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Annual report filed by small businesses

10KSB



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                       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, 1998

                                       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 000-24223

                      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)

                                 (914) 623-8553
                (Issuer's Telephone Number, Including Area Code)

    Securities registered pursuant to Section 12(b) of the Exchange Act: None

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

                          Common Stock, $.01 par value

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. Yes X No |_|

The issuer's revenues for the year ended December 31, 1998 were $574,964.

The aggregate  market value of the voting and  non-voting  common equity held by
non-affiliates as of March 15, 1999 was $28,031,317. As of March 15, 1999, there
were 3,229,844 shares of the issuer's Common Stock outstanding.

                      Documents Incorporated by Reference:

                                      None

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     PART I


Item 1.  Business.

General

     Frontline Communications Corporation (the "Company") is an Internet service
provider that offers  "Effortless  E-commerce and Internet Access" to individual
and business  subscribers  located in the Northeast  United States.  The Company
provides subscribers with direct access to a wide range of Internet applications
and resources,  including  electronic  mail,  web hosting and design,  dedicated
circuits,   E-commerce   solutions,   access   to  World   Wide  Web  sites  and
regional/local  information and data services. The Company believes that its low
subscriber to modem ratio, its technical and customer  support,  its broad range
of services and  efficiencies  gained  through its  Competitive  Local  Exchange
Carrier  ("CLEC")  status  will  enable it to  capitalize  on the  emerging  and
expanding markets for Internet services.

     According  to the  Company's  business  plan,  the  Company  plans  to grow
primarily by acquisition,  with a focus on acquiring  companies in the following
three areas: 1) Internet Service  Providers (ISPs) (to increase  subscriber base
and revenues); 2) companies which provide other Internet-related  services, such
as Web site design,  software development and  E-commerce-enabling  services (to
provide a broad range of  services  to its  customer  base);  and 3)  E-commerce
companies (to capitalize on the various  revenue-enhancing  opportunities in the
E-commerce arena).

     Since its initial  public  offering in May 1998,  the Company has  achieved
rapid growth in  accordance  with its business  plan.  As of March 2, 1999,  the
Company serviced approximately 15,000 subscribers, compared to 1,400 at December
1997.  This growth is primarily due to the fourth  quarter  acquisitions  of the
customer  bases of the  following  ISPs:  (a) Roxy Systems,  Inc.,  d/b/a/ Magic
Carpet, an ISP with approximately  1,000 subscribers in Orange County, New York,
(b) US Online,  Inc., an ISP with  approximately  3,500 subscribers in New York,
New Jersey and Pennsylvania,  and (c) Webspan Communications,  Inc., an ISP with
approximately 9,000 subscribers in New York and New Jersey. The Company retained
Webspan's  Technical  Support team,  which now serves as the Company's  in-house
technical  support center.  The Company  believes that the  establishment  of an
in-house  technical  support center will allow the Company to maintain the rigid
support levels required to retain customers in a competitive market.

     The  Company has also  acquired  an  E-commerce  company,  WOWFactor,  Inc.
("WOWFactor").  WOWFactor is a web-based  marketplace which provides  E-commerce
information  and services to women.  Over 1.2 million women business  owners are
currently  profiled in WOWFactor's  on-line  directory.  The Web site,  which is
scheduled  to  launch  in April  1999,  will  provide  comprehensive  E-commerce
solutions,  advanced  business  searches,  on-line  requests for  proposals  and
personal search services for women-owned businesses.

     In addition,  the Company  entered into a  non-binding  letter of intent to
acquire  Public  Affairs  Group (PAG),  the parent  Company of Business  Women's
Network  (BWN).  BWN owns a database  listing  over 2,300  women's  professional
associations and organizations representing over nine million women. The listing
is published annually in BWN's Business Women's Directory, and is also available
on-line.  If acquired,  BWN's database will augment WOWFactor's already existing
database.

     In order to support its rapid growth,  the Company has increased its number
of  employees  from 8  employees  at  December  1997  to the 46  people  that it
currently employs.  Through aggressive  recruiting,  the Company now has several
divisions,  including  technical,  operational,  sales and marketing,  legal and
financial.  The Company also has its own Customer Service Center, which operates
from 8 a.m. to midnight, seven days per week.

     The Company's  telecommunications  network is currently comprised of leased
high-speed  data  lines  and  eleven  points-of-presence  ("POPs")  which  allow
internet access throughout Rockland, Orange, Dutchess,  Sullivan, Putnam, Ulster
and  Westchester  counties  in New  York,  New  York  City  (including  the five
boroughs),  Long  Island,  most  counties  in New  Jersey  and the  Philadelphia
metropolitan  area.  These POPs permit  subscribers in these areas

                                      -2-




to access the Internet  through a local  telephone  call. The Company  currently
supports 14.4,  28.8 and 36.6 Kbps modems at each of its POPs and has X2 56K and
ISDN technologies at most of its POPs.

     In addition,  in December 1998, CLEC  Communications  Corp., a wholly owned
subsidiary  of the  Company,  was granted  Competitive  Local  Exchange  Carrier
("CLEC") status by the New York State Public Service Commission.  As a CLEC, the
Company's  subsidiary  may subscribe to and resell all forms of local  telephone
service in the State of New York.  The provision of services is contingent  upon
the  filing  of an  interconnection  agreement  with the local  Incumbent  Local
Exchange Carriers ("ILEC") which is planned for Second Quarter 1999. The Company
intends  to  build  its own  network  infrastructure,  which  it  believes  will
eliminate  its  current  reliance  upon the  infrastructures  of the ILECs.  The
Company believes that its CLEC status,  combined with the efficiencies  inherent
in operating its own network,  should result in lower  overhead costs and a more
predictable  infrastructure  - both of which  should inure to the benefit of the
Company's customers.  CLEC filings in additional states are planned for the near
future.

     The  Company  was  incorporated  under the laws of the State of Delaware in
February 1997. The Company's principal executive offices are located at One Blue
Hill Plaza,  Pearl  River,  New York 10965,  and its  telephone  number is (914)
623-8553.  The  Company's  home  page  is  located  on  the  World  Wide  Web at
www.fcc.net. The WOWFactor Web site is located at www.wowfactor.com.

Market Trends

     In recent  years,  the Internet  has  experienced  a rapid  increase in its
number of users.  According to IntelliQuest  Research,  it is estimated that the
number of adult  individuals  online in the United States is approximately  79.4
million,  with an additional  18.8 million people planning to go online in 1999.
Forrester  Research  estimated  that the total goods  traded over the web in the
U.S. in 1997 reached $9 billion.  In the year 2000,  Forrester expects the total
goods traded to increase to $160 billion,  and by year 2002,  $327 billion.  The
Company  believes  that the following  key trends will  contribute  favorably to
expected continued popularity of the Internet:

Increased E-commerce: Online Advertising and Online Shopping: Corporate spending
          on  on-line   advertising  and  sponsorships   continues  to  steadily
          increase,  as emerging  demographics of Web users have begun to mirror
          worldwide  demographics.  According to a report by Simba  Information,
          spending on on-line  advertising will reach $7.1 billion by 2002, as a
          significantly higher percentage of women and middle-income users visit
          the Internet.  Forrester  Research  documented  that in 1997,  fifteen
          percent of total revenue was derived from sales made online. Forrester
          expects  that by year 2000,  forty-two  percent of total  revenue will
          result from sales made online.

          Research from  CnetNews.com  documents that online buyers are spending
          more over time.  In 1998,  thirty-five  percent of online buyers spent
          more than $300 online.  This was an eleven percent increase from 1997.
          Further,  retailers such as  1-800-Flowers  and First Auction report a
          three hundred percent  increase in online sales versus the same period
          one year ago.

Increased Availability of  user-friendly  technology and support for E-commerce:
          Internet  use is promoted by the  development  of software  tools that
          simplify access to the Internet's applications and resources. As users
          become  more   comfortable   with  the   Internet   and  the  Internet
          increasingly  becomes a medium  for  business  transactions,  personal
          financial management,  entertainment and personal  communication,  the
          Company believes that demand by individuals for competitively  priced,
          direct,  high speed  access to  commerce-enabled  businesses,  updated
          information,  personal home pages,  interactive  multimedia  games and
          entertainment will continue to grow.

          Further,  there is an increased  availability  of tools to  facilitate
          e-commerce.   Digital  coupon  programs,   incentive  and  bonus  mile
          programs,  new  technology  such as "impulse  technology"  and digital
          payment  technologies  encourage  online  businesses  and consumers to
          transact business online.  Corporations and online  organizations such
          as TrustE have taken  initiatives,  such as posting privacy  policies,
          providing encryption technology, and firewalls to ensure consumers


                                      -3-



          and  businesses  that their  transactions  and  disclosed  information
          remain secure.

Continuing Penetration of  Computers  and  Modems  in the  Home:  An  increasing
          percentage  of  computer  owners  also  own  modems,   which  are  now
          pre-installed  in a growing  number  of new  computers.  According  to
          FIND/SVP's  1997  survey,  more than 42.7  million  households  in the
          United States own a personal  computer;  approximately 40 million also
          own a modem; and 36.5 million households use the Internet. The Company
          believes  that  this  growth  is  accompanied  by  increasing  use  of
          computers  for  communications  such  as  Internet  access,  facsimile
          transmissions and electronic mail.

Growth of  the  Informational, Entertainment and  Commercial Applications of the
          Internet:   Use  of  the   Internet  has  grown   rapidly   since  its
          commercialization  in the early 1990s. An increasing number of servers
          and Web sites are connected to the Internet,  making  available  text,
          graphics,  audio  and  video  information  which  may be  accessed  by
          consumers.   Through  an   Internet   connection,   users  can  access
          commercial,  educational  and  governmental  databases,  entertainment
          software, photographs and videos, newspapers,  magazines, library card
          catalogs, industry newsletters, weather updates and other information.
          Traditional and emerging Internet  applications,  including electronic
          mail, the World Wide Web and USENET news groups are also increasing in
          popularity.

     Management  believes that all of these factors  indicate that the Company's
growth potential is secure in this marketplace. The Company will develop a focus
on Internet access and e-commerce services for consumers both at home and in the
workplace, and for small businesses. The current marketplace supports the online
transactions of both consumers and small businesses.

     Market indicators are speculative and depend on independent  factors in the
marketplace and the economy that are beyond the Company's control. If any or all
of these indicators  prove to be inaccurate or inflated,  it may have a negative
affect on the growth or the revenues of the Company.

Company Strategy

     The Company's  strategy is to attempt to  aggressively  build a significant
customer  base  in the  Northeastern  United  States  as the ISP  for  small  to
medium-sized   businesses.   The  Company   intends  to  provide  its  customers
"Effortless  E-commerce  and  Internet  Access".  The  Company's  full  range of
Internet  access  services  include  dial  up  access,  web  hosting,  dedicated
connections and DSL service.  On the E-Commerce  front, the Company's goal is to
provide  the  small  to   medium-sized   business   owner  with   cost-effective
full-service  E-commerce  solutions  which are easy to implement  and  maintain.
Available E-commerce solutions will include commerce-enabled Web sites, document
security  services,  Internet  payment  services,  digital  coupons  and on-line
merchandising  technologies.  To properly  promote the  Company's  services  and
thereby  potentially  increase its subscriber base, the Company is expanding its
sales and marketing staff by seeking to recruit  top-notch staff and management.
In addition,  the Company is focusing its acquisition  efforts on companies with
forward-looking   sales  and  marketing,   high-quality   customer  service  and
top-quality network infrastructure.

     Management  recognizes  that the Company must  concentrate its resources on
developing  key segments of its business in order to  accomplish  its goal.  The
Company will seek to  concurrently  (i) develop its ISP business,  (ii) initiate
and  foster  its  E-commerce   business,   and  (iii)  expand  and  develop  its
capabilities and the services that it makes available to its customers.

     1.   Development of the ISP business

     The Company's core business is providing Internet service to individual and
small business subscribers. The Company offers a range of services starting at a
simple $19.95 per month basic package that includes  E-mail and Internet  access
to higher priced individualized service that may include Web hosting,  dedicated
circuits,  and Digital  Subscriber Lines ("DSL")  service.  The Company believes
that it is one of the first ISPs to offer DSL  service


                                      -4-



to its customers,  which allows the customer high-speed access the Internet over
"Pots" lines  (literally,  "Plain Old Telephone"  lines),  as opposed to digital
lines.

     Approximately  15,000 customers  subscribed to the Company's ISP service as
of March 2, 1999. The Company recognizes that the market for individual Internet
access is heavily influenced by personal  referrals.  Thus, the Company has made
generating  positive  referrals and stimulating  subscriber growth and retention
through  high-quality  customer  service a focus of its marketing  efforts.  The
Company also offers incentives to existing subscribers and Value-Added Resellers
("VARs") who refer its service to new  customers.  A subscriber who refers a new
dial-up  customer to the Company will receive one free month of service for each
referral,  subject to the new subscriber remaining active for a minimum of sixty
days.  In addition to  encouraging  referrals  from  existing  subscribers,  the
Company has  initiated a program in which VARs receive a  commission  based on a
percentage of the value of any service  contract that they refer to the Company.
The Company also will seek to expand this core subscriber base by acquiring ISPs
with large numbers of monthly subscribers, particularly ISPs with a large number
of small business subscribers.

     The Company  believes that the revenues  derived from the ISP business will
allow the  Company  to embark on  potentially  profitable  E-commerce  endeavors
without many of the  financial  risks  inherent to  companies  without a similar
revenue base.

     2.   E-commerce Business Launch

     A study by  Jupiter  Communications  has  found  that  35% of the  Internet
population  has  made  an  on-line  purchase  in the  last  year.  According  to
eMarketer's  eCommerce:  Retail Shopping Report,  on-line retail revenues should
increase  784% over the next four years,  from $4.5 billion by year-end  1998 to
$35.3 billion by 2002.  This estimate  would make  E-commerce one of the fastest
growing segments of the Internet  industry.  The Company is seeking to grow with
this segment of the industry both through its  acquisition of companies that are
strong in the industry and also by building  strength  from within the company's
existing network structure.

     On October 9, 1998, the Company  acquired  WOWFactor,  a company engaged in
the  business  of  promoting   E-commerce   through  its  Web  site  devoted  to
professional  women and  women-owned  businesses.  The Company's  entry into the
E-commerce  arena will coincide  with the launch of the WOWFactor  site in April
1999. WOWFactor anticipates three primary sources of revenue. First, the site is
being  designed  to  provide   corporate   sponsors  the  opportunity  to  reach
WOWFactor's site visitors via corporate sponsorship programs.  Second, WOWFactor
plans to derive revenue from various forms of  advertising,  such as banner ads,
posting  links to  affiliate  partners  and shared  revenue from ads provided by
content  partners.  Third,  WOWFactor  expects to derive fees by  providing  web
hosting and E-commerce enabling services to other sites.

     WOWFactor will be offering free of charge to its  customers,  for a limited
time,  a unique  service  that  allows the user to request a  personal,  limited
search of the  businesses  profiled in the WOWFactor  directory.  WOWFactor will
respond  with  listings  from its  database.  WOWFactor  will also offer users a
unique  "Business  Reply  Card"  service  that  allows  users to submit  "Online
Requests for  Proposals"  by  completing a template on the site.  Both  services
promote  WOWFactor's  overriding goal - bringing buyers and sellers  together on
the Internet.

     3.   Expansion and development of capabilities and services

     The Internet Access and E-commerce business is rapidly developing,  and the
Company recognizes that if it does not continue to keep apace, or even ahead of,
the advances in the industry,  it will fall behind the competition.  The Company
is continually looking for new and inventive ways that it can offer better, more
complete, more efficient and less expensive service to its customers.

     Specifically,   the  Company  has  decided  to  consolidate  its  POPs  for
operational  efficiency  by creating  one  "SuperPOP"  in each of New York,  New
Jersey and Pennsylvania.  POPs permit subscribers to access the Internet through
a local telephone call. By  consolidating  its POP's, the Company hopes to lower
its monthly overhead by 

                                      -5-




taking advantage of economies of scale.

     In  addition,  the  Company,  through  its  wholly-owned  subsidiary,  CLEC
Communications  Corp.,  has been granted CLEC status in New York. As a CLEC, the
Company is  authorized  to  subscribe  and  resell all forms of local  telephone
service in the State of New York (the  provision of services is contingent  upon
filing an  Interconnection  Agreement with the local ILEC,  which is planned for
the Second  Quarter  1999).  The Company also has plans to build its own network
infrastructure,  which it believes will eliminate its current  reliance upon the
infrastructures  of the ILECs.  The Company  believes  that its CLEC status will
enable  it to  directly  provide  certain  services  to its  customers  which it
currently  provides  indirectly  through  partnerships  and contracts with third
parties.  For example, the Company currently offers DSL service to its customers
through a  partnership  with another DSL provider.  Upon a successful  CLEC roll
out, the Company  believes  that it will have the capacity to offer DSL directly
to its customers.  Rapid changes in the industry and in governmental regulations
controlling the industry make it difficult,  however,  to predict the advantages
of the Company's maintenance of its CLEC status.


                                      -6-




     The Company's  strategy and future marketing plans are subject to change as
a result of a number of factors,  including  progress or delays in the Company's
expansion  efforts,  changes  in  market  conditions,  the  nature  of  possible
acquisitions  which may become  available to it in the future and  technological
and competitive factors. There can be no assurance that the Company will be able
to   successfully   implement  its  business  plan  or  otherwise   continue  to
successfully expand its operations.

Internet Services

     The Company  provides a variety of  competitively  priced  Internet  access
services.  The  Company's  primary  focus is on  individuals  who connect to the
Internet via a modem (referred to as "dial-up"  accounts).  Dial-up  subscribers
can access the Internet by calling the Company's  local POPs.  The Company bills
its  subscribers  in  advance  on a  monthly  or  quarterly  basis.  Subscribers
typically pay their balance through pre-authorized credit card accounts.

     Dial-Up Accounts:  The Company  believes that dial-up  accounts  present an
          attractive  opportunity  for growth.  A user can  quickly  activate an
          account with the Company,  obtain two Internet E-mail  addresses,  Web
          space and  establish  automatic  billing  to the user's  credit  card.
          Subscriber  accounts  are priced from  $19.95 per month for  unlimited
          connections, $48 per month for an unlimited ISDN use account and $6.95
          per month for  limited  use  customers.  There is no  connection  fee.
          Connections  for ISDN services  require the customer to obtain an ISDN
          line from the local telephone company.  The Company's network supports
          connectivity software which utilizes standard communication  protocols
          such as TCP/IP,  which enable a user's  computer to  communicate  with
          other  computers  over the Internet.  As of March 2, 1999, the Company
          had approximately 15,000 individual and business accounts.

     Dedicated  Access:  The Company  also offers  high  speed,  high  bandwidth
          dedicated  leased lines  principally  for business users who desire to
          connect internal  computer  networks to the Internet,  24 hours a day,
          seven days a week.  The Company offers leased line accounts to provide
          Internet  services to  businesses  at various  speeds,  including  56K
          circuits,  fractional  T-1  and  full  T-1  lines,  depending  on  the
          customer's  needs.  The Company  provides its customers with dedicated
          leased  lines  and bills  subscribers  on a  monthly  basis  through a
          consolidated bill (which includes the phone company's charges).

     Web  Design and Hosting Services:  Without incurring the expense of setting
          up and maintaining a Web server,  including in-house technical support
          to design and maintain a Web site,  a  subscriber  can rent space on a
          server for an Internet  presence.  The Company offers Web site hosting
          services  for a 24-hour  interactive  presence  on the  Internet.  The
          Company's Web servers connect  directly to the Internet via high speed
          T-1 lines providing  maximum  bandwidth.  This service includes domain
          name  registration,   24-hour  access,  file  upload  and/or  download
          capability,  and  statistical  logs.  The Company also offers Web page
          design and  development  services and will seek to expand the scope of
          such services in the future.

     Co-Location Space: The Company provides a physical location at its facility
          for a customer  to  install  equipment  and  connect  directly  to the
          Internet.  This  service  provides  customers  with a low cost  direct
          connection to the Company's router.  The Company provides this service
          under maintenance  agreements with pricing determined by the amount of
          space occupied and bandwidth needed.

Subscriber Applications

     The  Company  provides  its  subscribers  with  access to the full range of
available Internet applications, including:


                                      -7-




     Electronic  Mail:  E-mail is an Internet  application  by which an Internet
          user can  exchange  messages  with any  other  user who has an  E-mail
          address.  These messages may be text or other kinds of computer files,
          such  as  images,  computer  programs  or word  processing  documents.
          Messages can be sent almost  instantly to  designated  individuals  or
          groups on a mailing list.

     World Wide Web: The  World  Wide Web is a  browsing  and  searching  system
          comprised of thousands of computer servers, referred to as home pages,
          each linked by a special communications  protocol.  This open protocol
          allows Internet users to view and access text, graphics, digital video
          and audio  resident  on a home page or to connect  instantaneously  to
          related and linked information on the same server or other home pages.
          Since the  Internet is an open  system,  any company can create a home
          page on the World Wide Web in order to provide  users with  product or
          service  information.  Users can then solicit more information and, in
          some cases,  make  purchases  electronically.  Software  programs that
          allow a user  to  explore  the  World  Wide  Web  are  referred  to as
          "browsers".  Browsers such as Netscape, Mosaic and Microsoft Explorer,
          which  incorporates  its own  World  Wide  Web  browser,  have  helped
          contribute  to the rapid  growth of the World  Wide Web.  The  Company
          expects  the  World  Wide  Web to  continue  to grow  rapidly  as more
          businesses   and   consumers   become  aware  of  the   advantages  of
          communications  on the Internet.  As part of its service,  the Company
          provides  each  subscriber  with  one  megabyte  of Web  space  on the
          Company's World Wide Web servers.

     USENET News Groups:  USENET is a network of thousands of computers attached
          to the Internet that provide forums, or news groups,  that allow users
          to  exchange  information  on a variety of topics of shared  interest.
          Internet  users can seek or  provide  information  on  diverse  topics
          ranging  from  sports  or  other  hobbies,  to job  opportunities,  to
          restaurant and travel suggestions.

     Databases  and  Public  Domain  Software:  An  increasing  number  of  host
          computers are being  connected to the Internet,  which make  available
          growing  amounts of text,  graphics,  audio and video  information and
          public domain software.  For example,  with an Internet connection,  a
          user can access  commercial,  educational  and  government  databases,
          newspapers,  magazines,  library card catalogs,  industry newsletters,
          weather updates, and other information.

     File Transfer Protocol:  The Internet can be easily used to move electronic
          files (including data, programs or text) from one computer to another.
          This  can be very  useful  for  parties  in  separate  locations  that
          collaborate on data files.  Data transferred over the Internet remains
          in digital  format and does not need to be  reentered  by a  receiving
          party; it can be manipulated and then re-transmitted to other Internet
          users.

Network Infrastructure

     Geographic Coverage:  As of December 31, 1998, the Company offered Internet
access service through Frontline POPs located in 4 states.

     The  Company's  Network:  Users  located  within local dialing range of the
Company's POPs connect to the POP through  telephone lines provided by the local
telephone company. Each of the Company's POPs generally connect to the Company's
NYC hub, or directly to the Internet,  via a leased data communication line. The
equipment located in the remote POPs consists primarily of a router and terminal
servers.

     In order to continue to build its base of individual  dial-up  subscribers,
the Company intends to continue to evaluate the need to expand existing POPs, to
open new POPs,  and to place  servers in remote  locations  to optimize  network
traffic.  The  number and  location  of  additional  POPs that the  Company  may
actually open depend on such factors as  subscriber  demand,  relative  costs of
telecommunications  facilities,  competitive considerations,  and other factors,
including the ability to provide service through other CLECs.


                                      -8-




     The Company's  network hub is currently  connected to the Internet  through
leased data  communications  lines from Internet  backbone  providers that carry
data traffic for  Frontline and other  subscribers  and deliver it either to its
end destination (if that destination is connected directly to their networks) or
to the  Internet  gateway  points  where the  traffic  is  routed  onward to its
ultimate  destination.  As the  Company  grows,  it will  need to  increase  the
bandwidth  of its  connection  to the  rest of the  Internet.  This  may be done
through  increasing the bandwidth of the Company's  connections  through current
providers, by adding new connections through other providers, or by establishing
leased line connections directly to the Internet gateway points.

     The Company  maintains a Network  Management  Center at its Pearl River, NY
headquarters  through  which the  Company's  technical  staff  monitors  network
traffic, service quality, and security, as well as equipment at individual POPs,
to ensure reliable Internet access.  The Network  Management Center is monitored
24 hours a day, 7 days a week. In addition,  the Company is continuing to invest
in improved network monitoring software and hardware systems.

     The  Company  is  subject  to  risk  from  a  natural   disaster  or  other
unanticipated  events at these  sites,  and any  damage or failure  that  causes
interruptions  in the Company's  operations could have a material adverse effect
on the Company.  The Company currently maintains $1,000,000 of general liability
insurance,  which  includes  coverage  for  business  interruption  and property
damage.

Internet Access Providers and Suppliers

     The Company  currently  relies on a limited  number of suppliers to provide
Internet  access via leased  telecommunications  lines on a  cost-effective  and
continuous  basis.  The Company has not entered into an  interconnect  agreement
with  such  supplier.  Although  the  Company  believes  that it  currently  has
sufficient access to telecommunications networks on favorable terms and believes
that its relationship with such supplier is satisfactory,  any increase in rates
charged  by such  supplier  would  materially  adversely  affect  the  Company's
operating  margins.  Failure to obtain  continuing access to such networks would
also have a material adverse effect on the Company, including possibly requiring
the Company to significantly curtail or cease its operations.

     The Company  also is  dependent on  third-party  manufacturers  of hardware
components.  Certain  components used by the Company in providing its networking
services are acquired from only one source,  including high performance  routers
manufactured  by Cisco Systems,  Inc. and remote access servers  manufactured by
3Com  (formerly  U.S.  Robotics,  Inc). In addition,  in March 1999, the Company
issued  purchase  orders  to  purchase  communications  equipment  from a  major
telecommunications  equipment  manufacturer  sufficient to build its own network
infrastructure.  The  transaction is subject to the  negotiation of a definitive
agreement.  Although the Company  believes  that network  equipment is currently
available from numerous  sources,  failure by  manufacturers  to deliver quality
products on a timely basis or the  inability to develop  alternative  sources if
and as required,  could result in delays which could materially adversely affect
the Company's business and limit the Company's ability to expand its operations.

Marketing and Sales

     Although  the Company  continues to provide  Internet  service to a growing
number of  individual  subscribers,  its primary  focus has shifted to providing
Internet  service to small  businesses in the  northeastern  United States.  The
Company currently obtains new subscribers by (i) responding to inbound calls and
E-mails which are largely  generated from  referrals from existing  subscribers,
and (ii)  acquisitions  of other ISPs.  The Company is continuing  its marketing
programs  that target  retention  and  referrals  that are  associated  with its
current base of dial-up customers.


                                      -9-




     In addition, the Company is transitioning it's marketing position to be the
ISP for small businesses. The branding of "frontline.net - Effortless E-commerce
& Internet  Access" is  underway.  This slogan is intended  to  communicate  the
Company's unique focus to potential small business customers.

     The primary  methods  planned for  targeting new small  business  customers
include   direct   response   marketing   programs   such  as  radio,   outbound
telemarketing, online marketing, and broadcast fax. Affinity marketing programs,
such as those with affiliates such as on-line book and record sellers, will also
be  employed.  In a highly  competitive  industry  such as this one, the Company
believes that name recognition is essential.  The Company's  marketing personnel
are actively  working to achieve this name  recognition  by  "branding"  through
radio,  trade  and local  business  print  media  advertising  and  local  event
marketing.  The Company believes that branding also aids in the development of a
quality VAR and affiliate channel.

     The Company  currently has in-house sales staff  consisting of an Executive
Vice  President of Marketing and Sales,  a Director of Business  Development,  a
Sales Manager, and inbound sales representatives. The Company plans to outsource
outbound telemarketing in the second quarter of 1999.

     The  Company's  investment in WOWFactor is an initial step in the Company's
efforts to reach small businesses.  WOWFactor,  with its focus on women business
owners  nationally,  is  believed  to be a potent  distribution  channel for the
Company's  services.  The Company  believes  that  marketing,  development,  and
infrastructure  are providing  substantial  economic leverage to both companies.
The Company  further  believes  that the  efficiencies  are  measurable  and are
providing differentiation and cost advantages.

Customer Support

     The  Company  believes  that  providing  prompt  and  effective   technical
assistance  to its  subscribers  and customers is essential for retention of its
customers,  cost  containment  and  quality  improvement  efforts.  The  Company
provides  network  monitoring and emergency  subscriber  assistance  services 24
hours a day,  seven days a week.  Regular  support and  technical  assistance is
available  16 hours per day, 7 days per week.  The  Company  plans to  implement
24-hour technical  support during 1999. In house technical  personnel respond to
telephone  and E-mail  inquiries.  All customer  service is handled  in-house in
order  to  maintain  the  support  levels  required  to  retain  customers  in a
competitive  market.  There can be no  assurance,  however,  that the  Company's
customer  support  resources  will be  sufficient to manage any expansion in the
Company's  subscriber  base. Any failure to adequately  match  customer  support
resources  to projected  increases in  subscribers  could  adversely  affect the
Company.

Competition

     The market for Internet access services is highly competitive. There are no
substantial  barriers to entry,  and the Company expects that  competition  will
intensify  in the  future.  The  Company  believes  that its  ability to compete
successfully is  significantly  affected by numerous  factors,  including price,
ease of use, reliability, customer support, geographic coverage and industry and
general economic trends (particularly  unfavorable economic conditions adversely
affecting consumer  discretionary  spending).  The Company's competitors include
many  large  companies  that have  substantially  greater  market  presence  and
financial,  technical, marketing and other resources than the Company, including
(i) international,  national and regional commercial Internet service providers,
such as  Performance  Systems  International,  Inc.;  (ii)  established  on-line
services companies that currently offer Internet access, such as America Online,
Inc.; (iii) computer hardware and software and other technology companies,  such
as IBM and Microsoft Corp.; (iv) national long distance  carriers,  such as AT&T;
Corp.,  MCI  Communications  Corp.  and Sprint  Corp.;  (v)  regional  telephone
companies; and (vi) cable operators, such as TeleCommunications, Inc.

     The Company also  competes with smaller ISPs in the  northeastern  regional
area that also focus on providing Internet access to individual  subscribers and
smaller  businesses.  These smaller ISPs are competing for the same market share
as the  Company.  Such  companies  include  SimLab  Network,  SageNetworks,  RCN
Network,  and Verio Network.  The Company believes that it has an advantage over
these competitors in that it is aggressively


                                      -10-



working  to expand  by  offering  new and  innovative  programs  such as the VAR
program and an E-commerce Program. The Company believes that, with the exception
of  Verio  Network,  none  of the  above  competitors  offer  both a VAR  and an
E-commerce Program.

     New  competitors,  including large computer  hardware and software,  media,
cable  and  telecommunications  companies,  have  increased  their  focus on the
Internet access market,  resulting in even greater  competition for the Company.
Increased  competition  has resulted and could continue to result in significant
price competition,  which in turn could result in significant  reductions in the
average  selling  price  of  the  Company's  services.  In  addition,  increased
competition  for new  subscribers  could result in increased sales and marketing
expenses  and related  subscriber  acquisition  costs,  which  could  materially
adversely  affect  the  Company's  potential  profitability.  There  can  be  no
assurance  that the  Company  will be able to  offset  the  effects  of any such
competition or resulting price  reductions  through an increase in the number of
its  subscribers,  higher revenue from enhanced  services or cost  reductions or
that the Company  will have the  financial  resources,  technical  expertise  or
marketing and support capabilities to compete successfully.

     The  market  for  Internet  access is  characterized  by  rapidly  changing
technology,  evolving industry standards,  emerging competition and frequent new
software and service  introductions.  There can be no assurance that the Company
can  successfully  identify new product and service  opportunities as they arise
and develop and bring new products and services to market in a timely  manner or
that software,  services or technologies developed by others will not render the
Company's services or technologies noncompetitive,  obsolete or less marketable.
The Company currently does not have any proprietary applications software.

     The Company's  entree into the E-commerce  market through its launch of the
WOWFactor  site  exposes  it to a whole  new  array  of  competitive  companies.
WOWFactor  will be entering a market that is also  targeted by iVillage,  Oxygen
Media, womencentral.com, womenowned.com, women.com and herspace.com.

Employees

     As of March 1, 1999,  the  Company  had 40  employees  in addition to its 6
executive officers. Of such employees, 20 are engaged in customer support, 4 are
engaged in sales and marketing,  1 in business development,  5 in accounting and
finance,  1 in legal and 9 in  administration.  The  Company  engages  part-time
employees from time to time. None of the Company's employees is represented by a
union. The Company considers its employee relations to be good.


I
tem 2. Properties

     The Company's executive offices are located in Pearl River, New York, where
the Company leases approximately 5,525 square feet under a lease that expires in
June 2002.  The annual  rental  ranges from  approximately  $100,000 to $110,000
through the lease term. The Company also leases space (typically,  less than 100
square feet) in various  geographic  locations  to house the  telecommunications
equipment  for  each of its  POPs.  Leased  facilities  for  POPs  have  various
expiration  dates  through  May  2002.  Aggregate  annual  rentals  for POPs are
approximately $17,000.


Item 3. Legal Proceedings

     The Company is not a party to any legal proceedings.


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

     None.


                                      -11-




     PART II



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

     Market  Information.  The Common  Stock has traded since May 5, 1998 on the
NASDAQ  SmallCap market under the symbol "FCCN." The following table sets forth,
for the  periods  indicated,  the range of the high and low bid  prices  for the
Common Stock as reported by NASDAQ. Such prices reflect inter-dealer quotations,
without  retail  mark-up,  mark-down  or  commission  and  may  not  necessarily
represent actual transactions.

                                                        High            Low
                                                        ----            ---
Fiscal Year Ended December 31, 1998

Second Quarter
(commencing May 15, 1998)............................   5.25            4.25

Third Quarter........................................   8.125           2.125

Fourth Quarter.......................................   8.2188          2.375

Fiscal Year Ended December 31, 1999

First Quarter
(through March 15, 1999).............................   13.625          5.625

     On March 15, 1999,  the last sale price for the Common Stock as reported by
NASDAQ  was $11.75 per  share.  The  number of record  holders of the  Company's
Common Stock was  approximately  54 as of March 15, 1999.  The Company  believes
that there are in excess of 400 beneficial owners of its Common Stock.

     Dividend  Policy.  To date,  the Company has not  declared or paid any cash
dividends on its Common Stock.  The payment of dividends,  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.  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 in the foreseeable future.

     Recent  Sales of  Unregistered  Securities.  In October  1998,  the Company
issued 10 shares of Series A Preferred Stock to shareholders of WOWFactor,  Inc.
The Series A Preferred  Stock is convertible  into $1,000,000 in Common Stock of
the Company in July 1999, subject to a maximum of 250,000 shares of Common Stock
and a minimum of 20,000.  In December 1998, the Company issued 113,364 shares of
its Common Stock to the  stockholder  of Webspan,  Inc. The foregoing  issuances
were made in reliance on Section 4(2) of the  Securities  Act of 1933.  In March
1999, the Company sold 158,856  shares of its Common Stock to two  institutional
investors  in  reliance  on  Regulation  D of the  Securities  Act of 1933.  See

Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations, below.

     Use of Proceeds.  In May 1998,  the Company  consummated  an initial public
offering of 1,840,000 shares of Common Stock and warrants to purchase  1,840,000
shares of Common Stock  (including  240,000 shares and 240,000  warrants  issued
pursuant to the exercise of an over-allotment  option) and received net proceeds
of  approximately  $5,800,000,  after  payment  of  underwriting  discounts  and
commissions,  fees and  offering  expenses.  Since May 19, 1998 (the date of the
closing of the initial public  offering)  through December 31, 1998, the Company
used  approximately  $1,482,000 of the net proceeds for acquisitions and related
expenses,  $264,118 for a stock  repurchase  described  below;  $443,000 for the
repayment  of  indebtedness  (including  $185,848 to  affiliates);  $366,000 for
network and POP upgrades; and approximately $212,000 for marketing expenses.


                                      -12-





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  herein  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  Exchange  Act.  These  "forward
looking  statements" are subject to risks and  uncertainties,  including but not
limited to, risks  associated  with the  Company's  future  growth and operating
results,  the ability of the Company to  successfully  integrate  newly acquired
subscribers,  business  entities and personnel into its  operations,  changes in
consumer  preferences  and  demographics,   technological  change,   competitive
factors, unfavorable general economic conditions, Year 2000 compliance and other
factors  described  herein.  The  Company  assumes no  obligation  to update the
forward looking  information to reflect actual results or changes in the factors
affecting   such  forward   looking   information.   Actual   results  may  vary
significantly from such forward looking statements.

Overview

     The Company was  organized in February 1997 as successor to the business of
Hobbes & Co., LLC,  INET  Communications  Company,  LLC and Sara Girl & Co., LLC
(collectively,   the  "Predecessor  Companies"),   limited  liability  companies
organized in May and August 1995 and July 1996 to own and operate  POPs.  In May
1997, the Company effected a reorganization (the  "Reorganization")  pursuant to
which the Predecessor Companies (i) transferred all of their assets,  subject to
all of their  liabilities,  to the Company,  (ii) principal  stockholders of the
Company,  exchanged their respective interests in the Predecessor  Companies for
promissory notes in the aggregate principal amount of $372,137 and (iii) each of
the Predecessor Companies dissolved.  The Company's financial statements include
the accounts of the Company and the Predecessor Companies.

     The Company's revenues are derived primarily from providing Internet access
services  to  individual  and  business  subscribers.   Revenues  are  comprised
principally   of  recurring   revenues   from  the  Company's   customer   base,
non-recurring  start-up  fees for X2 56K and leased  line  connections  and from
various ancillary  services.  The Company charges  subscription  fees, which are
billed monthly or quarterly,  in advance,  typically  pursuant to pre-authorized
credit card  accounts,  or  automatic  bank  transfers.  The Company has not yet
generated any revenues from CLEC or E-commerce activities.

     Monthly subscription service revenue is recognized over the period in which
services are provided.  Service revenues derived from dedicated access services,
which  require  the  installation  and use of Company  provided  equipment  at a
subscriber's  location,  are  recognized  when the  service  is  commenced.  Fee
revenues for ancillary services are recognized as services are performed.

     The Company's operating results may be significantly affected by subscriber
attrition  rates.  Subscribers  may  discontinue  service without penalty at any
time,  and there can be no  assurance  that the  Company  will not be subject to
significant subscriber attrition.

     Acceleration  in the growth of the Company's  subscriber base or changes in
usage patterns among subscribers may increase  operating costs.  Acceleration in
the growth of the subscriber  base could require the Company to hire  additional
personnel and increase the  Company's  expenses  related to  marketing,  network
infrastructure and customer support sooner than anticipated. An increase in peak
time usage or an overall increase in usage by subscribers could adversely affect
the Company's  ability to consistently  meet the demand for its access services.
As a result,  the  Company  may be required  to hire  additional  personnel  and
increase  expenses  related  to network  infrastructure  capacity  with  minimal
corresponding increases in revenue on a per subscriber basis.


                                      -13-



Acquisitions

     The  Company  has  expanded  its  operations  through  internal  growth and
acquisitions, which has placed and may continue to place a significant strain on
its  management,  personnel,  administrative,  operational,  financial and other
resources.  To successfully  manage its growth,  the Company will be required to
continue to implement and improve its information and operating  systems,  hire,
train and manage an  increasing  number of  management  and other  personnel and
monitor its operations.  There can be no assurance that the Company will be able
to successfully manage its expanded operations.

WOWFactor, Inc.

     On October 9, 1998, the Company  acquired all of the issued and outstanding
capital  stock of  WOWFactor,  Inc.  ("WOWFactor"),  a  company  engaged  in the
business of promoting  e-commerce  through its Web sites  primarily  for women's
businesses.  The Company issued to the  stockholders  of WOWFactor ten shares of
newly created  Series A Preferred  Stock,  which is convertible on July 15, 1999
into  Common  Stock  with a market  value of  $1,000,000,  subject  to a maximum
issuance of 250,000 shares of Common Stock. In addition,  to the extent that the
Company's  Common  Stock  has a market  value on July 15,  1999 of (i) less than
$3.00 per share or (ii)  greater  than  $3.00 per share but less than  $4.00 per
share,  the Company  agreed to issue to the  WOWFactor  stockholders  options to
purchase  up to an  aggregate  of  100,000  or 50,000  shares  of Common  Stock,
respectively.

Roxy Systems, Inc. d/b/a Magic Carpet

     On October 9, 1998, the Company  acquired  substantially  all of the assets
used in the business of Roxy Systems,  Inc. d/b/a Magic Carpet in  consideration
of $75,000 in cash and the assumption of  approximately  $61,000 of liabilities.
At the time of the  acquisition,  Magic Carpet was an Internet  service provider
with approximately 1,000 subscribers in Orange County, New York.

US Online, Inc.

     On October 23, 1998, the Company acquired assets used in the business of US
Online,  Inc. ("US Online"),  including a POP the Philadelphia area, and assumed
two of US Online's  executory  contracts for  consideration  of $570,000 in cash
paid upon closing. At the time of the acquisition,  US Online was engaged in the
business of providing  Internet  access,  Web hosting and leased  communications
lines  to  approximately   3,500   subscribers  in  New  York,  New  Jersey  and
Pennsylvania.

Webspan, Inc.

     On December 17, 1998, the Company acquired  substantially all of the assets
used  in  the  business  of  Webspan   Communications,   Inc.   ("Webspan")   in
consideration  of $500,000 in cash and an aggregate of 113,364  shares of Common
Stock. At the time of the acquisition,  Webspan was an Internet service provider
with approximately 9,000 subscribers in New York and New Jersey.

     The acquisitions  resulted in the Company  recording  intangible  assets of
approximately  $3,215,000 at December 31, 1998 which are being  amortized over a
period of three years. See Note 4 to Notes to Consolidated Financial Statements.

Results of Operations

     Comparison of the Years ended December 31, 1998 and 1997

Revenues:  Revenues for the year ended December 31, 1998 were $574,964  compared
to $321,706 for the year ended December 31, 1997. The increase was  attributable
to an expanded  subscriber base. The Company had approximately  15,000 and 1,400
subscribers  at  December  31,  1998 and 1997,  respectively.  The  increase  in


                                      -14-




subscriber base was principally due to acquisitions.

Cost of Revenues:  Cost of revenues for 1998 were $651,378 compared to $ 251,298
for 1997.  Cost of revenues  as a  percentage  of  revenues  for 1998 was 113.3%
compared to 78.1 for 1997. The increase in cost of revenues was due to increased
communication, depreciation and technical personnel expenses incurred to support
the increased  subscriber base and in anticipation of future subscriber  growth.
The Company  expects  these costs to increase in absolute  dollars as additional
subscribers are added.

Operating  Expenses:  Operating expenses were $1,744,029  compared to $2,077,883
for 1998 and 1997,  respectively.  Operating expenses for 1998 and 1997 included
non-cash  compensation  charges  of  $175,137  and  $  1,537,000,  respectively.
Excluding the non-cash charges,  operating  expenses increased by $ 1,028,009 in
1998 compared to 1997. This increase in operating  expenses was  attributable to
higher  advertising,  payroll,  professional  fees and rent expenses incurred in
1998 to support the increased revenue base and in anticipation of future growth.
Management  anticipates  future  increases  in  operating  expenses  related  to
advertising, rent payroll, depreciation and professional fees.

Interest  Income:  Interest income net of interest  expense for 1998 was $73,344
compared to net interest  expense of $28,421for  1997.  The increase in interest
income was due to  investment of  unutilized  proceeds of the Company's  initial
public offering.

Net Loss: The Company has incurred  significant  losses and anticipates  that it
will continue to incur losses until sufficient  revenues are generated to offset
the  substantial  up-front  expenditures  and operating  costs  associated  with
attracting and retaining  additional  subscribers.  For the years ended December
31,  1998 and  1997,  the  Company  incurred  net  losses  of  $1,744,099  and $
2,037,417, respectively. There can be no assurance that the Company will be able
to attract  and  retain a  sufficient  number of  subscribers  to  significantly
increase its revenues or ever achieve profitable operations.

Liquidity and Capital Resources

     In May 1997, the Company  consummated a private placement pursuant to which
it issued 200,000 shares of Common Stock and received proceeds of $400,000.

     In December 1997, the Company  consummated a private placement  pursuant to
which it issued  (i)  $150,000  principal  amount of  promissory  notes and (ii)
warrants  to purchase  300,000  shares of Common  Stock at an exercise  price of
$5.00 per share. The notes were repaid in May 1998.

     In May of 1998,  the Company  completed an initial  public  offering of its
securities and received net proceeds of approximately  $5.8 million.  Out of the
proceeds $443,000 was used for repayment of indebtedness  (including $185,848 to
affiliates), and $264,113 was used to repurchase 231,520 shares of the Company's
Common  Stock.  The  Company  completed  four  acquisitions  in  1998  and  used
approximately  $1,482,000 for the cash portion of the purchase price and related
expenses.  The remaining  proceeds,  after meeting the Company's working capital
and capital  expenditure  requirements,  are currently held in  interest-bearing
bank accounts.

     The Company's working capital at December 31, 1998 was $1,245,536  compared
to a working  capital  deficit of $423,369 at December 31, 1997. The increase in
working  capital  was due to receipt of the  proceeds of the  Company's  initial
public offering.

     In March 1999,  the Company sold 158,856  shares of its Common Stock to two
investors for an aggregate  purchase price of $2,000,000.  The Company agreed to
include  the shares (as well as the shares  underlying  the  warrants  described
below) in a  registration  statement  filed  with the  Securities  and  Exchange
Commission  by May


                                      -15-




26, 1999 and granted  repricing rights with respect to the shares,  subject to a
maximum  issuance of 450,000  shares.  The Company may, at any time prior to the
effectiveness  of  registration,  redeem the Common Stock issued in its entirety
for a premium.  The Company  also issued  warrants to purchase an  aggregate  of
21,662  shares of common  stock at an exercise  price of $13.849 per share.  The
warrants are exercisable on or before March 25, 2002.

     The Company's  primary  capital  requirements  are to fund  acquisition  of
subscriber bases and related  Internet  businesses,  establish  additional POPs,
install  network  equipment,  lease  space for  consolidated  POPs,  and working
capital.  To date, the Company has financed its capital  requirements  primarily
through issuance of debt and equity  securities.  The Company currently does not
have any lines of credit.  The availability of capital sources is dependent upon
prevailing  market  conditions,  interest rates, and financial  condition of the
Company.

     The Company's  capital  expenditures for 1999 are expected to range between
$300,000 to $400,000.  In addition,  the Company has issued  purchase  orders to
purchase  communications  equipment and  professional  services in the aggregate
amount of $2,000,000 from a major telecommunications equipment manufacturer. The
manufacturer  would  provide  the  necessary  financing  through  a  lease.  The
transaction  is  subject  to  the  negotiation  and  execution  of a  definitive
agreement.  The Company believes that its available cash resources  supplemented
by potential lease financing for the equipment will be sufficient to support the
working capital expenditure requirements through at least the end of 1999.

Year 2000

     The Company is aware of the issues  associated with the programming code in
existing computer systems as the year 2000 approaches. The "Year 2000"problem is
concerned with whether computer  systems will properly  recognize date sensitive
information  when  the  year  changes  to  2000.  Systems  that do not  properly
recognize  such  information  could  generate  wrong data or fail. The Year 2000
problem  is  pervasive  and  complex,  as  virtually  every  company's  computer
operations will potentially be affected in some way.

     The  Company is  currently  engaged in a phased  process  to  evaluate  its
internal  status  with  respect  to the Year 2000  issue.  In the  first  phase,
completed in the fourth  quarter of 1998,  Frontline  conducted an assessment of
its  systems  including  both IT systems  and non-IT  systems  such as  hardware
containing embedded technology, for Year 2000 compliance. The network systems of
the Company's  operating  regions are  substantially  similar in technology.  If
issues  are  uncovered  and  resolved  during the  assessment  of the east coast
operating  region,  such resolutions will be directly applied to other operating
regions.

     The Company utilized  certain  employees in its evaluation of possible Year
2000 problems.  The costs and expenses of such employees have not been material.
To date,  the Company has not  discovered  Year 2000 issues in the course of its
assessment that would have a material adverse effect on its business, results of
operations or financial  condition;  however, the Company cannot assure that all
Year 2000  issues  were  discovered  during the  assessment  or that it will not
discover additional Year 2000 issues that could have such an effect.

     Phase  two of  the  Company's  phased  process,  which  is  expected  to be
completed  during the second  quarter of 1999,  will  involve  taking any needed
corrective  action to bring systems into compliance and to develop a contingency
plan in the event any non-compliant  critical systems remain by January 1, 2000.
The  continued  consolidation  of  the  Company's  operations,  provisioning  of
national operation systems,  and standard maintenance updates is critical to the
successful completion of the Company's Year 2000 plan. As part of phase two, the
Company will attempt to quantify the impact,  if any, of the failure to complete
any necessary corrective action.  Although the Company cannot currently estimate
the magnitude of such impact,  if systems  material to its  operations  have not
been made Year 2000 compliant upon completion of this phase, the Year 2000 issue
could materially adversely affect the Company.

     To date,  the  costs  incurred  with  respect  to  phase  two have not been
material. Future costs are difficult to estimate;  however, the Company does not
currently anticipate that such costs will be material. Concurrently with


                                      -16-




the analysis of the Company's internal systems,  the Company has begun to survey
third-party  entities  with  which it  transacts  business,  including  critical
vendors and financial  institutions,  for Year 2000 compliance.  With respect to
the most critical vendors,  the Company is in the process of evaluating the Year
2000 preparedness of its telecommunications  providers,  on which the Company is
reliant  for  the  network   services   crucial  to  Web  hosting  and  Internet
connectivity services. The Company is actively working to mitigate any potential
impact by  maintaining  diverse  providers for such network  services.  However,
failure of any one provider may have a material  adverse impact on the Company's
operations.  The Company expects to complete this survey in the Third quarter of
1999.  At this  time the  Company  cannot  estimate  the  effect,  if any,  that
non-compliant  systems  at these  entities  could have on the  Company,  and the
Company cannot assure that the impact, if any, will not be material.

Effect of Recent Accounting Pronouncements

     In June 1998, the Financial  Accounting Standards Board issued Statement of
Financial Accounting  Standards No. 133, "Accounting for Derivative  Instruments
and Hedging Activities." ("SFAS No. 133"), which requires companies to recognize
all  derivatives  as either assets or  liabilities in the statement of financial
position and measure those  instruments at fair value. SFAS No. 133 is effective
for fiscal years  beginning  after June 15, 1999. The Company does not presently
enter into any  transactions  involving  derivative  financial  instruments and,
accordingly,  does not  anticipate  the new standard will have any effect on its
financial statements.


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.

     None.



                                      -17-





     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:
1



Name                          Age     Position
- ----                          ---     --------
                                
Stephen J. Cole-Hatchard      41      Chairman of the Board, Chief Executive Officer and
                                      President

Nicko Feinberg                27      Chief Information Officer, Executive Vice President of
                                      Technology and Director

Michael Olbermann             42      Chief Operating Officer, Executive Vice President and
                                      Director

Vasan Thatham                 41      Chief Financial Officer and Vice President

Amy Wagner-Mele               30      Executive Vice President, Secretary and General Counsel

Ronald C. Signore             38      Director

Ronald Shapss                 52      Director

Margaret McGillin             37      Executive Vice President of Sales and Marketing



     Stephen J.  Cole-Hatchard  has been Chairman,  Chief Executive  Officer and
President of the Company since August 1997. Mr. Cole-Hatchard was Vice President
of Finance  of the  Company  from  February  1997 to August  1997 and has been a
director of the Company since February 1997.  Prior to joining the Company,  Mr.
Cole-Hatchard  was Chief Financial  Officer for Hudson  Technologies,  Inc. from
1993 to 1997. A 1989 cum laude graduate of Pace Law School, Mr. Cole-Hatchard is
a member of the bar of the State of New York.

     Nicko  Feinberg has been a director and Vice President of Technology of the
Company  since  November 1996 and 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 and training.

     Michael Olbermann has been Chief Operating Officer since September 1997 and
a director of the Company  since  February  1997.  Mr.  Olbermann  was also Vice
President of Business  Development  from February 1997 until September 1997. Mr.
Olbermann has owned and operated Rock House  Construction  Co.,  Inc., a company
engaged in commercial and residential construction, since 1986.

     Vasan Thatham has been Vice  President and Chief  Financial  Officer of the
Company since February,  1999.  Prior to joining the Company,  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. From
1987 to 1993, Mr. Thatham was comptroller and ultimately Chief Financial Officer
of Strings Ltd., a specialty  retail chain.  From 1978 to 1987, Mr. Thatham held
various  positions  with Ernst & Young in Kuwait and KMPG Peat Marwick in India.
Mr. Thatham is a chartered accountant under the laws of India.

     Amy Wagner-Mele has been Vice President, Secretary and Corporate Counsel of
the Company since


                                      -18-




September 1998, and was recently  promoted to Executive Vice President,  General
Counsel. Prior to joining the Company, Ms. Wagner-Mele was an associate with the
New York office of Winston & Strawn, an international Corporate/litigation firm,
where she litigated securities actions, contract disputes and appellate matters.
From 1993 to 1997, Ms. Wagner-Mele was an associate with Podvey,  Sachs, Meanor,
Catenacci, Hildner & Cocoziello, P.C. in Newark, New Jersey, where she handled a
variety of  corporate  litigation  matters,  from  filing  through  appeal.  Ms.
Wagner-Mele received her juris doctor from the New York University School of Law
in  1993.  She  received  her  bachelor's  degree,  magna  cum  laude,  from the
University  of Delaware in 1990.  She is admitted to the New York and New Jersey
bars.

     Ronald C. Signore has been a director of the Company since  December  1997.
Mr. Signore, a Certified Public Accountant  licensed in New York and New Jersey,
has been a partner in the  accounting  firm of Robert Gray & Co.,  LLP, for more
than the past five years.

     Ronald Shapss has been a director of the Company since  December  1997. Mr.
Shapss is the founder of Ronald  Shapss  Corporate  Services,  Inc.,  ("RSCS") a
company  engaged in  consolidating  fragmented  industries  since 1992. RSCS was
instrumental in facilitating the roll-up of several companies into such entities
as U.S. Delivery,  Inc., Consolidated Delivery & Logistics,  Inc. and Corestaff,
Inc. Mr.  Shapss was also the founder of Coach USA, Inc. and is presently on the
advisory  boards of Consolidated  Partners  Founding Fund,  L.L.C.,  and 1+ USA,
Inc.,  which founded  Advanced  Communications  Group,  Inc. (ADG), a CLEC which
trades on the New York Stock  Exchange.  A 1970 graduate of Brooklyn Law School,
Mr. Shapss is a member of the New York bar.

     Margaret  McGillin has been Vice  President  of Marketing  and Sales of the
Company since October 1998 and was recently promoted to Executive Vice President
of Marketing and Sales. She is also President of WOWFactor.  Ms. McGillin earned
her MBA from The Leonard N. Stern School of Business at New York  University and
a bachelor's  degree from  Northeastern  University  with degrees in  marketing,
finance and international business.  During her 15 year career, Ms. McGillin has
served as Account  Director for Modem Media, and as District Product Manager for
AT &T;,  before  founding  WOWFactor,  Inc.  in 1995.  Ms.  McGillin is an active
lecturer and panelist on issues  concerning  women in marketing and  technology.
Her  memberships  include:  Women  in  New  Media,  Women,  Inc.,  The  National
Association  of Female  Executives,  The National  Association of Women Business
Owners, George Dean's 50/50 by 2000, and the New York New Media Association.

     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.  The Company has  established an Audit Committee of the
Board of Directors consisting of Messrs. Signore and Shapss.

Compliance with Section 16(a) of the Exchange Act

     Section  16(a) of the Exchange Act requires  our  officers,  directors  and
persons who own more than 10% of a registered class of our equity securities, to
file  reports of  ownership  and changes in ownership  with the  Securities  and
Exchange Commission.  Officers,  directors and greater than 10% shareholders are
required by Securities  and Exchange  Commission  regulations to furnish us with
copies of all forms that they files pursuant to Section 16(a).

     Based  solely upon our review of the copies of such forms that we received,
we  believe  that,   during  the  year  ended  December  31,  1998,  all  filing
requirements  applicable  to our  officers,  directors,  and  greater  than  10%
shareholders were complied with.


                                      -19-





Item 10.  Executive Compensation.

Executive Compensation

     The following table sets forth the compensation paid to the Company's Chief
Executive Officer (the "Named Executive") for the fiscal year ended December 31,
1998. No other executive officer of the Company received aggregate  compensation
which exceeded $100,000 during such year.


Summary Compensation Table




                                                                                                   Long-Term
                                                        Annual Compensation                  Compensation Awards($)
                                               -----------------------------------          -----------------------
Name and Principal Position      Year          Salary($)   Bonus($)   Other Annual          Restricted   Securities
                                                                      Compensation          Stock Award  Underlying
                                                                                                         Options/
                                                                                                         SARs(#)

                                                                                                   
Stephen J. Cole-Hatchard,        1998          $34,846                                                   79,000
Chief Executive Officer                        =======                                                   =====




     The following table discloses  options granted during the fiscal year ended
December 31, 1998 to the Named Executive:




                                  OPTION/SAR GRANTS IN FISCAL YEAR ENDING DECEMBER 31, 1998

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

                                                                                     
Stephen J. Cole          79,000                     18.54%                  2.50              10/08/03
Hatchard                 ======





                                      -20-



     The following table sets forth information concerning the number of options
owned by the  Named  Executive  and the  value of any  in-the-money  unexercised
options  as of  December  31,  1998.  No  options  were  exercised  by the Named
Executive during fiscal 1998:




                                          Aggregated Option Exercises
                                       And Fiscal Year-End Option Values
                       ---------------------------------------------------------------------

                       Number of Securities Underlying     Value of Unexercised In-the-Money
                           Unexercised Options at               Options at December 31,
                              December 31, 1998                         1998(1)
                       -------------------------------     ---------------------------------
Name                   Exercisable       Unexercisable     Exercisable        Unexercisable

                                                                        
Stephen J. Cole-          79,000              -0-            $333,301               -0-
- -Hatchard





- ----------
(1)  Year-end values for unexercised in-the-money options represent the positive
     spread  between the exercise  price of such options and the fiscal year end
     market value of our common stock. An option is "in-the-money" if the fiscal
     year end fair market value of our common stock exceeds the option  exercise
     price.  The closing sale price of our common stock on December 31, 1998 was
     $6.719.


Employment Agreements

     The Company has entered into three-year  employment agreements with each of
Messrs.  Feinberg,  Cole-Hatchard and Olbermann which provide for an annual base
compensation of not less than $88,000, $45,000, and $88,000,  respectively,  and
such bonuses as the Board of Directors may, in its sole discretion, from time to
time determine.  The Company also entered into a three-year employment agreement
with  Margaret M.  McGillin  pursuant to which Ms.  McGillin  agreed to serve as
Executive  Vice  President  of Sales of the  Company at a salary of $82,000  per
annum,  for year  one,  and not less  than  $98,000  per  annum for year two and
thereafter. The Company also entered into a three-year 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  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 the
current or anticipated business of the Company during the term of the employment
agreement and for a period of two years thereafter.

Director Compensation

     The Company  does not  currently  pay its employee  directors  any fees for
attending Board meetings.  The Company pays  non-employee  directors  $3,000 per
annum for attending Board Meetings.

     In December 1997, the Company entered into a consulting  agreement with Mr.
Shapss  which  provides  for Mr.  Shapss to assist the Company  with mergers and
acquisitions.  In  consideration  of such  services,  the Company  issued to Mr.
Shapss  100,000 shares of Common Stock and non-plan  options to purchase  80,000
shares of Common


                                      -21-




Stock at an exercise price of $2.00 per share. The Company also agreed to pay to
Mr. Shapss $2,000 per month through May 1999.

1997 Stock Option Plan

     In February  1997, the Board of Directors and  stockholders  of the Company
adopted the 1997 Stock  Option  Plan (the  "Plan"),  pursuant  to which  500,000
shares of Common Stock are reserved for issuance upon  exercise of options.  The
Plan is designed to serve as an incentive for retaining  qualified and competent
employees, directors and consultants.

     The Company's Board of Directors,  or a committee thereof,  administers the
Plan and is authorized,  in its discretion,  to grant options  thereunder to all
eligible employees of the Company,  including officers and directors (whether or
not employees) of, and  consultants  to, the Company.  The 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  the Plan on such  terms  and at such  prices as
determined by the Board of Directors,  or a committee  thereof,  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 of the Company  possessing  more
than 10% of the  total  combined  voting  power of all  classes  of stock  ("10%
stockholder"),  the per share  exercise price will not be less than 110% of such
fair market value.  The aggregate  fair market value  (determined on the date of
grant) of the shares covered by incentive  stock options  granted under the 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 the Plan will be  exercisable  during the period or
periods specified in each option  agreement.  Options granted under the Plan are
not  exercisable  after the expiration of ten years from the date of grant (five
years in the case of incentive stock options granted to a 10%  stockholder)  and
are  not  transferable  other  than  by  will  or by the  laws  of  descent  and
distribution.

     As of December  31,  1998,  the Company has granted  options to purchase an
aggregate of 583,000 shares of Common Stock (net of forfeitures)  under the Plan
at an  exercise  price  ranging  from  $2.00 to $5.18 per  share;  83,000 of the
options are subject to shareholder approval prior to issuance.



                                      -22-




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

     The following  table sets forth certain  information,  as of March 15, 1999
relating  to the  beneficial  ownership  of shares of Common  Stock by: (i) each
person or entity who is known by the Company to own beneficially five percent or
more of the outstanding Common Stock; (ii) each of the Company's directors;  and
(iii) all directors and executive officers of the Company as a group.




                   Name of                         Number of Shares      Percentage of Shares
              Beneficial Owner                  Beneficially Owned (1)    Beneficially Owned
- -----------------------------------------       ----------------------   --------------------
                                                                           
Nicko Feinberg                                          296,000(2)               9.1%
Stephen J. Cole-Hatchard                                296,000(3)               8.9%
Michael Olbermann                                       228,000(2)               7.0%
Ronald Shapss                                           200,000                  6.2%
Ronald Signore                                           67,400(4)               2.0%
All directors and executive officers as a             1,122,400(5)              32.0%
group (eight persons)




(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 40,000 shares of Common Stock.

(3)  Includes   144,000  shares  held  by  the   Cole-Hatchard   Family  Limited
     Partnership,  of which Mr. Cole-Hatchard is the general partner, and optins
     to purchase  99,000 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 (i) warrants to purchase 39,200 shares of Common Stock held by The
     Rough Group, of which Mr. Signore is a general  partner,  (ii) 3,200 shares
     of Common  Stock  held by The Rough  Group and (iii)  options  to  purchase
     25,000 shares of Common Stock held by Mr.  Signore.  Mr. Signore  disclaims
     beneficial ownership of other securities held by The Rough Group.

(5)  Includes options and warrants to purchase 278,200 shares of Common Stock.




                                      -23-





Item 12.  Certain Relationships and Related Transactions.

     In May 1997, the Company effected the  Reorganization  pursuant to which it
issued  promissory  notes in the  amounts of  $141,800,  $66,800  and  $163,537,
respectively,  to Messrs. Nicko Feinberg and Stephen J. Cole-Hatchard,  officers
and  directors  of the  Company,  and Mr.  Michael  Char,  a former  officer and
director of the Company.  Included in such indebtedness was $21,737 and $35,000,
respectively,  of advances made to the Company by Messrs. Char and Cole-Hatchard
to  establish  additional  POPs.  The  promissory  notes were  issued to Messrs.
Feinberg,  Char and  Cole-Hatchard in partial  consideration of their efforts in
founding the Predecessor Companies.

     In August 1997, the Company borrowed $60,000 from Mr. Cole-Hatchard bearing
interest at the rate of 9.25%,  per annum.  The Company  repaid  $30,000 of such
indebtedness  in December 1997. The balance was repaid in May 1998,  directly to
Mr. Cole-Hatchard's lender, Provident Savings Bank.

     In March 1998,  the Company  entered into a settlement  agreement  with Mr.
Char pursuant to which Mr. Char  discontinued a lawsuit and released the Company
from all claims  (including for monies owed) in consideration of (i) an up-front
payment of $65,000  and (ii) a payment of  $435,000  in May 1998 to (a)  satisfy
$240,000 of existing  obligations  due to Mr. Char  (including  $15,000 of legal
fees) and (b) repurchase 231,520 shares from Mr. Char.

     In May 1998, the Company repaid $20,000 of  indebtedness to each of Messrs.
Cole-Hatchard  and  Feinberg.  The balance of the  indebtedness  owed to Messrs.
Cole-Hatchard  and Feinberg of $46,800 and $121,800,  respectively  (aggregating
$168,600)  bears interest at the rate of 8% per annum.

     Mr.  Cole-Hatchard's  mother and brother  purchased 12,000 shares and 8,000
shares,  respectively,  at $2.00 per share,  pursuant to the  Company's  private
placement  in May 1997.  The Rough  Group,  a general  partnership  of which Mr.
Signore,  a director of the  Company,  is a general  partner,  purchased  16,000
shares pursuant to the Company's private placement in May 1997. In addition, Mr.
Cole-Hatchard's  mother  and The Rough  Group  purchased  $40,000  and  $85,000,
respectively,  principal  amount of promissory  notes  pursuant to the Company's
December 1997 private  placement,  and received  warrants to purchase 64,000 and
196,000 shares, respectively, at an exercise price of $5.00 per share. The notes
were repaid in May 1998.

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

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

     The Company believes that the foregoing  transactions were on terms no less
favorable  than  those that could have been  obtained  from  unaffiliated  third
parties.  All future transactions between the Company and its affiliates will be
on terms no less  favorable  than  would be  obtained  from  unaffiliated  third
parties.


                                      -24-





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

(a)  Exhibits

     3.1   Certificate of Incorporation of the Company.+

     3.2   By-Laws of the Company.+

     4.1   Certificate of Designation of Series A Preferred Stock.++

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

     10.2  Employment Agreement with Ms. Margaret McGillin.++

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

     10.4  Form of Registration Rights Agreement among the Company and the
              WOWFactor stockholders.++

     10.5  Asset Purchase Agreement dated as of October 9, 1998 by and between
              the Company and Roxy Systems, Inc. d/b/a Magic Carpet.++

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

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

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

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

     10.10 1997 Stock Option Plan of the Company.+

     10.11 Stock Purchase Agreement dated March 25, 1999, with Exhibit A

     10.12 Registration Rights Agreement dated March 25, 1999, with Exhibit A

     23.1  Subsidiaries

     27.1  Financial Data Schedule (SEC use only).

- ----------
     +    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.


                                      -25-




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


(b)  Reports on Form 8-K filed during the quarter ended December 31, 1998:

     Form 8-K dated October 9, 1998 (as amended on Form 8-K/A dated December 23,
     1998) relating to the acquisition of WowFactor and Magic Carpet.

     Form 8-K dated  October 23, 1998 (as amended on Form 8-K/A dated January 6,
     1999) relating to acquisition of US Online, Inc.

     Form 8-K dated  December  17, 1998 (as amended on Form 8-K/A dated March 2,
     1999) relating to acquisition of Webspan Communications, Inc.


                                      -26-




                                            Frontline Communications Corporation



                                                                        Contents

================================================================================

    Report of independent certified public accountants                      F-2

    Consolidated financial statements:
       Balance sheet                                                        F-3
       Statements of operations                                             F-4
       Statements of stockholders' equity (deficit)                         F-5
       Statements of cash flows                                             F-6
       Notes to consolidated financial statements                     F-7 - F-21



                                                                             F-1





Report of Independent Certified Public Accountants



To the Board of Directors of
   Frontline Communications Corporation

We have  audited  the  accompanying  consolidated  balance  sheet  of  Frontline
Communications  Corporation  (the  "Company")  as of December 31, 1998,  and the
related  consolidated  statements of operations,  stockholders' equity (deficit)
and cash flows for the years ended December 31, 1997 and 1998.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial  position of the Company as of
December 31, 1998,  and the results of its operations and its cash flows for the
years ended December 31, 1997 and 1998, in conformity  with  generally  accepted
accounting principles.


BDO Seidman, LLP


New York, New York

March 12, 1999, except for Note 13 which is as of March 26, 1999.


                                                                             F-2




                                            Frontline Communications Corporation



                                                      Consolidated Balance Sheet

================================================================================





 December 31, 1998
- ------------------------------------------------------------------------------------------------------------
                                                                                                      
Assets
Current:
   Cash and cash equivalents                                                                     $ 1,994,711
   Accounts receivable, less allowances for doubtful accounts of $5,526                                3,327
   Notes receivable from stockholders (Note 3)                                                       143,800
   Prepaid expenses and other                                                                         58,281
- ------------------------------------------------------------------------------------------------------------
           Total current assets                                                                    2,200,119
Property and equipment, net (Note 5)                                                                 981,785
Intangibles, net (Note 4)                                                                          3,081,326
Other                                                                                                 23,173
- ------------------------------------------------------------------------------------------------------------
                                                                                                 $ 6,286,403
============================================================================================================
Liabilities and Stockholders' Equity
Current liabilities:
   Accounts payable                                                                              $   163,805
   Accrued expenses                                                                                  137,357
   Deferred revenue                                                                                  614,852
   Current portion of capitalized lease obligations (Note 7)                                          38,569
- ------------------------------------------------------------------------------------------------------------
        Total current liabilities                                                                    954,583
Notes payable to stockholders (Note 6)                                                               168,600
Capitalized lease obligations - net of current portion (Note 7)                                      115,833
- ------------------------------------------------------------------------------------------------------------
        Total liabilities                                                                          1,239,016
- ------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 8, 9 and 12)
Stockholders' equity (Notes 1, 2, 9, 10 and 12):
   Preferred stock, $.01 par value, 1,000,000 shares authorized,
      10 issued and outstanding                                                                           --
   Common stock, $.01 par value, 10,000,000 shares authorized,
      3,361,364 issued                                                                                33,614
   Additional paid-in capital                                                                      9,121,533
   Accumulated deficit                                                                            (3,843,647)
- ------------------------------------------------------------------------------------------------------------
                                                                                                   5,311,500
   Treasury stock, at cost, 231,520 shares                                                          (264,113)
- ------------------------------------------------------------------------------------------------------------
        Total stockholders' equity                                                                 5,047,387
- ------------------------------------------------------------------------------------------------------------
                                                                                                 $ 6,286,403
============================================================================================================



                    See accompanying notes to consolidated financial statements.


                                                                             F-3




                                            Frontline Communications Corporation



                                           Consolidated Statements of Operations

================================================================================
 Year ended December 31,                                 1997           1998
- --------------------------------------------------------------------------------
Revenues                                             $   321,706    $   574,964
Cost of revenues                                         251,928        651,378
- --------------------------------------------------------------------------------
           Gross profit (loss)                            69,778        (76,414)
Operating expenses:
   Selling, general and administrative                   540,883      1,744,029
   Non-cash special compensation charge (Note 1)       1,537,000             --
- --------------------------------------------------------------------------------
           Loss from operations                       (2,008,105)    (1,820,443)
Other income (expense):
   Interest income                                            --        108,194
   Interest expense                                      (28,421)       (31,850)
   Other                                                    (891)            --
- --------------------------------------------------------------------------------
Net loss                                             $(2,037,417)   $(1,744,099)
================================================================================
Loss per share - basic and diluted                   $     (1.67)   $      (.72)
================================================================================
Weighted average number of shares outstanding -
   basic and diluted                                   1,218,000      2,435,035
================================================================================

                    See accompanying notes to consolidated financial statements.

                                                                             F-4




                                            Frontline Communications Corporation



                       Consolidated Statements of Stockholders' Equity (Deficit)




====================================================================================================================================


Years ended December  31, 1997 and 1998
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                    
                                       Preferred stock               Common stock          Additional                     Stock     
                                  --------------------------   --------------------------   paid-in      Accumulated   subscriptions
                                    Shares        Amount         Shares        Amount       capital        deficit      receivable  
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                            
Balance, December 31, 1996                --       $--                 --       $     --    $    6,000   $   (62,131)    $    --    
Frontline reorganization                                                                                                            
   (Note 2)                               --        --            640,000          6,400      (325,000)           --          --    
Shares issued as compensation                                                                                                       
   (Note 9)                               --        --            100,000          1,000       199,000            --          --    
Shares issued as compensation                                                                                                       
   (Note 1)                               --        --            820,000          8,200     1,230,000            --      (6,000)   
Officer salary contributed to                                                                                                       
   capital                                --        --                 --             --         3,000            --          --    
Private placement  sale of                                                                                                          
   shares at $2 per share                 --        --            200,000          2,000       398,000            --          --    
Common stock options issued for                                                                                                     
   services (Note 9)                      --        --                 --             --       108,000            --          --    
Warrants issue to debtholders                                                                                                       
   (Note 6)                               --        --                 --             --        24,000            --          --    
Recapitalization (4-for-5                                                                                                           
   reverse split)(Note 10)                --        --           (352,000)        (3,520)        3,520            --          --    
Net loss                                  --        --                 --             --            --    (2,037,417)         --    
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997                                      1,408,000         14,080     1,646,520    (2,099,548)     (6,000)   
Payment of stock subscription             --        --                 --             --            --            --       6,000    
Initial public offering of                                                                                                          
   common stock, net (Note 1)             --        --          1,840,000         18,400     5,792,005            --          --    
Purchase of treasury stock, at                                                                                                      
   cost (231,520 shares)                                                                                                            
   (Note 12)                              --        --                 --             --            --            --          --    
Common stock options issued for                                                                                                     
   services (Note 9)                      --        --                 --             --       175,137            --          --    
Preferred shares issued for                                                                                                         
   acquisition of subsidiary                                                                                                        
   (Note 4)                               10        --                 --             --     1,000,000            --          --    
Shares issued to acquire                                                                                                            
   business (Note 4)                      --        --            113,364          1,134       507,871            --          --    
Net loss                                  --        --                 --             --            --    (1,744,099)         --    
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998                10       $--          3,361,364        $33,614    $9,121,533   $(3,843,647)    $    --    
====================================================================================================================================


- --------------------------------------------------------------
                                                    Total
                                     Treasury    stockholders'
                                    stock, at       equity    
                                       cost        (deficit)  
- --------------------------------------------------------------
Balance, December 31, 1996           $     --    $   (56,131)
Frontline reorganization                                       
   (Note 2)                                --       (318,600)
Shares issued as compensation                                   
   (Note 9)                                --        200,000
Shares issued as compensation                                  
   (Note 1)                                --      1,232,200
Officer salary contributed to                                  
   capital                                 --          3,000
Private placement  sale of                                     
   shares at $2 per share                  --        400,000
Common stock options issued for                                
   services (Note 9)                       --        108,000
Warrants issue to debtholders                                  
   (Note 6)                                --         24,000
Recapitalization (4-for-5                                      
   reverse split) (Note 10)                --             --
Net loss                                   --     (2,037,417)
- --------------------------------------------------------------
Balance, December 31, 1997                 --       (444,948)
Payment of stock subscription              --          6,000
Initial public offering of                                     
   common stock, net (Note 1)              --      5,810,405
Purchase of treasury stock, at                                 
   cost (231,520 shares)                                       
   (Note 12)                         (264,113)      (264,113)
Common stock options issued for                                
   services (Note 9)                       --        175,137
Preferred shares issued for                                    
   acquisition of subsidiary                                   
   (Note 4)                                --      1,000,000
Shares issued to acquire                                       
   business (Note 4)                       --        509,005
Net loss                                   --     (1,744,099)
- --------------------------------------------------------------
Balance, December 31, 1998          $(264,113)   $ 5,047,387
==============================================================



F-5

          See accompanying notes to consolidated financial statements.





                                            Frontline Communications Corporation


                                           Consolidated Statements of Cash Flows

================================================================================




Year ended December 31,                                                       1997          1998
- ----------------------------------------------------------------------------------------------------
                                                                                            
Cash flows from operating activities:
   Net loss                                                               $(2,037,417)   $(1,744,099)
   Adjustments to reconcile net loss to net cash used in operating
      activities:
        Depreciation and amortization                                          44,558        220,575
        Officer salary contributed to capital                                   3,000             --
        Noncash compensation charge                                         1,537,000        175,137
        Allowance for doubtful accounts                                        16,666        (11,140)
        Accounts receivable write-off                                           8,605             --
        Changes in assets and liabilities, net of effects from
           acquisitions in 1998:
              Accounts receivable                                             (35,169)        25,561
              Notes receivable from stockholders                                   --       (143,800)
              Prepaid expenses and other                                       (5,479)       (49,754)
              Other assets                                                    (16,354)        (5,206)
              Accounts payable and accrued expenses                           300,816        (58,012)
              Interest due on stockholders loans                               19,452             --
              Deferred revenue                                                 24,385         46,467
- ----------------------------------------------------------------------------------------------------
                Net cash used in operating activities                        (139,937)    (1,544,271)
- ----------------------------------------------------------------------------------------------------
Cash flows from investing activities:
   Acquisition of property and equipment                                     (176,304)      (423,297)
   Acquisition of businesses                                                       --     (1,481,820)
- ----------------------------------------------------------------------------------------------------
                Net cash used in investing activities                        (176,304)    (1,905,117)
- ----------------------------------------------------------------------------------------------------
Cash flows from financing activities:
   Repayments of stockholder loans                                            (45,266)      (378,989)
   Proceeds from stockholder loans, net                                       230,000             --
   Proceeds from sale of common stock                                         400,000          6,000
   Proceeds from initial public offering of common stock                           --      6,041,476
   Registration costs                                                        (231,071)            --
   Payments to acquire treasury stock                                              --       (264,113)
- ----------------------------------------------------------------------------------------------------
                Net cash provided by financing activities                     353,663      5,404,374
- ----------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents                                      37,422      1,954,986
Cash and cash equivalents, beginning of year                                    2,303         39,725
- ----------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year                                    $    39,725    $ 1,994,711
====================================================================================================
Supplemental disclosure of cash flow information:
   Cash paid for interest                                                 $    10,451    $    31,000
Noncash investing and financing activities:
   Common stock issued for reduction of stockholder loans                       9,600             --
   Notes payable to stockholders issued as distributions                      325,000             --

   Capital lease obligations incurred                                              --        207,725
   Preferred shares issued to acquire subsidiaries                                 --      1,000,000
   Common stock issued to acquire business                                         --        509,005
====================================================================================================



                    See accompanying notes to consolidated financial statements.

                                                                             F-6





                                            Frontline Communications Corporation



                                      Notes to Consolidated Financial Statements

================================================================================

1.   Summary of        Business
     Significant
     Accounting        Frontline Communications  Corporation ("Frontline" or the
     Policies          "Company")   is  an   internet   service   provider   and
                       Competitive  Local Exchange  Carrier ("CLEC") that offers
                       E-commerce and internet access to individual and business
                       subscribers located in the Northeast United States.

                       Frontline  consummated an initial public offering ("IPO")
                       during  May 1998 and raised net  proceeds  of  $5,810,405
                       (see Note 10).

                       Reorganization and Principles of Combination

                       The  consolidated   financial   statements   include  the
                       accounts   of  Hobbes  &  Co.,   LLC   ("Hobbes"),   INET
                       Communications  Company,  LLC  ("INET")  and Sarah Girl &
                       Co., LLC ("Sarah Girl"),  (collectively  the "Predecessor
                       Companies") and Frontline Communications  Corporation. As
                       described  more  fully  in  Note  2,  on  May  30,  1997,
                       Frontline  acquired  the net  assets  of the  Predecessor
                       Companies.   For   accounting   purposes,   the  business
                       consolidation  has been  accounted for as if the acquirer
                       was Hobbes. With respect to the  acquisition of INET, the
                       acquisition has been accounted for as a consolidation  of
                       entities  under common  control in a manner  similar to a
                       pooling  of  interests  and  reflects  the   consolidated
                       financial  position,  operating results and cash flows of
                       Hobbes and INET as if they had been  consolidated for all
                       periods  presented.   With  respect  to  Sarah  Girl  and
                       Frontline,  the business consolidation has been accounted
                       for using  purchase  accounting,  which  resulted  in the
                       recording of a special non-cash charge of $1,230,000. The
                       non-cash  charge  represents  the  estimated  fair market
                       value of the  Company's  820,000  shares of common  stock
                       issued to certain founding  shareholders in February 1997
                       for current and future services.  An additional  non-cash
                       charge  was  taken  for the  value of  services  on stock
                       issued to a  director.  The  Predecessor  Companies  were
                       dissolved and Frontline is the  continuing  legal entity.
                       All  intercompany  accounts  and  transactions  have been
                       eliminated.


                                                                             F-7





                                            Frontline Communications Corporation



                                      Notes to Consolidated Financial Statements

================================================================================

                       Principles of Consolidation

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

                       Property, Equipment and Depreciation

                       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                         3-5
                       Furniture and fixtures                                  5
                       Leasehold improvements                         Lease term
                       =========================================================

                       Intangible Assets

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

                       Revenue Recognition

                       Monthly  subscription  service revenue is recognized over
                       the  period  in  which  services  are  provided.  Service
                       revenues derived from dedicated  access  services,  which
                       require  the  installation  and use of  Company  provided
                       equipment at subscriber's  location,  are recognized when
                       the service is  commenced.  Fee  revenues  for  ancillary
                       services  are   recognized  as  services  are  performed.
                       Deferred  revenue,  represents  pre-paid  access  fees by
                       subscriber.

                       Long-Lived Assets

                       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. No write downs were necessary for the
                       years ended December 31, 1997 and 1998.



                                                                             F-8





                                            Frontline Communications Corporation



                                      Notes to Consolidated Financial Statements

================================================================================

                       Income Taxes

                       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.

                       Use of Estimates

                       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  revenues  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  relate to the  Company's  industry  which are
                       subject to rapid  technological  change. It is reasonably
                       possible  that  changes  may  occur in the near term that
                       would affect  Managements'  estimates with respect to the
                       carrying  values of plant and equipment,  intangibles and
                       customer bases.

                       Credit Risk

                       Financial   instruments  which  potentially  subject  the
                       Company  to   concentrations   of  credit  risk   consist
                       principally  of  temporary  cash  investments  and  trade
                       accounts  receivable.  The Company's cash investments are
                       placed with high credit  quality  financial  institutions
                       and may 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.

                       Cash and Cash Equivalents

                       The Company  considers  all highly  liquid  money  market
                       instruments  purchased with an original maturity of three
                       months or less to be cash  equivalents.  Cash  equivalent
                       instruments were $-0- and $1,766,267 at December 31, 1997
                       and 1998, respectively.



                                                                             F-9




                                            Frontline Communications Corporation



                                      Notes to Consolidated Financial Statements

================================================================================

                       Financial Instruments

                       The carrying amounts of financial  instruments  including
                       cash, accounts receivable, notes receivable from (payable
                       to) stockholders and accounts payable  approximated  fair
                       value as of December 31, 1998,  because of the relatively
                       short maturity of these instruments.

                       Stock-Based Compensation

                       The 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 per share amounts  assuming the fair value method.
                       Stock arrangements with non-employees, if applicable, are
                       recorded at fair value.

                       Advertising

                       All  costs  associated  with  advertising   services  are
                       expensed in the period incurred.  Advertising expense was
                       approximately  $28,000  and $ 136,000 for the years ended
                       December 31, 1997 and 1998, respectively.

                       Loss Per Share

                       The  Company  has adopted  SFAS No.  128,  "Earnings  per
                       Share," which provides for the calculation of "basic" and
                       "diluted"  earnings per share.  Basic  earnings per share
                       includes no dilution  and is computed by dividing  income
                       available to common  shareholders by the weighted average
                       number  of  common  shares  outstanding  for the  period.
                       Diluted  earnings per share reflect,  in periods in which
                       they have a dilutive effect,  the effect of common shares
                       issuable  upon  exercise of stock  options and  warrants.
                       Diluted earnings per share amounts have not been reported
                       becuase  the Company has a net loss and the impact of the
                       assumed  conversion  of  preferred  stock and exercise of
                       stock options and warrants would be anti-dilutive.


                                                                            F-10





                                            Frontline Communications Corporation



                                      Notes to Consolidated Financial Statements

================================================================================

                       Effect of Recent Accounting Pronouncements

                       In June 1998, the Financial  Accounting  Standards  Board
                       issued  Statement of Financial  Accounting  Standards No.
                       133,  "Accounting for Derivative  Instruments and Hedging
                       Activities."  ("SFAS No. 133"),  which requires companies
                       to  recognize  all   derivatives   as  either  assets  or
                       liabilities  in the  statement of financial  position and
                       measure those  instruments at fair value. SFAS No. 133 is
                       effective for fiscal years beginning after June 15, 1999.
                       The   Company   does  not   presently   enter   into  any
                       transactions  involving derivative financial  instruments
                       and,  accordingly,  does not  anticipate the new standard
                       will have any effect on its financial statements.


2.   Reorganization    On May 30, 1997, the Predecessor  Companies were acquired
                       by  the  Company  by  issuing  three  notes   aggregating
                       $325,000 (see Note 5) for all the membership  interest in
                       the Predecessor Companies. For accounting purposes Hobbes
                       has been considered to be the acquirer.  As a result, the
                       business  consolidation  of  Hobbes  and  INET  has  been
                       accounted for as a consolidation of entities under common
                       control in a manner  similar  to a pooling of  interests.
                       The business  consolidation with Sarah Girl and Frontline
                       have been accounted for as purchases.  The net assets and
                       operations  of Sarah Girl and  Frontline are not material
                       to  the  Company's  consolidation  financial  statements.
                       Notes payable to the members of the Predecessor Companies
                       are accounted for as  distributions  in the  accompanying
                       consolidated statements of stockholders' equity.


3.   Notes Receivable  During August and October 1998, the Company made advances
     from              aggregating  $143,800  to two of  its  stockholders.  The
     Stockholders      notes are due on demand and bear  interest at 8% which is
                       offset   against   the   interest  payable  owing to  the
                       stockholders (see Note 6).


                                                                            F-11





                                            Frontline Communications Corporation



                                      Notes to Consolidated Financial Statements

================================================================================

4.   Acquisition of    During 1998, the Company made the following  acquisitions
     Businesses        all of which 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. The acquisition resulted
                       in intangibles of $3,215,226,  which are being  amortized
                       over their expected benefit period of 3 years.

                       At December 31, 1998, intangibles were as follows:




                                                                Customer                    
                                                    Goodwill      bases          Total
                       -------------------------------------------------------------------
                                                                             
                       Intangibles                 $1,143,998   $2,071,228     $3,215,226
                       Less:  Accumulated                                                  
                                 amortization          88,979       44,921        133,900
                       -------------------------------------------------------------------
                                                   $1,055,019   $2,026,307     $3,081,326
                       ===================================================================



                       WOWFactor

                       On October  9,  1998,  the  Company  acquired  all of the
                       issued and outstanding  capital stock of WOWFactor,  Inc.
                       ("WOWFactor"),  a New Jersey  corporation  engaged in the
                       business of  promoting  e-commerce  through its web sites
                       primarily for women's  businesses.  The Company issued to
                       the stockholders of WOWFactor ten shares of newly created
                       Series A preferred  stock,  which is  convertible on July
                       15,  1999  into  common  stock  with a  market  value  of
                       $1,000,000,  subject  to a maximum  issuance  of  250,000
                       shares.  In  addition,  to the extent that the  Company's
                       common  stock has a market  value on July 15, 1999 of (i)
                       less than $3.00 per share or (ii)  greater than $3.00 per
                       share but less than $4.00 per share,  the Company  agreed
                       to  issue  to  the  WOWFactor   stockholders  options  to
                       purchase up to an aggregate of 100,000 or 50,000  shares,
                       respectively.



                                                                            F-12





                                            Frontline Communications Corporation



                                      Notes to Consolidated Financial Statements

================================================================================

                       Roxy Systems d/b/a Magic Carpet

                       On October 9, 1998,  the Company  acquired  substantially
                       all of the assets used in the  business of Roxy  Systems,
                       Inc.  d/b/a Magic  Carpet  ("Roxy") in  consideration  of
                       $75,000  in cash  and  the  assumption  of  approximately
                       $60,000  of  liabilities.  Roxy  is an  internet  service
                       provider  which,   at  the  date  of   acquisition,   had
                       approximately  1,000 individual and business  subscribers
                       in Orange County, New York.

                       US Online

                       Pursuant  to an order  of the  United  States  Bankruptcy
                       Court,  District of New Jersey,  on October 23, 1998, the
                       Company acquired  substantially all of the assets used in
                       the business of US Online, Inc. ("US Online"),  including
                       a point of presence in the Philadelphia area, and assumed
                       two of US Online's executory  contracts for consideration
                       of $570,000 in cash paid upon closing. At the time of the
                       acquisition,  US Online was  engaged in the  business  of
                       providing   internet  access,   web  hosting  and  leased
                       communications  lines to approximately  3,500 subscribers
                       in New York, New Jersey and Pennsylvania.

                       Webspan

                       On December 17, 1998, the Company acquired  substantially
                       all  of  the  assets  used  in the  business  of  Webspan
                       Communications,  Inc.  ("Webspan")  in  consideration  of
                       $500,000 in cash, assumption of approximately $544,000 of
                       liabilities  and an  aggregate  of 113,364  shares of the
                       Company's common stock (approximately  $509,000).  At the
                       time of the acquisition,  Webspan was an internet service
                       provider with approximately 9,000 individual and business
                       subscribers in New York and New Jersey.


                                                                            F-13





                                            Frontline Communications Corporation



                                      Notes to Consolidated Financial Statements

================================================================================

                       The   following   pro   forma   consolidated    financial
                       information   has  been  prepared  to  reflect  the  1998
                       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, 1997. 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, 1997,
                       and neither is it  necessarily  indicative of the results
                       of operations for future periods.




                       Year ended December 31,                           1997            1998
                       -----------------------------------------------------------------------
                                                                           (unaudited)
                                                                                    
                       Revenues                                   $ 2,383,063     $ 2,635,923
                       Net loss                                    (5,320,805)     (4,307,399)
                       =======================================================================
                       Net loss per share - basic and diluted     $    (3.85)     $    (1.69)
                       =======================================================================



                       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,   WOWFactor   officer's   employment
                       agreement  entered into at the date of  acquisition,  the
                       conversion  of  the   preferred   shares  issued  in  the
                       WOWFactor  acquisition and the issuance of 113,364 common
                       shares in the Webspan acquisition.


                                                                            F-14





                                            Frontline Communications Corporation



                                      Notes to Consolidated Financial Statements

================================================================================

5.   Property and      Property and equipment consisted of the following:       
     Equipment                                                                  
                       December 31, 1998                                        
                       ---------------------------------------------------------
                       Computer and office equipment               $1,070,492   
                       Furniture and fixtures                          38,705   
                       Leasehold improvements                          13,783   
                       ---------------------------------------------------------
                                                                    1,122,980   
                       Less:  Accumulated depreciation and                      
                                 amortization                         141,195   
                       ---------------------------------------------------------
                                                                  $   981,785   
                       =========================================================

6.   Notes Payable     On May 30, 1997,  the Company  issued  notes  aggregating
     Stockholders      $372,137  to three  of its  stockholders  related  to the
                       reorganization  discussed in Note 2, and certain advances
                       made to the  Company  since  inception.  The  notes  bear
                       interest  at 8%. To date  $203,537  has been  repaid  and
                       $168,600 will be deferred  until such time as the Company
                       achieves  $1.9  million  in pre-tax  earnings,  but in no
                       event sooner than May 2000.

7.   Capital Lease     The  Company  leases  computer  equipment  under  capital
     Obligations       leases.  The assets  acquired under capital leases have a
                       cost of $207,725 and accumulated  depreciation of $-0- as
                       of December 31, 1998.


                                                                            F-15





                                            Frontline Communications Corporation



                                      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, 1998.

                       ---------------------------------------------------------
                       Payments for the year ending:
                          1999                                         $  75,745
                          2000                                            75,745
                          2001                                            75,745
                       ---------------------------------------------------------
                       Total minimum lease payments                      227,235
                       Less:  Amount representing interest                72,833
                       ---------------------------------------------------------
                       Present value of net minimum lease payments       154,402
                       Less:  Current portion                             38,569
                       ---------------------------------------------------------
                       Long-term lease obligations                      $115,833
                       =========================================================

8.   Commitments and   Leases
     Contingencies     

                       The Company  rents office  space  and   equipment   under
                       operating  lease  agreements  expiring  at various  dates
                       through 2002.

                       Future minimum rental  payments  required under operating
                       leases  as of  December  31,  1998 are  approximately  as
                       follows:

                       ---------------------------------------------------------
                       1999                                          $121,000
                       2000                                           119,000
                       2001                                           118,000
                       2002                                            57,000
                       ---------------------------------------------------------
                       Total                                         $415,000
                       =========================================================

                       Rental  expense was $69,981  and  $134,249  for the years
                       ended December 31, 1997 and 1998, respectively.

                                                                            F-16




                                            Frontline Communications Corporation



                                      Notes to Consolidated Financial Statements

================================================================================

                       The  Company  has  entered  into  three-year   employment
                       agreements  with  certain  officers and  employees  which
                       provide  for  aggregate   annual  base   compensation  of
                       approximately  $401,000, and such bonuses as the Board of
                       Directors may, in its sole discretion,  from time to time
                       determine.  These employment agreements,  which expire in
                       August 2000 and September 2001, provide for employment on
                       a full-time  basis  (except for the  Company's  agreement
                       with its Chief Executive Officer) and contain a provision
                       that  the  employee  will  not  compete  or  engage  in a
                       business  competitive  with the  current  or  anticipated
                       business of the Company during the term of the employment
                       agreement and for a period of two years thereafter.

9.   Stock Options     The Company has a stock option plan (the  "Plan"),  which
                       authorized   the  issuance  of   incentive   options  and
                       non-qualified options to purchase up to 500,000 shares of
                       common  stock.  The plan has a ten year  term.  The Board
                       retained the  authority to determine the  individuals  to
                       whom,  and the times at  which,  stock  options  would be
                       made,  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 and the  exercisable
                       price per share as of the date of the grant in accounting
                       for its stock options. Accordingly, no compensation costs
                       have been  recognized  for its  issuance  of  options  to
                       employees since the exercise price exceeded the then fair
                       market value on the date of the grant. In accordance with
                       SFAS No. 123,  the Company has  recognized  $108,000  and
                       $175,137 as the fair value of services  received  for the
                       136,000  and  103,000  options  granted to  non-employees
                       during 1997 and 1998, respectively.


                                                                            F-17




                                            Frontline Communications Corporation



                                      Notes to Consolidated Financial Statements

================================================================================

                       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
                       fair value of each stock based  option at the date of the
                       grant using the Black Scholes  option-pricing  model with
                       the  following  weighted  average  assumptions  used  for
                       options in 1997 and 1998:

                                                        1997           1998
                       ---------------------------------------------------------
                       Risk-free interest rate          6.51%     4.29% - 5.48%
                       Expected life                  5 years           5 years
                       Expected volatility             15.00%            46.10%
                       Dividend yield                    None              None
                       =========================================================

                       Under the  accounting  provisions  of SFAS No.  123,  the
                       Company's  net loss and loss 1 per share  would have been
                       reduced to the pro forma amounts indicated below:

                                                           1997            1998
                       ---------------------------------------------------------
                       Net loss:
                          As reported               $(2,037,417)    $(1,744,099)
                          Pro forma                  (2,037,417)     (2,060,753)
                       =========================================================
                       Net loss per share (basic and diluted):
                          As reported               $     (1.67)    $      (.72)
                          Pro forma                       (1.67)           (.85)
                       =========================================================

                       Stock options  granted  prior to 1998 were  considered to
                       have minimal value based on the fair value method of SFAS
                       No. 123.




                                                                            F-18




                                            Frontline Communications Corporation



                                      Notes to Consolidated Financial Statements

================================================================================

                       A summary of the  status of the  Company's  stock  option
                       plan as of December 31, 1997 and 1998, and changes during
                       the years ending on those dates, is presented below:





December 31,                                              1997                        1998
- ---------------------------------------------------------------------------------------------------------
                                                       Weighted average                   Weighted averag
                                               Shares   exercise price        Shares       exercise price
- ---------------------------------------------------------------------------------------------------------
                                                                       
Outstanding at beginning of year                   --      $     --          165,600         $ 2.00
Granted                                       280,000          2.00          426,200           3.00
Exercised                                          --            --               --             --
Forfeited                                    (114,400)        (2.00)          (8,800)         (2.00)
- ---------------------------------------------------------------------------------------------------------
Outstanding at end of year                    165,600      $   2.00          583,000         $ 2.73
=========================================================================================================

Options exercisable at year-end                    --      $     --          457,000         $ 2.66
=========================================================================================================

Weighted average fair value of options                                                                   
  granted during the year                                  $     --                          $ 1.62
=========================================================================================================





                       The following table  summarizes  information  about stock
                       options outstanding at December 31, 1998.




                                                 Options outstanding                             Options exercisable
                                  ----------------------------------------------           ---------------------------------
                                                        Weighted                                                            
                                                        average         Weighted               Number                       
                                       Number          remaining         average           exercisable at      Weighted
                                   outstanding at     contractual       exercise            December 31,        average
Range of exercise prices          December 31, 1998       life            price                 1998        exercise price
- ----------------------------------------------------------------------------------------------------------------------------
                                                                                                    
$2.00 to $3.00                         418,600            9.4             $2.31                358,600           $2.27
$3.00 to $5.18                         164,400            9.4             $3.81                 98,400           $4.09
============================================================================================================================




F-19




                                            Frontline Communications Corporation



                                      Notes to Consolidated Financial Statements

================================================================================


10.  Capital Stock     At December 31, 1998, there was an aggregate of 2,460,000
     and Warrants      warrants outstanding at exercise prices between $4.80 and
                       $7.92 per share,  expiring at various times through 2003,
                       as follows:

                       In December  1997, as partial  consideration  for a loan,
                       the Company granted  warrants to purchase 300,000 shares,
                       at an  exercise  price of $5.00 per  share,  expiring  in
                       December 2003.  These warrants were valued at $24,000 and
                       recorded as a debt discount.

                       As part of its IPO in May,  the Company  offered and sold
                       warrants (the "Public  Warrants")  to purchase  1,840,000
                       shares, at an exercise price of $4.80 per share, expiring
                       in February 2003.

                       In March  1998,  the  Company  effected a 4 for 5 reverse
                       stock  split.  All  shares  and  per  share  data  in the
                       consolidated  financial  statements have been adjusted to
                       give retroactive effect to the reverse stock split.

                       Additionally,  during May 1998,  the Company  sold to the
                       underwriter  of the IPO,  warrants  to  purchase  160,000
                       shares,  at an  exercise  price of $6.60 per  share,  and
                       160,000 shares,  at an exercise price of $7.92 per share.
                       These warrants expire in May 2003.

                       The Board of Directors is  authorized  to fix the rights,
                       preferences, privileges and restrictions of any series of
                       preferred stock, including the dividend rights,  original
                       issue price,  conversion rights,  voting rights, terms of
                       redemption,  liquidation  preferences  and  sinking  fund
                       terms thereof,  and the number of shares constituting any
                       such series and the  designation  thereof and to increase
                       or  decrease  the  number  of  shares  subsequent  to the
                       issuance  of  shares  of such  series  (but not below the
                       number of shares of such series then outstanding).


                                                                            F-20




                                            Frontline Communications Corporation



                                      Notes to Consolidated Financial Statements

================================================================================


11.  Income  Taxes     The  Company  had net  operating  loss  carryforwards  of
                       approximately  $1,500,000  at December  31,  1998,  which
                       expire beginning in 2111. The tax benefit of these losses
                       has been completely  offset by a valuation  allowance due
                       to the uncertainty of its realization.

12.  Litigation        In  connection  with a settlement  of all disputes with a
     Settlement        former officer,  the Company  purchased 231,520 shares of
                       common  stock owned by that officer for  $264,113.  These
                       amounts  were  accounted  for as  treasury  stock  in the
                       accompanying balance sheet.

13.  Subsequent Event  In March 1999, the Company entered into an agreement with
                       two institutional investors pursuant to which the Company
                       sold 158,856 shares of common stock, at prevailing market
                       price, for an aggregate purchase price of $2,000,000. The
                       agreement   with  the  investors   provides  for  certain
                       registration  and repricing  rights.  The Company may, at
                       any time  prior  to the  effectiveness  of  registration,
                       redeem  the common  stock  issued in its  entirety  for a
                       premium.  The  Company  also  issued  21,662  warrants to
                       purchase common stock for 13.849 per share.  The warrants
                       are exercisable on or before March 25, 2002.


                                                                            F-21






 
    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 26th day of March 1999.

                           FRONTLINE COMMUNICATIONSCORPORATION

                           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,                      March 26, 1999
- ----------------------------          President, and Director (Principal           
Stephen J. Cole-Hatchard              Executive Officer)                           
                                                                                   
                                                                                   
/s/ Nicko Feinberg                    Chief Information Officer,                    March 26, 1999
- ----------------------------          Executive Vice President of                  
Nicko Feinberg                        Technology and Director                      
                                                        
                                                                                   
                                                                                   
/s/ Michael Olbermann                 Chief Operating Officer, Executive            March 26, 1999
- ----------------------------          Vice President and Director
Michael Olbermann                                       
                                                                                   
                                                                                   
/s/ Vasan Thatham                     Chief Financial Officer and                   March 26, 1999
- ----------------------------          Executive Vice President
Vasan Thatham                                              
                                                                                   
                                                                                   
/s/ Amy Wagner-Mele                   Executive Vice President,                     March 26, 1999
- ----------------------------          Secretary and General Counsel
Amy Wagner-Mele                                       
                                                                                   
                                                                                   
/s/ Margaret McGillin                 Executive Vice President of Sales,            March 26, 1999
- ----------------------------          Marketing and Business Development
Margaret McGillin                                
                                                                                   
                                                                                   
/s/ Ronald C. Signore                 Director                                      March 26, 1999
- ----------------------------                                                       
Ronald C. Signore                                                                  
                                                                                   
                                                                                   
/s/ Ronald Shapss                     Director                                      March 26, 1999
- ----------------------------                                             
Ronald Shapss









                            STOCK PURCHASE AGREEMENT

THIS STOCK PURCHASE AGREEMENT (the "Agreement"),  dated as of March 25, 1999, is
entered  into  by  and  between  FRONTLINE   COMMUNICATIONS  CORP.,  a  Delaware
corporation,  with headquarters located at One Blue Hill Plaza, 6th Floor, P. O.
Box 1548,  Pearl  River,  NY 10965 (the  "Company"),  and the  undersigned  (the
"Buyer").

Buyer hereby represents and warrants to, and agrees with the Company as follows:

THE SECURITIES  OFFERED HEREBY HAVE NOT BEEN REGISTERED  UNDER THE UNITED STATES
SECURITIES ACT OF 1933, (THE "1933 ACT"), ARE RESTRICTED  SECURITIES (AS DEFINED
IN RULE  144  UNDER  THE 1933  ACT) AND MAY NOT BE  OFFERED  FOR  SALE,  SOLD OR
OTHERWISE  TRANSFERRED  EXCEPT PURSUANT TO REGISTRATION UNDER THE 1933 ACT OR AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE 1933 ACT. THE SECURITIES ARE
SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED
OR RESOLD  EXCEPT AS PERMITTED  UNDER SUCH LAWS PURSUANT TO  REGISTRATION  OR AN
EXEMPTION  THEREFROM.  THE SECURITIES HAVE NOT BE APPROVED OR DISAPPROVED BY THE
SECURITIES  AND  EXCHANGE  COMMISSION  OR ANY  OTHER  REGULATORY  AUTHORITY  ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

                                   WITNESSETH:

WHEREAS,  the Company and the Buyer are executing and delivering
  this Agreement
in  reliance  upon  exemptions  from  securities   registration  afforded  under
Regulation D ("Regulation D") as promulgated by the United States Securities and
Exchange  Commission  (the "SEC") under the  Securities  Act of 1933, as amended
(the "1933 Act") and/or Section 4(2) of the 1933 Act; and

WHEREAS,  the  Company  will  issue  to Buyer  and the  Finder  (as  hereinafter
defined),  upon the terms and  conditions of this Agreement (i) shares of Common
Stock, $.01 par value per share (the "Common Stock"),  (ii) Repricing Rights (as
hereinafter  defined)  to  acquire  shares  of  Common  Stock  (the  "Additional
Shares"),  and (iii)  Warrants to purchase  shares of Common Stock (the "Warrant
Shares").  The Common Stock, Repricing Rights,  Additional Shares,  Warrants and
Warrant Shares are hereinafter referred to collectively, as the "Securities";

NOW  THEREFORE,  in  consideration  of the  premises  and the  mutual  covenants
contained  herein and other good and  valuable  consideration,  the  receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:


1.   AGREEMENT TO PURCHASE; PURCHASE PRICE.


                                       1




a.   Purchase.  The  undersigned  hereby  agrees to  purchase  from the  Company
     U.S.D.$2,000,000  of Common Stock of the Company at a price per share equal
     to the average  closing bid price of the Common Stock as reported by Nasdaq
     for the five (5) trading  days  immediately  preceding  March  19,1999 (the
     "Purchase  Price Per Share"),  together with certain  Repricing  Rights (as
     defined  in  Section  5(a)  hereof)  for an  aggregate  purchase  price  of
     $2,000,000 (the "Purchase  Price").  In no event shall the Company issue in
     the aggregate more than 450,000 shares of Common Stock,  Additional  Shares
     and Warrant Shares under the terms of this Agreement.

b.   Option to fund subsequent  tranche.  During the 60 day period following the
     date  the  registration   statement  covering  this  offering  is  declared
     effective,  the Company may request one additional funding tranche of up to
     $1,000,000,  as long as such amount does not cause the Buyer's  holdings to
     equal  or  exceed  5% of the  then  current  market  capitalization  of the
     Company. The funding of a subsequent tranche is also subject to no material
     adverse changes in the Company since the prior Closing Date and the trading
     volume  equaling or exceeding  the average  trading  volume in the calendar
     month prior to the  Closing  Date,  sustained  for a period of at least one
     month prior to the subsequent  tranche. In the event that the parties agree
     to a  subsequent  tranche,  the  parties  will enter into a stock  purchase
     agreement in substantially the same form. The 450,000 share cap referred to
     in 1(a) above shall not apply to shares issued in any subsequent tranche.

c.   Warrant  Coverage.  The Buyer shall  receive  warrants  to purchase  17,330
     shares of Common Stock on the Closing Date. The Warrants shall have a three
     year term and an exercise price of 110% of the Purchase Price Per Share.

d.   Form of  Payment.  The Buyer  shall pay the  purchase  price for the Common
     Stock by  delivering  immediately  available  good  funds in United  States
     Dollars to Joseph B. LaRocco as the escrow agent (the "Escrow Agent"). Upon
     confirmation  that the  funds  are  received  , within  two  business  days
     following payment by the Buyer to the Escrow Agent of the purchase price of
     the Common Stock,  the Company  shall deliver a Certificate  for the Common
     Stock duly executed on behalf of the Company, to the Escrow Agent.

e.   Method of Payment. Payment into escrow of the purchase price for the Common
     Stock  shall  be made  in  accordance  with  instructions  provided  by the
     Company.
          


Not later than 4:00 p.m.,  Eastern  Standard  Time, on or before March 26, 1999,
the Buyer shall wire the Purchase  Price to the Escrow Agent.  On March 26, 1999
the Company shall deliver the Common Stock being  purchased to the Escrow Agent.
Once the Escrow Agent is in possession  of the Common Stock being  purchased and
has  received  the  Purchase  Price into his escrow  account he shall notify the
Company and wire the Purchase  Price in accordance  with  instructions  received
from the Company,  less a 8%

                                       2




placement fee and $15,000  document  preparation and escrow fee (the $15,000 fee
shall  also  cover  document  preparation  and  escrow  services  for the second
tranche), to the Company and overnight the Common Stock to the Buyer. Time is of
the essence with respect to such payment,  and failure by the Buyer to make such
payment,  shall  allow the Company to cancel this  Agreement. 

The Escrow  Agent shall not be liable for any action  taken or omitted by him in
good  faith and in no event  shall  the  Escrow  Agent be liable or  responsible
except for the Escrow Agent's own gross  negligence or willful  misconduct.  The
Escrow Agent has made no  representations  or warranties in connection with this
transaction  and has not been involved in the  negotiation  of the terms of this
Agreement or any matters relative thereto.  The Buyer and the Company each agree
to  indemnify  and hold  harmless  the Escrow Agent from and with respect to any
suits, claims, actions or liabilities arising in any way out of this transaction
including  the  obligation  to defend any legal action  brought which in any way
arises out of or is related to this Agreement. The Escrow Agent is not rendering
securities  advice to anyone with respect to this proposed  transaction;  nor is
the Escrow Agent  opining on the  compliance of the proposed  transaction  under
applicable securities law.

2.  BUYER  REPRESENTATIONS,   WARRANTIES;  ACCESS  TO  INFORMATION;  INDEPENDENT
INVESTIGATION.

The Buyer represents and warrants to, and covenants and agrees with, the Company
as follows:

a. The Buyer is purchasing  the Common Stock for its own account for  investment
only and not with a view towards the resale, public sale or distribution thereof
and not with a view to or for sale in connection with any distribution thereof;

b. The Buyer is (i) an "accredited investor" as that term is defined in Rule 501
of the  General  Rules  and  Regulations  under  the 1933 Act by  reason of Rule
50f(a)(3),  and (ii) experienced in making  investments of the kind described in
this Agreement and the related documents,  (iii) able, by reason of the business
and  financial  experience  of its  officers  (if an  entity)  and  professional
advisors (who are not  affiliated  with or compensated in any way by the Company
or any of its  affiliates  or selling  agents),  to protect its own interests in
connection with the  transactions  described in this Agreement,  and the related
documents,  and (iv) able to afford the  entire  loss of its  investment  in the
Common Stock;

c. All  subsequent  offers and sales of the shares of Common  Stock by the Buyer
shall be made  pursuant  to  registration  under the 1933 Act or  pursuant to an
exemption from registration;

d. The Buyer  understands  that the Common Stock is being offered and sold,  and
the Securities are being offered,  to it in reliance on specific exemptions from
the registration  requirements of federal and state securities laws and that the
Company is relying upon the truth and  accuracy  of, and the Buyer's  compliance
with, the representations, warranties,

                                       3




agreements, acknowledgements and understandings of the Buyer set forth herein in
order to determine the  availability  of such  exemptions and the eligibility of
the Buyer to acquire the Common Stock and receive an offer of the Securities ;

e. The Buyer and its  advisors,  if any,  have  either been  furnished  with all
materials  relating to the business,  finances and operations of the Company and
materials  relating  to the offer and sale of the Common  Stock  which have been
requested by the Buyer or have had access  thereto.  The Buyer and its advisors,
if any, have been afforded the  opportunity  to ask questions of the Company and
have received complete and satisfactory  answers to any such inquiries.  Without
limiting the generality of the foregoing, the Buyer has also had the opportunity
to obtain and to review the Company's  (1) Quarterly  Reports on Form 10-QSB for
the fiscal  quarters ended March 31, 1998,  June 30, 1998 and September 30, 1998
and Form 10-QSB/A for the fiscal  quarter ended June 30, 1998 and (2) Forms 8-K,
if any,  filed since October 16, 1998, as well as copies of the Company's  press
releases since June 30, 1998 (the "Company's SEC Documents").

f. The Buyer  understands that its investment in the Securities  involves a high
degree of risk;

g. The Buyer understands that no federal or state agency or any other government
or governmental  agency has passed on or made any  recommendation or endorsement
of the Securities;

h. This Agreement has been duly and validly  authorized,  executed and delivered
on  behalf  of the  Buyer  and is a valid  and  binding  agreement  of the Buyer
enforceable  in  accordance  with its  terms,  subject as to  enforceability  to
general principles of equity and to bankruptcy, insolvency, moratorium and other
similar laws affecting the enforcement of creditors' rights generally.

i. No Short Sales.  Buyer expressly  agrees that until such time it has sold all
of the  securities  and/or  all of the Shares  and  Warrants  that it shall not,
directly or indirectly, through an affiliate (as that term is defined under Rule
405  promulgated  under the Act) or by, with or through an unrelated third party
or  entity,  whether  or  not  pursuant  to a  written  or  oral  understanding,
agreement,  arrangement, scheme, or artifice of any nature whatsoever, engage in
the short selling of the Company's  Common Stock or any other equity  securities
of the Company whether now existing or hereafter  issued, or engage in any other
activity of any nature  whatsoever  that has the same affect as a short sale, or
is a de facto or de jure short sale, of the Company's  Common Stock or any other
equity  security  of the  Company  whether now  existing  or  hereafter  issued,
including  but  not  limited  to  the  sale  of  any  rights   pursuant  to  any
understanding,   agreement,  arrangement,  scheme  or  artifice  of  any  nature
whatsoever,  whether oral or in writing,  relative to the Company's Common Stock
or any other equity  securities of the Company whether now existing or hereafter
created.

j. The Buyer is not  purchasing the Common Stock and Warrants as a result of, or
pursuant to, any advertisement, article, notice or other communication published
in any  newspaper,  magazine or similar  media or broadcast  over  television or
radio or  presented

                                       4




at any seminar or meeting whose attendees, including the Buyer, had been invited
by any general advertising or general solicitation.

3. COMPANY REPRESENTATIONS

The Company represents and warrants to the Buyer that:

a.  Concerning the Shares.  The Common Stock has been duly  authorized and, when
paid for as provided  herein,  will be duly and validly  issued,  fully paid and
non-assessable  and will not subject the holder thereof to personal liability by
reason of being such holder.  There are no preemptive  rights of any stockholder
of the Company, as such, to acquire the Common Stock.

b.  Reporting  Company  Status.  The Company is a  corporation  duly  organized,
validly  existing and in good  standing  under the laws of the State of Delaware
and is duly qualified as a foreign corporation in all jurisdictions in which the
failure to so qualify  would have a material  adverse  effect on the Company and
its  subsidiaries  taken as a whole. The Company has registered its Common Stock
pursuant to Section 12 of the  Securities  Exchange Act of 1934, as amended (the
"Exchange  Act"),  and the Common Stock is listed and traded on The Nasdaq Small
Cap Market . The Company has filed all material required to be filed pursuant to
all reporting  obligations  under either  Section 13(a) or l5(d) of the Exchange
Act,  and has  received no notice,  either oral or written,  with respect to the
continued eligibility of the Common Stock for such listing.

c. Stock  Purchase  Agreement;  Registration  Rights  Agreement and Stock.  This
Agreement and the Registration  Rights Agreement,  the form of which is attached
hereto  (the  "Registration  Rights  Agreement"),  have  been  duly and  validly
authorized by the Company,  this  Agreement has been duly executed and delivered
by the Company and this  Agreement is, and the  Registration  Rights  Agreement,
when  executed  and  delivered  by the  Company,  will  be,  valid  and  binding
agreements of the Company enforceable in accordance with their respective terms,
subject  as  to   enforceability   to   general   principles   of  equity,   the
indemnification   provisions  of  the  Registration  Rights  Agreement,  and  to
bankruptcy,  insolvency,  moratorium,  and  other  similar  laws  affecting  the
enforcement of creditors' rights generally;  and the Securities will be duly and
validly issued,  fully paid and  non-assessable  when delivered on behalf of the
Company upon payment  therefor in  accordance  with this  Agreement,  subject to
general principles of equity and to bankruptcy, insolvency, moratorium, or other
similar laws affecting the enforcement of creditors' rights generally.

d.  Non-contravention.  The  execution  and delivery of this  Agreement  and the
Registration  Rights  Agreement by the Company,  the issuance of the Securities,
and the  consummation by the Company of the other  transactions  contemplated by
this Agreement,  the Registration Rights Agreement,  and the Common Stock do not
and will not  conflict  with or result in a breach by the  Company of any of the
terms  or  provisions  of  or  constitute  a  default  under,  the  articles  of
incorporation or by-laws of the Company,  or any material  indenture,  mortgage,
deed of trusts or other material agreement or

                                       5




instrument  to  which  the  Company  is a  party  or by  which  it or any of its
properties or assets are bound, or any material  existing  applicable law, rule,
or regulation or any applicable decree,  judgment, or order of any court, United
States  federal  or  state  regulatory  body,  administrative  agency,  or other
governmental body having  jurisdiction over the Company or any of its properties
or  assets,  except  such  conflict,  breach or default  which  would not have a
material adverse effect on the transactions contemplated herein.

e. Approvals. No authorization,  approval or consent of any court,  governmental
body,  regulatory  agency,  self-regulatory  organization,  or stock exchange or
market is required to be  obtained by the Company for the  issuance  and sale of
the Securities to the Buyer as contemplated by this Agreement.

f. SEC Filings.  None of the Company's  filings with the Securities and Exchange
Commission since June 1, 1998 contained, at the time they were filed, any untrue
statement of a material  fact or omit to state any material fact or necessary to
make the statements made therein in light of the circumstances  under which they
were  made,  not  misleading.  The  Company  has since  June 1,  1998  filed all
requisite  forms,  reports and exhibits thereto with the Securities and Exchange
Commission.

g. Absence of Certain  Changes.  Since June 1, 1998 , there has been no material
adverse change and no material adverse development in the business,  properties,
operations,   financial  condition,   outstanding  securities,   or  results  of
operations of the Company,  except as disclosed in the documents  referred to in
Section 2(e) hereof.

h. Full  Disclosure.  There is no fact known to the Company  (other than general
economic  conditions known to the public  generally) that has not been disclosed
in writing to the Buyer  (including  through the publicly filed documents of the
Company) that (i) could reasonably be expected to have a material adverse effect
on the condition (financial or otherwise) or in the earnings,  business affairs,
properties  or assets of the  Company or (ii) could  reasonably  be  expected to
materially  and  adversely  affect  the  ability of the  Company to perform  its
obligations pursuant to this Agreement.

i. Absence of  Litigation.  Except as disclosed in the documents  referred to in
Section  2(e)  hereof,  there  is  no  action,  suit,  proceeding,   inquiry  or
investigation  before or by any court,  public  board or body pending or, to the
knowledge  of the  Company  or any of its  subsidiaries,  threatened  against or
affecting  the  Company  or any  of its  subsidiaries,  wherein  an  unfavorable
decision,  ruling  or  finding  would  have a  material  adverse  effect  on the
properties,  business,  condition (financial or other), or results of operations
of the  Company  and  its  subsidiaries  taken  as a whole  or the  transactions
contemplated  by this Agreement or any of the documents  contemplated  hereby or
which would materially  adversely affect the validity or  enforceability  of, or
the authority or ability of the Company to perform its obligations  under,  this
Agreement or any of such other documents.

                                       6




j.  Absence of Events of Default.  Except as  disclosed  in writing to the Buyer
(including  through the  publicly  filed  documents  of the Company) no Event of
Default,  as defined in any  agreement  to which the Company is a party,  and no
event  which,  with the giving of notice or the  passage of time or both,  would
become an Event of Default (as so  defined),  has  occurred  and is  continuing,
which would have a material adverse effect on the Company's  financial condition
or results of operations.

k. No Default.  Except as disclosed in writing to the Buyer  (including  through
the  publicly  filed  documents of the Company) the Company is not in default in
the performance or observance of any material obligation, agreement, covenant or
condition contained in any material indenture,  mortgage, deed of trust or other
material  instrument  or  agreement to which it is a party or by which it or its
property  may be bound,  and  neither  the  execution,  nor the  delivery by the
Company,  nor the  performance  by the  Company  of its  obligations  under this
Agreement or the Common Stock, other than the conversion provision thereof, will
conflict  with or  result  in the  breach  or  violation  of any of the terms or
provisions  of, or  constitute a default or result in the creation or imposition
of any lien or charge on any assets or  properties  of the  Company  under,  any
material  indenture,  mortgage,  deed of trust or other  material  agreement  or
instrument  to  which  the  Company  is a party  or by  which it is bound or any
statute or the Certificate of  Incorporation  or By-laws of the Company,  or any
decree, judgment,  order, rule or regulation of any court or governmental agency
or body having  jurisdiction over the Company or its properties,  or its listing
agreement with respect to any securities exchange or trading market on which the
Common Stock is listed.

l. Prior Issues.  During the twelve (12) months  preceding the date hereof,  the
Company has not issued any debt, securities or convertible securities in capital
transactions which have not been fully disclosed in the Company's SEC Documents.
Except for  employee  restricted  stock and  employee  stock  options,  all such
issuances have been fully converted into shares of common stock and there are no
outstanding  unconverted debt or convertible securities from those transactions,
except as disclosed in the SEC Documents.

m. Finder.  Merchant  Bancorp of America,  Reg'd (the "Finder")  shall receive a
placement fee of 8% of all funds raised, payable in cash from escrow at closing.
The Finder shall also receive  Warrants to purchase 4,332 shares of Common Stock
on the Closing  Date.) The Warrants shall have a three year term and an exercise
price per share of 110% of the Purchase Price Per Share.

4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.

a. Transfer  Restrictions.  The Buyer  acknowledges that (1) the Securities have
not been and are not being  registered under the provisions of the 1933 Act and,
except as provided in the Registration Rights Agreement, the Securities have not
been and are not being registered under the 1933 Act, and may not be transferred
unless  (A)  subsequently  registered  thereunder,  or (B) the Buyer  shall have
delivered to the Company an opinion of counsel, reasonably satisfactory in form,
scope and  substance  to the  Company  and its  counsel,  to the effect that the
Securities to be sold or


                                       7




transferred  may be sold or  transferred  pursuant  to an  exemption  from  such
registration;  (2) any  sale of the  Securities  made in  reliance  on Rule  144
promulgated  under the 1933 Act may be made only in accordance with the terms of
said  Rule and  further,  if said  Rule is not  applicable,  any  resale of such
Securities under  circumstances in which the seller,  or the person through whom
the sale is made,  may be deemed to be an  underwriter,  as that term is used in
the 1933 Act, may require  compliance  with some other  exemption under the 1933
Act or the rules and  regulations  of the SEC  thereunder;  and (3)  neither the
Company nor any other person is under any  obligation to register the Securities
(other than pursuant to the Registration Rights Agreement) under the 1933 Act or
to comply with the terms and conditions of any exemption thereunder.

b. Restrictive Legend. The Buyer acknowledges and agrees that until such time as
the Common Stock have been registered  under the 1933 Act as contemplated by the
Registration  Rights  Agreement  and sold in accordance  with such  Registration
Statement,  the  shares of Common  Stock,  shall  bear a  restrictive  legend in
substantially  the  following  form  (and a stop  transfer  order  may be placed
against transfer of the shares of Common Stock):

THE SECURITIES  REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES  ACT"),
OR THE  SECURITIES  LAWS OF ANY STATE AND MAY NOT BE OFFERED  OR SOLD  EXCEPT IN
RELIANCE ON EXEMPTIONS FROM THE REGISTRATION  REQUIREMENTS OF THE SECURITIES ACT
AND SUCH LAWS OR PURSUANT TO A REGISTRATION STATEMENT.

c.  Registration  Rights  Agreement.  The parties hereto agree to enter into the
Registration Rights Agreement on or before the Closing Date.

d. Filings.  The Company  undertakes and agrees to make all necessary filings in
connection  with the sale of the Common Stock to the Buyer as required by United
States securities laws and regulations,  or by Nasdaq.  Buyer agrees to make all
necessary filings with the SEC, including Schedule 13D, if applicable.

e. Reporting  Status.  So long as the Buyer  beneficially owns any of the Common
Stock,  the  Company  shall file all  reports  required to be filed with the SEC
pursuant  to  Section 13 or 15(d) of the  Securities  Exchange  Act of 1934,  as
amended (the "1934 Act"),  and the Company  shall not terminate its status as an
issuer  required to file reports  under the 1934 Act even if the 1934 Act or the
rules and regulations thereunder would permit such termination.

f. Use of  Proceeds.  The  Company  will use the  proceeds  from the sale of the
Common Stock (excluding  amounts paid by the Company for legal fees and finder's
fees in connection  with the sale of the Common  Stock) for working  capital and
shall not, directly or indirectly  (except in any situation where the Company is
acquired by merger or

                                       8




otherwise by a third party) use such  proceeds for any loan to or  investment in
any other corporation, partnership enterprise or other person.

g. Certain  Agreements.  The Company  will not raise any  Regulation D financing
and/or  private  placement with common stock  registration/public  resale rights
into equity markets solely for the purpose of raising  working  capital,  unless
the common  shares are  restricted  from re-sale for at least eight months after
the  Closing  Date.  In the  event  the  Company  breaches  the  terms  of  this
subsection,  the Buyer shall have the option of either (i) exercising its Demand
Redemption as set forth in Section 5(i) hereof or (ii) completely  replacing the
terms of this Stock Purchase  Agreement  with the terms of the other  agreement,
which  terms  shall be applied to the  balance of the  Purchase  Price in Common
Stock  still  held by the  Buyer  together  with any  accrued  interest  and any
accumulated liquidated damages.

5. ISSUANCE OF ADDITIONAL SHARES BASED UPON REPRICING RIGHTS; REDEMPTION TERMS.

a.  Repricing  Rights.  Subject to Section  1(a),  the Buyer is  entitled to one
Repricing Right for each share of common stock purchased under the terms of this
Agreement.  The Repricing Rights entitle the Buyer to acquire  additional shares
of Common Stock (or its cash  equivalent) for each share sold on the date of the
Exercise  Notice (in the form annexed  hereto as Exhibit A), equal to the number
of Repricing Rights exercised  multiplied by a fraction,  the numerator of which
is the difference  between the Repricing  Price and the Market Price (as defined
herein) and the denominator of which is the Market Price.  The Repricing  Price,
will be  initially  set at 120% of the  Purchase  Price Per Share (as defined in
Section 1(a) above) and increase by 2.5% per six month  period  thereafter.  The
Market Price shall be calculated at the average  closing bid price of the Common
Stock  for the five  trading  days  preceeding  the date an  Exercise  Notice is
tendered to the Company via facsimile  transmission.  The Exercise  Notice shall
state the number of shares of Common  Stock sold by the Buyer on the date of the
Exercise  Notice. A Repricing Right may only be exercised on the date of, and in
connection with, a sale of the underlying Common Stock.

     At any time after the  earlier  of the  effectiveness  of the  Registration
Statement or 120 days following the Closing Date, the Buyer will be permitted to
exercise up to 25% per calendar month  cumulatively,  of their Repricing Rights.
The  Company  may,  at its sole  option,  pay the  Buyer  the cash  value of the
Repricing Right in lieu of additional shares upon receiving a Exercise Notice by
confirming  the same within two  business  days and wiring the cash value of the
Repricing  Right to the Buyer within 5 business  days of receipt of the Exercise
Notice  (except if the cash value of the Repricing  Right exceeds  $50,000,  the
Company shall have fourteen (14) calendar days to make said payment).

     After effectiveness of the registration statement covering the Common Stock
being  purchased,  if (i) the Company's  Common Stock price  appreciates to more
than  127.5% of the  closing  price as of the  Closing  Date,  (ii) the  average
trading  volume equals or exceeds a total value of $1,000,000  per day and (iii)
both (i) and (ii) are sustained for a period of at least thirty (30) consecutive
calendar days, then 25% of the total number of Repricing  Rights will expire per
each thirty (30) consecutive calendar day period in


                                       9




which the  requirements  of (i),  (ii) and (iii)  have been met,  so long as the
Company is in compliance in all material  respects with its  obligations  to the
Buyer under this Agreement and the other  agreements,  instruments and documents
contemplated  thereby.  The  Repricing  Rights will expire in their  entirety 14
months after the effectiveness of the Registration Statement.

b. Additional Shares. The Additional Shares shall be fully paid,  non-assessable
Common Stock of the Company,  bearing no restrictive legends, not subject to any
stop  transfer  instructions  and  registered  pursuant  to  the  terms  of  the
Registration Rights Agreement,  a copy of which is attached hereto. In the event
the  Company  is  required  to  issue  Additional  Shares,  and  does not have a
sufficient number of shares of Common Stock available to be issued,  the Company
shall  pay the  Buyer  the cash  value of the  Repricing  Right as set  forth in
Section 5(c) below.

c.  Redemption  Terms and Floor Price.  (i) The Company may opt to pay the Buyer
the  cash  value  of the  Repricing  Right  in lieu of  additional  shares  upon
receiving a Exercise  Notice by confirming the same within two business days. In
the event that the Company elects to pay the cash value of the Repricing  Rights
in excess of  $50,000,  the  Company  shall have 14  calendar  days to make such
payment.  The Company may also elect to notify the Buyer within 7 business  days
advance  notice that any future  exercise of Repricing  Rights shall be redeemed
for cash in lieu of issuing additional shares. If the Company defaults in timely
payment, then all future redemptions must be paid within 7 calendar days.

     (ii) During the six month period  following  the Closing  Date,  an initial
Floor  Price  below  which  the Buyer  shall not be  entitled  to  exercise  its
Repricing  Rights will be set at $6.00.  After the expiration of the sixth month
period  following the Closing Date the floor price will be reduced to $4.00.  If
the closing bid price of the Company's Common Stock falls below $4.00, the Buyer
may  demand  redemption  at market  value  for the  outstanding  balance  of the
Repricing  Rights and Common Stock. The Company shall have 60 calendar days from
the date  that  such  notice  is given to make the  redemption  payment.  If the
Company  defaults,  the Buyer  will be  permitted  to  continue  exercising  its
Repricing Rights subject to the limit set forth in Section 1(a).

     (iii)  In  addition,  at  any  time  prior  to  the  effectiveness  of  the
Registration  Statement,  the  Company  may elect to redeem the total  number of
shares of Common Stock issued to the Buyer for $2,400,000,  or a portion of said
shares at a pro rata price equal to 120% of the Purchase  Price Per Share as set
forth in section 1(a).

d. The Company shall not issue any fractional shares of Common Stock as a result
of this  Section  5. In the  event  additional  shares  are  required  to issued
hereunder,  and the numbers of shares to be issued is not a whole  number,  then
the number of shares to be issued  will be  rounded  down to the  nearest  whole
number.

e. The Company shall pay any documentary, stamp or similar issue or transfer tax
due on the issue of additional  shares.  However,  the Holder shall pay any such
taxes which are due because such shares are issued in name other than its name.

                                       10




f. Subject to the  limitation  set forth in section 1(a) , the Company shall use
reasonable  efforts to reserve out of its authorized  but unissued  Common Stock
enough  shares of Common Stock to permit the  issuance of all of the  additional
shares  required to be issued  hereunder.  All additional  shares shall be, when
issued in accordance herewith, duly authorized,  validly issued,  fully-paid and
nonassessable.

g. At no time shall the Buyer be required to fund a subsequent tranche if in the
opinion of the Company's counsel shareholder approval would be required and such
approval has not yet been obtained.

h. The Company shall pay Buyer a cash fee of 2% of the Purchase Price per thirty
calendar  day period pro rata,  for the period  that the  following  obligations
remain  unsatisfied:  (i) if the Repricing Rights of the Buyer are suspended for
any  reason;  or (ii) if the  Company  fails to deliver  shares  pursuant to the
exercise  of  Repricing  Rights or a sale  within 7 business  days of  company's
receipt of a facsimile  Exercise Notice in the form annexed hereto as Exhibit A,
and/or  fails to make a cash  payment  within the time periods set forth in this
Agreement or the Registration Rights Agreement,  as the case may be. The Company
acknowledges  that its  suspension of the Repricing  Rights,  failure to deliver
shares pursuant to the exercise of the Repricing Rights and/or failure to make a
cash  payment in a timely  manner  will cause the Buyer to suffer  damages in an
amount that will be difficult to ascertain.  Accordingly, the parties agree that
it is  appropriate  to include in this  Agreement  a  provision  for  liquidated
damages. The parties acknowledge and agree that the liquidated damages provision
set forth in this section  represents the parties' good faith effort to quantify
such damages and, as such, agree that: 1) the form and amount of such liquidated
damages are reasonable and will not constitute a penalty; and 2) said liquidated
damages  constitute the Buyer's only remedy.  The payment of liquidated  damages
shall not relieve the Company from its  obligations  to deliver  Common Stock or
honor Repricing Rights pursuant to the terms of this Agreement.

i. Demand Redemption. In the event any default by the Company under the terms of
this Agreement is continuing  for more than 180 calendar days,  Buyer may at its
sole option send written  notice of a demand  redemption  to the  Company.  Upon
receipt of the  written  notice  from the Buyer,  the  Company  shall  within 10
business  days make a cash  payment to Buyer  equal to the cash value of Buyer's
then  outstanding  Repricing Rights and Common Stock as of the date that written
notice is received by the  Company.  The cash  payment to be made by the Company
upon receipt of written notice of the demand redemption, shall be in addition to
any remedies or  liquidated  damages to which the Investor is entitled up to the
date written notice of the demand redemption is received by the Company.

j.  Limits on Amount of  Ownership.  In no event  shall the Buyer be entitled to
exercise  that number of Repricing  Rights in excess of the amount upon exercise
of which the sum of (1) the number of shares of Common Stock  beneficially owned
by the Buyer and its affiliates  (other than shares of Common Stock which may be
deemed  beneficially  owned through the ownership of the unexercised  portion of
the Repricing Rights), and (2) the number of shares


                                       11




of Common Stock  issuable upon exercise of the Repricing  Rights with respect to
which  the  determination  of this  proviso  is  being  made,  would  result  in
beneficial  ownership by the Buyer and its  affiliates  of more than 4.9% of the
outstanding  shares  of  Common  Stock  of the  Company.  For  purposes  of this
provision to the immediately  preceding sentence,  beneficial ownership shall be
determined in accordance  with Section 13 (d) of the Securities  Exchange Act of
1934, as amended, and Regulation 13 D-G thereunder, except as otherwise provided
in clause (1) of such provision.

6.  Adjustments

a. Stock dividends; splits. If after the date on which the Common Stock is first
issued to Buyer and while  Buyer  still owns said  Common  Stock,  the number of
outstanding  shares of Common Stock is increased by a stock dividend  payable in
shares of Common Stock or by a split of shares of Common Stock or other  similar
event,  then,  on the date  following  the date fixed for the  determination  of
holders of Common Stock  entitled to receive such stock  dividend or split,  the
number  of  shares  of Common  Stock  purchased  by the Buyer and the  number of
Repricing   Rights  shall  be  increased  in  proportion  to  such  increase  in
outstanding  shares  (ignoring for this purpose any provision for the repurchase
or cash payment of fractional shares).

b.  Aggregation of shares.  If after the date on which the Common Stock is first
issued to Buyer and while  Buyer  still owns said  Common  Stock,  the number of
outstanding shares of Common Stock is decreased by a consolidation,  combination
or  reclassification  of shares of Common Stock or other  similar  event,  then,
after the effective date of such consolidation, combination or reclassification,
the number of shares of Common  Stock  purchased  by the Buyer and the number of
Repricing   Rights  shall  be  decreased  in  proportion  to  such  decrease  in
outstanding  shares  (ignoring for this purpose any provision for the repurchase
or cash payment of fractional shares).

c.  Reorganization,  etc.  If after the date on which the Common  Stock is first
issued, any capital  reorganization or  reclassification of the Common Stock, or
consolidation or merger of the Company with another corporation,  or the sale of
all or substantially  all of its assets to another  corporation or other similar
event  shall  be  effected,   then,  as  a  condition  of  such  reorganization,
reclassification,  consolidation,  merger,  or sale,  lawful and fair  provision
shall be made whereby the Buyer shall  thereafter have the right to purchase and
receive  upon the  basis and upon the terms  and  conditions  specified  in this
Agreement  such  shares  of  stock,  securities,  or  assets as may be issued or
payable  with respect to or in exchange  for a number of  outstanding  shares of
such  Common  Stock  equal to the  number of shares  of such  stock  immediately
theretofore   purchasable  and  receivable  upon  the  exercise  of  the  rights
represented  by  this  Agreement  had  such  reorganization,   reclassification,
consolidation,  merger,  or sale not taken place, and in such event  appropriate
provision shall be made with respect to the rights and interests of the Buyer to
the end that the provisions hereof shall thereafter be applicable,  as nearly as
may be in  relation  to any share of  stock,  securities,  or assets  thereafter
deliverable  upon the  exercise  hereof.  The Company  shall not effect any such
consolidation,  merger,  or sale unless  prior to the  consummation  thereof the
successor corporation (if other than the


                                       12




Company)  resulting  from  such  consolidation  or  merger,  or the  corporation
purchasing  such  assets,  shall  assume  by  written  instrument  executed  and
delivered  to the Agent the  obligation  to deliver to the Buyer such  shares of
stock,  securities,  or assets as, in accordance with the foregoing  provisions,
the  Buyer  may be  entitled  to  purchase.  Upon the  occurrence  of any  event
specified in this section,  the Company shall give written  notice of the record
date for such dividend,  distribution,  or subscription rights, or the effective
date of such  reorganization,  reclassification,  consolidation,  merger,  sale,
dissolution, liquidation, winding up or issuance. Such notice shall also specify
the date as of which the holders of Common Stock of record shall  participate in
such dividend,  distribution,  or subscription  rights,  or shall be entitled to
exchange their Common Stock for stock,  securities,  or other assets deliverable
upon  such  reorganization,   reclassification,   consolidation,  merger,  sale,
dissolution,  liquidation,  winding up or issuance. Failure to give such notice,
or any defect therein shall not affect the legality or validity of such event.

d. Notices of Changes.  Upon every  adjustment of the number of shares of Common
Stock  purchased  by the Buyer and the number of Repricing  Rights,  the Company
shall give  written  notice  thereof to the Buyer,  which notice shall state the
increase or decrease,  if any, in the number of shares of Common Stock purchased
by the Buyer and the number of Repricing  Rights,  setting  forth in  reasonable
detail the method of  calculation  and the facts upon which such  calculation is
based.

7. TRANSFER AGENT INSTRUCTIONS.

(i) Promptly following the delivery by the Buyer of the aggregate purchase price
for the Common  Stock in  accordance  with  Section l(c) hereof the Company will
instruct  its  transfer  agent  to  issue  certificates  for  the  Common  Stock
purchased,  bearing the  restrictive  legend  specified  in Section 4(b) of this
Agreement.  The Common Stock shall be registered in the name of the Buyer or its
nominee  (duly  assigned to), and in such  denominations  to be specified by the
Buyer.  If the Buyer provides the Company with an opinion of counsel  reasonably
satisfactory to the Company and its counsel that registration of a resale by the
Buyer of any of the Securities in accordance  with clause (1)(B) of Section 4(a)
of this  Agreement is not required under the 1933 Act, the Company shall (except
as provided in clause (2) of Section 4(a) of this Agreement) permit the transfer
of the Securities.  (ii) After  effectiveness of a Registration  Statement,  and
upon receipt of an Exercise  Notice in the form annexed hereto as Exhibit A, the
Company shall deliver the number of shares specified in the Notice to the Buyer,
free of any  restrictive  legend or stop transfer  instructions,  to the address
specified in the notice within seven (7) business days of the Company's  receipt
of the notice.

8. DELIVERY INSTRUCTIONS.

The Common Stock shall be delivered by the Company to the Escrow Agent  pursuant
to Section l(b) hereof on a delivery against payment basis at the closing.




                                       13




9.   CLOSING DATE.

The date and time of the  issuance  and sale of the Common  Stock (the  "Closing
Date") shall be March 26, 1999.  The closing  shall occur on the Closing Date at
the  offices of the  Escrow  Agent.  Notwithstanding  anything  to the  contrary
contained  herein,  the Escrow  Agent will be  authorized  to release  the funds
representing  the  Purchase  Price for the Common  Stock,  and the  certificates
representing  the  shares of the  Common  Stock  only upon  satisfaction  of the
conditions set forth in Sections 10 and 11 hereof.

10.  CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

The Buyer understands that the Company's  obligation to sell the Common Stock to
the Buyer pursuant to this Agreement is conditioned upon:

a. The receipt and  acceptance by the Company of such  Agreement as evidenced by
execution of such Agreement;

b. The accuracy on the Closing Date of the representations and warranties of the
Buyer  contained  in  this  Agreement  as if made on the  Closing  Date  and the
performance  by the Buyer on or before the  Closing  Date of all  covenants  and
agreements of the Buyer required to be performed on or before the Closing Date;

c.  There  shall not be in effect any law,  rule or  regulation  prohibiting  or
restricting the transactions  contemplated  hereby,  or requiring any consent or
approval which shall not have been obtained.

11.  CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.

The Company understands that the Buyer's obligation to purchase the Common Stock
is conditioned upon:

a.  Acceptance  by  Buyer  of an  Agreement  for the sale of  Common  Stock,  as
indicated by execution of this Agreement;

b. Delivery by the Company to the Escrow Agent of the Common Stock in accordance
with this Agreement;

c. The accuracy on the Closing Date of the representations and warranties of the
Company  contained  in this  Agreement  as if made on the  Closing  Date and the
performance  by the Company on or before the Closing Date of all  covenants  and
agreements  of the  Company  required to be  performed  on or before the Closing
Date; and

d. The Company shall have its counsel  prepare an opinion letter  concerning the
authority of the Company to make this offering. The Company shall also prepare a
Board


                                       14




Resolution  authorizing  this offering.  The opinion letter and Board Resolution
shall be delivered to the escrow agent who shall deliver a copy to the Buyer.

12.  GOVERNING LAW: MISCELLANEOUS.

This Agreement  shall be governed by and interpreted in accordance with the laws
of the State of Delaware.  Each of the parties  consents to the  jurisdiction of
the federal courts whose districts encompass any part of the City of New York in
connection with any dispute  arising under this Agreement and hereby waives,  to
the maximum  extent  permitted by law, any  objection,  including  any objection
based on forum non  coveniens,  to the bringing of any such  proceeding  in such
jurisdictions.  A facsimile transmission of this signed Agreement shall be legal
and binding on all parties  hereto.  This Agreement may be signed in one or more
counterparts,  each of which shall be deemed an  original.  The headings of this
Agreement are for convenience of reference and shall not form part of, or affect
the interpretation of, this Agreement.  If any provision of this Agreement shall
be  invalid  or   unenforceable   in  any   jurisdiction,   such  invalidity  or
unenforceability  shall  not  affect  the  validity  or  enforceability  of  the
remainder of this Agreement or the validity or  enforceability of this Agreement
in any other  jurisdiction.  This Agreement may be amended only by an instrument
in writing  signed by the party to be charged with  enforcement.  This Agreement
supersedes all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof.

13.  NOTICES.  Any notice  required  or  permitted  hereunder  shall be given in
writing  (unless  otherwise  specified  herein) and shall be deemed  effectively
given upon personal  delivery or seven business days after deposit in the United
States  Postal  Service,  by (a) advance copy by fax, and (b) mailing by express
courier or registered or certified mail with postage and fees prepaid, addressed
to each of the other parties thereunto entitled at the following  addresses,  or
at such other  addresses as a party may  designate  by ten days advance  written
notice to each of the other parties hereto.

COMPANY:            Stephen Cole-Hatchard, President
                    Frontline Communications Corp.
                    One Blue Hill Plaza, 6C Floor
                    P. O. Box 1548
                    Pearl River, NY 10965

Telecopier No.:     1-914-623-8669

with a copy to:     Kenneth Selterman, Esq.
                    Tenzer, Greenblatt
                    The Chrysler Building
                    405 Lexington Avenue
                    New York, NY 10174-0208

Telecopier No.:     1-212-885-5001



                                       15




BUYER:              At the address set forth on the signature page of this
                    Agreement.

ESCROW AGENT:       Joseph B. LaRocco, Esq.
                    49 Locust Avenue, Suite 107
                    New Canaan, CT 06840
                    Telecopier No.:  1-203-966-0363

13. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Each party's representations and
warranties shall survive the execution and delivery hereof of this Agreement.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]





                                       16




IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyer or one of
its officers thereunto duly authorized as of the date set forth below.

NUMBER OF SHARES OF COMMON STOCK TO BE PURCHASED:  158,856

AGGREGATE PURCHASE PRICE OF SUCH COMMON STOCK:  $12.59


SIGNATURES FOR ENTITIES

INVESTOR #1:

IN WITNESS WHEREOF, the undersigned represents that the foregoing statements are
true and correct and that it has caused this Stock Purchase Agreement to be duly
executed on its behalf this ____ day of March, 1999.


______________________________________   ______________________________________
Address                                  Canadian Advantage Limited Partnership
                                         Printed Name of Subscriber


Telecopier No. _______________________   By:____________________________________
                                            (Signature of Authorized Person)

______________________________________   ______________________________________
Jurisdiction of Incorporation or         Printed Name and Title
Organization

Federal Identification No.: _________________________





                                       17



INVESTOR #2:

IN WITNESS WHEREOF, the undersigned represents that the foregoing statements are
true and correct and that it has caused this Stock Purchase Agreement to be duly
executed on its behalf this _____ day of March, 1999.

______________________________________   ______________________________________
Address                                  Aberdeen Avenue LLC
                                         Printed Name of Subscriber



Telecopier No. _______________________   By:____________________________________
                                            (Signature of Authorized Person)

______________________________________   ______________________________________
Jurisdiction of Incorporation or         Printed Name and Title
Organization

Federal Identification No.: _________________________


This Agreement has been accepted as of the date set forth below.

FRONTLINE COMMUNICATIONS CORP

By:  _________________________________              Date:_______________________

Printed Name and Title: ___________________________________


                                       18






                                   EXHIBIT A

                         NOTICE OF EXERCISE OF REPRICING
                       RIGHTS AND/OR SALE OF COMMON STOCK


TO:      Frontline Communications Corporation                 CC:
         One Blue Hill Plaza
         P.O. Box 1548
         Pearl River, New York 10965

         Attention:  Stephen J. Cole-Hatchard, President/CEO

         Facsimile No.: (914) 623-8669


     This Exercise  Notice is given  pursuant to the terms of the Stock Purchase
Agreement dated as of March 25, 1999 (the "Agreement"), by and between Frontline
Communications  Corporation,  a Delaware  corporation  (the  "Company")  and the
undersigned  (the  "Buyer").  Capitalized  terms used  herein and not  otherwise
defined herein have the respective meanings provided in the Agreement. The Buyer
hereby notifies you as follows:

     Check below if applicable:

     |_|  Exercise of Repricing Right and Sale of Shares

          (1)  Exercise Date: ___________________________

          (2)  No. of Repricing Rights outstanding: _______________

          (3)  No. of Repricing Rights exercised hereby: _______________

          (4)  Repricing Price: __________________

          (5)  Average Market Price: _________________

          (6)  Repricing Rate: __________________

          (7)  Number of  Repricing  Shares  due to Buyer:  ___________.  Please
               issue such number of  Repricing  Shares in the name(s) and to the
               address  or  the  account  specified  immediately  below  or,  if
               additional space is necessary, on an attachment hereto:

               Delivery Instructions
               for Common Stock:  ____________________






                    Address: ____________________________________________

               The  exercise  of these  Repricing  Rights  is being  made for an
               immediate sale of Common Stock being issued.

          (8)  This is to advise  you that we have  sold  common  stock  through
               ______________________.   The  sale  of  these   shares   was  in
               compliance  with  the  "plan  of  distribution"  section  of  the
               prospectus,   dated   ________________,    1999,   which   listed
               ____________________  as a  selling  shareholder.  A copy of said
               prospectus was properly  delivered with respect to the prospectus
               delivery requirements of Section 5(b)(2) of the Securities Act of
               1933,  as amended.  Please  authorize the transfer of sale shares
               into  the  name  of  __________________________  without  further
               restriction.


     |_|  Sale of Shares

          This  is to  advise  you  that  we  have  sold  common  stock  through
          ______________________.  The sale of these  shares  was in  compliance
          with the  "plan of  distribution"  section  of the  prospectus,  dated
          ________________, 1999, which listed ____________________ as a selling
          shareholder.  A copy of said  prospectus  was properly  delivered with
          respect to the prospectus delivery  requirements of Section 5(b)(2) of
          the Securities Act of 1933, as amended.  Please authorize the transfer
          of sale  shares  into the name of  __________________________  without
          further restriction.



                           SS or Tax ID Number: ________________________________


                                              NAME OF BUYER:

Date: ____________________                    __________________________________


                                              By:_______________________________
                                                 Name:
                                                 Title


                                       -2-





                          REGISTRATION RIGHTS AGREEMENT

THIS  REGISTRATION  RIGHTS  AGREEMENT,   dated  as  of  March  25,  1999,  (this
"Agreement"),  is made by and between FRONTLINE  COMMUNICATIONS  CORPORATION,  a
Delaware corporation (the "Company"), and the person named on the signature page
hereto (the "Buyer").

WITNESETH:

WHEREAS,  upon the terms and  subject to the  conditions  of the Stock  Purchase
Agreement of even date  herewith,  between the Buyer and the Company (the "Stock
Purchase  Agreement"),  the  Company  has  agreed to issue and sell to the Buyer
shares of Common Stock, $.01 par value (the "Common Stock"), of the Company; and

WHEREAS,  to  induce  the  Buyer to  execute  and  deliver  the  Stock  Purchase
Agreement,  the Company has agreed to provide certain  registration rights under
the  Securities  Act  of  1933,  as  amended,  and  the  rules  and  regulations
thereunder,  or any similar  successor  statute  (collectively,  the "Securities
Act"),  and applicable  state  securities  laws with respect to the shares,  the
shares underlying the Repricing Rights and the Warrant Shares;

NOW,  THEREFORE,  in  consideration  of the  premises  and the mutual  covenants
contained  herein and other good and  valuable  consideration,  the  receipt and
sufficiency of which are hereby  acknowledged,  the Company
 and the Buyer hereby
agree as follows:

1. Definitions.

(a) As used in this  Agreement,  the  following  terms shall have the  following
meanings:

(i)  "Investor" means the Buyer.

(ii)  "Register,"  "Registered,"  and  "Registration"  refer  to a  registration
effected by  preparing  and filing a  Registration  Statement or  Statements  in
compliance with the Securities Act and pursuant to Rule 415 under the Securities
Act or any  successor  rule  providing  for offering  securities on a continuous
basis ("Rule 415"),  and the  declaration or ordering of  effectiveness  of such
Registration  Statement by the United States Securities and Exchange  Commission
(the "SEC").

(iii)  "Registrable  Securities"  means the Common Stock purchased by the Buyer,
the Common  Stock to be issued  upon  exercising  the  Repricing  Rights and the
Warrants  to be issued to the Buyer  and  finder by the  Company,  not to exceed
450,000.

(iv)  "Registration  Statement"  means a  registration  statement of the Company
under the Securities Act.

                                       1




(b)  Capitalized  terms used herein and not otherwise  defined herein shall have
the respective meanings set forth in the Stock Purchase Agreement.

2.   Registration.

(a) Mandatory  Registration.  The Company shall  prepare,  and within sixty (60)
days after the  Closing  Date (as that term is defined in Section 8 of the Stock
Purchase  Agreement)  file a  Registration  Statement  covering the  Registrable
Securities.  Such  Registration  Statement  shall state that, in accordance with
Rule 416 and Rule 457 under the Securities Act it also covers such indeterminate
number of  additional  shares of Common Stock as may become  issuable to prevent
dilution resulting from stock splits, stock dividends or similar event.

(b) Payments by the Company.  The Company  shall pay,  within ten (10)  business
days of  receipt  of written  notice  from the  Buyer,  a fee of 2% of the gross
purchase price of the Common Stock  purchased by the Buyer,  per each thirty day
period,  on a pro  rata  basis,  as long  as the  following  obligations  remain
unsatisfied:

(i)   If the Registration Statement is not filed within sixty (60) calendar days
      following the Closing Date, as that term is defined in the Stock  Purchase
      Agreement.

(ii)  If the Registration  Statement  does not  cover  450,000  shares of Common
      Stock.

(iii) If the Registration  Statement is not declared  effective on or before the
      one hundred twentieth (120th) calendar day after the Closing Date;

(iv)  If the Company does not file any  acceleration  request  within 5 business
      days of  receiving  a  "no  review"  from  the  SEC  with  regard  to  the
      Registration Statement;

(v)   If trading is suspended  for more than 5 trading  days due to the fault of
      the Company.

(vi)  If the Registration  Statement cease to remain  effective for more than 10
      business days;
 
(vii) If the  Company  fails to  deliver  shares  pursuant  to the  exercise  of
      Repricing Rights or a sale within seven (7) business days of the Company's
      receipt of a facsimile notice in the form annexed hereto as Exhibit A (the
      "Exercise  Notice")  and/or fails to make a cash  payment  within the time
      periods set forth in the Stock Purchase  Agreement or this  Agreement,  as
      the case may be.

(c) Demand  Redemption.  In the event any default by the Company under the terms
of this Agreement is continuing for more than 180 calendar days, Investor may at
its sole option send written notice of a demand redemption to the Company.  Upon
receipt of the written  notice from the  Investor,  the Company  shall within 10
business  days make a cash  payment to Investor  equal to the  intrinsic  market
value of Investor's then outstanding Repricing Rights and Common Stock as of the
date that written notice is received by the Company. The cash payment to be made
by the Company upon receipt of written notice of the demand redemption, shall be
in  addition  to any  remedies or  liquidated  damages to which the  Investor is
entitled up to the date written  notice of the demand  redemption is received by
the Company.



                                       2




3.  Obligations  of the Company.  In  connection  with the  registration  of the
Registrable Securities, the Company shall do each of the following.

(a)  Prepare  promptly,  and file  with the SEC as soon as  possible  after  the
Closing Date, a Registration  Statement with respect to not less than the number
of  Registrable  Securities  and  thereafter  use its best  efforts to cause the
Registration  Statement  relating to Registrable  Securities to become effective
not later than five (5) days after the  Company is  notified by the SEC that the
Registration  Statement  may be  declared  effective  and keep the  Registration
Statement  effective pursuant to Rule 415 at all times until the earliest of (i)
the date  that is one (1) year  after  the  Closing  Date (ii) the date when the
Investors may sell all Registrable  Securities  under Rule 144 or (iii) the date
the Investors no longer own any of the Registrable Securities (the "Registration
Period"),  which Registration Statement (including any amendments or supplements
thereto  and  prospectuses  contained  therein)  shall not  contain  any  untrue
statement  of a material  fact or omit to state a material  fact  required to be
stated  therein or necessary  to make the  statements  therein,  in light of the
circumstances in which they were made, not misleading.

(b)  Prepare  and file with the SEC such  amendments  (including  post-effective
amendments)  and  supplements to the  Registration  Statement and the prospectus
used in connection with the  Registration  Statement as may be necessary to keep
the  Registration  effective at all times during the Registration  Period,  and,
during the Registration Period, comply with the provisions of the Securities Act
with respect to the  disposition  of all  Registrable  Securities of the Company
covered by the Registration Statement.

(c) Furnish to each Investor  whose  Registrable  Securities are included in the
Registration  Statement  and its legal counsel  identified  to the Company,  (i)
promptly  after the same is prepared  and publicly  distributed,  filed with the
SEC, or received by the  Company,  one (1) copy of the  Registration  Statement,
each  preliminary  prospectus and  prospectus,  and each amendment or supplement
thereto, and (ii) such number of copies of a prospectus, including a preliminary
prospectus, and all amendments and supplements thereto and such other documents,
as such Investor may reasonably  request in order to facilitate the  disposition
of the Registrable Securities owned by such Investor;

(d)  Use  reasonable  efforts  to  (i)  register  and  qualify  the  Registrable
Securities covered by the Registration  Statement under such other securities or
blue sky laws of such  jurisdictions  as the  Investors  who hold a majority  in
interest of the Registrable  Securities being offered  reasonably request and in
which significant volumes of shares of Common Stock are traded, (ii) prepare and
file  in  those   jurisdictions   such  amendments   (including   post-effective
amendments) and supplements to such  registrations and  qualifications as may be
necessary  to  maintain  the  effectiveness  thereof  at all  times  during  the
Registration  Period,  (iii) take such  other  actions  as may be  necessary  to
maintain such registrations and qualifications in effect at all times during the
Registration  Period,  and (iv) take all other actions  reasonably  necessary or
advisable to qualify the Registrable  Securities for sale in such jurisdictions;
provided,  however,  that  the  Company  shall  not be  required  in  connection
therewith  or as a  condition  thereto  to (A)  qualify  to do  business  in any


                                       3




jurisdiction  where it would not  otherwise  be required to qualify but for this
Section 3(d), (B) subject itself to general  taxation in any such  jurisdiction,
(C) file a general consent to service of process in any such  jurisdiction,  (D)
provide any  undertakings  that cause more than nominal expense or burden to the
Company or (E) make any change in its certificate of  incorporation  or by-laws,
which in each  case the  Board of  Directors  of the  Company  determines  to be
contrary to the best interests of the Company and its stockholders;

(e) As promptly as practicable  after becoming aware of such event,  notify each
Investor of the happening of any event of which the Company has knowledge,  as a
result of which the prospectus included in the Registration  Statement,  as then
in effect,  includes an untrue  statement of a material fact or omits to state a
material fact required to be stated  therein or necessary to make the statements
therein,  in  light  of the  circumstances  under  which  they  were  made,  not
misleading,  and use its best  efforts  promptly  to  prepare  a  supplement  or
amendment to the Registration Statement or other appropriate filing with the SEC
to correct such untrue statement or omission,  and deliver a number of copies of
such  supplement or amendment to each  Investor as such Investor may  reasonably
request;

(f) As promptly as practicable  after becoming aware of such event,  notify each
Investor who holds Registrable  Securities being sold of the issuance by the SEC
of any stop order or other  suspension of the  effectiveness of the Registration
Statement at the earliest possible time;

(g) Upon  effectiveness of registration,  and upon receipt of an Exercise Notice
in the form  annexed  hereto as Exhibit A, the Company  shall (i)  instruct  the
transfer  agent  to  remove  all  restrictive   legends  from  the  Regristrable
Securities;  (ii)  instruct the  transfer  agent to issue  certificates  in such
denominations or amounts as the case may be, as the Buyer may reasonably request
and registered in such names as the Buyer may request; and (iii) remove any stop
transfer order instructions.

(h) Take all other  reasonable  actions  necessary  to expedite  and  facilitate
disposition  by the  Investor  of the  Registrable  Securities  pursuant  to the
Registration Statement.

4.  Obligations of the Investors.  In connection  with the  registration  of the
Registrable Securities, the Investors shall have the following obligations:

(a) It shall be a  condition  precedent  to the  obligations  of the  Company to
complete  the  registration  pursuant  to this  Agreement  with  respect  to the
Registrable Securities of a particular Investor that such Investor shall furnish
to the Company such information  regarding  itself,  the Registrable  Securities
held by it, and the intended method of disposition of the Registrable Securities
held by it, as shall be reasonably  required to effect the  registration of such
Registrable  Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. At least five (5) days prior
to the first anticipated filing date of the Registration Statement,  the Company
shall notify each  Investor of the  information  the Company  requires from each


                                       4




such Investor (the "Requested  Information") if such Investor elects to have any
of  such  Investor's   Registrable   Securities  included  in  the  Registration
Statement.  If at least  two (2)  business  days  prior to the  filing  date the
Company  has  not  received  the  Requested  Information  from  an  Investor  (a
"Non-Responsive Investor"), then the Company may file the Registration Statement
without  including  Registrable  Securities  of  such  Non-Responsive  Investor.
Notwithstanding  the  foregoing,  each  Investor  elects to have its  securities
included in the  Registration  Statement to be filed by the Company  within five
(5) days of the date hereof.

(b) Each Investor by such Investor's  acceptance of the  Registrable  Securities
agrees to cooperate  with the Company as reasonably  requested by the Company in
connection  with  the  preparation  and  filing  of the  Registration  Statement
hereunder,  unless such  Investor  has  notified  the Company in writing of such
Investor's  election to exclude all of such  Investor's  Registrable  Securities
from the Registration Statement; and

(c) Each  Investor  agrees that,  upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 3(e) or 3(f), above,
such Investor will immediately discontinue disposition of Registrable Securities
pursuant to the  Registration  Statement  covering such  Registrable  Securities
until  such  Investor's  receipt of the  copies of the  supplemented  or amended
prospectus  contemplated  by Section  3(e) or 3(f) and,  if so  directed  by the
Company,  such  Investor  shall  deliver to the  Company  (at the expense of the
Company) or destroy (and deliver to the Company a  certificate  of  destruction)
all  copies in such  Investor's  possession,  of the  prospectus  covering  such
Registrable Securities current at the time of receipt of such notice.

5. Expenses of Registration.  All reasonable  expenses,  other than underwriting
discounts and commissions and other fees and expenses of investment  bankers and
other than brokerage  commissions,  incurred in connection  with  registrations,
filings or  qualifications  pursuant to Section 3 shall be borne by the Company,
however;  if  Investor  decides  to  retain  Counsel,  it shall do so at its own
expense.

6.  Indemnification.  In the event any Registrable  Securities are included in a
Registration Statement under this Agreement:

(a) To the extent permitted by law, the Company will indemnify and hold harmless
each Investor who holds such Registrable  Securities,  the directors, if any, of
such Investor, the officers, if any, of such Investor,  each person, if any, who
controls any Investor  within the meaning of the  Securities Act or the Exchange
Act (each,  an  "Indemnified  Person"),  against  any losses,  claims,  damages,
liabilities or expenses (joint or several) incurred (collectively,  "Claims") to
which any of them may become subject under the Securities  Act, the Exchange Act
or  otherwise,  insofar as such  Claims  (or  actions  or  proceedings,  whether
commenced or threatened,  in respect thereof) arise out of or are based upon any
untrue  statement of a material fact  contained in the  Registration  Statement,
prospectus,  or any  post-effective  amendment  thereof or the omission to state
therein a material  fact  required to be stated  therein  necessary  to make the
statements  therein,  in light of the circumstances in which they were made, not
misleading Notwithstanding anything to the


                                       5




contrary  contained  herein,  the  indemnification  agreement  contained in this
Section  6(a)  shall not be  available  to the  extent  such Claim is based on a
failure of the Investor to deliver or cause to be delivered the prospectus  made
available by the Company; or apply to amounts paid in settlement of any Claim if
such settlement is effected without the the Company being a party thereto.  Each
Investor  will  indemnify  the Company and its  officers,  directors  and agents
against any claims arising out of or based upon a claim which occurs in reliance
upon and in conformity with information  furnished in writing to the Company, by
or on  behalf  of such  Investor,  expressly  for  use in  connection  with  the
preparation  of the  Registration  Statement,  subject to such  limitations  and
conditions as are applicable to the  Indemnification  provided by the Company to
this Section 6. Such indemnity shall remain in full force and effect  regardless
of any investigation made by or on behalf of the Indemnified Person.

(b) Promptly after receipt by an Indemnified  Person or Indemnified  Party under
this  Section 6 of notice  of the  commencement  of any  action  (including  any
governmental  action),  such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to be made against any indemnifying party under this
Section  6,  deliver  to  the  indemnifying   party  a  written  notice  of  the
commencement  thereof  and the  indemnifying  party  shall  have  the  right  to
participate in, and, to the extent the  indemnifying  party so desires,  jointly
with any other indemnifying  party similarly  noticed,  to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified  Person or the  Indemnified  Party, as the case may be provided,
however, that an Indemnified Person or Indemnified Party shall have the right to
retain its own counsel with the fees and expenses to be paid by the indemnifying
party,  if, in the reasonable  opinion of counsel  retained by the  indemnifying
party,  the  representation  by  such  counsel  of  the  Indemnified  Person  or
Indemnified  Party and the  indemnifying  party  would be  inappropriate  due to
actual or  potential  differing  interests  between such  Indemnified  Person or
Indemnified  Party and any  other  party  represented  by such  counsel  in such
proceeding.  In such event,  the Company  shall pay for only one separate  legal
counsel for the Investors; such legal counsel shall be selected by the Investors
holding a majority  in interest of the  Registrable  Securities  included in the
Registration  Statement  to which the Claim  relates.  The  failure  to  deliver
written  notice  to the  indemnifying  party  within  a  reasonable  time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified  Person or Indemnified  Party under this Section 6,
except to the extent that the indemnifying party is prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be made
by  periodic   payments  of  the  amount   thereof  during  the  course  of  the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.

8. Reports under Exchange Act. With a view to making  available to the Investors
the  benefits  of Rule 144  promulgated  under the  Securities  Act or any other
similar rule or  regulation of the SEC that may at any time permit the Investors
to sell  securities  of the Company to the public  without  registration  ("Rule
144"), the Company agrees to:



                                       6




(a) make and keep public  information  available,  as those terms are understood
and defined in Rule 144;

(b)  file  with the SEC in a timely  manner  all  reports  and  other  documents
required of the Company under the Securities Act and the Exchange Act; and

(c)  furnish  to  each  Investor  so  long as  such  Investor  owns  Registrable
Securities,  promptly upon request,  (i) a written statement by the Company that
it has complied with the reporting  requirements of Rule 144, the Securities Act
and the Exchange Act, (ii) a copy of the most recent annual or quarterly  report
of the Company and such other  reports and documents so filed by the Company and
(iii)  such  other  information  as may be  reasonably  requested  to permit the
Investors to sell such securities pursuant to Rule 144 without registration.

10.  Amendment of  Registration  Rights.  Any provision of this Agreement may be
amended and the  observance  thereof  may be waived  (either  generally  or in a
particular  instance and either  retroactively or prospectively),  only with the
written  consent of the Company and Investors who hold an 80% in interest of the
Registrable  Securities  not  resold  to the  public.  Any  amendment  or waiver
effected in accordance  with this Section 10 shall be binding upon each Investor
and the Company.

11. Miscellaneous.

(a) A person  or entity  is  deemed  to be a holder  of  Registrable  Securities
whenever such person or entity owns of record such  Registrable  Securities.  If
the Company receives conflicting instructions,  notices or elections from two or
more persons or entities with respect to the same  Registrable  Securities,  the
Company shall act upon the basis of  instructions,  notice or election  received
from the registered owner of such Registrable Securities.

(b) Notices  required or permitted to be given hereunder shall be in writing and
shall be deemed to be sufficiently given when personally  delivered (by hand, by
courier, by telephone line facsimile  transmission,  receipt confirmed, or other
means) or sent by certified mail, return receipt  requested,  properly addressed
and with proper postage pre-paid (i) if to the Company,  at One Blue Hill Plaza,
6C Floor, P. O. Box 1548, Pearl River, NY 10965with a copy to Kenneth Selterman,
Esq., Tenzer Greenblatt,  The Chrysler Building, 405 Lexington Avenue, New York,
NY 10174-0208;  (ii) if to the Buyer, at the address set forth under its name in
the  Stock  Purchase  Agreement,  and (iii) if to any  other  Investor,  at such
address as such Investor  shall have  provided in writing to the Company,  or at
such other  address as each such party  furnishes by notice given in  accordance
with this Section 11(b), and shall be effective, when personally delivered, upon
receipt  and,  when so sent by  certified  mail,  four (4)  calendar  days after
deposit with the United states Postal Service.



                                       7




(c) Failure of any party to exercise any right or remedy under this Agreement or
otherwise,  or delay by a party in  exercising  such right or remedy,  shall not
operate as a waiver thereof.

(d) This  Agreement  shall be enforced,  governed by and construed in accordance
with the laws of the State of Delaware  applicable to agreements  made and to be
performed  entirely  within  such  State.  Each of the  parties  consents to the
jurisdiction  of the federal  courts whose  districts  encompass any part of the
City of New York or the state  courts of the  State of New York  sitting  in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection,  including
any  objection  based upon forum non  conveniens,  to the  bringing  of any such
proceeding  in such  jurisdictions.  In the  event  that any  provision  of this
Agreement is invalid or  unenforceable  under any applicable  statute or rule of
law, then such provision  shall be deemed  inoperative to the extent that it may
conflict  therewith and shall be deemed modified to conform with such statute or
rule of law. Any provision hereof which may prove invalid or unenforceable under
any law shall not effect the validity or  enforceability  of any other provision
hereof.

(e) This Agreement  constitutes  the entire  agreement  among the parties hereto
with respect to the subject matter hereof. There are no restrictions,  promises,
warranties  or  undertakings,  other than those set forth or referred to herein.
This Agreement  supersedes all prior  agreements  and  understandings  among the
parties hereto with respect to the subject matter hereof.

(f) Subject to the requirements of Section 9 hereof,  this Agreement shall inure
to the benefit of and be binding upon the  successors and assigns of each of the
parties hereto.

(g) All pronouns and any variations thereof refer to the masculine,  feminine or
neuter, singular or plural, as the context may require.

(h) The headings in this  Agreement are for  convenience  of reference  only and
shall not Emit or otherwise affect the meaning thereof.

(i) This  Agreement may be executed in two or more  counterparts,  each of which
shall be deemed an original but all of which shall  constitute  one and the same
agreement.  This  Agreement,  once executed by a party,  may be delivered to the
other party hereto by telephone  line facsimile  transmission  of a copy of this
Agreement bearing the signature of the party so delivering this Agreement.




                                       8





IN WITNESS  WHEREOF,  the parties have caused this Agreement to be duly executed
by their  respective  officers  thereunto duly authorized as of the day and year
first above written.

FRONTLINE COMMUNICATIONS CORPORATION

By:    ________________________________

Name:  ________________________________

Title: ________________________________


CANADIAN ADVANTAGE LIMITED PARTNERSHIP

By:    ________________________________

Name:  ________________________________

Title: ________________________________


ABERDEEN AVENUE LLC

By:    ________________________________

Name:  ________________________________

Title: ________________________________


                                       9




Exhibit 21
Subsidiaries of Frontline Communications Corporation

Name                                  Ownership                 Jurisdiction
- ----                                  ---------                 ------------

Frontline Commerce Corporation       wholly-owned               Delaware

WOW Factor, Inc                      wholly-owned               New Jersey

CLEC Communications Corporation      wholly-owned               Delaware






  


5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S FINANCIAL STATEMENTS INCLUDED IN THIS ANNUAL REPORT ON FORM 10-KSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1998 DEC-31-1998 1,994,711 0 8,853 5,526 0 2,200,119 1,122,998 141,213 6,286,403 954,583 0 0 0 33,614 5,013,773 6,286,403 0 574,964 651,378 1,744,029 0 0 0 (1,744,099) 0 (1,744,099) 0 0 0 (1,744,099) (0.72) (0.72)