AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 23, 2001.
REGISTRATION NO. 333-______
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM SB-2
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
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Forefront, Inc.
---------------
(Name of small business issuer in its charter)
NEVADA 7373 98-0199128
- ---------------------------- ---------------- ----------------
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification
organization) Code Number) Number)
1413 Howard Avenue, Suite 104
Tampa, FL 33606
(813)-253-2267
(Address and telephone number of principal executive offices)
1413 Howard Avenue, Suite 104
Tampa, FL 33606
(813)-253-2267
(Address and telephone number of principal place of business)
Santu Rohatgi, President
1413 Howard Avenue, Suite 104
Tampa, FL 33606
(813)-253-2267
(Name, address and telephone number of agent for service)
----------------
Approximate date of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
----------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering.[ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.[ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.[ ]
If delivery of the Prospectus is expected to be made pursuant to Rule
434, please check the following box.[ ]
CALCULATION OF REGISTRATION FEE
- ------------------------ ------------------------ ---------------------------- ---------------------------- -----------------
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SHARES TO BE REGISTERED AMOUNT TO BE REGISTERED OFFERING PRICE PER SHARE(1) AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
- ------------------------ ------------------------ ---------------------------- ---------------------------- -----------------
Common Stock, Shares of Common $ .25 $ 12,290,178 $ 3,073
.001 par value Stock (2)
49,160,714
- ------------------------ ------------------------ ---------------------------- ---------------------------- -----------------
_________________________________________
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) using the average of the closing bid price and the
closing ask price reported by the Nasdaq OTC Bulletin Board for the
Company's Common Stock as of January 18, 2001.
(2) Includes an estimated 43,478,260 shares issuable in connection with a
$10,000,000 agreement with Cornell Capital Partners, presented by May Davis
Group, Inc. See "The May Davis Transaction," and "Selling Shareholders."
(3) Includes 164,600 shares issued to certain selling shareholders in the past,
as follows: 25,000 shares each of Anthony Agentowicz, John Solleder, and
Bruce M. Goldfarb, and 20,000 shares of Trevor Michael, and 69,600 shares
of Rising Solutions, Inc. See "The May Davis Transaction," and "Selling
Shareholders."
(4) Includes a total of 3,500,000 shares, issuable in connection with a
$250,000 Debenture loan to the Company on or about this date, upon a
conversion of the Debenture, to Rance Merkel, Michael Woelfel, Connie
Benesch, Cynthia Wilson, Gerald Holland, and Maryellen Misiak. See "The May
Davis Transaction," and "Selling Shareholders."
(5) Includes a total a total of 1,041,664 shares issuable under warrants held
by certain of the selling shareholders, as follows: 8,333 shares each by
Robert Farrell, Joseph W. Donohue, Jr., Mark Angelo, and Hunter Singer, the
May Davis Group, Inc., and Trans-Global Capital Holdings, Ltd. and
166,666 shares of Trans-Global Capital Holdings, Ltd. ("Trans-Global"); and
a total of 1,142,857 shares issued to them, as follows: 187,810 shares to
each of Messrs. Farrell, Donohue, Angelo, Singer, and a Mr. Owen May, 4,000
shares of James Gonzales, 12,000 shares of Kenneth G. Merkel, III, and
187,810 shares of Trans-Global. See "The May Davis Transaction," and
"Selling Shareholders."
-------------------------------------
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY CHANGE. A REGISTRATION
STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION
STATEMENT IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JANUARY 23, 2001.
PROSPECTUS
FOREFRONT, INC.
SHARES OF COMMON STOCK
This prospectus relates to the offering, by certain persons who are shareholders
or may become shareholders, of a total of 45,682,454 shares of common stock
pursuant to this prospectus, consisting of the following:
An estimated 43,478,260 shares is issuable in connection with a $10,000,000
equity credit line agreement with Cornell Capital Partners, LLP ("Cornell
Partners"), presented by May Davis Group, Inc. ("May Davis"). At such time as
Cornell Partners purchases $10,000,000 of our common stock, we, in our
discretion, may elect to enter into a second substantially identical $10,000,000
common equity credit line agreement. Any shares as to a second common equity
credit line agreement are not included in this offering. 164,600 shares were
issued in the past to certain selling shareholders, who were given registration
rights, as follows: 25,000 shares each to Anthony Agentowicz, John Solleder, and
Bruce M. Goldfarb, and 20,000 shares to Trevor Michael, and 69,600 shares to
Rising Solutions, Inc. A total of 3,500,000 shares issuable in connection with
a $250,000 Debenture loan to the Company on or about this date are also included
as shares which may be sold by selling shareholders, upon conversion of the
Debenture by Rance Merkel, Michael Woelfel, Connie Benesch, Cynthia Wilson,
Gerald Holland, and Maryellen Misiak. A total of 1,041,664 shares issuable
under warrants held by certain of the selling shareholders, as follows: 8,333
shares each by Robert Farrell, Joseph W. Donohue, Jr., Mark Angelo, Hunter
Singer, and the May Davis Group, and Trans-Global Capital Holdings, Ltd.
("Trans-Global"); 166,666 shares each by Robert Farrell, Joseph W. Donohue, Jr.,
Mark Angelo, Hunter Singer, and the May Davis Group, and Trans-Global Capital
Holdings, Ltd. ("Trans-Global"); and a total of 1,142,860 shares issued to them,
as follows: 187,810 shares to each of Messrs. Farrell, Donohue, Angelo, Singer,
and a Mr. Owen May, 4,000 shares of James Gonzales, 12,000 shares of Kenneth G.
Merkel, III, and 187,810 shares of Trans-Global. See "The May Davis
Transaction," and "Selling Shareholders.," and "Certain Transactions."
We will not receive any proceeds from the sale of any of these shares.
However, we may receive approximately $10,822,914 in proceeds under our
agreements and warrants with May Davis and certain of the other selling
shareholders, as in the case of proceeds from the exercise of the warrants. Our
common stock is quoted on the Nasdaq Bulletin Board under the symbol "FOFR." On
January 18, 2001, the last reported sales price of our common stock was $.25 per
share. The selling shareholders may sell their shares in one or more
transactions on the Nasdaq Bulletin Board or on any exchange on which our common
stock may be listed. They may also sell in privately negotiated transactions or
otherwise, or a combination of such methods of sale, at market prices prevailing
at the time of sale or prices related to such prevailing market prices or at
negotiated prices. The selling shareholders may sell the shares to or through
broker-dealers, and such broker-dealers may receive compensation from the
selling shareholders and/or purchasers of the shares for whom they may act as
agent (which compensation may be in excess of customary commissions). The
selling shareholders and any participating broker-dealers may be deemed to be
"underwriters" as defined in the Securities Act of 1933, as amended (the
"Securities Act"). May Davis is an "underwriter" within the meaning of the
Securities Act of 1933. We cannot estimate at the present time the amount of
commissions or discounts, if any, that will be paid by the selling shareholders
on account of their sales of the shares from time to time. We will indemnify
the selling shareholders against certain liabilities, including certain
liabilities under the Securities Act. See "Plan of Distribution."
PLEASE SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN
FACTORS YOU SHOULD CONSIDER IN CONNECTION WITH ANY DECISION TO PURCHASE SHARES
IN THIS OFFERING.
YOU SHOULD ONLY RELY ON THE INFORMATION INCORPORATED BY REFERENCE OR PROVIDED IN
THIS PROSPECTUS OR ANY SUPPLEMENT. WE HAVE NOT AUTHORIZED ANYONE ELSE TO PROVIDE
YOU WITH DIFFERENT INFORMATION. THE COMMON STOCK IS NOT BEING OFFERED IN ANY
STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE
INFORMATION IN THIS PROSPECTUS OR ANY SUPPLEMENT IS ACCURATE AS OF ANY DATE
OTHER THAN THE DATE ON THE FRONT OF THOSE DOCUMENTS.
NEITHER THE U. S. SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS ________, 2001.
TABLE OF CONTENTS
Page
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Number
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FORWARD-LOOKING STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . .5
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
PRICE RANGE OF OUR COMMON STOCK . . . . . . . . . . . . . . . . . . . . . 10
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
THE MAY DAVIS TRANSACTION . . . . . . . . . . . . . . . . . . . . . . . . 12
PLAN OF OPERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
PRINICIPAL SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . 23
SELLING SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . .25
CERTAIN TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . .26
DESCRIPTION OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . 27
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . .28
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
WHERE YOU CAN FIND MORE INFORMATION . . . . . . . . . . . . . . . . . . . 29
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . F-1
FORWARD LOOKING STATEMENTS
--------------------------
Some of the information in this prospectus contains forward-looking statements
within the meaning of the federal securities laws. These statements include,
among others, business development plans, strategies, expectations regarding
competition and market acceptance of our products and services. Forward-looking
statements typically are identified by use of terms like "may," "will,"
"expect," "anticipate," "estimate" and similar words, although some
forward-looking statements are expressed differently. You should be aware that
our actual results could differ materially from those contained in the
forward-looking statements due to a number of factors, including our substantial
operating losses, availability of capital resources, ability to compete
effectively, economic conditions, unanticipated difficulties in development of
products and services, ability to gain market acceptance and market share,
ability to manage growth, dependence on third party content providers and
dependence on our key personnel. You should also consider carefully the risks
described in this prospectus or detailed from time to time in our filings with
the Securities and Exchange Commission. See "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
RISK FACTORS
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The securities offered hereby are highly speculative. You should purchase them
only if you can afford to lose your entire investment in us. You should
carefully consider the following risk factors, as well as all other information
set forth elsewhere in this prospectus. As used in this prospectus, the terms
"we," "us," "our," "the Company" and "Forefront" mean Forefront, Inc., with
consideration of the business of its subsidiary (unless the context indicates a
different meaning) and the term "common stock" means Forefront, Inc.'s common
stock, $.001 par value per share.
WE HAVE ONLY A LIMITED OPERATING HISTORY WITH OUR CURRENT BUSINESS MODEL.
Forefront, Inc., a Nevada corporation, was formed in July, 1998, under the
name Anyox Resources Inc. The Company is a development-stage company
with its core business focused on the research and development of new
Web-based technologies. We therefore have only a limited operating history
under our current business plan for you to evaluate our business. You must
consider the risks, expenses and uncertainties that a technology company with
new web-based concepts like ours faces. These risks include our ability to
successfully: enter the still new web-based market; recognize sales and
revenues, while currently there are none; meet our working capital needs; and
otherwise become a profitable company. If we are unsuccessful in addressing
these risks, our business, financial condition and results of operations will be
materially and adversely affected.
WE HAVE A HISTORY OF OPERATING LOSSES, ACCUMULATED DEFICITS AND LIMITED FUNDS.
We have a history of operating losses and expect to continue to incur operating
losses for the foreseeable future as we continue to invest in our plans. Our
current financial resources are limited and will be utilized for execution and
expansion of our business plan. Our ability to execute our plans will depend on
our ability to obtain additional financing and achieve a profitable level of
operations. There can be no assurance that such financing will be obtained.
Nor can we give any assurance that we will generate substantial revenues or that
our business operations will prove to be profitable. Our operations are subject
to all of the risks inherent in completion of new web-based concept and then
successful implementation of the concept to the market. Our likelihood of
success must be considered in light of our limited financial resources and the
problems, expenses, difficulties, complications and delays frequently
encountered in connection with establishing a new business including, without
limitation, market acceptance of our products, regulatory requirements,
unanticipated expenses and competition. We don't know if our business will be
successful.
WE NEED ADDITIONAL FINANCING FOR GROWTH.
We may not be able to obtain additional capital or generate sufficient revenues
to fund our plans. The growth of our business will require investment on a
continuing basis to finance capital expenditures and related expenses for web
applications, technology development, labor, consultants, equipment, licenses
and related agreements, marketing and other expenses. Our future capital
requirements will depend upon a number of factors, many of which are not within
our control, including research costs, working capital costs, marketing
expenses, and competitive conditions. Although we have recently signed
agreements for additional capital, we regularly pursue additional financing
sources, but we may not be able to raise such capital or such capital may not be
sufficient.
5
GOVERNMENT REGULATION AFFECTS OUR BUSINESS.
The laws and regulations applicable to the Internet will directly impact
Forefront because its products and services are heavily dependent on use of the
Internet. These laws and regulations are still evolving and unclear and
have the potential of damaging Forefront's business though we are not aware of
any specific laws or any that are pending that will have a negative impact.
However, any laws pertaining to the Internet, if enacted, could potentially have
a negative impact on the marketplace for Forefront's products and services due
to either an impact on the Internet audience or an impact on the clients who use
Forefront's products and services to convey their video images through the
Internet to an audience or otherwise.
WE MUST ESTABLISH AND MAINTAIN OUR TRADE NAME.
We must establish our name, primarily through successful marketing, as an
accepted company supplying at least one, and hopefully more, web-based products,
and maintain such trade name or brand awareness. For us to be successful in
establishing our brand, the Internet market, including consumers and Internet
service providers, must perceive us as offering quality, technologically
advanced, cost-effective products. Our business could be materially adversely
affected if our marketing efforts are not productive, or if we cannot create and
maintain our trade name or brand awareness.
OUR FINANCIAL RESULTS MAY FLUCTUATE SIGNIFICANTLY.
Our operating results, including on a quarterly basis, may fluctuate
significantly in the future as a result of a variety of factors, some of which
are outside our control. These factors include: the demand for our product and
services as currently contemplated and as developed or marketed in the future;
our expense for research, development and as we pursue our plans; the timing and
amount of advertising and license revenues; the amount and timing of capital
expenditures and other costs related to operations; the introduction of new
products by us or our competitors; pricing changes in the industry; new
government regulations that affect web-based internet companies; general
economic conditions; and possible seasonality, price and cost factors affecting
the promotion of our products. Due to all of these and possibly other factors,
our operating results may fall below market expectations. If this happens, the
trading price of our common stock would likely decline, perhaps significantly.
WE FACE INTENSE COMPETITION.
The Company is in direct competition with established companies in the same
market. The primary competitors are other Internet advertising technology
companies and other advertising mediums. Additionally, other companies not
presently in competition with the business of the Company may enter the market
targeted by the Company. The Company can anticipate competition in its efforts
to establish itself in targeted markets and to expand into new markets. There
can be no assurance that the Company will be able to compete successfully with
existing or new competitors, some of which may possess more financial resources
and name recognition than the surviving entity. Any pricing pressures,
reduced margins or inability to obtain market share or even loss of market share
resulting from our failure to compete effectively would materially adversely
affect our business, financial condition and operating results.
NO MATERIAL REVENUES AND REVENUES DERIVED FROM VENTURES MAY NOT GENERATE CASH
FLOWS.
We have no material revenues and we expect to derive a portion, aside from
sales, of our future revenues from potential strategic license agreements, and
joint venture or partnership or other agreements. These agreements, if any,
may not generate cash flow.
6
WE WILL SUFFER IF WE ARE UNABLE TO HIRE AND RETAIN KEY PERSONNEL IN HIGH DEMAND.
We depend on the services of our senior management. Our success is largely
dependent on our ability to hire highly qualified managerial personnel both
knowledgeable about internet technology and the operations of a public company.
These individuals are in high demand and we may not be able to attract the staff
we need. In addition, the loss of the services of any of our senior management
could have a material adverse effect on our business, financial condition and
operating results.
OUR VENTURES MAY STRAIN OUR MANAGERIAL, OPERATIONAL AND FINANCIAL RESOURCES AND
MAY BE DISRUPTIVE TO OUR BUSINESS.
We are trying to establish ventures with complementary businesses for the
utilization of technologies, services and products and intend to continue these
efforts in the future; however, we may be unable to integrate or implement these
joint ventures or alliances effectively. Difficulties in this process could
disrupt our ongoing business, distract our management and employees, increase
our expenses and otherwise adversely affect our business.
FINANCING FOR VENTURES MAY NOT BE AVAILABLE.
We do not know if we will be able to identify any future joint or other
ventures, acquisitions or alliances or if we will be able to successfully
finance these transactions. To finance these transactions, it may be necessary
for us to raise additional funds through public or private financings, which may
not be available on acceptable terms, if at all. A failure to identify or
finance future transactions may impair our growth.
THE COMPANY DOES NOT HAVE PRODUCT LIABILITY INSURANCE.
The Company has not acquired liability insurance with respect to provision of
its products and services. Without insurance to cover damages resulting from
liability claims stemming from our products or services, the Company must
shoulder any award of damages against it which could significantly affect its
business operations if the award is substantial. Although we do not now
carry product liability insurance we do intend obtain such coverage once sales
commence. Once product liability insurance does come into effect, such coverage
may not cover all potential claims or may not be adequate to completely cover
costs incurred in defense of potential claims or to indemnify us for all
liability that may be imposed. Any costs or imposition of liability that is not
covered by insurance or in excess of insurance coverage could have a material
adverse effect on our business, financial condition and operating results.
WE DEPEND ON OTHERS BEYOND OUR CONTROL.
Like many businesses, we currently depend on others beyond our control, as well
as those we engage or contract with in the future. Consultants, research
testing organizations, distributors, and licensees, for example, may act or
fail to act in a way that directly or indirectly damages our business. Our
success depends significantly on our ability to create and maintain our
relationships. Some of our agreements may be short-term and non-exclusive.
These factors could be materially adverse to our business.
OUR STOCK PRICE IS SUBJECT TO MARKET VOLATILITY.
The stock market experiences volatility that affects the market prices of equity
securities of technology companies generally. This volatility includes rapid
and significant decreases or increases in the trading prices of certain
companies that do not bear any reasonable relationship to operating performance
of such companies. These fluctuations may materially affect the trading price
of our common stock. In the past, following periods of volatility in the market
price for a company's securities, shareholders have often instituted securities
class action litigation. Litigation could result with substantial costs and the
diversion of management's attention and resources, which could have a material
adverse effect on our business, financial condition and results of operations.
7
OUR STOCK PRICE IS HIGHLY VOLATILE AND COULD DROP UNEXPECTEDLY.
The average daily trading volume for our common stock fluctuates significantly
and as a result of this and other factors, the price at which our common stock
trades is highly volatile and may fluctuate substantially for the foreseeable
future. As a result, investors in our common stock may experience a decrease in
the value of their common stock regardless of our operating performance or
prospects.
OUR PRESENT MANAGEMENT HAS THE VOTING POWER TO CONTROL OUR AFFAIRS.
As of the date of this prospectus, our officers and directors own approximately
8% of our outstanding common stock. Consequently, these individuals may not be
in a position to influence the election of a majority of our Directors and to
exercise control over our affairs generally.
SPECIAL VOTING POWERS OF CLASS A PREFERRED STOCK OF THE COMPANY HELD BY
CERTAIN PERSONS DILUTE THE VOTING POWER OF OTHER STOCKHOLDERS OF THE COMPANY.
The Class A Preferred Stock issued to Wyly Wade and Mark Gray has special voting
powers that dilute the voting power of other stockholders of the Company. They
are able to determine the outcome of any vote in respect of all key decisions
affecting the Company, and they could exercise poor business judgment or put
their interests ahead of those of the shareholders generally.
CERTAIN PERSONS CONTROL THE ISSUANCE OF PREFERRED STOCK THEREBY PREVENTING A
CHANGE IN CONTROL OF THE COMPANY.
Preferred shares may be issued in series from time to time with such
designation, rights, preferences and limitations as the Board of Directors of
Forefront may determine by resolution. The Board of Directors of Forefront has
issued Class A Preferred Stock with dilutive or voting preferences to delay,
defer or prevent a change in control of the Surviving Corporation. In addition,
the concentration of control over Forefront's voting power and common shares in
Wyly Wade and Mark Gray could prevent any change in control of Forefront not
acceptable to Wyly Wade and Mark Gray. The Board of Directors may not authorize
the issuance of additional Preferred Stock without the consent of Wyly Wade and
Mark Gray. As a result of these provisions, Wyly Wade and Mark Gray will
control whether any change in control occurs, and in any contested change in
control, they may exercise poor business judgment or put their interests ahead
of those of the shareholders generally.
FUTURE SALES OF COMMON STOCK COULD DEPRESS THE PRICE OF OUR COMMON STOCK.
Future sales of substantial amounts of common stock pursuant to Rule 144 under
the Securities Act of 1933 or otherwise by certain shareholders could have a
material adverse impact on the market price for the common stock at the time.
There are presently approximately 17,229,686 outstanding shares of our common
stock held by Management and other shareholders which are deemed "restricted
securities" as defined by Rule 144 under the Securities Act. Under certain
circumstances, these shares may be sold without registration pursuant to the
provisions of rule 144. In general, under rule 144, a person (or persons whose
shares are aggregated) who has satisfied a one-year holding period may, under
certain circumstances, sell within any three-month period a number of restricted
securities which does not exceed the greater of one (1%) percent of the shares
outstanding or the average weekly trading volume during the four calendar weeks
preceding the notice of sale required by rule 144. In addition, rule 144
permits, under certain circumstances, the sale of restricted securities without
any quantity limitations by a person who is not an affiliate of ours and has
satisfied a two-year holding period. Any sales of shares by shareholders
pursuant to rule 144 may have a depressive effect on the price of our common
stock.
8
EVEN IF OUR STOCK PRICE DECREASES, WE MAY ELECT TO CAUSE PURCHASES OF OUR COMMON
STOCK TO BE MADE UNDER THE EQUITY CREDIT LINE AGREEMENT, CAUSING MORE SHARES TO
BE OUTSTANDING AND RESULTING IN SUBSTANTIAL DILUTION.
The purchase price for the common stock to be issued to the selling shareholder
under the equity credit line agreement will fluctuate based on the closing price
of our common stock. See "The May Davis Transaction" for a detailed description
of the purchase price and the relation of the purchase price to the percentage
of the outstanding shares of our common stock issuable pursuant to the equity
credit line agreement.
All shares registered in this offering will be freely tradable. We expect that
shares registered in this offering will be sold over a period of up to 25 months
from the date of this prospectus, subject to extension by the Company. The sale
of a substantial number of shares of our common stock under this offering, or
anticipation of such sales could make it more difficult for us to sell equity or
equity related securities in the future at a time and price we deem appropriate.
If Cornell Partners purchased the full amount of shares purchasable under the
first tranche of the equity credit line agreement on the date of this
prospectus, the purchase price would have been $.23 per share and Cornell
Partners would have been able to purchase 43,478,260 shares of our common
stock. Assuming purchase under the agreement of a total of 43, 478,260 shares
of common stock on the date of this prospectus, these shares if issued, without
consideration of any other shares to be issued to or in respect of May Davis and
considering the outstanding shares of the Company, would represent approximately
64% of our outstanding common stock as of January 18, 2001. This would result
in significant dilution to the ownership interests of other holders of our
common stock. Such dilution could be more significant if the future trading
price of our common stock is lower than the current trading price of our stock
at the time Cornell Partners purchases shares of our common stock under the
equity credit line agreement, as a lower trading price would cause more shares
of our common stock to be issuable. . The purchase under the common equity
credit line agreement of a significant percentage of our outstanding stock may
result in substantial dilution to the ownership interests of other holders of
our common stock.
WE COULD LOSE OUR THE COMMON EQUITY CREDIT LINE AGREEMENT OR IT COULD LEAD TO
DOWNWARD PRESSURE ON OUR STOCK PRICE.
Our equity credit line agreement with the investor is subject to conditions and
termination which we may or may not be able to control, including that we may
lose our funding source if Santu Rohatgi does not continue in Management. Also,
either actual dilution caused by sales of our common stock to Cornell Capital or
the perception of such dilution by holders of our common stock could cause
holders to elect to sell the shares of common stock held by them, which could
cause the trading price of our common stock to decrease. Furthermore, a
perception that sales of our common stock to Cornell Capital may lead to
downward pressure on the trading price of our common stock could provide an
incentive for short-selling which could also adversely affect the trading price
of our common stock.
WE ARE SUBJECT TO SUITS THAT MAY RESULT IN ADVERSE RULINGS TO THE COMPANY.
While we are not subject to any suit, nor anticipate any, without any guarantee,
we may experience one or more suits in the months ahead, often commonplace for
businesses, relating to investors, employees or subcontractors. An investor who
provided $500,000 in bridge loans to the Company delivered, this past year, a
notice of default and demand for payment of the bridge loans. According to
their terms, the bridge loans were due in March, 2000. However, it is our
position the investor was in default also. We believe we have reached a
resolution whereby the loans will be repaid and the matter addressed later this
year. However, no assurance exists this matter will not result in litigation.
Although the Company may have counterclaims against the investor, any
litigation would be costly and could distract Management from its primary task
of running the business. In addition, an investor which allegedly had
registration rights to include 250,000 shares of stock in this registration
defaulted on the agreement, and it is our position, without the benefit of any
court order, that the investor no longer has any rights. No guarantee exists we
are correct. Any one or more suits could have material adverse consequences to
our business.
9
THE SALE OF THE SHARES REGISTERED IN THIS OFFERING COULD CAUSE OUR STOCK PRICE
TO DECLINE.
All shares registered in this offering will be freely tradable. It is
anticipated that shares registered in this offering will be sold over a period
of up to 25 months from the date of this prospectus, subject to an extension by
the Company. As we are required under law, we will need to file post-effective
amendments to the registration statement to which this prospectus is made a
part, to maintain a current prospectus. We may require Cornell Partners as the
selling shareholder, to purchase a significant amount of common stock. The
sale of a significant amount of shares registered in this offering at any given
time could cause the trading price of our common stock to decline.
OUR COMMON STOCK MAY BE DEEMED TO BE "PENNY STOCK."
Our common stock may be deemed to be "penny stock" as that term is defined
in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934. Penny
stocks are stock:
o With a price of less than $5.00 per share;
o That are not traded on a "recognized" national exchange;
o Whose prices are not quoted on the Nasdaq automated quotation system
(Nasdaq listed stock must still have a price of not less than $5.00
per share); or
o In issuers with net tangible assets less than $2.0 million (if the
issuer has been in continuous operation for at least three years) or
$5.0 million (if in continuous operation for less than three years),
or with average revenues of less than $6.0 million for the last
three years.
Broker/dealers dealing in penny stocks are required to provide potential
investors with a document disclosing the risks of penny stocks. Moreover,
broker/dealers are required to determine whether an investment in a penny stock
is suitable investment for a prospective investor. These requirements may
reduce the potential market for our common stock by reducing the number of
potential investors. This may make it more difficult for investors in our common
stock to resell shares to third parties or to otherwise dispose of them. This
could cause our stock price to decline.
PRICE RANGE OF OUR COMMON STOCK
--------------------------------
The Company's common stock initially began trading on the Over-the-Counter
Bulletin Board (OTC-BB) under the symbol "ANYX" on February 24, 2000. The
Company's name change from Anyox Resources to Forefront, Inc. was effective May
30, 2000, and the Company's common stock began trading under its new symbol
"FFNT" on June 6, 2000. In January, 2001, the Company undertook a one for five
reverse stock split of its common stock, and in conjunction with the split, the
symbol was changed, to the current symbol FOFR. The first table sets forth the
range of the high and low bid prices for the first quarter, covering the period
of February 24, 2000 through March 31, 2000, as quoted by the Nasdaq Trading and
Market Services. The second table sets forth the range of high and low sales
prices of the Company's common stock, as quoted by FinancialWeb.com for the
second quarter, covering the period of April 1, 2000 to June 30, 2000. The
third table sets forth the range of high and low bid sales prices for the two
quarters ended September 30, 2000, and December 31, 2000. All figures included
10
in the tables have been adjusted for presentation to reflect the one for five
reverse stock split in January, 2001. Quotations in tables 1 and 3 are believed
to reflect inter-dealer prices, without retail mark-up, mark-down or commission,
and may not represent actual transactions. To the extent that the Company is
unable to determine a bid price on a quarterly date, the prices below are
determined on the closest date available to the Company:
TABLE 1:
- ---------
High Low
---------------------
2/24/00 - 3/31/00 $3.4625 $1.25
TABLE 2:
- ---------
High Low
---------------------
4/1/00 - 6/30/00 $ 2.850 $0.45
TABLE 3:
- ---------
High Low
---------------------
7/1/00 - 9/30/00 $3.99 $2.02
10/1/00 - 12/31/00 $3.71 $ .77
On January 18, 2001, the Company's common stock was held by approximately 200
shareholders of record and by indeterminate number of investors through nominee
or street name accounts with brokers.
The Company has not paid dividends in prior years and has no plans to pay
dividends in the near future. Any payment of dividends would depend upon the
Company's pattern of growth, profitability, financial condition, and such other
factors as the Board of Directors may deem relevant.
USE OF PROCEEDS
---------------
We will not receive any proceeds from the sale of securities being offered
by this prospectus. We are registering the shares for sale to provide the
selling shareholders with freely tradable securities, but the registration of
these shares does not necessarily mean that any of these shares will be
offered or sold by the selling shareholders. However, we may receive up to
$20,000,000 in proceeds under our agreement with May Davis and Cornell
Partners and we may receive proceeds from the exercise of the warrants. Such
proceeds will be use for working capital and other corporate purposes. See, "The
May Davis Transaction," and "Selling Shareholders."
We have not declared any dividends on our common stock in the past two fiscal
years and do not contemplate paying cash dividends for the foreseeable
future, but instead will retain any earnings to fund our growth and research
and testing. Any decision to pay cash dividends on our common stock in the
future will depend on our ability to generate earnings, our need for
capital, our overall financial condition and such other factors as our
Board of Directors deems relevant.
11
THE MAY DAVIS TRANSACTION
-------------------------
GENERAL. We have entered into, in January, 2001, two Placement Agreements with
the May Davis Group, Inc. ("May Davis"); in summary, one provides for a
placement of $10,000,000 of our common stock to a subscriber presented by May
Davis, and the other provides for the placement of $250,000 of convertible
debentures by our Company to subscribers presented by May Davis. As to the
first agreement, pursuant to the January, 2001, equity line of credit agreement
with Cornell Capital Partners ("Cornell Partners") facilitated by May Davis
Group, Inc. ("May Davis") (sometimes the "Line of Credit"), we may, at our
discretion, periodically issue and sell to Cornell Partners shares for a total
purchase price of $10 million in multiple closings. If our Company requests an
advance under the agreement, Cornell Partners will purchase shares of common
stock of our Company for 91% of the lowest closing bid price reported on
the Over-the-Counter Bulletin Board or other principal market on which our
common stock is traded for the 10 days immediately following our request
for an advance or put date and ending on the trading day immediately before the
closing of that transaction. Cornell Partners intends to resell any shares
converted under the Line of Credit at the market price. Our debenture
transaction is the placement of debentures as detailed below. In connection
with both placements, our Company granted to May Davis shares of common stock
and warrants to purchase shares. May Davis has decided that most of the shares
and warrants will be transferred to Mark Angelo, Hunter Singer, Joseph Donahue
and Robert Farrell. Mark Angelo, Hunter Singer, Joseph Donahue and Robert
Farrell are employees of May Davis. As to the Line of Credit, we agreed to
supply warrants to purchase eight hundred and thirty three thousand and three
hundred and thirty three (833,333) shares of the Company's common stock at an
exercise price of one hundred and ten percent (110%) of the closing bid price
of the Company's common stock on the day of closing. The exercise price will
be reset six (6) months from the closing date to 110% of the then current
closing bid price if the stock on that day is below its price on the closing.
May Davis or the holders shall be entitled to certain demand registration rights
with respect to the shares of common stock issuable upon exercise of the
warrants and the shares of common stock pursuant to a registration rights
agreement. Also, May Davis shall receive as cash compensation an amount equal
to three and three fifths percent (3.6%) of the gross proceeds of each advance
to the Company pursuant to the Line of Credit. Upon Closing the Company shall
issue to May Davis or its designated parties, nine hundred and fifty five
thousand and forty seven and one half (955,047.5) restricted shares of the
Company's common stock, and such stock shall also be subject to this
registration.
Apart from certain selling shareholders who received shares prior to the
transactions with May Davis, this prospectus primarily relates to the shares
of common stock issued in connection with the Line of Credit, issuaable under
the warrants, and to be issued upon conversion of the debentures. The
effectiveness of the Line of Credit is conditioned upon us registering the
shares of common stock underlying the agreement with the Securities and
Exchange Commission. The placement of the convertible debentures is effective
upon the filing of the registration statement, with the closing to occur within
5 days thereafter, so that our Company will receive $250,000, less fees and
expenses of the transaction estimated at approximately $30,000.
ADVANCES. Pursuant to the Line of Credit, we may periodically sell shares
to Cornell Partners to raise capital to fund our working capital needs. The
periodic sale of shares is known as an advance or put. There must be a minimum
of 11 trading days between puts.
MECHANICS. Under the Line of Credit, we may, at our discretion, request
advances by written notice, specifying the amount requested up to the
maximum advance amount. A closing will be held 11 days after such written notice
at which time we will deliver shares and the investor will pay the advance
amount. We have the ability to determine when and if we desire to draw an
advance if certain conditions are met.
COMMITMENT PERIOD. As part of the Line of Credit, we may request an advance
at any time during a 30 month commitment period, subject to termination for
certain events, including, breach of contract, if our President ceases to be
part of Management, and other events. The commitment period begins on the date
the Securities and Exchange Commission first declares the accompanying
registration statement effective.
MAXIMUM ADVANCE AMOUNT. We may not request advances in excess of a total of $10
million, though at such time as Cornell Partners purchases $10,000,000 of the
Company's Common Stock, the Company, at its discretion, may elect to enter into
12
an additional $10,000,000 common stock agreement with Cornell Patners. In
addition, each individual advance is subject to a maximum advance amount
based on an average daily volume of our Company's common stock. The maximum
amount of each advance is equal to 150% of the average daily volume of our
Company's common stock for the 10 day trading period before each put or
advance closing multiplied by the purchase price.
CONVERSION PRICE. The advances under the Line of Credit are converted into
shares of common stock at a price of 91% of the lowest closing bid price on
the Over-the-Counter Bulletin Board or other principal trading market for the
10 days immediately following the notice of conversion. Note that the net
proceeds to be received by our company will be lower than the purchase price
due to our obligation to pay a placement agent fee of 3.6% of each advance to
May Davis.
REGISTRATION RIGHTS. We granted to the various May Davis parties
registration rights. We are also obligated to register the shares of common
stock issue to be issued upon exercise of the warrants. The registration
statement accompanying this prospectus will register such shares upon
effectiveness. The May Davis registration rights were subsequently
transferred along with the warrants to Mark Angelo, Hunter Singer, Joseph
Donahue and Robert Farrell. The cost of this registration will be borne by us.
NET PROCEEDS. We cannot predict the total amount of proceeds to be raised
in this transaction, in part, because we have not determined the total amount
of the advances we intend to draw. However, we expect to incur expenses of
approximately $150,000 consisting primarily of professional fees incurred in
connection with registering of the shares in this offering. In addition, we are
obligated to pay the May Davis a cash placement agent fee.
USE OF PROCEEDS. We intend to use the net proceeds received under the Line of
Credit and debenture transactions for general corporate purposes, such as
working capital, possible future acquisitions, and as otherwise determined by
Management.
PLACEMENT AGENT. We retained the May Davis to act as our placement agent in
connection with the Line of Credit and debenture transactions. We will pay a
cash placement agent fee to the May Davis Group, Inc. equal to 4.5% of each
advance under the Line of Credit. Further, we granted to the May Davis Group,
Inc. warrants to purchase shares of common stock. The exercise price of the
warrants will be reduced in certain cases. All warrants are exercisable for
five years after the date of issuance. The holders of the warrants may, under
certain circumstances, exercise the warrants pursuant to a cashless exercise.
May Davis has decided to transfer the shares and warrants among certain persons,
including as to the debentures, and the following summarizes the share and
warrants included herein relating to May Davis, as follows: a total of 3,500,000
shares issuable in connection with a $250,000 debenture to the Company on or
about this date are also included as shares which may be sold by selling
shareholders, upon conversion of the debenture, by Rance Merkel, Michael
Woelfel, Connie Benesch, Cynthia Wilson, Gerald Holland, and Maryellen Misiak
and shares issuable under warrants held by certain of the selling shareholders,
as follows: 8,333 shares each by Robert Farrell, Joseph W. Donohue, Jr., Mark
Angelo, and Hunter Singer; and a total of 1,142,860 shares issued to them, as
follows: 187,810 shares to each of Messrs. Farrell, Donohue, Angelo, and
Singer, and a Mr. Owen May, 4,000 shares of James Gonzales, and 12,000 shares of
Kenneth G. Merkel, III.
NUMBER OF SHARES TO BE ISSUED. We cannot predict the actual number of shares
of common stock that will be issued pursuant to the Line of Credit or
debentures, in part, because the conversion price of the shares will
fluctuate based on prevailing market conditions and we have not determined
the total amount of advances we intend to draw. To assist our stockholders in
evaluating the number of shares of common stock that could be issued to Cornell
Capital Partners, LLP. and the May Davis Group, Inc. at various prices, we
have prepared the following table. This table shows the number of shares of our
common stock that would be issued with and without the warrants at various
prices.
13
DEBENTURE TRANSACTION
The Company will receive $250,000 less certain fees and expenses in
consideration of the issuance of convertible debentures. The Company promises to
pay to the Holders of the $250,000 of debentures in lawful money of the United
States of America and in immediately available funds the principal together with
interest on the unpaid principal of this Debenture at the rate of five percent
(5%) per year (computed on the basis of a 365-day year and the actual days
elapsed) from the date of this Debenture until paid. At the Company's option,
the entire principal amount and all accrued interest shall be either (a) paid to
the Holder on the five (5) year anniversary from the date hereof or (b)
converted. The Holder is entitled, at its option, to convert at any time and
from time to time after ninety (90) days from the closing, until payment in full
of the debenture, all or any part of the principal amount of the Debenture, plus
accrued interest, into shares of the Company's common stock at the price per
share equal to either (a) an amount equal to 120% of the closing bid price on
the closing of the common stock as listed and as quoted by Bloomberg L.P., or
(b) an amount equal to eighty percent (80%) of the five (5) lowest closing bid
price of the common stock for the twenty (20) trading days immediately preceding
the conversion.
PLAN OF OPERATION
-----------------
The following discussion and analysis should be read in conjunction with the
financial statements in this registration statement.
The Company remains a development stage company with immaterial revenues
and substantial general and administrative expenses, including expenses related
to its clinical studies programs. The Company's cash has been provided from
its fund-raising activities, all of which have been conducted on a private
basis (as to fund raising, we have received capital in private placements
of restricted stock to persons known by Management and believed to be accredited
investors.) The Company believes potential private placements, the agreement
with May Davis, and an eventual registered public offering, if successful,
will assist the Company in meeting its cash needs, but there is no guarantee.
These sporadic private placements are only to persons who are mostly, in
management's opinion, accredited investors, and willing to assume the risk of
loss of their entire investment, and management hopes that these
subscriptions will continue. The Company is seeking an underwriter to
underwrite a public offering of securities, and has sporadic discussions with
interested parties in New York, primarily, in the hope that one will be engaged.
The Company has not been able to substantially meet its cash needs during the
past 12 months. In January, 2001, we entered into a equity credit line
agreement with Cornell Capital Partners presented by May Davis Group, Inc., to
sell $10 million of the Company's common stock. The aggregate equity
investment committed to the Company by May Davis could reach $20 million.
These funds will be used to further develop our products, working capital,
and for acquisitions, alliances and other corporate opportunities. After the
U.S. Securities & Exchange Commission has declared effective a
registration statement, each month we anticipate recognizing proceeds from our
agreement relating to May Davis. Other terms and conditions apply.
We hope to generate revenue from licensing fees, creative production fees
and a technology license based on a cost-per-play model. We plan to
produce and distribute CyberSpot production software that will enable global
production of CyberSpots by advertisers, agencies and web development firms.
Forefront plans to license its family of technologies within the U.S.,
Asia and Europe.
Forefront revenue model currently focuses on four distinct revenue
drivers: (1) the development of CyberSpot ads; (2) the delivery of
CyberSpot ads; (3) CyberSpot enterprise licensing; and (4) DVT licensing.
Each revenue driver has associated variable expenses. Ad production
variable costs are comprised entirely of human resources. A certain number of
personnel are needed to produce and test each ad. DVT variable costs are also
comprised entirely of human resources. The DVT team will be responsible
for marketing the DVT technology and identifying additional applications
for the technology. The CyberSpot per play variable cost is comprised of
the fee charged by the ad delivery strategic partner. Development of the
toolkit is the largest expense item included in the operating expenses.
Executive and operational team salaries and benefits, CyberSpot licensee
technical support, legal fees and advertising also account for a significant
portion of the operating expenses.
14
Forefront has recognized no revenue but has contracts, orders, and letters
of intent from customers. In addition, Forefront is presently producing
commercial spot advertisements that may generate future revenue. Revenue
recognition in the calendar year 2001 will depend upon the status of the
projects at that time and the applicable revenue recognition accounting
standards.
For the year ended June 30, 2000, the Company expended approximately $4,500,000
compared to spending of $20,000 for the period July 13, 1998 (inception) through
June 30, 1999. During both periods the expenses were administrative in nature.
On an ongoing basis, the Company expects to incur expenses typical to an OTC
Bulletin Board entity, including accounting fees, legal fees, filing fees and
transfer agent fees. The Company has five full time employees, with the
subsidiary Forefront Tech absorbing all personnel and indirect costs.
The Company and subsidiary Forefront Tech (formerly WPI) individually
financed their operations to date with a series of Regulation D offerings of
their respective shares of capital stock, generally for cash. The combined
operations had net working capital deficit of $1,770,000 at June 30, 2000. The
current liabilities of $1,851,000 at June 30, 2000, include $500,000 of
bridge financing from a shareholder group, $106,000 of bridge financing from
two company founders, and accounts payable of $826,733.
The Company's estimated monthly cash requirements approximate $75,000. This
amount may decrease as revenue is generated. However, like most other
development stage companies, Forefront Tech and the Company may not generate
cash from operations for a number of quarters, if at all. The Company
has experienced severe cash flow deficiencies starting in June 2000.
As discussed in more detail under "Risk Factors", the Company is in immediate
need of capital due to significant cash flow deficiency and may not continue as
a going concern.
In recognition of this issue, the Company is continually searching for sources
of additional financing and pursuing venture capital investors. Although the
competition for funding is strong, the Company believes it has unique,
protectable technology. It also believes its public status will be appealing
for potential venture capital investors to execute their respective exit
strategies. Should the Company be unable to continue as a going concern, the
assets and liabilities listed in the accompanying financial statements would
require restatement on a liquidation basis which would differ materially from
the values as a going concern.
BUSINESS
--------
THE COMPANY
Forefront, Inc. (including its operating subsidiary, unless the context
otherwise requires, the "Company" or "Forefront"), a Nevada corporation, was
formed in July, 1998, under the name Anyox Resources Inc. Anyox
Resources, Inc. was a development-stage company engaged in the exploration of
minerals. On March 15, 2000, Anyox Resources, Inc. entered into a Share
Exchange Agreement (the "Agreement") with Web Partners, Inc. ("WPI"), a
Florida corporation formed in September, 1998, and two of WPI's primary
shareholders, Wyly Wade and Mark Gray. The Agreement allowed Anyox Resources to
acquire WPI. As a result of the Agreement, the management of WPI effectively
took control of Anyox Resources, and the two WPI principals, Mr. Wade and Mr.
Gray, became major shareholders of the Company. As a result of the merger,
Anyox Resources changed its name to Forefront, Inc.
The Company is a development-stage company with its core business focused
on the research and development of new Web-based technologies primarily
directed to Internet advertising concerns. The Company also provides creative
production services in connection with developing online 30-second commercial
spot advertisements.
15
The description of our Company, the industry, competition, our plans and other
statements rely heavily upon our own creativity, research, opinions, forecasts,
estimations and other subjective criteria that may or may not prove accuarate,
and is subject to the evolution of technologies, the Internet and our plans,
among other variables.
INDUSTRY BACKGROUND
Over the last several years, the marketplace has had high expectations for
business opportunities on the Internet. These expectations have been reflected
in the investments into the Internet made by traditional companies, and the
market capitalization of many new Web-based companies. The popularity of the
Internet has been well documented in recent years.
With an increasing number of users, the Internet is also gaining in importance
as a medium for advertising. Computer time is the leading activity that takes
people away from watching television, the currently preferred means used by
advertisers to reach an audience. Yet despite the rapidly growing Internet
audience, there are still barriers that have kept Internet advertising from
reaching its full potential. Marketers are still trying to gauge Internet
advertising's overall effectiveness, and to identify which techniques are most
effective.
While tools for tracking such information have improved, there is still no
universal standard for measuring an audience.
Companies with a presence on the Internet, but not engaged in e-commerce, rely
on advertising as their primary, if not only, source of Internet-generated
revenue. E-commerce companies also rely on advertising to supplement their
e-commerce sales. While on-line advertising has experienced tremendous growth
during the past several years, that growth has not translated into profits for
these companies. Many advertisers and agencies are not comfortable with current
methods for advertising via the Internet, nor available audience measurement
tools. Furthermore, results of the currently preferred method of advertising,
banner ads, have been inconclusive at best, and show major ineffectiveness at
worst. Advertisers are generally more comfortable with traditional means of
reaching their audience, especially through print, television and radio. Still,
Internet advertising is in its infancy, and is only beginning to find its true
potential.
INTERNET ADVERTISING TECHNOLOGIES / TECHNIQUES
Currently, there are a number of Internet advertising technologies or techniques
in use. The most prominent techniques are banner ads, sponsorship,
interstitials and emails. Banner ads are most prevalent. Emails to customers,
while the least employed technique, have been measured to be the most effective
in eliciting a response from the customers. The following are brief summaries
of each technology or technique:
BANNER ADS. Banner ads are typically inch-high "banners" that are found on the
top or bottom of a Web page. They can contain a company name, logos,
pictures and slogans. They can be static or animated with moving characters or
pictures. When a user clicks on the banner it takes the user to another
Web-site. Although they are the most commonly employed form of Internet
advertising, they are the least likely to elicit a response.
SPONSORSHIPS. An advertiser may choose to "sponsor" a Web-site, helping the
online publisher by funding the site in exchange for advertising. This
typically requires an up-front payment by the advertiser, whether or not there
is a sale generated by the advertising. Sponsorships provide a valuable
association between brand and content.
INTERSTITIALS. Interstitials are advertisements that appear as Web users
switch between Web pages. Interstitials are the industries first answer to the
lack of audio and video in Internet advertising. However, interstitials have
grown out of favor with consumers as they may take as long as two minutes to
download. Current interstitials require substantial download time and therefore
may degrade a user's speed of receiving other Web content. Therefore, many
portals require such interstitial ads to be "click-based" where a user must
request the ad.
EMAIL. Email is one of the cheapest and most effective methods of Internet
advertising. Email provides for direct advertising to select customers. Yet,
emails only comprise a very small percentage of Internet advertising. This is
due to the intrusiveness of the email to consumers, and the resistance by
consumers to "spam" and clutter.
16
OTHERS. Other forms of Internet advertising include rich media expanding
banners and affiliations. Rich media banners include video and audio to bring
information to the consumer without leaving the current Web-site. Affiliate
deals split an advertiser's revenues with a Web-site operator in exchange
for free advertising. Still, these forms of advertising are restricted by
there own disadvantages. Rich media banners require download time, cover
Web-site content, and have been reported to cause Web-sites to crash.
THE COMPANY'S PRODUCTS AND SERVICES
The Company's technology toolkit fills the needs of both Internet companies and
advertisers. The Company's array of technologies was designed to deliver a
complete online advertising platform. The system is comprised of a 30-second
commercial for major brand advertisers, and a system of audience measurement and
commercial delivery verification. This platform provides familiar media
advertising tools for major brand managers, coupled with the interactivity of
the Internet.
CYBERSPOTS are 30-second online, interactive-multimedia commercial spots, which
reach the audience quickly and with minimal interruptions using the Company's
Instant On User Interface technology. Delivery Verification Technology ("DVT")
allows for the most advanced feedback to measure the delivery of each
advertisement. By offering CyberSpots, Internet companies can provide effective
and measurable advertising to advertisers previously reluctant to participate in
Internet advertising. The Company's products and services help advertisers
reach Web users via a method more similar to traditional means of reaching the
audience, while being able to measure the results of the advertisement to a
degree not currently available by any other method.
INSTANT ON USER INTERFACE ("IOUI"). IOUi is a Web-based software technology
developed by the Company. Version 1.1 of the technology has been developed to
support popular browsers without the use of media players, plug-ins or software
attachments of any type, including the following platforms: HTML 3, HTML 4,
Perl, JAVA and JAVAScript. Management plans to develop Version 1.2 to support
popular browsers in concert with media players, including the following
platforms: Flash and SMIL. Version 1.3 is also in development and plans to
support XML, among other media enhancements.
The operating methodology allows a Web user to access specialized content in a
number of formats from a Web server with little or no delay across multiple
networks at most modem speeds (28.8 and above). One of the proprietary
applications of the IOUi technology is the CyberSpot.
IOUi technology is a unique combination of existing Web technologies requiring
no specialized hardware, browser or player software. Deployment of content
utilizing IOUi requires no modification of standard PC, Macintosh or WebTV
platforms in order to receive "instant on" content delivery. The technology
lives solely on a proprietary CyberSpot server.
CYBERSPOTS. CyberSpots are Web-based commercial spots, typically 30
seconds in duration, although shorter or longer formats may be supported.
CyberSpot creative treatments for advertisers and/or site operators are produced
in a proprietary methodology. The commercials may be displayed in an array of
sizes and resolutions ranging up to full screen. Additionally, CyberSpots have
the ability to playback many sub-components, which may include certain types of
audio tracks including music. The commercials may be automatically launched
in a number of applications, including when a user clicks on a banner ad, or
when a user enters a Web URL containing a link to a CyberSpot server.
Additionally, CyberSpot may be launched at any point when a user must wait
online, such as during an E-Commerce credit card authorization or while down
loading a file.
The CyberSpot technology empowers the advertiser (at the advertiser's option)
to take control of the user's browser for the duration of the commercial,
making play of the CyberSpot "uninterruptible". Should advertisers wish to
allow users to exit their CyberSpot commercial prior to completed play, the
advertiser may elect to enable a user exit button. Utilizing certain
technology, the Web-site is downloaded in the background during the playback
of a CyberSpot. This has the net effect of allowing full use of the commercial
playtime for site content download and / or site navigation. The end result is
the reduction of "world wide wait" delays online.
17
DELIVERY VERIFICATION TECHNOLOGY ("DVT"). Developed by the Company, DVT
provides the first online advertising measurement system that verifies audience
reach and spot delivery. Television advertisers rely on Nielsen /
Arbitron audience measurement systems that are estimated from
electronically gathered survey samples. Print advertisers rely on audited
circulation distribution of periodicals without confirmation of specific ad
viewer ship. The CyberSpot DVT rises to the level, in our opinion, of
certified mail return receipt confirmation. The technology operates via a
return verification message that is triggered from the online user's PC, Mac or
WebTV once the CyberSpot has been received and fully played.
DVT provides advertisers with reliable, real-time confirmation of audience reach
and spot delivery. The CyberSpot DVT allows multiple measurement points at the
commencement, completion and key measurement points throughout the CyberSpot
commercial. In essence, the CyberSpot DVT allows audience monitoring of spot
commercials on a scaleable level of detail. The CyberSpot DVT relies on
completed spot playback, not simply file receipt, to trigger its proprietary
return message system, giving advertisers complete audience measurement and
spot delivery verification.
TARGET MARKET AND DISTRIBUTION
Specific markets and client groups identified by the Company include advertising
agencies, advertising measurement companies, Internet portals, e-commerce
companies and consumer product companies with a desire to optimize their
Internet presence. The Company plans to market its technologies through
licensing agreements with companies that have existing sales and service
infrastructure. The Company does not plan to sell online advertising directly
to end-users or compete directly with its distribution channels.
INTERNET ADVERTISING
The Company has developed CyberSpot sponsorship formats, which provide the
least intrusive user experience. Market research studies have demonstrated
increased ad retention from program sponsorship spots to be greater than other
Internet adverting media. Furthermore, online sponsorship, as a promotional
tool, has increasingly grown in recent years. Advantages to online sponsorship
include the following: (1) a lower cost alternative for companies primarily
seeking branding / awareness; (2) they are fixed, which results in a higher
possibility of ad exposure for the advertiser; and (3) they offer the advertiser
exclusivity and the right of first refusal for future opportunities.
Traditional advertising agencies are currently in a rapid expansion of their
Internet advertising services. These companies are actively pursuing
opportunities to establish and grow their Internet advertising services in
order to provide their clients with an "integrated" advertising solution.
Internet advertising allows the agency to reach a mass-market while at the same
time providing a customizable pitch.
The Company's DVT is a client-based tracking system. The Company believes it
provides a more reliable standard for audience measurement than the current
server-based systems. DVT licensees will be able to offer their clients
confirmation that Web pages, banner ads and CyberSpots have been fully
downloaded and displayed on each unique user's terminal. Furthermore, the DVT
measures pages that did not load on the user's desktop, measures those pages
that are cached, and tracks user interactivity with loaded Web pages using an
active message back technology. These real-time verifications can be
incorporated into a company's billing and accounting system, saving the company
the costs and time needed to bill its clients.
DVT also has potential commercial applications outside measuring the delivery of
advertisements to consumers. For example, DVT can be used to notify email
senders that an email has been delivered to the recipient's email address. This
is particularly applicable to email delivery outside an organization or email
provider. Another potential application for DVT involves fraud detection and
prevention. DVT can be used to monitor the loading of software and report back
to the developer that the software has been loaded on a particular computer.
The developer can then determine whether the software was reloaded on other
computers. DVT can also be used to determine if multiple copies of the same
licensed software are running at the same time. Finally, DVT may also be used
to verify copyright and content usage. For example, DVT can measure how many
times a licensed article has been loaded on a licensed site.
18
RESEARCH AND DEVELOPMENT
The Company has spent $1,200,000 on research and development over the past
fiscal year, working on several research and development projects that it
believes will revolutionize the Rich Media and Audit/Reporting fields. The
Company's research and development team has made improvements and advances that
will be integrated into future releases of both CyberSpot and DVT. The Company
believes that these improvements further the overall goals of higher quality and
smaller file size that the Company has achieved with the release of CyberSpot
and DVT 2.0.
BUSINESS DEVELOPMENT STRATEGY
The Company believes that favorable product reviews and word-of-mouth among
creative, sales, marketing, and Internet professionals are critical in creating
greater awareness and commercial acceptance of its products. In
addition, the Company seeks to generate awareness of its products through
selective advertising in industry publications. The Company is developing
a reseller program. The Company believes that the creation of a reseller
program will allow for the expansion of CyberSpot distribution while keeping
sales, general and administrative cost low, and be a compliment to the direct
sales effort. In addition, the Company will use aggressive public
relations and publicity campaigns to expand awareness of Forefront, CyberSpot
and to compliment the expanded advertising effort. As the Company develops
contracts and business relationships with e-commerce companies, the Company
will continue to refine sales and marketing models as needed to meet client
needs.
POTENTIAL REVENUE-DRIVERS
The Company intends to generate revenue from licensing fees, creative /
production fees and a technology license-based on a cost-per-play model or
cost-per-action model. The Company plans to produce and distribute CyberSpot
production software that will enable global production of CyberSpots by
advertisers, agencies and web development firms. The Company intends to license
its family of technologies within the U.S., Asia and Europe.
The Company's revenue model currently focuses on four distinct revenue-drivers:
(1) the development of CyberSpot ads, (2) the delivery of CyberSpot ads, (3)
CyberSpot enterprise licensing and (4) DVT licensing. The following sections
provide more specific information on each revenue-driver.
AD DEVELOPMENT FEES / CREATIVE SERVICES. Clients are charged an hourly rate
plus materials to build CyberSpot ads. This is standard practice in the
advertising industry. The estimated cost to an advertiser for the development
of a CyberSpot ad ranges from $4000 to 30,000. With the development of the
Company's proprietary CyberSpot production software, advertising agencies and
development firms may bring production in-house.
CYBERSPOT DELIVERY. In addition to the development fee, advertisers are
responsible for a per-play license fee, or a cost-per-action license fee. The
per-play fee is volume sensitive.
CYBERSPOT LICENSING. One of the Company's strategies involves licensing its
technology toolkit to e-commerce groups, ad agencies, web developers,
portals, etc. These groups can use the technology to develop customized
CyberSpots regarding their sites, products and organizations. For example, an
automobile manufacturer can create a CyberSpot that allows a Web surfer to
instantly download and start playing video-like images, audio and text
information on a particular car. The CyberSpot can also be made interactive,
thus allowing the surfer to change colors, interiors and other options. The
Company intends to distribute this product without charge primarily through
the Internet and to license each user. The Company also intends to charge the
licensee on a per play model. CyberSpots produced by licensees will be hosted
by the Company or its strategic ad delivery partner. The Company also intends
to provide product training and technical support to licensees. The Company
does not currently plan to sell the toolkit through retail channels.
19
DVT INDUSTRY LICENSING. DVT has begun to develop into a stand-alone
product. The Company has received requests for information from several
audience measurement companies, including Nielsen Media Research, Arbitron and
Media Metrix. However, it is too early in the process to ascertain the eventual
outcome of these discussions. In order to provide the complete solution that
the advertisers need, the Company intends to license the DVT technology to one
or two major measurement companies such as Nielsen Media Research, Arbitron or
Media Metrix. Combining DVT with these type organizations and their extensive
measurement backgrounds and infrastructure could position DVT as the standard
for online advertising measurement.
The Company anticipates that the DVT license agreements will include a
technology transfer fee plus an ongoing royalty. The royalty will be based on
either a per measurement occurrence or a percentage of applicable revenues. The
Company's projections currently do not include any revenue from potential DVT
Licensing.
COMPETITION
The Company's competition in the online advertising industry comes from three
primary groups: (1) rich media companies, (2) advertisement delivery / sales
companies and (3) advertisement measurement companies. This is a young industry
with a majority of its players being formed within the last two to three years.
The growth of this industry has created opportunities for media and technology
companies. Some of these companies are developing and testing a number of new
banner advertising technologies, which are designed to make the traditional
banner ad more flexible, advanced and effective. Generally referred to as "rich
media," these ads incorporate an expanding array of animations, audio, pull down
menus, pop-up boxes and interactivity. While some companies are developing this
new banner technology, other companies are focusing on ad outsourcing and
placement services and still others are creating new technologies to better
track Internet advertisements.
The advertisement industry defines rich media as messages that contain more
sophisticated programming than the "plain-vanilla" banner ads. The most popular
form of rich media is Java applets, which can be read by browsers that are used
by more than 90% of the Web users. The greatest problems experienced with
rich media advertisements are that they are slow and unreliable, which
keeps many Web sites from running rich media advertisements.
INTELLECTUAL PROPERTY RIGHTS
The Company has filed for U.S. patent protection for a family of technologies
that include its IOUi, CyberSpots, and DVT technologies. The Company relies on
a combination of copyright and trademark laws, trade secrets, software security
measures, license agreements and nondisclosure agreements to protect its
proprietary rights. Much of the Company's proprietary information may not be
secured by means of patent, copyright, domain registration, or trade or service
mark. The Company's ability to enforce its rights will be critical to its
success once it has established an identity and reputation with advertisers
and Internet users. To date, the Company has not received notification that its
services or products infringe the proprietary rights of third parties. Third
parties, however, could make such claims of infringement in the future. The
Company cannot be certain that others will not develop substantially equivalent
or superseding proprietary technology, or that equivalent services will not be
marketed in competition with its services, thereby substantially reducing
the value of its proprietary rights. Furthermore, there can be no
assurance that any confidentiality agreements between the Company and its
employees or any license agreements with its customers will provide meaningful
protection for its proprietary information in the event of any unauthorized
use or disclosure of such proprietary information.
EMPLOYEES
As of January 22, 2001, the Company had five full time employees and various
independent contractors. Of these employees, one was classified as an
executive officer. None of the employees are subject to a collective
bargaining agreement. Subsequent to the fiscal year end, June 30, 2000, the
Company has broadened its marketing strategy from direct selling to include
resellers. This change in strategy, as well as cash flow issues,
resulted in a reduction in support personnel. Additionally, due to funding
issues, several technical personnel have voluntarily resigned. Until funding
is secured, the Company will operate with a limited staff of under ten
full-time employees.
20
DESCRIPTION OF PROPERTY
The Company leases, under a sub lease from a corporation operated by the son
of the President, its corporate headquarters located at 1413 South Howard
Avenue, Suite 104, Tampa, Florida, 33606. Square footage of the current
location is approximately 1,050 feet. The current lease payments are
approximately $1,857 per month. The telephone number is (813) 253-2267. The
lease commenced in November 2000, and is scheduled to expire in November 2003.
The Company believes that the current facilities will not be suitable for the
operation of its business for the near future and is exploring new options. The
location could be replaced without significant disruption to business
operations. Due to funding issues, the facilities are not insured against
perils commonly covered by business insurance policies. See, "Certain
Transactions."
MANAGEMENT
----------
The following table sets forth the Directors and executive officers of the
Company, their ages, and all offices and positions with the Company. Officers
and other employees serve at the will of the Board of Directors subject,
however, to any agreements.
Positions
Name of Director Age With Company
- ---------------- --- ------------
Santu Rohatgi 51 President, Chief Financial Officer, Secretary,
Treasurer and Director
Bruce Benson 46 Director
David Kennedy 42 Director
Mark Burchill 33 Director
Santu Rohatgi was elected as a Director, effective March 15, 2000. Bruce Benson
and David Kennedy were elected as Directors, effective March 16, 2000. Mark
Burchill was elected a Director, effective March 22, 2000. Each Director will
serve until the next annual meeting of shareholders and their respective
successors are elected and qualified. Each officer serves, at the discretion
of the Board of Directors, and until his successor is elected at the
annual meeting of the board of directors and is qualified, subject to any
employment agreements.
EXECUTIVE OFFICERS, DIRECTORS AND OTHER SIGNIFICANT EMPLOYEES OF THE COMPANY:
SANTU ROHATGI has had ten years of management experience at AT&T, where he held
various management positions, including financial planning management of
start-up Internet Commerce Services; Manager of Support Operations; Director of
Operations, Northeast Division; and Director of Finance & Administration, New
England Region. He also ran a consulting services company for small and medium
size businesses in the area of information technology, business automation and
operations. He received an MA from Patna University in India, an MBA from
Eastern New Mexico University and a Masters Certificate in Project Management
from George Washington University. He is a Certified Project Management
Professional (PMP).
BRUCE BENSON oversees all aspects of iWeb, a privately held Internet startup
that provides enabling technologies and services for Web advertising that bring
Internet ad revenues to ISPs. Before joining iWeb, Benson was Executive Vice
President of Corporate Strategy and Technology of Young & Rubicam, where he was
responsible for Internet strategy and managed the global coordination of Y & R's
technological resources. Prior to joining Y & R, Mr. Benson was with Sony Music
as a Senior Vice President in several capacities, where he worked to develop
long-range strategies for the company, including early stage internet plays.
Before his work at Sony, Benson was a partner at Price Waterhouse where he was
largely responsible for the launch of their thriving Entertainment and Media
Practice. He received a BS in mathematics from the University of Houston.
DAVID KENNEDY is a founder of TDRC Group, the largest intellectual property
consulting company in the nation. At TDRC, where his clients range from Fortune
100 companies to start-up ventures, he assists Internet and technology companies
formulate their strategic direction based upon maximizing the value of their
intellectual capital. Mr. Kennedy sits on the board of several Internet
related companies and is on the Advisory Board of an intellectual property
venture capital fund. Before founding TDRC, he was a senior partner in an
international consulting firm and was the partner in charge of the technology
transfer and patent licensing division. He received a BBA in accounting and is
a Certified Public Accountant in the state of Georgia.
21
MR. BURCHILL was a founding partner of 24/7 Media, one of the largest global
Internet marketing companies and the largest Internet advertising network. Upon
his departure in January, 2000, 24/7 Media had 42 offices in over 20 countries.
Mr. Burchill is credited with growing the network into one of the largest-reach
vehicles on the Internet as well as expanding 24/7 Media's presence around the
world to Europe, Asia and Latin America. In 1995, he co-founded Petry
Interactive, an internet marketing company, which was one of the three companies
that merged to become 24/7 Media. As the Director of Strategic Development for
Petry Media in 1994, Burchill lived and worked in Hong Kong, laying the
groundwork for a joint venture Asian ad sales company with Pearson PLC. Mr.
Burchill began his career in the media department of Young & Rubicam in New
York, where he worked on top national and local accounts such as
Colgate-Palmolive, American Home Products and NYNEX. Mr. Burchill holds a
Masters of Business Administration from UCLA.
No Director or executive officer of the Company has any family relationship with
any other director or executive officer of the Company.
Executive Compensation
The following table sets forth the compensation we have paid to Santu Rohatgi
(President and Chief Financial Officer) and to two affiliates of the Company,
Wyly Wade and Mark Gray for the fiscal year ended June 30, 2000. No other
executive officers received more than $100,000 in the fiscal year ended June 30,
2000. The Company does not currently have a long term compensation plan and
does not grant any long term compensation to its executive officers or
employees. The table does not reflect certain personal benefits, which in the
aggregate are less than ten percent of each Named Executive Officer's salary
and bonus. No other compensation was granted for this fiscal year ended
June 30, 2000.
SUMMARY COMPENSATION TABLE
Annual Compensation
----------------------------------
Other
Name Annual
And Compen- All Other
Principal sation Compen-
Position Year Salary ($) Bonus ($) sation ($)
(1) (2)
- ------------- ---- ----------- ------------ -------------
Santu 2000 $ 79,615.42 $ 20,571.92 $ 20,324.92
Rohatgi
(President/
CFO)
Mark Gray 2000 $ 79,615.42 $ 86,467.83 $ 18,117.03
(Business
Develop-
ment)
Wyly Wade 2000 $ 79,615.42 30,264.21 $ 14,770.43
(Director of
Tech-
nology)
- ------------- ---- ----------- ------------ -------------
22
(1) Bonus figures included in the schedule above include payments under the
Success By Objective Bonus (SBO) and, in the case of Mark Gray, merit bonuses
for his efforts in putting together the merger of WPI (now Forefront
Technologies, Inc.) and Anyox Resources, Inc. (now Forefront, Inc.). The SBO
bonuses are paid monthly with quarterly and annual goals and objectives set and
reviewed quarterly.
(2) Other compensation includes monies expended for health, life, and other
related benefits as well as company owned vehicles. Effective July 2000, cash
outlay for Company vehicles is covered by the individual assigned the
Company vehicle.
COMPENSATION OF DIRECTORS
Directors are not compensated for their service as directors. All directors are
reimbursed for any reasonable expenses incurred in the course of fulfilling
their duties as a director of the Company.
PRINCIPAL SHAREHOLDERS
----------------------
The following table sets forth information regarding beneficial ownership of our
common stock as of December 28, 2000 by all persons known by us to own
beneficially 5% or more of the outstanding shares of our common stock, each
director, and all executive officers and Directors as a group:
Name and Address of Number of Shares Percentage
Beneficial Owner of Beneficially Owned (1) Ownership of Class(1)
- ---------------------------------------- ------------------------- ----------------------
Cede & Co. 2.196,308 9%
P.O. Box 20
Bowling Green Station
New York, NY 10004
Mark Gray 1,383,200 6%
1885 Bougainvillea
Sarasota, FL 34239
Trafalgar Resources, LLC (5) 7,800,000 32%
441 Wadsworth Blvd #111
Lakewood, CO 90226
Wyle Wade 2,000,000 8%
540 West Tamiami Trail
Sarasota, FL 34238
Santu Rohatgi (2)(3)(4) 137,334 5%
5403 Avenue Simone
Lutz, FL 33549
David Kennedy (2)(3)(4) 50,000 .2%
560 Hardage Farm Dr
Marietta, GA 30064
Bruce Benson (2)(3) 0 0
1413 South Howard Ave., Suite 104
Tampa, Fl 33600
23
Mark Burchill (2)(3) 0 0
1413 South Howard Ave., Suite 104
Tampa, Fl 33600
All officers and directors as a group(2) 187,334 .8
- ----------------------------
(1) Calculated on the basis of 24,409,043 shares of Common Stock issued and
outstanding and percentages are rounded and so are approximates. Does not
consider shares issuable under options, warrants or debentures. Does not
include 1,500,000 options to Bruce Benson, 1,000,000 options to David
Kennedy, 100,000 options to Mark Burchill, 1,904,600 options to Santu
Rohatgi, and 363,636 options to employee Michael Tomlinson, 300,000 options
to Wyly Wade, and a total of 1,470, 196 miscellaneous options to employees,
and consultants with differing schedules and prices.
(2) Officer and/or Director, and does not consider any stock options rights the
person may have.
(3) The Director owns less than one percent.
(4) Includes, using reasonable efforts, an estimate,in accordance with Rule
13d-3, of shares an officer or Director may be deemed the beneficial owner
of. Does not consider, for Mr. Rohatgi and the total of all officers and
Directors, 69,600 shares of stock of Rising Solutions, Inc., a corporation
owned by his son. See, "Certain Transactions."
(5) It is the position of the Company that this shareholder is no longer
entitled to such shares and it is anticipated that the shareholder is in
the process of returning the shares for cancellation.
SELLING SHAREHOLDERS
--------------------
This prospectus relates to the offering, by certain persons who are shareholders
or may become shareholders, of a total of 45,682,454 shares of common stock
pursuant to this prospectus, consisting of the following:
An estimated 43,478,260 shares is issuable in connection with a $10,000,000
equity credit line agreement with Cornell Capital Partners ("Cornell Partners"),
presented by May Davis Group, Inc. ("May Davis"). At such time as Cornell
Partners purchases $10,000,000 of our common stock, we, in our discretion, may
elect to enter into a second substantially identical $10,000,000 common equity
credit line agreement. Any shares as to a second common equity credit line
agreement are not included in this offering. 164,600 shares were issued in the
past to certain selling shareholders, who were given registration rights, as
follows: 25,000 shares each to Anthony Agentowicz, John Solleder, and Bruce M.
Goldfarb, and 20,000 shares to Trevor Michael, and 69,600 shares to Rising
Solutions, Inc. A total of 3,500,000 shares issuable in connection with a
$250,000 Debenture loan to the Company on or about this date are also included
as shares which may be sold by selling shareholders, upon conversion of the
Debenture by Rance Merkel, Michael Woelfel, Connie Benesch, Cynthia Wilson,
Gerald Holland, and Maryellen Misiak. A total of 1,041,664 shares issuable
under warrants held by certain of the selling shareholders, as follows: 8,333
shares each by Robert Farrell, Joseph W. Donohue, Jr., Mark Angelo, Hunter
Singer, and May Davis Group and Trans-Global Capital Holdings, Ltd.
("Trans-Global"); 166,666 shares each by Robert Farrell, Joseph W. Donohue,
Jr., Mark Angelo, Hunter Singer, and the May Davis Group, and Trans-Global
Capital Holdings, Ltd. ("Trans-Global"); and a total of 1,142,860 shares issued
to them, as follows: 187,810 shares to each of Messrs. Farrell, Donohue,
Angelo, Singer, Owen May, 4000 shares of James Gonzales, 12,000 shares of
Kenneth G.Merkel, III, and 187,810 shares of Trans-Global. See "The May Davis
Transaction," and "Selling Shareholders.," and "Certain Transactions."
OWNERSHIP OF SHARES OWNERSHIP OF SHARES
OF COMMON STOCK OF COMMON STOCK
PRIOR TO OFFERING (1) AFTER OFFERING(2)
--------------------- ------------------
SELLING SHAREHOLDER SHARES PERCENTAGE SHARES PERCENTAGE
- --------------------------------- ------- ---------- ------ ----------
Anthony Agentowicz 25,000 .1
1413 South Howard Ave. Suite 104
Tampa, Fl 33600
24
John Solleder 25,000 .1
1413 South Howard Ave. Suite 104
Tampa, Fl 33600
Bruce M. Goldfarb 25,000 .1
Trevor Michael 20,000 .1
1413 South Howard Ave. Suite 104
Tampa, Fl 33600
Rising Solutions, Inc. 69,600 .2
1413 South Howard Ave. Suite 104
Tampa, Fl 33600
Trans-Global Capital 187,810 .8
Holdings, Ltd.
622 Chardonnay Circle
Brandon, MS 39047
Rance Merkel (3) 0 0
497 Claude Simmons Road
Johnson City, TN 37602
Michael Woelfel (3) 0 0
111 Cabel County Courthouse
Huntington, WV 25701
Connie Benesch (3) 0 0
401 East 80th Street
Unit 14G
New York, NY 10021
Cynthia Wilson (3) 0 0
101 S. Jefferson Avenue
Cookeville, TN 38501
Gerald Holland(3) 0 0
22 Coult Lane
Old Lyme, CT 06732
Maryellen Misiak (3) 0 0
294 Long Hill Drive
Short Hills, NJ 07087
Robert Farrell (4) 187,000 .8
c/o May Davis
One World Trade Center
87th Floor
New York, NY 10048
Joseph W. Donohue, Jr. (4) 187,000 .8
c/o May Davis
One World Trade Center
87th Floor
New York, NY 10048
25
Mark Angelo (4) 187,000 .8
c/o May Davis
One World Trade Center
87th Floor
New York, NY 10048
Hunter Singer (4) 187,000 .8
c/o May Davis
One World Trade Center
87th Floor
New York, NY 10048
Owen May (4) 187,000 .8
c/o May Davis
One World Trade Center
87th Floor
New York, NY 10048
James Gonzales (4) 4,000 .01
c/o May Davis
One World Trade Center
87th Floor
New York, NY 10048
Kenneth G. Merkel, III (4) 12,000 .04
c/o May Davis
One World Trade Center
87th Floor
New York, NY 10048
_________________________________________
(1) Includes such shares the Company believes is owned by the person or firm,
but does not include shares issuable under warrants or otherwise unless
otherwise stated for the person or firm. The percentages are approximates and
are rounded for presentation.
(2) Given shares may or may not be issued under warrants and debentures, and
the shareholders may or may not sell their shares, and that the number of shares
that may be issued under the Line of Credit depends on various factors including
the then market price, we cannot readily estimate the number of shares and
ownership percentage following the offering. See, "May Davis Transaction."
(3) These persons are subscribers of the $250,000 total of debentures.
(4) Does not include shares underlying warrants which may or may not be
exercised. These are persons receiving shares and warrants as designated by May
Davis. See, "May Davis Transaction."
CERTAIN TRANSACTIONS
--------------------
The following transactions are believed by Management to be on terms as fair to
the Company as those the Company could have obtained from unrelated third
parties and arms-length negotiations.
26
David Kennedy, a Director, is an owner of a company named Technology & Dispute
Resolution Consulting, Inc. ("TDRCI"). On October 20, 1999, the Company entered
into an agreement with TDRCI whereby TDRCI is to provide professional services
for marketing and business plan expenses. During the fiscal year, the total
cost incurred under this agreement was $430,743.
Rising Solutions, Inc., operated by a son of Santu Rohatgi, and which was
co-founded by Santu Rohatgi, is the primary lessee of the current offices sub
leased by our Company. The primary lease is personally guaranteed by Mr. Santu
Rohatgi. Rising Solutions, Inc., is a selling shareholder hereunder. See,
"Description of Property," and Selling Shareholders."
The Company has loans from two shareholders for $50,000 and $56,000,
respectively, for a total of $106,000. All notes bear annual interest at 9.5%
per year and each note is due 12 months from the note agreement dates.
At June 30, 2000, interest expense approximated $300. One portion of the
accounts payable, $318,243 at June 30, 2000, is payable to a Forefront
Tech consulting firm founded by a director of the Company. This consulting
has been in the areas typical to a development stage company and has
included assistance with business plan development, pricing models, and
intellectual property. These services were contracted for in the ordinary
course of business, prior to the director being appointed to the Company's
board of directors, and management believes the pricing and terms were as
favorable as that which could have been obtained from an independent third
party.
The Company has entered into an agreement with CyberQuest Group, Inc., a related
party, for certain professional services related to the development of the
Company's technologies. The companies are related through common ownership
and control. Costs incurred under this agreement at June 30, 2000 approximated
$781,349, and at the balance sheet date, the Company has accounts receivable
from CyberQuest Group, Inc. of $55,826. This agreement was terminated on
December 12, 1999 by both parties.
The Company also purchased certain fixed assets and rented other property
from CyberQuest during the fiscal year ended June 30, 2000 in the amount of
$60,000 and $5,400, respectively. The Company engaged the professional
services of a firm owned by a member of the Board of Directors for marketing
and business plan expenses. Total costs incurred for the year
ended June 30, 2000 were $430,743 of which $318,243 is unpaid as of June 30,
2000.
DESCRIPTION OF SECURITIES
-------------------------
General
The transfer agent and registrar for our Company is: NEVADA AGENCY AND
TRUST COMPANY
50 WEST LIBERTY STREET,
SUITE 880 RENO, NV 89501
Common Stock
The issued and outstanding shares of common stock are fully paid and
non-assessable. Holders of common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of stockholders and may not
cumulate their votes for the election of directors. Shares of common stock are
not redeemable, do not have any conversion or preemptive rights and are not
subject to further calls or assessments once fully paid.
Holders of common stock will be entitled to share pro rata in such
dividends and other distributions as may be declared from time to time by the
Board of Directors out of funds legally available therefore. Upon our
liquidation or dissolution, holders of shares of common stock will be entitled
to share proportionally in all assets available for distribution to such
holders.
See, "Selling Shareholders."
Shares Eligible for Future Resale
- -------------------------------------
Future sales of substantial amounts of common stock pursuant to Rule 144 under
the Securities Act of 1933 or otherwise by certain shareholders could have a
material adverse impact on the market price for the common stock at the time.
There are presently approximately 5,247,118 outstanding shares of our common
stock held by Management and other shareholders which are deemed "restricted
27
securities" as defined by Rule 144 under the Securities Act. Under certain
circumstances, these shares may be sold without registration pursuant to the
provisions of Rule 144. In general, under Rule 144, a person (or persons whose
shares are aggregated) who has satisfied a one-year holding period may, under
certain circumstances, sell within any three-month period a number of restricted
securities which does not exceed the greater of one (1%) percent of the shares
outstanding or the average weekly trading volume during the four calendar weeks
preceding the notice of sale required by Rule 144. In addition, Rule 144
permits, under certain circumstances, the sale of restricted securities without
any quantity limitations by a person who is not an affiliate of ours and has
satisfied a two-year holding period. Any sales of shares by shareholders
pursuant to Rule 144 may have a depressive effect on the price of our common
stock.
No prediction can be made as to the effect, if any, that sales of shares or the
availability of shares for sale as described above will have on the market
prices of the common stock prevailing from time to time. Nevertheless, the
possibility that substantial amounts of common stock may be sold in the public
market may adversely affect prevailing prices for the common stock and could
impair our ability to raise capital in the future through the sale of equity
securities. See "Risk Factors -- Future sales of common stock could depress the
price of our common stock."
PLAN OF DISTRIBUTION
--------------------
The common stock offered by this prospectus is being offered by the selling
shareholders and upon exercise of warrants and conversion of debentures. See
"Selling Shareholders." The common stock may be sold or distributed from time
to time by the selling shareholders, or by donees or transferees of, or other
successors in interests to, the selling shareholders, directly to one or more
purchasers or through brokers, dealers or underwriters who may act solely as
agents or may acquire such common stock as principals, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, at negotiated prices, or at fixed prices, which may be changed. The
sale of the common stock offered by this prospectus may be effected in one
or more of the following methods:
- - ordinary brokers' transactions;
- - transactions involving cross or block trades or otherwise on the
Nasdaq Bulletin Board;
- - purchases by brokers, dealers or underwriters as principal and resale
by such purchasers for their own accounts pursuant to this prospectus;
- "at the market" to or through market makers or into an existing
market for the common stock;
- in other ways not involving market makers or established trading
markets, including direct sales to purchasers or sales effected through agents;
- in privately negotiated transactions; or
- any combination of the foregoing.
In order to comply with the securities laws of certain states, if
applicable, the shares may be sold only through registered or licensed brokers
or dealers. In addition, in certain states, the shares may not be sold unless
they have been registered or qualified for sale in such state or an exemption
from such registration or qualification requirement is available and complied
with. Brokers, dealers, underwriters or agents participating in the
distribution of the shares as agents may receive compensation in the form of
commissions, discounts or concessions from the selling shareholder and/or
purchasers of the common stock for whom such broker-dealers may act as agent, or
to whom they may sell as principal, or both. The compensation paid to a
particular broker-dealer may be less than or in excess of customary commission.
28
The selling shareholder Cornell Partners may be deemed an "underwriter" within
the meaning of the Securities Act of 1933, as amended, and certain other
selling shareholders, including upon exercise of warrants and sales in
connection with this offering, may also be deemed underwriters. Any
broker-dealers who act in connection with the sale of the shares hereunder may
be deemed to be "underwriters" within the meaning of the Securities Act, and any
commissions they receive and proceeds of any sale of the shares may be deemed to
be underwriting discounts and commissions under the Securities Act.
Neither we nor the selling shareholders can presently estimate the amount
of compensation that any agent will receive. We know of no existing
arrangements between any selling shareholder, any other shareholder, broker,
dealer, underwriter or agent relating to the sale or distribution of the shares.
At a time particular offer of shares is made, a prospectus supplement, if
required, will be distributed that will set forth the names of any agents,
underwriters or dealers and any compensation from the selling shareholder and
any other required information.
We will pay all of the expenses incident to the registration, offering and
sale of the shares to the public other than commissions or discounts of
underwriters, broker-dealers or agents. The Company has also agreed to
indemnify May Davis and related persons against specified liabilities, including
liabilities under the Securities Act. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers and controlling persons of the Company, we have been advised that in
the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is therefore, unenforceable.
We have advised the selling shareholders that while they are engaged in a
distribution of the shares included in this prospectus it is required to comply
with Regulation M promulgated under the Securities Exchange Act of 1934, as
amended. With certain exceptions, Regulation M precludes the selling
shareholders, any affiliated purchasers, and any broker-dealer or other person
who participates in such distribution from bidding for or purchasing, or
attempting to induce any person to bid for or purchase any security which is the
subject of the distribution until the entire distribution is complete.
Regulation M also prohibits any bids or purchases made in order to stabilize the
price of a security in connection with the distribution of that security. All
of the foregoing may affect the marketability of the shares offered hereby this
prospectus.
LEGAL MATTERS
-------------
Law Offices of Richard Rossi, P.A., will give an opinion for us regarding the
stock offered in this prospectus.
EXPERTS
-------
CHRISTOPHER, SMITH, LEONARD, BRISTOW, STANELL & WELLS, P.A. independent
certified public accountants, have audited our consolidated financial
statements at June 30, 2000 and for the year then ended as set forth in their
included report. The 1999 financial statements were audited by other auditors'
whose report dated September 27, 1999 expressed an unqualified opinion on those
statements. We have included our consolidated financial statements in the
registration statement , in reliance on their report given their authority as
an expert in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
-----------------------------------
We have filed a registration statement on Form SB-2 with the Securities and
Exchange Commission in connection with this offering. This prospectus does not
contain all of the information set forth in the registration statement, as
permitted by the Rules and Regulations of the Securities and Exchange
Commission. Whenever reference is made in this prospectus to any contract or
other document of ours, the reference may not be complete and you should refer
to the exhibits that are part of the registration statement for a copy of the
contract or document.
We also file annual, quarterly and current reports and other information with
the Securities and Exchange Commission. You may read and copy any report or
document we file, and the registration statement, including the exhibits, may be
inspected at the Securities and Exchange Commission's public reference room
located at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the
Securities and Exchange Commission at 1-800-SEC-0330 for further information on
the public reference rooms. Our Securities and Exchange Commission filings are
also available to the public from the SEC's website at: http://www.sec.gov.
------------------
29
================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
FINANCIAL STATEMENTS
JUNE 30, 2000
FROM JULY 13, 1998 (INCEPTION) TO JUNE 30, 2000
================================================================================
TABLE OF CONTENTS
-----------------
PAGE
----
INDEPENDENT AUDITOR'S REPORT F-1
FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS F-2
CONSOLIDATED STATEMENTS OF OPERATIONS F-3
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
NOTES TO FINANCIAL STATEMENTS F-6 - F-21
INDEPENDENT AUDITORS' REPORT
THE STOCKHOLDERS OF FOREFRONT, INC.
AND SUBSIDIARY
SARASOTA, FLORIDA
We have audited the accompanying consolidated balance sheet of Forefront, Inc.
and Subsidiary as at June 30, 2000 and the related consolidated statements of
operations, cash flows and shareholders' equity for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The 1999 financial statements were audited by other auditors whose
report dated September 27, 1999 expressed an unqualified opinion on those
statements. The other auditors' report included an explanatory paragraph that
described the going concern issue described in NOTE 1 to the consolidated
financial statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Forefront, Inc. and
Subsidiary as of June 30, 2000, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in NOTE 1 to
the consolidated financial statements, the Company has incurred a significant
operating loss for the year and has an accumulated deficit at the end of the
year of $2,014,224, which raises substantial doubt about its ability to continue
as a going concern. Management's plans in regard to these matters are also
described in NOTE 1. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/S/ CHRISTOPHER, SMITH, LEONARD,
BRISTOW, STANELL & WELLS, P.A.
------------------------------------------
CHRISTOPHER, SMITH, LEONARD,
BRISTOW, STANELL & WELLS, P.A.
November 7, 2000
F - 1
================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
================================================================================
ASSETS
JUNE 30, JUNE 30,
2000 1999
------------ ----------
CURRENT ASSETS
Cash $ 3,615 $ 1,283
Due from related party - Note 12 55,826 -0-
Prepaid expenses 21,734 -0-
------------ ----------
Total current assets 81,175 1,283
Property and equipment, net - NOTE 1, 5 628,583 -0-
Other Assets - Note 1
Goodwill - net - NOTE 6 7,091,997 -0-
Deposits 7,577 -0-
Capitalized software costs less accumulated amortization
of $13,338 74,916 -0-
Patent rights, less accumulated amortization of $38,599 38,822 -0-
------------ ----------
Total other assets - NOTE 6 7,213,312 -0-
------------ ----------
TOTAL ASSETS $ 7,923,070 $ 1,283
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 508,490 $ 1,833
Accounts payable - related party - NOTE 12 318,243 3,482
Accrued liabilities 172,572 -0-
Current portion of capital leases - NOTE 11 54,626 -0-
Current portion of long-term debt - NOTE 10 191,686 -0-
Notes payable - Note 9 500,000 -0-
Notes payable - related party - NOTE 9 106,000 -0-
------------ ----------
Total current liabilities 1,851,617 5,315
Long-term debt - NOTE 10 -0- -0-
Long-term capital lease liability - Note 11 -0- -0-
Commitments and contingencies - Note 16 -0- -0-
Stockholders' equity (deficit) - Note 15
Preferred stock, $0.001 par value, 200,000 shares
authorized; 200,000 shares issued and outstanding 200 -0-
Class A - Common stock, $0.001 par value, 200,000,000
shares authorized; 22,667,254 issued, 15,090,011
and 10,028,500 outstanding, respectively 15,091 10,029
Additional paid-in capital 8,070,386 6,121
Deficit accumulated during the development stage (2,014,224) (20,182)
------------ ----------
Total stockholders' equity (deficit) 6,071,453 (4,032)
------------ ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,923,070 $ 1,283
============ ==========
================================================================================
The accompanying notes are an integral part of these financial statements.
F - 2
================================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
================================================================================================
JULY 13, 1998
YEAR ENDED JUNE 30, (INCEPTION TO)
2000 1999 JUNE 30, 2000
--------------------- --------------- ---------------
REVENUES
Interest $ 2,574 $ -0- $ 2,574
EXPENSES
Selling general and administrative 2,676,838 20,182 2,697,020
Research and development 1,199,367 -0- 1,199,367
Depreciation and amortization 624,026 -0- 624,026
--------------------- --------------- ---------------
4,500,231 20,182 4,520,413
--------------------- --------------- ---------------
NET (LOSS) BEFORE MINORITY SHARE (4,497,657) (20,182) (4,517,839)
LESS: MINORITY SHARE OF OPERATIONAL
LOSSES 2,503,615 -0- 2,503,615
--------------------- --------------- ---------------
NET (LOSS) $ (1,994,042) $ (20,182) $ (2,014,224)
===================== =============== ===============
BASIC AND FULLY DILUTED LOSS PER SHARE $ (0.16) $ (0.00) $ (0.19)
===================== =============== ===============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 12,759,928 8,122,000 10,479,721
===================== =============== ===============
================================================================================
The accompanying notes are an integral part of these financial statements.
F - 3
======================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
======================================================================================
DEFICIT
ACCUMULATED
CAPITAL STOCK PREFERRED STOCK ADDITIONAL DURING THE
--------------------- ---------------- PAID IN DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE
----------- -------- ------- ------- ------------- ----------
Balance - July 13, 1998 (date of inception) -0- $ -0- -0- $ -0- -0- $ -0-
Common Stock issued for cash at $0.001
- September 18, 1998 10,000,000 10,000 -0- -0- -0- -0-
Common Stock issued for cash at $0.10
- October 21, 1998 28,500 29 -0- -0- 2,821 -0-
Capital contributions by officers - expenses -0- -0- -0- -0- 3,300 -0-
Net operating loss - Period from July 13,
1998 to June 30, 1999 -0- -0- -0- -0- -0- (20,182)
----------- -------- ------- ------- ------------ -------------
BALANCE - JUNE 30, 1999 10,028,500 10,029 -0- -0- 6,121 (20,182)
----------- -------- ------- ------- ------------ -------------
Capital contributions by officers -0- $ -0- -0- $ -0- 1,860 $ -0-
Common Stock issued for 57% interest in
subsidiary - March 9, 2000 4,000,000 4,000 -0- -0- 3,537,12 -0-
Common Stock issued for sale
- March 28, 2000 6,000,000 6,000 -0- -0- 5,094,000 -0-
Common Stock returned through default
of subscriptions on March 28, 2000
- returned June 20, 2000 (3,750,000) (3,750) -0- -0- (3,183,750) -0-
Common Stock issued for 38% interest
in subsidiary - June 23, 2000 2,638,754 2,639 -0- -0- 2,449,062 -0-
Common Stock issued for remaining 5%
interest in subsidiary
- June 30, 2000 372,757 373 -0- -0- 316,471 -0-
Cost of issues -0- -0- -0- -0- (154,499) -0-
Common Stock returned in exchange for
certain mineral reights, valued at
par - June 30, 2000 (4,000,000) (4,000) -0- -0- 4,000 -0-
Preferred Stock issued in exchange for
Common Stock at par June 30, 2000 (200,000) (200) 200,000 200 -0- -0-
Net Operating Loss -0- -0- -0- -0- -0- (1,994,042)
----------- -------- ------- ------- ------------ -------------
BALANCE - JUNE 30, 2000 15,090,011 $15,091 200,000 $ 200 $ 8,070,386 $ (2,014,224)
=========== ======== ======= ======= ============ =============
================================================================================
The accompanying notes are an integral part of these financial statements.
F - 4
================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 2000, 1999 AND SINCE ITS INCEPTION
================================================================================
JULY 13, 1998
YEAR ENDED JUNE 30, (INCEPTION TO)
2000 1999 JUNE 30, 2000
------------ --------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(4,497,657) $(20,182) $ (4,517,839)
Adjustment to reconcile net loss to
net cash used in operating activities
Minority interest in net loss of
consolidated subsidiary - net of capital 1,222,385 -0- 1,222,385
Depreciation and amortization 624,026 -0- 624,026
Expenses in-kind -0- 3,300 3,300
Changes in operating assets and liabilities
(Increase) in due from Cyberquest (55,826) -0- (55,826)
Increase in prepaid expenses (21,734) -0- (21,734)
(Increase) in deposits (7,577) -0- (7,577)
Increase in accounts payable 821,417 5,315 826,732
Increase in accrued liabilities 172,573 -0- 172,573
------------ --------- ---------------
Net cash (used) in operating activities (1,742,393) (11,567) (1,753,960)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (404,576) -0- (404,576)
Intangible asset expenditures (165,674) -0- (165,674)
------------ --------- ---------------
Net cash (used) in investing activities (570,250) -0- (570,250)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable 606,000 -0- 606,000
Payments on long-term debt (40,549) -0- (40,549)
Capital lease payments (17,349) -0- (17,349)
Issuance of common stock 5,262 12,850 18,112
Proceeds from equity investors net of
issue costs 1,761,611 -0- 1,761,611
------------ --------- ---------------
Net cash provided by financing activities 2,314,975 12,850 2,327,825
------------ --------- ---------------
NET INCREASE IN CASH 2,332 1,283 3,615
CASH - BEGINNING OF PERIOD 1,283 -0- -0-
------------ --------- ---------------
CASH - END OF PERIOD $ 3,615 $ 1,283 $ 3,615
============ ========= ===============
SUPPLEMENTAL INFORMATION
- -----------------------------------------------
Cash paid for interest $ 6,611 $ -0- $ 6,611
============ ========= ===============
Cash paid for income taxes $ -0- $ -0- $ -0-
============ ========= ===============
NON-CASH OPERATING ACTIVITIES
- -------------------------------
For the year ended June 30, 1999, officers contributed recorded expenses of
$3,300
For the year ended June 30, 2000, the Company acquired fixed assets totaling
$304,210 through the issuance of long-term debt and capital lease obligations.
The Company also recorded Goodwill through the issuance of equity of $7,584,000.
================================================================================
The accompanying notes are an integral part of these financial statements.
F - 5
================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000, 1999 AND FROM
JULY 13, 1998 (INCEPTION) TO JUNE 30, 2000
================================================================================
NOTE 1 - GOING CONCERN
--------------
These financial statements are prepared on a going-concern basis which
assumes that the Company will realize its assets and discharge its
liabilities in the normal course of business. The Company incurred an
operating loss of $1,994,042 for the year ended June 30, 2000 (1999 -
$20,182) and reported a deficit at that date of $2,014,224 (1999 -
$20,182). In addition, projected cash flows from the Company's current
operations are not sufficient to finance the Company's current and
projected working capital requirements. The circumstances together
with the requirements to continue investing in research and
development activities to meet the Company's growth objectives and
without assurance of broad commercial acceptance of the Company's
products, lend some doubt as to the ability of the Company to continue
in normal business operations. In recognition of this issue, the
Company continues to attempt to obtain additional debt and equity
financing to raise the required capital. The ability of the Company to
continue as a going concern is dependent upon obtaining adequate
sources of financing and developing and maintaining profitable
operations. Should the Company be unable to continue as a going
concern, assets and liabilities would require restatement on a
liquidation basis which would differ materially from the going concern
basis.
NOTE 2 - NATURE OF OPERATIONS
----------------------
Forefront, Inc. and Subsidiary (the "Company") is a development stage
company formed in the State of Nevada on July 13, 1998. The Company
was originally incorporated as Anyox Resources, Inc. On May 25, 2000,
the Company amended its Articles of Incorporation and changed it name
to Forefront, Inc. The Company was originally organized for the
purpose of acquiring and developing mineral properties. During the
year, the Company acquired Web Partners, Inc. which substantially
changed the nature of the Organization. Subsequent to this purchase,
the Company is engaged in research and development of new web based
technologies. The Company is in the process of filing for United
States patent protection for a family of technologies which allow the
rapid development of online, thirty second commercial spot
advertisements, providing online advertisers with the first reliable
audience delivery verification system. The Company's business is
predominately based in the United States.
The Company is in the development stage and its efforts through June
30, 2000 have been principally devoted to organizational activities,
research and development of its technologies and raising capital.
Management anticipates incurring substantial additional losses as it
pursues its research and development efforts.
F - 6
================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 2000, 1999 AND FROM
JULY 13, 1998 (INCEPTION) TO JUNE 30, 2000
================================================================================
NOTE 2 - NATURE OF OPERATIONS - CONTINUED
------------------------------------
Fiscal Year
-----------
The Company maintains its accounting records on a fiscal year basis
ending on June 30th.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------------
Use of Estimates
----------------
The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements, and
the reported amounts of revenue and expenses during the periods.
Estimates are used for, but not limited to, the accounting for
doubtful accounts, depreciation and amortization, taxes and
contingencies. Despite management's best effort to establish good
faith estimates, actual results may differ from these estimates.
Revenue Recognition
--------------------
The Company will contract with customers for providing online, thirty
second commercial spot advertisements. Revenues are generally
recognized when a fixed period license agreement has been signed, the
software product has been developed, there are no uncertainties
surrounding product acceptance, the fees are fixed and determinable,
and collection is considered probable. For customer license
agreements, which meet these recognition criteria, the portion of the
fees related to software licenses will generally be recognized in the
current period, while the portion of the fees related to services is
recognized as the services are performed. However, for the period
ending June 30, 2000, the Company had not entered into any contracts
for the sale or use of its products.
Principles of Consolidation
-----------------------------
These consolidated financial statements have been prepared by
management in accordance with generally accepted accounting principles
and include the accounts of Forefront, Inc. and Forefront Technology,
Inc. (its wholly owned subsidiary.) All intercompany accounts and
transactions have been eliminated.
F - 7
================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 2000, 1999 AND FROM
JULY 13, 1998 (INCEPTION) TO JUNE 30, 2000
================================================================================
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
------------------------------------------------------------
Cash and Cash Equivalents
----------------------------
Cash equivalents may consist of highly liquid short-term investments
with original maturities at the date of acquisition of 90 days or less
and are recorded at cost. The Company did not have any cash
equivalents as of the balance sheet dates.
Fair Value of Financial Instruments
---------------------------------------
At June 30, 2000 and 1999, Forefront had the following financial
instruments: cash, advances receivable, accounts payable and accrued
liabilities. The carrying value of all such accounts are considered by
management to approximate their fair market value based on their
liquidity or based on their short-term nature.
Property and Equipment
------------------------
Property and equipment are recorded at cost less accumulated
depreciation. Depreciation of property and equipment is provided using
the following rates and methods:
Computer software 2 year straight line
Computer hardware and equipment 3 year straight line
Automobiles 3 year straight line
Furniture and fixtures 5 year straight line
Leasehold improvements are amortized using the straight line method
over three years.
Goodwill, Intangibles and Other Assets
------------------------------------------
Goodwill, core technology and other intangible assets are carried at
cost less accumulated amortization and are being amortized on a
straight line basis over the economic lives of the respective assets,
generally from one to three years.
Impairment of Long-Lived Assets
----------------------------------
Forefront makes periodic reviews for the impairment of long-lived
assets including goodwill and other intangibles whenever events or
changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Under Statement of Financial Accounting
Standard ("SFAS") No. 121, an impairment loss would be recognized when
estimates of undiscounted future cash flows expected to result from
the use of an asset and its eventual disposition are less than its
carrying amount. No such impairment losses have been identified by
Forefront for the years ended June 30, 2000 and 1999.
F - 8
================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 2000, 1999 AND FROM
JULY 13, 1998 (INCEPTION) TO JUNE 30, 2000
================================================================================
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
------------------------------------------------------------
Research and Development Costs
---------------------------------
Research and development costs, which consist primarily of software
development costs, are expensed as incurred. SFAS No. 86 "Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed," provides for the capitalization of certain software
development costs after technological feasibility of the software is
established. Under Forefront's current practice of developing new
products and enhancements, the technological feasibility of the
underlying software is not established until substantially all product
development is complete, including the development of a working model.
As of June 30, 2000, total capitalized software costs of $88,254 has
been recorded. Amortization of these costs for 2000 were $13,338 with
accumulated amortization of $13,338.
Concentration of Credit Risk
-------------------------------
Financial instruments that potentially subject Forefront to a
concentration of credit risk consist principally of cash and cash
equivalents and advances receivable. Cash and cash equivalents are
custodied with high quality financial institutions. Forefront's future
customer base is expected to cross many different geographic areas
throughout North America, Europe and the Asia Pacific and consists of
companies in a variety of industries. Forefront does not require
collateral or other security to support credit sales, but will provide
for an allowance for bad debts based on historical experience and
specifically identified risks.
At June 30, 2000, the Company has incurred substantial research and
development, marketing and promotional activities from CyberQuest
Group, Inc., a related party. The Company's concentration for such
services have been critical to the operations of Forefront, Inc. and
Subsidiary to date. This relationship has been terminated as of June
30, 2000.
Foreign Currency Translation
------------------------------
The functional currency of Forefront and its subsidiary is the U.S.
dollar. Assets and liabilities denominated in other than the U.S.
dollar are translated using the exchange rates prevailing at the time
of transaction. Consequently, no gains or losses occurred during the
reporting period.
F - 9
================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 2000, 1999 AND FROM
JULY 13, 1998 (INCEPTION) TO JUNE 30, 2000
================================================================================
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
------------------------------------------------------------
Foreign Currency Translation - Continued
--------------------------------------------
During 1999, part of the transactions of the Company were completed in
Canadian dollars and have been translated to US dollars as incurred,
at the exchange rate in effect at the time, and therefore, no gain or
loss from the translations is recognized. As of the balance sheet
dates, Forefront had no outstanding forward contracts.
Advertising
-----------
Forefront expenses for advertising costs as they are incurred.
Advertising expense is included in selling, general and administrative
expenses and amounted to $161,755 for the year ended June 30, 2000. No
advertising costs were incurred for the prior periods presented.
Income Taxes
-------------
Forefront accounts for income taxes under the provision of SFAS No.
109, "Accounting for Income Taxes." This statement provides for a
liability approach under which deferred income taxes are provided
based upon currently enacted tax laws and rates. Valuation allowances
are established, when necessary, to reduce deferred tax assets to the
amounts expected to be realized.
Share-Based Compensation
-------------------------
As permitted under SFAS No. 123, "Accounting for Stock-Based
Compensation," Forefront accounts for employee stock options in
accordance with Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees." Compensation charges arise
from those situations where options are granted at an exercise price
lower than the deemed fair value of the underlying common shares.
These amounts are amortized as charges to operations over the vesting
periods of the individual stock options. Stock options issued to
outside consultants are valued at their fair value and charged to the
consolidated statement of loss in the period in which the services are
rendered. The Company did not issue any stock based compensation
awards during the year.
F - 10
================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 2000, 1999 AND FROM
JULY 13, 1998 (INCEPTION) TO JUNE 30, 2000
================================================================================
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
------------------------------------------------------------
Earnings (Loss) Per Common Share
------------------------------------
Basic earnings per share is computed by dividing net income (loss)
available to common shareholders by the weighted average number of
common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution of securities by including other
common share equivalents, including stock options and redeemable
convertible preferred shares, in the weighted average number of common
shares outstanding for a period, if dilutive. Pro forma earnings per
share is computed by dividing net income (loss) by the weighted
average number of common shares outstanding and the weighted average
redeemable convertible preferred shares outstanding as if such shares
were converted into common shares and had been outstanding since July
1, 1999. The following tables sets forth the computation of basic and
diluted, and pro forma basic and diluted earnings (loss) per share:
YEARS ENDED JUNE 30,
-------------------------
2000 1999
------------ -----------
NET INCOME (LOSS) $(1,994,042) $ (20,182)
============ ===========
Weighted average number of
common shares outstanding 12,759,928 8,122,000
Dilutive effect of:
Stock options -0- -0-
Convertible preferred shares -0- -0-
------------ -----------
DILUTED WEIGHTED AVERAGE NUMBER
OF SHARES 12,759,928 8,122,000
============ ===========
Pro forma adjustment for
convertible preferred shares -0- -0-
------------ -----------
Pro forma basic and diluted
weighted average number of shares 12,759,928 8,122,000
============ ===========
Earnings (loss) per share
Basic $ (0.16) $ (0.00)
Diluted $ (0.16) $ (0.00)
Pro Forma Basic and Diluted $ (0.16) $ (0.00)
F - 11
================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 2000, 1999 AND FROM
JULY 13, 1998 (INCEPTION) TO JUNE 30, 2000
================================================================================
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
------------------------------------------------------------
Comprehensive Income
---------------------
SFAS No. 130, Reporting Comprehensive Income, establishes standards
for the reporting and display of comprehensive income and its
components (revenue, expenses, gains and losses) in a full set of
general-purpose financial statements. Forefront adopted SFAS No. 130
in 1999. Forefront has no comprehensive income items other than the
net earnings (loss), in any of the periods presented.
Recent Accounting Pronouncements
----------------------------------
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments and hedging activities.
SFAS No. 133 requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position
and measure those instruments at fair value. The FASB subsequently
issued SFAS No. 137 which delayed the required effective date for
adoption of SFAS No. 133 to fiscal years beginning after June 15,
2000. Forefront will adopt SFAS No. 133 as amended by SFAS No. 137 in
the first quarter of fiscal year 2001. Forefront does not expect that
adoption of this standard will have a material effect on its
consolidated financial position or results of operations. In March
2000, the FASB issued FASB Interpretation No. 44 ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation."
Forefront will be required to adopt FIN 44 Effective July 1, 2000 with
respect to certain provisions applicable to new awards, exchanges of
awards in a business combination, modifications to outstanding awards,
and changes in grantee status that occur on or after that date. FIN 44
addresses practice issues related to the application of APB Opinion
No. 25, "Accounting for Stock Issued to Employees." Forefront does not
expect the application of FIN 44 to have a material impact on its
consolidated financial position or results of operations. In December
1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101") and amended it in March 2000. Forefront is
currently reviewing the provisions of SAB 101 and has not fully
assessed the impact of its adoption. While SAB 101 does not supercede
the software industry specific revenue recognition guidance, which
Forefront believes it is in compliance with, the SEC Staff has
recently informally indicated its views that SAB 101 may change
current interpretations of software revenue recognition requirements.
Such SEC interpretations could result in companies recording a
cumulative effect of a change in accounting principle. Forefront is
required to adopt SAB 101 no later than the fourth quarter of fiscal
2001.
F - 12
================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 2000, 1999 AND FROM
JULY 13, 1998 (INCEPTION) TO JUNE 30, 2000
================================================================================
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
------------------------------------------------------------
Reclassifications
-----------------
Certain prior period amounts have been reclassified to conform with
the current period presentation.
NOTE 4 - BUSINES COMBINATIONS
---------------------
During the year ended June 30, 2000, Forefront completed the
acquisition described below which was accounted for under the purchase
method of accounting. Accordingly, the results of operations of the
acquisition are included in the consolidated statement of operations
as of the first day of the year as allowed by Accounting Research
Bulletin No. 51, and the related assets and liabilities were recorded
based upon their respective fair value at the date of acquisition.
Web Partners, Inc.
--------------------
Effective March 15, 2000, Anyox Resources, Inc. entered into a share
exchange agreement acquiring 57% of Web Partners, Inc. (WPI), a
Florida corporation that engages in research and development of new
web based technologies. Anyox paid an aggregate price of $4,050,000
all through the issuance of 4,000,000 shares of its common stock.
Effective May 25, 2000, Anyox acquired the remaining 43% of the
outstanding stock of WPI for an additional price of $3,534,000 at such
time the entity became a wholly owned subsidiary. This interest was
acquired through the issuance of 3,011,511 shares.
Simultaneously with the acquisition of the remaining minority
interest, WPI merged into Web Partners of Nevada (a Nevada
Corporation) and Anyox Resources, Inc. changed its name to Forefront,
Inc. (Forefront). Web Partners of Nevada (WPN) is a wholly-owned
subsidiary of Forefront, Inc. Also on May 25, 2000, WPN amended its
Articles of Incorporation to change the name of the corporation to
Forefront Technologies, Inc. (FTI).
Anyox paid an aggregate purchase price of $7,584,000 consisting of
7,011,511 shares of common stock. The total consideration, including
the acquisition costs, was allocated based on estimated fair values on
the acquisition dates as follows:
F - 13
================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 2000, 1999 AND FROM
JULY 13, 1998 (INCEPTION) TO JUNE 30, 2000
================================================================================
NOTE 4 - BUSINES COMBINATIONS - CONTINUED
-----------------------------------
LIABILITIES ASSUMED
Operating payables $766,000
Short-term debt obligations 1,588,000
Other liabilities 95,000
----------
2,449,000
ASSETS ACQUIRED
Equipment and furnishings $ 401,000
Core developed technology 43,000
Other assets 381,000
----------
825,000
Net identifiable liabilities acquired 1,624,000
Stock issued (7,011,511 at $0.85) 5,960,000
----------
PURCHASE PRICE $7,584,000
==========
Consideration assumption of net liabilities $1,621,000
Fair value of common shares issued $5,960,000
==========
The fair value of the common shares of Forefront was determined by
taking the most recent stock sale price identified in a private
placement offering just prior to the acquisition of $0.85 per share.
The purchase price will be increased by the estimated fair value of
the future stock options of Forefront to be exchanged for the Web
Partners, Inc. options outstanding pursuant to the share exchange
agreement which will be valued at the time of granting the options.
Purchased in Process Research and Development
--------------------------------------------------
No allocation of the purchase price was allocated to any in process
research and development charges in that no independent valuation was
performed in assessing and allocating a value to such costs.
Consequently, no identifiable value could be determined.
NOTE 5 - PROPERTY AND EQUIPMENT
------------------------
JUNE 30, 2000
--------------
Computer software $ 34,870
Computer equipment 281,982
Automobiles 232,235
Furniture and fixtures 98,059
Leasehold improvements 61,640
--------------
708,786
Accumulated depreciation 80,203
--------------
NET BOOK VALUE $ 628,583
==============
F - 14
================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 2000, 1999 AND FROM
JULY 13, 1998 (INCEPTION) TO JUNE 30, 2000
================================================================================
NOTE 6 - GOODWILL, INTANGIBLES AND OTHER ASSETS
--------------------------------------
Goodwill $ 7,583,884
Patent rights 77,421
------------
7,661,305
Accumulated amortization (530,486)
------------
NET BOOK VALUE $ 7,130,819
============
Amortization includes the amortization of goodwill and patent rights
over a three-year and one year period, respectively, on the straight
line method.
NOTE 7 - CAPITALIZED SOFTWARE
---------------------
The Company capitalized costs of materials and consultants, incurred
in developing internal-use computer software once technological
feasibility is attained. Technological feasibility is attained when
software products reach Beta release. Costs incurred prior to the
establishment of technological feasibility are charged to product
development expense.
The establishment of technological feasibility and the ongoing
assessment of recoverability of capitalized software development costs
require considerable judgment by management with respect to certain
external factors, including, but not limited to, anticipated future
revenues, estimated economic life and changes in software and hardware
technologies.
Upon the general release of the software product to customers,
capitalization ceases and such costs are amortized (using the
straight-line method) on a product by product basis over the estimated
life which is generally two years.
All research and development expenditures are charged to research and
development expense in the period incurred.
Capitalized software costs and accumulated amortization as of June 30,
2000 and related software amortization expense for the period then
ended was as follows:
2000
---------
Capitalized software:
Internally developed $ 88,254
Accumulated amortization (13,338)
---------
$ 74,916
=========
Amortization expense $ 13,338
=========
F - 15
================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 2000, 1999 AND FROM
JULY 13, 1998 (INCEPTION) TO JUNE 30, 2000
================================================================================
NOTE 8 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
--------------------------------------------
The Components of accounts payable and accrued liabilities were as
follows:
JUNE 30,
----------------
2000 1999
-------- ------
Accounts payable $926,790 $5,315
Accrued compensation 29,750 -0-
Other accrued liabilities 42,765 -0-
-------- ------
$999,305 $5,315
======== ======
NOTE 9 - SHORT-TERM NOTES PAYABLE
--------------------------
Forefront has obtained short term financing to provide operating
capital during 2000. This liability is made up of the following notes:
JUNE 30, 2000
--------------
Note payable - due on demand bearing
interest at 0% (See NOTE 15) $ 500,000
==============
Note payable - related party due on
demand bearing interest at 9.5% (See
NOTE 15) $ 56,000
Note payable - related party due on
demand bearing interest at 9.5% (See
NOTE 15) 50,000
--------------
$ 106,000
==============
NOTE 10 - LONG-TERM DEBT
---------------
The Company has long-term debt as of June 30, 2000 consisting of the
following:
Note payable - Financial Institution,
payable in 36 monthly installments of
1,298, bearing interest at 9.16%.
This note is collateralized by an
automobile. $79,596
Note payable - Financial Institution,
payable in 36 monthly installments of
$1,197, bearing interest at 9.17%.
This note is collateralized by an
automobile. 68,836
F - 16
================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 2000, 1999 AND FROM
JULY 13, 1998 (INCEPTION) TO JUNE 30, 2000
================================================================================
NOTE 10 - LONG-TERM DEBT - CONTINUED
--------------------------
Note payable - Financial Institution,
payable in 36 monthly installments of
$1,119, bearing interest at 10.18%.
This note is collateralized by an
automobile. 43,254
----------
191,686
Less current portion: (191,686)
----------
$ -0-
==========
Due to the financial condition of the Company as of and subsequent to
the balance sheet, the Company defaulted on these loans and are
considered payable on demand by lending institutions.
NOTE 11 - CAPITALIZED LEASES
-------------------
During the period, the Company purchased equipment under two capital
leases in the amount of $71,975. Monthly payments of $854 and $1,493
are due over three and two-year periods, respectively, bearing a
capital lease rate of 9% to 16% annually. These leases mature in 2002
and 2003.
Due to the financial condition of the Company as of and subsequent to
the balance sheet, the Company defaulted on these leases and are
considered payable on demand by leasing companies.
Leased assets included in property and equipment are recorded at a
cost of $71,975 less accumulated depreciation of $2,581.
NOTE 12 - RELATED PARTY TRANSACTIONS
----------------------------
The Company has loans from two shareholders for $50,000 and $56,000,
respectively, for a total of $106,000. All notes bear annual interest
at 9.5% per year and each note is due 12 months from the note
agreement dates. At June 30, 2000, interest expense approximated $300.
F - 17
================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 2000, 1999 AND FROM
JULY 13, 1998 (INCEPTION) TO JUNE 30, 2000
================================================================================
NOTE 12 - RELATED PARTY TRANSACTIONS- CONTINUED
----------------------------------------
The Company has entered into an agreement with CyberQuest Group, Inc.,
a related party, for certain professional services related to the
development of the Company's technologies. The companies are related
through common ownership and control. Costs incurred under this
agreement at June 30, 2000 approximated $781,349, and at the balance
sheet date, the Company has accounts receivable from CyberQuest Group,
Inc. of $55,826. This agreement was terminated on December 12, 1999 by
both parties.
The Company also purchased certain fixed assets and rented other
property from CyberQuest during the fiscal year ended June 30, 2000 in
the amount of $60,000 and $5,400, respectively.
The Company engaged the professional services of a firm owned by a
member of the Board of Directors for marketing and business plan
expenses. Total costs incurred for the year ended June 30, 2000 were
$430,743 of which $318,243 is unpaid as of June 30, 2000.
During 1999, related parties acquired 40% of the common stock issued
for cash. A loan was received by the Company from a related party of
$1,833 with no due date or interest. See Note 14 regarding purchase of
mineral leases from a related party.
NOTE 13 - INCOME TAXES
-------------
At June 30, 2000, the Company has incurred operating losses for tax
purposes of approximately $2,000,000. These losses will be available
to offset income in future years. The Company has fully reserved the
tax benefit of the operating losses because the likelihood of
realization of the benefit cannot be established. For tax purposes,
the Company has elected to report using a June 30 year end.
As part of the acquisition of 57% of the outstanding stock of Web
Partners, Inc. on March 15, 2000, the Company also has available
approximately $2,205,000 of net operating loss carryforwards that are
subject to certain annual limitations under Internal Revenue Code.
These losses were incurred prior to the ownership change.
F - 18
================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 2000, 1999 AND FROM
JULY 13, 1998 (INCEPTION) TO JUNE 30, 2000
================================================================================
NOTE 13 - INCOME TAXES - CONTINUED
---------------------------
The Company's income tax provision has been determined as follows:
2000 1999
----------- --------
Net loss before taxes $1,994,042 $20,182
=========== ========
Income taxes at 38.5% $ 767,706 $ 7,770
Decrease resulting from permanent
non-deductible expense (4,780) -0-
Tax benefit of losses not recognized
in the accounts, included in
valuation reserve (762,926) (7,770)
----------- --------
$ -0- $ -0-
=========== ========
At June 30, 2000, the Company has approximately $4,199,000 of
non-capital losses available for income tax purposes. These losses a
YEAR AMOUNT
----- ------
2014 $ 20,182
2015 4,178,818
----------
4,199,000
==========
NOTE 14 - MINERAL LEASES
---------------
The Company acquired mineral leases for $1.00 from, a related party,
known as Fame #1 and #2 located near the former town site of Anyox,
British Columbia, Canada.
The claims have not been proven to have a commercially minable ore
reserve and therefore all costs for exploration and retaining the
properties have been expensed.
The claims may be retained by the Company only upon a yearly payment,
or an equal amount of assessment work, of $2,750cn which is due
starting September 25, 2000. The amounts due for September 25, 1999
have been paid.
These leases have been disposed of pursuant to the merger dated May
25, 2000 with Web Partners, Inc.
F - 19
================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FROM JULY 13, 1998 (INCEPTION) TO JUNE 30, 2000
================================================================================
NOTE 15 - CAPITALIZATION
--------------
The Company has been capitalized from funding raised through the
issuance of the Company's Common Stock for cash and intangible assets
in the amount of $8,085,477. Costs of the subscription approximated
$154,500 and are treated as a reduction of additional paid-in capital.
Preferred Stock
----------------
The Company has authorized the issuance of 200,000 shares of Preferred
Stock, par value $0.001 per share. The Board of Directors of the
Company has broad discretion to create one or more series of preferred
stock and to determine the rights, preferences and privileges of any
such series. This stock has a preference in involuntary liquidation
compared to all other classes of common stock. At June 30, 2000,
200,000 shares of preferred stock have been issued.
Notes Payable
--------------
Notes payable at June 30, 2000 consisted of the following:
The Company has issued $500,000 of notes payable dated February 3,
2000 through March 6, 2000 which carry no interest, payable 30 days
after receipt of funds. These notes are convertible by the holder at
maturity, the holder can convert this debenture to Common Stock at
thirty-seven and one half cents ($.375) per share.
As of the balance sheet date, these notes have been extended thirty
(30) days.
Notes payable to executives bearing interest at nine and one-half
percent (9.5%) per annum. These notes are demand notes totaling
$106,000.
NOTE 16 - COMMITMENTS AND CONTINGENCIES
-------------------------------
As part of the merger agreement with Web Partners, Inc. on May 25,
2000, the Company is obligated to make its best efforts to implement a
stock option plan and match, in similar terms, the options previously
available to Web Partners, Inc. shareholders and vendors approximating
2,041,000 options. The Web Partners plan was terminated at the merger
date. The Company has not yet completed the required Securities and
Exchange Commission filings as of the balance sheet date.
F - 20
================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FROM JULY 13, 1998 (INCEPTION) TO JUNE 30, 2000
================================================================================
NOTE 16 - COMMITMENTS AND CONTINGENCIES - CONTINUED
---------------------------------------------
Accordingly, no new options have been granted. This contingency may
effect the reported acquisition costs of Web Partners, Inc. in the
future when the stock option grants are issued.
NOTE 17 - SUBSEQUENT EVENTS
------------------
Due to the deteriorating cash position of the Company, several debt
agreements have been defaulted upon and have been reclassified as
current liabilities on the balance sheet. The cash deficiencies
delayed the ability to commence the year end audit and has resulted in
the Company being out of compliance with certain SEC regulations. This
may impact the ability of the Company to obtain additional capital.
Subsequent to the balance sheet date, the Company is involved in
litigation with respect to unpaid vendor invoices of the Company in
the amount of $14,000. This amount has been properly reported as of
the balance sheet date.
NOTE 18 - PRO FORMA INFORMATION
-----------------------
The presentation for the consolidated financial statements has been
presented as of the first day of the fiscal year. The subsidiary
acquired was formed in September of 1998 but remained dormant with no
activity until August 1, 1999. Consequently, no pro-forma disclosure
is applicable for the fiscal year ended June 30, 1999.
NOTE 19 - OPERATING LEASES
-----------------
The Company has operating leases for office facilities on a
month-to-month basis as of June 30, 2000. Total lease expenses
incurred for the year under these leases approximated $97,000.
NOTE 20 - PENDING OR THREATENED LITIGATION
-----------------------------------
The Company is in default of substantially all of its obligations with
vendors and lenders as of the date of the auditors' report.
Consequently, the Company may have future claims assessed against it
as a result of these defaults. Additionally, the Company may be
subject to litigation regarding the Company's trading status and
alleged representations made by Company officials to certain
investors. The Company has received notices regarding these issues but
no formal legal proceeding has been filed. No provisions have been
made for any litigation in that such amounts are not known or
estimable.
F - 21
Page
Number
------
PART I - FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 3
Item 1. Consolidated Balance Sheets as at September 30, 2000 and June 30,
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statement of Operations for the three months ended
September 30, 2000 and September 30, 1999 . . . . . . . . . . . . . 5
Consolidated Statement of Cash Flows for the three months ended
September 30, 2000 and September 30, 1999 . . . . . . . . . . . . . 6
Notes for the Financial Statements . . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis . . . . . . . . . . . . . . . 8
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
==========================================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
UNAUDITED CONSOLIDATED BALANCE SHEETS
==========================================================================================================
ASSETS
SEPTEMBER 30, JUNE 30,
2000 2000
--------------- ------------
CURRENT ASSETS
Cash $ $ 3,615
Due from related party 55,826 55,826
Employee Advances 100,865 -0-
Prepaid expenses -0- 21,734
--------------- ------------
Total current assets 156,691 81,175
Property and equipment, net 491,292 628,583
Other Assets
Goodwill - net 6,460,007 7,091,997
Deposits 2,310 7,577
Capitalized software costs less accumulated amortization
of $26,103 81,783 74,916
Patent rights, less accumulated amortization of $54,457 18,042 38,822
--------------- ------------
Total other assets 6,562,142 7,213,312
--------------- ------------
TOTAL ASSETS $ 7,210,125 $ 7,923,070
=============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 745,494 $ 508,490
Accounts payable - related party 318,243 318,243
Accrued liabilities 586,828 172,572
Current portion of capital leases 54,675 54,626
Current portion of long-term debt 108,464 191,686
Notes payable - convertible debentures 80,000 -0-
Notes payable 500,000 500,000
Notes payable - related party 190,000 106,000
--------------- ------------
Total current liabilities 2,583,704 1,851,617
Long-term debt -0- -0-
Long-term capital lease liability -0- -0-
Commitments and contingencies - Note 5 -0- -0-
Stockholders' equity (deficit)
Class A - Preferred stock, $0.001 par value, 200,000 shares
authorized; 200,000 shares issued and outstanding 200 200
Common stock, $0.001 par value, 200,000,000
shares authorized; 19,590,011 shares issued and outstanding
and 15,090,011 outstanding, respectively 19,591 15,091
Subscription receivable (4,500) -0-
Additional paid-in capital 7,924,348 8,070,386
Deficit accumulated during the development stage (3,313,218) (2,014,224)
--------------- ------------
Total stockholders' equity (deficit) 4,626,421 6,071,453
--------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,210,125 $ 7,923,070
=============== ============
==========================================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
- 2 -
================================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
================================================================================================
FOR THE THREE MONTHS Ended INCEPTION TO
September 30, September 30,
2000 1999 2000
REVENUE
Interest $ 5 $ -0- $ 2,579
EXPENSES
Selling general and administrative 604,724 4,335 3,301,744
Research and development 107,973 -0- 1,307,340
Depreciation and amortization 718,715 -0- 1,342,741
------------ ------------ ---------------
1,431,412 4,335 5,951,825
------------ ------------ ---------------
OTHER INCOME
Gain on disposition of asset 1,475 1,475
NET (LOSS) BEFORE MINORITY SHARE (5,947,771)
LESS: MINORITY SHARE OF
OPERATIONAL LOSSES 2,503,615
NET (LOSS) $(1,429,932) $ (4,335) $ (3,444,156)
============ ============ ===============
BASIC AND FULLY DILUTED LOSS PER SHARE $ (0.16) $ (0.00)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 17,403,198 10,028,500
============ ============
================================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
- 3 -
====================================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
====================================================================================================
COMMON STOCK PREFERRED STOCK
---------------------- ----------------
SHARES AMOUNT SHARES AMOUNT
---------- ---------- ------- -------
BALANCE - JUNE 30, 2000 15,090,011 $ 15,091 200,000 $ 200
---------- ---------- ------- -------
Common Stock issued in private placement
(never funded; shares cancelled October
2000) - August 10, 2000 1,000,000 1,000
Common Stock issued in private placement
(never funded; shares cancelled October
2000) - August 14, 2000 1,000,000 1,000
Common Stock issued as collateral in debt
Transaction ( transaction not completed;
Shares cancelled October 2000) - August
16, 2000 2,500,000 2,500
BALANCE - SEPTEMBER 30, 2000 19,590,011 $ 19,591 200,000 $ 200
---------- ---------- ------- -------
====================================================================================================
The accompanying notes are an integral part of these financial statements.
- 4 -
====================================================================================================
FOREFRONT, INC. AND SUBSIDIARY
(FORMERLY KNOWN AS ANYOX RESOURCES, INC.)
(A DEVELOPMENTAL STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000, 1999
====================================================================================================
FOR THE THREE MONTHS Ended INCEPTION TO
September 30, September 30,
2000 1999 2000
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,429,932) $(4,335) (5,947,771)
Adjustment to reconcile net loss to
net cash used in operating activities
Minority interest in net loss of
consolidated subsidiary - net of capital -0- -0- 1,222,385
Depreciation and amortization 718,715 -0- 1,342,741
Gain on disposition of asset (1,475) -0- (1,475)
Decrease in deposits
Expenses in-kind -0- 1,080 3,300
Changes in operating assets and liabilities
(Increase) in due from Cyberquest -0- -0- (55,826)
(Increase)in employee advances (100,865) (100,865)
Decrease in prepaid expenses 21,734 -0- -0-
Decrease in deposits 5,267 -0- (2,310)
Increase in accounts payable 237,004 (2,065) 1,063,674
Increase in accrued liabilities 414,256 -0- 586,829
Increase in accounts payable - related party -0- 5,500 -0-
------------ --------- -----------------
Net cash (used) in operating activities (135,296) 180 (1,889,318)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures -0- -0- (404,576)
Intangible asset expenditures (13,742) -0- (179,416)
------------ --------- ----------------
Net cash (used) in investing activities (13,742) -0- (583,992)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable 164,000 -0- 770,000
Payments on long-term debt 49 -0- (40,500)
Capital lease payments (3,626) -0- (20,975)
Issuance of common stock -0- -0- 18,112
Cost of capital (15,000) -0- (15,000)
Proceeds from equity investors net of
issue costs -0- -0- 1,761,611
------------ --------- ----------------
Net cash provided by financing activities 145,423 12,850 2,473,248
------------ --------- ----------------
NET INCREASE (DECREASE) IN CASH (3,615) 180 (62)
Cash - beginning of period 3,615 1,283 -0-
------------ --------- ----------------
CASH - END OF PERIOD $ -0- $ 1,463 (62)
============ ========= ================
Non-cash financing and investing activities:
- --------------------------------------------
In September 2000 a company vehicle was repossessed. The amount removed from fixed assets was
$93,745 with $15,624 in accumulated depreciation, and a liability of $79,596 was removed as well.
====================================================================================================
The accompanying notes are an integral part of these financial statements.
- 5 -
FOREFRONT, INC
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
(Unaudited - Prepared by Management)
1. ORGANIZATION
The Company was incorporated under the laws of the State of Nevada on July
13, 1998 with the authorized common shares of 200,000,000 shares at $0.001
par value. Although the Company was organized for the purpose of acquiring
and developing mineral properties, it disposed of its mineral properties
and acquired 57% of Web Partners, Inc. (WPI) during March 2000, and the
remaining 43% in May, 2000. WPI, a Florida Corporation formed in September
1998, is a development-stage company with its core business focused on the
research and development of new web-based technologies. As part of the
merger transaction, WPI was dissolved into the Company and a new Nevada
corporation (Forefront Technologies, Inc.) was simultaneously formed and
carries on in place of WPI. Since its inception the Company has completed a
series of Regulation D offerings of 12,028,500 shares of its capital stock
for cash. In March 2000 it exchanged 4,000,000 shares of stock for its 57%
interest in WPI. In addition, 4,000,000 shares were returned to treasury in
March 2000 and canceled. In May, 2000 the Company issued 3,024,754 shares
for the remaining 43% of WPI. In August 2000, the Company issued 4,500,00
shares in two separate transactions that were never funded. The shares were
returned and canceled in October 2000.
2. BASIS OF PRESENTATION
The accompanying unaudited balance sheets of Forefront, Inc. (the
"Company") (a development stage company) at September 30, and the unaudited
statements of operations and unaudited statements of cash flow for the
three months ended September 30, 2000 and 1999 have been prepared by the
Company's management and they do not include all information and notes to
the financial statements necessary for a complete presentation of the
financial position, results of operations, and cash flows in conformity
with generally accepted accounting principles. In the opinion of
management, all adjustments considered necessary for a fair presentation of
the results of operations and financial position have been included and all
such adjustments are of a normal recurring nature.
Operating results for the quarter ended September 30, 2000, are not
necessarily indicative of the results that can be expected for the year
ending June 30, 2001, in part because of serious cash flow deficiencies the
Company experienced during the past several months.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Methods
The Company and WPI (now Forefront Tech) recognize income and expenses
Based on the accrual method of accounting. Forefront Tech - WPI revenue
recognition practices will conform to appropriate software revenue
recognition standards.
Dividend Policy
The Company has not yet adopted a policy regarding payment of dividends.
Income Taxes
On June 30, 2000, the Company had a net loss carry forward of approximately
$2,000,000. These losses, in addition to current period losses of
$1,429,932, will be available to offset income in future years. The Company
has fully reserved the tax benefit of these losses. As part of the
acquisition of 57% of the outstanding stock of WPI on March 15, 2000, the
Company also has available approximately $2,205,000 of net operating loss
carryforwards that are subject to certain annual limitations under Internal
revenue Code. These losses were incurred prior to the ownership change.
Loss per Share
Loss per share amounts are computed based on the weighted average number of
shares actually outstanding using the treasury stock method in accordance
with FASB Statement No. 128.
Foreign Currency Translation
Part of the transactions of the Company in 2000 and 1999 were completed in
Canadian dollars and have been translated to US dollars as incurred, at the
exchange rate in effect at the time, and therefore, no gain or loss from
the translation is recognized. All WPI transactions have been in US
dollars.
4. GOING CONCERN
The Company and Forefront Tech will need additional working capital to be
successful in its planned activity and therefore continuation of the
Company as a going concern is dependent upon obtaining additional working
capital. Management of the Company and Forefront Tech have developed a
strategy, which it believes will accomplish this objective through
additional equity funding, and long term financing, which will enable the
Company and Forefront Tech to operate for the coming years. This strategy
has been slow in execution, and accordingly, the Company has run out of
cash.
As discussed in more detail under "Managements Discussion and Analysis",
the Company is in immediate need of capital due to significant cash flow
deficiency and may not continue as a going concern. The Company has no cash
to run its operation. In short, the Company requires an immediate cash
infusion or may have to suspend operations, with one alternative being to
seek protection under the appropriate Federal Bankruptcy procedures. Should
the company be unable to continue as a going concern, the assets and
liabilities listed in the accompanying financial statements would require
restatement on a liquidation basis which would differ materially from the
values as a going concern.
5. COMMITMENTS AND CONTINGENCIES
-------------------------------
As part of the merger agreement with Web Partners, Inc. on May 25, 2000,
the Company is obligated to make its best efforts to implement a stock
option plan and match, in similar terms, the options previously available
to Web Partners, Inc. shareholders and vendors approximating 2,041,000
options. The Web Partners plan was terminated at the merger date. The
Company has not yet completed the required Securities and Exchange
Commission filings as of the balance sheet date. Accordingly, no new
options have been granted. This contingency may effect the reported
acquisition costs of Web Partners, Inc. in the future when the stock option
grants are issued.
6. Debt
----
Due to the financial condition of the Company as of and subsequent to the
balance sheet, the Company defaulted on the capital leases, which are
considered payable on demand by leasing companies. In addition, on Sepember
14, 2000, one company owned vehicle was repossessed by the lender to
satisfy the unpaid debt. The estimated cost of repo fees and interest has
been accrued as of September 30, 2000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
This Form 10-QSB contains forward-looking statements. The words
"anticipate", "believe", "expect", "plan", "intend", "estimate", "project",
"could", "may", "foresee", and similar expressions identify forward-looking
statements that involve risks and uncertainties. You should not place undue
reliance on forward- looking statements in this Form 10-QSB because of
their inherent uncertainty. The following discussion and analysis should be
read in conjunction with the Financial Statements and Notes thereto and
other financial information included in this Form 10-QSB and our Form
10-KSB filed November 14, 2000. Actual results could differ materially from
the results discussed in the forward-looking statements.
Plan of Operation -Background
Forefront, Inc. (the "Company"), was formerly named Anyox Resources, Inc.
("Anyox"). Anyox, a Nevada corporation, was formed in 1998 and operated as
an early development stage company until March, 2000 when it acquired 57%
of Web Partners, Inc. ("WPI"), a Florida corporation. The remaining 43%
minority interest was subsequently acquired in May 2000. At that time, WPI
was merged into a subsidiary of Anyox; Forefront Technologies, Inc.
("Forefront Tech") which took on the assets, liabilities and business of
WPI. Anyox changed its name to Forefront, Inc. At that time, Forefront Tech
(formerly WPI) was an early development stage company, which was formed in
September 1998 and began operations in August 1999. Forefront Tech's core
business is focused on the research and development of new web-based
technologies. Forefront Tech also provides creative production services in
connection with developing online 30-second commercial spot advertisements.
Neither business unit has had any revenue to date. Forefront Tech had
accumulated approximately $4,517,839 in deficits through June 30, 2000. Due
to minority interest accounting, the Company reported only $2,014,224 of
this accumulated deficit at June 30, 2000.
The major spending areas comprising the approximately $4,500,000 of
Forefront Tech deficits at June 30,2000 include advertising expenses of
$162,000 and other selling, general, and administrative expenses of
$2,500,000, research and development cost approximated $1,200,000 and
depreciation and amortization $624,000.
Forefront Tech's technology toolkit is designed to deliver a complete
online advertising platform. The toolkit is comprised of a 30-second
online commercial spot system, called a CyberSpot, and an audience
measurement and commercial delivery verification system, called Delivery
Verification Technology ("DVT"). CyberSpots are Web-based interactive
multi-media commercial spots which use Forefront Tech's Instant On User
Interface ("IOUi") technology which enables the spot to reach the audience
quickly and with minimal disruptions. DVT provides an online advertising
measurement system that verifies audience reach and spot delivery.
Forefront Tech intends to generate revenue from licensing fees, creative /
production fees and a technology license based on a cost-per-play model.
Forefront Tech plans to produce and distribute CyberSpot production
software that will enable global production of CyberSpots by advertisers,
agencies and web development firms. WPI plans to license its family of
technologies within the U.S., Asia and Europe.
Forefront Tech's revenue model currently focuses on four distinct revenue
drivers: (1) the development of CyberSpot ads; (2) the delivery of
CyberSpot ads; (3) CyberSpot enterprise licensing; and (4) DVT licensing.
Each revenue driver has associated variable expenses. Ad production
variable costs are comprised entirely of human resources. A certain number
of personnel are needed to produce and test each ad. The CyberSpot per play
variable cost is comprised of the fee charged by the ad delivery strategic
partner. DVT variable costs are also comprised entirely of human resources.
The DVT team will be responsible for marketing the DVT technology and
identifying additional applications for the technology. Development of the
toolkit is the largest expense item included in the operating expenses.
Executive and operational team salaries and benefits, CyberSpot licensee
technical support, legal fees and advertising also account for a
significant portion of the operating expenses.
Results of Operations:
Revenue
The Company was involved in the exploration and development of mineral
properties. Since inception the property has generated no revenue and the
property was never developed because of the lack of financing. The
Company's future revenue stream is based on its 100% owned subsidiary
Forefront Tech. Through November 15, 2000, Forefront Tech has recognized no
revenue but does have contracts, orders, and letters of intent from
customers. In addition, Forefront Tech is presently producing commercial
spot advertisements that may generate future revenue. Revenue recognition
in the last quarter of 2000 and beyond will depend upon the status of the
projects at that time and the applicable revenue recognition accounting
standards.
Expenses
For the three months ended September 30, 2000, the Company and Forefront
Tech have recognized expense of approximately $1,431,000 compared to
spending of $4,335 for the period three months ended September 30, 1999.
The Company and its subsidiary have ten full time employees, with Forefront
Tech absorbing all personnel and indirect costs.
Although WPI (now Forefront Tech) was organized in 1998 it did not start
meaningful operations until July 1999. Personnel and personnel related
costs were $493,625 in 2000 and $0 in 1999. Although cash flow shortfalls
caused the Company to curtail operations during this quarter, it continued
to accrue payroll and payroll related expenses for employees who chose to
continue to work and accept payment at a later date. Legal, accounting,
and other professional consulting fees were $101,209 in 2000 and $1,893 in
1999. In addition, the Company recognized approximately $719,000 of
depreciation and amortization in 2000, with no corresponding expense in
1999. The $719,000 consists principally of the amortization of goodwill
related to the acquisition of Forefront Tech/WPI.
Liquidity and Capital Resources
The Company and WPI individually financed their operations to date with a
series of Regulation D offerings of their respective shares of capital
stock, generally for cash. The Company's March 2000 private placement was
for 2,250,000 shares at $0.85 per share with proceeds of $1,912,500. Prior
to the merger, WPI raised $500,000 in the form of bridge financing from a
shareholder group. The notes are past due and the shareholder group has
sent the Company a demand letter. The Company also raised a total of
$190,000 in bridge financing from the two founders through September 30,
2000. During the first quarter of this fiscal year, the Company has entered
into a number of non-binding agreements with various financial groups to
raise both debt and equity capital. In one such transaction, the Company
issued 2,500,000 shares of Class A Common Stock as collateral for a loan
transaction. The transaction failed to go through. In a separate
transaction, the Company issued 2,000,000 shares of Class A Common Stock in
a private placement that was never funded. The stock from both transactions
has been returned and canceled subsequent to September 30, 2000.
In other transactions, the Company raised $80,000 by issuing convertible
corporate debentures with stock warrants in August, 2000. Just recently,
the Company sold 375,000 post split shares at $0.10 per share.
The combined operations had a net working capital deficit of $2,427,014 at
September 30, 2000. The current Liabilities of $2,583,643 at September 30,
2000 include $500,000 of past due bridge financing from a shareholder
Group, $190,000 of bridge financing from two company founders, $30,000 of
bridge financing from a director and a business associate of a director.
Accounts payable of $1,063,675 include $355,743 payable to a Forefront Tech
Consulting firm founded by this same director. This consulting has been in
the areas typical to a development stage Company and has included
assistance with business plan development, pricing models, and intellectual
property. These services were contracted for in the ordinary course of
business, prior to the director being appointed to the Company's board of
directors, and management believes the pricing and terms were as favorable
as that which could have been obtained from an independent third party.
Also included in other liabilities at September 30, 2000, was $566,703 of
payroll related liabilities. The Company has been unable to fund employee
payrolls since early July, 2000, but continues to accrue payroll for those
employees continuing to work and for employees with contractual
obligations.
The Company's estimated monthly cash requirements approximate $275,000.
This amount may decrease as revenue is generated. However, like most other
development stage companies, Forefront Tech and the Company may not
generate cash from operations for a number of quarters, if at all. The
Company experienced severe cash flow deficiencies starting in June 2000 and
effectively ran out of money during the summer of 2000.
The Company is in immediate need of capital due to significant cash flow
deficiency and may not continue as a going concern. The Company has no cash
to run its operation. Each week it continues to build up additional past
due payroll and vendor liabilities. In short, the Company requires an
immediate cash infusion or may have to suspend operations, with one
alternative being to seek protection under the appropriate Federal
Bankruptcy Procedures. If the Company goes into Chapter 11, existing
shareholder investments may be diluted substantially or be completely lost
through satisfaction of creditor claims. If a Chapter 11 reorganization is
not successful, the Company may be forced into Chapter 7, in which case
shareholders may lose their investment completely.
In recognition of this issue, the Company is continually searching for
sources of additional financing and pursuing venture capital investors.
Although the competition for funding is strong, the Company believes it has
unique, protectable technology. It also believes its public status will be
appealing for potential venture capital investors to execute their
respective exit strategies. Should the Company be unable to continue as a
going concern, the assets and liabilities listed in the accompanying
financial statements would require restatement on a liquidation basis which
would differ materially from the values as a going concern.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The statutes, charter provisions, bylaws, contracts or other arrangements under
which controlling persons, directors or officers of the registrant are insured
or indemnified in any manner against any liability which they may incur in such
capacity are as follows:
(a) Section 78.7502 of the Nevada Business Corporation Act, as may be
amended or replaced, provides that each corporation shall have the following
powers:
1. A corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
except an action by or in the right of the corporation, by reason of the fact
that he is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses, including attorneys' fees, judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with the action, suit or proceeding if he acted in good faith and in
a manner which he reasonably believed to be in or not opposed to the best
interest of the corporation, and, with respect to any criminal action or
proceeding had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, does not, or
itself create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and that, with respect to any criminal action or
proceeding, he had reasonable cause to believe that his conduct was unlawful.
2. A corporation may indemnify any person who was or is a party or
is threatened to be made party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses, including amounts paid in
settlement and attorneys' fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit if he acted in
good faith and in a manner which he reasonably believed to be in or not opposed
to the best interests of the corporation. Indemnification may not be made for
any claim, issue or matter as to which such a person has been adjudged by a
court of competent jurisdiction, after exhaustion of all appeals therefrom, to
be liable to the corporation or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in which the action or
suit was brought or other court of competent jurisdiction, determines upon
application that in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such expenses as the court deems
proper.
3. To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections 1 and 2, or in defense of
any claim, issue or matter therein, he must be indemnified by the corporation
against expenses, including attorneys' fees, actually and reasonably incurred by
him in connection with the defense.
4. Any indemnification under subsections 1 and 2, unless ordered by
a court or advanced pursuant to subsection 5, must be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agents is proper in the
circumstances. The determination must be made:
30
(a) By the stockholders;
(b) By the board of directors by majority vote of a quorum
consisting of directors who were not parties to the act, suit or proceeding;
(c) If a majority vote of a quorum consisting of directors who
were not parties to the act, suit or proceeding so orders, by independent legal
counsel, in a written opinion; or
(d) If a quorum consisting of two directors were not parties
to the act, suit or proceeding cannot be obtained, by independent legal counsel
in a written opinion.
5. The certificate or articles of incorporation, the bylaws or an
agreement made by the corporation may provide, as may be amended from time to
time, that the expenses of officers and directors incurred in defending a civil
or criminal action, suit or proceeding must be paid by the corporation as they
are incurred and in advance of the final disposition of the action, suit or
proceeding, upon receipt of an undertaking by or on behalf of the director or
officer to repay the amount if it is ultimately determined by a court of
competent jurisdiction that he is not entitled to be indemnified by the
corporation. The provisions of this subsection do not affect any rights to
advancement of expenses to which corporate personnel other than directors or
officers may be entitled under any contract or otherwise by law.
6. The indemnification and advancement of expenses authorized in or
ordered by a court pursuant to this section:
(a) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under the certificate
or articles of incorporation or any bylaw, agreement, vote of stockholders of
disinterested directors or otherwise, for either an action in his official
capacity or an action in another capacity while holding his office, except that
indemnification, unless ordered by a court pursuant to subsection 2 or for the
advancement of expenses made pursuant to subsection 5, may not be made to or on
behalf of any director or officer if a final adjudication establishes that his
acts or omissions involved intentional misconduct, fraud or a knowing violation
of the law and was material to the cause of action.
(b) Continues for a person who has ceased to be a director
officer, employee or agent and inures to the benefit of the heirs, executors and
administrators of such a person.
7. The registrant's articles of incorporation limit liability of its
officers and directors to the full extent permitted by the Nevada Business
Corporation Act.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Company estimates that its expenses in connection with this
Registration Statement will be as follows:
SEC registration fee . . . . . . . . . . . . $4,000
Legal fees and expenses . . . . . . . . . . $150,000
Accounting fees and expenses . . . . . . . . . $5,000
Miscellaneous . . . . . . . . . . . . . . . . $10,000
========
$169,000
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
31
In March 2000, the Company concluded a private placement offering of its Common
Stock. On completion of the offering, a total of 2,250,000 shares of its Common
Stock were issued at $0.85 per share for total proceeds of $1,912,500.00. The
investors are believed to be accredited investors who reside outside of
the United States.
In March 2000, the Company entered into a Share Exchange Agreement with Web
Partners, Inc. ("WPI") and two of its primary shareholders, (Messrs, Gray and
Wade). The Agreement provided for the Company to acquire WPI. Under the
Agreement, Messrs. Gray and Wade each exchanged 1,000,000 shares of their WPI
stock for 2,000,000 shares of restricted common stock of the Company (4,000,000
total shares).
In May 2000, as part of the Share Exchange Agreement and Agreement and Plan of
Merger between the Company and WPI, the Company exchanged its Common Stock for
the remaining Common Stock of WPI. Each share of WPI was exchanged for two
shares of the Company. The Company issued a total of 6,947,254 shares of common
stock to former shareholders of WPI (including Messrs. Gray and Wade). The
offer and issuance was exempt from registration under Rule 506 of Regulation D
of the Act.
In early 2000, we entered into an agreement involving the sale of 250,000 shares
of stock to Albany Partners, an overseas accredited investor, with certain
alleged registration rights which would have required the shares to be included
in this registration but for a default by the investor.
The above transactions were undertaken with persons believed to be accredited
investors and under Section 4(2) of the Securities Act of 1933, as amended among
other possible exemptions.
ITEM 27. EXHIBITS
INDEX TO EXHIBITS
No. Description Page No.
- --------- ----------- --------
2.1* Share Exchange Agreement
2.2** Agreement and Plan of Merger
3.1*** Amended and Restated Articles of Incorporation
3.2***** Amended and Restated Bylaws
4.1***** Specimen Stock Certificate for Shares of Common Stock of the Company
4.2*** Class A Preferred Stock Designation of Rights and Preferences
5.1 Form of Opinion re: Legality of Law Offices of
Richard Rossi, P.A. (under Exhibit 23.1)
10.1***** Technology & Dispute Resolution Consulting, Inc. Agreement
10.2 Lease
10.3***** Employment Contract with Santu Rohatgi
10.4***** Employment Contract with Wyly Wade
10.5***** Employment Contract with Mark Gray
10.6 Equity Line of Credit Agreement with Cornell Capital Partners
10.7 Registration Rights Agreement with Cornell Capital Partners
32
10.8 Form of Debenture, $250,000 funding.
10.9 Registration Rights Agreement form as to $250,000 funding.
10.10 Form of Warrant by Company.
23.1 Consent of Experts and Counsel- Consent of Counsel
23.2 Consent of Experts and Counsel- Consent of Accountant
27.1 Financial Data Schedule
* Filed as an Exhibit to a report by the Company on a Form 8-K, filed March 30,
2000, and incorporated herein by this reference.
** Filed as an Exhibit to a report by the Company on a Form 8-K, filed June 8,
2000, and incorporated herein by this reference.
*** Filed as an Appendix to the Company's Definitive Proxy Statement, filed
April 25, 2000, and incorporated herein by this reference.
**** Filed as an Exhibit to a report by the Company on a Form 8-K, filed March
21, 2000, and incorporated herein by this reference.
***** Filed as an Exhibit to a report by the Company on Form 10-KSB for the year
ended June 30, 2000, and incorporated herein by reference.
ITEM 28. UNDERTAKINGS
RULE 415 OFFERING. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to: (i) include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii)
reflect in the prospectus any facts or events which, individually or together,
represent a fundamental change in the information set forth in the Registration
Statement; and (iii) include any additional or changed material information in
the plan of distribution.
(2) For determining liability under the Securities Act of 1933, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
Offering.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (the "Act"), may be permitted to directors, officers or persons
controlling the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
33
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing this Registration Statement Form SB-2 and
authorizes this Registration Statement to be signed on its behalf by the
undersigned, in the City of Tampa, in the State of Florida on January 22, 2001.
FOREFRONT, INC.
By: /s/ Santu Rohatgi
-------------
Santu Rohatgi, President
(principal executive officer)
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
SIGNATURE TITLE DATE
(Capacity)
/S/Santu Rohatgi President, Chief Financial Officer, January 22, 2001
- ------------------- Treasurer and Director
Santu Rohatgi (Principal Executive Officer, Principal
Financial and Accounting Officer,
and Director)
/S/ Bruce Benson Director January 22, 2001
- -------------------
Bruce Benson (Director)
/S/ David Kennedy Director January 22, 2001
- -------------------
David Kennedy (Director)
/S/ Mark Burchill Director January 22, 2001
- -------------------
Mark Burchill (Director)
34