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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 of 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934.

                  For the quarterly period ended March 31, 1999


         [ ] 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 000-24223


                      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)

                                 (914) 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 May 10,  1999,  there were  outstanding  3,390,700  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 or Plan
            Of Operations                                                     5


Part II     Other information                                                 8

            Signatures                                                        9






Frontline Communications Corporation
Condensed Consolidated Balance Sheets




                                                                                      March 31,      December 31,
                                                                                        1999           1998 (1)
                                                                                     ------------    ------------
                                                                                     (Unaudited)
                                                                                                        
ASSETS
Current:
   Cash and cash equivalents                                                         $  3,059,935    $  1,994,711
   Accounts receivable, net of allowance for doubtful accounts                              7,336           3,327
   Prepaid expenses and other                                                             187,426         202,081
                                                                                     ------------    ------------
                                                              Total current assets      3,254,697       2,200,119

Property and equipment, net                                                             1,232,319         981,785
Intangibles, net                                                                        3,113,743       3,081,326
Other                                                                                      48,871          23,173
                                                                                     ------------    ------------
                                                                                     $  7,649,630    $  6,286,403
                                                                                     ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable and accrued expenses                                             $    508,662    $    301,162
   Deferred revenue                                                                       645,575         614,852
   Current portion of capitalized lease obligation                                         82,767          38,569
                                                                                     ------------    ------------
                                                         Total current liabilities      1,237,004         954,583

Capitalized lease obligations and notes payable- net of current portion                   397,134         284,433
                                                                                     ------------    ------------
                                                                 Total liabilities      1,634,138       1,239,016
                                                                                     ------------    ------------

Stockholders' equity:
   Preferred stock, $.01 par value, 1,000,000 authorized, 10 issued and
      outstanding
   Common Stock, $.01 par value, 10,000,000 authorized, 3,620,220 and 3,361,364
      issued, respectively, 3,388,700 and 3,129,844 outstanding,
       respectively                                                                        36,202          33,614
   Additional paid-in capital                                                          11,098,945       9,121,533
   Accumulated deficit                                                                 (4,855,542)     (3,843,647)
   Treasury stock, at cost, 231,520 shares                                               (264,113)       (264,113)
                                                                                     ------------    ------------
                                                        Total stockholders' equity      6,015,492       5,047,387
                                                                                     ------------    ------------
                                                                                     $  7,649,630    $  6,286,403
                                                                                     ============    ============




(1)  The balance  sheet at December 31, 1998 is derived  from audited  financial
     statements  at that date.  

See notes to condensed consolidated financial statements.


                                       -1-




FRONTLINE COMMUNICATIONS CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
     
                                                    For the three months ended
                                                    March 31,         March 31,
                                                      1999              1998
                                                   -----------      -----------

Revenues                                           $   656,857      $   122,060
Cost of revenues                                       434,208           96,744
                                                   -----------      -----------
Gross profit                                           222,649           25,316

Operating expenses:
   Selling, general and administrative               1,244,318          119,371
                                                   -----------      -----------
Loss from operations                                (1,021,669)         (94,055)

Other income (expense):
   Interest income                                      19,778
   Interest expense                                    (10,004)         (16,907)
                                                   -----------      -----------
Net loss                                           ($1,011,895)     ($  110,962)
                                                   ===========      ===========

Loss per share-basic and diluted                   ($     0.31)     ($     0.09)
                                                   ===========      ===========

Weighted average number of shares
   outstanding- basic and diluted                    3,220,990        1,218,000
                                                   ===========      ===========



See notes to condensed consolidated financial statements.



                                       -2-




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




                                                                         For the three months ended
                                                                          March 31,      March 31,
                                                                            1999           1998
                                                                         -----------    -----------
                                                                                           
Cash flow from operating activities:
   Net loss                                                              ($1,011,895)   ($  110,962)
   Adjustments to reconcile net loss to net cash used in
    operating activities:
      Depreciation and amortization                                          339,436         22,816
      Changes in assets and liabilities
         Accounts receivable                                                  (4,010)        (8,884)
         Prepaid expenses and other                                           14,656          4,106
         Other assets                                                        (25,698)
         Accounts payable and accrued expenses                               207,500        128,907
         Deferred revenue                                                     30,724         10,609
                                                                         -----------    -----------
                      Net cash (used) provided by operating activities      (449,287)        46,592
                                                                         -----------    -----------


Cash flows from investing activities:
   Acquisition of property and equipment                                    (129,684)       (12,014)
   Acquisition of businesses                                                (311,495)
                                                                         -----------    -----------
                                 Net cash used in investing activities      (441,179)       (12,014)
                                                                         -----------    -----------


Cash flows from financing activities:
   Proceeds from sale of common stock, net                                 1,770,000          1,000
   Proceeds from exercise of stock options                                   210,000
   Principal payments on capitalized lease obligations                       (24,310)
   Deferred registration costs                                                             (135,000)
   Proceeds from bank note payable                                                           65,000
   Repayments of stockholder loans                                                           (5,303)
                                                                         -----------    -----------
                      Net cash provided (used) by financing activities     1,955,690        (74,303)
                                                                         -----------    -----------

Net increase (decrease) in cash and cash equivalents                       1,065,224        (39,725)

Cash and cash equivalents, beginning of period                             1,994,711         39,725

Cash and cash equivalents, end of period                                 $ 3,059,935    $      --
                                                                         ===========    ===========

Supplemental information:
Approximate interest paid during the period                              $    14,000
                                                                         ===========




The Company  entered into capital lease  obligations in the aggregate  amount of
approximately $180,000 during the three months ended March 31, 1999.

                                       -3-




FRONTLINE COMMUNICATIONS CORPORATION

Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 1999


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, 1998.

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


NOTE C-CAPITAL STOCK

     In March 1999,  the Company sold 158,856  shares of its Common Stock to two
investors for an aggregate  purchase price of  $2,000,000,  with net proceeds to
the  Company of  $1,770,000.  The Company  also  issued  warrants to purchase an
aggregate of 21,662  shares of Common  Stock at an exercise  price of $13.85 per
share.  The Company  granted  repricing  rights with respect to the shares,  and
anti-dilution  rights  with  respect to the  warrants,  subject to an  aggregate
maximum issuance of 450,000 shares.




                                       -4-




M
ANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

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

     The statements contained herein which are not historical facts are "forward
looking  statements"  within the meaning of Section 27A of the Securities Act of
1933, as amended and Section 21E of the Exchange  Act.  These  "forward  looking
statements"  are subject to risks and  uncertainties,  including but not limited
to, risks associated with the Company's future growth and operating results, the
ability of the Company to  successfully  integrate  newly acquired  subscribers,
business  entities  and  personnel  into its  operations,  changes  in  consumer
preference  and  demographics,   technological   change,   competitive  factors,
unfavorable general economic conditions,  Year 2000 compliance and other factors
described   herein.   The   Company   assumes  no   obligation   to  update  the
forward-looking  information.  Actual results may vary  significantly  from such
forward-looking statements.

     The Company's revenues are derived primarily from providing Internet access
services  to  individual  and  business  subscribers.   Revenues  are  comprised
principally   of  recurring   revenues   from  the  Company's   customer   base,
non-recurring  start-up  fees for modem and  leased  line  connections  and from
various ancillary  services.  The Company charges  subscription  fees, which are
billed monthly or quarterly,  in advance,  typically  pursuant to pre-authorized
credit card accounts.

     The Company  acquired all of the issued and  outstanding  capital  stock of
WOWFactor, Inc. in October 1998. In addition, the Company acquired substantially
all of the assets of Roxy Systems,  Inc. d/b/a Magic Carpet, US Online, Inc. and
Webspan  Communications,  Inc.  in  the  fourth  quarter  of  1998.  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.

RESULTS OF OPERATIONS

Comparison of the three months ended March 31, 1999 and 1998

Revenues:  Revenues  for the three  months  ended March 31,  1999 were  $656,857
compared to $122,060 for the three months ended March 31, 1999. The increase was
attributable  to an expanded  subscriber  base.  The  Company had  approximately
15,000  and 1,650  subscribers  at March 31,  1999 and 1998,  respectively.  The
increase in subscriber base was principally due to acquisitions.

Cost of Revenues:  Cost of revenues for 1999 were  $434,208  compared to $96,744
for 1998.  Cost of  revenues  as a  percentage  of  revenues  for 1999 was 66.1%
compared  to  79.3%  for  1998.  The  increase  in cost of  revenues  was due to
increased communication,  depreciation and technical personnel expenses incurred
to  support  the  increased  subscriber  base  and  in  anticipation  of  future
subscriber  growth.  The  Company  expects  these  costs to increase in absolute
dollars as additional subscribers are added.

Operating Expenses:  Operating expenses were $1,244,318 compared to $119,371 for
1999 and 1998, respectively. The increase in operating expenses was attributable
to higher  payroll,  amortization,  depreciation,  advertising,  promotion,  and
professional  fees incurred in 1999 to support the increased revenue base and in
anticipation  of future  growth.  In March 1999,  the  Company had 46  employees
compared  to 8  in  March  1998.  Management  anticipates  future  increases  in
operating expenses related to advertising,  promotion, payroll, depreciation and
professional fees.

                                       -5-





Interest  Income:  Interest  income net of interest  expense for 1999 was $9,774
compared to net interest  expense of $16,907 for 1998.  The increase in interest
income was due to  investment of  unutilized  proceeds of the Company's  initial
public offering.

Net Loss: The Company has incurred  significant  losses and anticipates  that it
will continue to incur losses until sufficient  revenues are generated to offset
the  substantial  up-front  expenditures  and operating  costs  associated  with
attracting  and  retaining  additional  subscribers.  For the three months ended
March 31,  1999 and 1998,  the Company  incurred  net losses of  $1,011,895  and
$110,962,  respectively. There can be no assurance that the Company will be able
to attract  and  retain a  sufficient  number of  subscribers  to  significantly
increase its revenues or ever achieve profitable operations.

Liquidity and Capital Resources

     The Company's working capital at March 31, 1999 was $2,017,693  compared to
$1,245,536  at December  31, 1998.  The  increase in working  capital was due to
receipt of the proceeds from the private sale of the  Company's  Common Stock in
March 1999.

     In March 1999,  the Company sold 158,856  shares of its Common Stock to two
investors for an aggregate  purchase price of  $2,000,000,  with net proceeds to
the  Company of  $1,770,000.  The Company  also  issued  warrants to purchase an
aggregate of 21,662  shares of Common  Stock at an exercise  price of $13.85 per
share.  The Company  granted  repricing  rights with respect to the shares,  and
anti-dilution  rights  with  respect to the  warrants,  subject to an  aggregate
maximum issuance of 450,000 shares.

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

     The Company's  capital  expenditures for 1999 are expected to range between
$300,000 to $400,000.  In addition,  the Company has issued  purchase  orders to
purchase  communications  equipment and  professional  services in the aggregate
amount of $2,000,000 from a major telecommunications equipment manufacturer. The
manufacturer  would  provide  the  necessary  financing  through  a  lease.  The
transaction  is  subject  to  the  negotiation  and  execution  of a  definitive
agreement.

Year 2000

     The "Year 2000"  problem  involves  the ability of  computer  hardware  and
software systems to accurately recognize and process date sensitive  information
when the year  changes to 2000..  Systems that do not  properly  recognize  such
information could generate wrong data or fail.




                                       -6-




     Year 2000 (continued)

     The Company has  undertaken  a two-phase  process to evaluate  its internal
status with respect to the Year 2000  problem.  In the first phase,  the Company
conducted  an  assessment  of its systems  including  both IT systems and non-IT
systems such as hardware  embedded  technology,  for Year 2000  compliance.  The
Company  utilized  certain  employees in its  evaluation  of possible  Year 2000
problems.  The costs and expenses of such employees  have not been material.  To
date,  the  Company  has not  discovered  Year 2000  issues in the course of its
assessment that would have a material adverse effect on its business, results of
operations or financial  condition;  however, the Company cannot assure that all
Year 2000  issues  were  discovered  during the  assessment  or that it will not
discover additional Year 2000 issues that could have such an effect.

     Phase  two  of  the  Company's  process  will  involve  taking  any  needed
corrective  action to bring  systems into  compliance  and develop a contingency
plan in the event any  non-compliant  critical systems remain by January 1,2000.
As part of phase two, the Company  will attempt to quantify the impact,  if any,
of the failure to complete any necessary corrective action. Although the Company
cannot currently  estimate the magnitude of such impact,  if systems material to
its operations  have not been made Year 2000  compliant upon  completion of this
phase,  the Year 2000 issue could materially  adversely  affect the Company.  To
date,  the costs  incurred  with  respect  to phase two have not been  material.
Future costs are difficult to estimate;  however, the Company does not currently
anticipate that such costs will be material.

     Concurrently  with the  analysis of the  Company's  internal  systems,  the
Company  has  begun to  survey  third-party  entities  with  which it  transacts
business,  including critical vendors and financial institutions,  for Year 2000
compliance.  With respect to the most  critical  vendors,  the Company is in the
process  of  evaluating  the Year 2000  preparedness  of its  telecommunications
providers,  on which the Company is reliant for the network  services crucial to
Web hosting and Internet connectivity  services. The Company is actively working
to mitigate any  potential  impact by  maintaining  diverse  providers  for such
network services. However, failure of any one provider may have material adverse
impact on the Company's operations.





                                       -7-






 
                                    PART II
                                OTHER INFORMATION



Item 2.   Changes in Securities and Use of Proceeds

          Recent Sales of Unregistered Securities

          In January 1999, the Company issued 100,000 shares of its Common Stock
          to Mr. Ronald Shapss, a director,  upon exercise of options granted to
          him under the  Company's  1997 Stock Option Plan.  In March 1999,  the
          Company sold 158,856 shares of its Common stock and issued warrants to
          purchase  aggregate 21,662 shares of Common Stock to two institutional
          investors.  All of the  foregoing  securities  were  issued in private
          offerings  pursuant  to an  exemption  from  registration  offered  by
          section 4(2) of the Securities Act of 1933.

          Use of Proceeds

          In May 1998, the Company  consummated  an initial  public  offering of
          1,840,000  shares of Common Stock and  warrants to purchase  1,840,000
          shares of Common  Stock and  received  net  proceeds of  approximately
          $5,800,000,  after payment of underwriting  discounts and commissions,
          fees and offering expenses. Since May 19, 1998 (the date of closing of
          the initial public offering)  through March 31, 1999, the Company used
          approximately  $1,793,000  of the net  proceeds for  acquisitions  and
          related expenses,  $264,118 for a stock  repurchase;  $443,000 for the
          repayment of indebtedness (including $185,848 to affiliates); $496,000
          for network and POP upgrade; and approximately  $435,000 for marketing
          expenses. The balance after funding the operating losses are currently
          held in interest-bearing bank accounts.



Item 6.   Exhibits and Reports on Form 8-K

          (a)  Exhibits--Exhibit 27 Financial Data Schedule

          (b)  Reports on Form 8-K--None




                                       -8-







                                   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.


May 12, 1999


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



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







                                       -9-






  


5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S FINANCIAL STATEMENTS INCLUDED IN FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 3-MOS DEC-31-1999 MAR-31-1999 3,059,935 0 7,336 15,526 0 3,254,697 1,433,874 201,555 7,649,630 1,237,004 0 0 0 36,202 5,979,290 7,649,630 0 656,857 434,208 1,244,318 0 0 0 (1,011,895) 0 (1,011,895) 0 0 0 (1,011,895) (0.31) (0.31)