SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                      ------------------------------------

                                   FORM 10-KSB

(Mark One)

|X|      ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE
         SECURITIES AND EXCHANGE ACT OF 1934.
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996

|_|      TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF
         THE SECURITIES EXCHANGE ACT OF 1934.
         FOR THE TRANSITION PERIOD FROM       TO       .


                         COMMISSION FILE NUMBER 0-27438
                      ------------------------------------

                            THE FOREFRONT GROUP, INC.
                 (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)

           DELAWARE                                    76-0365256
(STATE OR OTHER JURISDICTION              (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)


                       1330 POST OAK BOULEVARD, SUITE 1300
                           HOUSTON, TEXAS 77056 77056
               (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

                  REGISTRANT'S TELEPHONE NUMBER: (713) 961-1101
                      ------------------------------------

       SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT: NONE
                      ------------------------------------


         SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT:

                     COMMON STOCK, $.01 PAR VALUE PER SHARE
                              (TITLE OF EACH CLASS)

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

          Check  whether the  Registrant  (1) filed all  reports  required to be
filed by Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or
for such shorter  period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.

                                 Yes |X| No |_|

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

          Registrant's revenues for its most recent fiscal year: $13,798,466

          The aggregate market value of the voting stock held by  non-affiliates
of the Registrant on March 20, 1997 was  $16,859,805  based on the closing sales
price of the  Registrant's  common stock on the Nasdaq  National  market on such
date of $3.75 per share.  For  purposes  of the  preceding  sentence  only,  all
directors, executive officers and beneficial owners of ten percent of the common
stock are assumed to be affiliates.

          The number of shares of the Registrant's  Common Stock  outstanding as
of March 20, 1997: 6,424,597.

                       DOCUMENTS INCORPORATED BY REFERENCE

          Certain sections of the Registrant's definitive proxy statement to the
Registrant's 1997 annual meeting of stockholders,  which proxy statement will be
filed under the  Securities  Exchange  Act of 1934 within 120 days of the end of
the  Registrant's  fiscal year ended  December 31,  1996,  are  incorporated  by
reference into Part III of this Form 10-KSB.


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                             INTRODUCTORY STATEMENT

          REFERENCES  MADE IN THIS ANNUAL REPORT ON FORM 10-KSB TO  "FOREFRONT,"
THE "COMPANY" OR THE  "REGISTRANT"  REFER TO THE FOREFRONT  GROUP,  INC. AND ITS
WHOLLY  OWNED   SUBSIDIARIES.   FOREFRONT,   THE  FOREFRONT  LOGO,   WEBWHACKER,
WEBPRINTER,  WEBSEEKER, GRABNET, CLICKBOOK INSTANTX,  TROUBLESHOOTER,  ALLMICRO,
ANTIVIRUS SURVIVAL KIT, DISCOVERY CARD, RESCUE DATA RECOVERY, WINWORKS, CNE SELF
STUDY COURSE,  A+ CERTIFICATION  COURSE,  RAMPLUS,  POST PLUS,  VIRTUAL NOTEBOOK
SYSTEM AND ROUNDTABLE ARE TRADEMARKS OF THE FOREFRONT GROUP,  INC., WHICH MAY BE
REGISTERED  IN SOME  JURISDICTIONS.  ALL  OTHER  TRADEMARKS  ARE  OWNED BY THEIR
RESPECTIVE OWNERS.  WHEN USED IN THIS REPORT, THE WORDS "PLANS",  "BELIEVES" AND
"EXPECTS"  AND  SIMILAR   CONDITIONAL   EXPRESSIONS  ARE  INTENDED  TO  IDENTIFY
FORWARD-LOOKING STATEMENTS. IN ADDITION, THE COMPANY AND ITS REPRESENTATIVES MAY
FROM  TIME TO  TIME  MAKE  ADDITIONAL  FORWARD-LOOKING  STATEMENTS.  ALL OF SUCH
STATEMENTS  ARE  SUBJECT TO CERTAIN  RISKS AND  UNCERTAINTIES  THAT COULD  CAUSE
ACTUAL  RESULTS  TO  DIFFER   MATERIALLY   FROM  THOSE  PROJECTED  IN  ANY  SUCH
FORWARD-LOOKING STATEMENTS, INCLUDING BUT NOT LIMITED TO, THOSE CONTAINED IN THE
SECTION ENTITLED "RISK FACTORS BEARING ON FUTURE RESULTS."

                                     PART I

ITEM 1.  BUSINESS.

OVERVIEW

          Formed in 1992 and headquartered in Houston, Texas, ForeFront (NASDAQ:
FFGI)   (http://www.ffg.com)   develops  and  markets  Internet,   Intranet  and
PC/Network  software  applications  for a variety of market  segments  including
PC/Network  professionals,  mobile  computing,  education,   telecommunications,
groupware and small  office/home  office (SOHO).  ForeFront's  Internet products
include WebWhacker(TM), the first offline browser and recently named by Internet
World  Magazine  (April  1997)  as the  premium  product  in its  category,  and
WebPrinter(TM),  a leading product that allows printing of HTML pages in booklet
format. The Company's  worldwide customer base includes industry leaders such as
Microsoft Corporation ("Microsoft"),  Apple Computer, Inc. ("Apple"), Mitsubishi
Chemical  America,  Inc.  ("Mitsubishi"),   Verity,  Inc.  ("Verity"),   Brother
International  and McGraw-Hill  CEC, among others.  The Company  distributes its
software  products in over 600 retail  stores in the United  States,  as well as
internationally  in Europe  through its  London-based  sales office and in Japan
through  AISoft,  Inc.,  a wholly owned  subsidiary  of  Seiko-Epson.  ForeFront
Direct,  the Company's  wholly owned direct sales  channel based in  Clearwater,
Florida,  also markets the Company's  Internet and Intranet  software,  and is a
leading publisher of PC/Network software.

          The  Company  launched  its  first  two  Internet  products  in  1995:
GrabNet(TM),  the first graphical  bookmark  management tool that enables client
capture and  organization of information from the World Wide Web and WebWhacker,
a product  that  enables the storage of  information  captured  from the Web for
off-line  use  and   distribution.   The  Company's   first  Intranet   product,
RoundTable(TM),   was  launched  in  mid-1996.   RoundTable  provides  realtime,
Web-based multimedia  conferencing over standard Internet  connections.  Through
its  acquisition  of Blue  Squirrel,  Inc.  ("Blue  Squirrel")  in  March  1996,
ForeFront added  WebSeeker(TM),  a meta searching  program available to Internet
users

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that  delivers  search  reports  for  over 100  common  search  engines  and the
corresponding Web pages directly to the user's desktop.

          The Company's newest Internet product,  WebPrinter(TM),  is the result
of  the  acquisition  of  BookMaker  Corporation  ("BookMaker")  in  June  1996.
WebPrinter adds an important  dimension to ForeFront's line of content retrieval
and delivery tools,  allowing users to print information on the Web in a booklet
format, thereby creating a personalized  publication from the Web. The BookMaker
acquisition  also added  ClickBook(R),  a Windows and Macintosh  utility program
that turns virtually any laser or inkjet printer into a printing press, enabling
users to transform documents into professional-quality, double-sided booklets.

          The  merger  with  AllMicro,   Inc.  (now  ForeFront   Direct,   Inc.)
established a marketing and distribution  channel of over 90 sales professionals
for  ForeFront  to market its family of Internet  and  Intranet  products to Web
users.  ForeFront  Direct  primarily  markets and sells  PC/Network  software to
computer network  administrators and technicians.  ForeFront Direct's PC/Network
product   line,    which    includes   the   ForeFront    Anti-Virus(TM),    The
Troubleshooter(TM),   The   Discovery   Card(TM),   Rescue   Data   Recovery(R),
RamPlus(TM),   PostPlus(TM)  and   WinWorks(TM),   enables  computer  users  And
technicians to troubleshoot,  tune and enhance the performance of their networks
and  personal  computers.   Additional  products  such  as  the  CNE  Self-Study
Course(TM) and the A+ Certification Course(TM) provide computer technicians with
training for certification as network administrators.

          The  Company  delivers  its  products  through  multiple  distribution
channels,  including  its  proprietary  electronic  storefront  and other online
resellers over the Internet,  original equipment manufacturers ("OEMs"), systems
integrators, value added resellers ("VARs"), catalogs, and direct telemarketing.
The Company  introduced  its Internet  products for  purchase  from  traditional
software  retailers in the fourth quarter of 1996. The Company also  distributes
its Internet products through  alliances with other computer software  companies
that incorporate  bundled versions of the Company's  Internet  products with the
products of such other companies.

          The  Company's   strategy  is  to  leverage  its   investment  in  the
distribution  infrastructure  made in 1996. The Company is continuing to develop
additional productivity  applications for the Internet,  Intranet and PC/Network
markets internally, and will continue to seek to acquire additional technologies
from outside the Company, via licensing or acquisition, to accelerate the market
entry of the Company's products.

INDUSTRY BACKGROUND

          THE INTERNET AND WORLD WIDE WEB

          The Internet is a global  collection of thousands of computer networks
interconnected to enable  commercial  organizations,  educational  institutions,
government  agencies and individuals to communicate  electronically,  access and
share information and conduct business. While the Internet was historically used
by a limited number of academic institutions, defense contractors and government
agencies  primarily  for remote  access to host  computers  and for  sending and
receiving  electronic  mail,   commercial   organizations  and  individuals  are
increasingly dominating the use of the Internet.  Recent technological advances,
including increases in microprocessor speed and the

                                       -3-

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development of easy-to-use graphical user interfaces, combined with cultural and
business changes,  have led to the Internet being integrated into the operations
and strategies of commercial organizations and the activities of individuals.

          Much  of  the  recent  growth  in  Internet  use  by  businesses   and
individuals  has been  driven by the  emergence  of a  network  of  servers  and
information  available on the  Internet  called the World Wide Web. The Web is a
network medium that is rich in content,  activities  and format.  The Web medium
includes  a  wide  range  of  content  such  as  magazines,  news  feeds,  radio
broadcasts,  and  corporate,  product,  educational,   research,  and  political
information,  as well as  activities,  including  customer  service,  electronic
commerce, reservations, banking, games and discussion groups. International Data
Corporation  estimates  that by the year 2000,  one-third of all  businesses and
twenty-five percent (25%) of all households will be on the Internet. The Company
believes that recent trends in the  establishment  of Internet  access  services
such as AT&T's WorldNet and America Online ("AOL") will facilitate access to the
Internet  and  result in a  significant  increase  in the number of users of the
Internet.

          The Web can be accessed using software that allows non-technical users
to exploit the capabilities of the Internet easily. Electronic documents or "Web
pages" which may contain textual, audio and video information,  are published on
Web sites in a common  format.  Users can view  these Web pages by using  widely
available  software called "Web browsers" such as the Netscape  Navigator or the
Microsoft Internet Explorer.  Users specify which electronic documents they wish
to view with their Web browser by entering each document's unique electronic Web
address,  or Universal  Resource Locator ("URL").  Users can navigate the Web by
making use of the hypertext link  capability of Web documents.  Hypertext  links
are active  areas on a Web page which can be located  anywhere  else on the Web.
This  feature  enables  users to move from one page of content  and  activity to
another related or "linked" page,  without having to know the underlying address
or URL of either document. Further, users can search for URLs through the use of
online search engines,  such as Lycos, Inc. ("Lycos") and Yahoo, Inc. ("Yahoo"),
which provide guides to find and access information on the Web.

PRODUCTS

          The  Company's  products  consist  of client,  server  and  integrated
applications software for use on the Internet,  corporate intranets and software
for  computer  technicians  and network  administrators.  A  description  of the
Company's products follows.

          INTERNET PRODUCTS

          To address the need for productivity  applications  over the Internet,
the Company's family of Internet products includes the following features:

          EASE OF USE. The Company builds lightweight, simple tools which can be
used both by novices and experienced  on-line users. For example,  the Company's
desktop software  provides a consistent point and click graphical user interface
that is independent of the server protocol,  client operating system or means of
network access.

                                       -4-

<PAGE>



          MULTI-PLATFORM  SUPPORT. The Company's software is designed to operate
on most popular computer platforms  including  Microsoft Windows 3.1, Windows 95
and Windows NT, and Apple Macintosh operating systems.

          STAND-ALONE  DESKTOP  PRODUCTS.   The  Company's  family  of  products
consists of desktop products that perform useful functions for Internet users on
a stand-alone basis.

          OPEN  ARCHITECTURE.  The Company's  products are compatible  with most
applicable   industry   standards  and  are  built  upon  an  architecture  that
facilitates customization and integration with third party applications.

          The following is a brief description of the Company's current Internet
desktop products:

   Product Version       Description
--------------------------------------------------------------------------------
     WebSeeker v3.0      Searches  100 of the most  popular  search  engines  at
                         once.   Retrieves  and  sorts  search  engine  results,
                         removes  duplicates,   visits,  manipulates,   monitors
                         sites, and more.
     WebWhacker v3.0     Downloads single pages,  groups of pages, or entire Web
                         sites.  Users can surf from their  desktops  without an
                         Internet connection.
     WebPrinter v2.0     Dramatically  expands the  printing  capabilities  of a
                         browser  by   effortlessly   turning   Web  pages  into
                         attractive, paper-saving booklets.
     Grabnetv2.0         Helps Internet users visualize  URLs.  Grabs images and
                         text from the Web to help  users  reuse,  navigate  and
                         organize  bookmarks  within a customized  collection of
                         folders.
--------------------------------------------------------------------------------

          The Company's plans for future Internet development currently comprise
the  integration  of its desktop  products  for  finding,  getting and  printing
information into a single stand-alone product, targeted for release in mid 1997,
and on additional upgrades to the Company's proprietary printing technology.  In
addition,  the Company will continue to review  complementary  new  technologies
from outside the Company for licensing or acquisition.

          TECHNICIAN /NETWORK ADMINISTRATOR PRODUCTS

          In addition to the Internet and Intranet products, ForeFront publishes
and  markets  13  software   products  to  computer   technicians   and  network
administrators  through its wholly  owned  subsidiary,  ForeFront  Direct,  Inc.
(formerly  AllMicro,  Inc.) The merger  with  AllMicro,  Inc.  in July 1996 also
established a marketing and distribution  channel of over 60 sales professionals
for  ForeFront  to market its family of Internet  and  Intranet  products to Web
users. In January 1997, ForeFront Direct relocated to larger quarters,  with the
result that there are presently over 90 full-time  commission-only  sales staff,
with room to expand to approximately 150 sales persons.

          ForeFront  Direct's  product  line  includes  an  extensive  array  of
products that enable  computer users and technicians to  troubleshoot,  tune and
enhance the performance of their networks and

                                       -5-

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personal computers, including but not limited to the AntiVirus Survival Kit, The
Troubleshooter,  the Discovery Card, Rescue Data Recovery, RamPlus, PostPlus and
WinWorks,  and products  that provide  computer  technicians  with  training for
certification as network  administrators,  such as the CNE Self-Study Course and
the A+ Certification Course. Most of these products have been either licensed to
ForeFront  Direct on an  exclusive  basis or assigned to the Company  from third
party developers, in exchange for the payment of royalties.

          The  PC/Network  products sold by ForeFront  Direct have  historically
grown at a 35% annual rate, and in 1996 accounted for 71% of the Company's total
revenues,  or $9.8 million.  Due to its historical 20% profit margin on sales,
and its customer base of 45,000 PC technicians and network  administrators,  the
Company intends to devote additional  resources to developing,  licensing and/or
acquiring new software products focusing on the technical professional market.

          COLLABORATION/INTRANET PRODUCTS

          The growth of the Internet has also created market  opportunities  for
software   products   enabling   workgroup   collaboration   within   and  among
organizations  over the Internet and private computer  networks.  The Internet's
e-mail  capabilities  facilitate  the exchange of certain  information  over the
Internet and Web, and certain Web servers and consumer  online  services  permit
individuals to conduct  electronic  conversations (or "chat") over the Web or on
the service. Presently available groupware software, such as Lotus Notes, can be
used to facilitate  organizational  communications and host discussion groups on
private  computer  networks.  In addition,  users of Microsoft's  NetMeeting can
conduct one-on-one collaborative chat sessions. As individuals and organizations
gain  experience  with  the  collaborative   capabilities  enabled  by  computer
networks, the Company believes that Internet users will demand software products
with a much greater level of sophistication  than those currently  available for
the Internet or private computer networks.  In particular,  the Company believes
that Internet users will demand products that enable  "real-time"  collaboration
within  a  multimedia  context,   capabilities  currently  incorporated  in  the
Company's RoundTable(TM) product.

          The  Company's   RoundTable   product  enables  real-time   multimedia
collaboration. The basic conferencing function of the product allows a workgroup
to work collectively on one or more canvas pages in real time, such that changes
made to such pages by one workgroup  participant are immediately  visible to the
other  participants.  The  information  that is changed  or  created  during the
conference is retained in object form for later access and  retrieval.  The tour
function allows an individual to guide other participants through collections of
pages on the Web. The chat function enables private  conversations  among select
members of the  workgroup.  RoundTable  was derived  from the  Virtual  Notebook
System(TM)  ("VNS")  technology  developed  at Baylor  College of  Medicine  and
licensed  exclusively  to the Company in  connection  with the  formation of the
Company.

         The VNS is an integrated  applications software system originally based
on an electronic analogy to the laboratory  research notebook.  The VNS provides
scientific users with a familiar and more versatile  metaphor for collecting and
sharing of information  than systems based on note,  document or file metaphors.
The VNS allows  workgroups  to create  multiple  libraries of shared  electronic
Virtual Notebooks. Each Virtual Notebook may contain as many pages as the owner

                                       -6-

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wishes, with each page containing the user's desired combination of VNS objects,
including text, images, hypertext cross references to other pages, dynamic links
to external programs, and, with appropriate computer hardware,  audio and video.
Although it retains the central notebook metaphor,  a Virtual Notebook is unlike
an ordinary  notebook.  It is a  distributed  multimedia  hypertext  information
system that, in essence, replicates the World Wide Web on a smaller scale.

         The original  purpose of the VNS project at Baylor  College of Medicine
was to develop a system that would provide researchers at academic  institutions
with an electronic  version of their paper notebooks,  but also provide them new
functionality  for  accessing  and  sharing  multimedia  information  with their
colleagues  across  networks.  Company-funded  development for commercial  users
enhanced the VNS to become a general purpose information management tool that is
presently  being used by a variety of  industrial  and  academic  groups  across
multiple disciplines. Due to the rapid growth of the Internet and the World Wide
Web, the Company has focused its efforts on developing  and  marketing  products
which allow users to be more productive with information from the Web.  However,
a number of companies  and research  centers  still use the VNS, and in 1996 the
Company licensed the VNS for redistribution in Europe.

MARKETING AND DISTRIBUTION

         TARGET MARKETS

          The Company's  internet  products are targeted to general users of the
World Wide Web and corporate intranets.  The PC/Network products are targeted to
the technical  professional  marketplace which includes PC technicians,  network
engineers, network administrators and webmasters.

         The Company sells its products through multiple  distribution  channels
worldwide.

          INTERNET  DISTRIBUTION.  Organizations and individuals have the option
to  evaluate  and  purchase  ForeFront  software  directly  from  the  ForeFront
StoreFront  located  on  the  Company's  Web  site.  The  Company  utilizes  its
proprietary  InstantX(TM)  technology to securely process payment  transactions,
and also sells its products  through third party online resellers such as c/net,
atOnce.com and Saturn  Solutions.  The Company has  historically  made available
free versions of its Internet software for limited trial use via the Internet.

          INDIRECT   CHANNELS.   The  Company  also   distributes  its  products
indirectly through OEMs, systems integrators, VARs and software retailers. OEMs,
systems  integrators and VARs complement the Company's  direct sales efforts for
institutional  customers  and provide  sales  support and  service.  The Company
presently has agreements  with Microsoft,  XcelleNet,  Inc.,  Verity,  Apple and
Mitsubishi, among others, to bundle the Company's Internet software with certain
of their  product  offerings.  In  addition  to the  ClickBook  and Rescue  Data
Recovery  products,  which have been sold in the  software  retail  channel  for
several  years,  the  Company's  Internet  products  also became  available  for
purchase at traditional software retailers in the fourth quarter 1996.

          DIRECT CHANNELS. The Company's direct distribution channel consists of
a direct  sales  force and  telemarketing  organization  located in  Clearwater,
Florida. This organization has historically sold PC/Network software to computer
technicians  and  network  administrators,  but  following  the  acquisition  of
AllMicro,  Inc.,  the  Company's  Internet  and  Intranet  software is also sold
through  this  channel.  In  cases  where  customers  require  industry-specific
applications, the Company also provides

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training, support and consulting. The Company is in the process of expanding the
sales staff at the  Clearwater  location and expects to have  approximately  150
sales persons on staff by year end.

          INTERNATIONAL. The Company markets its products in Japan via licensing
agreements with AISoft,  Inc., a wholly owned subsidiary of Seiko Epson.  AISoft
provides all services  necessary to translate  the products  into Kanji,  at its
expense.  In September  1996, the Company opened its London,  England office for
distribution of the Company's  Internet  products in the retail and OEM channels
in Europe.  A total of seven  persons are  currently  employed by the Company in
European sales and marketing. In addition, the Company is evaluating the opening
of a  telemarketing  operation in Europe similar to the operation in Clearwater,
Florida  for  the  PC/Network  and  Internet  markets.  It is  anticipated  that
operations will commence by the beginning of the third quarter of 1997, and that
a total of twenty sales persons could be on staff in Europe by year end.

PRODUCT DEVELOPMENT

          The Company's current development efforts are focused on new products,
product  enhancements and adapting existing  products to new operating  systems.
The Company believes that its software development team represents a significant
competitive  advantage  for the Company.  The  Company's  ability to attract and
retain  highly  qualified  employees  will be the principal  determinant  of its
success in maintaining technological leadership.

          ForeFront  believes that its future  success will depend in large part
on its ability to enhance its  existing  Internet  productivity  products and to
develop other products complementary to these information management products as
well as being the first to market with critical solutions.

          An important  factor in the future  success of the ForeFront  Internet
product suite will be the Company's  ability to provide  products that have more
features,  better  scalability,  and higher quality than products available from
other  vendors.  Accordingly,  the  Company's  primary  development  efforts are
focused  on  improving  the  scalability  and  performance  of its  productivity
software products.

          The Company also plans to continue to license and acquire new products
that are  complementary  to existing  products and that will augment the overall
functionality of its PC/Network and information management product suites.

          Because many of the significant technologies in the ForeFront Internet
product  suite are  implementations  of Internet  standard  protocols  which are
constantly evolving,  the Company actively  participates in a number of Internet
standards-setting groups and technical conferences.

          As of March 15, 1997, the Company's  research and  development  staff,
which is  responsible  for product  development,  quality  assurance,  technical
documentation  and product  coordination,  consisted of 27 full-time  employees.
From time to time the  Company  employs  independent  contractors  for  software
development,  documentation, artistic design and quality reviews. For the fiscal
years ended  December  31, 1996 and 1995,  research  and  development  expenses,
excluding acquired research and development costs, were $3,021,318 and $887,717,
respectively, which

                                       -8-

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represented  22%  and  15%  of  revenues,  respectively.  The  Company  has  not
capitalized any research and development expenses.

COMPETITION

          ForeFront  competes  in the highly  competitive  market  for  computer
software.   ForeFront  believes  that  the  principal  competitive  factors  are
technical innovation to meet dynamic market needs, marketing strength,  features
and performance,  customer service and support, reliability, ease of use, price,
and compatibility with browser software and operating systems.

          The market for  Internet  computer  software  has become  increasingly
competitive due to Netscape's and Microsoft's growing presence in all sectors of
the Internet  software  business.  The Company does not have the product breadth
and market advantage of Microsoft and Netscape.  Microsoft's  dominant  position
provides it with competitive  advantages,  including the ability to unilaterally
determine the direction of future operating systems and to leverage its strength
in one or more product areas to achieve a dominant position in new markets. This
position  may enable  Microsoft  to  increase  its market  position  even if the
Company succeeds in introducing  products with performance and features superior
to those offered by Microsoft.

          Microsoft's ability to offer information  management  functionality in
future  versions  of  Internet  Explorer  and in any other  Microsoft  operating
systems and  application  software,  or to provide  incentives  to  customers to
purchase  certain products in order to obtain favorable sales terms or necessary
compatibility or information with respect to other products,  may  significantly
inhibit the  Company's  ability to maintain  its  Internet  business.  Moreover,
Microsoft's  ability to offer  products  on a bundled  basis can be  expected to
impair the Company's  competitive  position with respect to particular products.
In addition, as Microsoft creates new operating systems and applications,  there
can be no assurance that ForeFront will be able to ensure that its products will
be compatible with those of Microsoft.

          In addition,  virtually all of the Company's products compete with one
or more specific products marketed by a variety of companies, ranging from small
privately  held  companies  with  limited  resources  to  large  companies  with
substantially  greater  financial,  technical and marketing  resources  than the
Company.  Major direct competitors to the Company include  Microsoft,  Netscape,
Symantec Corporation, McAfee Associates, and Novell, Inc. Competitive pressures
could result in reduced market share, price reductions and increased spending on
marketing and product  development,  which could adversely  affect the Company's
financial condition and operating results.

          The  Company  believes  that  it  has  established  significant  brand
awareness with its products,  especially  WebWhacker,  and that this provides it
with a strong competitive advantage to the other

                                       -9-

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          products in their categories.  Furthermore,  the Company believes that
its emphasis on products  which enable users to more  effectively  find, get and
print information from the Web provides a solid foundation for future growth.

SUPPORT SERVICES

          The Company has made a  commitment  to provide  timely,  high  quality
technical support to meet the diverse needs of its customers and partners and to
facilitate  the adoption and use of its products.  The Company  offers  licensed
users of Internet and PC/Network products 30 to 90 days of technical support via
electronic mail or telephone.  The Company offers traditional  support contracts
for its server products.

MANUFACTURING SUPPLIERS

          The Company's products,  which consist primarily of software diskettes
and  manuals,  are  duplicated  by outside  vendors.  This allows the Company to
minimize  the need for  expensive  capital  equipment  in an  industry  in which
multiple high-volume manufacturers are available.

BACKLOG

         Lead  times  for  the   Company's   products   are   typically   short.
Consequently,  the Company does not believe that backlog is a reliable indicator
of future sales or earnings.  The absence of significant  backlog may contribute
to  unpredictability  in the Company's results of operations and to fluctuations
in the Company's stock price.

GOVERNMENT REGULATION

          The  Company  is not  currently  subject to direct  regulation  by any
government agency,  other than regulations  applicable to businesses  generally,
and there are currently few laws or regulations directly applicable to access to
the  software  industry  or  commerce  on  the  Internet.  However,  due  to the
increasing  popularity and use of the Internet,  it is possible that a number of
laws and  regulations  may be adopted  with  respect to the  Internet,  covering
issues such as user privacy,  taxes,  pricing and characteristics and quality of
products and services.  For example,  the "Communications  Decency Act of 1996,"
included  as  Title V of the  landmark  Telecommunications  Act of 1996  enacted
January  3,  1996,  makes it a crime to use  interactive  computer  services  to
knowingly  send  indecent  or  obscene  messages,  images,  proposals,  or other
communications  to a person  under 18 years of age.  Although  there are several
available  defenses,  including a protection  under certain  circumstances  from
liability  for  providers  of  interactive  computer  services  who  voluntarily
attempt,  in good faith, to restrict access to or availability of such material,
the impact of the  Communications  Decency Act on the Company's business and the
industry  are  unknown  at  this  time.   Such  Act  has   recently   been  held
unconstitutional  by a U.S.  appellate  court;  however,  the  decision is being
appealed to the U.S. Supreme Court at this time. As a result, the application of
such Act to the Company's business is far from certain. The adoption of any such
laws or regulations may decrease the growth of the Internet, which could in turn
decrease the demand for the Company's products and increase the

                                      -10-

<PAGE>



Company's  cost of doing  business or  otherwise  have an adverse  effect on the
Company's business, operating results or financial condition.

          Moreover, the applicability to the Internet of existing laws governing
issues such as property  ownership,  libel and  personal  privacy is  uncertain.
Further,  due  to the  encryption  technology  contained  or  anticipated  to be
contained in certain of the Company's Internet products,  such products could be
subject to U.S.  export  controls.  There can be no  assurance  that such export
controls,  either in their current form or as may be subsequently  enacted, will
not limit the  Company's  ability to distribute  products  outside of the United
States or  electronically.  While ForeFront takes  precautions  against unlawful
exportation,  the global nature of the Internet makes it virtually impossible to
effectively  control the  distribution of the Company's  products.  In addition,
federal  or  state  legislation  or  regulation  may  further  limit  levels  of
encryption  or  authentication  technology.  Any such export  restrictions,  new
legislation or regulation or unlawful  exportation could have a material adverse
impact on the Company's business, operating results or financial condition.

PROPRIETARY RIGHTS

          The Company's success and ability to compete is dependent in part upon
its proprietary technology.  While the Company relies on trademark, trade secret
and copyright law to protect its technology,  the Company  believes that factors
such as the  technological  and creative  skills of its  personnel,  new product
developments,  frequent  product  enhancements,  name  recognition  and reliable
product  maintenance  are more  essential  to  establishing  and  maintaining  a
technology  leadership position.  The Company presently has no patents or patent
applications  pending.  There can be no  assurance  that others will not develop
technologies  that are  similar or  superior to the  Company's  technology.  The
source code for the Company's  proprietary software is protected both as a trade
secret  and  as  a  copyrighted   work.  The  Company   generally   enters  into
confidentiality  or  license  agreements  with its  employees,  consultants  and
vendors,  and generally  controls  access to and  distribution  of its software,
documentation and other proprietary information.  Despite these precautions,  it
may be  possible  for a third  party  to copy or  otherwise  obtain  and use the
Company's  products or technology without  authorization,  or to develop similar
technology  independently.  In addition,  effective  copyright  and trade secret
protection may be unavailable or limited in certain foreign  countries,  and the
global  nature of the  Internet  makes it  virtually  impossible  to control the
ultimate  destination of the Company's  products.  To license its products,  the
Company  primarily  relies on "shrink wrap"  licenses that are not signed by the
end-user  and,  therefore,  may be  unenforceable  under  the  laws  of  certain
jurisdictions.  Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or to
obtain and use information  that the Company  regards as  proprietary.  Policing
unauthorized  use  of the  Company's  products  is  difficult.  There  can be no
assurance that the steps taken by the Company will prevent  misappropriation  of
its  technology  or that  such  agreements  will be  enforceable.  In  addition,
litigation may be necessary in the future to enforce the Company's  intellectual
property  rights,  to protect the  Company's  trade  secrets,  to determine  the
validity and scope of the  proprietary  rights of others,  or to defend  against
claims  of  infringement  or  invalidity.   Such  litigation   could  result  in
substantial  costs and diversion of resources and could have a material  adverse
effect on the Company's business, operating results or financial condition.


                                      -11-

<PAGE>



          The Company also relies on certain  technology  which it licenses from
third  parties,  and will rely in the  future  on  certain  technology  which it
intends to license from third  parties,  including  software which is integrated
with internally developed software and used in the Company's products to perform
key  functions.  There can be no  assurance  that these third  party  technology
licenses will continue to be available to the Company on commercially reasonable
terms.  The  inability  to obtain or maintain any of these  technology  licenses
could  result in delays or  reductions  in product  shipments  until  equivalent
technology  could be  identified,  licensed and  integrated.  Any such delays or
reductions in product shipments could materially  adversely affect the Company's
business, operating results and financial condition.

MATERIAL AGREEMENTS

          During 1996,  the Company  completed the  acquisition of three private
companies that delivered  complementary  technologies,  talented development and
marketing teams and immediate revenue  channels.  In March, the Company acquired
all of the assets of Blue Squirrel,  Inc.  ("Blue  Squirrel"),  a Salt Lake City
based development  company,  pursuant to an Asset Purchase Agreement dated March
8, 1996 in  exchange  for the  assumption  of $100,000  of  liabilities  and the
issuance  of  125,000  shares of  Common  Stock of the  Company.  As part of the
transaction,  the  principals of Blue Squirrel  entered into  agreements  not to
compete with the Company for a two year period following the closing.

          In June 1996, the Company  completed a second  acquisition,  acquiring
all  of  the  assets  of  BookMaker  Corporation  ("BookMaker"),  a  Palo  Alto,
California based development  company.  Pursuant to an Asset Purchase  Agreement
dated June 12, 1996, the Company issued an aggregate of 447,637 shares of Common
Stock in exchange for all of the assets of BookMaker.  A total of 24,837 of such
shares are held in escrow  until June 12,  1998,  to  satisfy  any post  closing
liabilities,  and 199,262 of such  shares are  subject to earn-out by  BookMaker
based on the  attainment of product  revenue and cost goals for 1996 and 1997 by
the BookMaker business.  As a result of the earn-out conditions,  the Company is
obligated to maintain, through December 31, 1997, the operations of BookMaker in
the  manner  in which the  business  was  conducted  prior to the  closing.  The
principals  of BookMaker  have agreed to not compete with the Company  until the
later of eighteen months following the closing or one year after  termination of
employment.

          Pursuant to Registration  Rights Agreements  entered into with each of
Blue Squirrel and  BookMaker,  the Company filed an S-3  Registration  Statement
with the Securities and Exchange  Commission in December 1996,  registering  the
resale  of  the  shares  of  Common  Stock  issued  in  such  transactions.  The
Registration  Statement  was declared  effective on January 10, 1997. A total of
698,852  shares  of Common  Stock are  covered  by the  Registration  Statement,
including 103,215 shares which were held by certain pre-IPO  stockholders of the
Company who had piggyback  registration  rights.  An additional  4,971 shares of
Common Stock which may be acquired  upon exercise of warrants were also included
in such registration.  Pursuant to the BookMaker  Registration Rights Agreement,
the Company is required to maintain the  effectiveness  of the S-3  Registration
Statement for thirty months or until all of the shares covered thereby are sold.


                                      -12-

<PAGE>



          In July 1996, the Company  acquired all of the  outstanding  shares of
capital stock of AllMicro, Inc., through a merger of its wholly owned subsidiary
with and into AllMicro,  Inc. Pursuant to the terms of the Agreement and Plan of
Reorganization  dated July 19,  1996,  the Company  issued a total of  1,056,512
shares  of Common  Stock to  Michael  and Anita  Kaplan,  sole  stockholders  of
AllMicro,  Inc. In addition, the Company entered into employment and non-compete
agreements with a number of AllMicro's employees other than Mr. Kaplan,  whereby
the Company  agreed to employ them for a two year period and pay them  aggregate
stay  bonuses of $237,500 on each of the first and second  anniversary  dates of
the closing,  in exchange for their services to the Company and their  agreement
not to compete with the Company.  The Company entered into a two year employment
agreement with Mr.  Kaplan,  pursuant to which it has agreed to pay Mr. Kaplan a
total of $250,000 per year for two years.  An additional  $250,000 is payable to
Mr.  Kaplan in twelve equal  monthly  installments  following the closing of the
transaction as  consideration  for his agreement not to compete with the Company
until the expiration of one year after termination of employment, or three years
after the closing,  whichever is first. A Registration Rights Agreement was also
entered into with Mr. Kaplan,  providing him with piggyback  registration rights
on future offerings of equity securities by the Company or other stockholders.

EMPLOYEES

          As of March 15, 1997, the Company had a total of 190 employees, all of
whom (except for seven) were based in the United States.  Of the total,  27 were
in research and development, 132 were engaged in sales and marketing and 31 were
in  administration  and  finance.   The  Company's  future  success  depends  in
significant  part upon the  continued  service of its key  technical  and senior
management  personnel  and its  continuing  ability to attract and retain highly
qualified technical and managerial  personnel.  Competition for highly qualified
personnel is intense and there can be no assurance that the Company will be able
to retain its key managerial and technical  employees or that it will be able to
attract  and  retain  additional  highly  qualified   technical  and  managerial
personnel in the future.  None of the Company's  employees is  represented  by a
labor union.  The Company has not  experienced  any work stoppages and considers
its relations with its employees to be good.

CERTAIN FACTORS BEARING ON FUTURE RESULTS

          THE   FOLLOWING   RISK  FACTORS   SHOULD  BE   CONSIDERED   BY  ANYONE
CONTEMPLATING  AN INVESTMENT IN THE  COMPANY'S  COMMON STOCK.  WHEN USED IN THIS
REPORT,  THE WORDS  "PLANS",  "BELIEVES"  AND "EXPECTS" AND SIMILAR  CONDITIONAL
EXPRESSIONS ARE INTENDED TO IDENTIFY  FORWARD-LOOKING  STATEMENTS.  IN ADDITION,
THE  COMPANY  AND ITS  REPRESENTATIVES  MAY FROM  TIME TO TIME  MAKE  ADDITIONAL
FORWARD-LOOKING  STATEMENTS. ALL OF SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS
AND  UNCERTAINTIES  THAT COULD CAUSE ACTUAL  RESULTS TO DIFFER  MATERIALLY  FROM
THOSE  PROJECTED  IN ANY  SUCH  FORWARD-LOOKING  STATEMENTS,  INCLUDING  BUT NOT
LIMITED TO, THE FOLLOWING:

          LIMITED OPERATING HISTORY; ACCUMULATED DEFICIT. Although ForeFront was
founded in 1990 and commenced  shipments of its Virtual  Notebook System ("VNS")
product in 1992, it did not commence  shipment of its initial Internet  products
until July 1995.  Accordingly,  the Company has only a limited operating history
upon which an  evaluation  of the Company and its  prospects  can be based.  The
Company's  prospects  must be  considered  in light of the risks,  expenses  and
difficulties

                                      -13-

<PAGE>



frequently  encountered  by  companies  in their  early  stage  of  development,
particularly  companies in new and rapidly  evolving  markets.  To address these
risks,   the  Company  must,   among  other  things,   respond  to   competitive
developments,  continue to attract,  retain and motivate qualified persons,  and
continue to upgrade its  technologies  and  commercialize  products and services
incorporating such technologies. There can be no assurance that the Company will
be  successful  in  addressing  such risks.  The Company has incurred net losses
since  inception  and  expects  to  continue  to operate at a loss into 1997 and
potentially  beyond.  As of December  31, 1996,  the Company had an  accumulated
deficit of  approximately  $12.3  million.  There can be no  assurance  that the
Company will achieve or sustain profitability.

          MARKET RISKS;  UNPROVEN  ACCEPTANCE OF THE COMPANY'S  PRODUCTS;  PRICE
EROSION.  The market  for the  Company's  software  has only  recently  begun to
develop,  is rapidly evolving and is  characterized  by an increasing  number of
market entrants who have introduced or developed  products and services for over
the  Internet  and  private  networks.  As is  typical  in the case of a new and
rapidly  evolving  industry,  demand  and market  acceptance  for  products  and
services are subject to a high level of uncertainty.  While the Company believes
that its software  products offer advantages for  communication  and information
management  over the  Internet and private  networks,  there can be no assurance
that the Company's  products for communication  and information  management over
the Internet or private networks will become widely adopted for these purposes.

          Because the markets for the  Company's  products  and services are new
and  evolving,  it is difficult to predict the future  growth rate,  if any, and
size of these markets.  There can be no assurance that markets for the Company's
products will develop,  that the Company's products or services will be adopted,
or that  individual  PC users in  business  or at home will use the  Internet or
private networks for communication and information  management.  If markets fail
to  develop,  develop  more  slowly  than  expected  or  become  saturated  with
competitors,  or if the Company's products do not achieve market acceptance, the
Company's business, operating results and financial condition will be materially
adversely affected.

          In particular, the Company's client/desktop software may be subject to
price erosion due to free client/desktop  software distributed by online service
providers, other Internet-related software companies,  Internet access providers
and others.  In addition,  computer  operating  systems  companies  and Internet
browser  providers  such  as  Microsoft,  Netscape  and  International  Business
Machines  Corporation  ("IBM") are now bundling or are planning to bundle client
software with their operating  systems at little or no additional cost to users,
or incorporating  features in their browsers which have functionality similar to
the Company's Internet desktop products, all of which may cause the price of the
Company's client/desktop products to decline.

          RISKS OF TELESALES  MARKETING;  HIGH EMPLOYEE  TURNOVER.  Although the
telemarketing  industry has grown significantly in the last ten years,  advances
in new  forms  of  direct  marketing,  such as the  development  of  interactive
commerce  through  television,  computer  networks  (including the Internet) and
other media,  could have an adverse effect on the demand for telesales as a form
of  direct  marketing.  As  the  industry  continues  to  grow,  telemarketing's
effectiveness  as a  direct  marketing  tool may also  decrease  as a result  of
consumer saturation and consumer resistance to telemarketing

                                      -14-

<PAGE>



generally.  Although the Company attempts to monitor industry trends and respond
accordingly,  the Company may not be able to anticipate and successfully respond
to such trends in a timely manner.

          Telesales  are   labor-intensive   and  often  characterized  by  high
personnel turnover. All of the Company's telesales personnel commence employment
on a relatively  modest hourly wage, for a short period of time, and graduate to
a commission-only  compensation structure after several months. Those who do not
achieve  certain  sales  quotas  are  unable to  continue  on a  commission-only
structure and leave the Company. Some of the Company's telemarketing activities,
particularly inbound customer service, require highly-trained  employees. A high
turnover  rate  among the  Company's  employees  would  increase  the  Company's
recruiting  and  training  costs,  and if the Company were unable to recruit and
retain a sufficient number of employees,  it would be forced to limit its growth
or possibly curtail its operations. In certain markets, the Company competes for
qualified personnel with other sales companies,  and periodically is required to
pay premium  hourly  wages to attract and retain  personnel.  The Company may be
unable  to  continue  to hire  and  retain  a  sufficient  number  of  qualified
personnel, which would have a material adverse effect on the Company's business,
financial condition and results of operations.

          COMPETITION.  The market for  Internet-based  software and services is
new, intensely competitive,  rapidly evolving and subject to rapid technological
change.  The Company expects  competition to persist,  intensify and increase in
the future.  Almost all of the Company's current and potential  competitors have
longer operating histories, greater name recognition,  larger installed customer
bases and significantly  greater  financial,  technical and marketing  resources
than the  Company.  Such  competition  could  materially  adversely  affect  the
Company's  business,  operating  results or financial  condition.  The Company's
current and potential  competitors include browser software vendors,  Web server
software and service vendors, PC software vendors and online service providers.

          Although many Internet  browsers and server  products do not currently
provide many features or products for  application on the Internet such as those
being  marketed or developed by the Company,  Netscape and  Microsoft  have each
recently  released or announced new versions of their respective  browsers which
incorporate features directly competitive with certain features of the Company's
existing Internet products.  It is probable that these products will incorporate
additional  functionality  competitive with the Company's products at some point
in the future.  Both Microsoft and Netscape  incorporate  this  functionality at
little  or no  additional  cost to  customers.  Additionally,  there are a large
number  of  recent  competitive  entrants  to  each  of the  Company's  Internet
products, except WebPrinter, thereby creating the potential for confusion in the
marketplace.  Although the Company believes that its products have established a
significant brand awareness in the marketplace,  the large number of competitive
products,  the  accelerated  pace of  change,  and the  increasing  adoption  of
functions  similar to the  Company's  products  in  browsers  by  Microsoft  and
Netscape provide significant competitive challenges to the Company. There can be
no  assurance  that the  Company  will be able to compete  successfully  against
current or future competitors or that competitive pressures faced by the Company
will not  materially  adversely  affect  its  business,  operating  results  and
financial condition.


                                      -15-

<PAGE>



          NEW PRODUCT DEVELOPMENT AND RAPID TECHNOLOGICAL CHANGE.  Substantially
all of the Company's  revenues have been derived,  and  substantially all of the
Company's  future  revenues are expected to be derived,  from the license of its
software and sale of its associated services.  Accordingly,  broad acceptance of
the  Company's  software  products  and services by customers is critical to the
Company's future success, as is the Company's ability to design,  develop,  test
and support new software  products and  enhancements on a timely basis that meet
changing  customer needs and respond to technological  developments and emerging
industry  standards.  There  can  be no  assurance  that  the  Company  will  be
successful in developing  and marketing new software  products and  enhancements
that meet changing customer needs and respond to such  technological  changes or
evolving  industry  standards.  In addition,  there can be no assurance that the
Company  will not  experience  difficulties  that  could  delay or  prevent  the
successful   development,   introduction  and  marketing  of  new  products  and
enhancements, or that its new products and enhancements will adequately meet the
requirements of the marketplace and achieve market  acceptance.  Further,  there
can be no  assurance  that,  despite  testing by the  Company and by current and
potential customers,  errors will not be found in the Company's products, or, if
discovered,  successfully corrected in a timely manner. If the Company is unable
to develop on a timely basis new  software  products,  enhancements  to existing
products or error  corrections,  or if such new products or  enhancements do not
achieve  market  acceptance,  the  Company's  business,  operating  results  and
financial condition will be materially adversely affected.

          The software industry is characterized by rapid  technological  change
as well as  changes  in  customer  requirements  and  preferences.  The  Company
believes that its future  results will depend  largely upon its ability to offer
products that compete favorably with respect to price, reliability, performance,
range of useful  features,  continuing  product  enhancements,  reputation,  and
training.  For its PC/Network products,  the Company relies on future technology
from third party developers.  The Company also relies to some extent on software
from third parties which is integrated  with internally  developed  software and
used  in the  Company's  products  to  perform  key  functions.  Therefore,  the
Company's  inability to maintain  direct control over the future  development of
such  products  could  result in delays or  reductions  in  upgrades  or product
shipments.  Delays or  difficulties  may result in the delay or  cancellation of
planned  development  projects and could have a materially adverse effect on the
Company's business, operating results and financial condition.

          EVOLVING   MULTIPLE   DISTRIBUTION   CHANNELS;   RISK  OF   ELECTRONIC
DISTRIBUTION.  The  Company's  strategy  is  to  develop  multiple  distribution
channels.  The Company has  historically  sold its Internet  products  primarily
through  direct sales via the Internet and OEMs.  The Company  began selling its
Internet products through its direct telemarketing  subsidiary in Florida in the
third  quarter of 1996,  along with its  technician  and  network  administrator
products, and introduced its Internet products into retail outlets in the United
States and Europe in the fourth quarter 1996. There can be no assurance that the
Company will be successful in distributing  its products through retail channels
or that the  Company's  telemarketing  sales  force  will be able to market  the
Company's Internet products successfully. In addition, the possibility can occur
that conflicts may develop between the Company's multiple  distribution channels
over the competitive impact resulting from such multiple  channels.  The failure
to successfully  distribute the Company's  Internet  products through the retail
channels  or by the  direct  telemarketers,  or  the  development  of a  channel
conflict,  could materially  adversely affect the Company's business,  operating
results or financial condition.

                                      -16-

<PAGE>



          The  Company  intends to pursue  additional  alliances  with  Internet
software companies, printer, laptop and other hardware manufacturers, and access
providers and other  companies to  accelerate  the market entry of the Company's
Internet  products.  There  can be no  assurance  that  the  Company's  existing
strategic  alliances will continue or that any future  alliances will accelerate
the  acceptance  of the  Company's  products or that the Company will be able to
pursue or develop further alliances. The Company plans to expand its field sales
force and its  telemarketing  organization.  There can be no assurance that such
internal  expansion  will  be  successfully  completed,  that  the  cost of such
expansion will not exceed the revenues  generated,  or that the Company's  sales
and marketing  organization  will be able to  successfully  compete  against the
significantly  more extensive and well-funded sales and marketing  operations of
many of the Company's current or potential competitors.  The Company's inability
to  effectively  manage its  internal  expansion  could have a material  adverse
effect on the Company's business, operating results or financial condition.

          In addition to expanding its direct sales  channels,  the Company will
continue  to  distribute  its  products  electronically  through  the  Internet.
Distributing  the Company's  products  through the Internet  makes the Company's
software more susceptible  than other software to unauthorized  copying and use.
The Company has historically  allowed and currently intends to continue to allow
potential  customers to  electronically  download its client software for a free
evaluation  period.  By  distributing  its products for free evaluation over the
Internet,  the Company may have reduced the future demand for its products.  If,
as a result of changing legal  interpretations of liability for unauthorized use
of the Company's  software or otherwise,  users were to become less sensitive to
avoiding copyright infringement,  the Company's business,  operating results and
financial condition would be materially adversely affected.

          FLUCTUATIONS  IN OPERATING  RESULTS.  The Company's  future  operating
results  could be  subject  to  significant  fluctuations  and  volatility.  The
Company's  revenues and quarterly  operating results may experience  significant
fluctuations  and  be  unpredictable  as  the  result  of a  number  of  factors
including, among others, introduction of new or enhanced products by the Company
or its  competitors,  rapid  technological  changes  in the  Company's  markets,
seasonality  of  revenues,  changes in operating  expenses and general  economic
conditions.  The Company's pattern of revenues and earnings may also be affected
by the phenomenon  known as "channel  fill."  Channel fill occurs  following the
introduction of a new product or a new version of a product as distributors  buy
significant quantities of the new product or version in anticipation of sales of
such product or version.  Following such  purchases,  the rate of  distributors'
purchases  often  declines,  depending on the rates of purchases by end users or
"sell-through."  The phenomenon of "channel fill" may also occur in anticipation
of price  increases or in response to sales  promotions or  incentives,  some of
which may be designed to encourage customers to accelerate  purchases that might
otherwise occur in later periods. Channels may also become filled simply because
the  distributors  are unable to, or do not,  sell their  inventories  to retail
distribution  or end users as anticipated.  If sell-through  does not occur at a
sufficient  rate,  distributors  will delay  purchases or cancel orders in later
periods or return  prior  purchases  in order to reduce  their  inventories.  In
addition,  between the date the  Company  announces a new version or new product
and the  date of  release,  distributors,  dealers  and end  users  often  delay
purchases,  cancel orders or return products in anticipation of the availability
of the new version of the product.  Such order delays or cancellations can cause
material fluctuations in revenues

                                      -17-

<PAGE>



from one quarter to the next. Net revenues may be materially  affected favorably
or adversely by these effects.

          For the quarter ended  December 31, 1996,  the Company  incurred a net
loss of $1.7 million  primarily due to continued  establishment and expansion of
various  distribution  channels as well as sales and marketing costs  associated
with  the  expansion  of the  various  distribution  channels.  There  can be no
assurance that the Company will not incur additional losses in the future.

          VOLATILITY  OF STOCK PRICE.  In the past year the market for shares of
technology  companies  and  in  particular  the  Company's  Common  Stock,  have
experienced extreme price  fluctuations,  which have often been unrelated to the
operating  performance of the affected companies.  In addition,  factors such as
technological  innovations  or new product  introductions  by the  Company,  its
competitors  or its customers may have a significant  impact on the market price
of the Company's Common Stock. Furthermore,  quarter-to-quarter  fluctuations in
the  Company's  results of  operations  caused by changes  in  customer  demand,
release of competitive  products or other factors, may have a significant impact
on the market price of the Company's Common Stock. These conditions,  as well as
factors  which  generally  affect  the  market  for  stocks  of high  technology
companies,   could  cause  the  price  of  the  Company's   stock  to  fluctuate
substantially over short periods.

          MANAGEMENT OF ACQUISITIONS AND GROWTH. Since completion of its initial
public  offering  in  December  1995,  the  Company  has   consummated   several
acquisitions.  The Company may make additional acquisitions in the future. While
these  acquisitions  have  broadened the Company's  product  portfolio and sales
distribution channels, the acquisitions have resulted in the Company's competing
with companies and in markets where it has not previously competed. As a result,
there is uncertainty  regarding  customer  acceptance of the combined  products.
There can be no  assurance  that the Company  will be  successful  in  realizing
benefits from a broadened product portfolio and sales distribution  channels. In
addition,  it is critical to the Company's success to integrate  effectively the
operations and businesses of the acquired companies,  and to utilize effectively
acquired intellectual property.

          The rapid  execution  necessary  for the Company to fully  exploit the
market  opportunities  for its  products  and  services  requires  an  effective
planning and management process. To manage its growth, the Company must continue
to implement and improve its  operational  and financial  systems and to expand,
train and manage its employee  base. The Company will also be required to manage
multiple relationships with various customers and other third parties.  Although
the Company  believes  that it has made  adequate  allowances  for the costs and
risks  associated  with  this  expansion,  there  can be no  assurance  that the
Company's  systems,  procedures  or  controls  will be  adequate  to support the
Company's  operations  or that  Company  management  will be able to achieve the
rapid execution necessary to fully exploit the market for the Company's products
and services.  The Company's  future  operating  results will also depend on its
ability to expand its sales and  marketing  organizations,  implement and manage
new distribution  channels to penetrate different and broader markets and expand
its support organization  commensurate with the increasing base of its installed
products.  If the Company is unable to manage growth effectively,  the Company's
business, operating results and financial condition will be materially adversely
affected.


                                      -18-

<PAGE>



          DEPENDENCE  ON THE  INTERNET.  Although  some  sales of the  Company's
products depend upon the growth of private networks and the computer  technician
market,  sales growth of the Company's products will depend in large part upon a
robust industry and  infrastructure  for providing  Internet access and carrying
Internet  traffic.  The  Internet  may  not  prove  to  be a  viable  commercial
marketplace because of inadequate  development of the necessary  infrastructure,
such as a reliable  network  backbone  or timely  development  of  complementary
products,  such as high speed  modems.  In addition,  acceptance  of many of the
Company's products, particularly those enabling real-time collaboration, will be
dependent upon the sufficient  availability of high-bandwidth on and connections
to the Internet.  Because global  commerce and online exchange of information on
the Internet and other similar open wide area networks are new and evolving,  it
is difficult to predict with any assurance whether the Internet will prove to be
a  viable   commercial   marketplace.   There  can  be  no  assurance  that  the
infrastructure of complementary products necessary to make the Internet a viable
commercial  marketplace will be developed,  or, if developed,  that the Internet
will become a viable commercial marketplace.

          In order  to  support  the  continued  growth  and  popularity  of the
Internet,  certain  infrastructure  elements must expand to handle the resulting
increases in Internet  demand and traffic.  These elements  include  widespread,
inexpensive Internet access, either through Internet access providers or on-line
services, and widely available high-speed communications channels to accommodate
the  increasing  number  and size of files  available  for  downloading.  If the
necessary  infrastructure or complementary products are not developed, or if the
Internet  does  not  become  a  viable  commercial  marketplace,  the  Company's
business, operating results and financial condition will be materially adversely
affected.

          PRODUCT  RETURNS.   Like  other   manufacturers  of  package  software
products,   the  Company  is  exposed  to  the  risk  of  product  returns  from
distributors  and  reseller  customers.  There can be no  assurance  that actual
returns in excess of recorded  allowances will not result in a material  adverse
effect on business, operating results and financial condition.

          DEPENDENCE ON KEY  PERSONNEL.  The Company is dependent on its ability
to retain and motivate high quality  personnel,  especially  its  management and
highly skilled development teams. Competition for such personnel is intense, and
there can be no assurance  that the Company will be able to attract,  assimilate
or retain other  highly  qualified  technical  and  managerial  personnel in the
future. The Company's performance is substantially  dependent on the performance
of its executive officers and key employees,  and, in particular,  David Sikora,
the  President  and Chief  Executive  Officer,  and Mike  Kaplan,  President  of
ForeFront  Direct.  Although each such  individual has entered into a multi-year
employment  agreement  with the  Company,  there can be no  assurance  that said
individuals will elect to continue to perform services to the Company.  The loss
of the  services  of  executive  officers  or any  other key  employees  and the
inability to attract and retain the necessary technical and managerial personnel
could have a  material  adverse  effect on the  business,  operating  results or
financial condition of the Company.

          UNCERTAIN PROTECTION OF INTELLECTUAL PROPERTY; THIRD PARTY CLAIMS. See
"-Proprietary  Rights"  elsewhere in this report for a  discussion  of the risks
associated with intellectual property rights and third party claims.

                                      -19-

<PAGE>



          SECURITY  RISKS.  While the  Company  has not  included  any  security
protocols  in its current  Internet  products,  the Company  believes it will be
necessary to incorporate  security  protocols in certain of its future  Internet
products  in  order  to  assure  the   protection  of  customers'   confidential
information.  Despite  the  incorporation  of  such  technology,  the  Company's
products may be  vulnerable  to  break-ins  and similar  disruptions  that would
jeopardize the security of  information  stored in and  transmitted  through the
computer  systems of end users of the  Company's  products,  which may result in
significant  liability  to the Company and may also deter  potential  customers.
Moreover, the security and privacy concerns of existing and potential customers,
as well as concerns related to computer  viruses,  may inhibit the growth of the
Internet marketplace generally,  and the Company's customer base and revenues in
particular.  The Company  currently  does not have  adequate  product  liability
insurance to protect against these risks and there can be no assurance that such
insurance will be available to the Company on commercially  reasonable  terms or
at all.

          GOVERNMENT  REGULATION  AND  LEGAL  UNCERTAINTIES.  See "-  Government
Regulation"  elsewhere in this report for a discussion  of the risks  associated
with governmental regulation and legal uncertainties.

          INTERNATIONAL  OPERATIONS.  The  Company  has  operations  in  various
foreign locations.  International operations are subject to certain risks common
to   international   activities,   such  as  changes  in  foreign   governmental
regulations,  tariffs and taxes, export license requirements,  the imposition of
trade barriers,  difficulties in staffing and managing foreign  operations,  and
political and economic instability.

ITEM 2.  DESCRIPTION OF PROPERTY.

          The  Company  leases   facilities  in  Houston,   Texas;   Palo  Alto,
California; Salt Lake City, Utah; Clearwater,  Florida; and London, England. Its
total current rental payments are approximately $43,000 per month.

          The Company  believes that adequate  facilities are available and that
sufficient additional space will be available as needed thereafter.

ITEM 3.  LEGAL PROCEEDINGS.

          None.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

          No matters were submitted to a vote of the Company's  security holders
during the last quarter of the fiscal year ended December 31, 1996.


                                      -20-

<PAGE>



                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

          The  Company's  Common  Stock  (symbol:  FFGI) has been  traded on the
Nasdaq Stock  Market since the  Company's  initial  public  offering in December
1995. The following  table sets forth the range of high and low sales prices for
each  calendar  quarterly  period  through  December 31, 1996 as reported on the
Nasdaq National Market:

                   YEAR ENDED DECEMBER 31, 1995   YEAR ENDED DECEMBER 31, 1996
                   HIGH                   LOW     HIGH                    LOW
Fourth Quarter     8.625                  8.25    10.875                  5.00
Third Quarter      N/A                    N/A     13.875                  8.938
Second Quarter     N/A                    N/A     20.75                   7.50
First Quarter      N/A                    N/A     10.094                  6.50

          As  of  March  20,  1997,   6,424,597  shares  of  Common  Stock  were
outstanding  and the Company had 208  shareholders  of record and  approximately
2,400 beneficial owners.

          The Company has never paid cash  dividends  on its Common  Stock.  The
Company  currently  intends to retain  any  earnings  to finance  the growth and
development of its business and does not anticipate paying cash dividends in the
foreseeable future.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

OVERVIEW

          Formed in 1992 and headquartered in Houston,  ForeFront (NASDAQ: FFGI)
(http://www.ffg.com)  develops and markets  Internet,  Intranet  and  PC/Network
software  applications  for a variety of market  segments  including  PC/Network
professionals,  mobile computing, education,  telecommunications,  groupware and
small  office/home   office  (SOHO).   ForeFront's   Internet  products  include
WebWhacker,  the first  offline  browser and  recently  named by Internet  World
magazine as the  premium  product in its  category,  and  WebPrinter,  a leading
product  that allows  printing of HTML pages in booklet  format.  The  Company's
worldwide  customer base  includes  industry  leaders such as Microsoft,  Apple,
Mitsubishi, Verity, Brother International and McGraw-Hill CEC, among others. The
Company  distributes  its  software  products  in over 600 retail  stores in the
United States,  as well as  internationally,  in Europe through its London-based
sales office and in Japan  through  AISoft,  Inc., a wholly owned  subsidiary of
Seiko-Epson.  ForeFront Direct,  the Company's wholly owned direct sales channel
based in Clearwater,  Florida,  also markets the Company's Internet and Intranet
software, and is a leading publisher of PC/Network software.

                                      -21-

<PAGE>



          The  Company  delivers  its  products  through  multiple  distribution
channels,  including  its  proprietary  electronic  storefront  and other online
resellers over the Internet,  original equipment manufacturers ("OEMs"), systems
integrators, value added resellers ("VARs"), catalogs, and direct telemarketing.
The Company  introduced  its Internet  products for  purchase  from  traditional
software  retailers in the fourth  quarter of 1996. The Company also markets its
Internet products through alliances with other computer software  companies that
incorporate  bundled  versions  of the  Company's  Internet  products  with  the
products of such other companies.

          The  Company  is   continuing  to  develop   additional   productivity
applications for the Internet,  Intranet and PC/Network markets internally,  and
will  continue  to seek to acquire  additional  technologies  from  outside  the
Company,  via licensing or  acquisition,  to accelerate  the market entry of the
Company's products.

RESULTS OF OPERATIONS

          NET REVENUES

          Substantially all of the Company's net revenues have been derived from
product  license  revenues  and,  to a lesser  extent,  maintenance  and service
revenues which have been primarily attributable to separately-priced maintenance
contracts and consulting. Maintenance contracts are usually for one year and are
recognized  ratably over the terms of the contracts.  Service  revenues  include
development  and  professional  fees  and are  recognized  as the  services  are
rendered.

          Net revenues increased $7,745,000, or 128%, from $6,053,000 in 1995 to
$13,798,000  in 1996,  primarily due to the three  strategic  acquisitions,  the
introduction  of eight  additional  products into existing and new  distribution
channels and increasing market acceptance of the Company's products. No customer
accounted for more than 10% of the Company's net revenues during the years ended
December 31, 1995 and 1996.

          As part of its strategy to develop multiple distribution channels, the
Company  expects to  increasingly  utilize its direct  sales  channel as well as
indirect  channels;  however,  the Company ships products to  distributors  on a
purchase-order  basis  and  the  distributors  carry  competing  product  lines.
Therefore,  there can be no  assurance  that any  distributor  will  continue to
represent  the  Company's  products  and the  inability  to  recruit  or  retain
important   distributors   could  adversely  affect  the  Company's  results  of
operations.  Allowances  for returns are provided  based on historical  rates of
return and have not been  material to date.  Certain of the  Company's  sales to
distributors  are  under  agreements   providing  rights  of  return  and  price
protection on unsold merchandise.  There can be no assurance that actual returns
in excess of recorded allowances will not result in a material adverse effect on
operating results and financial condition.

          As  described  earlier,  the merger  with  AllMicro,  Inc.,  which was
accounted  for as a pooling of  interests,  resulted in the  restatement  of the
Company's  historical  consolidated  financial  statements.  The  impact  of the
pooling of interests  resulted in  increasing  the  Company's  consolidated  net
revenues by approximately $5,800,000 and $4,600,000 for the years ended December
31, 1995 and 1996,  respectively.  If the Company had accounted for the AllMicro
transaction as a purchase

                                      -22-

<PAGE>



instead  of a  pooling  of  interests,  consolidated  net  revenues  would  have
increased from $280,000 in 1995 to $9,198,000 in 1996.

          COST OF PRODUCT LICENSES

          The cost of product licenses  primarily includes costs associated with
product packaging,  documentation,  software duplication and shipping as well as
royalties  paid to  third  parties.  The  cost  of  product  licenses  increased
$1,458,000, or 120%, from $1,217,000 in 1995 to $2,675,000 in 1996. The increase
was due  principally  to the  corresponding  128%  increase  in product  license
revenues  during this period.  Gross margin as a percentage  of net revenues may
fluctuate  in  the  future  due  to  increased  price  competition,  the  mix of
distribution  channels  used by the Company and the mix of  products  sold.  The
Company typically  realizes higher gross margins through OEM  arrangements,  its
electronic  storefront  and its direct  channel  than sales  through  the retail
channel.

          RESEARCH AND DEVELOPMENT EXPENSES

          Research and development expenses consist primarily of personnel costs
including  salaries  and  benefits,  occupancy  and travel  expenses  as well as
outside  consultant  costs  related  to  the  research  and  development  of the
Company's  products.  These costs are  charged to expense as they are  incurred.
Research and development expenses increased $2,133,000, or 240% from $888,000 in
1995 to  $3,021,000  in 1996.  The increase is  attributable  to the increase in
research and  development  personnel whose efforts were focused on the Company's
new line of Internet  products  and the  purchase of two  software  licenses for
$410,000  intended for future  development.  The Company believes that continued
investment in research and development is required to remain  competitive in the
software industry,  to enhance the functionality of its existing products and to
develop additional products that complement  currently  available  products.  In
addition,  the Company  expects  that  research  and  development  expenses as a
percentage of net revenues will fluctuate  depending on future  revenue  growth,
acquisitions and licensing of technology.

          In March 1996,  the Company  acquired the assets of Blue  Squirrel,  a
Utah based  company and during June 1996,  the  Company  acquired  the assets of
BookMaker,  a California  based  company.  The Company  recorded the fair market
value of net assets acquired,  which included  purchased software of $71,000 and
$67,000,  respectively,  and  recorded  a charge  of  $440,000  and  $2,359,000,
respectively for acquired research and development costs.

          SELLING AND MARKETING EXPENSES

          Selling and  marketing  expenses  consist  primarily  of salaries  and
commissions of marketing and sales personnel, advertising and promotion expenses
and customer service and support costs. Selling and marketing expenses increased
$5,660,000, or 174%, from $3,246,000 in 1995 to $8,906,000 in 1996. The increase
reflects  increased  salaries and commissions  due to increased  staffing and to
increased sales  commissions on  significantly  higher  revenues,  the continued
establishment  and  expansion  of various  distribution  channels  in the United
States and Europe, as well as increased  marketing  activities,  including trade
show participation, advertising and promotions.

                                      -23-

<PAGE>




          GENERAL AND ADMINISTRATIVE EXPENSES

          General and  administrative  expenses consist primarily of salaries of
administrative  and executive  personnel,  merger and  acquisition  activity and
other  professional  services.  General and  administrative  expenses  increased
$3,097,000, or 267%, from $1,158,000 in 1995 to $4,255,000 in 1996. The increase
is attributable to increased  personnel and associated  recruiting costs, merger
and  acquisition   costs,   including  one-time  charges  of  $1.6  million  for
transaction  costs related to the merger with AllMicro,  Inc., as well as higher
administrative  costs as a result of becoming a public  company.  Excluding  the
one-time charges,  general and administrative expenses increased $1,497,000,  or
129%, from $1,158,000 in 1995 to $2,655,000 in 1996.

          Additionally,  the Company recorded  noncash deferred  compensation of
approximately  $726,000 in connection  with certain options granted during 1995,
of which  approximately  $140,000 and $201,000 was  recognized  as an expense in
1995  and  1996,  respectively.  The  remaining  deferred  compensation  will be
amortized  ratably over the vesting  period of the options and will  continue to
impact  the  Company's  results  of  operations.  See  Note 5 to  the  Company's
Consolidated Financial Statements.

          INTEREST INCOME

          Interest income consists primarily of interest earned on cash and cash
equivalents.  Interest  income  increased  $485,000,  from  $40,000  in  1995 to
$525,000 in 1996. The increase was primarily attributable to the interest income
earned as a result of the completion of the Company's  Initial  Public  Offering
(the "Offering") in December 1995 and resulting cash proceeds.

          INTEREST EXPENSE

          Interest  expense relates to the senior  convertible  notes payable to
stockholders and others which were issued in 1995. Such notes were exchanged for
shares of the Company's  Series B Preferred  Stock or repaid in September  1995.
The interest accrued to the date of retirement of such notes of $35,000 was paid
at such time. See "Liquidity and Capital  Resources" and Note 4 to the Company's
Consolidated Financial Statements.

          INCOME TAXES

          The Company has incurred  losses since inception and,  therefore,  has
not been subject to federal  income taxes.  As of December 31, 1996, the Company
had generated net operating loss carryforwards for financial  reporting purposes
of approximately  $5.5 million  available to reduce future federal income taxes.
These  carryforwards  will  begin to expire in 2007.  The  Company's  ability to
utilize the  carryforwards  is expected to be limited by "changes in ownership,"
as such  term is  defined  by  federal  income  tax laws and  regulations,  that
occurred upon the sale of 1,700,000 shares of Common Stock in December 1995, the
acquisitions  of Blue  Squirrel  and  BookMaker  in March  1996  and June  1996,
respectively, and the merger with AllMicro, Inc. in July 1996. As there

                                      -24-

<PAGE>



is no  assurance  of future  taxable  income,  a  valuation  allowance  has been
established  to fully offset the $2.2 million net deferred tax asset at December
31, 1996.

FACTORS AFFECTING OPERATING RESULTS

          As a result of the Company's  limited operating  history,  the Company
does not have historical  financial data for a significant  number of periods on
which to base planned  operating  expenses.  Accordingly,  the Company's expense
levels are based in part on its expectations as to future revenues. However, the
Company  typically  operates with no backlog.  As a result,  quarterly sales and
operating results generally depend on the volume,  timing and ability to fulfill
orders received within the quarter, which are difficult to forecast. The Company
may be unable to  adjust  spending  in a timely  manner  to  compensate  for any
unexpected revenues shortfall.  Accordingly, any significant shortfall of demand
for  the   Company's   products  and  services  in  relation  to  the  Company's
expectations  would have an immediate adverse impact on the Company's  business,
operating results and financial  condition.  To the extent that any increases in
operating  expenses  precede  or are  not  subsequently  followed  by  increased
revenues, the Company's business, operating results and financial condition will
be materially adversely affected.

          The Company expects to experience  significant  fluctuations in future
quarterly operating results that may be caused by many factors, including demand
for the  Company's  products,  introduction  or  enhancement  of products by the
Company  and  its  competitors,  market  acceptance  of  new  products,  mix  of
distribution  channels  through  which  products  are sold,  mix of products and
services  sold,  and  general  economic  conditions.  As a result,  the  Company
believes that period-to-period  comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as any indication of future
performance.  Due to all of the  foregoing  factors,  it is likely  that in some
future quarter the Company's operating results will be below the expectations of
public market analysts and investors.  In such event, the price of the Company's
Common Stock would likely be materially adversely affected.

LIQUIDITY AND CAPITAL RESOURCES

          At December  31, 1996 the  Company  had cash and cash  equivalents  of
$6,204,000  and  working  capital  of  $5,824,000.   The  Company  has  financed
approximately $5 million of cash used in operating  activities from 1992 through
1996 primarily through the issuance of approximately $957,000 of preferred stock
in 1992,  $1.6  million of common  stock in 1993 and $1.6  million of  preferred
stock and notes payable converted into preferred stock and $11,855,000 of common
stock in 1995. Net cash provided (used) by operating activities was $359,000 and
$(4,785,000)  in 1995  and  1996,  respectively.  Investing  activities  in 1995
totaled $8,055,000 and related primarily to purchases of securities from the net
proceeds of the Offering.  The cash provided by investing  activities in 1996 of
$6,900,000  relates  primarily to the proceeds  from the sale of  securities  of
$8,000,000 net of purchases of furniture and equipment totaling $1,000,000.  Net
cash provided (used) by financing  activities was  $12,664,000 and  $(1,451,000)
for the same periods.

          The Company  believes that its existing  capital  resources,  together
with anticipated revenues, will be sufficient to meet its anticipated cash needs
for operations, working capital and capital

                                      -25-

<PAGE>



expenditures  through mid 1998.  Thereafter,  if cash generated by operations is
insufficient to satisfy the Company's  liquidity  requirements,  the Company may
sell  additional   equity  or  debt  securities  or  obtain   additional  credit
facilities.  The sale of additional  equity or convertible  debt securities will
result in  additional  dilution to the Company's  stockholders.  There can be no
assurance  that the Company will be able to raise such capital when needed or on
terms favorable to the Company.

          The  Company's  liquidity  will be reduced as amounts are expended for
continuing research and development, expansion of sales and marketing activities
and development of its administrative function. While not currently anticipated,
the  Company's  liquidity  could  also be reduced if  significant  amounts  were
expended  for  additional  facilities  and  equipment  or to  license or acquire
proprietary  technology  owned by others or to legally  defend  its  proprietary
technology.  Additionally,  depending on market  conditions  or future  business
opportunities,  the  Company  may  decide  to issue  additional  equity  or debt
securities  for cash or to acquire  assets or technology of others.  The working
capital of the  Company may also be used to acquire  such assets or  technology,
reducing the funds available for alternative use.

ITEM 7. FINANCIAL STATEMENTS.

          The  consolidated  financial  statements and  supplementary  financial
information  required  to be filed  under this Item are  presented  on pages F-1
through F-18 of this Annual Report on Form 10- KSB, and are incorporated  herein
by reference.

ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE.

          None.

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.

          The  information  required  by  this  item  as to  the  directors  and
executive  officers of the Company is hereby  incorporated by reference from the
information  appearing  under the captions  "Election of Directors,"  "Executive
Compensation"  and "Compliance  with Section 16(a)" in the Company's  definitive
proxy statement which involves the election of directors and is to be filed with
the Securities and Exchange Commission ("Commission") pursuant to the Securities
and Exchange Act of 1934 within 120 days of the end of the Company's fiscal year
on December 31, 1996.


                                      -26-

<PAGE>



ITEM 10.  EXECUTIVE COMPENSATION.

          The  information  required  by this item as to the  management  of the
Company is hereby incorporated by reference from the information appearing under
the captions "Executive  Compensation" and "Election of Directors - Compensation
of Directors" in the Company's  definitive  proxy  statement  which involves the
election of  directors  and is to be filed with the  Commission  pursuant to the
Securities  and Exchange Act of 1934 within 120 days of the end of the Company's
fiscal year on December 31, 1996.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

          The  information  required  by  this  item  as  to  the  ownership  by
management  and others of  securities of the Company is hereby  incorporated  by
reference from the information  appearing under the caption "Security  Ownership
of Certain  Beneficial Owners and Management" in the Company's  definitive proxy
statement  which  involves the election of directors and is to be filed with the
Commission  pursuant to the  Securities and Exchange Act of 1934 within 120 days
of the end of the Company's fiscal year on December 31, 1996.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

          The  information   required  by  this  item  as  to  certain  business
relationships  and transactions with management and other related parties of the
Company is hereby incorporated by reference from the information appearing under
the captions "Certain  Relationships and Related  Transactions" in the Company's
definitive proxy statement which involves the election of directors and is to be
filed with the  Commission  pursuant to the  Securities and Exchange Act of 1934
within 120 days of the end of the Company's fiscal year on December 31, 1996.

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.

          (a) Exhibits.

                  The following exhibits are filed as part of this report:

   Exhibit
     NO.                              DESCRIPTION OF EXHIBITS
--------------------------------------------------------------------------------
     2.1           --         Agreement  and Plan of  Reorganization  among  the
                              Company,    AllMicro   Acquisition    Corporation,
                              AllMicro,  Inc. and the Shareholders listed on the
                              execution  pages  thereto,  dated  July  19,  1996
                              (incorporated by reference to the exhibit attached
                              to the  Company's  Current  Report  on Form 8-K as
                              filed with the Securities and Exchange  Commission
                              on August 6, 1996).

     2.2           --         Asset Purchase  Agreement  between the Company and
                              BookMaker   Corporation,   dated  June  12,   1996
                              (incorporated by reference to the exhibit attached
                              to the  Company's  Current  Report  on Form 8-K as
                              filed with the Securities and Exchange  Commission
                              on June 27, 1996).

                                      -27-

<PAGE>



     3.1           --         Amended and Restated  Certificate of Incorporation
                              (incorporated  by  reference to Exhibit 3.1 to the
                              Company's  Registration  Statement  on Form  SB-2)
                              (Registration No. 33-977898-D).

     3.2           --         Restated  Bylaws  (incorporated  by  reference  to
                              Exhibit 3.2 to the Company's  Quarterly  Report on
                              Form  10-QSB for the period  ended June 30,  1996)
                              (File No. 000-27438).

     4.1           --         Specimen Common Stock Certificate (incorporated by
                              reference to Exhibit 4.1 to Amendment No. 2 to the
                              Company's  Registration  Statement  on Form  SB-2)
                              (Registration No. 33-977898-D).

     10.1          --         Amended  and  Restated   1992  Stock  Option  Plan
                              (incorporated  by reference to Exhibit 10.1 to the
                              Company's  Registration  Statement  on Form  SB-2)
                              (Registration No. 33-977898-D).

     10.2          --         1996 Non-Qualified Stock Option Plan (incorporated
                              by  reference  to  Exhibit  10.2 to the  Company's
                              Quarterly  Report on Form  10-QSB  for the  period
                              ended September 30, 1996) (File No. 0-27438).

     10.3          --         1996  Non-Employee  Directors'  Stock  Option Plan
                              (incorporated  by reference to Exhibit 99.3 to the
                              Company's  Registration  Statement  on  Form  S-8)
                              (Registration No. 333-07721).

     10.4          --         1996 Employee Stock Purchase Plan (incorporated by
                              reference  to  Exhibit   99.2  to  the   Company's
                              Registration  Statement on Form S-8) (Registration
                              No. 000-27438).

     10.5          --         Employment   Agreement  between  the  Company  and
                              Martin Mazner dated June 12, 1996 (incorporated by
                              reference  to  Exhibit   10.1  to  the   Company's
                              Quarterly  Report on Form  10-QSB  for the  period
                              ended June 30, 1996) (File No. 000-27438).

     10.6          --         Employment   Agreement  between  the  Company  and
                              Michael  Kaplan dated July 22, 1996  (incorporated
                              by  reference  to  Exhibit  10.1 to the  Company's
                              Quarterly  Report on Form  10-QSB  for the  period
                              ended September 30, 1996) (File No. 000-27438).

     10.7*         --         Employment Agreement between the Company and David
                              Sikora dated December 23, 1996.

     10.8*         --         Amended and Restated 1996 Stock Option Plan.

     10.9          --         Registration  Rights Agreement between the Company
                              and certain  holders of Common and Preferred Stock
                              dated September 1995 (incorporated by

                                      -28-

<PAGE>



                              reference  to  Exhibit   10.10  of  the  Company's
                              Registration Statement on Form SB-2) (Registration
                              No. 33-977898-D).

     10.10         --         Registration  Rights  Agreement,  dated as of June
                              12, 1996, by and among The ForeFront  Group,  Inc.
                              and   BookMaker   Corporation   (incorporated   by
                              reference to Exhibit 99.3 to the Company's Current
                              Report on Form 8-K filed with the  Securities  and
                              Exchange Commission on June 27, 1996).

     10.11         --         Registration  Rights  Agreement,  dated as of July
                              19, 1996, by and among The ForeFront  Group,  Inc.
                              and the  Shareholders of AllMicro,  Inc. set forth
                              on the signature  pages thereto  (incorporated  by
                              reference to Exhibit 99.3 to the Company's Current
                              Report on Form 8-K filed with the  Securities  and
                              Exchange Commission on July 22, 1996).

     10.12         --         Form of Warrant Agreement with the Representatives
                              of the Underwriters  (incorporated by reference to
                              Exhibit  10.11  to  the   Company's   Registration
                              Statement   on  Form   SB-2)   (Registration   No.
                              33-97798-D).

     10.13         --         Form of Stock Purchase Warrant issued in September
                              1995 (incorporated by reference to Exhibit 10.9 to
                              the Company's Registration Statement on Form SB-2)
                              (Registration No. 33-97798-D).

     10.14         --         Software License Agreement between the Company and
                              Baylor  College  of  Medicine   (incorporated   by
                              reference  to  Exhibit   10.2  to  the   Company's
                              Registration Statement on Form SB-2) (Registration
                              No. 33-97798-D).

     11.1*         --         Statement  regarding  computation  of net loss per
                              share.

     21.1*         --         List of subsidiaries of the Company.

     23.1*         --         Consent of Arthur Andersen LLP, independent public
                              accountants  (incorporated by reference to Exhibit
                              23.2  to  each  of  the   Company's   Registration
                              Statements on Form S-3 and Form S-8) (Registration
                              No.  333-18491  and  Registration  No.  333-19147,
                              respectively).

     27*           --         Financial Data Schedule.


*        Filed herewith.

          (b) Reports on Form 8-K.

          None.

                                      -29-

<PAGE>



                                   SIGNATURES

          In  accordance  with  Section  13 or 15(d) of the  Exchange  Act,  the
registrant  caused  this  report to be  signed  on  behalf  by the  undersigned,
thereunto duly authorized.

                                           THE FOREFRONT GROUP, INC.

                                           By: /s/ David Sikora
                                           President and Chief Executive Officer
                                           Date: March 31, 1997


          In accordance with the Exchange Act, this report has been signed below
by the following  persons on behalf of the  registrant and in the capacities and
on the dates indicated.


Date: March 31, 1997                       /s/ David Sikora
                                           -------------------------------------
                                           David Sikora, President and Chief
                                           Executive Officer (Principal
                                           Executive Officer and Director)


Date: March 31, 1997                       /s/ Ernest D. Rapp
                                           -------------------------------------
                                           Ernest D. Rapp, Chief Financial
                                           Officer (Principal Financial and
                                           Accounting Officer)


Date: March 31, 1997                       /s/ G. Anthony Gorry
                                           -------------------------------------
                                           G. Anthony Gorry, Chairman of the
                                           Board of Directors


Date: March 31, 1997                       /s/ Stephen J. Banks
                                           -------------------------------------
                                           Stephen J. Banks, Director


Date: March 31, 1997                       /s/ Grant Dove
                                           -------------------------------------
                                           Grant Dove, Director


Date: March 31, 1997                       /s/ Terry Ward
                                           -------------------------------------
                                           Terry Ward, Director




                                       30

<PAGE>


                   THE FOREFRONT GROUP, INC. AND SUBSIDIARIES

                          INDEX TO FINANCIAL STATEMENTS


Report of Independent Public Accountants.....................................F-2

Consolidated Balance Sheet...................................................F-3

Consolidated Statements of Operations........................................F-4

Consolidated Statements of Stockholders' Equity..............................F-5

Consolidated Statements of Cash Flows........................................F-6

Notes to Consolidated Financial Statements...................................F-7


                                       F-1

<PAGE>


                   THE FOREFRONT GROUP, INC. AND SUBSIDIARIES

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To The ForeFront Group, Inc.:


We have audited the  accompanying  consolidated  balance  sheet of The ForeFront
Group,  Inc.,  and  subsidiaries  as of  December  31,  1996,  and  the  related
consolidated  statements of operations,  stockholders' equity and cash flows for
the years ended December 31, 1995 and 1996.  These financial  statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of The ForeFront Group,
Inc.,  and  subsidiaries  as of  December  31,  1996,  and the  results of their
operations  and their cash flows for the years ended December 31, 1995 and 1996,
in conformity with generally accepted accounting principles.


ARTHUR ANDERSEN LLP




Houston, Texas
February 18, 1997

                                       F-2

<PAGE>


                   THE FOREFRONT GROUP, INC. AND SUBSIDIARIES

                  CONSOLIDATED BALANCE SHEET--DECEMBER 31, 1996


<TABLE>

                                     ASSETS
<S>                                                                     <C>
CURRENT ASSETS:
   Cash and cash equivalents ........................................   $  6,204,213
   Accounts receivable, net of allowance of $138,600 ................      1,450,241
   Inventory, net ...................................................        340,163
   Prepaid expenses and other .......................................        429,957
                                                                        ------------

                 Total current assets ...............................      8,424,574

PROPERTY AND EQUIPMENT, net of accumulated
   depreciation of $346,726 .........................................      1,063,976

OTHER ASSETS, net ...................................................        145,384
                                                                        ------------
                 Total assets .......................................   $  9,633,934
                                                                        ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
   Accounts payable .................................................   $    857,780
   Accrued liabilities ..............................................      1,393,519
   Deferred revenues ................................................        349,391
                                                                        ------------

                 Total current liabilities ..........................      2,600,690

DEFERRED REVENUE, NET OF CURRENT ....................................         16,660

STOCKHOLDERS' EQUITY:
   Preferred stock, $.01 par value, 5,000,000 shares authorized, none
        outstanding .................................................             --
   Common stock, $.01 par value, 20,000,000 shares authorized,
        6,488,275 shares issued, 6,182,031 shares outstanding .......         62,641
   Additional paid-in capital .......................................     19,594,230
   Deferred compensation ............................................       (369,336)
   Accumulated deficit ..............................................    (12,269,101)
   Treasury stock, 82,145 shares at cost ............................         (1,850)
                                                                        ------------

                 Total stockholders' equity .........................      7,016,584
                                                                        ------------
                 Total liabilities and stockholders' equity .........   $  9,633,934
                                                                        ============
</TABLE>

The  accompanying  notes are an  integral  part of this  consolidated  financial
statement.

                                       F-3

<PAGE>


                   THE FOREFRONT GROUP, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                     YEARS ENDED DECEMBER 31
                                                                                       1995           1996
                                                                                   ------------   ------------
<S>                                                                                 <C>           <C>
NET REVENUES:
   Licenses .....................................................................   $ 6,000,186   $ 13,725,921
   Maintenance and services .....................................................        52,600         72,545
                                                                                    -----------   ------------

        Total revenues ..........................................................     6,052,786     13,798,466

COST OF PRODUCT LICENSES ........................................................     1,217,182      2,675,434
                                                                                    -----------   ------------

        Gross profit ............................................................     4,835,604     11,123,032

OPERATING EXPENSES:
   Research and development .....................................................       887,717      3,021,318
   Selling and marketing ........................................................     3,246,174      8,906,307
   General and administrative ...................................................     1,158,406      4,254,646
   Acquired research and development costs ......................................            --      2,798,604
                                                                                    -----------   ------------

        Operating loss ..........................................................      (456,693)    (7,857,843)

OTHER:
   Interest income ..............................................................        39,859        525,255
   Interest expense .............................................................       (34,997)            --
                                                                                    -----------   ------------
        Net loss ................................................................   $  (451,831)  $ (7,332,588)
                                                                                    ===========   ============

NET LOSS PER SHARE ..............................................................   $      (.10)   $     (1.22)
                                                                                    ===========   ============

SHARES USED IN COMPUTING NET LOSS PER SHARE .....................................     4,383,490      6,002,427
                                                                                    ===========   ============

</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.


                                       F-4

<PAGE>


                   THE FOREFRONT GROUP, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>


                                             SERIES A                  SERIES B
                                            CONVERTIBLE               CONVERTIBLE
                                          PREFERRED STOCK           PREFERRED STOCK             COMMON STOCK           ADDITIONAL
                                       -----------------------  ------------------------  ------------------------      PAID-IN
                                          SHARES    PAR VALUE      SHARES     PAR VALUE      SHARES     PAR VALUE       CAPITAL
                                       -----------  ----------  -----------  -----------  -----------  ------------  --------------
<S>                                    <C>          <C>         <C>          <C>          <C>          <C>           <C>
BALANCE, December 31, 1994...........    2,000,000  $   20,000           --  $        --    2,670,853  $     26,708  $    2,557,221
EXERCISE OF STOCK OPTIONS............           --          --           --           --        4,440            44             956
ISSUANCE OF SERIES B PREFERRED STOCK
    IN SEPTEMBER 1995 AT $1.25 PER
    SHARE, net of offering costs of
    $10,000..........................           --          --      840,000        8,400           --            --       1,031,600
ISSUANCE OF PREFERRED STOCK IN
    SEPTEMBER 1995 AT $1.25 PER
    SHARE FOR CONVERSION OF NOTES
    PAYABLE..........................           --          --      464,000        4,640           --            --         575,360
DEFERRED COMPENSATION
    RELATING TO ISSUANCE OF
    CERTAIN STOCK OPTIONS............           --          --           --           --           --            --         726,375
AMORTIZATION OF DEFERRED
    COMPENSATION.....................           --          --           --           --           --            --              --
ISSUANCE OF COMMON STOCK IN
    CONJUNCTION WITH INITIAL PUBLIC
    OFFERING AT $8.00 PER SHARE, net
    of offering costs of $1,745,478..           --          --           --           --    1,700,000        17,000      11,837,522
CONVERSION OF ALL PREFERRED
    STOCK UPON CLOSING OF
    INITIAL PUBLIC OFFERING..........   (2,000,000)    (20,000)  (1,304,000)     (13,040)   1,462,953        14,630          18,410
ISSUANCE OF COMMON STOCK PURCHASE
    WARRANTS UPON CLOSING OF
    INITIAL PUBLIC OFFERING..........           --          --           --           --           --            --             170
DISTRIBUTIONS TO STOCKHOLDERS........           --          --           --           --           --            --              --

NET LOSS.............................           --          --           --           --           --            --              --
                                       -----------  ----------  -----------   ----------  -----------  ------------  --------------
BALANCE, December 31, 1995...........           --          --           --           --    5,838,246        58,382      16,747,614
ISSUANCE OF COMMON STOCK FOR BLUE
    SQUIRREL ACQUISITION.............           --          --           --           --      125,000         1,250         397,188
ISSUANCE OF COMMON STOCK FOR                                                                       --
    BOOKMAKER ACQUISITION............           --          --           --           --      223,538         2,235       2,411,975
AMORTIZATION OF DEFERRED
    COMPENSATION.....................           --          --           --           --           --            --         (15,719)
EXERCISE OF STOCK OPTIONS............           --          --           --           --       77,392           774          53,172
DISTRIBUTIONS TO STOCKHOLDERS........           --          --           --           --           --            --              --
NET LOSS.............................           --          --           --           --           --            --              --
                                       -----------  ----------  -----------   ----------  -----------  ------------  --------------
BALANCE, December 31, 1996...........           --  $       --           --   $       --    6,264,176  $     62,641  $   19,594,230
                                       ===========  ==========  ===========   ==========  ===========  ============  ==============

</TABLE>
<TABLE>
<CAPTION>

                                            DEFERRED        ACCUMULATED      TREASURY
                                          COMPENSATION        DEFICIT          STOCK          TOTAL
                                        ---------------   --------------   -------------   ------------
<S>                                     <C>               <C>              <C>             <C>
BALANCE, December 31, 1994...........   $            --   $   (2,125,100)  $      (1,850)  $    476,979
EXERCISE OF STOCK OPTIONS............                --               --              --          1,000
ISSUANCE OF SERIES B PREFERRED STOCK
     IN SEPTEMBER 1995 AT $1.25 PER
     SHARE, net of offering costs of
     $10,000.........................                --               --              --      1,040,000
ISSUANCE OF PREFERRED STOCK IN
     SEPTEMBER 1995 AT $1.25 PER
     SHARE FOR CONVERSION OF NOTES
     PAYABLE.........................                --               --              --        580,000
DEFERRED COMPENSATION
    RELATING TO ISSUANCE OF
    CERTAIN STOCK OPTIONS............          (726,375)              --              --             --
AMORTIZATION OF DEFERRED
    COMPENSATION.....................           140,270               --              --        140,270
ISSUANCE OF COMMON STOCK IN
    CONJUNCTION WITH INITIAL PUBLIC
    OFFERING AT $8.00 PER SHARE, net
    of offering costs of $1,745,478..                --               --              --     11,854,522
CONVERSION OF ALL PREFERRED
    STOCK UPON CLOSING OF
    INITIAL PUBLIC OFFERING..........                --               --              --             --
ISSUANCE OF COMMON STOCK PURCHASE
    WARRANTS UPON CLOSING OF
    INITIAL PUBLIC OFFERING..........                --               --              --            170
DISTRIBUTIONS TO STOCKHOLDERS........                --         (854,620)             --       (854,620)

NET LOSS.............................                --         (451,831)             --       (451,831)
                                         --------------    -------------    ------------   ------------
BALANCE, December 31, 1995...........          (586,105)      (3,431,551)         (1,850)    12,786,490
ISSUANCE OF COMMON STOCK FOR BLUE
    SQUIRREL ACQUISITION.............                --               --              --        398,438
ISSUANCE OF COMMON STOCK FOR
    BOOKMAKER ACQUISITION............                --               --              --      2,414,210
AMORTIZATION OF DEFERRED
    COMPENSATION.....................           216,769               --              --        201,050
EXERCISE OF STOCK OPTIONS............                --               --              --         53,946
DISTRIBUTIONS TO STOCKHOLDERS........                --       (1,504,962)             --     (1,504,962)
NET LOSS.............................                --       (7,332,588)             --     (7,332,588)
                                         --------------    -------------    ------------   ------------
BALANCE, December 31, 1996...........    $     (369,336)   $ (12,269,101)   $     (1,850)  $  7,016,584
                                         ==============    =============    ============   ============

</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.


                                       F-5

<PAGE>


                   THE FOREFRONT GROUP, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                                   YEARS ENDED DECEMBER 31
                                                                                      1995         1996
                                                                                   ----------  -----------
<S>                                                                                <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net Loss .....................................................................  $ (451,831) $(7,332,588)
   Adjustments to reconcile net loss to net cash used by
        operating activities:
        Depreciation and amortization ...........................................      65,526      354,503
        Amortization of deferred compensation related to
            certain stock options ...............................................     140,270      201,050
        Non-cash acquired research and
            development costs ...................................................          --    2,798,604
   Changes in operating assets and liabilities:
        (Net of Blue Squirrel and BookMaker asset acquisitions)
        (Increase) decrease in net accounts receivable ..........................      61,006   (1,157,170)
        Increase in inventory ...................................................     (91,899)    (161,407)
        Increase in prepaid expenses and other current assets ...................      (7,821)    (476,049)
        Increase in other assets ................................................      (6,093)     (51,621)
        Increase in accounts payable and accrued liabilities ....................     653,411      808,655
        Increase (decrease) in deferred revenues ................................      (3,382)     230,970
                                                                                   ----------   ----------
            Net cash provided (used) by operating activities ....................     359,187   (4,785,053)
                                                                                   ----------   ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of furniture and equipment ..........................................     (56,166)  (1,009,574)
   (Purchase) sale of marketable securities .....................................  (7,998,417)   7,998,417
   Cash paid for Blue Squirrel asset acquisition ................................          --     (128,018)
   Net cash received from BookMaker acquisition .................................          --       77,234
                                                                                   ----------   ----------
            Net cash provided (used) by investing activities ....................  (8,054,583)   6,938,059

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuance of common stock .......................................  11,854,522           --
   Proceeds from issuance of preferred stock ....................................   1,040,000           --
   Proceeds from exercise of stock options ......................................       1,000       53,946
   Proceeds from issuance of warrants ...........................................         170           --
   Proceeds from notes payable to stockholders and others .......................     660,705           --
   Repayments of notes payable to stockholders and others .......................     (80,705)          --
   Distribution payable .........................................................      43,000           --
   Dividend distributions .......................................................    (854,620)  (1,504,962)
                                                                                   ----------   ----------
            Net cash provided (used) by financing activities ....................  12,664,072   (1,451,016)
                                                                                   ----------   ----------

NET INCREASE IN CASH AND CASH EQUIVALENTS .......................................   4,968,676      701,990

CASH AND CASH EQUIVALENTS AT BEGINNING
   OF YEAR ......................................................................     533,547    5,502,223
                                                                                   ----------   ----------

CASH AND CASH EQUIVALENTS AT END OF YEAR ........................................  $5,502,223   $6,204,213
                                                                                   ==========   ==========

</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                       F-6

<PAGE>


                   THE FOREFRONT GROUP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.       ORGANIZATION AND OPERATIONS:

          The  ForeFront  Group,  Inc.  (ForeFront or the Company) is a Delaware
corporation  incorporated on December 6, 1990. The Company  develops and markets
Internet  software  which  enables  individuals  and  organizations  to be  more
productive  with  information.  ForeFront's  Internet  software  allows users to
obtain Internet information by providing tools that effectively retrieve, manage
and print  information from the World Wide Web. In addition,  through its merger
with  AllMicro,  Inc.  (now  ForeFront  Direct,  Inc.),  a direct  telemarketing
company,  the Company  republishes  a number of software  products  for personal
computer technicians and network administrators.

          In connection  with the merger with  AllMicro,  Inc. on July 22, 1996,
which was accounted for as a pooling of interests, the accompanying consolidated
financial statements give retroactive effect to the merger and, as a result, the
consolidated  financial  statements  are presented as if ForeFront and AllMicro,
Inc. had been combined for all periods presented.

          The  Company  delivers  its  products  through  multiple  distribution
channels including its electronic storefront and other online resellers over the
Internet,   original  equipment   manufacturers  (OEMs),   systems  integrators,
value-added  resellers (VARs),  catalogs and direct  telemarketing.  The Company
also has alliances with other computer software companies to incorporate bundled
versions  of the  Company's  Internet  products  in the  products  of such other
companies.

          ForeFront is developing  products and has received limited revenues to
date from Internet software products  developed by the Company.  The Company has
incurred net losses since inception and expects to continue to operate at a loss
into 1997 and  potentially  beyond.  As of December 31, 1996, the Company had an
accumulated  deficit of  approximately  $12.3  million and its future  operating
results could be subject to significant fluctuations and volatility.  The future
success of the Company is dependent upon many factors,  including the successful
completion of its product  development  activities,  the  development of salable
products,  the  identification  of and penetration of markets for these products
through  multiple  distribution  channels,  technological  change  and  risk  of
obsolescence,  the  continued  acceptance  and use of the  Internet  as a viable
commercial  marketplace,  the  Company's  ability  to  attract  and  retain  key
personnel and the  successful  integration  of the  operations and businesses of
acquired companies.



                                       F-7

<PAGE>



2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

          PRESENTATION

          The  accompanying   consolidated   financial  statements  include  the
accounts of The ForeFront Group,  Inc., and its wholly owned  subsidiaries.  All
significant  intercompany  transactions  and balances  have been  eliminated  in
consolidation.   Certain  prior  year  amounts  in  the  consolidated  financial
statements have been reclassified to conform to the current year presentation.

          FOREIGN CURRENCY TRANSLATION

          Assets  and   liabilities   denominated  in  foreign   currencies  are
translated  to U.S.  dollars at the  exchange  rate on the  balance  sheet date.
Revenues,  costs and  expenses  are  translated  at  average  rates of  exchange
prevailing  during the year.  Foreign currency  transaction gains and losses are
not material and are included in the determination of net loss.

          STATEMENT OF CASH FLOWS

          The Company  considers  highly liquid  investments  with a maturity of
three  months or less when  purchased  to be cash  equivalents.  At December 31,
1996, the Company's entire investment portfolio consisted of U.S. Treasury Bills
and is classified as cash and cash equivalents.


          In  September  1995,  the Company  issued  464,000  shares of Series B
preferred  stock and  warrants  to  purchase  48,369  shares of common  stock in
settlement of notes payable to stockholders and others, aggregating $580,000.

          USE OF ESTIMATES

          The  preparation of financial  statements in conformity with generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect  the  reported  amount of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

          INVENTORY

          Inventory  is  stated at the lower of cost  (first-in,  first-out)  or
market. Inventory consists primarily of prepackaged software.

                                       F-8

<PAGE>




          PROPERTY AND EQUIPMENT

          Furniture  and computer  software and hardware are carried at cost and
depreciated on the straight-line method using a four-year estimated useful life.
Leasehold  improvements  are amortized over the shorter of the lease term or the
estimated useful life. Property and equipment as of December 31, 1996 consist of
the following:


Furniture                                         $         215,332
Computer software and hardware                            1,170,753
Leasehold improvements                                       24,617
                                                  -----------------
                                                          1,410,702
Less - Accumulated depreciation                            (346,726)
                                                  -----------------

Property and equipment, net                       $       1,063,976
                                                  =================

          ACCRUED LIABILITIES

          Accrued liabilities as of December 31, 1996 consist of the following:


Professional Fees                                 $         258,113
Salaries/benefits                                           606,637
Insurance                                                   130,719
Other                                                       398,050
                                                  -----------------
        Total accrued liabilities                 $       1,393,519
                                                  =================

          REVENUE

          Revenue  from  the  sale  of  software  products  is  recognized  upon
shipment,  net of  allowances  for  estimated  future  returns  and  for  excess
quantities  in  distribution  channels,  provided  that  no  significant  vendor
obligations   exist  and  collections  of  accounts   receivable  are  probable.
Provisions  for sales returns and exchanges  were $0 and $124,000 in fiscal 1995
and 1996,  respectively.  Estimates of returns and  exchanges  may change in the
future based upon future facts and  circumstances.  For sales which  provide for
upgrades,  the portion of the sale  associated with the upgrade is unbundled and
recognized  ratably  over  the  terms  of  the  agreements.  Consulting  service
revenues, which include development and professional fees, are recognized as the
services are rendered.

          COST OF PRODUCT LICENSES

          The cost of product licenses  primarily includes costs associated with
product packaging,  documentation,  software duplication and shipping as well as
royalties  paid to third  parties.  Commissions on product sales are included in
selling  and  marketing  expenses.  At the  initial  license  date,  the Company
recognizes the liability for the estimated cost of warranties and  insignificant
postdelivery obligations.

                                       F-9

<PAGE>




          RESEARCH AND DEVELOPMENT

          Research  and  development  costs are  expensed as they are  incurred.
Statement of Financial  Accounting  Standards (SFAS) No. 86, "Accounting for the
Costs of Computer Software to Be Sold, Leased or Otherwise  Marketed,"  requires
capitalization   of  certain  software   development  costs  subsequent  to  the
establishment  of  technological  feasibility.  Based on the  Company's  product
development process, technological feasibility is established upon completion of
a working model. Costs incurred by the Company between completion of the working
model and the point at which the product is ready for general  release have been
insignificant.

          NET LOSS PER SHARE

          The  Company's  net loss per  share is based on the  weighted  average
number of common shares  outstanding,  adjusted as described as follows.  Common
equivalent shares are generally excluded from the per share calculations, as the
effect of their inclusion is antidilutive.  However,  pursuant to Securities and
Exchange Commission Staff Accounting Bulletins, all common, preferred and common
equivalent  shares issued during the twelve months preceding or in contemplation
of the Company's  initial public  offering  (using the treasury stock method and
the initial  public  offering  price of $8 per share) have been  included in the
calculation of common and common equivalent  shares  outstanding as if they were
outstanding for all periods prior to completion of the Company's  initial public
offering.  Options and warrants  granted by the Company  prior to September  30,
1994,  and not in  contemplation  of an  offering  have been  excluded  from the
calculation  of common and common  equivalent  shares  outstanding  because such
options and warrants are antidilutive. Shares of convertible preferred stock are
treated as if  converted  to common  stock on the  respective  dates of original
issuance.

3.       FEDERAL INCOME TAXES:

          The Company has incurred  losses since inception and,  therefore,  has
not been subject to federal  income taxes.  As of December 31, 1996, the Company
has generated net operating  loss  carryforwards  (NOLs) of  approximately  $5.5
million available to reduce future income taxes.  These  carryforwards  begin to
expire in 2007. The Company's  ability to utilize the  carryforwards is expected
to be  limited by  "changes  in  ownership,"  as such term is defined by federal
income tax laws and regulations, that occurred upon the sale of 1,700,000 shares
of  common  stock in  December  1995,  the  acquisitions  of Blue  Squirrel  and
BookMaker  in March  1996 and  June  1996,  respectively,  and the  merger  with
AllMicro, Inc. in July 1996.

          The Company  recognizes  deferred tax  liabilities  and assets for the
expected future tax consequences of events that have been recognized differently
in the  financial  statements  or tax returns.  Under this method,  deferred tax
liabilities  and assets  are  determined  based on the  difference  between  the
financial  statement  carrying  amounts and tax bases of assets and  liabilities
using enacted tax rates and laws in effect in the years in which the differences
are expected to reverse. Deferred tax assets are evaluated for realization based
on a  more-likely-than-not  criteria in  determining  if a  valuation  allowance
should be provided. As the Company has had cumulative losses and there is

                                      F-10

<PAGE>



no  assurance  of  future  taxable  income,  a  valuation   allowance  has  been
established  to fully offset the  deferred  tax asset at December 31, 1996.  The
valuation  allowance  increased  $905,065 over the prior year. The components of
the Company's deferred tax assets as of December 31, 1996, are as
follows:


Net operating loss carryforwards                                    $1,886,443
Research and development tax credit carryforwards                       80,925
Allowance for returns/deferred revenue/depreciation                    209,078
                                                                 -------------
Total deferred tax assets                                            2,176,446
Less - Valuation allowance                                          (2,176,446)
                                                                 -------------
Net deferred tax asset                                           $         ---
                                                                 =============

          Prior to the merger,  AllMicro,  Inc. was an S Corporation for federal
income tax  purposes.  In accordance  with the S  Corporation  provisions of the
Internal  Revenue Code,  this  company's  earnings  (losses) are included in the
personal tax returns of its  stockholders;  therefore,  no income tax expense is
recorded in the accompanying  consolidated  financial statements for the periods
prior to the merger with ForeFront.

4.       STOCKHOLDERS' EQUITY:

          In October  1995,  the board of  directors  approved a  .44403-for-one
reverse  stock split.  An amount equal to the  decreased par value of the common
shares has been  reflected  as a transfer  from common  stock to the  additional
paid-in capital account.  Retroactive effect has been given to the reverse stock
split  in  stockholders'  equity  and in all  share  and per  share  data in the
accompanying consolidated financial statements.

          In September  1995,  the Company's  board of directors  authorized the
management of the Company to file a  registration  statement with the Securities
and  Exchange  Commission  permitting  the  Company to sell shares of its common
stock to the public.  The  offering of  1,700,000  shares at $8.00 per share was
consummated on December 26, 1995,  with all of the preferred  stock  outstanding
automatically converting into 1,462,953 shares of common stock.

          CONVERTIBLE NOTES

          In March,  April and July 1995, the Company issued senior  convertible
promissory  notes to certain  stockholders,  institutions  and the former  chief
executive officer (the Former Officer) totaling $660,705. The note to the Former
Officer  was issued for the  remaining  amount due of his  severance  pay in the
amount of $30,705.  The notes bore interest at prime plus 2 percent and were due
at the earlier of a common stock offering in which the offering  raised at least
$1,000,000 in capital or March 31, 1996.

          On September 26, 1995, the Company paid $80,705 in principal to two of
the noteholders and paid interest totaling  approximately  $35,000 to all of the
noteholders.  The  remaining  principal of $580,000 was  converted  into 464,000
shares of Series B preferred  stock at $1.25 per share in  conjunction  with the
issuance of Series B preferred stock. The noteholders received warrants to

                                      F-11

<PAGE>



purchase  48,369 shares of common stock at $2.82 per share  pursuant to the note
subscription agreements.

          PREFERRED STOCK

          In June 1992  through  November  1992,  the Company  issued  2,000,000
shares  of  Series A  preferred  stock in  exchange  for net  proceeds  totaling
$986,605. On September 26, 1995, the Company issued 1,304,000 shares of Series B
preferred  stock for $1.25 per share.  The placement  included the conversion of
$580,000 in principal of senior  convertible notes payable and net cash proceeds
of approximately $924,000.

          In December 1995, concurrent with the closing of the Company's initial
public  offering,  all  shares of Series A and  Series B  preferred  stock  were
converted  into 1,462,953  shares of the Company's  common stock at a conversion
rate of one share of common  stock for every 2.26  shares of Series A  preferred
stock and one share of common stock for every 2.256 shares of Series B preferred
stock.  Except for certain  registration  rights,  all rights,  preferences  and
privileges associated with the Company's previously  outstanding preferred stock
were terminated upon conversion.

          WARRANTS

          The Company issued  warrants to purchase 37,295 shares of common stock
to the purchasers of the Series B preferred  stock.  Warrants to purchase 48,369
shares of common  stock were also  issued to the senior  convertible  promissory
noteholders  that exchanged notes into shares of Series B preferred  stock.  The
warrants have a five-year  term and allow the holders to purchase  85,664 shares
of common stock at a price of $2.82 per share.

          The Company issued warrants to purchase 170,000 shares of common stock
to the  underwriters  upon the  closing  of the  initial  public  offering.  The
purchase  price of the  warrants  was $.001 per  warrant.  The  warrants  have a
five-year term from the date of the  consummation of the initial public offering
and are exercisable at a price of $9.60 per share.

5.       CAPITAL STOCK

          STOCK OPTION PLANS

          In July, 1996, the Board of Directors  approved the 1996 Non-Qualified
Stock Option Plan (the "1996 Plan").  Under the 1996 Plan,  1,250,000  shares of
common  stock have been  reserved for issuance  upon  exercise of  non-qualified
options.  The term of each option is determined by the Board with a maximum term
of 10 years  from the date of  grant,  but the  options  generally  vest  over a
four-year period. At December 31, 1996,  options to purchase 182,407 shares were
available  for future  grants under the 1996 Plan.  Subsequent  to year end, the
Board adopted the Amended and Restated 1996 Stock Option Plan (the "Amended 1996
Plan"),  which  increased  the  number  of  shares  subject  to the 1996 Plan to
2,000,000, and authorized the issuance of up to 750,000 incentive stock options

                                      F-12

<PAGE>



under Section 422 of the Internal Revenue Code. Both of the above changes to the
1996 Plan are subject to stockholder approval.

          In March,  1996, the Board of Directors  approved the 1996 Nonemployee
Directors'  Stock  Option  Plan (the  "1996  Directors'  Plan").  Under the 1996
Directors' Plan,  150,000 shares of common stock have been reserved for issuance
upon exercise of the options.  Each nonemployee director shall receive an option
to  purchase  20,000  shares  of  common  stock  upon  election  to the Board of
Directors. Each subsequent year, the nonemployee directors shall each receive an
option to purchase 5,000 shares of common stock. The options generally vest over
a one year period.

          In June,  1992,  the  Company's  stockholders  approved the 1992 Stock
Option Plan (the "1992 Plan"). Under the 1992 Plan, as amended, 1,500,000 shares
of common stock have been reserved for issuance  upon exercise of  non-qualified
and/or  incentive stock options at December 31, 1995. The term of each option is
determined  by the board of  directors  with a maximum term of 10 years from the
date of grant,  but the  options  generally  vest over a  four-year  period.  At
December 31, 1995 and 1996, options to purchase 488,014 shares and 65,736 shares
were available for future grants under the 1992 Plan.

          In June 1995, the Company amended option agreements  providing for the
purchase of 125,630  shares of common stock with an original  exercise  price of
$2.82. In November 1995, the Company granted options to purchase  352,480 shares
of  common  stock  at  $5.60  per  share;  however,  the  exercise  prices  were
subsequently  amended to $7.00 per share in December 1995. The revised  exercise
prices were equal to management's estimated fair value at the amendment dates.

          The  Company  believes  that,  at date of grant,  the  exercise  price
approximates  fair value except for certain grants in August and September 1995.
For  options  granted in August  and  September  1995,  the  Company  recognized
deferred compensation for the excess of the deemed value for accounting purposes
of the common stock on the date the options were granted  ($2.82 per share) over
the $1.13 exercise price of such options.  Aggregate  deferred  compensation  of
$726,375 resulted from the issuance of these options,  and compensation  expense
is recognized  ratably over the vesting  period of each option,  generally  four
years.  The  Company  recognized   $140,270  and  $201,050  of  this  amount  as
compensation   expense  for  the  years  ended   December  31,  1995  and  1996,
respectively.

          In November 1996, the Compensation Committee of the Board of Directors
approved the repricing of substantially all of the Company's outstanding options
held by the  existing  employees  to the then current fair market value of $5.31
per  share  (the  closing  price  on the  date of such  repricing)  in  order to
incentivize the Company's employees.

          In  accordance  with the terms of APB No.25,  the  Company  records no
compensation expense for its stock option awards with an exercise price equal to
the  fair  market  value on the  date of  grant.  As  provided  by SFAS No.  123
"Accounting  for  Stock-Based   Compensation,"   the  Company  has  adopted  the
disclosure  requirements  of  SFAS  No.  123  and  has  elected  not  to  record
compensation expense in accordance with this statement. Had compensation expense
for the Company's stock

                                      F-13

<PAGE>



option plans been recorded  under the  provisions of SFAS No. 123, the Company's
hypothetical net loss and net loss per share would have been as follows:


                                                  1995                 1996
                                              ------------         ------------
Net loss:                  As reported        $   (451,831)        $ (7,332,588)
                           Pro Forma              (376,388)          (8,476,163)

Net loss per share:        As reported        $      (0.10)        $      (1.22)
                           Pro Forma                 (0.09)               (1.41)

          Because the SFAS No. 123 method of accounting  has not been applied to
options granted prior to January 1, 1995, the resulting  hypothetical  pro forma
compensation  cost may not be  representative  of that to be  expected in future
years.

          A summary of stock option activity follows:
<TABLE>
<CAPTION>


                                     1992 STOCK OPTION PLAN      1996 STOCK OPTION PLAN         1996 DIRECTORS' PLAN
                                  --------------------------  ------------------------------  ------------------------
                                                   Weighted                     Weighted                      Weighted
                                                    Average                      Average                       Average
                                                   Exercise                     Exercise                      Exercise
                                     Options        Price        Options          Price         Options         Price
                                  ------------   -----------  --------------   -------------  -------------  ---------
<S>                               <C>            <C>          <C>              <C>            <C>            <C>
Balance at December 31, 1994           151,315         $0.54              --              --             --         --

    Granted                          1,008,908          2.64              --              --             --         --
    Canceled                          (152,677)         1.13              --              --             --         --
    Exercised                           (4,440)         0.23              --              --             --         --
                                  ------------

Balance at December 31, 1995         1,003,106          2.56              --              --             --         --
    Granted                          1,278,500          5.50       1,912,876           $5.29         20,000     $8.625
    Canceled                          (856,222)         5.36        (845,283)           5.31             --         --
    Exercised                          (77,392)         0.70              --              --             --         --
                                  ------------                   -----------                    -----------

Balance at December 31, 1996         1,347,992                     1,067,593                         20,000
                                  ============                   ===========                    ===========

    Exercisable at
    December 31, 1995                  346,784                            --                             --
                                  ============                   ===========                    ===========
    Exercisable at
    December 31, 1996                  651,463         $3.22         130,531           $5.30         11,664     $8.625
                                  ============                   ===========                    ===========

</TABLE>


                               OPTIONS OUTSTANDING
Range of Average                                         Weighted-Avg Remaining
 EXERCISE PRICES         AT DECEMBER 31, 1996               CONTRACTUAL LIFE
-----------------    -----------------------------      ------------------------
  $.23 - 2.82                 540,808                          7.4 years
 $5.31 - 7.125              1,860,082                          9.0 years
 $8.25 - 8.625                 34,529                          9.0 years
    $18.00                        166                          9.4 years


                                      F-14

<PAGE>



          The weighted average remaining contractual lives of the options issued
pursuant to the 1992 Stock Option Plan,  the 1996 Stock Option Plan and the 1996
Directors Plan are 8.3, 9.4 and 9.1 years, respectively.

          The weighted average fair value of options granted was $2.34 and $5.21
for the years ended  December 31, 1995 and 1996,  respectively.  The fair market
value of each  option is  estimated  on the grant date  using the  Black-Scholes
option pricing model, with the following assumptions:


                                           1995                       1996
                                      -----------------         ---------------
Stock volatility                            73%                        73%
Risk-free interest rate                      6%                         6%
Option term                               4 years                    4 years
Stock dividend yield                         --                         --


          EMPLOYEE STOCK PURCHASE PLAN

          In November 1995,  the Board of Directors  approved the Employee Stock
Purchase  Plan (the  "Purchase  Plan")  for all  eligible  employees.  Under the
Purchase  Plan,  shares  of the  Company's  common  stock  may be  purchased  at
three-month  intervals  during 1997 at 85% of the lower of the fair market value
on January 1, 1997 or the last day of each  three-month  period.  Employees  may
purchase  shares having a value not  exceeding  15% of their gross  compensation
during an offering  period.  Under the terms of the Purchase Plan 100,000 shares
are reserved for issuance during the 1997 offering period and a total of 500,000
are reserved for issuance for the entire Purchase Plan.

          EMPLOYEE BENEFIT PLAN

          In October 1996, the Company adopted a defined contribution plan which
qualifies  under Section  401(k) of the Internal  Revenue Code.  Under the plan,
U.S. employees who work a minimum of 1,000 hours per year, are at least 21 years
of age and have  completed  at least  six  consecutive  months  of  service  are
eligible  for  the  plan.  Participants  may  contribute  1%  to  15%  of  their
compensation,  but not more than  statutory  limits.  At the present  time,  the
Company does not match employee contributions.

6.       LICENSE AND DISTRIBUTION AGREEMENTS:

          The Company entered into a technology  transfer  agreement with Baylor
College  of  Medicine   ("Baylor")   whereby   the  Company  has  an   exclusive
noncancellable worldwide license to use and market the technology related to the
Virtual Notebook System ("VNS"). The Company issued 377,425 shares of its common
stock,  $.01 par value,  to Baylor in  exchange  for the grant of the  exclusive
license.  Baylor then  transferred a portion of their shares to the  development
team employed by Baylor. This agreement,  as amended,  provided Baylor the right
to  continue to use and improve  the VNS and  related  technology  and  provided
ForeFront the exclusive rights to all such  improvements  made by Baylor through
December 31, 1995. Baylor also retains the right to conduct further research and
development using the VNS technology.

                                      F-15

<PAGE>



7.       COMMITMENTS AND CONTINGENCIES:

          LEASE AGREEMENTS.

          The Company leases  facilities  and other  equipment  under  operating
leases that expire through 2001. Rental expense for the years ended December 31,
1995 and 1996 amounted to approximately $114,000 and $233,000, respectively.

         Minimum annual rental payments under these leases are as follows:

                           1997...............................    $      537,000
                           1998...............................           523,000
                           1999...............................           493,000
                           2000...............................           402,000
                           2001...............................           297,000
                                                                  --------------
                                  Total.......................    $    2,252,000
                                                                  ==============

          EMPLOYMENT AGREEMENTS

          The Company has entered into employment  agreements with its executive
officers which provide for annual salaries, bonuses or commissions and incentive
and non-qualified stock options which vest according to continued employment. In
addition,  the Company  maintains a  $1,000,000  life  insurance  policy for its
president and an executive  vice  president for the benefit of their  designated
beneficiaries.


8.       ACQUISITIONS

          BLUE SQUIRREL, INC.

          On March 8, 1996,  the Company  acquired the assets of Blue  Squirrel,
Inc. The consideration consisted of 125,000 shares of the Company's common stock
and $100,000 in cash to retire debt assumed by the Company.  The acquisition has
been  accounted for under the purchase  method and,  accordingly,  the operating
results of Blue Squirrel  have been included in the operating  results since the
date of acquisition.  In applying the purchase method,  the Company recorded the
fair value of net assets acquired, which included software costs of $71,110, and
recorded a $439,881 charge for acquired research and development costs. Computer
equipment and furniture acquired were capitalized at their estimated fair market
value of $15,465.

          BOOKMAKER CORPORATION

          On June 12,  1996,  the  Company  acquired  the  assets  of  BookMaker
Corporation.  The  consideration  consisted of 248,375  shares of the  Company's
common stock issued at closing  (the Closing  Shares) and 199,262  shares of the
Company's common stock (the "Earnout Shares") issued at closing and deposited in
escrow to be delivered to BookMaker subject to satisfaction of certain

                                      F-16

<PAGE>



milestones  for the remainder of 1996 and 1997.  One-third of the Earnout Shares
is subject to release from escrow on or before April 30, 1997, and the remaining
two-thirds  of the Earnout  Shares are subject to release on or before April 30,
1998,  based upon the revenues and gross profit before income tax of BookMaker's
operations  after the closing for the 1996 and 1997 periods,  respectively.  Any
Earnout Shares not earned shall be forfeited.  Of the Closing Shares, 10 percent
(the  "Escrow  Shares")  is held in escrow  for a period  of two years  from the
closing to cover losses due to breach of representations and warranties. Holders
of the Earnout  Shares and Escrow  Shares are  entitled  to voting and  dividend
rights  during the period such shares are held in escrow.  The  acquisition  has
been  accounted for under the purchase  method and,  accordingly,  the operating
results of BookMaker  are included in the  operating  results  since the date of
acquisition.  The purchase price has been allocated to the assets  purchased and
the  liabilities  assumed based upon the fair values at the date of acquisition.
The initial purchase price has been allocated as follows:


Working capital, other than cash                    $        81,658
Furniture and equipment                                      25,528
Purchased software                                           66,900
Other assets                                                  1,500
Acquired research and development                         2,358,723
                                                    ---------------

Purchase price, net of cash received                $     2,534,309
                                                    ===============

          The  following  unaudited,  pro forma  information  has been  prepared
assuming both acquisitions had taken place at the beginning of the periods.


                                                DECEMBER 31,
                                          1995                 1996
                                     -----------           -----------
Net Revenues                         $ 7,753,557           $14,513,485
Operating Loss                          (510,846)           (7,922,771)
Net Loss                                (504,131)           (7,397,526)
Net Loss Per Share                        ($0.11)               ($1.21)


          The pro forma financial  information is not necessarily  indicative of
the results of operations had the entities been combined for the entire periods.

          ALLMICRO, INC.

          On July 22, 1996,  the Company  consummated  the merger with AllMicro,
Inc. (now ForeFront Direct),  pursuant to the terms of the agreement and plan of
reorganization,  dated as of July 19, 1996 (the Merger Agreement),  by and among
the Company, AllMicro Acquisition Corporation,  AllMicro and the stockholders of
AllMicro (the Stockholders). The acquisition was effected by way

                                      F-17

<PAGE>



of a merger (the  Merger) of a wholly owned  subsidiary  of the Company with and
into  AllMicro.  As a result  of the  Merger,  AllMicro  became  a wholly  owned
subsidiary of the Company.  The Merger was treated as a pooling of interests for
accounting purposes. Pursuant to the Merger Agreement, the Stockholders received
an aggregate of 1,056,152 shares of common stock, $.01 par value, of the Company
(ForeFront  Common  Stock),  10 percent of which was placed in escrow to satisfy
claims of the Company that may arise for any breach of the  representations  and
warranties made by AllMicro and the  Stockholders in the Merger  Agreement.  The
escrow shares will be released upon the filing of audited  financial  statements
for 1996 by ForeFront, except for amounts associated with pending claims.

          The  shares  of  the  Company's   common  stock  were  issued  to  the
Stockholders  pursuant to an exemption from registration  under Section 3(a)(10)
of the Securities Act of 1933, as amended (the Securities Act). The Stockholders
have also been granted certain other piggyback registration rights under certain
circumstances.  In  addition,  any  sales  of  ForeFront  Common  Stock  by  the
Stockholders must be in compliance with the volume limitations of Rule 145 under
the Securities Act.

          As a result of the pooling of interests, the accompanying consolidated
financial statements give retroactive effect to the merger and, as a result, the
consolidated  financial  statements  are presented as if ForeFront and AllMicro,
Inc. had been combined for all periods presented.

                                      F-18

<PAGE>
                                 EXHIBIT INDEX
                                 -------------

   Exhibit
     NO.                              DESCRIPTION OF EXHIBITS
--------------------------------------------------------------------------------
     2.1           --         Agreement  and Plan of  Reorganization  among  the
                              Company,    AllMicro   Acquisition    Corporation,
                              AllMicro,  Inc. and the Shareholders listed on the
                              execution  pages  thereto,  dated  July  19,  1996
                              (incorporated by reference to the exhibit attached
                              to the  Company's  Current  Report  on Form 8-K as
                              filed with the Securities and Exchange  Commission
                              on August 6, 1996).

     2.2           --         Asset Purchase  Agreement  between the Company and
                              BookMaker   Corporation,   dated  June  12,   1996
                              (incorporated by reference to the exhibit attached
                              to the  Company's  Current  Report  on Form 8-K as
                              filed with the Securities and Exchange  Commission
                              on June 27, 1996).

     3.1           --         Amended and Restated  Certificate of Incorporation
                              (incorporated  by  reference to Exhibit 3.1 to the
                              Company's  Registration  Statement  on Form  SB-2)
                              (Registration No. 33-977898-D).

     3.2           --         Restated  Bylaws  (incorporated  by  reference  to
                              Exhibit 3.2 to the Company's  Quarterly  Report on
                              Form  10-QSB for the period  ended June 30,  1996)
                              (File No. 000-27438).

     4.1           --         Specimen Common Stock Certificate (incorporated by
                              reference to Exhibit 4.1 to Amendment No. 2 to the
                              Company's  Registration  Statement  on Form  SB-2)
                              (Registration No. 33-977898-D).

     10.1          --         Amended  and  Restated   1992  Stock  Option  Plan
                              (incorporated  by reference to Exhibit 10.1 to the
                              Company's  Registration  Statement  on Form  SB-2)
                              (Registration No. 33-977898-D).

     10.2          --         1996 Non-Qualified Stock Option Plan (incorporated
                              by  reference  to  Exhibit  10.2 to the  Company's
                              Quarterly  Report on Form  10-QSB  for the  period
                              ended September 30, 1996) (File No. 0-27438).

     10.3          --         1996  Non-Employee  Directors'  Stock  Option Plan
                              (incorporated  by reference to Exhibit 99.3 to the
                              Company's  Registration  Statement  on  Form  S-8)
                              (Registration No. 333-07721).

     10.4          --         1996 Employee Stock Purchase Plan (incorporated by
                              reference  to  Exhibit   99.2  to  the   Company's
                              Registration  Statement on Form S-8) (Registration
                              No. 000-27438).

     10.5          --         Employment   Agreement  between  the  Company  and
                              Martin Mazner dated June 12, 1996 (incorporated by
                              reference  to  Exhibit   10.1  to  the   Company's

<PAGE>

                              Quarterly  Report on Form  10-QSB  for the  period
                              ended June 30, 1996) (File No. 000-27438).

     10.6          --         Employment   Agreement  between  the  Company  and
                              Michael  Kaplan dated July 22, 1996  (incorporated
                              by  reference  to  Exhibit  10.1 to the  Company's
                              Quarterly  Report on Form  10-QSB  for the  period
                              ended September 30, 1996) (File No. 000-27438).

     10.7*         --         Employment Agreement between the Company and David
                              Sikora dated December 23, 1996.

     10.8*         --         Amended and Restated 1996 Stock Option Plan.

     10.9          --         Registration  Rights Agreement between the Company
                              and certain  holders of Common and Preferred Stock
                              dated September 1995 (incorporated by reference to
                              Exhibit  10.10  of  the   Company's   Registration
                              Statement   on  Form   SB-2)   (Registration   No.
                              33-977898-D).

     10.10         --         Registration  Rights  Agreement,  dated as of June
                              12, 1996, by and among The ForeFront  Group,  Inc.
                              and   BookMaker   Corporation   (incorporated   by
                              reference to Exhibit 99.3 to the Company's Current
                              Report on Form 8-K filed with the  Securities  and
                              Exchange Commission on June 27, 1996).

     10.11         --         Registration  Rights  Agreement,  dated as of July
                              19, 1996, by and among The ForeFront  Group,  Inc.
                              and the  Shareholders of AllMicro,  Inc. set forth
                              on the signature  pages thereto  (incorporated  by
                              reference to Exhibit 99.3 to the Company's Current
                              Report on Form 8-K filed with the  Securities  and
                              Exchange Commission on July 22, 1996).

     10.12         --         Form of Warrant Agreement with the Representatives
                              of the Underwriters  (incorporated by reference to
                              Exhibit  10.11  to  the   Company's   Registration
                              Statement   on  Form   SB-2)   (Registration   No.
                              33-97798-D).

     10.13         --         Form of Stock Purchase Warrant issued in September
                              1995 (incorporated by reference to Exhibit 10.9 to
                              the Company's Registration Statement on Form SB-2)
                              (Registration No. 33-97798-D).

     10.14         --         Software License Agreement between the Company and
                              Baylor  College  of  Medicine   (incorporated   by
                              reference  to  Exhibit   10.2  to  the   Company's
                              Registration Statement on Form SB-2) (Registration
                              No. 33-97798-D).

     11.1*         --         Statement  regarding  computation  of net loss per
                              share.

     21.1*         --         List of subsidiaries of the Company.

     23.1*         --         Consent of Arthur Andersen LLP, independent public
                              accountants  (incorporated by reference to Exhibit
                              23.2  to  each  of  the   Company's   Registration
                              Statements on Form S-3 and Form S-8) (Registration
                              No.  333-18491  and  Registration  No.  333-19147,
                              respectively).

     27*           --         Financial Data Schedule.