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Quarterly report filed by small businesses

10QSB

                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   Form 10-QSB



          [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934.

                For the quarterly period ended September 30, 2001


         [ ] TRANSITION REPORT PURSUANT TO 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
        (Exact name of Small Business issuer as specified in its Charter)


         Delaware                                              13-3950283
  (State or other jurisdiction                               (I.R.S Employer
Of incorporation or organization)                         Identification number)


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)

Indicate by a check mark whether the issuer: (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve 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 last 90 days.

Yes _X_ No___


As of October 24, 2001 there were outstanding 8,507,062 shares of the issuer's
Common Stock, $ .01 par value.






                                      INDEX

                                                                            Page



Part I   Financial Information


Item 1   Financial Statements

         Condensed Consolidated Balance Sheets                                1

         Condensed Consolidated Statements of Operations                      2

         Condensed Consolidated Statements of Cash Flows                      3

         Notes to Condensed Consolidated Financial Statements                 4


Item 2   Management's Discussion and Analysis of Financial Condition And
         Results Of Operations                                                6


Part II  Other information                                                    9

         Signatures                                                           10







FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets





                                                                                     September 30,       December 31,
                                                                                         2001                2000
                                                                                     ------------        ------------
                                                                                      (Unaudited)          (Audited)
                                                                                                            
ASSETS
Current:
   Cash and cash equivalents                                                             $746,153            $781,082
   Marketable securities                                                                                    1,808,210
   Accounts receivable, net of allowance for doubtful accounts                            336,292             576,824
   Prepaid expenses and other                                                              71,726             126,698
                                                                                     ------------        ------------
                                 Total current assets                                   1,154,171           3,292,814

Property and equipment, net                                                             1,543,903           2,041,010
Intangibles, net                                                                        3,825,244           5,623,154
Other                                                                                     116,683             116,090

                                                                                     ------------        ------------
                                                                                       $6,640,001         $11,073,068
                                                                                     ============        ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable and accrued expenses                                               $1,844,877          $2,424,779
   Deferred revenue                                                                       782,677           1,090,204
   Current portion of  long-term debt                                                     274,647             363,027
                                                                                     ------------        ------------
                              Total current liabilities                                 2,902,201           3,878,010

Long-term Debt, less current portion                                                    1,215,919           1,438,459

                                                                                     ------------        ------------
                                  Total liabilities                                     4,118,120           5,316,469
                                                                                     ------------        ------------

Stockholders' equity:
   Preferred stock, $.01 par value, 2,000,000 shares authorized, issued and
      outstanding 527,100 and 597,800 shares, respectively
      Liquidation preference $8,109,000 and 8,967,000, respectively                         5,271               5,978
   Common Stock, $.01 par value, 25,000,000 shares authorized,  9,123,708 and
      7,164,793 shares issued, respectively, 8,507,062 and 6,554,947 shares
      outstanding , respectively                                                           91,237              71,648
   Additional paid-in capital                                                          35,920,523          35,570,119
   Accumulated deficit                                                                (32,630,498)        (29,030,607)
   Treasury stock, at cost, 616,646 and 609,846 shares, respectively                     (864,652)           (860,539)
                                                                                     ------------        ------------
                              Total stockholders' equity                                2,521,881           5,756,599

                                                                                     ------------        ------------
                                                                                       $6,640,001         $11,073,068
                                                                                     ============        ============




See notes to condensed consolidated financial statements.


                                       -1-






FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)





                                                                  For the three months ended       For the nine months ended
                                                                September 30,    September 30,   September 30,    September 30,
                                                                    2001             2000            2001             2000
                                                                -------------    ------------    -------------    -------------

                                                                                                               
Revenues                                                          $1,658,602      $1,621,319       $5,017,852       $3,589,515

Costs and expenses:
      Cost of revenues                                               809,698         954,789        2,781,745        2,208,061
      Selling, general and administrative                            802,763       2,070,354        3,078,825        5,899,297
      Depreciation and amortization                                  742,965       1,164,268        2,216,439        2,547,352
      Noncash compensation charge                                    206,505                         206,505
                                                                 -----------     -----------     ------------     ------------
                                                                   2,561,931       4,189,411        8,283,514       10,654,710
                                                                 -----------     -----------     ------------     ------------
Loss from operations                                                (903,329)     (2,568,092)      (3,265,662)      (7,065,195)

Other income (expense):
   Interest income                                                     6,287          93,823           50,438          349,211
   Interest expense                                                  (31,192)        (40,120)        (104,713)        (120,856)
   Loss on disposal of property and equipment                                                         (38,919)
                                                                 -----------     -----------     ------------     ------------
Net loss                                                            (928,234)     (2,514,389)      (3,358,856)      (6,836,840)
                                                                 -----------     -----------     ------------     ------------


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

Preferred dividends                                                   78,255          92,805          241,035          246,445

                                                                 -----------     -----------     ------------     ------------
Net loss applicable to common shares                             ($1,006,489)    ($2,607,194)     ($3,599,891)    ($12,939,782)
                                                                 ===========     ===========     ============     ============

Loss per common share-basic and diluted                               ($0.14)         ($0.43)          ($0.52)          ($2.40)
                                                                 ===========     ===========     ============     ============

Weighted average number of  common shares
   outstanding- basic and diluted                                  7,449,092       6,040,254        6,936,038        5,381,400
                                                                 ===========     ===========     ============     ============




See notes to condensed consolidated financial statements.

                                       -2-






FRONTLINE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited) 
Revised     





                                                                               For the nine months ended
                                                                           September 30,       September 30,
                                                                               2001                2000
                                                                           -------------       -------------

                                                                                                  
Cash flow from operating activities:
   Net loss                                                                 ($3,358,856)       ($6,836,840)
   Adjustments to reconcile net loss to net cash provided by
    (used in) operating activities:
      Depreciation and amortization                                           2,216,439          2,547,352
      Loss on disposal of property and equipment                                 38,919
      Noncash compensation charge                                               206,505             29,345
      Changes in assets and liabilities
         Marketable securities                                                1,808,210
         Accounts receivable                                                    240,532            (12,546)
         Prepaid expenses and other                                              54,972            (81,943)
         Other assets                                                              (593)          (258,114)
         Accounts payable and accrued expenses                                 (559,054)          (845,404)
         Deferred revenue                                                      (307,527)           (79,626)
                                                                           ------------       ------------
               Net cash provided by (used in) operating activities              339,547         (5,537,776)
                                                                           ------------       ------------


Cash flows from investing activities:
   Acquisition of property and equipment                                        (63,231)          (270,517)
   Proceeds from disposal of property and equipment                              51,886            418,710
   Acquisition of businesses-net of cash acquired                                               (3,846,290)
                                                                           ------------       ------------
                         Net cash used in investing activities                  (11,345)        (3,698,097)
                                                                           ------------       ------------


Cash flows from financing activities:
   Principal payments on long-term debt                                        (359,018)          (623,718)
   Proceeds from sale of preferred stock, net                                                   14,597,587
   Payments to acquire treasury stock                                            (4,113)          (568,641)
   Payments for repricing rights                                                                  (165,359)
   Dividends paid                                                                                 (153,640)
                                                                           ------------       ------------
               Net cash (used in) provided by financing activities             (363,131)        13,086,229
                                                                           ------------       ------------

Net (decrease) increase in cash and cash equivalents                            (34,929)         3,850,356

Cash and cash equivalents, beginning of period                                  781,082            615,190
                                                                           ------------       ------------

Cash and cash equivalents, end of period                                       $746,153         $4,465,546
                                                                           ============       ============

Supplemental information:
Approximate interest paid during the period                                     $97,000            $60,000
                                                                           ============       ============

The Company entered into capital lease obligations in the aggregate
   amount of approximately                                                      $48,000           $128,000
                                                                           ============       ============




See notes to condensed consolidated financial statements.

                                       -3-






FRONTLINE COMMUNICATIONS CORPORATION

Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2001

NOTE A- BASIS OF PRESENTATION

     The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310 (b)
of Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the management, all adjustments
(consisting of normal recurring accruals) considered necessary for fair
presentation have been included. The results for the interim periods are not
necessarily indicative of the results that may be attained for an entire year or
any future periods. For further information, refer to the Financial Statements
and footnotes thereto in the Company's annual report on Form 10-KSB for the
fiscal year ended December 31, 2000. There have been no significant changes in
accounting policies since December 31, 2000.

     The condensed consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated.

NOTE B- LOSS PER SHARE

     The Company follows SFAS No. 128, "Earning per Share", which provides for
the calculation of "basic" and "diluted" earning 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.

NOTE C- CAPITAL STOCK

     During the nine months ended September 30, 2001 the Company issued 240,380
shares of common stock upon conversion of 70,700 shares of Series B Convertible
Redeemable preferred stock. During the nine months ended September 2001, the
Company granted to certain employees options under its stock option plan to
purchase an aggregate of 445,000 shares of its common stock. In June 2001, the
Company issued 341,835 shares of common stock as semi-annual dividends to the
holders of Series B Convertible Redeemable preferred stock.

     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.


                                       -4-






     During the three months ended March 31, 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 Series B Convertible Redeemable preferred stock being less than the market
price of the common stock at the time of the offering of the Series B
Convertible Redeemable preferred stock.

NOTE D- RECENT ACCOUNTING PRONOUNCEMENTS

     In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No.'s 141 and 142, "Business Combinations" and "Goodwill and Other Intangibles".
FASB 141 requires all business combinations initiated after June 30, 2001 to be
accounted for using the purchase method. Under FASB 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 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 is in the process of determining the impact of these
pronouncements on its financial position and results of operations.


                                       -5-






I
tem 2.


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.

Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995:

     The statements contained herein which are not historical facts are "forward
looking statements" within the meaning of Section 27A of the Securities Act of
1933, as amended and Section 21E of the Securities Exchange Act of 1934. These
"forward looking statements" are subject to risks and uncertainties, including
but not limited to, risks associated with the Company's future operating results
including the Company's ability to obtain any additional financing which may be
necessary to continue operations, the ability of the Company to successfully
integrate newly acquired subscribers, business entities and personnel into its
operations, changes in consumer preference and demographics, technological
change, competitive factors, unfavorable general economic conditions, and other
factors described herein 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 the statements were made. The Company assumes no obligation
to update the forward looking information. Actual results may vary significantly
from the results expressed or implied by such forward looking statements.

Overview

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

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

Acquisitions

Acquisitions have historically been an important aspect of the Company's growth
strategy. In 2000, the Company 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.
The Company also acquired certain customers of Double D Network Services, Inc.
pursuant to an agreement whereby the Company paid Double D a referral fee for
each Double D customer who signed up for the Company's dial-up service.

     All of the acquisitions were accounted for using the purchase method of
accounting with the results of each acquisition included in the consolidated
financial statements from the respective acquisition date.


                                       -6-






Restructuring Program.

     In November 2000, the Company initiated a restructuring program designed
to, among other things, reduce its 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 the Company's core business, and closure of regional offices.

     The Company believes that the restructuring program and related cost
reductions, will permit the Company to maintain service quality to its
customers, while a more focused product offering portfolio should enhance the
Company's ability to grow its revenue base. The Company has realized significant
cost reductions from its restructuring program and the Company hopes to reduce
additional costs during the remainder of 2001. However, there can be no
assurance that the restructuring program will achieve the desired results and
that there will not be any disruption or curtailment of any services or
resulting loss of revenues.

Results of Operations

Comparison of the three and nine months ended September 30, 2001 and 2000

Revenues: Revenues increased for the three and nine months ended September 30,
2001 by $37,283 or 2.3% and $1,428,337 or 39.8%, respectively, over the same
periods of the prior year. The increase was attributable mainly to an expanded
customer base due to acquisitions and the Company's marketing efforts.

Cost of Revenues: For the three months ended September 30, 2001, cost of
revenues decreased by $145,091 to $809,698 compared to the same period of the
prior year. For the nine months ended September 30, 2001, cost of revenues
increased by $573,684 to $2,781,745. Cost of revenues as a percentage of
revenues for the three and nine months ended September 30, 2001 were 48.8% and
55.4%, respectively compared to 58.9% and 61.5%, respectively, in 2000. The
decrease in cost of revenues as a percentage of revenues was due to cost
reductions realized through the restructuring program. For the nine months ended
September 30, 2001, the absolute dollar increase in cost of revenues was due
principally to increased communication expenses incurred to support the
increased customer base.

Selling, General and Administrative: For the three months ended September 30,
2001, selling, general and administrative expenses decreased by $1,267,591
compared to the same period of the prior year. As a percentage of revenues,
selling, general and administrative expenses decreased from 127.7% in 2000 to
48.4% in 2001. For the nine months ended September 30, 2001, selling, general
and administrative expenses decreased by $2,820,472 compared to the same period
of the prior year. For the nine-month period, the selling, general and
administrative expenses as a percentage of revenues decreased from 164.3% in
2000 to 61.4% 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 three months ended September 30, 2001,
depreciation and amortization decreased by $421,303 to $742,965 compared to the
same period of the prior year. For the nine months ended September 30, 2001,
depreciation and amortization decreased by $330,913 to $2,216,439 compared to
the same period of the prior year. The decreases were due to reduced
amortization resulting from the intangibles written off as impaired in the
fourth fiscal quarter of 2000.


                                       -7-






Noncash compensation charge: 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.

Interest Expense: Interest expense net of interest income for the three months
ended September 30, 2001 was $24,905 compared to a net interest income of
$53,703 for the three months ended September 30, 2000. Interest expense net of
interest income for the nine months ended September 30, 2001 was $54,275
compared to a net interest income of $228,355 for the nine months ended
September 30,2000. As the proceeds of the Company's public offering of Series B
Convertible Redeemable preferred stock has been used to fund operations,
interest income decreased in the three and nine months ended September 30, 2001
compared to the same periods of the prior year.

Net loss: For the three months ended September 30, 2001, net loss decreased by
63.1% to $928,234 compared to a net loss of $2,514,389 in 2000. For the nine
months ended September 30, 2001, net loss decreased by 50.9% to $3,358,856
compared to a net loss of $6,836,840 in 2000. The decrease in net loss was
primarily due to cost reductions realized through the restructuring program. The
Company has 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 the nine months ended September, 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 nine months ended September 30, 2000 the net loss
after adjusting for the additional dividends and normal dividends for preferred
stock resulted in a net loss of $12,939,782 applicable to common shares.

Liquidity and capital resources.

     The Company's working capital deficiency at September 30, 2001 was
$1,748,030 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.

     The Company's primary capital requirements are for the installation of
network equipment and working capital. To date, the Company has financed its
capital requirements primarily through issuance of debt and equity securities.
The Company currently does not have any bank lines of credit. The availability
of capital resources is dependent upon prevailing market conditions, interest
rates, and the financial condition of the Company.

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


                                       -8-






 
                                    PART II
                                OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds

          During the three months ended September 30, 2001, the Company issued
     45,900 shares of common stock upon conversion of 13,500 shares of Series B
     Convertible Redeemable preferred stock and granted 1,376,700 restricted
     shares of its common stock to its employees under the Company's 2001 Stock
     Incentive Plan. The foregoing shares were issued pursuant to exemptions
     from registration under Sections 2(a)(3), 3(a)(9) and 4(2) of the
     Securities Act of 1933.


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

     The Company held an annual meeting of stockholders on July 27, 2001 at
     which the following matters were voted upon:

     1.   Election of five directors.

     2.   Approval of the Company's 2001 Stock Incentive Plan.

     The results of the meeting were as follows:

                                                                       Broker
     DIRECTORS                        FOR              WITHHELD        NON-VOTES
     Stephen J. Cole-Hatchard         5,337,554        235,680         0
     Nicko Feinberg                   5,337,554        235,680         0
     William A. Barron                5,337,554        235,680         0
     Stephen D. Crocker               5,337,554        235,380         0
     Ronald C. Signore                5,337,554        238,680         0
                                                                     
                                                                      Broker
                      FOR            AGAINST         ABSTAIN          NON-VOTES

     Proposal 2       1,523,492      425,837         19,260           3,969,757


Item 6. Exhibits and Reports on Form 8-K

     (a)  Exhibits:

          10.1    2001 Stock Incentive Plan-incorporated by reference to 
               Appendix B of the Company's Proxy Statement on Schedule 14A as 
               filed with the Securities and Exchange Commission on July 3, 
               2001.

     (b)  Reports on Form 8-K- None


                                       -9-







                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


October 31, 2001


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



                             By:  /s/ Vasan Thatham
                                  ---------------------------
                                  Vasan Thatham
                                  Principal Financial Officer and Vice President


                                      -10-