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Optional form for annual and transition reports of small business issuers

10KSB40









                       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, 2001

                                       OR

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

             For the transition period from _________ to ___________

                        Commission File Number 001-15673

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



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

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



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

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

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

         Common Stock, $.01 par value

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

    Common Stock Purchase Warrants

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

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]

The issuer's revenues for the year ended December 31, 2001 were $6,503,120.

The aggregate market value of the voting and non-voting common equity held by
non-affiliates as of April 1, 2002 was $1,101,531. As of April 1, 2002, there
were 8,944,551 shares of the issuer's Common Stock outstanding.

                      Documents Incorporated by Reference:

                                      None.




 






                                     PART I


Item 1. Business.

Overview

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

     Primarily through 18 acquisitions, we grew our monthly revenue from $30,000
as of October 1998 to approximately $500,000 per month at December 31, 2001.
During that same period, we expanded our owned Internet access geographic
footprint from the New York/New Jersey metropolitan area, to a region that now
includes Delaware, Eastern Pennsylvania, and Northern Virginia. At December 31,
2001, we owned and operated 12 points-of-presence ("POPs") which, when combined
with 1,100 POPs licensed from third parties, provide us with the capability to
serve over 75% of the U.S. population.

     During year 2001, we concentrated our efforts and resources primarily on
restructuring our operations to reduce costs, increase operating efficiency and
improve customer service. As a result of our restructuring, we reduced our staff
from approximately 70 employees at March 2001 to 36 as of April 1, 2002, and
closed two regional offices, consolidating those functions into our Pearl River,
New York headquarters.

     We streamlined our product offerings, eliminating certain low margin
products and services, and added a broadband one-way satellite Internet access
product line to our group of services. We also standardized our product pricing,
and raised the monthly rates to most of our dial-up access customers to between
$17.95 and $19.95 per month, depending on the term of service purchased.

     Frontline Communications Corporation was formed during February 1997 as a
Delaware corporation under the name Easy Street Online, Inc. We changed our name
to Frontline Communications Corporation in July 1997. Our principal executive
offices are located at One Blue Hill Plaza, Pearl River, New York 10965, and our
telephone number is (845) 623-8553. Our Corporate Websites are located at
www.frontline.net and www.fcc.net. PlanetMedia'sm's Internet website is located
at www.pnetmedia.com. Information on these Websites is not part of this report.
Unless the context indicates otherwise, the terms "Frontline," "we," "our,"
"the Company" and "us" in this report include the operations of Frontline
Communications Corporation and its wholly owned subsidiaries, WowFactor, Inc.,
FNT Communications Corp., Inc. and CLEC Communications Corp.

Products and Services

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

Internet Access Products

     o    Dial-Up Accounts: Frontline offers residential and business dial-up
          and ISDN Internet access on a national basis. Customers may order
          these products on our websites or by calling our 800 number. Utilizing
          our branded software, available via CD or downloadable from our
          website, customers can quickly order and activate


                                       2




 





          a new account, billable to the client's credit card. The standard
          Frontline dial-up product provides clients two Internet e-mail
          addresses, a customizable homepage, access to our Customer Service
          telephone support center, and the latest access tools including
          browsers from Netscape and Microsoft.

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

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

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

Internet Presence Products

     o    Virtual Website hosting: We offer virtual website hosting services to
          residential and small business customers who require 24 hour presence
          on the Internet. By renting space on our Internet servers, customers
          avoid costly hardware investment, maintenance, and other costs
          associated with operating their own servers. Marketed partly under our
          brandname FrontHost'sm', the Company's hosting services include domain
          name registration, e-mail addresses, file upload and download
          capability and statistical logs.

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

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

Internet Development Services

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


                                       3




 





Marketing and Sales

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

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

POPS and Network infrastructure

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

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

     Network and service delivery stability is provided through the use of
redundant computing and server facilities located at our larger owned POPs. We
have duplicate bandwidth access at each of our major locations. We have
installed backup power supply, remote alarm, computer virus protection, and
monitoring software throughout our network, which is monitored 24 hours a day, 7
days-a-week.

Customer Support Services

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

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

     o    Email-based assistance available seven days a week;

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

     o    Fax support for higher-end business hosting customers.

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


                                       4




 





Product and Service Development

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

     During 2001, we also consolidated our various email servers onto a common
platform which has reduced regular maintenance requirements and customer
outages.

Industry and Competition

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

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

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

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

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

     o    Cable TV and online services;

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

     o    Large independent DSL providers.

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

Recent Acquisitions

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

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

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


                                       5




 





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

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

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

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

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

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

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

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

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

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

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

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

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

Company Strategy and Restructuring Program

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

     During the period between October 1998 and September 2000, Frontline
acquired 18 companies, and as a result grew our monthly revenue from $30,000 to
approximately $500,000 per month at December 31, 2001, and acquired two
web-portal websites: WoWFactor.com'r' and iShopNetworks'sm'.


                                       6




 





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

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

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

     During the last quarter of 2000, and in 2001, we executed a restructuring
program (the "Restructuring Program") designed to consolidate our operations and
improve cost-effectiveness, combine personnel of our key products and customer
service divisions to leverage our manpower skills, and upgrade our access
network infrastructure. As of April 1, 2002, we have accomplished the following
in connection with our Restructuring Program:

     o    Total workforce reduction of about 70%, from a high of approximately
          120 employees to 36 employees as of April 1, 2002.

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

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

     o    Development of a third-party network of selling agents (VARs) for the
          sales and marketing of our products and services, which had
          approximately 130 Frontline VARs registered as of March 8, 2002;

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

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

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


                                       7




 





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

Trademarks and Service Marks

     We have made applications for federal trademark registration and claim
rights for the following trademarks: WOWFactor; WOWFactor Women on the Web;
Frontline.net; Frontline.net Effortless E-Commerce and Internet Access (name and
logo); Effortless E-Commerce & Internet Access; and Frontline Communications
Corp. We have received a notice of allowance from the U.S. Patent and Trademark
Office with respect to the following marks: WOWFactor.com and WOWFactor design.
All other trademarks and service marks used in this report are the property of
their respective owners.

Industry Regulation

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

     Internet Service Provider Regulation. Currently, few U.S. laws or
regulations specifically regulate communications or commerce over the Internet.
However, changes in the regulatory environment relating to the Internet
connectivity market, including regulatory changes which directly or indirectly
affect telecommunications costs or increase the likelihood or scope of
competition from the regional Bell operating companies or other
telecommunications carriers, could affect the prices at which we may sell our
services and impact competition in our industry. Congress and the Federal
Communications Commission will likely continue to explore the potential
regulation of the Internet. For instance, the Federal Communications Commission
may impose certain payments on Internet service providers, similar to payments
imposed on telecommunications carriers, which could cause our costs of doing
business to increase substantially.

     One area in which Congress attempted to regulate information over the
Internet involved the dissemination of obscene or indecent materials. Certain
provisions of the Telecommunications Act of 1996 relating to indecent
communication over the Internet, generally referred to as the Communications
Decency Act, were found to be unconstitutional by the U.S. Supreme Court in
1997. In October 1998, Congress enacted the Child Online Protection Act, which
requires that online material that is "harmful" to minors be restricted. This
law is currently being challenged in federal district court. On February 1,
1999, a U.S. District Court judge issued a preliminary injunction against
enforcement of portions of that act and the U.S. Department of Justice has
appealed that decision. The Protection of Children from Sexual Predators Act of
1998 creates an affirmative obligation of providers of electronic communication
services to report certain violations of child pornography laws. Some states
also have adopted, or may adopt in the future similar requirements. The
constitutionality of such state requirements remains unsettled at this time.

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


                                       8




 





characteristics and quality of Internet services, libel and defamation, and
sales and other taxes. Internet-related legislation and regulatory policies are
continuing to develop, and we could be subject to increased regulation in the
future. Laws or regulations could be adopted in the future that may decrease the
growth and expansion of the Internet's use, increase our costs, or otherwise
adversely affect our business.

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

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

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

     In October 1999, our CLEC subsidiary entered into an interconnection
agreement with Bell Atlantic in New York. That agreement expired by its terms in
June 2000. In November 2000, we announced that, as part of the Company's
Restructuring Program we would not invest any further capital in our CLEC
subsidiary. We have ceased developing and marketing of our CLEC subsidiary, and
it is currently inactive.

Employees

     As of April 1, 2002, we had 36 employees including 4 executive officers. We
also engage part-time employees from time to time. None of our employees are
represented by a union. We consider our employee relations to be good.


I
tem 2. Properties

     Our executive offices are located in Pearl River, New York, where we lease
approximately 12,000 square feet of space through a lease that expires in August
of 2004. We also lease approximately 2,700 square feet of space in Babylon, New
York that was assumed in connection with our purchase of PNM group, Inc. (d/b/a)
Planet Media. The lease expires in August of 2003. The aggregate annual rent of
for the two offices is approximately $308,000.

     In 2001, as a part of our Restructuring Program, we closed our regional
offices in Delaware and Virginia and have terminated the leases with the
landlords. We lease


                                       9




 





approximately 2,400 square feet in Howell, New Jersey under a lease that expires
in May 2004 and provides for monthly rental of approximately $3,500. We have
closed our office at this location and are attempting to terminate the lease.

     We also lease space (typically, less than 100 square feet) in various
geographic locations to house the telecommunications equipment for each of our
POPs. Leases for the POPs have various expiration dates through April 2003.
Aggregate annual rentals for POPs are approximately $12,000.


Item 3. Legal Proceedings

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


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

     Not applicable.



                                     PART II


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

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




Fiscal Year Ended December 31, 2000                  High             Low
-----------------------------------                  ----             ---
                                                                
First Quarter                                        8.00            4.25

Second Quarter                                       4.00            1.125

Third Quarter                                        1.50            1.00

Fourth Quarter                                       1.00            .156


Fiscal Year Ended December 31, 2001                  High             Low
-----------------------------------                  ----             ---
                                                                
First Quarter                                         .31             .18

Second Quarter                                        .59             .18

Third Quarter                                         .27             .15

Fourth Quarter                                        .38             .15



     The number of record  holders  of our  Common  Stock was 180 as of April 1,
2002.  We  believe  that there are in excess of 2,700  beneficial  owners of our
Common Stock.


                                       10




 





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

     Holders of our Series B Convertible Redeemable Preferred Stock are entitled
to receive annual cumulative dividends of $.60 per share payable semi-annually
in June and December of each year. The dividends are paid in cash or in shares
of Common Stock, in our discretion. In 2001, we elected to pay the June 30 and
December 31 dividends in common stock, resulting in a total dividend payment of
779,324 shares valued at $320,910. These issuances were made pursuant to
exemptions from registrations under Sections 3(a)(9) and/or 4(2) of the
Securities Act of 1933.


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

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

Overview

     During 2001 and 2000, a significant part of our revenues were derived from
providing Internet access services to individuals and businesses. These revenues
were comprised principally of recurring revenues from our customer base, leased
line connections and various ancillary services. We charge subscription fees,
which are billed monthly, quarterly, semi-annually or annually in advance,
typically pursuant to pre-authorized credit card accounts. The balance of our
revenues during those periods were derived from website design, development and
hosting services.

     Monthly subscription service revenue for Internet access is recognized over
the period in which services are provided. Fee revenues for website design,
development and


                                       11




 





hosting services are recognized as services are performed. Deferred revenue
represents prepaid access fees by customers.

Acquisitions

     Acquisitions, through 2000, had historically been an important aspect of
our growth strategy. In 2000, we acquired substantially all of the assets of The
PressRoom Online Services, Application Resources Information Services, Inc d/b/a
Way Communications, The First Street Corporation, Wizardnet, Inc., Delanet, Inc.
(internet access service providers) and PNM Group, Inc., a Web design company.
We also acquired certain customers of Double D Network Services, Inc. pursuant
to an agreement whereby we paid Double D a referral fee for each Double D
customer who signed up for our dial-up service. In 1999, the Company completed
the following acquisitions; Webprime, Inc., a website design, web development
and software development firm; Channel iShop.com (now iShopNetworks.com) a
company with a marketing concept targeting retail businesses; assets relating to
the dial-up internet access customer base and web design and hosting
capabilities of United Computer Specialist, Inc; a customer base of DSL
customers of Lingua Systems, Inc. d/b/a Fullwave Networks; a customer base of
additional dial-up customers of Skyhigh Information Technologies and Fronthost
LLC, a company in the business of providing web hosting and design services.

     All of the acquisitions were accounted for using the purchase method of
accounting with the results of each acquisition included in the consolidated
financial statements from the respective acquisition date. Our acquisitions
resulted in our recording significant intangible assets. During the years ended
December 31, 2001 and 2000, due to changes in circumstances, we determined that
the carrying amount of our intangible assets resulting from certain of our prior
acquisitions were impaired. Accordingly, during the years ended December 31,
2001 and 2000, we recorded an impairment charge of $ 2,800,000 and $2,300,000,
respectively, on these assets. See note 2 of the Notes to Consolidated Financial
Statements.

Restructuring Program.

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

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

Results of Operations

Comparison of Years ended December 31, 2001 and 2000

Revenues. Revenues increased for the year ended December 31, 2001 by $1,175,804
or 22.1% over the prior year. The increase was attributable mainly to an
expanded customer base. The increase in customer base was principally due to
acquisitions and due to our internal marketing efforts.


                                       12




 





Cost of Revenues. For the year ended December 31, 2001, cost of revenues
increased by $222,155 to $3,482,954. As a percentage of revenues, cost of
revenues decreased to 53.6% from 61.2%. The absolute dollar increase in cost of
revenues was due principally to increased communication and technical personnel
expenses incurred to support the increased revenue base.

Selling, General and Administrative. For the year ended December 31, 2001
selling, general and administrative expenses decreased by $4,722,549. As a
percentage of revenues, selling, general and administrative expenses decreased
from 161.1% in 2000 to 59.4% in 2001. The decrease in selling, general and
administrative expenses was due to cost reductions realized through the
Restructuring Program.

Depreciation and Amortization. For the year ended December 31, 2001,
depreciation and amortization decreased by $674,363 to $2,943,678. The decrease
was due to reduced amortization resulting from intangibles written off as
impaired in the fourth quarter of 2000.

Non cash compensation charges. In September 2001, we granted 1,376,700
restricted shares of our common stock to our employees under the Company's 2001
Stock Incentive Plan. Accordingly, $206,505 representing the fair value of the
shares granted, was charged to operations as a non-cash compensation charge.
During 2000, we recognized a non-cash compensation charge of $63,095 for shares
issued in exchange for services from consultants and for shares repurchased from
an officer.

Impairment of intangibles.

     During the year ended December 31, 2001, due to changes in circumstances,
we determined that the carrying amount of intangible assets of The PressRoom
Online Services, Wizardnet, Inc., Delanet and PNM Group were impaired.
Accordingly we recorded an impairment charge of $2,800,000 on these assets.
During the year ended December 31, 2000, due to changes in circumstances, we
determined that the carrying amount of intangible assets of WoWFactor, Inc.,
Roxy Systems, US Online, Inc., Webspan Communications, iShop Networks, Webprime,
Inc., Skyhigh Information Technologies, UCS Web Design, Application Resources
Information Services, Inc., and The First Street Corporation were impaired.
Accordingly we recorded an impairment charge of $2,300,000 on these assets.

Interest Expense. Interest expense, net of interest income for 2001 was $77,891
compared to a net interest income of $247,981 for 2000. As the proceeds of our
public offering of Series B Convertible Redeemable preferred stock has been used
to fund operations, interest income decreased in 2001.

Net loss. For the year ended December 31, 2001, net loss decreased by 42.5% or
$5,206,168 to $7,029,287 compared to a net loss of $12,235,455 in 2000. We
incurred significant losses as revenues generated were not sufficient to offset
the substantial up-front expenditures and operating costs associated with
attracting and retaining additional customers.

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


                                       13




 





Liquidity and Capital Resources.

     Our working capital deficiency at December 31, 2001 was $1,725,323 compared
with a working capital deficiency of $585,196 at December 31, 2000. The increase
in working capital deficiency was mainly due to operating losses.

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

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

     In March 2002, we obtained executed subscriptions from investors
representing $200,000 of gross proceeds, in our private offering of 8%
convertible notes and common stock purchase warrants. We will issue to the
investors an aggregate principal amount of $200,000 of the convertible notes,
which will mature three years from the date of issuance, and warrants to
purchase an aggregate of 1,000,000 shares of our common stock. We anticipate
that the offering will be consummated in April 2002.

     Our capital expenditures for 2002 are expected to range between $36,000 to
$50,000. Based on current plans, management anticipates that the cash on hand,
the proceeds from the Company's private offering of convertible notes and common
stock purchase warrants which is expected to be consummated in April 2002 and
expected recurring revenues from operations will satisfy our capital
requirements through at least the end of 2002. However, our need for additional
capital may be affected by the outcome of our ongoing efforts to reduce our
operating expenses and our ability to maintain our existing revenue base. Our
ability to maintain our existing revenue base is dependent upon many factors
such as the continued viability of the DSL providers through whom we offer DSL
service and increased competition in the markets we serve for our Internet
access products from cable and other Internet Service providers. If we are not
successful in maintaining our existing revenue base and implementing certain
cost cutting measures, we may need additional financing in 2002 to continue
operations as currently conducted. We have no available standby sources of
financing and there can be no assurance that any additional financing, if
required, will be available to us on acceptable terms, or at all.


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.


                                       14







 





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


                                    PART III


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

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




Name                       Age      Position
----                       ---      ---------
                              
Stephen J. Cole-Hatchard   44       Chairman of the Board and Chief
                                    Executive Officer

Nicko Feinberg             30       President, Chief Operating
                                    Officer and Director

Vasan Thatham              44       Vice President and Chief
                                    Financial Officer

Amy Wagner-Mele            33       Executive Vice President,
                                    Secretary and General Counsel

Ronald C. Signore          41       Director

William A. Barron          52       Director

Stephen D. Crocker         57       Director



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

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

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

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





                                       15




 





to August 1997, Ms. Wagner-Mele was an associate with the law firm of Podvey,
Sachs, Meanor, Catenacci, Hildner & Cocoziello, P.C.

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

         William A. Barron has been one of our directors since January 2000.
Prior to retirement, Mr. Barron served as Vice President and Chief Financial
Officer of Hudson Technologies, Inc. from July 1996 to March 1997. Prior to
that, Mr. Barron was President and Chief Operating Officer for Diagnostek, Inc.,
a pharmacy benefit management company, from May 1994 to October 1995 and
Executive Vice President and Chief Financial Officer for Diagnostek, Inc. from
March 1993 to April 1994. From February 2001 through July 2001, as part of the
Restructuring Program, Mr. Barron served as interim Vice President and Chief
Operating Officer of the Company.

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

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


Item 10. Executive Compensation.

         The following table sets forth compensation paid to our Chief Executive
Officer and our three other most highly compensated executive officers (each of
whom was serving at the end of our fiscal year ended December 31, 2001) during
the years ended December 31, 1999, 2000 and 2001. No other executive officer of
the Company received aggregate compensation which exceeded $100,000 during the
year ended December 31, 2001. We refer to these four executive officers as our
"Named Executives".





                                                                                 Long-Term Compensation
                                                                                 ----------------------
                                                                                         Awards
                                                                                         ------
                                                                                  Securities Underlying 
Name and Principal Position           Year      Salary      Bonus                    Options/SAR(#)
---------------------------           ----      ------      -----                    --------------
                                                                             
Stephen J. Cole-Hatchard               2001    $114,423     $67,725 (1)                  52,000
  Chief Executive Officer              2000     117,692      34,500                      25,000
                                       1999     115,256           0                     146,000

Nicko Feinberg                         2001    $109,518     $49,175 (2)                  52,000
  President                            2000     110,000      24,500                      27,000
                                       1999     108,615           0                     146,000

Amy Wagner-Mele                        2001    $109,518     $22,425 (3)                  52,000
  Vice President                       2000     110,000      32,000                      12,000
                                       1999     108,615           0                      26,000

Vasan Thatham                          2001    $109,518     $15,051 (4)                  27,000
 Chief Financial Officer               2000     110,000      18,500                      12,000
                                       1999      80,769                                  61,000




                                         16




 





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

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

(3)  Includes $22,425 representing the fair market value on the date of the
     award of 149,500 shares of common stock issued under our 2001 Stock
     Incentive Plan.

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

         The following table sets forth information regarding options granted
during the year ended December 31, 2001 to our Named Executives:




                            Options/SAR Grants in Year Ending December 31, 2001

                            Number of Shares         % of Total
                            Underlying               Options/SAR
                            Options/ SARs            Granted                   Exercise Price      Expiration
                            Granted                  in Year                      ($/share)           Date
                            -------                  -------                      ---------           ----
                                                                                         
Stephen J.                   52,000                  11.69%                        $0.22             3/31/06
     Cole-Hatchard

Nicko Feinberg               52,000                  11.69%                        $0.22             3/31/06

Amy Wagner-Mele              52,000                  11.69%                        $0.22             3/31/06

Vasan Thatham                27,000                   6.07%                        $0.22             3/31/06




         All of the options granted were exercisable at December 31, 2001.

         The following table sets forth information concerning the number of
options owned by our Named Executives, the value of any in-the-money unexercised
options as of December 31, 2001 and information concerning options exercised by
our Named Executives during the year ended December 31, 2001:




                            Aggregated Option Exercises and Year-End Option/SAR Values

                                Shares                       Number of Securities           Value of Unexercised
                               Acquired       Value         Underlying Unexercised              In-The-Money
                             On Exercise   Realized ($)   Options/SARs at 12/31/2001     Options/SARs at 12/31/2001
                             -----------   ------------   --------------------------     --------------------------

                                                          Exercisable   Unexercisable    Exercisable    Unexercisable
                                                          -----------   -------------    -----------    -------------
                                                                                         
Stephen J.Cole-Hatchard           0             $0          301,000        1,000             $0               $0

Nicko Feinberg                    0             $0          244,000        1,000             $0               $0

Amy Wagner-Mele                   0             $0          149,000        1,000             $0               $0

Vasan Thatham                     0             $0           99,000        1,000             $0               $0






                                       17




 





         The year-end values for unexercised in-the-money options represent the
positive difference between the exercise price of the options and the year-end
market value of our common stock. An option is "in-the-money" if the year-end
fair market value of our common stock exceeds the option exercise price. The
closing sale price of our common stock on December 28, 2001 was $.18.

Employment Agreements

         We have entered into employment agreements with Messrs. Feinberg and
Cole-Hatchard that provide for an annual base compensation of not less than
$88,000 and $45,000, respectively, and such bonuses as the Board of Directors
may, in its sole discretion, from time to time determine. We entered into an
employment agreement with Amy Wagner-Mele pursuant to which Ms. Wagner-Mele
agreed to serve as Corporate Counsel at a salary of not less than $98,000 per
annum. The employment agreements with Messrs. Feinberg and Cole-Hatchard expire
in August 2002, and the employment agreement with Ms. Wagner-Mele expires in
September 2002. All are subject to automatic successive one year renewals unless
either we or the employee gives notice of intention not to renew the agreement.
With the exception of Mr. Cole-Hatchard, the employment agreements provide for
employment on a full-time basis and contain a provision that the employee will
not compete or engage in a business competitive with our current or anticipated
business during the term of the employment agreement and for a period of two
years thereafter. We have entered into a month-to-month employment agreement
with Mr. Thatham that provides for a base salary at a rate of $95,000 per year.

         All of the employment agreements provide for each of the employees to
be paid additional compensation equal to 295% of their annual base salary in the
event of a change of ownership or effective control of our company (as defined
in the agreements).

Director Compensation

         Non-employee directors received $7,500 in 2001 for attending Board
Meetings. In addition, pursuant to our 2001 Stock Incentive Plan, we granted
awards of shares of our common stock to the following directors: William Barron
- 87,000; Steven Crocker - 50,000; Ron Signore - 120,832.

1997 Stock Option Plan

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

         Our Board of Directors or a committee of our Board administers our
stock option plan and is authorized, in its discretion, to grant options under
our stock option plan to all eligible employees, including our officers,
directors (whether or not employees) and consultants. Our stock option plan
provides for the granting of both "incentive stock options" (as defined in
Section 422 of the Internal Revenue Code of 1986, as 




                                       18




 






amended) and non-qualified stock options. Options can be granted under our stock
option plan on such terms and at such prices as determined by the Board of
Directors or its committee, except that the per share exercise price of options
will not be less than the fair market value of the common stock on the date of
grant. In the case of an incentive stock option granted to a stockholder who
owns stock possessing more than 10% of the total combined voting power of all of
our classes of stock, the per share exercise price will not be less than 110% of
the fair market value on the date of grant. The aggregate fair market value
(determined on the date of grant) of the shares covered by incentive stock
options granted under our stock option plan that become exercisable by a grantee
for the first time in any calendar year is subject to a $100,000 limit.

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

2001 Stock Incentive Plan

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

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

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





                                       19




 





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

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

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


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

         The following table sets forth certain information, as of March 8, 2002
relating to the beneficial ownership of shares of Common Stock by: (i) each
person or entity who is known by the Company to own beneficially five percent or
more of the outstanding Common Stock; (ii) each of the Named Executives; (iii)
each of the Company's directors; and (iv) all directors and executive officers
of the Company as a group.

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





Name of Beneficial Owner            Number of Shares                   Percentage
                                    Beneficially Owned (1)
                                                                 
Nicko Feinberg                            740,500     (2)                8.1%
Stephen J. Cole-Hatchard                1,060,718     (3)               11.3%
Ronald Signore                            265,696     (4)                2.9%
William Barron                            178,972     (5)                2.0%
Steve Crocker                             100,000     (6)                1.1%
Amy Wagner-Mele                           304,500     (7)                3.3%
Vasan Thatham                             194,500     (8)                2.2%
All Directors and Executive
Officers as a group (seven persons)     2,844,886     (9)               27.9%



(1)  We believe that all persons named in the table have sole voting and
     investment power with respect to all shares of Common Stock beneficially
     owned by them.

(2)  Includes options to purchase 244,000 shares of Common Stock.

(3)  Includes 144,000 shares held by the Cole-Hatchard Family Limited
     Partnership, of which Mr. Cole-Hatchard is a general partner, options to
     purchase 301,000 shares of Common Stock and 171,530 shares of Common Stock
     issuable upon exercise of 50,450 shares of Series B Preferred Stock.

(4)  Includes warrants to purchase 41,664 shares of Common Stock and options to
     purchase 100,000 shares of Common Stock.



                                       20




 






(5)  Includes options to purchase 87,000 shares of Common Stock and 680 shares
     of Common Stock issuable upon conversion of 200 Shares of Series B
     Preferred Stock.

(6)  Includes options to purchase 50,000 shares of Common Stock.

(7)  Includes options to purchase 149,000 shares of Common Stock.

(8)  Includes options to purchase 99,000 shares of Common Stock.

(9)  Includes options and warrants to purchase 1,071,664 shares of Common Stock
     and 172,210 shares of Common Stock issuable upon exercise of 50,650 shares
     of Series B Preferred Stock.


Item 12. Certain Relationships and Related Transactions.

None


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

         (a) Exhibits

         3.1   Certificate of Incorporation of the Company.'D'

         3.2   Certificate of Amendment of the Certificate of Incorporation of
               the Company.'D''D''D''D''D''D'

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

         3.4   By-Laws of the Company.'D'

         4.1   Certificate of Designation of Series A preferred stock.'D''D'

         4.2   Certificate of Designation of Series B preferred stock.*

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

         10.2  Employment Agreement with Amy Wagner-Mele.*#

         10.3  Employment Agreement with Vasan Thatham.*#

         10.4  Stock Purchase Agreement dated as of October 1, 1998 by and among
               the Company, WOWFactor, Inc. and the WOWFactor, Inc.
               stockholders.'D''D'

         10.5  Form of Registration Rights Agreement among the Company and the
               WOWFactor, Inc. Stockholders.'D''D'

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

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

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

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



                                       21




 







        10.10 2001 Stock Incentive Plan.***

        10.11 1997 Stock Option Plan of the Company.'D'

        10.12 Stock Purchase Agreement dated March 25, 1999.'D''D''D''D''D'

        10.13 Registration Rights Agreement dated March 25, 1999.'D''D''D''D''D'

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

        10.15 Registration Rights Agreement dated July 8, 1999.*

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

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

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

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

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

        10.21 Amendment No. 1 to Office Lease.*

        10.22 Amendment No. 2 to Office Lease.*

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

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

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

        21.1  Subsidiaries of the Company.

        23.1  Consent of Goldstein Golub and Kessler LLP.

(Footnotes from previous page)

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

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

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

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





                                       22




 






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

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

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

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

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

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

#                  Denotes a management compensation plan or arrangement.

         (b) Reports on Form 8-K filed during the quarter ended December 31,
2001:

         Not applicable.


                                       23


 







                                   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 5th day of April 2002.




                        FRONTLINE COMMUNICATIONS CORPORATION


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


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






Signature                                   Title                                Date
---------                                   -----                                ----

                                                                               
/s/ STEPHEN J. COLE-HATCHARD                Chief Executive Officer,             April 5, 2002
----------------------------                and Director (Principal
  Stephen J. Cole-Hatchard                  Executive Officer)
                                            

/s/ NICKO FEINBERG                          President and Director               April 5, 2002
-------------------
  Nicko Feinberg

/s/ VASAN THATHAM                           Chief Financial Officer              April 5, 2002
------------------                          and Vice President (Principal
  Vasan Thatham                             Financial and Accounting Officer) 
                                            

                                            Director                                          
----------------------
  Stephen D. Crocker

/s/ RONALD C. SIGNORE                       Director                             April 5, 2002
---------------------
  Ronald C. Signore

/s/ WILLIAM A. BARRON                       Director                             April 5, 2002
---------------------
  William A. Barron





                                       24







 









FRONTLINE COMMUNICATIONS
CORPORATION AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2001







 







                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES


                                      INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================







                                                                  
Independent Auditor's Report                                           F-1


Consolidated Financial Statements:

   Balance Sheet                                                       F-2
   Statement of Operations                                             F-3
   Statement of Stockholders' Equity (Deficiency)                      F-4
   Statement of Cash Flows                                          F-5 - F-6
   Notes to Consolidated Financial Statements                       F-7 - F-16







 








INDEPENDENT AUDITOR'S REPORT



To the Board of Directors
Frontline Communications Corporation


We have audited the accompanying consolidated balance sheet of Frontline
Communications Corporation and Subsidiaries (the "Company") as of December 31,
2001 and the related consolidated statements of operations, stockholders' equity
(deficiency), and cash flows for each of the two years in the period then ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Frontline
Communications Corporation and Subsidiaries as of December 31, 2001, and the
results of their operations and their cash flows for each of the two years in
the period then ended, in conformity with accounting principles generally
accepted in the United States of America.



GOLDSTEIN GOLUB KESSLER LLP
New York, New York

February 15, 2002



                                                                             F-1




 






                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                                      CONSOLIDATED BALANCE SHEET
================================================================================



                                                                                      
December 31, 2001
------------------------------------------------------------------------------------------------------

ASSETS

Current:
  Cash and cash equivalents                                                               $    602,534
  Accounts receivable, less allowances for doubtful accounts of $248,436                       264,257
  Prepaid expenses and other                                                                    33,023
------------------------------------------------------------------------------------------------------
      Total current assets                                                                     899,814

Property and Equipment, net                                                                  1,267,625

Intangibles, net                                                                               140,738

Other                                                                                          105,493

------------------------------------------------------------------------------------------------------
      Total Assets                                                                        $  2,413,670
======================================================================================================

LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current Liabilities:
  Accounts payable                                                                        $    910,234
  Accrued expenses                                                                             851,713
  Current portion of long-term debt                                                            247,840
  Deferred revenue                                                                             615,350
------------------------------------------------------------------------------------------------------
      Total current liabilities                                                              2,625,137

Long-term Debt, less current portion                                                           858,829
------------------------------------------------------------------------------------------------------
      Total liabilities                                                                      3,483,966
------------------------------------------------------------------------------------------------------

Commitments and Contingencies

Stockholders' Deficiency:
  Preferred stock - $.01 par value; authorized 2,000,000 shares, issued and
    outstanding 527,100 shares (liquidation preference of $7,906,500)                            5,271
  Common stock - $.01 par value; authorized 25,000,000 shares, issued 9,561,197 shares          95,612
  Additional paid-in capital                                                                36,074,277
  Accumulated deficit                                                                      (36,380,804)
------------------------------------------------------------------------------------------------------
                                                                                              (205,644)
  Treasury stock, at cost, 616,646 shares                                                     (864,652)
------------------------------------------------------------------------------------------------------
      Stockholders' deficiency                                                              (1,070,296)
------------------------------------------------------------------------------------------------------
      Total Liabilities and Stockholders' Deficiency                                      $  2,413,670
======================================================================================================



                                  See Notes to Consolidated Financial Statements

                                                                             F-2




 





                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                            CONSOLIDATED STATEMENT OF OPERATIONS
================================================================================




Year ended December 31,                                                     2001                 2000
-----------------------------------------------------------------------------------------------------
                                                                                            
Revenue                                                              $ 6,503,120         $  5,327,316
-----------------------------------------------------------------------------------------------------

Costs and expenses:
  Cost of revenue                                                      3,482,954            3,260,799
  Selling, general and administrative                                  3,860,999            8,583,548
  Depreciation and amortization                                        2,943,678            3,618,041
  Impairment of intangibles                                            2,827,993            2,285,269
  Noncash compensation charge                                            206,505               63,095
-----------------------------------------------------------------------------------------------------
                                                                      13,322,129           17,810,752
-----------------------------------------------------------------------------------------------------
  Loss from operations                                                (6,819,009)         (12,483,436)

Other income (expense):
  Interest income                                                         53,887              408,356
  Interest expense                                                      (131,778)            (160,375)
  Loss on disposal of property and equipment                            (132,387)
-----------------------------------------------------------------------------------------------------

Net loss                                                              (7,029,287)         (12,235,455)

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

Preferred dividends                                                      320,910              337,750
-----------------------------------------------------------------------------------------------------
Net loss available to common shareholders                            $(7,350,197)        $(18,429,702)
=====================================================================================================

Loss per share - basic and diluted                                   $     (1.00)        $      (3.25)
=====================================================================================================

Weighted-average number of shares outstanding - basic and diluted      7,333,221            5,676,129
=====================================================================================================



                                  See Notes to Consolidated Financial Statements

                                                                             F-3








 




                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)




----------------------------------------------------------------------------------------------------------------------
Years ended December 31, 2001 and 2000
----------------------------------------------------------------------------------------------------------------------
                                                                                                                      
                                                                                                          Additional  
                                                          Preferred Stock           Common Stock           Paid-in    
                                                        Shares      Amount       Shares       Amount       Capital    
----------------------------------------------------------------------------------------------------------------------
                                                                                                    
Balance at December 31, 1999                              - 0 -                 4,484,060    $44,841     $15,147,547  

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

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

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

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

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

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

Dividends on preferred stock                                -           -           -            -            -       

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

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

Net loss                                                    -           -           -            -            -       

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

Purchase of treasury stock, at cost (6,800 shares)          -           -           -            -            -       

Conversion of Series B preferred stock                   (70,700)      (707)      240,380      2,404          (1,697) 

Common stock issued for services                            -           -       1,376,700     13,767         192,738  

Dividends on preferred stock                                -           -         779,324      7,793         313,117  

Net loss                                                    -           -           -            -            -       

----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001                             527,100   $  5,271     9,561,197    $95,612     $36,074,277  
======================================================================================================================






-----------------------------------------------------------------------------------------------------------------
Years ended December 31, 2001 and 2000
-----------------------------------------------------------------------------------------------------------------
                                                                                                        Total
                                                                           Treasury                 Stockholders'
                                                           Accumulated      Stock,        Note         Equity
                                                             Deficit       at Cost     Receivable   (Deficiency)
-----------------------------------------------------------------------------------------------------------------
                                                                                                  
Balance at December 31, 1999                             $(10,600,905)   $(264,113)     $(37,500)   $   4,289,870

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

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

Common stock issued for services                              -               -             -              29,345

Exercise of stock options and warrants                        -               -             -                  25

Conversion of Series B preferred stock                        -               -             -               -

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

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

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

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

Net loss                                                  (12,235,455)        -             -         (12,235,455)

-----------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000                              (29,030,607)    (860,539)         -           5,756,599

Purchase of treasury stock, at cost (6,800 shares)            -             (4,113)         -              (4,113)

Conversion of Series B preferred stock                        -               -             -               -

Common stock issued for services                              -               -             -             206,505

Dividends on preferred stock                                 (320,910)        -             -               -

Net loss                                                   (7,029,287)        -             -          (7,029,287)

-----------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001                             $(36,380,804)   $(864,652)   $   - 0 -     $  (1,070,296)
=================================================================================================================



                                  See Notes to Consolidated Financial Statements

                                                                             F-4





 





                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                            CONSOLIDATED STATEMENT OF CASH FLOWS



-------------------------------------------------------------------------------------------------------------
Year ended December 31,                                                             2001                 2000
-------------------------------------------------------------------------------------------------------------
                                                                                           
Cash flows from operating activities:
  Net loss                                                                   $(7,029,287)        $(12,235,455)
  Adjustments to reconcile net loss to net cash provided by (used in)
   operating activities:
    Depreciation and amortization                                              2,943,678            3,618,041
    Noncash compensation charge                                                  206,505               63,095
    Impairment of intangibles                                                  2,827,993            2,285,269
    Loss on disposal of property and equipment                                   132,387                -
    Changes in operating assets and liabilities, net of effects from
     acquisitions in 2000:
      Decrease (increase) in marketable securities                             1,808,210           (1,808,210)
      Decrease (increase) in accounts receivable                                 312,567              (83,540)
      Decrease (increase) in prepaid expenses and other                           93,675               (4,390)
      Decrease (increase) in other assets                                         10,597               (7,352)
      (Decrease) increase in accounts payable and accrued expenses              (563,729)             120,973
      Decrease in deferred revenue                                              (474,854)            (127,328)
-------------------------------------------------------------------------------------------------------------
          Net cash provided by (used in) operating activities                    267,742           (8,178,897)
-------------------------------------------------------------------------------------------------------------

Cash flows from investing activities:
  Acquisition of property and equipment                                          (51,148)            (353,727)
  Proceeds from disposal of property and equipment                                51,886                -
  Acquisition of businesses, net of cash acquired                                  -               (3,767,447)
-------------------------------------------------------------------------------------------------------------
          Net cash provided by (used in) investing activities                        738           (4,121,174)
-------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
  Principal payments on long-term debt                                          (442,915)            (735,839)
  Proceeds from public offering of preferred stock                                 -               14,597,588
  Payments for repricing rights                                                    -                 (465,360)
  Dividends paid                                                                   -                 (337,750)
  Payments to acquire treasury stock                                              (4,113)            (592,676)
-------------------------------------------------------------------------------------------------------------
          Net cash provided by (used in) financing activities                   (447,028)          12,465,963
-------------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash and cash equivalents                            (178,548)             165,892

Cash and cash equivalents at beginning of year                                   781,082              615,190
-------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                                     $   602,534         $    781,082
=============================================================================================================

Supplemental disclosure of cash flow information:
  Cash paid for interest                                                     $   132,000         $    160,375
=============================================================================================================



                                                                     (continued)


                                  See Notes to Consolidated Financial Statements

                                                                             F-5





 









                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                            CONSOLIDATED STATEMENT OF CASH FLOWS



----------------------------------------------------------------------------------------------------------------
Year ended December 31,                                                             2001                    2000
----------------------------------------------------------------------------------------------------------------
                                                                                                       
Supplemental schedule of noncash investing and financing activities:
  Common stock returned for stockholder loan                                       -                  $  (37,500)
================================================================================================================
  Capital lease obligations incurred                                       $      48,098              $  127,747
================================================================================================================
  Dividends on Series B preferred stock paid in common stock               $     320,910                   -
================================================================================================================
  Termination of capital lease:
    Equipment returned                                                             -                  $1,376,037
================================================================================================================
    Capital lease obligation                                                       -                  $  957,327
================================================================================================================
    Accrued expenses                                                               -                  $  418,710
================================================================================================================
  Common stock issued to acquire businesses                                        -                  $  631,290
================================================================================================================
  Notes payable issued in connection with business acquisitions                    -                  $1,093,857

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





                                  See Notes to Consolidated Financial Statements


                                                                             F-6









 






                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

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

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

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

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

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

                      Intangible assets consist of purchased customer bases.
                      Amortization is computed using the straight-line basis
                      over three years, the expected benefit period. Accumulated
                      amortization amounted to $355,707 at December 31, 2001.

                      Long-lived assets, such as property and equipment,
                      intangibles and customer bases, are evaluated for
                      impairment when events or changes in circumstances
                      indicate that the carrying amount of the assets may not be
                      recoverable through the estimated undiscounted future cash
                      flows from the use of these assets. When any such
                      impairment exists, the related assets will be written down
                      to fair value. During the years ended December 31, 2001
                      and 2000, goodwill and purchased customer bases were
                      written down by $2,827,993 and $2,285,269, respectively,
                      due to impairment of such assets.

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

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


                                                                             F-7




 





                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                      receivables are limited due to the large number of
                      customers comprising the Company's customer base.

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

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

                      All costs associated with advertising services are
                      expensed in the period incurred. Advertising expense was
                      approximately $130,000 and $840,000 for the years ended
                      December 31, 2001 and 2000, respectively.

                      The Company follows SFAS No. 128, Earnings per Share,
                      which provides for the calculation of "basic" and
                      "diluted" earnings per share ("EPS"). Basic EPS includes
                      no dilution and is computed by dividing income or loss
                      available to common shareholders by the weighted-average
                      number of common shares outstanding for the period.
                      Diluted earnings per share reflect the potential dilution
                      that could occur through the effect of common shares
                      issuable upon exercise of stock options and warrants and
                      convertible securities. Potential common shares have not
                      been included in the computation of diluted EPS since the
                      effect would be antidilutive.

                      In July 2001, the Financial Accounting Standards Board
                      ("FASB") issued SFAS Nos. 141 and 142, Business
                      Combinations and Goodwill and Other Intangibles,
                      respectively. SFAS No. 141 requires all business
                      combinations initiated after June 30, 2001 to be accounted
                      for using the purchase method. Under SFAS No. 142,
                      goodwill is no longer subject to amortization over its
                      estimated useful life. Rather, goodwill is subject to at
                      least an annual assessment for impairment by applying a
                      fair-value-based test. Additionally, an acquired
                      intangible asset should be separately recognized if the
                      benefit of the intangible asset is obtained through
                      contractual or other legal rights, or if the intangible
                      asset can be sold, transferred, licensed, rented or
                      exchanged, regardless of the acquirer's intent to do so.
                      The Company does not believe the adoption of these
                      pronouncements will have a material effect on its
                      financial position and operations.

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


                                                                             F-8




 





                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

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

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

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

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



                                                                      
                      Purchase price                                  $5,299,000
                      Acquisition costs                                  220,000
                      ----------------------------------------------------------
                                                                       5,519,000
                      ----------------------------------------------------------

                      Assets acquired                                    733,000
                      Liabilities assumed                              2,016,000
                      ----------------------------------------------------------
                                                                       1,283,000
                      ----------------------------------------------------------

                         Intangible assets                            $6,802,000
                      ==========================================================



                      During the year ended December 31, 2001, due to changes in
                      circumstances, the Company determined that the carrying
                      amount of intangible assets of The PressRoom Online
                      Services, Wizardnet, Inc., Delanet and PNET was impaired.
                      Accordingly, the Company recorded an impairment charge of
                      approximately $2,800,000 on these assets. The impairment
                      of PNET was partially offset by the settlement of the
                      $300,000 promissory note, due to the former PNET
                      shareholders, for $30,000.

                      During the year ended December 31, 2000, due to changes in
                      circumstances, the Company determined that the carrying
                      amount of intangible assets of WoWFactor'TM', Inc., Magic
                      Carpet, US Online, Inc., Webprime, I-Shop, Skyhigh,


                                                                             F-9




 





                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                      Way and First Street was impaired. Accordingly, the
                      Company recorded an impairment charge of approximately
                      $2,300,000 on these assets.

                      The following pro forma consolidated financial information
                      has been prepared to reflect the 2000 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, 2000. 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, 2000, and neither is it necessarily indicative
                      of the results of operations for future periods.




                      Year ended December 31, 2000
                      ----------------------------------------------------------
                                                                         
                      Revenue                                       $  7,606,595
                      Net loss                                       (19,676,989)
                      Net loss per share - basic and diluted               (3.35)
                      ----------------------------------------------------------



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

 3.  PROPERTY AND     Property and equipment, at cost, consists of the following
     EQUIPMENT:       at December 31, 2001:




                                                                                            Estimated
                                                                                              Useful   
                                                                                               Life   
                      --------------------------------------------------------------------------------
                                                                                   
                      Computer and office equipment                     $ 2,622,467       3 to 5 years
                      Furniture and fixtures                                 74,825            5 years
                      Leasehold improvements                                143,014         Lease term
                      --------------------------------------------------------------------------------

                                                                          2,840,306
                      Less accumulated depreciation and amortization     (1,572,681)

                      --------------------------------------------------------------------------------
                                                                        $ 1,267,625
                      ================================================================================



                      Depreciation and amortization for each of the years ended
                      December 31, 2001 and 2000 amounted to approximately
                      $689,000 for each year.


                                                                            F-10




 





                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

 4. ACCRUED           Accrued expenses consist of the following at December 31,
    EXPENSES:         2001:



                                                                          
                      Accrued Internet connection and telephone         $355,954
                      Lease cancellations and related costs              313,036
                      Accrued professional fees                           40,618
                      Accrued wages and salaries                          98,501
                      Other                                               43,604
                      ----------------------------------------------------------
                                                                        $851,713
                      ==========================================================



 5. LONG-TERM         Long-term debt consists of the following at December 31,
    DEBT:             2001:



                                                                                                 
                      Present value of net minimum lease payments (a)                        $  378,069
                      Promissory note payable (b)                                               728,600
                      ---------------------------------------------------------------------------------
                                                                                              1,106,669
                      Less current portion of present value of net minimum lease payments       247,840
                      ---------------------------------------------------------------------------------
                                                                                             $  858,829
                      =================================================================================



                      (a) The Company leases computer and other equipment under
                          capital leases. The assets acquired under capital
                          leases have a cost of approximately $1,174,000 and
                          accumulated depreciation of approximately $609,000 as
                          of December 31, 2001.

                          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, 2001:



                                                                     
                          Year ending December 31,

                                    2002                                $289,373
                                    2003                                 129,273
                                    2004                                  10,958
                                    2005                                   1,279
                          ------------------------------------------------------
                          Total minimum lease payments                   430,883
                          Less amount representing interest               52,814
                          ------------------------------------------------------
                          Present value of net minimum lease payments    378,069
                          Less current portion                           247,840
                          ------------------------------------------------------
                                 Long-term lease obligations            $130,229
                          ======================================================


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

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

                                                                            F-11




 





                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

 6. COMMITMENTS AND   The Company rents office space and equipment under 
    CONTINGENCIES:    operating lease agreements expiring at various dates
                      through 2005.

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



                                                                        
                      2002                                             $349,000
                      2003                                              314,000
                      2004                                              216,000
                      ---------------------------------------------------------
                                                                       $879,000
                      =========================================================


                      Rental expense was approximately $438,000 and $409,000 for
                      the years ended December 31, 2001 and 2000, respectively.

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

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

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

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

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

                                                                            F-12




 





                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                      with the following weighted-average assumptions used for
                      options in 2001 and 2000:




                                                               2001                 2000
                      ------------------------------------------------------------------
                                                                     
                      Risk-free interest rate                 4.65%       5.78% to 7.15%
                      Expected life                         5 years              5 years
                      Expected volatility                      169%               168.7%
                      Dividend yield                           None                 None
                      ------------------------------------------------------------------


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




                                                                             2001             2000
                      ----------------------------------------------------------------------------
                                                                                
                      Net loss available to common shareholders:
                        As reported                                   $(7,350,197)    $(18,429,702)
                        Pro forma                                      (7,450,307)     (19,858,249)
                      Net loss per share (basic and diluted):
                        As reported                                         (1.00)           (3.25)
                        Pro forma                                           (1.02)           (3.50)
--------------------------------------------------------------------------------------------------


                      A summary of the status of the Company's stock option plan
                      as of December 31, 2001 and 2000, and changes during the
                      years ended on those dates, is presented below:




                      December 31,                                  2001                          2000
                      -----------------------------------------------------------------------------------------
                                                                          Weighted-                   Weighted-
                                                                          average                      average
                                                                          Exercise                    Exercise
                                                             Shares         Price         Shares        Price
                      -----------------------------------------------------------------------------------------
                                                                                              
                      Outstanding at beginning of year      1,347,768       $4.19        1,327,868       $4.71
                      Granted                                 445,000        0.22          221,600        1.06
                      Exercised                                -              -             (2,500)       2.50
                      Forfeited                              (333,868)       4.97         (199,200)       2.05
                      -----------------------------------------------------------------------------------------
                      Outstanding at end of year            1,458,900       $2.67        1,347,768       $4.05
                      =========================================================================================

                      Options exercisable at year-end       1,442,900       $2.64        1,304,969       $3.98
                      =========================================================================================

                      Weighted-average fair value of
                       options granted during the year         -            $0.21           -            $1.00
                      =========================================================================================



                                                                            F-13




 





                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                      The following table summarizes information about stock
                      options outstanding and exercisable at December 31, 2001:




                                                      Options Outstanding                Options Exercisable
                                         -----------------------------------------   ---------------------------
                                             Number                      Weighted-       Number      Weighted-
                                         Outstanding at     Remaining     average    Exercisable at   average
                          Range of        December 31,     Contractual   Exercise     December 31,   Exercise
                      Exercise Prices         2001            Life         Price          2001         Price
                      ------------------------------------------------------------------------------------------
                                                                                      
                      $0.22 to $1.00          583,000          4.1         $0.30         583,000       $0.30
                      $1.00 to $2.50          243,600          1.5         $2.28         243,600       $2.28
                      $2.50 to $4.00           97,000          1.8         $3.58          97,000       $3.58
                      $4.00 to $6.00          462,300          2.9         $5.15         446,300       $5.13
                      $6.00 to $8.50           73,000          2.1         $6.10          73,000       $6.10
                      ------------------------------------------------------------------------------------------
                                            1,458,900                                  1,442,900
                      ==========================================================================================



 8. STOCKHOLDERS'     In January 2000, the Company's stockholders approved an
    EQUITY            amendment to the Certificate of Incorporation of the
    (DEFICIENCY):     Company increasing the number of authorized shares of
                      preferred stock to 2,000,000.

                      In 1999, the Company sold through private placements
                      499,889 shares of its common stock to two investors for an
                      aggregate price of $4,250,000 with net proceeds to the
                      Company of $3,795,000. The Company issued warrants to
                      purchase 68,175 shares of common stock at prices ranging
                      from $5.23 to $13.85 per share. The Company had granted
                      the investors repricing and redemption rights based on the
                      future market price of its common shares. In March 2000,
                      the Company issued 65,961 shares of common stock pursuant
                      to the repricing rights. In May 2000, the Company acquired
                      16,312 shares of common stock for $34,663 from the private
                      investors. In addition, the Company paid $165,359 for
                      repricing rights, which has been charged to additional
                      paid-in capital. In September 2000, the Company entered
                      into an agreement with the two private investors whereby
                      the Company agreed to pay $300,000 in cash and issue
                      400,000 shares of common stock to resolve certain issues
                      of interpretation that arose out of redemption and
                      repricing rights. This agreement eliminated any additional
                      rights the parties had for additional common stock or cash
                      under the original agreement. The amount paid pursuant to
                      the agreement has been charged to additional paid-in
                      capital.

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

                      In February and March 2000, the Company sold in a public
                      offering 1,137,300 shares of Series B Convertible
                      Redeemable preferred stock at $15 per share and realized
                      net proceeds of approximately $14,404,000. Approximately
                      $194,000 of the offering costs was incurred in 1999. The
                      preferred stock can be converted into common stock at the
                      rate of 3.4 shares of common stock for each share of
                      preferred stock. Preferred stockholders are entitled to
                      receive cumulative annual dividends of $.60 per share
                      payable semiannually either in cash or shares of the

                                                                            F-14




 





                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                      Company's common stock at the sole discretion of the
                      Company. Further, preferred stockholders are entitled to
                      receive a liquidation preference of $15 per share, plus
                      accrued dividends. The Company has the option to redeem
                      the preferred stock under certain circumstances.

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

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

                      In April 2000, the Company's board of directors authorized
                      the Company to purchase up to $1,000,000 worth of its
                      common stock from time to time, as the Company deems
                      appropriate, through open market purchases or in privately
                      negotiated transactions. As of December 31, 2001, the
                      Company had acquired 385,126 shares of common stock
                      including 16,312 shares from the private placement
                      investors for an aggregate consideration of approximately
                      $600,000.

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

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

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

                      At December 31, 2001, there were warrants outstanding to
                      purchase an aggregate of 2,878,475 shares of common stock
                      at exercise prices ranging between $4.80 and $13.85 per
                      share, expiring at various times through 2004.

                                                                            F-15




 





                           FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

 9. INCOME TAXES:     At December 31, 2001, the tax effects of loss
                      carryforwards and the valuation allowance that give
                      rise to deferred tax assets are as follows:



                                                                         
                      Net operating losses                           $ 7,310,000
                      Less valuation allowance                        (7,310,000)
                      ----------------------------------------------------------
                              Deferred tax assets                    $  - 0 -
                      ==========================================================


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




                      December 31,                          2001          2000
                      ----------------------------------------------------------
                                                                      
                      Federal statutory rate                 (34)%         (34)%
                      Increase in valuation allowance         34            34
                      ----------------------------------------------------------
                                                           - 0 - %       - 0 - %
                      ==========================================================


                      The Company had net operating loss carryforwards of
                      approximately $21,500,000 at December 31, 2001, which
                      expire through 2021. The tax benefit of these losses has
                      been completely offset by a valuation allowance due to the
                      uncertainty of its realization.

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

10. MANAGEMENT'S      The Company has initiated a restructuring program during
    PLANS:            2001 and 2000 designed, among other things, to reduce its
                      operating losses. The program requires reduction of
                      personnel, reduction in marketing and promotional
                      expenses, consolidation of certain operations and closure
                      of regional offices. Additionally, the Company is in the
                      process of obtaining additional financing to improve
                      working capital.

                                                                            F-16



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

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













                                                                    Exhibit 21.1

Subsidiaries of Frontline Communications Corporation





           Name                                                        Jurisdiction
           ----                                                        ------------
                                                                     
WOW Factor, Inc.                                                        New Jersey

CLEC Communications Corporation.                                        Delaware

FNT Communications Corporation                                          New York














                                                                    EXHIBIT 23.1




INDEPENDENT AUDITOR'S CONSENT



To the Board of Directors
Frontline Communications Corporation


We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement of Frontline Communications
Corporation on Forms S-3 (#333-89811 and 333-35058) of our report dated February
15, 2002, on the consolidated financial statements of Frontline Communications
Corporation as of December 31, 2001 and for each of the two years in the period
then ended appearing in the annual report on Form 10-KSB of Frontline
Communications Corporation for the year ended December 31, 2001. We also consent
to the reference of our firm under the caption "Experts" contained in such
Registration Statement.



/s/ GOLDSTEIN GOLUB KESSLER LLP
GOLDSTEIN GOLUB KESSLER LLP
New York, New York

April 5, 2002