================================================



                              The Company had net operating loss carryforwards
                              of approximately $22,500,000 at December 31, 2002,
                              which expire through 2022. The tax benefit of
                              these losses has been completely offset by a
                              valuation allowance due to the uncertainty of its
                              realization.



                                                                            F-16



 





                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                        NOTE TO CONSOLIDATED FINANCIAL STATEMENT
--------------------------------------------------------------------------------

                              Internal Revenue Code Section 382 provides for
                              limitations on the use of net operating loss
                              carryforwards in years subsequent to a more than
                              50% change in ownership (as defined by Section
                              382), which limitations can significantly impact
                              the Company's ability to utilize its net operating
                              loss carryforwards. As a result of the sale of the
                              preferred shares in the public offering in
                              February and March 2000, changes in ownership may
                              have occurred which might result in limitations of
                              the utilization of the net operating loss
                              carryforwards. The extent of any limitations as a
                              result of changes in ownership has not been
                              determined by the Company.

10. SUBSEQUENT EVENT:         In April 2003, the Company entered into an amended
                              and restated stock purchase agreement with the two
                              stockholders of Provo, a corporation organized
                              under the laws of the Republic of Mexico, to
                              acquire from them all the issued and outstanding
                              shares of Provo. As consideration, the Company
                              issued 220,000 shares of Series C Convertible
                              Preferred Stock ("Series C Preferred") of the
                              Company to the two stockholders of Provo. Provo
                              and its subsidiaries are engaged in the
                              distribution of prepaid calling cards and cellular
                              phone airtime in Mexico.

                              Each share of Series C Preferred will
                              automatically convert into 150 shares of the
                              Company's common stock after the transaction is
                              approved by the Company's stockholders. In
                              connection with the transaction, the Company will
                              require stockholder approval for (i) the issuance
                              of shares of common stock upon conversion of
                              Series C Preferred, (ii) the change in control
                              contemplated by the Provo transaction, (iii) an
                              increase in authorized common stock to 75,000,000
                              shares, and (iv) a reverse split of all of the
                              issued and outstanding shares of common stock.
                              Upon such approval, Series C Preferred will
                              convert into common stock representing
                              approximately 66% of the combined Company. The
                              Company issued 35,500 Series D Preferred shares
                              ("Series D Preferred") to certain brokers, finders
                              and certain of the Company's officers and
                              directors in accordance with the terms of certain
                              consulting agreements. Each share of Series D
                              Preferred can be converted into 150 shares of the
                              Company's common stock after the stockholder
                              approval is obtained for (i) the issuance of the
                              shares of common stock upon conversion of the
                              Series D Preferred, (ii) an increase in the
                              Company's authorized common stock to 75,000,000
                              and (iii) a reverse split of the common stock.

                              In the event the Company's stockholders do not
                              approve the conversion of Series C Preferred into
                              the Company's common stock, the Company will be
                              obligated to pay $20,000,000 to the Series C
                              Preferred stockholders.





                                                                            F-17



 





                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                        NOTE TO CONSOLIDATED FINANCIAL STATEMENT
--------------------------------------------------------------------------------

                              In April 2003, the Company borrowed $550,000 from
                              an unaffiliated entity (the "Lender") and issued a
                              secured promissory note (the "note") to the
                              Lender. The note bears interest of 14% and is
                              secured by substantially all of the Company's
                              assets. Two officers have pledged shares of the
                              Company's common stock owned by them as additional
                              collateral to the Lender. In connection with the
                              financing, the Company issued 500,000 shares of
                              common stock to the Lender as additional
                              consideration. The note is payable at the earlier
                              of 90 days or upon financing of Provo's accounts
                              receivable. Out of the proceeds, the Company used
                              $200,000 to settle a promissory note, issued as a
                              part of a business acquisition, in the principal
                              amount of $728,600. The balance of the promissory
                              note was settled through issuance of 375,000
                              shares of common stock to the promissory note
                              holders.







                                                                            F-18



                          STATEMENT OF DIFFERENCES
                          ------------------------

 The registered trademark symbol shall be expressed as.................. 'r'
 The service mark symbol shall be expressed as.......................... 'sm'












Exhibit 21.1 

Subsidiaries of Frontline Communications Corporation
----------------------------------------------------




           Name                                          Jurisdiction
                                                       
WOW Factor, Inc.                                          New Jersey

CLEC Communications Corporation.                          Delaware

FNT Communications Corporation                            New York













                                                                    EXHIBIT 23.1




INDEPENDENT AUDITOR'S CONSENT





To the Board of Directors
Frontline Communications Corporation


We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement of Frontline Communications
Corporation on Forms S-3 (#333-89811 and 333-35058) and Form S-8 (#333-86792) of
our report dated February 20, 2003, on the consolidated financial statements of
Frontline Communications Corporation as of December 31, 2002 and for each of the
two years in the period then ended appearing in the annual report on Form 10-KSB
of Frontline Communications Corporation for the year ended December 31, 2002. We
also consent to the reference of our firm under the caption "Experts" contained
in such Registration Statement.




/s/ Goldstein Golub Kessler LLP
-------------------------------
GOLDSTEIN GOLUB KESSLER LLP
New York, New York

October 6, 2003















Exhibit 31.1


Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.


I, Stephen J. Cole-Hatchard, Chief Executive Officer of Frontline Communications
Corporation, certify that:

     1.   I have reviewed this Amendment No. 2 to the Annual Report on Form
          10-KSB/A of Frontline Communications Corporation;
 
     2.   Based on my knowledge, this report does not contain any untrue
          statement of a material fact or omit to state a material fact
          necessary to make the statements made, in light of the circumstances
          under which such statements were made, not misleading with respect to
          the period covered by this report;
 
     3.   Based on my knowledge, the financial statements, and other financial
          information included in this report, fairly present in all material
          respects the financial condition, results of operations and cash flows
          of the registrant as of, and for, the periods presented in this
          report;
 
     4.   The registrant's other certifying officer and I are responsible for
          establishing and maintaining disclosure controls and procedures (as
          defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
          registrant and have:

          (a)  Designed such disclosure controls and procedures, or caused such
               disclosure controls and procedures
 to be designed under our
               supervision, to ensure that material information relating to the
               registrant, including its consolidated subsidiaries, is made
               known to us by others within those entities, particularly during
               the period in which this report is being prepared;

          b)   Designed such internal control over financial reporting, or
               caused such internal control ver financial reporting to be
               designed under our supervision, to provide reasonable ossurance
               regarding the reliability of financial reporting and the
               preparation of ainancial statements for external purposes in
               accordance with generally accepted ( fccounting principles; a

          (c)  Evaluated the effectiveness of the registrant's disclosure
               controls and procedures and presented in this report our
               conclusions about the effectiveness of the disclosure controls
               and procedures, as of the end of the period covered by this
               report based on such evaluation; and
 
          (d)  Disclosed in this report any change in the registrant's internal
               control over financial reporting that occurred during the
               registrant's most recent fiscal quarter (the registrant's fourth
               fiscal quarter in the case of an annual report) that has
               materially affected, or is reasonably likely to materially
               affect, the registrant's internal control over financial
               reporting.

     5.   The registrant's other certifying officer and I have disclosed, based
          on our most recent evaluation of internal control over financial
          reporting, to the registrant's auditors and the audit committee of the
          registrant's board of directors (or persons performing the equivalent
          functions):

          (a)  All significant deficiencies and material weaknesses in the
               design or operation of internal control over financial reporting
               which are reasonably likely to adversely affect the registrant's
               ability to record, process, summarize and 


 







               report financial information; and

          (b)  Any fraud, whether or not material, that involves management or
               other employees who have a significant role in the registrant's
               internal control over financial reporting.


Date: October 6, 2003                   /s/Stephen J. Cole-Hatchard
                                        ------------------------------
                                        Chief Executive Officer











Exhibit 31.2 


Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.

I, Vasan Thatham, Chief Financial Officer of Frontline Communications
Corporation, certify that:

     1.   I have reviewed this Amendment No. 2 to the Annual Report on Form
          10-KSB/A of Frontline Communications Corporation;
 
     2.   Based on my knowledge, this report does not contain any untrue
          statement of a material fact or omit to state a material fact
          necessary to make the statements made, in light of the circumstances
          under which such statements were made, not misleading with respect to
          the period covered by this report;
 
     3.   Based on my knowledge, the financial statements, and other financial
          information included in this report, fairly present in all material
          respects the financial condition, results of operations and cash flows
          of the registrant as of, and for, the periods presented in this
          report;
 
     4.   The registrant's other certifying officer and I are responsible for
          establishing and maintaining disclosure controls and procedures (as
          defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
          registrant and have:

            (a) Designed such disclosure controls and procedures, or caused such
                disclosure controls and procedures to
 be designed under our
                supervision, to ensure that material information relating to the
                registrant, including its consolidated subsidiaries, is made
                known to us by others within those entities, particularly during
                the period in which this report is being prepared;

            (b) Designed such internal control over financial reporting, or
                caused such internal control over financial reporting to be
                designed under our supervision, to provide reasonable
                assurance regarding the reliability of financial reporting
                and the preparation of ainancial statements for external
                purposes in accordance with generally accepted fccounting
                principles;

           (c)  Evaluated the effectiveness of the registrant's disclosure
                controls and procedures and presented in this report our
                conclusions about the effectiveness of the disclosure controls
                and procedures, as of the end of the period covered by this
                report based on such evaluation.
 
           (d)  Disclosed in this report any change in the registrant's internal
                control over financial reporting that occurred during the
                registrant's most recent fiscal quarter (the registrant's fourth
                fiscal quarter in the case of an annual report) that has
                materially affected, or is reasonably likely to materially
                affect, the registrant's internal control over financial
                reporting; and

     5.   The registrant's other certifying officer and I have disclosed, based
          on our most recent evaluation of internal control over financial
          reporting, to the registrant's auditors and the audit committee of the
          registrant's board of directors (or persons performing the equivalent
          functions):

           (a)  All significant deficiencies and material weaknesses in the
                design or operation of internal control over financial
                reporting which are reasonably likely to adversely affect the
                registrant's ability to record, process, summarize and report
                financial information; and



 




           (b)  Any fraud, whether or not material, that involves management or
                other employees who have a significant role in the registrant's
                internal control over financial reporting.


Date: October 6, 2003                   /s/Vasan Thatham
                                        ----------------------------------
                                        Chief Executive Officer












                                                                    Exhibit 32.1


                            CERTIFICATION PURSUANT TO
                            18 U. S. C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with Amendment No. 2 to the Annual Report of Frontline
Communications Corporation (the "Company") on Form 10-KSB/A for the period ended
December 31, 2002 as filed with the Securities and Exchange Commission on the 
date hereof (the "Report"), I, Stephen J. Cole-Hatchard, as Chief Executive 
Officer and President of the Company, certify, pursuant to 18 U.S.C. Section 
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 
that:

         (1)  The Report fully complies with the requirements of Section 13(a)
              or 15(d) of the Securities Exchange Act of 1934; and

         (2)  The information contained in the Report fairly presents, in all
              material respects, the financial condition and results of
              operations of the Company.

                                                /s/ Stephen J. Cole-Hatchard
                                                ----------------------------
                                                Stephen J. Cole-Hatchard
                                                Chief Executive Officer and
                                                President

                                                October 6, 2003













                                                                    Exhibit 32.2


                            CERTIFICATION PURSUANT TO
                            18 U. S. C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with Amendment No. 2 to the Annual Report of Frontline
Communications Corporation (the "Company") on Form 10-KSB/A for the period
December 31, 2002 as filed with the Securities and Exchange Commission on the
date hereof (the "Report"), I, Vasan Thatham, as Vice President and Chief
Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

         (1)  The Report fully complies with the requirements of Section 13(a)
              or 15(d) of the Securities Exchange Act of 1934; and

         (2)  The information contained in the Report fairly presents, in all
              material respects, the financial condition and results of
              operations of the Company.

                                      /s/ Vasan Thatham
                                      -----------------
                                      Vasan Thatham
                                      Vice President and Chief Financial Officer

                                      October 6, 2003