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Annual report filed by small businesses

10KSB


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                   FORM 10-KSB

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

    For the fiscal year ended December 31, 2000

                                       OR

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

             For the transition period from _________ to ___________

                        Commission File Number 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:

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

         Common Stock, $.01 par value

    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, 2000 were $5,327,316.

The aggregate  market value of the voting and  non-voting  common equity held by
non-affiliates as of March 15, 2001 was $1,718,200.  As of March 15, 2001, there
were 6,662,627 shares of the issuer's Common Stock outstanding.

                      Documents Incorporated by Reference:

                                      None.







                                     PART I


Item 1. 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 customer  base from 2,500
customers  as of October,  1998 to over 25,000  customers  at December 31, 2000.
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,
2000, we owned and operated 16 points-of-presence  ("POPs") which, when combined
with 1,100 POPs licensed from third  parties,  provide us with the capability to
serve approximately 72% of the U.S. population.

     During  year 2000,  we  enhanced  our  product  lines with the  addition of
high-speed  Digital  Subscriber Line (DSL) products.  Through alliances with DSL
wholesalers,  including  Rhythms Net  Communications  Inc.  and  Network  Access
Solutions,  Inc.,  the Company  added over 700 DSL  customers to its  subscriber
base.

     We also expanded our web design and development  product offerings with the
September  2000  acquisition  of PNM Group,  Inc.  (d/b/a  Planet  Media)a  Long
Island-based web design,  consulting,  development and maintenance provider with
approximately 65 corporate  clients;  including firms such as Denny's Inc., City
College of New York, Matchbox USA and Fancy Fixtures, Inc.

     The Company 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.,
WebPrime, Inc. and CLEC Communications Corp.

Products and Services

     The Company's  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 

                                       3



          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    DSL: We are a reseller of Digital Subscriber Line high-speed  Internet
          access  services  for Rhythms  Net  Communications,  Inc.  and Network
          Access  Solutions,  Inc., and now 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  investment,   maintenance,  and  other  costs
          associated with operating their own servers. Marketed partly under our
          brandname 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.

Internet Development Services

     o    FrontHost(SM):  Our  do-it-yourself  "Website  Wizard" products assist
          customers in developing their own Websites and e-commerce  `stores' by
          using our FrontHost(SM) user-friendly tools.

     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  have an in-house  sales and marketing  staff  consisting of a
Vice  President of Sales and Marketing,  a Director of Sales,  and several sales
representatives  focused on different  products (such as dial-up,  dedicated and

                                       4



DSL) and marketing  channels  (such as  resellers).  During the first quarter of
2001, the Company redirected its sales focus from a direct  business-to-business
selling  effort to development of an extensive  commissioned  external  reseller
network to market its products.

     PlanetMedia(SM),   the  Company's  web  design  and  development  division,
maintains a separate sales and marketing group.

     Marketing  activities  have been designed to achieve  Frontline  brand name
recognition  through radio, trade and local business print media and local event
marketing.

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., Cable & Wireless,  Inc. and by
certain regional broadband suppliers such as Focal, Inc., AboveNet, Inc., Exodus
Communications Inc. and Conectiv,  Inc. DSL access is similarly provided through
DS3  connections  to the Company  from  Covad,  Inc.  and  through our  reseller
agreements with Rhythms Net  Communications,  Inc. and Network Access Solutions,
Inc.

     Network  and service  delivery  stability  is  provided  through the use of
redundant  computing and server facilities  located at our larger owned POPs. In
addition,  the Company has initiated a program,  expected to be completed during
April 2001, to ensure duplicate bandwidth access at each of its owned locations.
The Company has installed  backup power supply,  remote  alarm,  computer  virus
protection,  and monitoring software throughout its network,  which is monitored
24 hours a day, 7 days-a-week.

Customer Support Services

     Frontline  believes 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.

     We receive  approximately  400  residential and business  customer  service
calls per day at our Customer  Service call  centers  located at Howell,  NJ and
Pearl  River,  NY.   Task-based  call  tracking   software   applications,   and
"trouble-
                                       5




ticket" reporting systems, were implemented at these centers during the
year 2000  substantially  improving  the Company's  ability to promptly  resolve
customer problems.

During November 2000, as part of our Restructuring  Program,  which is discussed
in detail below, we announced the consolidation of our Howell, NJ Call Center to
our Pearl River, NY headquarters. We believe that this consolidation,  scheduled
for completion on March 30, 2001, and the concurrent  integration of our Product
Service IT administration  personnel,  will significantly improve the quality of
our service.

Product and Service development

     Our Product Service Division develops proprietary  applications and reviews
third-party  software  products and technology  that are  incorporated  into our
network  and  service   products.   A  revised,   interactive   Company  website
(www.fcc.net) was activated during February 2001. We also distributed an updated
dial-up access CD to our sales force and customers during March 2001.

     During 2001, we also plan to  consolidate  our various email servers onto a
common  platform  which we  anticipate  will reduce  maintenance  and  potential
customer outage issues.

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 current and prospective  competitors  include many large companies that
have substantially greater market presence, financial,  technical, marketing and
other  resources  than we have.  We  compete  directly  or  indirectly  with the
following categories of companies:

     o    Established  online  services,  such as America Online,  the Microsoft
          Network, and Prodigy;

     o    Local, regional and national ISPs, public or privately owned;

     o    National and regional  telecommunications  companies, such as AT&T; and
          Verizon;

     o    Cable TV and online services, such as Roadrunner;

     o    Free ISPs such as Netzero and Juno;

     o    Satellite companies, such as Direct TV and Starband; and

     o    Large independent DSL providers, such as Telocity.

     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.

                                       6



Recent Acquisitions

     Since January 1999, we have completed the following  acquisitions  in order
to increase our Internet access, development and presence capabilities:

     o    WebPrime,   Inc.  A  Website  design,  Web  development  and  software
          development firm.

     o    Channel iShop.com. A company with a marketing concept targeting retail
          businesses,  which we have since divested as part of our Restructuring
          Program (see below).

     o    United Computer Specialists,  Inc.--access division. A subscriber base
          of dial-up Internet access customers.

     o    United  Computer  Specialists,  Inc.--web  services  division.  Assets
          relating to Web design and hosting capabilities.

     o    Lingua  Systems,  Inc. d/b/a/  Fullwave  Networks.  A customer base of
          additional DSL customers.

     o    Skyhigh  Information  Technologies.  A  customer  base  of  additional
          dial-up customers.

     o    FrontHost, LLC. A company in the business of providing Web hosting and
          design services.

     o    The Pressroom  Online  Services.  A subscriber base of dial-up and DSL
          customers.

     o    Application Resources Information Services d/b/a Way.com. A subscriber
          base of dial-up, DSL and web hosting customers.

     o    First Street Corporation. A subscriber base of dial-up and web hosting
          customers.

     o    Double D Network  Services Inc. - acquired  certain dial-up  customers
          pursuant to a referral plan.

     o    Delanet,  Inc. A  subscriber  base of  dial-up,  DSL,  web hosting and
          dedicated line customers.

     o    Wizard.net,  Inc.  A  subscriber  base of  dial-up,  web  hosting  and
          dedicated line customers.

     o    PNM Group,  Inc.  d/b/a Planet  Media.  A web  development  and design
          company.

     See note 2 to the Notes to Consolidated  Financial Statements for the terms
of certain of our recent acquisitions.

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

                                       7




small and medium-sized business as 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 June 2000, Frontline acquired 18
companies,  grew its dial-up  access  subscriber  base from 2,500 to over 25,000
customers,   and  acquired  two  web-portal   websites:   WoWFactor.com(R)   and
iShopNetworks(SM).

     Marketplace  and  technological  changes during this two-year period caused
the  Company to refine its  strategy  during the last two  quarters  of the year
2000. The rapid increase in demand for DSL services  prompted the Company to add
this  high-speed  access  product  to its  offering  portfolio.  Similarly,  the
marketplace  failure  of many  so-called  'dot-com'  companies  and  Frontline's
inability  to  cost-effectively  market  its core  products  through  its  owned
websites,  resulted  in the  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 could cease funding our
subsidiary, CLEC Communications Corp.

     In addition,  we have adopted 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
28,  2001,  we  have   accomplished   the  following  in  connection   with  our
Restructuring Program:

     o    Workforce  reduction  of about  40%,  from  over 120  employees  to 68
          employees as of March 15, 2001. We expect that the number of employees
          will decrease to approximately  60 upon the closure of our Howell,  NJ
          customer  service  center,  which is  presently  scheduled to occur on
          March 30, 2001.

     o    Elimination of our marginal service  products;  reducing the number of
          discrete offerings from over 100 to less than 25;

     o    Implementation of a user-friendly website (www.fcc.net)  promoting our
          products;

     o    Development  of new  version  of our  basic  dial-up  Internet  access
          software and activation of a third-party  network for the marketing of
          our products and services;

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

     o    Integration of our Product and Customer Service Divisions at our Pearl
          River, NY  headquarters  and the scheduled  closure of our Howell,  NJ
          Call Center, planned for March 30, 2001; and

                                       8



     o    Discontinued  expenditures  related to our CLEC  Communications  Corp.
          subsidiary.

     We intend to continue the Restructuring Program during the first and second
quarters of 2001. This may result in additional  workforce  reductions and other
cost-savings related to reduction of  telecommunications  and lease/rental costs
associated with branch office and POP consolidations.

Trademarks and Service Marks

     We have made  applications  for federal  trademark  registration  and claim
rights  in the  following  trademarks:  WOWFactor;  WOWFactor  Women on the Web;
Frontline.net; Frontline.net Effortless E-Commerce and Internet Access (name and
logo);  Effortless  E-Commerce & Internet Access;  and Frontline  Communications
Corp. We have received a notice of allowance from the U.S.  Patent and Trademark
Office with respect to the following marks:  WOWFactor.com and WOWFactor design.
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 does not
describe  all present and  proposed  federal,  state and local  regulations  and
legislation  affecting  us and our  industry.  Other  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 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 impose certain payments on Internet service  providers,  similar to payments
imposed on  telecommunications  carriers,  which  could cause our costs of doing
business to increase substantially.

     One area in which Congress has attempted to regulate  information  over the
Internet  involved the dissemination of obscene or indecent  materials.  Certain
provisions  of  the   Telecommunications   Act  of  1996  relating  to  indecent
communication  over the Internet,  generally  referred to as the  Communications
Decency Act,  were found to be  unconstitutional  by the U.S.  Supreme  Court in
1997. In October 1998,  Congress enacted the Child Online  Protection Act, which
requires that online  material that is "harmful" to minors be  restricted.  This
law is currently  being  challenged in federal  district  court.  On February 1,
1999,  a U.S.  District  Court judge  issued a  preliminary  injunction  against
enforcement  of  portions  of that act and the U.S.  Department  of Justice  has
appealed that decision.  The Protection of Children from Sexual Predators Act of
1998 creates an affirmative obligation 

                                       9



of providers of electronic  communication  services to report certain violations
of child  pornography  laws.  Some states also have  adopted or may adopt in the
future similar  requirements.  The  constitutionality of such state requirements
remains unsettled at this time.

     Future laws and  regulations  could be adopted to address  matters  such as
user privacy, copyright and trademark protection,  pricing, consumer 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. 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.

     Competitive Local Exchange Carrier Regulation. Our wholly-owned subsidiary,
CLEC Communications Corp., was granted competitive local exchange carrier status
by the New York State Public Service Commission,  the New Jersey Board of Public
Utilities and the  Pennsylvania  Public  Utility  Commission  in December  1998,
February  2000 and December  1999,  respectively.  As a certified  CLEC,  we are
subject  to  various  ongoing  regulatory  requirements  applicable  to CLECs in
particular and certain other requirements  applicable to all  telecommunications
carriers.

     In  October  1999,  our CLEC  subsidiary  entered  into an  interconnection
agreement with Bell Atlantic in New York. That agreement expired by its terms in
June,  2000.  In November  2000,  we announced  that,  as part of the  Company's
Restructuring  Program  we would not  invest  any  further  capital  in our CLEC
subsidiary.  The Company currently plans to sell or dissolve CLEC Communications
Corp. in the second quarter of 2001, at which time the subsidiary will no longer
be subject to any regulations governing Competitive Local Exchange Carriers.

                                       10



Employees

     As of  March  15,  2000,  we had 68  employees  including  our 6  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.


I
tem 2. Properties

     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 May
2004.

     We lease  approximately  2,400  square feet in Howell,  New Jersey  under a
lease that  expires in May 2004.  We plan on closing our Howell  office in March
2001,  at which time we will  attempt to  renegotiate  or sublet this space.  In
connection  with our  purchase of Pressroom  Online  Service,  Inc.,  we assumed
approximately  2,500 square feet of office space in Chantilly,  Virginia under a
lease which  expires in 2005. We also lease  approximately  5,000 square feet of
office space in New Castle,  Delaware,  which served as the principal offices of
Delanet,  Inc.,  which we acquired in June 2000. That lease expires in May 2003.
We have since closed our Delaware and Virginia offices,  and we are presently in
negotiations with the owners of those premises.

     We also lease approximately 2700 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 aggregate  annual rent for the five offices is  approximately
$424,000.

     We also  lease  space  (typically,  less than 100  square  feet) in various
geographic locations to house the  telecommunications  equipment for each of our
POPs.  Leased  facilities for POPs have various  expiration  dates through April
2002. Aggregate annual rentals for POPs are approximately $12,000.


Item 3. Legal Proceedings

     In February  2001,  we were  served  with a  complaint  filed in the United
States  Bankruptcy  Court  for the  Eastern  District  of  Virginia,  Alexandria
Division,  by Robert O.  Tyler the  Trustee in  Bankruptcy  for Double D Network
Services,  Inc. entitled Robert O. Tyler,  Trustee of Double D Network Services,
Inc. v. Frontline  Communications  Corporation.  In that complaint,  the Trustee
alleges  that the Company  owes Double D Network  Services,  Inc.  approximately
$220,000.  The claim is based upon an agreement between the Company and Double D
dated  July  13,  2000.  It is the  Company's  position  that it owes  Double  D
approximately $15,000 under the terms of the agreement. We have not yet answered
the Complaint in that action. We do not believe that this proceeding will have a
material adverse effect on our financial condition or results of operations.


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

     Not applicable.

                                       11




                                     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 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 NASDAQ and AMEX.





Fiscal Year Ended December 31, 1999                         High                Low
-----------------------------------                         ----                ---

                                                                           
First Quarter                                              16.75               5.625

Second Quarter                                             18.065              7.9375

Third Quarter                                              11.375              4.75

Fourth Quarter                                              8.50               3.8125


Fiscal Year Ended December 31, 2000                         High                Low
-----------------------------------                         ----                ---

First Quarter                                               8.00               4.25

Second Quarter                                              4.00               1.125

Third Quarter                                               1.50               1.00

Fourth Quarter                                              1.00                .156




     The number of record  holders  of our Common  Stock was 101 as of March 15,
2001.  We  believe  that there are in excess of 2,300  beneficial  owners of our
Common Stock.

     Dividend  Policy.  To date,  the Company has not  declared or paid any cash
dividends on its Common Stock.  The payment of dividends on its 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 the Company's Series
B Convertible  Redeemable  Preferred  Stock.  The Company  presently  intends to
retain all earnings to finance the Company's continued growth and development of
its  business  and does not expect to declare or pay any cash  dividends  on its
common stock in the foreseeable future.

     Holders of the Company's  Series B Convertible  Redeemable  Preferred Stock
are entitled to receive  annual  cumulative  dividends of $.60 per share payable
semi-annually  commencing  June 30, 2000.  The  dividends are paid in cash or in
shares of Common Stock, in the Company's discretion.  In 2000, we 

                                       12



elected to pay the June 30 and  December 30  dividends  in cash,  resulting in a
total dividend payment of $337,750.


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
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 2000 and 1999, 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 or  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 Web 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.

Acquisitions

     Acquisitions  have  historically  been an  important  aspect of our  growth
strategy.  In 2000, the Company acquired  substantially all of the assets of The
PressRoom Online Services, Application Resources Information Services, 

                                       13



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.  In 1999,  the Company  completed the  following  acquisitions;
Webprime, Inc., a website design, web development and software development firm;
Channel  iShop.com (now  iShopNetworks.com)  a company with a marketing  concept
targeting  retail  businesses;  assets  relating to the dial-up  internet access
customer  base and web  design  and  hosting  capabilities  of  United  Computer
Specialist,  Inc; a customer base of DSL customers of Lingua Systems, Inc. d/b/a
Fullwave  Networks;  a customer base of additional  dial-up customers of Skyhigh
Information  Technologies  and  Fronthost  LLC,  a company  in the  business  of
providing web hosting and design services. 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.

     All of the  acquisitions  were  accounted for using the purchase  method of
accounting  with the results of each  acquisition  included in the  consolidated
financial  statements  from the respective  acquisition  date. Our  acquisitions
resulted in our  recording  significant  intangible  assets.  As of December 31,
2000, we had $5,623,154 of net intangible assets, which are being amortized over
a  period  of  three  years.  See  Note 2 of  Notes  to  Consolidated  Financial
statements.

Restructuring Program.

     In November 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 products lines not related to our
core business, and closure of regional offices.

     We believe that the Restructuring Program and related cost reductions, will
permit the Company to maintain  service  quality to our customers while our more
focused product  offering  portfolio will enhance the Company's  ability to grow
our revenue base. To date we have realized  significant  cost  reductions and we
hope to reduce additional costs in 2001. However, there can be no assurance that
the  Restructuring  Program will achieve the desired results and that there will
not be any disruption of any services or resulting loss of revenues.

Results of Operations

     Comparison of Years ended December 31, 2000 and 1999

Revenues.  Revenues increased for the year ended December 31, 2000 by $2,352,103
or 79.1%  over the  prior  year.  The  increase  was  attributable  mainly to an
expanded  customer  base. The increase in customer base was  principally  due to
acquisitions and due to our marketing efforts.

Cost of  Revenues.  For the year  ended  December  31,  2000,  cost of  revenues
increased by $1,244,975  to  $3,260,799.  As a percentage  of revenues,  cost of
revenues  decreased to 61.2% from 67.8%. The absolute dollar increase in cost of
revenues was due principally to increased  communication and technical personnel
expenses incurred to support the increased customer base.

                                       14




Selling,  General and  administrative.  For the year ended  December  31,  2000,
selling  general and  administrative  expenses  increased  by  $3,347,837.  As a
percentage of revenues,  selling,  general and administrative expenses decreased
from 176% in 1999 to 161% in 2000.  The  absolute  dollar  increase  in selling,
general and  administrative  expenses  was  attributable  mainly to higher costs
incurred for  advertising,  promotion and sales  personnel in 2000.  The Company
incurred approximately $1,000,000 more for marketing activities in 2000 compared
to 1999.

Depreciation   and   Amortization.   For  the  year  ended  December  31,  2000,
depreciation  and  amortization  increased  by  $1,853,668  to  $3,618,041.  The
increase  was  due  to  amortization   arising  from  acquisitions  and  due  to
depreciation  arising from additional  equipment acquired in latter part of 1999
and the year 2000.

Non  cash  compensation   charges.   During  2000,  we  recognized  a  non  cash
compensation  charge of $63,095 for shares  issued in exchange for services from
consultants and for shares repurchased from an officer.  During 1999, we granted
certain  employees  options to purchase an aggregate of 179,768 shares of common
stock, which required stockholder  approval prior to issuance.  Our stockholders
approved the issuance in June 1999,  and that  approval date is deemed to be the
grant date. Since the fair market value of the shares at the grant date exceeded
the exercise price,  compensation  costs of $365,104 were recognized  during the
year ended December 31, 1999. Non cash compensation charges of $389,116 was also
recognized  for the year ended  December  31, 1999 as a result of  warrants  and
stock options granted to non employees.

Impairment of intangibles.

During the year ended  December 31, 2000,  due to changes in  circumstances,  we
determined  that the carrying  amount of intangible  assets of our  subsidiaries
WoWFactor,  Inc., Roxy Systems, US Online, Inc., Webspan  Communications,  iShop
Networks,  Webprime,  Inc., Skyhigh  Information  Technologies,  UCS Web Design,
Application  Resources   Information  Services,   Inc.,  and  The  First  Street
Corporation  was  impaired.  Accordingly  we  recorded an  impairment  charge of
$2,300,000 on these assets.

Interest  Income.  Interest income net of interest expense for 2000 was $247,981
compared  to  $37,657  for 1999.  The  increase  in  interest  income was due to
investment of unutilized proceeds of our public offering of Series B Convertible
Redeemable preferred stock.

Net  loss.  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.  For the years
ended  December  31, 2000 and 1999,  we incurred a net loss of  $12,235,455  and
$6,757,258, respectively.

     During  2000,  additional  dividends  (noncash)  related to the  beneficial
conversion  feature of the  preferred  stock of  approximately  $5,856,000  were
recorded as a result of the conversion  price of the preferred  stock being less
than the market price of the common stock at the time of the  offering.  For the
year ended  December 31, 2000 the net loss after  adjusting  for the  additional
dividends and normal  dividends for  preferred  stock  resulted in a net loss of
$18,429,702 applicable to common shares.

                                       15



Liquidity and capital resources.

     Our working capital  deficiency at December 31, 2000 was $585,196  compared
with a working  capital  deficiency  of  $1,640,344  at December 31,  1999.  The
increase in working  capital was due mainly to the receipt of the proceeds  from
the  public  sale of the  Series B  Convertible  Redeemable  preferred  stock in
February and March of 2000.

     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  prevailing  market
conditions, interest rates, and our financial condition.

     In February and March 2000, we sold in a public offering  1,137,300  shares
of Series B Convertible Redeemable preferred stock at $15 per share and realized
net proceeds of approximately $14,404,000.  The preferred stock can be converted
into  common  stock at the rate of 3.4 shares of common  stock for each share of
preferred  stock.  Preferred  stockholders  are  entitled to receive  cumulative
annual  dividends  of $.60 per  share  payable  semi-annually  either in cash or
shares of common stock at our sole discretion.  Further,  preferred stockholders
are entitled to receive a liquidation  preference of $15 per share, plus accrued
dividends.  We have the  option to redeem  the  preferred  stock  under  certain
circumstances.

     In 1999, we purchased  equipment in the aggregate amount of $1,376,000 from
a major telecommunications manufacturer. The manufacturer had agreed to install,
test and provide support to make the equipment functional.  The manufacturer had
also agreed to provide financing through a lease for $957,000,  which would have
required the Company to pay $36,000 per month for 30 months  commencing with the
installation of the equipment. The balance of $419,000 was payable over a period
of  twelve  months  commencing  with  the  installation  of the  equipment.  The
manufacturer  failed  to  install  the  equipment  and  make it  functional.  In
September  2000, we terminated the agreement and the  manufacturer  accepted the
equipment returned by us. Accordingly,  equipment,  capital lease obligation and
accrued costs balances have been adjusted  downward by $1,376,000,  $957,000 and
$419,000, respectively. We believe that based on our current strategy, return of
the equipment will not impact our current or future operations.

     Our capital expenditures for 2001 are expected to range between $110,000 to
$150,000.  Based on current plans,  management anticipates that the cash on hand
and expected recurring revenues will satisfy the Company's capital  requirements
through at least the end of 2001.  However,  our need for additional capital may
be affected by the  outcome of our efforts to reduce our  operating  expenses as
part of our  Restructuring  Program.  If we are not  successful in  implementing
certain  cost  cutting  measures,  we may need  additional  financing in 2001 to
continue operations as currently conducted. We have no available standby sources
of financing and there can be no assurance  that any  additional  financing,  if
required, will be available to us on acceptable terms, or at all.

                                       16




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

Stephen J. Cole-Hatchard       43    Chairman of the Board, Chief
                                     Executive Officer and President

Nicko Feinberg                 29    Chief Information Officer,
                                     Executive Vice President of Technology

Vasan Thatham                  43    Vice President and Chief Financial
                                     Officer

Amy Wagner-Mele                32    Executive Vice President,
                                     Secretary and General Counsel

Ronald C. Signore              40    Director

William A. Barron              51    Director, Interim Vice President and 
                                     Chief Operating Officer

Stephen D. Crocker             56    Director


     Stephen J. Cole-Hatchard has been our Chairman, Chief Executive Officer and
President since August 1997. Mr. Cole-Hatchard was our Vice President of Finance
from  February  1997 to  August  1997 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  and has  been  one of our
directors and our Executive Vice President of Technology since November 1996 and
our Chief  Information  Officer  since August  1997.  From April 1994 to October
1996,  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.

                                       17



     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 Executive 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.

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

     Stephen D. Crocker has been one of our directors  since  November 2000. Dr.
Crocker is one of the original  computer  scientists  credited with the birth of
the  Internet.  Dr.  Crocker was a member of the group of UCLA  scientists  that
created ARPANET,  and he also invented Requests for Comments  (RFC's).  In 1994,
Dr.  Crocker  co-founded  CyberCash,  Inc.,  and  served as its Chief  Technical
Officer  from  1994 to 1998.  Since  1999,  he has  served as the  President  of
Longitude Systems, a company that builds  sophisticated  modeling,  provisioning
and other back office software for Internet service providers.

     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 three other most highly compensated  executive officers (each of
whom was serving at the end of our fiscal year ended  December  31, 2000) during
the years ended  December  31,  1998,  1999 and 2000,  and two former  executive
officers who resigned in the fourth quarter of 2000. No other executive  officer
of the Company received  aggregate  compensation  which exceeded $100,000 during
the year ended December 31, 2000. We refer to these four executive officers,  as
well as the two former executives, as our "Named Executives".

                                       18






Summary Compensation Table

                                                                             Long-term
                                                                             Compensation
                                                                             Awards
                                                                             Securities
Name and                                                   Other Annual      Underlying
Principal Position               Year     Salary   Bonus   Compensation (1)  Options/SAR (#)


                                                                   
Stephen J. Cole-Hatchard         2000   117,692    34,500                       25,000
Chief Executive Officer          1999   115,256         0         0            146,000
                                 1998    34,846         0         0             79,000
                                                                              
Nicko Feinberg                   2000   110,000    24,500                       27,000
Chief Information Officer        1999   108,615         0         0            146,000
                                 1998    79,500         0         0             20,000
                                                                              
Amy Wagner-Mele                  2000   110,000    32,000         0             12,000
Executive Vice President         1999   108,615         0         0             26,000
                                 1998    29,169         0         0             75,000
                                                                              
Vasan Thatham                    2000   110,000    18,500                       12,000
                                 1999    80,769                                 61,000
                                                                              
Michael Olbermann                2000    93,445    16,500    25,000(a)           2,000
                                 1999   108,615         0         0            146,000
                                 1998    95,100         0         0             20,000
                                                                              
Jodie Jackson                    2000   136,791    16,500    26,791(a)           2,000
                                 1999    25,385                                 51,000


                                                                              
(a) Severance paid.                                                           
                                                                        
     The following table sets forth information regarding options granted during
the year ended December 31, 2000 to our Named Executives:




               Options/SAR Grants in Year Ending December 31,2000

                                                  % of Total
                                Number of Shares  Options/SAR
                                Underlying        Granted to    Exercise
                                Options/SARs      Employees     Price           Expiration
                                Granted           in Year       ($/share)       Date

                                                                     
Stephen J. Cole-Hatchard           25,000         11.28%        $  0.50         11/7/05

Nicko Feinberg                      2,000          0.90%        $  1.44          6/1/05
                                   25,000         11.28%        $  0.50         11/7/05

Amy Wagner-Mele                     2,000          0.90%        $  1.44          6/1/05
                                   10,000          4.52%        $  0.50         11/7/05

Vasan Thatham                       2,000          0.90%        $  1.44          6/1/05
                                   10,000          4.52%        $  0.50         11/7/05

Michael Olbermann                   2,000          0.90%        $  1.44          6/1/05

Jodie Jackson                       2,000          0.90%        $  1.44          6/1/05




                                       19



     All of the options granted were exercisable at December 31, 2000.

     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, 2000 and  information  concerning  options  exercised by our
Named Executives during the year ended December 31, 2000:





                           Aggregated Option Exercises
                         And Year-End Option/SAR Values

                                                              Number of Securities
                                                              Underlying                    Value of Unexercised
                           Shares                             Unexercised                   In the money
                           Acquired         Value             Options/SAR's                 Options/SAR's
                           On Exercise      Realized ($)      at 12/31/2000                 at 12/31/2000

                                                              Exercisable  Un-exercisable   Exercisable Un-exercisable
                                                                                      

Stephen J. Cole Hatchard         0              0               249,000         1,000           $ 0     $ 0

Nicko Feinberg                   0              0               192,000         1,000           $ 0     $ 0

Amy Wagner-Mele                  0              0                97,000         1,000           $ 0     $ 0

Vasan Thatham                    0              0                72,000         1,000           $ 0     $ 0

Michael Olbermann                0              0               167,000         1,000           $ 0     $ 0

Jodie Jackson                    0              0                52,000         1,000           $ 0     $ 0




     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 28, 2000 was $.188. The value
realized  represents  the  positive  spread  between the  exercise  price of the
exercised  options  and the  market  price  of our  common  stock on the date of
exercise.

Employment Agreements

     We have  entered  into  employment  agreements  with  Messrs.  Feinberg and
Cole-Hatchard  that  provide  for an annual base  compensation  of not less than
$88,000 and  $45,000,  respectively,  and such bonuses as the Board of Directors
may, in its sole  discretion,  from time to time  determine.  We entered into an
employment  agreement  with Amy  Wagner-Mele  pursuant to which Ms.  Wagner-Mele
agreed to serve as  Corporate  Counsel at a salary of not less than  $98,000 per
annum. The employment agreements with Messrs.  Feinberg and Cole-Hatchard expire
in August 2001, and the employment  agreement  with Ms.  Wagner-Mele  expires in
September 2001. All are subject to automatic successive one year 

                                       20



renewals unless either we or the employee gives notice of intention not to renew
the  agreement.  With  the  exception  of  Mr.  Cole-Hatchard,   the  employment
agreements  provide for employment on a full-time  basis and 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.  We have  entered  into a  month-to-month
employment  agreement with Mr. Thatham that provides for a base salary at a rate
of $95,000 per year.

     All of the  employment  agreements  provide for each of the employees to 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).  In November 2000, the employment  agreements  with Messrs.
Olbermann and Jackson were terminated by mutual agreement.

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  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.


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

     The following  table sets forth certain  information,  as of March 15, 2001
relating to the beneficial ownership of shares of Common Stock by: (i)


                                       21





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.

     Unless otherwise indicated, the address of each beneficial owner is care of
Frontline  Communications  Corporation,  One Blue Hill Plaza,  7th Floor,  Pearl
River, New York 10965. Unless otherwise  indicated,  we believe that all persons
named in the following table have sole voting and investment  power with respect
to all shares of common stock that they beneficially own.

                                      Number of                           
Name of Beneficial Owner              Beneficially Owned (1)    Percentage

Nicko Feinberg                          454,000 (2)             6.6%
Stephen J. Cole-Hatchard                511,510 (3)             7.4%
Ronald Signore                          119,864 (4)             1.8%
William Barron                           39,680 (5)             0.6%
Steve Crocker                            25,000 (6)             0.4%
Amy Wagner-Mele                         103,000 (7)             1.5%
Vasan Thatham                            78,000 (8)             1.2%
As Directors and Executive                                   
Officers as a group (seven persons)   1,331,054 (9)            17.8%


     (1) The  Company  believes  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 options to purchase 192,000 shares of Common Stock.

     (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 249,000 shares of Common Stock and 5,150 shares of Series B convertible
into 17,510 shares of Common Stock.  Does not include  20,000 shares held by Mr.
Cole-Hatchard's  mother and brother and warrants to purchase  64,000 shares held
by Mr. Cole-Hatchard's mother.

     (4) Includes warrants to purchase 41,664 shares of Common Stock and options
to purchase 75,000 shares of Common Stock.

     (5)  Includes  options to purchase  35,000  shares of Common  Stock and 200
Shares of Series B Preferred convertible into 680 shares of Common Stock.

     (6) Includes options to purchase 25,000 shares of Common Stock.

     (7) Includes options to purchase 97,000 shares of Common Stock.

     (8) Includes options to purchase 72,000 shares of Common Stock.

     (9)  Includes  options and  warrants to purchase  625,664  shares of Common
Stock and 5,350 shares of Series B Preferred  convertible  into 18,190 shares of
Common Stock.


Item 12. Certain Relationships and Related Transactions.

     In May 1997, Messrs.  Nicko Feinberg and Stephen J.  Cole-Hatchard,  two of
our current  officers and directors,  and Mr. Michael Char, a former 

                                       22



officer  and  director,  exchanged  their  interests  in the  three  predecessor
companies to whose business we succeeded for  promissory  notes in the principal
amounts of $141,800,  $66,800 and $163,537.  This indebtedness  included $21,737
and $35,000 of advances previously made to us by Messrs. Char and Cole-Hatchard.
The promissory notes were issued to Messrs.  Feinberg, Char and Cole-Hatchard in
partial consideration of their efforts in founding the predecessor companies. In
May 1998,  we repaid all  outstanding  indebtedness  to Mr.  Char and $20,000 of
indebtedness  to each of Messrs.  Cole-Hatchard  and  Feinberg.  The  balance of
indebtedness owed to Messrs.  Cole-Hatchard and Feinberg of $46,800 and $121,800
bears interest at the rate of 8% per annum and is payable on demand.

     In August 1998, Mr. Cole-Hatchard  borrowed $46,800 from us, evidenced by a
demand promissory note bearing interest at the rate of 8% per annum.

     In September 1998, Mr. Feinberg  borrowed  $55,000 from us,  evidenced by a
demand  promissory note bearing interest at the rate of 8% per annum. In October
1998 and January 1999, Mr. Feinberg  borrowed an additional  $42,000 and $24,800
from us on the same terms.

     In June 1999, Amy Wagner-Mele, an officer of the Company, exercised options
to purchase  15,000 shares of our common stock pursuant to our stock option plan
with a secured  promissory note in the principal amount of $37,500.  In December
2000, the Board of Directors  agreed to repurchase the 15,000 shares held by Ms.
Wagner-Mele  for the sum of  $37,500,  which sum was  utilized  to  satisfy  all
amounts  due and owing  under  the note.  The fair  market  value of the  shares
repurchased was $3,750.

     In, 1999,  the  Company's  Board of Directors  passed a resolution  whereby
$168,000 of notes payable to Messrs. Cole-Hatchard and Feinberg were offset with
$168,000 of notes receivable from these same stockholders.


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

     (a)  Exhibits

          3.1  Certificate of Incorporation of the Company.+

          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 preferred stock.*

          10.1 Employment Agreements with Messrs. Stephen  Cole-Hatchard,  Nicko
               Feinberg and Michael Olbermann.+

          10.2 Employment Agreement with Amy Wagner-Mele.*

                                       23



          10.3  Employment Agreement with Vasan Thatham.*

          10.4  Employment Agreement with Jodie L. Jackson.*

          10.5  Stock  Purchase  Agreement  dated  as  of October 1, 1998 by and
                among  the  Company, WOWFactor,  Inc. and  the  WOWFactor,  Inc.
                stockholders.++

          10.6  Form of Registration  Rights Agreement among the Company and the
                WOWFactor, Inc. Stockholders.++

          10.7  Letter Offer to Purchase  Substantially  all of the Assets of US
                Online, Inc.+++

          10.8  Asset Purchase  Agreement  dated as of November  24, 1998 by and
                among the  Company,   Webspan,   and  the  sole  stockholder  of
                Webspan.++++

          10.9  Amendment to Asset Purchase Agreement dated December 17, 1998 by
                and among  the  Company, Webspan,  and the sole  stockholder  of
                Webspan.++++

          10.10 Form of Registration  Rights Agreement among the Company and the
                sole stockholder of Webspan.++++

          10.11 1997 Stock Option Plan of the Company.+

          10.12 Stock Purchase Agreement dated March 25, 1999.+++++

          10.13 Registration Rights Agreement dated March 25, 1999.+++++

          10.14 Stock Purchase Agreement dated as of July 8, 1999.*

          10.15 Registration Rights Agreement dated July 8, 1999.*

          10.16 Stock Purchase Agreement dated as of October 7, 1999.*

          10.17 Registration Rights Agreement dated as of October 7, 1999.*

          10.18 Stock Purchase Agreement dated as of December 10, 1999.*

          10.19 Registration Rights Agreement dated as of December 10, 1999.*

          10.20 Office Lease between Registrant and Glorious Sun Robert Martin
                LLC.+

          10.21 Amendment No. 1 to Office Lease.*

          10.22 Amendment No. 2 to Office Lease.*

          10.23 Promissory Note of Amy Wagner-Mele dated as of June 1, 1999.*

          10.24 Underwriting Agreement dated February 7, 2000 by and between the
                Company and Prime Charter, Ltd.*

                                       24



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

          21.1  Subsidiaries of the Company.

          23.1  Consent of Goldstein Golub and Kessler LLP.

          23.2  Consent of BDO Seidman, LLP.


(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.

     +++  Incorporated by reference to the applicable  exhibit  contained in the
Company's Current Report on Form 8-K dated October 23, 1998.

     ++++  Incorporated by reference to the applicable  exhibit contained in the
Company's Current Report on Form 8-K dated December 17, 1998.

     +++++ Incorporated by referenced to the applicable exhibit contained in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1998.

     ++++++ Incorporated by reference to the 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.

     (b) Reports on Form 8-K filed during the quarter ended December 31, 2000:

     Not applicable.


                                       25






                                   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 28th day of March 2001.

                           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/ STEPHEN J. COLE HATCHARD     Chief Executive Officer, President,            March 28, 2001
----------------------------     and Director (Principal Executive Officer) 
  Stephen J. Cole-Hatchard    

/s/ NICKO FEINBERG               Chief Information Officer, Executive           March 28, 2001
-------------------              Vice President of Technology and Director 
  Nicko Feinberg            

/s/ VASAN THATHAM                Chief Financial Officer                        March 28, 2001
------------------               Executive Vice President
  Vasan Thatham               

/s/ AMY WAGNER-MELE              Executive Vice President, Secretary            March 28, 2001
--------------------             and General Counsel
  Amy Wagner-Mele             

/s/ STEPHEN D. CROCKER           Director                                       March 28, 2001
----------------------
  Stephen D. Crocker

/s/ RONALD C. SIGNORE            Director                                       March 28, 2001
----------------------
  Ronald C. Signore

/s/ WILLIAM A. BARRON            Director                                       March 28, 2001
---------------------
  William A. Barron




                                       26




FRONTLINE COMMUNICATIONS
CORPORATION AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000









                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                      INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------







Independent Auditors' Reports                                  F-1 - F-2


Consolidated Financial Statements:

   Balance Sheet                                                  F-3
   Statement of Operations                                        F-4
   Statement of Stockholders' Equity                              F-5
   Statement of Cash Flows                                     F-6 - F-7
   Notes to Consolidated Financial Statements                  F-8 - F-19








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,
2000  and the  related  consolidated  statements  of  operations,  stockholders'
equity,  and cash flows for the year 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 audit.

     We conducted our audit 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  audit  provides  a
reasonable basis for our opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly, in all material respects,  the financial position of the Company
as of December 31, 2000,  and the results of its  operations  and its cash flows
for the year then ended,  in conformity  with  accounting  principles  generally
accepted in the United States of America.


/s/ Goldstein Golub Kessler LLP

GOLDSTEIN GOLUB KESSLER LLP
New York, New York

February 28, 2001



                                                                             F-1






INDEPENDENT AUDITORS' REPORT



To the Board of Directors of
Frontline Communications Corporation

We have audited the consolidated statements of operations,  stockholders' equity
and cash flows of Frontline Communications  Corporation and subsidiaries for the
year ended December 31, 1999. These financial  statements are the responsibility
of the  Company's  management.  Our  responsibility  is to express an opinion on
these financial statements based on our audit.

We conducted our audit 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  audit  provides  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  results of  operations  of  Frontline
Communications  Corporation  and its cash flows for the year ended  December 31,
1999, in conformity with accounting  principles generally accepted in the United
States of America.

BDO Seidman, LLP

New York, New York
February 25, 2000

















                                                                             F-2




                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                                      CONSOLIDATED BALANCE SHEET

--------------------------------------------------------------------------------
December 31, 2000
--------------------------------------------------------------------------------

ASSETS

Current:
  Cash and cash equivalents                        $    781,082
  Marketable securities                               1,808,210
  Accounts receivable, less
    allowances for doubtful
     accounts of $251,587                               576,824
  Prepaid expenses and other                            126,698
---------------------------------------------------------------
      Total current assets                            3,292,814

Property and Equipment, net                           2,041,010

Intangibles, net                                      5,623,154

Other                                                   116,090

---------------------------------------------------------------
      Total Assets                                 $ 11,073,068
===============================================================

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Accounts payable                                 $    668,052
  Accrued expenses                                    1,756,727
  Current portion of long-term debt                     363,027
  Deferred revenue                                    1,090,204

---------------------------------------------------------------
      Total current liabilities                       3,878,010

Long-term Debt, less current portion                  1,438,459

---------------------------------------------------------------
      Total liabilities                               5,316,469
---------------------------------------------------------------

Commitments and Contingencies

Stockholders' Equity:
  Preferred stock - $.01 par value;
   authorized 2,000,000 shares, issued and
   outstanding 597,800 shares (liquidation
   preference of $8,967,000)                              5,978
  Common stock - $.01 par value; authorized
   25,000,000 shares, issued 7,164,793 shares            71,648
  Additional paid-in capital                         35,570,119
  Accumulated deficit                               (29,030,607)
---------------------------------------------------------------

                                                      6,617,138

  Treasury stock, at cost, 609,846 shares              (860,539)

---------------------------------------------------------------
      Stockholders' equity                            5,756,599

---------------------------------------------------------------
      Total Liabilities and Stockholders' Equity   $ 11,073,068
===============================================================


                                  See Notes to Consolidated Financial Statements

                                                                             F-3
                                                                          



                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES




                                                            CONSOLIDATED STATEMENT OF OPERATIONS
------------------------------------------------------------------------------------------------

Year ended December 31,                                                     2000            1999
------------------------------------------------------------------------------------------------

                                                                                       
Revenue                                                             $  5,327,316    $  2,975,213
------------------------------------------------------------------------------------------------

Costs and expenses:
  Cost of revenue                                                      3,260,799       2,015,824
  Selling, general and administrative                                  8,583,548       5,235,711
  Depreciation and amortization                                        3,618,041       1,764,373
  Impairment of intangibles                                            2,285,269            --
  Noncash compensation charge                                             63,095         754,220

------------------------------------------------------------------------------------------------
                                                                      17,810,752       9,770,128
------------------------------------------------------------------------------------------------

  Loss from operations                                               (12,483,436)     (6,794,915)

Other income (expense):
  Interest income                                                        408,356          82,411
  Interest expense                                                      (160,375)        (44,754)
------------------------------------------------------------------------------------------------


Net loss                                                             (12,235,455)     (6,757,258)

Beneficial conversion feature of Series B preferred stock              5,856,497            --

Preferred dividends                                                      337,750            --

------------------------------------------------------------------------------------------------
Net loss available to common shareholders                           $(18,429,702)   $ (6,757,258)
================================================================================================

Loss per share - basic and diluted                                  $      (3.25)   $      (1.90)
================================================================================================

Weighted-average number of shares outstanding - basic and diluted      5,676,129       3,550,231
================================================================================================



                                  See Notes to Consolidated Financial Statements

                                                                             F-4





                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES





                                  CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------

Years ended December 31, 2000 and 1999

                                                                                                                                 
                                                                                                                  Additional     
                                                            Preferred Stock                Common Stock             Paid-in      
                                                        Shares          Amount         Shares          Amount       Capital      
                                                      ---------       ---------       ---------      ---------   ------------    

                                                                                                               
Balance at December 31, 1998                               10              --         3,361,364      $  33,614   $  9,121,533    

Private sale of common stock and
 related repricing                                         --              --           739,605          7,396      3,787,604    

Common stock issued to acquire businesses                  --              --           120,039          1,200      1,126,901    

Exercise of stock options and warrants                     --              --           158,616          1,586        358,334    

Conversion Series A preferred stock                       (10)             --            98,462            985           (985)   

Common stock options and common stock issued
 for services                                              --              --             5,974             60        754,160    

Net loss                                                   --              --              --             --             --      
-----------------------------------------------------------------------------------------------------------------------------

Balance at December 31, 1999                               --              --         4,484,060         44,841     15,147,547    

Public offering of Series B preferred stock, net      1,137,300       $  11,373            --             --       14,392,187    

Purchase of treasury stock, at cost
 (378,326 shares)                                          --              --              --             --             --      

Common stock issued for services                           --              --             9,094             91         29,254    

Exercise of stock options and warrants                     --              --             2,500             25           --      

Conversion of Series B preferred stock                 (539,500)         (5,395)      1,834,300         18,343        (12,948)   

Beneficial conversion feature of Series B
 preferred stock                                           --              --              --             --        5,856,497    

Dividends on preferred stock                               --              --              --             --             --      

Payments for repricing rights                              --              --           465,961          4,659       (470,019)   

Common stock issued to acquire businesses                  --              --           368,878          3,689        627,601    

Net loss                                                   --              --              --             --             --      
-----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000                            597,800       $   5,978       7,164,793      $  71,648   $ 35,570,119    
=============================================================================================================================




                                                       Accumulated        Stock,            Note          Equity
                                                         Deficit          at Cost         Receivable    (Deficiency)
                                                      ------------       ----------       ----------   -------------

                                                                                                  
Balance at December 31, 1998                          $ (3,843,647)    $ (264,113)            --       $ 5,047,387

Private sale of common stock and
 related repricing                                            --              --              --         3,795,000

Common stock issued to acquire businesses                     --              --              --         1,128,101

Exercise of stock options and warrants                        --              --         $ (37,500)        322,420

Conversion Series A preferred stock                           --              --              --              --

Common stock options and common stock issued
 for services                                                 --              --              --           754,220

Net loss                                                (6,757,258)           --              --        (6,757,258)
------------------------------------------------------------------------------------------------------------------

Balance at December 31, 1999                           (10,600,905)       (264,113)        (37,500)      4,289,870

Public offering of Series B preferred stock, net              --              --              --        14,403,560

Purchase of treasury stock, at cost
 (378,326 shares)                                             --          (596,426)         37,500        (558,926)

Common stock issued for services                              --              --              --            29,345

Exercise of stock options and warrants                        --              --              --                25

Conversion of Series B preferred stock                        --              --              --              --

Beneficial conversion feature of Series B
 preferred stock                                        (5,856,497)           --              --              --

Dividends on preferred stock                              (337,750)           --              --          (337,750)

Payments for repricing rights                                 --              --              --          (465,360)

Common stock issued to acquire businesses                     --              --              --           631,290

Net loss                                               (12,235,455)           --              --       (12,235,455)
------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000                          $(29,030,607)      $ (860,539)      $  - 0 -    $ 5,756,599
==================================================================================================================




                 See Notes to Consolidated Financial Statements

                                       F-5





                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES





                                            CONSOLIDATED STATEMENT OF CASH FLOWS

--------------------------------------------------------------------------------------
Year ended December 31,                                      2000              1999
--------------------------------------------------------------------------------------

                                                                              
Cash flows from operating activities:

  Net loss                                                $(12,235,455)   $ (6,757,258)
  Adjustments to reconcile net loss to net
   cash used in operating activities:
    Depreciation and amortization                            3,618,041       1,764,373
    Noncash compensation charge                                 63,095         754,220
    Impairment of intangibles                                2,285,269            --
    Allowance for doubtful accounts                               --            81,429
    Changes in operating assets and liabilities,
     net of effects from acquisitions:
      Increase in marketable securities                     (1,808,210)           --
      Increase in accounts receivable                          (83,540)       (366,438)
      Increase in notes receivable from stockholders              --           (24,800)
      Increase in prepaid expenses and other                    (4,390)        (64,027)
      Increase in other assets                                  (7,352)       (267,556)
      Increase in accounts payable and accrued expenses        120,973       1,234,117
      Decrease in deferred revenue                            (127,328)        (12,658)
--------------------------------------------------------------------------------------
          Net cash used in operating activities             (8,178,897)     (3,658,598)
--------------------------------------------------------------------------------------

Cash flows from investing activities:

  Acquisition of property and equipment                       (353,727)       (915,411)
  Acquisition of businesses, net of cash acquired           (3,767,447)       (816,228)
--------------------------------------------------------------------------------------
          Net cash used in investing activities             (4,121,174)     (1,731,639)
--------------------------------------------------------------------------------------

Cash flows from financing activities:

  Proceeds from exercise of stock options and warrants            --           322,420
  Proceeds from sale of common stock                              --         3,795,000
  Principal payments on long-term debt                        (735,839)       (106,704)
  Proceeds from public offering of preferred stock          14,597,588            --
  Payments for repricing rights                               (465,360)           --
  Dividends paid                                              (337,750)           --
  Payments to acquire treasury stock                          (592,676)           --
--------------------------------------------------------------------------------------
          Net cash provided by financing activities         12,465,963       4,010,716
--------------------------------------------------------------------------------------

Net increase (decrease) in cash and cash equivalents           165,892      (1,379,521)

Cash and cash equivalents at beginning of year                 615,190       1,994,711
--------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                  $    781,082    $    615,190
======================================================================================
Supplemental disclosure of cash flow information:

  Cash paid for interest                                  $    160,375    $     44,639
======================================================================================



                                                                     (continued)

                                  See Notes to Consolidated Financial Statements

                                                                             F-6





                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES


                                            CONSOLIDATED STATEMENT OF CASH FLOWS

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




Year ended December 31,                                       2000            1999
-------------------------------------------------------------------------------------

                                                                            
Supplemental schedule of noncash investing 
  and financing activities:

  Common stock issued (returned) for stockholder loan     $   (37,500)    $    37,500
=====================================================================================

  Capital lease obligations incurred                      $   127,747     $ 1,432,568
=====================================================================================

  Termination of capital lease:
    Equipment returned                                    $ 1,376,037             --
=====================================================================================

    Capital lease obligation                              $   957,327             --
=====================================================================================

    Accrued expenses                                      $   418,710             --
=====================================================================================

  Common stock issued to acquire businesses               $   631,290     $ 1,128,101
=====================================================================================

  Notes payable to stockholders offset
   with notes receivable from stockholders                        --      $   168,600
=====================================================================================

  Notes payable issued in connection

   with business acquisitions                             $ 1,093,857     $   425,000
=====================================================================================



                                  See Notes to Consolidated Financial Statements

                                                                             F-7









                          FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

          Frontline Communications Corporation ("Frontline" or the "Company") is
     an Internet company that offers Internet  access,  Web site development and
     Internet presence services.

          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
     generally accepted  accounting  principles,  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.

          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.

          The following estimated useful lives are applied in the computation of
     depreciation and amortization:

                                                                        Years
     ------------------------------------------------------------------------
          Computer and office equipment                                3 to 5
          Furniture and fixtures                                            5
          Leasehold improvements                                   Lease term
     ------------------------------------------------------------------------


          Intangible  assets  include  goodwill  (the  excess  of  the  cost  of
     purchased  businesses  over the fair value of the net assets  acquired) and
     purchased customer bases.  Amortization is computed using the straight-line
     basis over three years, the expected benefit period.

          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,
     2000, goodwill and purchased customer bases were written down by $2,285,269
     due to impairment of such assets.  No write-down was necessary for the year
     ended December 31, 1999.

                                                                             F-8



                          FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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


          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,  marketable  securities  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.

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

          Statement  of  Financial   Accounting   Standards  ("SFAS")  No.  123,
     Accounting for  Stock-Based  Compensation,  establishes a fair value method
     for  accounting   for   stock-based   compensation   plans  either  through
     recognition or  disclosure.  The Company  adopted the employee  stock-based
     compensation  provisions  of SFAS No. 123 by  disclosing  the pro forma net
     income and pro forma net income or loss per share amounts assuming the fair
     value method.  Stock  arrangements with  nonemployees,  if applicable,  are
     recorded at fair value.

          All costs  associated  with  advertising  services are expensed in the
     period  incurred.   Advertising  expense  was  approximately  $840,000  and
     $282,000 for the years ended December 31, 2000 and 1999, 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 shareholders 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.   Potential  common  shares  have  not  been  included  in  the
     computation of diluted EPS since the effect would be antidilutive.

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

2.   ACQUISITION OF BUSINESSES:

     At December 31, 2000, intangibles were as follows:




                                                                  Customer
                                                  Goodwill          Bases             Total
     ----------------------------------------------------------------------------------------
                                                                                 
               Intangibles                      $   723,645      $ 6,136,759      $ 6,860,404
               Less accumulated amortization        (60,304)      (1,176,946)      (1,237,250)
     ----------------------------------------------------------------------------------------
                                                $   663,341      $ 4,959,813      $ 5,623,154
     ========================================================================================



                                                                             F-9



                          FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

     During 2000, the Company  acquired  substantially  all of the assets of The
     PressRoom Online Services, Application Resources Information Services, Inc.
     d/b/a Way Communication, The First Street Corporation, Wizardnet, Inc. (all
     Internet service providers) and PNM Group, Inc., a web development company.
     The   aggregate   consideration   for  these   acquisitions   consisted  of
     approximately  $1,694,000  cash  (including   transaction-related   costs),
     168,878  shares of common stock  (approximately  $369,000)  and $365,000 in
     promissory  notes.  In addition,  if certain  performance  criteria are met
     during the 24-month period ending October 31, 2002, the former stockholders
     of PNM Group Inc. are entitled to a contingent payment of up to $800,000 in
     cash and promissory notes.

     During 2000, the Company also acquired  substantially  all of the assets of
     Delanet, Inc.  ("Delanet"),  an Internet service provider, in consideration
     of $2,100,000 in cash (including  transaction-related costs), assumption of
     approximately  $1,354,000 of  liabilities,  200,000  shares of common stock
     (approximately  $321,000) and  promissory  note in the principal  amount of
     approximately  $729,000.  This  acquisition  resulted in the  recording  of
     approximately $4,034,000 of intangible assets.

     All of the 2000  acquisitions  were accounted for using the purchase method
     of accounting with the results of operations of each  acquisition  included
     in the consolidated  financial  statements from the respective  acquisition
     date.  The  acquisitions  resulted  in  the  recording  of  intangibles  of
     approximately  $6,802,000 and are being amortized over the expected benefit
     period of three years.

     A summary of the assets  acquired,  liabilities  assumed and the  resulting
     intangible assets are as follows:

          Purchase price                                             $5,299,000
          Acquisition costs                                             220,000
     --------------------------------------------------------------------------
                                                                      5,519,000
     --------------------------------------------------------------------------
          Assets acquired                                               733,000
          Liabilities assumed                                         2,016,000
     --------------------------------------------------------------------------
                                                                      1,283,000
     --------------------------------------------------------------------------
                  Intangible assets                                  $6,802,000
     ==========================================================================
                                                   
          During  1999,  the  Company  completed  the  following   acquisitions:
     WebPrime,  Inc.  ("Webprime"),  a Web  site  design,  web  development  and
     software  development  firm;  Channel  iShop.com  (now   iShopNetworks.com)
     ("I-Shop"),  a company with a marketing concept targeting retail businesses
     (disposed in 2001 - see Note 11); assets  relating to the dial-up  Internet
     access  customer  base and web design and  hosting  capabilities  of United
     Computer  Specialists,  Inc.  ("UCS");  a customer base of  additional  DSL
     customers of Lingua Systems, Inc. d/b/a/ Fullwave Networks; a customer base
     of  additional  dial-up  customers  of  Skyhigh  Information   Technologies
     ("Skyhigh"); and Fronthost, LLC, a company in the business of providing web
     hosting  and  design  services.  The  aggregate   consideration  for  these
     acquisitions  consisted  of $478,000  cash  (including

                                                                            F-10



                          FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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


     transaction-related  costs),  120,039 shares of common stock (approximately
     $1,128,000) and $425,000 in noninterest-bearing promissory notes.

          All of the 1999  acquisitions  were  accounted  for using the purchase
     method of accounting  with the results of  operations  of each  acquisition
     included  in the  consolidated  financial  statements  from the  respective
     acquisition date. The acquisitions  resulted in the recording of intangible
     assets of  approximately  $2,081,000,  which are being amortized over their
     expected benefit period of three years.

          During  the  year  ended   December  31,  2000,   due  to  changes  in
     circumstances,   the  Company   determined  that  the  carrying  amount  of
     intangible  assets of WoWFactor(TM),  Inc., Magic Carpet, US Online,  Inc.,
     Webprime, I-Shop, Skyhigh, Way and First Street was impaired.  Accordingly,
     the Company recorded an impairment  charge of  approximately  $2,300,000 on
     these assets.

          The following pro forma  consolidated  financial  information has been
     prepared to reflect the 2000 and 1999 acquisitions. The pro forma financial
     information is based on the historical  financial statements of the Company
     and those of the acquired businesses.  The accompanying pro forma operating
     statements  are  presented  as if the  acquisitions  occurred on January 1,
     1999.  The  pro  forma  financial  information  is  unaudited  and  is  not
     necessarily  indicative  of what the actual  results of  operations  of the
     Company would have been assuming the  acquisitions had been completed as of
     January 1, 1999, and neither is it necessarily indicative of the results of
     operations for future periods.




          Year ended December 31,                                2000             1999
          ----------------------------------------------------------------------------
                                                                             
          Revenue                                        $  7,606,595     $  6,307,608
          Net loss                                        (19,676,989)      (9,699,774)
          Net loss per share - basic and diluted                (3.35)           (2.48)
          ----------------------------------------------------------------------------




     The above unaudited pro forma consolidated  financial  information has been
     adjusted  to  reflect  amortization  of  intangibles  as  generated  by the
     acquisitions over a three-year period.

3.   MARKETABLE SECURITIES:

     The Company  accounts for  marketable  securities  under the  provisions of
     Statement of Financial Accounting Standards No. 115, Accounting for Certain
     Investments in Debt and Equity  Securities.  The Company has classified its
     entire investment  portfolio as trading securities.  Trading securities are
     stated at fair  value with  unrealized  gains and  losses  included  in the
     statement  of   operations.   The  cost  of  securities  is  based  on  the
     specific-identification   method.  Unrealized  gains  and  losses  are  not
     material at  December  31,  2000.  Quoted  market  prices have been used in
     determining  the fair value of these  investments.  Trading  securities  at
     December 31, 2000 consisted of U.S. government obligations, maturing within
     one year, with a fair value at $1,808,210.


                                                                            F-11



                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

4.   PROPERTY AND EQUIPMENT:

     Property and equipment consists of the following:




         December 31, 2000
         ------------------------------------------------------------------------------
                                                                                  
         Computer and office equipment                                       $2,786,073 
         Furniture and fixtures                                                  81,806
         Leasehold improvements                                                 206,372
         ------------------------------------------------------------------------------
                                                                              3,074,251
         Less accumulated depreciation and amortization                      (1,033,241)
         ------------------------------------------------------------------------------
                                                                             $2,041,010
         ==============================================================================


                                                                       
                                                              
5.   ACCRUED EXPENSES:

     Accrued expenses consist of the following:



                                                                                 
          Accrued Internet connection and telephone                          $  450,899
          Lease cancellations and related costs                                 406,330
          Accrued equipment installation costs                                  235,988
          Accrued professional fees                                             213,564
          Accrued wages and salaries                                            157,591
          Other                                                                 292,355
         ------------------------------------------------------------------------------
                                                                             $1,756,727
         ==============================================================================


                                                                      
                                                            
6.   LONG-TERM DEBT:


     Long-term debt consists of the following:





                                                                                 
         Present value of net minimum lease payments (a)                     $  687,979
         Promissory notes payable (b)                                         1,044,892
         Mortgage payable (c)                                                    68,615
         ------------------------------------------------------------------------------
                                                                              1,801,486
         ------------------------------------------------------------------------------
         Less:
           Current portion of present value of net minimum lease payments       346,035
           Current portion of mortgage and promissory notes payable              16,992
         ------------------------------------------------------------------------------
                                                                                363,027
         ------------------------------------------------------------------------------
                                                                             $1,438,459
         ==============================================================================




(a)  The Company leases computer and other  equipment under capital leases.  The
     assets  acquired  under  capital  leases  have  a  cost  of   approximately
     $1,281,000 and  accumulated  depreciation of  approximately  $340,000 as of
     December 31, 2000.

                                                                            F-12



                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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


     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, 2000.

          Payments for the year ending:

                    2001                                        $432,420
                    2002                                         271,239
                    2003                                         112,798
                    2004                                           3,543
                    ----------------------------------------------------
                    Total minimum lease payments                 820,000
                    Less amount representing interest            132,021
                    ----------------------------------------------------
                    Present value of net minimum lease payments  687,979
                    Less current portion                         346,035
                    ----------------------------------------------------
                           Long-term lease obligations          $341,944
                    ====================================================


(b)  Promissory notes, issued as part of business acquisition costs, are made up
     of the following:

     i.   A  noninterest-bearing   promissory  note having a balance of $16,292,
          consisting of three remaining  monthly payments of $5,431 each, ending
          in March 2001.

     ii.  A promissory note in the principal amount of $728,600.  The promissory
          note bears  interest at 4% and is payable in June of 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.

     iii. A promissory note in the principal amount of $300,000.  The promissory
          note bears  interest at 3% and is payable in  September  of 2003.  The
          Company has the option of converting  the  principal  amount due under
          the  promissory  note to shares of its  common  stock at a  conversion
          price of $6 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.

(c)  Mortgage   payable,   secured  by  property,   payable  in  equal   monthly
     installments of $514,  including interest at 8% per year, through September
     2003, with the balance of approximately $66,500 due September 2003.

     Maturities of long-term debt are as follows:

         Year ending December 31,

                    2001               $  363,027
                    2002                  234,920
                    2003                1,200,103
                    2004                    3,436
                                      
                    -----------------------------
                                       $1,801,486
                    =============================
                                      
                            
          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

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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


     In 1999,  the  Company  purchased  equipment  in the  aggregate  amount  of
     $1,376,000 from a major telecommunications  manufacturer.  The manufacturer
     had agreed to  install,  test and  provide  support  to make the  equipment
     functional.  The  manufacturer  had agreed to provide  financing  through a
     lease for $957,000 which would have required the Company to pay $36,000 per
     month for 30 months commencing with the installation of the equipment.  The
     balance  of  $419,000   was  payable  over  a  period  of  12  months  from
     installation  of the  equipment.  The  manufacturer  failed to install  the
     equipment and make it functional. In September 2000, the Company terminated
     the agreement and the manufacturer has accepted  equipment  returned by the
     Company. Accordingly,  equipment, capital lease obligation and accrued cost
     balances   have  been  reduced  by   $1,376,000,   $957,000  and  $419,000,
     respectively.  The management believes that, based on the Company's current
     strategy,  return of the  equipment  will not impact its  current or future
     operations.


7.   COMMITMENTS AND CONTINGENCIES:


     The  Company  rents  office  space  and  equipment  under  operating  lease
     agreements expiring at various dates through 2005.

     Future  minimum  rental  payments   required  under  operating  leases  are
     approximately as follows:

              2001                     $  509,000
              2002                        472,000
              2003                        417,000
              2004                        278,000
              2005                         12,000

                                       ----------
                                       $1,688,000

                                       ==========

     Rental expense was approximately  $409,000 and $248,000 for the years ended
     December 31, 2000 and 1999, respectively.

     The Company has entered into three-year  employment agreements with certain
     officers and employees which provide for aggregate annual base compensation
     of approximately  $429,000, and such bonuses as the board of directors may,
     in its sole  discretion,  from  time to time  determine.  These  employment
     agreements expire through September 2001.

     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.

     The Company is involved in various  claims and legal  actions  arising from
     the ordinary course of business. The Company's management is of the opinion
     that the  ultimate  outcome  of these  matters  would  not have a  material
     adverse impact on the financial position of the Company.

                                                                            F-14



                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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


8.   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.

     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.  During 1999, the Company  granted to certain  employees
     options to purchase  an  aggregate  amount of 179,768  shares of its common
     stock,  which  required  shareholder  approval  prior to its issuance.  The
     shareholders  approved  the  issuance  in June 1999 and,  accordingly,  the
     approval  date is deemed to be the grant date at which  date the  aggregate
     fair value of these shares  exceeded the fair value at the date of issuance
     by  $365,104.  The noncash  compensation  charge of $754,220  includes  the
     $365,104 and $389,116  representing the fair value of services  received by
     the Company in exchange for stock  options and warrants  granted and shares
     of common stock issued to consultants.

     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 2000 and 1999:

                                                 2000                1999
                                            --------------      --------------
          Risk-free interest rate           5.78% to 7.15%      4.50% to 6.14%
          Expected life                            5 years             5 years
          Expected volatility                       168.7%              97.50%
          Dividend yield                              None                None

     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:




                                                                   2000              1999
                                                             --------------     --------------
                                                                                      
          Net loss available to common shareholders:

            As reported                                      $  (18,429,702)    $   (6,757,258)
            Pro forma                                           (19,858,249)        (9,575,653)
          Net loss per share (basic and diluted):

            As reported                                               (3.25)             (1.90)
            Pro forma                                                 (3.50)             (2.70)



                                                                            F-15



                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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


          A summary  of the  status of the  Company's  stock  option  plan as of
     December  31, 2000 and 1999,  and  changes  during the years ended on those
     dates, is presented below:





          December 31,                                      2000                     1999
-----------------------------------------------------------------------------------------------
                                                          Weighted-                  Weighted-
                                                          average                    average
                                                          Exercise                   Exercise
                                             Shares       Price         Shares       Price
                                           ---------      --------   ---------      --------
                                                                             
     Outstanding at beginning of year      1,327,868      $   4.71     583,000      $   2.73
     Granted                                 221,600          1.06     916,868          5.57
     Exercised                                (2,500)         2.50    (152,000)         2.48
     Forfeited                              (199,200)         2.05     (20,000)         2.50
     ---------------------------------------------------------------------------------------
     Outstanding at end of year            1,347,768      $   4.19   1,327,868      $   4.71
     =======================================================================================
     Options exercisable at year-end       1,304,969      $   3.98     885,601      $   4.44
     =======================================================================================
     Weighted-average fair value of
      options granted during the year           --        $   1.00        --        $   4.58
     =======================================================================================




               The following table  summarizes  information  about stock options
          outstanding and exercisable at December 31, 2000:




                                          Options Outstanding          Options Exercisable
                                          -------------------          -------------------
                                                Weighted-
                                 Number          average     Weighted-      Number      Weighted-
                             Outstanding at     Remaining     average   Exercisable at   average
          Range of            December 31,     Contractual   Exercise    December 31,   Exercise
          Exercise Prices         2000            Life         Price         2000        Price
-------------------------------------------------------------------------------------------------

                                                                         
          $0.50 to $1.50         196,400          4.8         $ 0.72        196,400     $ 0.73
          $1.50 to $3.00         246,600          2.4         $ 2.37        246,600     $ 2.37
          $3.00 to $4.50         107,000          2.9         $ 3.66        107,000     $ 3.66
          $4.50 to $6.00         658,000          3.9         $ 5.17        626,867     $ 5.17
          $6.00 to $8.50         139,768          3.1         $ 6.60        128,102     $ 6.47
          --------------       ---------          ---         -------      ---------    ------- 
                               1,347,768                                  1,304,969
                               =========                                  =========



9.   CAPITAL STOCK:

     In June 1999,  the  Company's  shareholders  approved an  amendment  to the
     Certificate  of  Incorporation  of the  Company  increasing  the  number of
     authorized shares of common stock to 25,000,000.

     In January 2000,  the Company's  shareholders  approved an amendment to the
     Certificate  of  Incorporation  of the  Company  increasing  the  number of
     authorized shares of preferred stock to 2,000,000.

     In 1999, the Company sold through private  placements 499,889 shares of its
     common stock to two investors for an aggregate price of $4,250,000 with net
     proceeds  to the Company of  $3,795,000.  The  Company  issued  warrants to
     purchase  68,175  shares of common  stock at prices  ranging  from $5.23 to
     $13.85

                                                                            F-16



                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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


     per share.  The Company had granted the investors  repricing and redemption
     rights  based on the future  market  price of its common  shares.  In March
     2000,  the Company  issued  65,961  shares of common stock  pursuant to the
     repricing rights. In May 2000, the Company acquired 16,312 shares of common
     stock for $34,663 from the private investors. In addition, the Company paid
     $165,359 for repricing rights, which has been charged to additional paid-in
     capital.  In September 2000, the Company entered into an agreement with the
     two private  investors  whereby the Company  agreed to pay $300,000 in cash
     and issue  400,000  shares of common  stock to  resolve  certain  issues of
     interpretation  that arose out of  redemption  and repricing  rights.  This
     agreement  eliminated any additional  rights the parties had for additional
     common stock or cash under the original agreement. The amount paid pursuant
     to the agreement has been charged to additional paid-in capital.

     In 1999,  an officer of the Company  exercised  options  granted  under the
     Company's  stock option plan and acquired  15,000  shares for $37,500.  The
     payment was made by an  interest-bearing  secured promissory note. In 2000,
     the Company  acquired  15,000 shares back from the officer and canceled the
     promissory note.  $33,750,  representing the difference between fair market
     value of the shares and the consideration paid to reacquire the shares, was
     charged as noncash compensation.

     In February and March 2000, the Company sold in a public offering 1,137,300
     shares of Series B Convertible  Redeemable preferred stock at $15 per share
     and  realized  net  proceeds of  approximately  $14,404,000.  Approximately
     $194,000 of the offering costs were incurred in 1999.  The preferred  stock
     can be  converted  into  common  stock at the rate of 3.4  shares of common
     stock  for each  share  of  preferred  stock.  Preferred  stockholders  are
     entitled to receive  cumulative  annual dividends of $.60 per share payable
     semiannually  either in cash or shares of the Company's common stock at the
     sole  discretion  of  the  Company.  Further,  preferred  stockholders  are
     entitled to receive a liquidation preference of $15 per share, plus accrued
     dividends.  The Company has the option to redeem the preferred  stock under
     certain circumstances.

     In connection with the offering,  the Company sold to the underwriter,  for
     nominal consideration,  warrants to purchase an aggregate of 100,000 shares
     of Series B Convertible  Redeemable  preferred  stock. The warrants will be
     exercisable  for a four-year  period  commencing one year after the date of
     the consummation of the offering at an exercise price of $24.75 per share.

     In 2000,  additional  dividends (noncash) related to beneficial  conversion
     feature of the preferred stock of approximately $5,856,000 were recorded as
     a result of the conversion price of the preferred stock being less than the
     market price of the common stock at the time of the offering.

     During  1999,  the Company  issued:  (a) 120,039  shares of common stock in
     connection with the  acquisitions of the businesses,  (b) 158,616 shares of
     common  stock  upon  exercise  of stock  options  (including  15,000  by an
     officer)  and  warrants,  and  (c)  98,462  shares  of  common  stock  upon
     conversion of outstanding  shares of Series A convertible  preferred stock.
     In addition,  the Company  issued 5,974 shares of common stock and warrants
     to purchase 25,000 shares of common stock at an exercise price of $8.50 for
     services rendered.

                                                                            F-17



                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

     In April 2000, the Company's  board of directors  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, 2000, the Company had
     acquired  378,326 shares of common stock  including  16,312 shares from the
     private placement investors for an aggregate consideration of approximately
     $596,000.

     During 2000, the Company issued:  (i) 1,834,300 shares of common stock upon
     conversion of 539,500 shares of Series B Convertible  Redeemable  preferred
     stock,  (ii) 11,594  shares of common stock for services  rendered and upon
     exercise of stock options,  (iii) 65,691 shares of common stock pursuant to
     repricing  rights,  (iv) 368,878 shares of common stock for  acquisition of
     businesses and (v) 400,000 shares of common stock to resolve certain issues
     of interpretation that arose out of redemption and repricing rights.

     At  December  31,  2000,  there were  warrants  outstanding  to purchase an
     aggregate of 2,878,475  shares of common stock at exercise  prices  ranging
     between $4.80 and $13.85 per share, expiring at various times through 2004.

10.  INCOME TAXES:


     At  December  31,  2000,  the tax  effects  of loss  carryforwards  and the
     valuation allowance that give rise to deferred tax assets are as follows:

          Net operating losses                              $ 5,270,000
          Less valuation allowance                           (5,270,000)
                                                            -----------
                Deferred tax assets                         $     - 0 -
                                                            ===========

     At December 31, 2000, the provision (benefit) for income taxes differs from
     the amount computed using the federal  statutory rate of 34% as a result of
     the following:

          Federal statutory rate                                 (34)%
          Increase in valuation allowance                         34
                                                               -------
                                                                 - 0 - %
                                                               =======

     The  Company  had  net  operating  loss   carryforwards   of  approximately
     $15,500,000  at December  31,  2000,  which expire  through  2020.  The tax
     benefit of these losses has been completely offset by a valuation allowance
     due to the uncertainty of its realization.

     Internal  Revenue Code Section 382 provides for  limitations  on the use of
     net operating  loss  carryforwards  in years  subsequent to a more than 50%
     changes 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.


                                                                            F-18




                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

11.  SUBSEQUENT EVENTS:

     During  January 2001,  the Company  announced the sale of a majority of its
     equity   interest   in   iShopNetworks,   Inc.   and  the  closure  of  its
     WoWFactor(TM)Web-portal.  The Company  also  announced  that it would cease
     funding its subsidiary, CLEC Communications Corp.


12.  MANAGEMENT'S PLANS:

     The Company has initiated a  restructuring  program  designed,  among other
     things, to reduce its operating losses.  The program requires  reduction of
     personnel,  reduction in marketing and promotional expenses,  consolidation
     of certain  operations and closure of regional offices.  Additionally,  the
     Company is in the  process of  obtaining  additional  financing  to improve
     working capital.


                                                                            F-19




Exhibit 21.1

Subsidiaries of Frontline Communications Corporation

                   Name                                    Jurisdiction

WOW Factor, Inc.                                             New Jersey

CLEC Communications Corporation                              Delaware

WebPrime, Inc.                                               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  Statements of Frontline  Communications
Corporation  on Forms  S-3  (#333-89811  and  #333-35058)  of our  report  dated
February  28,  2001,  on the  consolidated  financial  statements  of  Frontline
Communications  Corporation  as of December 31, 2000 and for the year then ended
appearing  in the  annual  report  on Form  10-KSB of  Frontline  Communications
Corporation for the year ended December 31, 2000.

/s/ GOLDSTEIN GOLUB AND KESSLER LLP

GOLDSTEIN GOLUB KESSLER LLP
New York, New York

March 30, 2001




Exhibit 23.2

              CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We hereby  consent  the  incorporation  by  reference  of the  previously  filed
Registration Statements on Forms S-3 (Nos. 333-35058 and 333-89811) of Frontline
Communications  Corporation and Subsidiaries (the "Company") of our report dated
February  25, 2000  relating to the  consolidated  financial  statements  of the
Company  appearing in the Annual Report of Form 10-KSB for the year December 31,
2000.

                                                       s/ BDO Seidman, LLP
                                                          BDO Seidman, LLP

New York, New York
March 29, 2001