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                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

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

                                    FORM 10-K

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

                  FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
           SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934
                    For the fiscal year ended June 30, 1999

                                       OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934
         For the transition period from              to
                                        ------------    --------------

                        COMMISSION FILE NUMBER: 000-26513



                                  NFRONT, INC.
             (Exact Name of Registrant As Specified in Its Charter)

                     GEORGIA                        58-2242756
         (State or Other Jurisdiction of         (I.R.S. Employer
         Incorporation or Organization)          Identification No.)

     520 GUTHRIDGE COURT, NW, SUITE 100
                NORCROSS, GEORGIA                       30092
   (Address of Principal Executive Offices)           (Zip Code)


       Registrant's telephone number, including area code: (770) 209-4460

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

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

Title of Each Class                         Name of Exchange on Which Registered
-------------------                         ------------------------------------
      None                                                   None

                        ---------------------------------
           Securities registered pursuant to Section 12(g) of the Act:
                      Common Stock, no par value per share

         Indicate by check mark whether the Registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 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 [ ]

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

         The aggregate market value of the voting stock held by non-affiliates
of the Registrant, based upon the closing sale price for the Common Stock on
September 20, 1999 as reported by the Nasdaq National Market System, was
approximately $60,234,285. The shares of Common Stock held by each officer and
director and by each person known to the Registrant who owns 5% or more of the
outstanding Common Stock have been excluded in that such persons may be deemed
to be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes. As of September 20, 1999, the
Registrant had outstanding 14,196,136 shares of Common Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the Registrant's Proxy Statement for the 1999 Annual
Meeting of Shareholders are incorporated by reference in Part III of this Annual
Report on Form 10-K to the extent stated herein. The Proxy Statement will be
filed within 120 days of the end of the fiscal year covered by this Annual
Report on Form 10-K.


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                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                     PAGE
                                                                                                     ----
                                                  PART I

         <S>           <C>                                                                           <C>
         Item 1.       Business                                                                       3
         Item 2.       Properties                                                                     14
         Item 3.       Legal Proceedings                                                              14
         Item 4.       Submission of Matters to a Vote of Security Holders                            14
         Item 4A.      Executive Officers of the Registrant                                           15

                                                  PART II

         Item 5.       Market for Registrant's Common Stock and Related Shareholder Matters           17
         Item 6.       Selected Financial Data                                                        18
         Item 7.       Management's Discussion and Analysis of Financial Condition and
                       Results of Operations                                                          20
         Item 7A.      Quantitative and Qualitative Disclosures About Market Risk                     40
         Item 8.       Financial Statements and Supplementary Data                                    40
         Item 9.       Changes In and Disagreements With Accountants on
                       Accounting and Financial Disclosure                                            40

                                                 PART III

         Item 10.      Directors and Executive Officers of the Registrant                             41
         Item 11.      Executive Compensation                                                         41
         Item 12.      Security Ownership of Certain Beneficial Owners and Management                 41
         Item 13.      Certain Relationships and Related Transactions                                 41

                                                 PART IV

         Item 14.      Exhibits, Financial Statement Schedule, and Reports on Form 8-K                42
         Signatures                                                                                   45
         Financial Statements                                                                         47
         Exhibits                                                                                     62
</TABLE>

                           FORWARD-LOOKING STATEMENTS

         In addition to historical information, this Annual Report contains
forward-looking statements that involve risks and uncertainties. These
forward-looking statements include, among other things, statements regarding our
anticipated costs and expenses, our capital needs and financing plans, product
and service development, our growth strategies, market demand for our products
and services, relationships with our strategic marketing alliances, competition,
the reliability and security of our data center and plans for addressing Year
2000 issues. These forward-looking statements include, among others, those
statements including the words "expects," "anticipates," "intends," "believes"
and similar language. Our actual results may differ significantly from those
projected in the forward-looking statements. Factors that might cause or
contribute to such differences include, but are not limited to, those discussed
in the section "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Factors That May Affect Future Results of Operations."
You should carefully review the risks described in other documents we file from
time to time with the Securities and Exchange Commission, including the
Quarterly Reports on Form 10-Q that we will file in 1999. You are cautioned not
to place undue reliance on the forward-looking statements, which speak only as
of the date of this Annual Report on Form 10-K. We undertake no obligation to
publicly release any revisions to the forward-looking statements or reflect
events or circumstances after the date of this document.



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                                     PART I


ITEM 1.           BUSINESS.

         nFront provides products and services designed to enable small to
mid-sized banks to provide Internet banking and other financial services to
their retail and commercial customers. Through our outsourcing model, our client
banks purchase our products as services, paying us on a monthly basis depending
on the level of usage by their customers. Our solution enables our client banks
to utilize the Internet to retain current customers, acquire new customers,
offer additional products and services, decrease costs and increase fee income.
By enabling banks to offer comprehensive Internet banking services, as well as
additional financial products and services, the nFront solution enables our
client banks to create a bank-branded web site that becomes a financial
destination for the client bank's customers.

         Our solution consists of our Internet banking products, our Internet
banking data center which facilitates use of the products, implementation and
web site design services and marketing support services. Our nHome product
provides Internet banking services targeted at meeting the banking needs of a
bank's retail customers. Our nBusiness product provides banking services
specifically designed to meet the needs of the bank's commercial customers.
Through our Internet banking data center, we provide the necessary
communications, transaction processing and data storage services to operate the
system. We work closely with each of our client banks to design the appearance
of their Internet branches, implement and integrate our system with the banks'
existing computer systems and train the banks' employees to market our products.
As of June 30, 1999 we had 163 client banks.

INDUSTRY BACKGROUND

     Growth of the Internet and Electronic Commerce

         The Internet has emerged as a significant global communications medium
enabling millions of people to share information and conduct business
electronically. International Data Corporation estimates that the number of Web
users world-wide will grow from approximately 97 million in 1998 to
approximately 320 million by 2002. This growth is being driven by a number of
factors, including an expanding base of personal computers in the home and
workplace; improvements in network infrastructure; easier, faster and cheaper
access to the Internet and commercial on-line services; advances in network and
communication security; increased general awareness of the Internet among
consumer and business users; and the introduction of alternative
Internet-enabled devices, such as televisions and handheld devices.

         As access to the Internet expands, businesses are increasingly using
the Web as an effective means of retaining customers, acquiring new customers,
selling additional products and services to their existing customer base and
reducing costs. The ease of use, functionality and accessibility of the Internet
have made it an increasingly attractive commercial medium by providing features
that historically had been unavailable through traditional channels of customer
contact. For example, the Internet provides users with convenient access to
large amounts of dynamic data to support their financial management, investment
management and purchasing decisions. Through the Internet, businesses are able
to communicate effectively with customers by providing access to information,
including frequent updates of new products and services, content, pricing and
visual presentations. Additionally, businesses can utilize customer-specific
data obtained through the customer's interaction with the business' web site to
market services and products targeted at the particular customer. International
Data Corporation estimates that goods and services purchased over the Internet
in the U.S. will increase from approximately $26 billion in 1998 to over $269
billion in 2002.

         In addition to its use as a general commercial medium, the Internet has
rapidly emerged as a means of providing financial products and services. Many
companies increasingly are offering a variety of financial products and
services, including credit cards, brokerage services, insurance products and
commercial and retail banking services, via the Internet. For example, according
to International Data Corporation, the number of on-line



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brokerage accounts in the United States is expected to grow from 3.5 million at
the end of 1997 to 24 million at the end of 2002.

     Emergence of Internet Banking

         Banks have historically used technology to create alternative
distribution channels for their services in order to reduce their customers'
dependence on traditional physical branch locations. Examples include automated
teller machines or ATMs, telephone banking and electronic banking. The primary
benefits sought by banks in their attempts to reduce customers' reliance on
traditional branches were, among others, to reduce costs, increase the breadth
and availability of services and differentiate themselves from their
competitors. Although banks have been successful in directing customers to
alternative distribution channels, these alternatives have historically provided
customers with only limited access to the services available at a traditional
branch location. In seeking cost effective, convenient alternative distribution
channels that will provide customers a full array of services, banks have
recently focused on electronic banking alternatives, such as PC banking and
Internet banking.

         Banks originally offered electronic banking by distributing their
proprietary PC-based software to their customers or by developing links between
the bank's computers and PC-based personal finance manager software packages
such as Intuit's Quicken(R) or Microsoft's Money. PC banking provides access to
the customer's accounts and the ability to execute banking transactions.
However, limitations of PC banking include:

         -    customers can only access their bank accounts and related
              information from the particular PC on which the PC banking
              software has been installed;

         -    it can be expensive for the bank to provide and support PC banking
              because of the significant costs to develop, purchase and maintain
              the software and hardware necessary to integrate with the bank's
              core operating system and to support the locally-installed copies
              of software on the customers' PCs; and

         -    PC banking does not enhance the bank's ability to identify and
              exploit opportunities to sell other products and services to the
              customer.

         Consequently, only a relatively small number of banks have offered a PC
banking solution.

         The proliferation of the Internet has enabled the development and
implementation of Internet banking systems that overcome many of the limitations
of PC banking. Unlike PC banking, Internet banking only requires that a customer
have a secure Web browser for access to the Internet and the bank. Internet
banking does not require the user to have any other specific software and does
not restrict the customer to a particular PC. Instead, customers may access
their bank information through the Internet using any Web-enabled device to
review account activity, transfer funds, pay bills or transact other business.
Account information is stored on a secure server at all times, protected by
technology designed specifically to safeguard this information. According to
Forrester Research, the number of households banking on-line in the United
States is projected to grow from 2.4 million in 1997 to more than 18 million by
2002.

         According to the Office of the Comptroller of the Currency, as of June
30, 1998, there were 374 banks offering transactional Internet banking web sites
in the United States. With the rapid growth of the Internet banking market, many
banks are compelled to offer Internet banking as part of their overall services
in order to remain competitive and continue to retain and attract customers.

     Challenges to Implementing Internet Banking Systems

         Many banks choose between using in-house resources or licensed
technology to implement an Internet banking system. Common challenges for banks
trying to implement Internet banking systems using internally-developed or
licensed technology include:



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         -    substantial initial investments in hardware, software and
              communications equipment required to implement these systems and
              maintain security and redundancy;

         -    difficulty in identifying, attracting and retaining qualified
              personnel to implement and manage the system;

         -    limited access to technical resources to integrate an Internet
              banking system into the bank's core computer systems, monitor the
              system for security and regulatory compliance and train and
              support the bank's customers on the use of the system; and

         -    competitive risks associated with possible delays in implementing,
              supporting or upgrading an Internet banking solution in-house.

         These challenges are particularly difficult for most small to mid-sized
banks due to their limited capital and internal technical resources. Many larger
national or "super-regional" banks offer some form of Internet banking currently
and bank customers are increasingly demanding these services. Small to mid-sized
banks are being pressured to provide competitive solutions.

         Many banks, particularly small to mid-sized banks, are seeking to
outsource their Internet banking services as a more cost-effective, efficient
means of providing these services to their customers. An outsourced Internet
banking solution can provide to the small to mid-sized bank the resources
necessary to create an Internet banking service competitive with the services
offered by the large banks.

     nFront's Market Opportunity

         We believe that a significant opportunity exists to provide small to
mid-sized banks with a comprehensive, outsourced solution that enables these
banks to offer Internet banking services to their customers. As of September 30,
1998, there were more than 10,000 banks, savings and loans and thrifts in the
United States and all but 81 of those had assets below $10 billion.
Approximately 175 million, or approximately 52%, of the deposit accounts with
balances less than $100,000 were held by banks in that small to mid-sized bank
segment. Many consumers and small businesses continue to be attracted by the
customer orientation and local community presence offered by small to mid-sized
banks and are beginning to demand the convenience of Internet banking.

         Internet banking also permits banks to more easily expand the financial
products and services offered to their customers to include brokerage services,
credit cards, bill presentment, bill payment, insurance, tax return preparation,
full on-line account origination and retail Web-based purchasing.

NFRONT'S SOLUTION

         We provide a comprehensive, outsourced solution that enables small to
mid-sized banks to offer their customers complete branch banking services
through the Internet. Our solution consists of our Internet banking products,
our Internet banking data center which facilitates the use of these products,
implementation and web site design services and marketing and support services.
Our nHome product provides Internet banking services targeted at meeting the
needs of a bank's retail customers. Our nBusiness product provides banking
services specifically designed to meet the needs of the bank's commercial
customers. The nFront Internet banking data center provides the web server
computers, communications, data storage, retrieval and security, as well as
support personnel necessary to operate an Internet branch for each bank, that is
integrated with the bank's existing computer systems. Our solution enables banks
to utilize the Internet to compete more effectively in their markets, retain
current customers, acquire new customers, offer additional products and
services, decrease costs and increase fee income.

         By creating Internet branches for our client banks, we enable banks to
become the destination on the Web for bank customers who are increasingly using
the Web to research, evaluate and, if desired, purchase a broad array of
financial products and services. Because of the integral role of bank accounts
in all types of financial



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transactions and the importance of expanded access to the information relating
to those accounts, we believe that banks are particularly well suited to provide
this financial destination on the Web for their customers. Our products and
services enable our client banks' customers to access their personal account
information, perform a variety of financial transactions and conduct investment
research on the banks' web site. We plan to expand our products and services to
enable client banks to offer investment portfolio management, insurance and
related sales to strengthen their position as the financial destination on the
Web for their customers.

         The key differentiators of our products and services are:

         Outsourced Solution. Our outsourced solution has been designed to have
significantly lower up-front costs, lower overhead, shorter lead times on
initial implementation and upgrades and better access to qualified personnel
than the bank would experience on an in-house basis. Finally, by aggregating the
customer bases and assets of our client banks, our outsourced solution enables
us to take advantage of economies of scale and increased buying power in
negotiating agreements with third parties to offer additional products and
services to our client banks' customers, resulting in improved economic
arrangements than would otherwise be the case. By outsourcing the system design,
implementation, operation and support, the bank is free to focus on its core
competency, serving its banking customers, rather than managing the growing
complexities of Internet technology.

         Fat Server Architecture. Our products are based on a system
architecture that is commonly referred to as a "fat server" design. A "server"
is the computer or collection of computers that store information and handle
many of the more complex data processing functions. A "fat server" refers to a
server that has been configured to handle significant volumes of data storage
and retrieval, as well as complex data processing functions. With "fat server"
architecture, the system utilizes a relational database located on the nFront
system server to receive and store customer data from a bank's core computer
system. This data storage architecture allows the nFront system to store and
organize the client bank customer's account data locally, without a continuous,
direct connection between the customer and the bank's core system. On the other
hand, a "thin server" refers to a server which acts more as a conduit for
information which is processed either by other servers or by the PCs accessing
this server. With the "thin server" model, which connects the customer directly
to the bank's core system, the information available to the customer is limited
to data currently accessible on the bank's core system.

         Fat server architecture provides the following functional advantages
over thin server architecture:

         -    Access to historical financial information. Information stored on
              the fat server allows a customer to generate consolidated reports
              on financial transactions spanning an extended period of time.
              nFront's fat server system currently stores up to two years of
              customer data, whereas thin server systems typically provide
              access to 60 to 90 days of financial data. We believe access to
              more historical account data promotes increased customer loyalty
              for a bank.

         -    Analysis of customer information. A fat server solution enhances
              the bank's ability to extract and analyze relevant customer
              account information and more efficiently cross-sell products.

         -    Effective consolidation of financial services. The fat server can
              more effectively consolidate the customer's financial data from
              disparate host systems in one place. These host systems include
              banking, brokerage and insurance financial data.

         Ease of Integration through Relationships with Core Processors. We have
interfaces with 32 different core processing systems used by banks, enabling us
to offer faster, more cost-effective integration of our Internet banking
products with a bank's existing core processing system. Core processors provide
the software and services required by banks to process their transactions.

         Microsoft NT-Based. The nFront solution is designed to take advantage
of the Microsoft NT application environment. In 1997 we received the Microsoft
Corporation "Best Industry Solution for Internet Banking" award. The nFront
solution utilizes the Microsoft BackOffice suite, which provides an integrated,
scalable system foundation, allowing nFront to focus on product development
instead of third-party application selection and



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integration. The integrated suite of NT server applications enables nFront to
efficiently add new bank clients and their customers without interrupting
service to our existing customers.

STRATEGY

         Our objective is to be the leading provider of Internet banking
products and services to the small to mid-sized bank market and to create
Web-based financial destinations for the millions of banking customers in that
market. To achieve our objective, we intend to:

         Capitalize on Exclusive, Strategic Marketing Alliances to Expand Base
of Client Banks. Primarily through our strategic marketing alliances with bank
core processors and other related service providers, we plan to increase the
number of banks offering the nFront products and services to their customers. We
have formed exclusive, five year relationships with many of the key core
processors and other providers of supporting technology to our target banking
market segment. We recently expanded our national sales force to pursue
additional sales opportunities through our strategic marketing relationships.

         Assist Client Banks in Converting their Customers to the nFront System.
A portion of our service fees are based on the conversion of our client banks'
customers to our system, as well as the number of their customers using our
system each month. We offer to client banks our marketing program and other
support services to promote conversion of their customers to our system. We are
currently expanding our marketing team to achieve this objective.

         Build Awareness of nFront's Brands. As our client banks develop their
positions as comprehensive financial destinations on the Web, we are positioning
the "nFront" brand to create broad market recognition of nFront as the leading
provider of solutions enabling banks to offer Internet banking, financial
services and financial destination sites. The nFront logo appears on our client
banks' Internet branches, further promoting the nFront name. In addition, we
plan to use our www.banking.com web site and increased advertising to promote
awareness of our products and services.

         Generate Incremental Revenue by Offering Additional Financial Products
and Services through the nFront System. We intend to generate incremental
revenue for ourselves and our client banks by providing additional products and
services to the client banks' customers through the nFront system. These
additional services may include, among others, insurance, brokerage and bill
presentment services. In addition to providing incremental revenue, these
products and services should enhance the client banks' positions as financial
destinations on the Web and improve customer retention for the banks.

         Continue to Enhance Our Products and Services. We believe our system
architecture serves as the foundation for our future position as a leader in the
Internet banking market for small to mid-sized banks. We have made and intend to
continue to make substantial investments to improve our core technologies to
enhance the functionality and performance of our products and services.

PRODUCTS AND SERVICES

         nFront offers products and services designed to enable banks to offer
complete branch banking services over the Internet to retail and commercial
customers. Our nHome product provides Internet banking services to a bank's
retail customers. Our nBusiness product provides these services to a bank's
commercial customers. We work closely with each of our client banks to design
the appearance of their Internet branches to achieve each bank's particular
branding objectives. The nFront Internet banking data center provides the
computers that operate as the web servers for the system, the communications
equipment, the data storage, retrieval and security software and hardware, as
well as the support personnel, necessary to operate each client bank's Internet
branch and connect each Internet branch to the bank's existing computer systems.

         Through our outsourcing model, our client banks purchase our products
as services, paying us on a monthly basis depending on the level of usage by
their customers. Pricing for our nHome and nBusiness products



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include an up-front implementation fee payable upon execution of the contract,
recurring monthly fees, transaction fees and fees for additional marketing and
support services.

    Products

         nHome. The nHome product provides a bank's retail customers a wide
array of branch banking services over the Internet. nHome was initially released
in November 1996. As of June 30, 1999, we had agreements with 163 banks to
provide the nHome product to their customers. With the nHome product, a bank's
retail customers can:

         -    open new accounts;

         -    access account summaries and histories;

         -    download account information to personal finance software, such as
              Intuit's Quicken or Microsoft's Money;

         -    receive electronic images of cleared checks;

         -    transfer funds;

         -    pay bills;

         -    manage pending transactions;

         -    generate custom reports;

         -    define event notifications;

         -    receive on-line customer support; and

         -    view a fully functional Internet banking demonstration.

         nHome also includes components used by the client bank to support the
Internet branch. These administrative components include the ability for the
client banks' customers and potential customers to submit account applications
in a secure environment. Also, the client bank can automatically generate email
responses to customer applications, update product interest rates and terms and
receive customer-specific marketing and data analysis.

         nBusiness. The nBusiness product provides to a bank's small business
customers comprehensive commercial banking services over the Internet. nBusiness
was initially released in March 1999 and as of June 30, 1999, there were 71
agreements with banks to provide the nBusiness product to their customers. The
product has been designed to enable the bank to generate additional fee revenue
by offering its commercial customers a broader array of commercial cash
management services than they currently offer. The nBusiness product provides
the bank the same administrative and support functions available in the nHome
product. With the nBusiness product, a bank's commercial customer receives the
functionality of the nHome product, plus, the customer can:

         -    debit customer accounts;

         -    issue stop payment orders;

         -    pay employees;

         -    create multiple user security profiles;



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         -    issue wire transfers;

         -    facilitate direct deposit; and

         -    initiate electronic tax payments.

    Services

         We provide the implementation services necessary to install our
products, "brand" the bank's Internet branch and integrate the nFront products
into the bank's core processing system. For a typical nHome installation, the
implementation period currently averages approximately three months.
Additionally, we provide the following marketing and support services to our
client banks:

         Client Bank Marketing Program. Our client bank marketing program offers
banks marketing campaigns aimed at converting existing bank customers to the
nFront system and acquiring new customers. The program consists of several
separate pre-designed segments from which the bank can choose. Each segment is
complete with "camera ready" collateral marketing material as well as media
campaign strategies. We may print and produce the materials at an additional
cost or the bank may choose a local vendor to print and produce the materials.

         Employee Education Program. The Employee Education Program is a
training program designed to help client banks train their employees on the
benefits of the nFront system and Internet banking. nFront typically conducts
training at the client bank. Training covers topics such as connecting to and
navigating the Web, Internet banking, Internet security, email and related
topics. nFront can employ a "train-the-trainer" approach or train the client's
front line staff. The program includes leaders' guides and participants' kits.

         Marketing Consulting Services. We also offer customized consulting
services for those banks with specific marketing and training needs. These
services include competitive analyses, performance reporting, product
recommendations and service and support recommendations. Consulting projects are
priced on a time and materials basis.

INTERNET BANKING DATA CENTER

         All of our client bank Internet branches are hosted and processed in
our Internet banking data center. The data center contains the computers that
operate as the web servers for the system, the communications equipment, the
data storage, retrieval and security software and hardware, as well as the
support personnel, necessary to operate each client bank's Internet branch and
connect each Internet branch to the client bank's existing computer systems. The
data center communicates with a client bank by transferring the data directly
from the client bank's core system to our servers in the data center utilizing
direct data connections and a workstation running at the client bank.

         Our data center provides a controlled access environment that includes
a high capacity battery backup system. The battery backup system provides
continuous power to all production systems including servers, monitors,
telecommunications equipment, and employee workstations. In addition, a diesel
power generator provides backup power to our entire facility in the event of an
extended power outage. We have recently entered into an agreement with Exodus
Communications that provides us with a redundant data center, which will allow
us to continue to provide service in the event of a catastrophic loss of our
primary data center. We expect this redundant data center to be operational by
October 31, 1999.

STRATEGIC MARKETING ALLIANCES

         When evaluating Internet banking solutions, banks usually focus on the
ease of interface between their existing core banking software and the Internet
banking software. Core banking software is the central software within a bank
that processes information concerning banking transactions such as deposits and
withdrawals. The link between the core banking software and the Internet banking
software allows for the transfer of transactional



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data between both software systems. We have formed strategic marketing alliances
with vendors of core banking software and outsourced data processing services
who market our products exclusively to their customer base. These relationships
are typically for a five year period, and we pay commissions to the companies
with which we have strategic marketing alliances. These commissions typically
range from 10% to 40% of the implementation fees and portions of the monthly
service fees charged by nFront, though one agreement provides for a commission
of 50% on the implementation fees. Generally we do not pay commissions on
transactional fees such as bill payment or funds transfers. In addition, we have
developed interfaces to the software systems of each of the companies with which
we have strategic marketing alliances. Our alliances with core processors
include BISYS, BancTec, Sparak and First Commerce Technologies.

         BISYS. We have a five-year marketing agreement with BISYS which began
in April 1998, with automatic renewals for successive five-year terms unless
terminated by either party prior to renewal. BISYS, which provides transaction
processing and other administrative and computer processing services to banks
and financial institutions, offers our products to its customer base. Subject to
some restrictions, BISYS agrees to use its best efforts not to distribute other
Internet banking solutions. BISYS is entitled to retain a portion of the fees
collected on implementation and monthly service on the nFront System.

         BancTec USA, Inc. We have two five-year marketing agreements with
BancTec which began in January 1999 and March 1999, respectively, with automatic
renewals for successive five-year terms unless terminated by either party prior
to renewal. BancTec, which provides transaction processing and other
administrative and computer services to banks and financial institutions, offers
our products to its customers and to its potential bank customers. Subject to
some restrictions, BancTec has agreed that nFront will be its premier provider
of Internet banking solutions to its customers. We pay to BancTec commissions on
the implementation fees and monthly service fees we receive from their
customers.

         Sparak. We have a five-year marketing agreement with Sparak which began
in July 1997, with automatic renewals for successive five-year terms unless
terminated by either party prior to renewal. Sparak, which provides transaction
processing and other administrative and computer processing services to banks
and financial institutions, offers our nHome system to its customer base and to
potential bank customers. Sparak has exclusive rights to market nHome to its
customer base and nonexclusive rights with respect to potential bank customers.
We pay to Sparak commissions on the implementation fees and monthly service fees
we receive from their customers.

         First Commerce Technologies. We have a five-year marketing agreement
with First Commerce Technologies which began in July 1997, with automatic
renewals for successive five-year terms unless terminated by either party prior
to renewal. First Commerce Technologies, which provides transaction processing
and other administrative and computer processing services to banks and financial
institutions, offers our products to its customers and its potential bank
customers. Subject to some restrictions, First Commerce Technologies agrees to
use its best efforts not to distribute other Internet banking solutions. We pay
to First Commerce Technologies commissions on the implementation fees and
monthly service fees we receive from their customers.

         We also have exclusive marketing alliances with other banking
technology providers such as BISYS Document Solutions, a bank check imaging
company, and Southern Data Systems, a bank platform automation company.

SALES

         nFront utilizes a direct sales force that works closely with the
national sales forces of each of the companies with which we have strategic
marketing alliances to capitalize on their existing relationships within the
banking community to promote nFront's products and services. Many of nFront's
sales representatives are teamed with and assigned a strategic marketing
relationship customer base on which to focus. The strategic marketing alliance
sales representatives identify banks that are interested in purchasing an
Internet banking solution, qualify the customer and then pass the qualified lead
to the nFront sales person. The nFront sales person manages the sales effort,
provides a demonstration of the products and negotiates and closes the sale. The
nFront sales representative continues to leverage the relationship throughout
the sales process and continues to work jointly with the strategic



                                       10
<PAGE>   11

marketing alliance sales representative. We compensate both our sales
representatives and companies with which we have strategic marketing alliances
with commissions.

         In addition to sales representatives focused on the strategic marketing
alliances, nFront also has sales representatives that focus exclusively on
specific geographic territories as well as a sales representative that contacts
nFront client banks to explore sales of additional and complementary nFront
products and services. Since January 1, 1999, we have added 16 new sales
representatives, to bring the total to 17 at June 30, 1999.

         The typical sales cycle for nFront products is approximately 90 days.
We have recently implemented a sales force automation and customer relationship
management software system that will allow our sales force to view the complete
customer prospect listing, track progress in the sales cycle and report to
management sales progress, thereby facilitating a complete customer contact
program.

MARKETING

         We have achieved our historical growth with minimal marketing
expenditures. We have utilized or intend to utilize the following programs and
promotional activities to enhance our sales efforts:

         Advertising. We employ joint marketing efforts through our strategic
marketing alliances nationwide, and we advertise in financial publications,
trade magazines and financial industry directories. In addition, the nFront logo
appears on our client banks' Internet branches further promoting the nFront
name.

         Public Relations. We proactively pursue public relations opportunities
to build brand awareness for nFront and its products. We target traditional
print, syndicated news services and industry events with our public relations
programs. We participate actively in industry trade shows, both on our own and
jointly with companies with which we have strategic marketing alliances. To
date, participation in industry trade shows has been our primary means of
marketing.

         Direct Mail. We use direct mail to deliver our message to the key
decision makers at all targeted banks in the United States. Direct mail
campaigns will often be co-branded with the companies with which we have
strategic marketing alliances.

         Telemarketing. To support our direct mail campaigns and advertising, we
utilize telemarketing to target decision makers at community banks. We also use
telemarketing to pre-qualify Internet banking leads as well as to sell
additional products and services to existing nFront clients.

PRODUCT DEVELOPMENT

         Our product development efforts focus on enhancing current product
functionality and adding new products to the nFront product line. We will
continue to develop real time interfaces, check imaging, bill payment and bill
presentment interfaces to the systems of companies with which we have strategic
marketing alliances. New functionality planned for nHome includes on-line
brokerage, deposit imaging, statement imaging, bill presentment and credit
scoring. New functionality planned for nBusiness includes Internet payroll,
managerial graphing capability, electronic data interchange functionality and
other business applications.

         Our product development strategy includes clear definition and
separation of responsibilities. We approach each development effort using the
same fundamental set of guidelines and standards. The development process also
allows for feedback from nFront's client banks and from internal resources as
defined milestones are reached. nFront uses the rapid application development,
or RAD, technique in order to manage product development cycles to attempt to
keep pace with rapid changes in technology.



                                       11
<PAGE>   12

CLIENT BANKS

         Our target market is the approximately 10,000 small to mid-sized banks
in the United States. As of June 30, 1999, we had 163 client banks, of which 111
had completed implementation and were operating an Internet branch. The average
asset size of our client banks as of that date was $490 million.

         For the fiscal year ended June 30, 1999, no individual client bank
accounted for 10% of our total revenues, although client banks sold and billed
through the BISYS strategic marketing alliance represented 29% of our revenue
for that period. One client bank, First Commerce Bank, accounted for 14% of our
total revenues in the fiscal year ended June 30, 1998 and for 57% of our total
revenues for the period from June 17, 1996 (inception) through June 30, 1997.

COMPETITION

         The Internet technology, financial services and secure network
communication industries all represent dynamic and competitive markets. We
continue to expect competition to intensify in the future, especially with
respect to Internet financial service products. Because of the diverse and
changing competitive marketplace in the financial services industry and for
Internet related products and services, there can be no assurance that we have
identified or considered all possible present and future competitors or that the
discussion set forth below represents a complete coverage of competition.

         We believe that we face two basic levels of competition in our market.
The first is competition from companies offering competitive Internet banking
solutions to banks. The second is competition which our client banks face in
providing Internet-based financial products and services to their customer base.

         We believe that the principal competitive factors in our market are
industry trust, technical capabilities, operating effectiveness, cost and
scalability, customer service, security, speed to market, and capital. Many of
our competitors have the financial, technical and marketing resources, plus
established industry relationships, to better compete based on these factors.
Competitive pressures we face may have a material adverse effect on our
business, financial condition or operating results.

         The market for on-line banking and financial software and services is
competitive, rapidly evolving and subject to technological change. With the
continued development of the Internet as an alternative means of delivering
financial services, we expect competition to intensify. Principal competitors
currently include software companies that provide comprehensive in-house
software and Internet integration tools for on-line banking and brokerage
solutions and outsourcing companies that provide similar product functionality
to different target markets.

         With respect to solution providers in competition with us, while we
believe no other company delivers comprehensive, outsourced Internet products
and services to banks in our target market, there are a number of companies that
have similar products and services such as Digital Insight, Edify, Netzee,
FundsXpress, Q-UP, First Data Direct Banking and Security First Technologies.
However, many of our current and potential competitors have longer operating
histories, greater name recognition, larger customer bases and significantly
greater financial, technical and marketing resources.

         We also believe that the competitive forces facing us include the
various competitive alternative approaches for Internet banking solutions, such
as thin servers; fat clients (personal financial management software) and
in-house development. Each of these alternatives competes with our fat server,
outsourced solution.

         In providing Internet banking solutions to their customers, our client
banks face competition not only from other banks, but also from non-bank
financial institutions, such as brokerage firms and on-line service providers
such as E*TRADE, Intuit's Quicken.com and Yahoo! Finance.



                                       12
<PAGE>   13

GOVERNMENT REGULATION

         We are not licensed by the Office of the Comptroller of the Currency,
the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Office
of Thrift Supervision, the National Credit Union Association or other Federal or
state agencies that regulate or monitor banks or other types of providers of
financial electronic commerce services. Federal, state or foreign agencies may
attempt to regulate our activities. Congress could enact legislation that would
require us to comply with data, record keeping, processing and other
requirements. We may be subject to additional regulation as the market for our
business continues to evolve. For example, Regulation E, which is promulgated by
the Federal Reserve Board, governs electronic fund transfers made by regulated
financial institutions and providers of access devices and electronic fund
transfer services, including many aspects of our services. Under Regulation E,
our client banks are required, among other things, to provide disclosure to
retail customers, to comply with notification periods regarding changes in the
terms of service provided and to follow specified procedures for dispute
resolutions. The Federal Reserve Board may adopt new rules and regulations for
electronic funds transfers that could lead to increased operating costs and
could also reduce the convenience and functionality of our services, possibly
resulting in reduced market acceptance. Because of the growth in the electronic
commerce market, Congress has held hearings on whether to regulate providers of
services and transactions in the electronic commerce market, and Federal or
state authorities could enact laws, rules or regulations affecting our business
operations. We also may be subject to Federal, state and foreign money
transmitter laws, encryption and security export laws and regulations and state
and foreign sales and use tax laws. If enacted or deemed applicable to us, these
laws, rules or regulations could be imposed on our activities or our business
thereby rendering our business or operations more costly, burdensome, less
efficient or impossible, any of which could have a material adverse effect on
our business, financial condition and operating results.

         The market we currently target, the financial services industry, is
subject to extensive and complex Federal and state regulation. Our current and
prospective clients, which consist primarily of commercial banks and thrifts,
operate in markets that are subject to extensive and complex Federal and state
regulations and oversight. While we are not directly subject to these
regulations, our services and related products must be designed to work within
the extensive and evolving regulatory constraints in which our clients operate.
These constraints include Federal and state truth-in-lending disclosure rules,
state usury laws, the Equal Credit Opportunity Act, the Electronic Funds
Transfer Act, the Fair Credit Reporting Act, Bank Secrecy Act and the Community
Reinvestment Act. Because many of these regulations were promulgated before the
development of our solution, the application of these regulations to our
solution must be determined on a case by case basis. We do not make
representations to client banks regarding the applicable regulatory
requirements, but instead rely on each bank making its own assessment of the
applicable regulatory provisions in deciding whether to become a client bank.
Furthermore, some consumer groups have expressed concern regarding the privacy,
security and interchange pricing of financial electronic commerce services. It
is possible that one or more states or the federal government may adopt laws or
regulations applicable to the delivery of financial electronic commerce services
in order to address these or other privacy concerns. It is not possible to
predict the impact that any of these regulations could have on our business.

         We currently offer services on the Internet. Due to the increasing
popularity of the Internet, it is possible that laws and regulations may be
enacted with respect to the Internet, covering issues such as user privacy,
pricing, content, characteristics and quality of services and products. The
adoption of any of these laws or regulations may limit the growth of the
Internet, which could affect our ability to utilize the Internet to deliver
banking and other financial electronic commerce services.





                                       13
<PAGE>   14

INTELLECTUAL PROPERTY

         Our success will be heavily dependent upon proprietary technology. We
rely primarily on a combination of patent, copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions to protect our
proprietary rights. These laws, procedures and contracts provide only limited
protection. We have applied for the federal registration of service marks for
"nFront," "nHome" and "nBusiness." We have also registered the domain names
"banking.com" and "nFront.com." Despite the precautions that we take, it may be
possible for unauthorized third parties to copy aspects of our current or future
products or to obtain and use information that we regard as proprietary. The
means we employ to protect our proprietary rights may not be adequate.
Additionally, our competitors may independently develop similar or superior
technology. Policing unauthorized use of software is difficult and some foreign
laws do not protect nFront's proprietary rights to the same extent as United
States laws. Litigation may be necessary in the future to enforce our
intellectual property rights, to protect our trade secrets or to determine the
validity and scope of the proprietary rights of others. Litigation could result
in substantial costs and diversion of our resources and could materially
adversely affect our business, operating results, and financial condition.

EMPLOYEES

         As of June 30, 1999, we had 95 employees. We have never had a work
stoppage and none of our employees are represented under collective bargaining
agreements. We consider our employee relations to be good.


ITEM 2.           PROPERTIES.

         Our Internet banking data center and administrative, sales, marketing
and development facilities are located in Norcross, Georgia, in approximately
13,800 square feet of office space being leased to us through August 1, 2003,
and an additional 5,000 square feet of office space that is being subleased
through November 30, 1999. In addition, we lease approximately 1,000 square feet
in a facility in Bogart, Georgia, which serves as a location for many of our
graphic designers. We are in the process of searching for new office space in
order to relocate our corporate offices from the two Norcross facilities into
one facility within the next six months.


ITEM 3.           LEGAL PROCEEDINGS.

         The Company is not a party to any material legal proceeding. From time
to time, the Company is involved in various routine legal proceedings incidental
to the conduct of its business.


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

         Action was taken by unanimous written consent of the shareholders as of
May 25, 1999 to:

         -        amend the Amended and Restated Articles of Incorporation to
                  increase the authorized capital stock of nFront to 80,000,000
                  shares, consisting of 70,000,000 shares of common stock and
                  10,000,000 shares of preferred stock;

         -        adopt the nFront Stock Incentive Plan, increasing the total
                  number of shares reserved pursuant to the Plan to 826,000
                  shares and providing for the automatic adjustment of the total
                  number of shares reserved for issuance under the Plan to be
                  adjusted on the first day of each fiscal year, beginning with
                  the 2000 fiscal year through the fiscal year ending June 30,
                  2004; and

         -        to adopt the nFront Director Stock Option Plan.



                                       14
<PAGE>   15

         Action was taken by unanimous written consent of the shareholders as of
June 22, 1999 to:

         -        adopt the nFront Employee Stock Purchase Plan; and

         -        amend the Stock Incentive Plan to revise the percentage of the
                  automatic annual increase in the number of shares authorized
                  thereunder from one and one-half percent (1.50%) of the total
                  outstanding shares of common stock to one and one-quarter
                  (1.25%); and

         -        approve the classification of the Board of Directors into
                  three classes with members serving for staggered three-year
                  terms and approval of the nominees for each of the classes.


ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

         The executive officers of nFront and certain information about them are
as follows:

<TABLE>
<CAPTION>
                         NAME                         AGE              POSITION
              ----------------------------            ---   --------------------------------------------
              <S>                                     <C>   <C>
              Brady L. "Tripp" Rackley III........    28    Chairman of the Board of Directors and Chief
                                                            Executive Officer
              Robert L. Campbell..................    48    President, Chief Operating Officer and
                                                            Director
              Jeffrey W. Hodges...................    33    Chief Financial Officer and Secretary
              Vincent R. Brennan..................    36    Senior Vice President -- Sales
              Steven S. Neel......................    29    Senior Vice President -- Operations
</TABLE>

         Brady L. "Tripp" Rackley III, founder of nFront, has served as Chairman
of the Board and Chief Executive Officer of nFront since its inception in 1996.
Prior to forming nFront, Mr. Rackley served as Chief Operating Officer of
LeapFrog Technologies, Inc., a software development company, from October 1995
until February 1996, and as Vice President -- Development of Systeme Corp., a
software development company, from December 1992 until September 1995. Mr.
Rackley received an Industrial Engineering degree from the Georgia Institute of
Technology and has post-graduate studies in business and human computer
interface from the University of Central Florida. Mr. Rackley is also a member
of the board of the Alexander-Tharpe Foundation, Inc. Mr. Rackley is the son of
Brady L. Rackley.

         Robert L. Campbell has served as President and Chief Operating Officer
of nFront since July 1998 and as a Director since September 1998. Prior to
joining nFront, Mr. Campbell worked as an independent consultant for Campbell
and Associates from January to July 1998. Mr. Campbell served as President of
Insight Management, a professional services business, from January 1997 until
November 1997. Mr. Campbell served as President and Chief Executive Officer of
Servantis Systems, Inc., a banking and electronic commerce software and services
firm from July 1993 until the company's acquisition by CheckFree Corp. in March
1996. Mr. Campbell received a Bachelor of Science Degree and a Masters of
Business Administration from the University of Tennessee.

         Jeffrey W. Hodges has served as Chief Financial Officer of nFront since
November 1998 and was elected Secretary in April 1999. Prior to joining nFront,
Mr. Hodges served as Vice President -- Controller of Powertel, Inc., a public
wireless telecommunications provider, from June 1995 until November 1998. From
December 1988 until June 1995, Mr. Hodges served as an auditor at Arthur
Andersen, LLP, an independent accounting firm, serving most recently as Audit
Manager from 1992 to 1995. Mr. Hodges is a graduate of Auburn University with a
degree in accounting and is a Certified Public Accountant.

         Vincent R. Brennan has served as Senior Vice President -- Sales of
nFront since March 1999 and is responsible for growing and managing nFront's
sales. From September 1998 until March 1999, Mr. Brennan served as Senior Vice
President -- Sales and Marketing of nFront. Prior to joining nFront, Mr. Brennan
was employed by John H. Harland Co. from June 1986 until September 1998, serving
as Senior Vice President -- Sales, managing the financial markets division from
December 1995 until September




                                       15
<PAGE>   16

1998 and as Vice President from April 1993 until December 1995. Mr. Brennan
received a Bachelor's degree in Business Administration from the University of
Connecticut.

         Steven S. Neel has served as Senior Vice President -- Operations of
nFront since July 1996 and is responsible for enhancing customer satisfaction by
implementing and supporting the nFront products and services. Prior to joining
nFront, Mr. Neel served as Vice President -- Implementations of LeapFrog
Technologies, Inc., a software development company, from October 1995 until July
1996. Prior to joining LeapFrog Technologies, Inc., Mr. Neel was a partner from
April 1993 until October 1995 in an Atlanta-based consulting firm where he
obtained experience in the financial services industry. Mr. Neel received a
Bachelor's degree in Management from the Georgia Institute of Technology.















                                       16
<PAGE>   17


                                     PART II

ITEM 5.           MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
                  MATTERS.

         The Company's Common Stock is traded on the Nasdaq National Market
under the symbol "NFNT." The price per share reflected in the table below
represents the range of low and high closing sale prices for the Company's
Common Stock as reported by the Nasdaq National Market for each of the quarters
since our initial public offering:

<TABLE>
<CAPTION>
                   FISCAL PERIOD                                       HIGH PRICE           LOW PRICE
       -------------------------------                                 ----------           ---------
       <S>                                                             <C>                  <C>
       1999
       From June 29, 1999 - June 30, 1999........................       $15.188              $13.50
       From July 1, 1999 - September 20, 1999....................       $23.688              $10.00
</TABLE>

         The closing sale price of our Common Stock as reported by the Nasdaq
National Market on September 20, 1999 was $12.375. The number of shareholders of
record of our Common Stock as of September 20, 1999 was 38.

         We do not intend to declare or pay cash dividends in the foreseeable
future. Our management anticipates that all of our earnings and other cash
resources, if any, will be retained by us for investment in our business.

                    CHANGES IN SECURITIES AND USE OF PROCEEDS

         On June 29, 1999, we commenced an initial public offering of our Common
Stock. The registration statement relating to this offering (File No. 333-76955)
was declared effective on June 28, 1999. Hambrecht & Quist, J.C. Bradford & Co.,
Raymond James & Associates, Inc. and SoundView Technology Group were the
managing underwriters of the offering. On July 2, 1999, we consummated the
offering. The number of shares registered, the aggregate price of the offering
amount registered, the amount sold and the aggregate offering price of the
shares were sold were as follows:

<TABLE>
<CAPTION>
              Shares of
               Common              Aggregate Price of                Amount of                 Aggregate Price
             Registered            Shares Registered                Shares Sold                of Shares Sold
             ----------            -----------------                -----------                --------------

             <S>                   <C>                              <C>                         <C>
              4,485,000               $44,850,000                    4,485,000                   $44,850,000
</TABLE>

         We incurred the following expenses with respect to the offering through
June 30, 1999:

<TABLE>
<CAPTION>
            Underwriting
              Discounts
                 And                               Underwriters'
             Commissions       Finders' Fees          Expenses           Other Expenses          Total Expenses
             -----------       -------------          --------           --------------          --------------
            <S>                <C>                 <C>                   <C>                     <C>
             $2,380,000             $0                   $0                 $936,000               $3,316,000
</TABLE>

         The net proceeds from the offering to us after deducting the foregoing
discounts, commissions, fees and expenses were $32.5 million. Approximately $1.1
million of the proceeds were used for the repayment of our long-term debt and
credit facility, approximately $4 million was used for capital expenditures
related to the Internet banking data center and for other general working
capital purposes. None of the foregoing expenses constituted direct or indirect
payments to our directors, officers, general partners or their associates or to
persons owning 10% or more of any class of our equity securities or to our
affiliates.




                                       17
<PAGE>   18


ITEM 6.           SELECTED FINANCIAL DATA.

         The following table sets forth our selected financial data and other
operating information. We derived the selected financial data from our financial
statements and related notes included in another part of this Annual Report on
Form 10-K. You should read the selected financial data together with our
financial statements and related notes and the section of the Annual Report on
Form 10-K entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations." Ernst & Young LLP, independent auditors, audited our
financial statements for the period from June 17, 1996 (inception) to June 30,
1997 and for the two years in the period ended June 30, 1999. Historical results
are not necessarily indicative of results to be expected in the future. See Note
11 of Notes to Financial Statements for an explanation of the determination of
the shares used in computing basic and diluted net income (loss) per common
share and unaudited pro forma net loss per share.

<TABLE>
<CAPTION>
                                                                          PERIOD FROM
                                                                         JUNE 17, 1996
                                                                          (INCEPTION)                 YEAR ENDED JUNE 30,
                                                                            THROUGH            -------------------------------
                                                                         JUNE 30, 1997             1998                 1999
                                                                         -------------             ----                 ----
<S>                                                                      <C>                   <C>                  <C>
 STATEMENT OF OPERATIONS DATA:
   Revenues:
    Implementation fees ...........................................        $   358,245         $    722,859         $ 3,158,904
    Monthly service fees ..........................................             34,263              185,283           1,446,092
    Other .........................................................            458,643              174,287             360,596
                                                                           -----------         ------------         -----------
      Total revenues ..............................................            851,151            1,082,429           4,965,592
   Operating expenses:
    Cost of implementation ........................................            246,544              346,054           1,073,484
    Cost of Internet banking data center ..........................             61,681               96,732             455,748
    Selling and marketing .........................................            194,450              568,928           3,170,714
    Product development ...........................................            106,429              170,419           1,173,696
    General and administrative ....................................            157,274              440,099           2,371,784
    Depreciation ..................................................             13,780               33,726             150,712
                                                                           -----------         ------------         -----------
      Total operating expenses ....................................            780,158            1,655,958           8,396,138
   Operating income (loss) ........................................             70,993             (573,529)         (3,430,546)
   Other (income) expense:
    Interest income ...............................................             (3,672)             (26,692)            (72,511)
    Interest expense ..............................................                 --                2,084              34,451
                                                                           -----------         ------------         -----------
   Income (loss) before income taxes ..............................             74,665             (548,921)         (3,392,486)
   Income tax expense (benefit) ...................................             25,925              (25,925)                 --
                                                                           -----------         ------------         -----------
   Net income (loss) ..............................................             48,740             (522,996)         (3,392,486)
   Accretion on redeemable convertible preferred stock ............                 --              (35,733)           (272,881)
                                                                           -----------         ------------         -----------
   Net income (loss) attributable to common stock .................        $    48,740         $   (558,729)        $(3,665,367)
                                                                           ===========         ============         ===========

   Net income (loss) per common share -- basic and diluted ........        $      0.01         $      (0.07)        $     (0.43)
                                                                           ===========         ============         ===========

   Weighted average shares outstanding -- basic and diluted .......          5,079,167            8,033,223           8,543,501
                                                                           ===========         ============         ===========

   Unaudited pro forma net loss per share -- basic and diluted ....                            $      (0.06)        $     (0.32)
                                                                                               ============         ===========
   Unaudited pro forma weighted average shares
     outstanding -- basic and diluted ..............................                              8,300,746          10,577,786
                                                                                               ============         ===========

OPERATING DATA (AT END OF PERIOD):
   Total client banks under contract ..............................                  6                   40                 163
   Total client banks implemented .................................                  2                   20                 111
   Total customers at client banks using our solution .............                  *                5,220              33,021
</TABLE>

----------

*   Information not available because prior to fiscal year ended June 30, 1998,
    nFront did not bill client banks on the basis of the total customers at
    client banks using the nFront solution.



                                       18
<PAGE>   19


<TABLE>
<CAPTION>
                                                                        AS OF JUNE 30,
                                                     ---------------------------------------------------
                                                         1997               1998               1999
                                                     -----------        -----------         ------------
<S>                                                  <C>                <C>                 <C>
BALANCE SHEET DATA:
  Cash and cash equivalents ..................        $ 243,525         $ 2,521,384         $   128,434
  Working capital (deficiency) ...............          (71,787)          1,957,205          (3,097,793)
  Total assets ...............................          402,345           2,998,128           5,095,226
  Long-term debt, net of current portion .....               --                  --             307,566
  Redeemable convertible preferred stock .....               --           2,375,561           2,648,442
    Total stockholders' equity (deficit) .....           49,240            (209,391)         (3,223,981)
</TABLE>






















                                       19
<PAGE>   20


ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                  AND RESULTS OF OPERATIONS.

         The following discussion should be read in conjunction with the
financial statements and related notes included elsewhere in this report. This
discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from the results
anticipated in these forward-looking statements as a result of factors
including, but not limited to, those under "Factors That May Affect Future
Results of Operations" below and elsewhere in this Report.

OVERVIEW

         nFront provides a comprehensive, outsourced solution that enables small
to mid-sized banks to offer their retail and commercial customers banking and
financial services through the Internet. nFront's products and services provide
bank-branded Internet applications to these banks, enabling the banks to offer
products, services and transactions over the Internet in a secure environment.
We were founded and incorporated in June 1996. From June 1996 through May 1997,
our principal activities consisted of developing our nHome product, recruiting
employees and raising capital. Our revenue during this period was generated
primarily through software licensing fees from our nHome product. In June 1997,
in response to the significant demand from small to mid-sized banks, we opened
our Internet banking data center and began focusing on providing our client
banks with a comprehensive outsourced Internet banking solution. In March 1999,
we released our nBusiness product, which is designed to meet the specific needs
of a bank's commercial customers. Our nHome product has been responsible for
generating most of our revenue to date.

         We derive revenue from multi-year service contracts under which our
client banks pay us the following fees:

         -    an up-front implementation fee for developing each client bank's
              uniquely branded web site;

         -    recurring fees based primarily on the number of customers of our
              client banks that use our products;

         -    transaction-based fees; and

         -    fees for materials and services provided to client banks to
              support their customer marketing efforts and to train their staff
              on how best to manage customers on the Internet branch.

         The implementation fee, which is billable to the client bank when the
contract is executed, is recognized as revenue over the implementation period,
which currently averages approximately three months. We record the unrecognized
portion of billable implementation fees as deferred revenue. Revenue from
monthly user fees and transaction fees are recognized monthly based on the
number of users with accounts on the bank's Internet branch at the end of the
month and the transactions occurring during the month. The service contracts
with the banks are typically five year exclusive agreements. The revenue from
marketing and training support materials and services is recognized at the time
the materials are delivered or the services are provided.

         We compensate both our sales representatives and companies with which
we have strategic marketing alliances with commissions. Sales representatives'
commissions are determined using a fixed commission schedule, which is based on
the total asset size of the applicable client bank sold and the product sold.
Commissions on sales from companies with which we have strategic marketing
alliances are paid in accordance with the contractually agreed upon commission
schedules in the respective contracts. These commissions, typically between 10%
and 40%, vary by relationship and are generally expressed as a percentage of the
up-front implementation fee and the monthly recurring fees.

         Our strategic marketing agreements stipulate that either nFront or the
company with which we have a strategic marketing alliance is responsible for
billing a client bank. In the event that nFront is responsible for billing the
client bank, we recognize the gross amount of revenue and record the sales
commission to the company with



                                       20
<PAGE>   21

which we have a strategic marketing alliance as a selling and marketing expense.
In the event that the company with which we have a strategic marketing alliance
is responsible for billing the client bank, that company remits an agreed upon
amount to us. Accordingly, we recognize the related revenue collected and no
sales commission expense is incurred.

         To date, the majority of our resources have been directed to creating
our nHome and nBusiness Internet banking products, building our Internet banking
data center, forming exclusive strategic marketing alliances, marketing our
products and building our sales and marketing team. As we have migrated from a
licensing fee structure to a structure based on recurring revenue generation, we
have incurred significant operating losses since September 30, 1997. Our
strategy is to rapidly expand our base of client banks, assist these banks in
promoting the use of the nFront system by their customers and increase the
retail and commercial banking communities' awareness and acceptance of the
nFront solution. We anticipate that our operating expenses will increase
substantially in future periods as we increase our sales force, significantly
increase our marketing and branding efforts, continue to develop new
distribution channels, fund greater levels of product development and expand our
support staff and facilities to facilitate our anticipated growth. Accordingly,
we expect to incur additional losses in future periods.

RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                       PERIOD FROM
                                                      JUNE 17, 1996
                                                       (INCEPTION)              YEAR ENDED JUNE 30,
                                                         THROUGH        --------------------------------
                                                      JUNE 30, 1997          1998                1999
                                                      -------------     -------------        ------------
<S>                                                   <C>               <C>                 <C>
STATEMENT OF OPERATIONS DATA:
  Revenues:
     Implementation fees .......................        $ 358,245         $   722,859         $ 3,158,904
     Monthly service fees ......................           34,263             185,283           1,446,092
     Other .....................................          458,643             174,287             360,596
                                                        ---------         -----------         -----------
       Total revenues ..........................          851,151           1,082,429           4,965,592
  Operating expenses:
     Cost of implementation ....................          246,544             346,054           1,073,484
     Cost of Internet banking data center ......           61,681              96,732             455,748
     Selling and marketing .....................          194,450             568,928           3,170,714
     Product development .......................          106,429             170,419           1,173,696
     General and administrative ................          157,274             440,099           2,371,784
     Depreciation ..............................           13,780              33,726             150,712
                                                        ---------         -----------         -----------
       Total operating expenses ................          780,158           1,655,958           8,396,138
  Operating income (loss) ......................           70,993            (573,529)         (3,430,546)
  Other (income) expense:
     Interest income ...........................           (3,672)            (26,692)            (72,511)
     Interest expense ..........................               --               2,084              34,451
                                                        ---------         -----------         -----------
  Income (loss) before income  taxes ...........           74,665            (548,921)         (3,392,486)
  Income tax expense (benefit) .................           25,925             (25,925)                 --
                                                        ---------         -----------         -----------
  Net income (loss) ............................        $  48,740         $  (522,996)        $(3,392,486)
                                                        =========         ===========         ===========
</TABLE>

FISCAL YEAR ENDED JUNE 30, 1999 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1998

         Revenues

         Implementation Fees. Implementation fees represent fees generated from
developing the client banks' uniquely branded web sites. Implementation fees
increased from $723,000 during fiscal 1998 to $3.2 million in fiscal 1999. This
increase was attributable to an increase in the number of new banks purchasing
the nFront solution, from 34 banks purchasing our solution during fiscal 1998 to
123 banks during fiscal 1999. The increase in banks purchasing our Internet
banking solution reflects increased client bank acceptance of Internet banking
as well as continued development of our products and services and an increase in
our sales force from one individual at June 30, 1998 to a team of 17 sales
representatives at June 30, 1999. Additionally, we introduced our nBusiness
product in March 1999.



                                       21
<PAGE>   22

         Monthly Service Fees. Monthly service fees consist of the monthly fees
charged to our client banks based primarily on the number of bank customers with
accounts on the system and the volume of transactions such as bill payment, fund
transfers and check imaging. These fees increased from $185,000 in fiscal 1998
to $1.4 million in fiscal 1999. This increase is attributable to the increase in
customers at our client banks utilizing the nFront system from approximately
5,200 at June 30, 1998 to approximately 33,000 at June 30, 1999.

         Other. Other revenue consists of the fees charged to our client banks
for materials and services to support marketing and training efforts as well as
other non-recurring fees, including fees for custom web site development. These
revenues increased from $174,000 in fiscal 1998 to $361,000 in fiscal 1999
primarily because of increased sales of our marketing materials.

         Expenses

         Cost of Implementation. Cost of implementation consists primarily of
salaries and wages and facilities costs directly attributable to the
implementation process. Cost of implementation increased from $346,000 in fiscal
1998 to $1.1 million in fiscal 1999. This increase reflects the significant
growth in personnel required to accommodate the increase in new banks purchasing
our solution.

         Cost of Internet Banking Data Center. Cost of Internet banking data
center consists primarily of salaries and wages and communications costs
required to operate the Internet banking data center. These costs increased from
$97,000 in fiscal 1998 to $456,000 in fiscal 1999 to support the significant
growth in the number of client banks and those banks' customers utilizing the
nFront system.

         Selling and Marketing. Selling and marketing expenses consist primarily
of salaries and wages, sales commissions, advertising, travel, public relations
and marketing materials and tradeshow costs. Sales and marketing expenses
increased from $569,000 in fiscal 1998 to $3.2 million in fiscal 1999. The
increase reflects the expansion of our sales force and a substantial increase in
sales commissions paid to our sales representatives and companies with which we
have strategic marketing alliances due to our increased sales as well as
increased marketing efforts designed to increase the number of our client banks'
customers utilizing the nFront system. We believe that these expenses will
increase significantly in the future as we continue to expand our sales force
and increase our marketing and advertising efforts.

         Product Development. Product development expenses consist primarily of
salaries and wages costs. Product development expenses increased from $170,000
in fiscal 1998 to $1.2 million in fiscal 1999. This increase reflects the
increase in technical personnel to support the continued development of our
nHome product and the development of our new nBusiness product, which was
released in March 1999.

         General and Administrative. General and administrative expenses consist
primarily of salaries and wages and other related costs for operations and
executive employees, professional fees and facilities-related expenses. General
and administrative expenses increased from $440,000 in fiscal 1998 to $2.4
million in fiscal 1999. This increase is attributable to an increase in
personnel and facilities expenses necessary to support our expanded operations.

         Depreciation. Depreciation expense increased from $34,000 in fiscal
1998 to $151,000 in fiscal 1999 primarily as a result of depreciation of new
computer equipment associated with the growth of the Internet banking data
center as well as depreciation of our enhanced administrative systems. During
fiscal 1999, we added new sales automation, customer support and accounting
systems.

         Interest Income. Interest income increased from $27,000 in fiscal 1998
to $73,000 in fiscal 1999 as a result of interest earned on cash balances during
the period. We raised approximately $2.8 million in proceeds from private equity
offerings from May 1998 to September 1998.

         Interest Expense. Interest expense increased from $2,000 in fiscal 1998
to $34,000 in fiscal 1999 as a result of borrowings under our line of credit
facility with Silicon Valley Bank. This line of credit was executed in



                                       22
<PAGE>   23

August 1998. Borrowings under this facility were repaid in June 1999 and
replaced with a credit facility with NationsBank, which was subsequently repaid
in July 1999 using proceeds obtained from the Company's initial public stock
offering.

         Income Taxes. As of June 30, 1999, we had approximately $4.0 million of
federal net operating loss carryforwards, which begin expiring in 2013.
Utilization of these net operating loss carryforwards could become subject to
annual limitation due to "change of ownership" provisions of the Internal
Revenue Code and similar state provisions. For financial reporting purposes, a
valuation allowance has been recognized to reduce net deferred tax assets to
zero due to uncertainties with respect to nFront's ability to realize the
benefit of net deferred income tax assets.

FISCAL YEAR ENDED JUNE 30, 1998 COMPARED TO THE PERIOD FROM JUNE 17, 1996
(INCEPTION) THROUGH JUNE 30, 1997

         Revenues

         Implementation Fees. Implementation fees increased from $358,000 in the
period ended June 30, 1997 to $723,000 in fiscal 1998. This increase was
attributable to the fact that only six new client banks purchased the nFront
solution during the period ended June 30, 1997 while 34 banks purchased the
nFront solution during fiscal 1998. This increase was partially offset during
fiscal 1998 by the modification of our pricing structure to lower the up-front
charges to the client bank and establish recurring monthly service fees as well
as other transaction-based fees.

         Monthly Service Fees. Monthly service fees increased from $34,000 in
the period ended June 30, 1997 to $185,000 in fiscal 1998 as a result of the
increase in the number of client bank customers using nFront's products.

         Other. Other revenue decreased from $459,000 in the period ended June
30, 1997 to $174,000 in fiscal 1998. This decrease is primarily attributable to
one-time revenue generated from a customized project performed for one client
bank in the period ended June 30, 1997.

         Expenses

         Cost of Implementation. Cost of implementation increased from $247,000
in the period ended June 30, 1997 to $346,000 in fiscal 1998. This increase is
attributable to the increase in client banks sold from six in the period ended
June 30, 1997 to 34 in fiscal 1998.

         Cost of Internet Banking Data Center. Cost of Internet banking data
center increased from $62,000 in the period ended June 30, 1997 to $97,000 in
1998. These costs increased to support the significant growth in the number of
client banks and these banks' customers utilizing the nFront system.

         Selling and Marketing. Selling and marketing expenses increased from
$194,000 in the period ended June 30, 1997 to $569,000 in fiscal 1998. This
increase was due primarily to a substantial increase in sales commissions due to
our increased sales.

         Product Development. Product development expenses increased from
$106,000 in the period ended June 30, 1997 to $170,000 in fiscal 1998. This
increase reflects the increase in technical personnel to support the continued
development of our nHome product.

         General and Administrative. General and administrative expenses
increased from $157,000 in the period ended June 30, 1997 to $440,000 in fiscal
1998. This increase is attributable to an increase in personnel and facilities
expenses necessary to support our expanded operations.



                                       23
<PAGE>   24

         Depreciation. Depreciation expense increased from $14,000 in the period
ended June 30, 1997 to $34,000 in fiscal 1998 primarily as a result of
depreciation of new computer equipment associated with the growth of the
Internet banking data center.

         Interest Income. Interest income increased from $4,000 in the period
ended June 30, 1997 to $27,000 in fiscal 1998 as a result of interest earned on
cash balances during the period. This increase is due primarily to interest
earned on the investment pending use of the private equity offering proceeds
received during fiscal 1998.

QUARTERLY RESULTS OF OPERATIONS

         The following table presents unaudited quarterly financial information
for each of the quarters during the fiscal years ended June 30, 1998 and 1999.
In the opinion of management, this information has been prepared on the same
basis as the audited financial statements and includes all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly the
unaudited quarterly results included in this Report. We expect to continue to
experience fluctuations in our quarterly operating results. Our quarterly
results have in the past been subject to fluctuations and, therefore, the
operating results for any quarter or quarters are not necessarily indicative of
results for any future period. The quarterly results should be read in
conjunction with our financial statements and related notes appearing elsewhere
in this Report.



<TABLE>
<CAPTION>
                                                                      QUARTER ENDED
                          ---------------------------------------------------------------------------------------------------------
                           SEPTEMBER 30, DECEMBER 31, MARCH 31,   JUNE 30,   SEPTEMBER 30,  DECEMBER 31,    MARCH 31,    JUNE 30,
                               1997        1997        1998        1998          1998          1998           1999         1999
                             --------    --------    --------    ---------    ----------    ----------    -----------   -----------
<S>                       <C>           <C>          <C>         <C>        <C>            <C>            <C>           <C>
Revenues:
  Implementation fees ...... $217,313    $134,500    $229,562    $ 141,484    $  481,677    $  730,171    $   516,331   $ 1,430,725
  Monthly service fees .....   28,517      28,603      45,809       82,354       132,706       363,243        396,867       553,276
  Other ....................   39,982      98,325      11,099       24,881        12,014       105,559         96,522       146,501
                             --------    --------    --------    ---------    ----------    ----------    -----------   -----------
   Total revenues ..........  285,812     261,428     286,470      248,719       626,397     1,198,973      1,009,720     2,130,502
Operating expenses:
  Cost of implementation ...   31,414      50,635      50,701      213,304       211,823       219,186        266,532       375,943
  Cost of Internet banking
    data center ............   29,587      14,256      21,255       31,634        47,085        94,826         72,039       241,798
  Selling and marketing ....   29,481      52,191     107,593      379,663       260,471       428,366        774,106     1,707,771
  Product development ......   32,786      41,267      35,111       61,255       146,881       226,610        412,299       387,906
  General and
    administrative .........   82,350      92,242     130,596      134,911       363,640       464,646        617,195       926,303
  Depreciation .............    6,642       7,886       8,612       10,586        16,048        25,977         40,868        67,819
                             --------    --------    --------    ---------    ----------    ----------    -----------   -----------
   Total operating
     expenses ..............  212,260     258,477     353,868      831,353     1,045,948     1,459,611      2,183,039     3,707,540
Operating income (loss) ....   73,552       2,951     (67,398)    (582,634)     (419,551)     (260,638)    (1,173,319)   (1,577,038)
Other (income) expense:
  Interest income ..........   (1,220)       (985)     (1,711)     (22,776)      (26,186)      (20,126)       (17,124)       (9,075)
  Interest expense .........       --         665       1,249          170           518         8,233          9,324        16,376
                             --------    --------    --------    ---------    ----------    ----------    -----------   -----------
  Income (loss) before
    income taxes ...........   74,772       3,271     (66,936)    (560,028)     (393,883)     (248,745)    (1,165,519)   (1,584,339)
  Income tax expense
    (benefit) ..............   13,459         589     (12,048)     (27,925)           --            --             --            --
                             --------    --------    --------    ---------    ----------    ----------    -----------   -----------
Net income (loss) .......... $ 61,313    $  2,682    $(54,888)   $(532,103)   $ (393,883)   $ (248,745)   $(1,165,519)  $(1,584,339)
                             ========    ========    ========    =========    ==========    ==========    ===========   ===========
</TABLE>


         The fluctuation in implementation fee revenue in the quarters ended
September 30, 1997, December 31, 1997 and March 31, 1998 reflects the
unpredictability of client bank sales in the early stages of our business. The
decrease in implementation fee revenue and the corresponding increase in other
fees during the quarter ended June 30, 1998 reflects our significant decrease in
the standard up-front implementation fee resulting from our migration from a
licensing fee structure to a structure based on recurring revenue generation.
The decrease in implementation fee revenue during the quarter ended March 31,
1999 reflects a decrease in the number of new banks purchasing nFront products
and services in December 1998 and January 1999 as compared to the previous
quarter and the resulting reduction in revenue recognized over the three month
implementation periods. The relatively slower growth in monthly service fees
during the same quarter also reflects a decrease in the number of new banks
purchasing nFront products and services in December 1998 and January 1999. Our
sales have historically decreased in December. Additionally, our focus on
building the sales team contributed to slower sales in January 1999. The
increase in implementation fee revenue and other revenue during the quarter
ended June 30, 1999 reflects strong sales results over the March through June
1999 period, due to the hiring of the sales team which



                                       24
<PAGE>   25

began in December 1998. Additionally, a marketing campaign that took place
during the quarter ended June 30, 1999 contributed to the increased monthly
service fees recognized during this quarter as new bank customers were added to
the system.

         The increase in cost of implementation during the quarter ended June
30, 1998 reflects an increase in one-time set up costs to establish our bill
payment interfaces. The increase in the cost of the Internet banking data center
during the quarter ended June 30, 1999 reflects the increased number of banks
utilizing the system coupled with the additional payroll related costs needed to
support the data center operations. The increase in selling and marketing
expenses during the quarter ended June 30, 1998 reflects a one-time
contractually agreed upon fee paid to a client bank. The increase during the
quarter ended June 30, 1999 reflects the increase in salaries and benefits paid
for our sales team along with increased commissions paid on sales during the
quarter. Also contributing to the increased 1999 expense are marketing costs
incurred in connection with the campaign to increase our client banks' customers
that utilize the system.

         Our revenues and operating results are likely to vary significantly
from quarter to quarter in the future due to a number of factors, many of which
are outside of our control. These factors include: our ability to sell our
products and services to banks; our client banks' abilities to convert their
customers to Internet banking; services or products introduced by us or by our
competitors; the timing and uncertainty of sales cycles; seasonal declines in
sales, which typically occur in the fourth calendar quarter; the level of
Internet usage; our ability to attract, integrate and retain qualified
personnel; our ability to successfully integrate operations and technologies
from acquisitions or other business combinations; technical difficulties or
system downtime affecting the Internet generally or the operation of our client
banks' web sites; and general economic conditions, as well as economic
conditions specific to the banking and financial services industries.

LIQUIDITY AND CAPITAL RESOURCES

         Through June 30, 1999, we have raised approximately $4.4 million of
capital, consisting of $2.3 million of redeemable convertible preferred stock,
$950,000 of common stock and $1.1 million of debt. Through June 30, 1999, we
have invested approximately $2 million in capital expenditures. Beyond our
capital expenditures, the funds we have raised have been applied to support our
working capital needs. Our working capital needs have expanded significantly as
our client bank base has grown to 163 banks as of June 30, 1999. At June 30,
1999, we had cash of $128,000. Effective July 2, 1999, an additional $32.5
million was received in connection with the closing of the Company's initial
public stock offering. The Company issued 3.5 million shares of common stock in
connection with this offering.

         On June 17, 1999, we entered into a loan agreement with NationsBank,
N.A., whereby NationsBank agreed to loan us up to $5.0 million. The Loan
includes a $4.4 million revolving line of credit and a $575,000 term loan. We
used approximately $575,000 of the proceeds from the term loan toward repayment
of the debt outstanding with Silicon Valley Bank and borrowed an additional
$512,500 for working capital, additional capital expenditures and to pay costs
related to the Company's initial public stock offering. The loan was repaid in
July 1999 using proceeds received from the initial public stock offering.

         In April 1999, we entered into a debenture purchase agreement with
Noro-Moseley Partners IV, L.P. Under this agreement, Noro-Moseley agreed to
purchase up to $5.0 million of senior subordinated debentures upon request by
us. No debentures were issued under this agreement and the agreement expired
upon the completion of the initial public stock offering. In exchange for its
commitment under the agreement, we agreed to issue to Noro-Moseley a three-year
warrant to purchase shares of common stock, the number of shares and exercise
price of which were determined by reference to the price per share in the
initial public stock offering. Based on the price per share in the initial
public stock offering, the warrant entitles Noro-Moseley to purchase 50,000
shares of common stock at $10.00 per share. One of our directors, Mr. Charles D.
Moseley, Jr., is a member of MKFJ-IV, LLC, the general partner of Noro-Moseley.

         In the next twelve months we expect to invest approximately $4.5
million in capital expenditures to enhance our data center operations and to
support the continued growth of the Company. We believe that our



                                       25
<PAGE>   26

existing capital resources, together with the net proceeds from the initial
public stock offering, will be sufficient to fund our operations for at least
the next 18 to 24 months. If we expand more rapidly than currently anticipated,
if our working capital needs exceed our current expectations or if we make
acquisitions, we may need to raise additional capital from equity or debt
sources. We cannot be sure that we will be able to obtain the additional
financing necessary to satisfy these expanded cash requirements or to implement
an expanded growth strategy on acceptable terms or at all. If we cannot obtain
this financing on terms acceptable to us, we may be forced to curtail some
planned business expansion and may be unable to fund our ongoing operations.

         During the fiscal year ended June 30, 1999, we used net cash of $1.4
million for operating activities, as compared to $242,000 for the fiscal year
ended June 30, 1998. Operating activities for the fiscal year ended June 30,
1999 consisted primarily of a $3.4 million net loss and an increase in accounts
receivable of $1.8 million, partially offset by increased liabilities related to
capital expenditures, payroll related costs and costs incurred in connection
with the Company's initial public stock offering and an increase in deferred
revenue of $778,000. Cash used in operating activities in fiscal 1998 included a
net loss of $523,000 and an increase in accounts receivable of $175,000
partially offset by an increase in deferred revenue of $522,000. Cash provided
by operating activities in the period ended June 30, 1997 included net income of
$49,000 and an increase in accrued liabilities of $214,000.

         Cash used in investing activities was $1.8 million for the fiscal year
ended June 30, 1999, as compared to $120,000 for the fiscal year ended June 30,
1998. Investing activities for fiscal 1999 consisted of capital expenditures
totaling $1.8 million. These capital expenditures were related primarily to the
expansion of the Internet banking data center as well as the additional
furniture and equipment needed to accommodate our growth. Cash used in investing
activities in fiscal 1998 consisted of capital expenditures of $120,000 related
primarily to equipment purchases for the Internet banking data center. Cash used
in investing activities in the period ended June 30, 1997 consisted of capital
expenditures of $47,000 related primarily to purchases of office equipment.

         Cash provided by financing activities was $756,000 for the fiscal year
ended June 30, 1999, as compared to $2.6 million for the 1998 fiscal year.
Financing activities included net proceeds from our bank credit facility of $1.1
million and $650,000 from the sale of our common stock, partially offset by $1
million of closing costs related to the Company's initial public stock offering.
Cash provided by financing activities in fiscal 1998 included proceeds of $2.3
million from the sale of our preferred stock and $300,000 from the sale of our
common stock. Cash provided by financing activities in the period ended June 30,
1997 consisted of $500 from the sale of our common stock.

RECENT ACCOUNTING PRONOUNCEMENTS

         Effective July 1, 1998, we adopted Statement of Financial Accounting
Standard No. 130, Reporting for Comprehensive Income, or FAS 130. FAS 130
requires disclosures of components of non-stockholder changes in equity in
interim periods and additional disclosures of components of non-stockholder
changes in equity on an annual basis. Adoption of FAS 130 had no impact on our
results of operations or financial position.

         In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 131, Disclosures about Segments of an
Enterprise and Related Information, or FAS 131. We adopted FAS 131 effective
July 1, 1998. The adoption of this standard did not have a material effect on
our financial statement disclosures.

         In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 133, Accounting for Derivative Instruments
and Hedging Activities, or FAS 133. This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The standard is effective
for all fiscal quarters of all fiscal years beginning after June 15, 2000. The
standard is not expected to have a significant impact on the Company's financial
statements.



                                       26
<PAGE>   27

         In March 1998, the AICPA issued Statement of Position 98-1, Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use, or
SOP 98-1. We will adopt SOP 98-1 effective July 1, 1999. We have not completed
our evaluation of the impact of adopting SOP 98-1 but do not expect its adoption
to have a material effect on our financial position or results of operations.

IMPACT OF YEAR 2000 COMPUTER ISSUES

         The year 2000 issue is the result of computer programs using two digits
rather than four to define the applicable year without specifying the century.
As a result, date-sensitive software may recognize a date of "00" as the year
1900 rather than the year 2000. This could result in system failures or
miscalculations causing disruptions of nFront's operations, including a
temporary inability to process transactions, send invoices or engage in other
business activities, and, as a result, the operations of the banks and end users
that we serve. Year 2000 issues impact nFront both on an external basis in
connection with the products and services we offer to banks and end users, as
well as on an internal basis as to our own operations and systems. We also face
risks relating to the potential year 2000 non-compliance with institutions that
provide services to us, merchants processing electronic transfer of funds, the
FedWire system governing electronic funds transfers and the Federal Reserve
system itself. We believe that based on our assessments to date, material year
2000 issues that we have identified that are within our control can be
corrected. The failure of nFront or third party hardware or software that is
used by nFront or in conjunction with our products to be year 2000 compliant
could have a material adverse effect on nFront's financial position and results
of operations.

         Year 2000 Project Team. We have assembled a year 2000 project team,
composed of nFront employees from our senior management, product management,
development, Internet banking data center, support, implementation, accounting
and facilities management working groups. Our year 2000 project team has
identified software, equipment and systems that are material to our business,
and we have reviewed and tested our nFront products, as well as the software,
equipment and systems supplied to us by third party vendors, to determine their
ability to correctly process date changes from 1999 through 2000. The goals of
the project team are to minimize any year 2000-related impact to our bank
customers and their customers; maintain year 2000 readiness as a top business
priority; and work closely with our internal and external business associates to
achieve year 2000 readiness. Management believes the costs related to year 2000
compliance have not and will not have a material effect on nFront's financial
condition, results of operations and cash flows.

         nFront Products. We designed our products to be year 2000 compliant.
Year 2000 remediation efforts to nFront's products were minor due to nFront's
awareness of year 2000 issues when our products were updated in early 1998.
nFront products require users to enter a four-digit date code for each date, and
each product process stores and displays dates only in a four-digit year format.
We tested our products in test environments intended to emulate a year 2000
environment. Testing was performed on the century date change as well as other
critical date rollovers such as leap year using significant dates both before
and after January 1, 2000. No significant problems were detected as a result of
this testing.

         Year 2000 External Efforts and Issues. We have substantially completed
the replacement, modification or retirement of hardware or software components
for nFront products and services that were identified by the year 2000 project
team to be vital to our core business processes and at risk for year 2000
failures. In addition, we have requested that our customers, vendors, and other
business associates participate in our readiness efforts and update us on their
year 2000 progress. Many of our computer systems and business operations are
provided and/or maintained by outside suppliers. nFront's key vendors and
suppliers, including core processors with which our systems interface, have been
asked to demonstrate sufficient year 2000 readiness. Where feasible, we have
tested vendor supplied products that are critical to our operations.

         Year 2000 Internal Efforts and Issues. Our year 2000 project team has
completed corporate-wide inventory of nFront's internal application and system
software and of our computers and other equipment, such as our building security
systems, fire alarm systems and heating and air conditioning equipment, to
determine if this equipment uses embedded computer chips that may be date
sensitive. Based on this analysis, nFront has upgraded hardware and software
deemed vital to our on-going business by the year 2000 project team to versions
or releases



                                       27
<PAGE>   28

identified by their vendors as year 2000 ready or compliant; implemented
computer code changes for non-critical issues not affecting year 2000
compliance; and substantially completed remediation of identified year 2000
issues in "mission critical" systems, or systems that are vital to the
successful continuance of core business activities.

         Most Likely Worst Case Scenarios of Year 2000 Problems. nFront expects
to identify and resolve all year 2000 problems that could materially adversely
affect its business, financial condition or operating results. However, we
believe that it is not possible to determine with complete certainty that all
year 2000 problems affecting us have been identified or corrected. In addition,
we cannot accurately predict how many failures related to the year 2000 problem
will occur or the severity, duration or financial consequences of these
failures. As a result, we expect that the following worst case scenarios could
occur:

         -    a significant number of operational inconveniences and
              inefficiencies for nFront, our services and our clients that may
              divert our time and attention and financial and human resources
              from our ordinary business activities; and

         -    a number of serious system failures that may require significant
              efforts by us to prevent or alleviate material business
              disruptions.

         Contingency and Business Continuity Planning. Our year 2000 project
team has designed a corporate business continuity plan specific to year 2000
issues to address potential disruptions to business identified by the year 2000
project team that may impact our customers and other business associates. In
addition, we have developed consolidated readiness plans and schedules for
business areas to enable us to react to such identified potential events that
could impact normal business routines. Depending on the systems affected, these
plans could include (a) replacement of affected equipment; (b) use of backup
equipment or facilities; (c) increased work hours for our personnel to correct
any year 2000 problems which arise; and (d) other similar approaches. If we are
required to implement any of these contingency plans or are unable to implement
any of these plans effectively, they could have a material adverse effect on our
business, financial condition or operating results.

              FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS

         In addition to the other information included in this Report, the
following factors should be considered in evaluating our business and future
prospects:

WE HAVE A LIMITED OPERATING HISTORY AND WE CANNOT GUARANTEE WE WILL BECOME
PROFITABLE

         We were incorporated in June 1996. Because we have a limited operating
history, an investor in our common stock must consider the risks and
difficulties frequently encountered by early stage companies in new and rapidly
evolving markets, including the Internet banking and electronic commerce
markets. These risks include our ability to:

         -   successfully expand our sales and marketing efforts;

         -   maintain our current, and develop new, strategic marketing
             relationships;

         -   promote acceptance of our Internet banking services by customers of
             our client banks;

         -   respond effectively to competitive pressures;

         -   continue to develop and upgrade our technology; and

         -   attract, retain and motivate qualified personnel.



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<PAGE>   29

         We cannot guarantee that we will succeed in achieving these goals, and
there can be no assurance we will ever achieve or sustain profitability. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for detailed information on our limited operating history.

WE HAVE A HISTORY OF LOSSES AND ANTICIPATE LOSSES IN THE FUTURE

         We incurred net losses of approximately $532,000 for the quarter ended
June 30, 1998; $394,000 for the quarter ended September 30, 1998; $249,000 for
the quarter ended December 31, 1998; $1.2 million for the quarter ended March
31, 1999; and $1.6 million for the quarter ended June 30, 1999. At June 30,
1999, we had an accumulated deficit of approximately $3.9 million. We expect to
incur significant operating losses on a quarterly basis in the future.

         We will need to generate significant revenues to achieve and maintain
profitability, and we cannot assure you that we will be able to do so. Even if
we do achieve profitability, we cannot assure you that we can sustain or
increase profitability on a quarterly or an annual basis in the future. If our
revenues grow more slowly than we anticipate or if our operating expenses exceed
our expectations, our financial performance will likely be adversely affected.
See "Selected Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

OUR FINANCIAL RESULTS COULD FLUCTUATE AND MAY ADVERSELY AFFECT OUR STOCK PRICE

         Our financial results have varied on a quarterly basis and could
fluctuate substantially in the future, adversely affecting our stock price. We
believe that quarter-to-quarter comparisons of our financial results are not
necessarily meaningful, and you should not rely on them as an indication of
future performance. These fluctuations may be caused by several factors, many of
which are beyond our control, including pricing competition and pricing
pressures for our products and services. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

IF OUR REVENUES DO NOT MEET OUR EXPECTATIONS, OUR FINANCIAL RESULTS WILL SUFFER
BECAUSE OUR EXPENSES WILL INCREASE FOR THE REMAINDER OF THE CALENDAR YEAR

         We plan to significantly increase our sales and marketing, research and
development and general and administrative expenses throughout the remainder of
calendar year 1999. Our expenses are partially based on our expectations
regarding future revenues, and are largely fixed in nature, particularly in the
short term. As a result, if our revenues in a period do not meet our
expectations, our financial results will likely suffer.

OUR SUCCESS DEPENDS UPON THE DEMAND FOR OUR PRODUCTS AND SERVICES IN THE BANKING
INDUSTRY

         We expect to derive substantially all of our revenues from products and
services provided to banks, the banks' customers and other participants in the
financial services industry. Accordingly, our future success depends
significantly upon the continued demand for our products and services within
this industry. We believe that important factors in our growth will be the
willingness of the banking industry to pursue technological innovation and
customer demand and acceptance of this innovation. If the rate of adoption by
banks of products like ours were too slow, we could experience reduced demand
for our products and services. In addition, changes in economic conditions and
unforeseen events, including recession, inflation or other adverse occurrences,
may result in a significant decline in the utilization of bank services or
demand for our products and services. Any event that results in decreased
consumer or corporate use of bank services, or increased pressures on banks
toward the in-house development of Internet banking systems, could have a
material adverse effect on our business, financial condition and results of
operations.



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<PAGE>   30

THE EXPANDED USE OF THE INTERNET FOR PROVIDING BANKING AND OTHER FINANCIAL
PRODUCTS AND SERVICES IS UNCERTAIN AND MAY AFFECT OUR CUSTOMER BASE AND REVENUE
GROWTH

         The market for Internet-based financial services only recently has
begun to develop, and the market demand for our products and services is
uncertain. Critical issues concerning commercial use of the Internet for
financial services, including security, reliability, ease and cost of access and
quality of service, are evolving and may impact the growth of Internet use. We
cannot predict the size of the market for Internet-based financial services or
the rate at which that market will grow. If the market for Internet-based
financial services fails to grow, grows more slowly than anticipated, or becomes
saturated with competitors, our business, financial condition and results of
operations likely would be materially adversely affected. Furthermore, telephone
and personal computer banking systems have been marketed in the past and have
not enjoyed widespread consumer adoption. Accordingly, there can be no assurance
that there will be widespread consumer acceptance of advanced Internet banking
systems, including ours.

         We rely on the Internet to provide access to our banking services. Our
business would be adversely affected if Internet use does not continue to grow
or grows more slowly than expected. Internet usage may be inhibited for a number
of reasons, including inadequate network infrastructure, security concerns,
inconsistent quality of service, and unavailability of cost effective,
high-speed access to the Internet. The occurrence of any of these factors could
inhibit the acceptance and adoption of Internet banking.

DECLINE IN DEMAND FOR NHOME OR NBUSINESS COULD AFFECT OUR BUSINESS, FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

         To date, more than 91% of our revenue has been attributable to fees
generated from our nHome product. Fees generated from the sale of nHome and
related services and from the sale of our nBusiness product, which became
generally available in March 1999, are expected to account for most of our total
revenue for the foreseeable future. As a result, a decline in demand for, or
failure to achieve broad market acceptance of, nHome or nBusiness would have a
material adverse effect on our business, financial condition and results of
operations. There can be no assurance that we will continue to be successful in
marketing nHome, nBusiness or any new or enhanced products and services.

WE MAY EXPERIENCE DELAYS IN DEVELOPING ENHANCEMENTS OF EXISTING PRODUCTS AND
DEVELOPING NEW PRODUCTS; THESE DELAYS MAY AFFECT OUR COMPETITIVENESS

         Our future success will depend on our ability to develop, test, sell
and support enhancements of our nHome and nBusiness products and new products on
a timely basis in response to changing bank and bank customer needs,
competition, technological developments and emerging industry standards. The
electronic banking and financial services industry is characterized by rapidly
changing technology, evolving industry standards, emerging competition and
frequent new product and service introductions. These developments could limit
the marketability of our products and services and could render our products and
services obsolete. There can be no assurance that we can successfully identify
new product opportunities and develop and bring new products and services to
market in a timely manner given the rapid evolution of the electronic banking
industry. Our failure to successfully adapt our products and services to this
rapidly changing market could adversely affect our business.

OUR SALES CYCLE VARIES AND MAY CAUSE OUR QUARTERLY RESULTS TO FLUCTUATE

         The purchase decision relating to our products is typically made by
senior management of our prospective client banks. Due in part to the nature of
our applications and the associated hardware, software and consulting
expenditures, potential client banks tend to be cautious in making purchase
decisions. The purchase of our products involves a commitment of resources and
recurring expense and the attendant delays frequently associated with approving
capital expenditures and reviewing new technologies that affect key operations.
Our client banks' decision-making processes require us to provide a significant
level of education to prospective customers regarding the use and benefits of
our products. We may expend substantial funds and management resources during
the sales



                                       30
<PAGE>   31

cycle and fail to make the sale. Accordingly, our results of operations for a
particular period may be adversely affected if the sales forecasted for a
particular period are delayed or do not otherwise occur.

         The time between the date of initial contact with a potential client
bank and the execution of a contract with the bank typically ranges from six
weeks for smaller agreements to three months or longer for larger agreements.
The sales cycle is subject to significant risks and delays over which we have
little or no control, including:

         -   the banks' budgetary constraints;

         -   the banks' internal acceptance reviews;

         -   the success and continued support through the sales efforts of
             companies with which we have strategic alliances; and

         -   the possibility of cancellation or delay of projects by banks.

IMPLEMENTATION OF OUR SOLUTION AT NEW CLIENT BANKS MAY TAKE LONGER THAN WE
ANTICIPATE AND COULD ADVERSELY AFFECT OUR OPERATING RESULTS

         During the course of an initial bank implementation, we must integrate
our Internet banking software with the bank's core banking software. This
involves installation of an interface to permit communication between our
products and the banks' core banking software. While we have managed integration
with over 28 different core banking systems, we may, from time to time,
experience some delays in the integration process, particularly if we do not
already have an established interface for that core banking software. Our
implementation period typically ranges from 35 to 170 days and currently
averages approximately three months. With systems for which we do not have an
available interface, we must develop customized software programs that enable
our Internet banking software and the bank's core banking software to
communicate. A longer integration period will increase the cost of the
implementation, delay the recognition of revenues associated with the
implementation and result in a loss of service-related customer usage fees.
Changes to existing core banking software systems and custom implementations for
larger client banks could also cause integration delays in future
implementations that could have a material adverse effect on our operating
results for subsequent periods.

WE RELY ON OUR STRATEGIC MARKETING ALLIANCES TO GENERATE CUSTOMERS AND REVENUE

         We expect that revenues generated from the sale of our products and
services based on leads generated through our strategic marketing alliances will
continue to account for a significant portion of our revenues for the
foreseeable future. In particular, we expect that a limited number of our
strategic marketing relationships, such as those with BISYS and BancTec, which
are core bank processing service providers, will account for a substantial
portion of our client bank leads and, therefore, revenues over time. Client
banks sold and billed through the BISYS strategic marketing alliance represented
29% of our revenue for the fiscal year ended June 30, 1999. Our agreement with
BancTec is relatively new and has not yet generated material revenues. Our
strategic marketing agreements are typically five year agreements pursuant to
which the strategic alliance companies have agreed to use commercially
reasonable efforts to market the nFront products and services and not to market
any other Internet banking product to their customers. We pay each company with
which we have a strategic marketing alliance a commission, typically between 10%
and 40%, based on the revenues generated by our client banks that are also
clients of the companies with which we have strategic marketing alliances.

         Our strategic marketing alliances are in an early stage of development.
If we lose one or more of our major strategic marketing relationships, we may be
unable in a timely manner, or at all, to replace the strategic marketing
relationships with other relationships that have comparable customer bases and
user demographics.



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<PAGE>   32

OUR BUSINESS COULD SUFFER IF CLIENT BANKS TERMINATE THEIR CONTRACTS WITH US AS A
RESULT OF ACQUISITIONS OF THE BANKS OR FOR OTHER REASONS

         Although we have included financial penalties in most of our contracts
with our client banks for early termination without cause, these financial
penalties would be insufficient to replace the monthly service fee revenues that
we would receive if the bank had continued as a customer. As a result of the
mergers and acquisitions occurring in the banking industry today, there is a
potential risk of some of our existing client banks terminating their agreements
with us. An existing client bank may be acquired by or merged with another bank
that utilizes a different Internet banking system or does not desire to continue
the relationship with us for some other reason, which could result in the new
entity terminating the relationship with us. Many of the larger money center
banks that are involved in consolidating the banking industry do not use
nFront's solutions. Our business, financial condition and results of operations
could suffer if client banks terminate their relationships with us.

A SIGNIFICANT PORTION OF OUR RECURRING REVENUE IS BASED ON A SMALL NUMBER OF
CLIENT BANKS, AND THE LOSS OF A NUMBER OF THESE CLIENT BANKS COULD ADVERSELY
AFFECT OUR BUSINESS

         We have, to date, depended on a limited number of client banks for a
significant part of our recurring revenues. For the fiscal year ended June 30,
1999, BancorpSouth accounted for 23% of monthly service fee revenues, and our
five largest client banks accounted for 49% of our monthly service fee revenues.
The loss of a number of our client banks may adversely affect our business,
financial condition and results of operations.

         We anticipate that our results of operations in the near future will
continue to depend to a significant extent upon revenues from a small number of
client banks. In addition, we anticipate that these client banks will continue
to vary over time so that the achievement of our long-term goals will require us
to obtain additional client banks on an ongoing basis. Our failure to enter into
a sufficient number of contracts during a particular period could have a
material adverse effect on our business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

WE ARE CURRENTLY EXPERIENCING A PERIOD OF SIGNIFICANT GROWTH THAT IS PLACING A
STRAIN ON OUR RESOURCES

         We have experienced significant growth in our operations since the
fiscal year ended June 30, 1998 and anticipate that additional expansion may be
required in order to continue our growth. Any expansion of our business would
place additional demands on our management, operational capacity and financial
resources. Our failure to manage growth effectively could have a material
adverse effect on our business, financial condition and results of operations.
We anticipate that we will need to recruit qualified personnel in all areas of
our operations, including management, sales, marketing, implementation and
software development, to effectively manage and control additional growth. There
can be no assurance that we will be effective in attracting and retaining
additional qualified personnel, expanding our operational capacity or otherwise
managing growth.

         We have increased our number of employees from 30 at June 30, 1998 to
95 at June 30, 1999. This expansion has placed, and is expected to continue to
place, a significant strain on our management, operational and financial
resources. Since June 1998, we have added a number of key managerial, technical
and operations personnel, including our President and Chief Operating Officer,
Chief Financial Officer, Senior Vice President of Sales and Vice President of
Marketing, and we expect to add additional key personnel in the near future.
Since January 1, 1999, we have added 16 new sales representatives, bringing the
total to 17 at June 30, 1999.

         To manage the expected growth of our operations and personnel, we must
continue improving or replacing existing operational, accounting and information
systems, procedures and controls. Further, we must manage effectively our
marketing relationships as well as our relationships with Internet content
providers, affiliates and other third parties necessary to our business.



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OUR BUSINESS IS DEPENDENT ON OUR CHIEF EXECUTIVE OFFICER AND OTHER KEY EXECUTIVE
PERSONNEL

         Our future success depends to a significant extent on the continued
services of our senior management and other key personnel, particularly Brady L.
"Tripp" Rackley III, our founder and Chief Executive Officer. The loss of the
services of Mr. Rackley or other key employees would likely have a significant
adverse effect on our business. We only have employment agreements with our
Chief Executive Officer and our President. We maintain "key person" life
insurance in the amount of $2,000,000 on our Chief Executive Officer, but this
amount likely would be inadequate to compensate us for the loss of his services.

WE HAVE EXPERIENCED DIFFICULTY IN HIRING AND RETAINING PERSONNEL

         There is significant competition for qualified employees among Internet
companies today. As a result of our rapid growth and expansion, we have in the
past experienced, and we expect to continue to experience difficulty in hiring
and retaining highly skilled employees with appropriate qualifications. We have
been required to hire a significant number of new employees in a short period of
time. We may be unable to retain our skilled employees or attract, assimilate or
retain other highly qualified employees in the future. Our operating results may
be adversely affected if we experience increased expenses related to attracting
and retaining qualified employees. If we do not succeed in attracting new
personnel or retaining and motivating our current personnel, our business will
be adversely affected.

NETWORK SECURITY PROBLEMS COULD CAUSE US TO LOSE CUSTOMERS

         Even though we have implemented security measures, our networks may be
vulnerable to unauthorized access, computer viruses and other disruptive
problems. Someone who is able to circumvent security measures could
misappropriate our proprietary information or cause interruptions in our
Internet operations. Internet and on-line service providers have in the past
experienced, and may in the future experience, interruptions in service as a
result of the accidental or intentional actions of Internet users, current and
former employees or others. Unknown security risks may result in liability to us
and also may deter banks from purchasing our products, and deter banks'
customers from using our products. We may need to expend significant capital or
other resources protecting against the threat of security breaches or
alleviating problems caused by breaches. Although we intend to continue to
implement state of the art security measures, persons may be able to circumvent
the measures that we implement in the future. Eliminating computer viruses and
alleviating other security problems may result in interruptions, delays or
cessation of service to users accessing web sites that deliver our services, any
of which could harm our business.

INTERNET SECURITY CONCERNS COULD HINDER THE GROWTH OF INTERNET BANKING AND OTHER
ELECTRONIC COMMERCE SERVICES

         Users of Internet banking and other electronic commerce services are
highly concerned about the security of transmissions over public networks.
Concerns over security and the privacy of users may inhibit the growth of the
Internet and other on-line services generally, and the Web in particular,
especially as a means of conducting commercial transactions. Any well-publicized
compromise of security could deter people from using the Internet or using it to
conduct transactions that involve transmitting confidential information. We may
incur significant costs to protect against the threat of security breaches or to
alleviate problems caused by those breaches. We rely on standard Internet
security systems, all of which are licensed from third parties, to provide the
security and authentication necessary to effect secure transmission of data.
However, we cannot guarantee that advances in computer capabilities, new
discoveries in the field of cryptography or other events or developments will
not result in a compromise or breach of our security measures.

WE COULD BE LIABLE FOR MISAPPROPRIATION OF OUR USERS' PERSONAL INFORMATION

         Unauthorized users could possibly circumvent the measures we take to
protect client bank data. To the extent that our activities involve the storage
and transmission of proprietary information, security breaches could damage our
reputation and expose us to a risk of loss or litigation and possible liability.
Any compromise of our security could harm our business. In addition, the Federal
Trade Commission and state agencies have been



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investigating various Internet companies regarding their use of personal
information. We could incur additional expenses if new regulations regarding the
use of personal information are introduced or if our privacy practices are
investigated.

WE ARE DEPENDENT ON OUR INTERNET BANKING DATA CENTER, AND IT COULD SUFFER
TECHNICAL PROBLEMS AND SERVICE INTERRUPTIONS

         All of our communications and network equipment is located at our
corporate headquarters in Norcross, Georgia. Any system failure at this location
could lead to interruptions, delays or cessations in providing our Internet
banking services to our client banks, which could have a material adverse effect
on our business, financial condition and results of operations. Our operations
are dependent upon our ability to protect systems against damage from fires,
hurricanes, earthquakes, power losses, telecommunications failures, break-ins,
computer viruses, hacker attacks and other events beyond our control. We have
contracted to establish a redundant Internet banking data center, but that data
center is not scheduled to be on-line until October, 1999. We cannot assure that
this data center will operate as anticipated. In the event of a disaster that
impacts our Internet banking data center, and depending on the nature of the
disaster, it may take several days for an off-site computer system to become
operational for all of our client banks, and use of an alternative off-site
computer would result in substantial additional cost to us. In the event of an
extended outage, we could potentially lose many of our client banks, which may
have a material adverse effect on our business, financial condition and results
of operations. Although we maintain business interruption insurance, it may not
adequately compensate us for any losses that may occur due to any failures or
interruptions in our systems.

OUR SUCCESS DEPENDS UPON THE PROPER OPERATION OF INTERNALLY-DEVELOPED SOFTWARE
AND SYSTEMS AS WELL AS THIRD-PARTY PRODUCTS

         We have developed custom software for our systems. This software may
contain undetected errors, defects or bugs. Although we have not suffered
significant harm from any errors or defects to date, we may discover significant
errors or defects in the future that we may or may not be able to correct. We
must expand and upgrade our technology, transaction-processing systems and
network infrastructure if the volume of traffic and transactions on our system
increases substantially. We could experience periodic temporary capacity
constraints, which may cause unanticipated system disruptions, slower response
times and lower levels of customer service. We may be unable to accurately
project the rate or timing of increases, if any, in the use of our services or
expand and upgrade our systems and infrastructure to accommodate these increases
in a timely manner. Any inability to do so could harm our business. Our
agreements with our client banks typically contain provisions designed to limit
our exposure to potential product liability claims. It is possible, however,
that the limitation of liability provisions contained in our agreements may not
be effective under the laws of all jurisdictions. Although we have not
experienced any product liability claims to date, the sale and support of our
products may entail the risk of these claims. A product liability claim brought
against us could have a material adverse effect on our business, financial
condition and results of operations.

         Our products involve integration with the core processing systems of
our client banks as well as the systems of the company that provides bill
payment processing services to us. We have an agreement through which another
company provides to us processing services for the electronic bill payment
features of our nHome and nBusiness products. The agreement was originally with
Moneyline Express/Travelers Express. In January 1999, M&I Data Services assumed
the agreement and is performing these services. The agreement provides for fees
to be paid to M&I based on banks implementing bill payment services and the
number of bill payment and electronic funds transfer transactions per month, as
well as the allocation of credit risks between the parties on potential
insufficient funds or returned items. The agreement is a non-exclusive, three
year agreement which began in July 1997. The agreement will automatically renew
for one-year renewal terms unless terminated by either party prior to renewal.
Under the agreement, we cooperate with M&I to develop interfaces between the
nFront products and the M&I bill payment processing systems. While we believe
that there are alternative sources available for these services, at this time
M&I is the only bill payment processor used by us. A loss of their services
could disrupt, for an indefinite period, the bill payment services we provide to
our client banks. If the core processing or bill payment processing systems with
which we are integrated should become unavailable for any reason, fail under
operation



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with our products or fail to be supported by their respective vendors, it would
be necessary for us to redesign our products and/or obtain alternative vendors.
There can be no assurance that these changes could be accomplished in a
cost-effective or timely manner. We also could experience difficulties
integrating our products with other hardware and software. Furthermore, should
new releases of products and systems occur before we develop products compatible
with these new releases, any resulting decline in demand for our products could
have a material adverse effect on our business, financial condition and results
of operations.

WE RELY ON THE INTERNET REMAINING A VIABLE COMMERCIAL MEDIUM

         Our success depends, in large part, on other companies maintaining the
Internet infrastructure. In particular, we rely on other companies to maintain a
reliable network that provides adequate speed, data capacity and security and to
develop products that enable reliable Internet access and services. If the
Internet continues to experience significant growth in the number of users,
frequency of use and amount of data transmitted, the Internet infrastructure may
be unable to support the demands placed on it, and the Internet's performance or
reliability may suffer as a result of this continued growth. In addition, the
Internet could lose its viability as a commercial medium due to delays in the
development or adoption of new standards and protocols to process increased
levels of Internet activity. Any degradation of Internet performance or
reliability could cause users to reduce their Internet usage. If other companies
do not develop the infrastructure or complementary products and services
necessary to establish and maintain the Internet as a viable commercial medium,
our business, financial condition and results of operations could be materially
adversely affected.

OUR BUSINESS IS HIGHLY COMPETITIVE

         The market for Internet banking services and financial software
applications is highly competitive, and we expect that competition will
intensify in the future. In addition we could experience competition from our
client banks and potential client banks. From time to time, these potential
client banks develop, implement and maintain their own services and applications
for revenue enhancements, cost reductions and/or enhanced customer services,
rather than purchasing services and related products from third parties. There
can be no assurance that these client banks or other potential client banks will
perceive sufficient value in our products and services to justify investing in
them. In addition, client banks or potential client banks could enter into
strategic relationships with one or more of our competitors to develop, market
and sell competing services or products.

         We compete with a variety of third parties, including Digital Insight,
Edify, Netzee, FundsXpress, Q-UP, First Data Direct Banking and Security First
Technologies, that employ many different approaches to providing Internet
banking services. We believe that nFront's ability to compete successfully
depends upon a number of factors, including:

         -   our market presence within our target market;

         -   the capacity, reliability and security of our network
             infrastructure;

         -   the comprehensiveness and ease of use of our products;

         -   our pricing policies and the pricing policies of our competitors
             and suppliers;

         -   the timing of introductions of new products and services by us and
             our competitors; and

         -   our ability to support evolving industry standards.

         We expect competition in our markets to increase significantly as new
companies enter our market and current competitors expand their product lines
and services. These new competitors may include non-bank financial institutions,
such as brokerage firms and on-line service providers such as E*Trade, Intuit,
Charles Schwab, Quicken.com and Yahoo! Finance, all of which could be dominant
competitors given their current position in the



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online financial services industry, broad name recognition and substantial
online customer bases. Many of our current and potential competitors are likely
to enjoy substantial competitive advantages, including:

         -   greater financial, technical and marketing resources can be devoted
             to the development, promotion and sale of their services;

         -   longer operating histories;

         -   greater name recognition;

         -   client banks with larger customer bases; and

         -   larger base of client banks.

         Any pricing pressures, reduced margins or loss of market share
resulting from our failure to compete effectively would materially adversely
affect our business, financial condition and operating results.

INFRINGEMENT OF OUR PROPRIETARY TECHNOLOGY COULD HARM OUR BUSINESS

         We rely on a combination of copyright, trademark and trade secret laws
and contractual provisions to establish and protect our proprietary rights. We
have applied for the federal registration of service marks for "nFront," "nHome"
and "nBusiness." We have also registered the domain names "banking.com" and
"nFront.com."

         There can be no assurance that the steps we have taken to protect our
proprietary rights will be adequate, that we will be able to secure trademark or
service mark registrations for our marks in the United States or in foreign
countries or that third parties will not infringe upon or misappropriate our
copyrights, trademarks, service marks, domain names and similar proprietary
rights. In addition, effective copyright and trademark protection may be
unenforceable or limited in foreign countries, and the global nature of the
Internet makes it impossible to control the ultimate destination of our
services. It is possible that our competitors may independently develop
technologies that are substantially equivalent or superior to our technology.
Also, our competitors or others may adopt product or service names similar to
ours, thereby impeding our ability to build brand identity and possibly leading
to customer confusion. Moreover, because domain names derive value from the
individual's ability to remember these names, we cannot guarantee that our
domain names will not lose their value if, for example, users begin to rely on
mechanisms other than domain names to access on-line resources. Our inability to
protect our marks adequately could have a material adverse effect on the
acceptance of the nFront brand and on our business, financial condition and
operating results.

LITIGATION MAY BE REQUIRED TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS

         In the future, litigation may be necessary to enforce and protect our
trade secrets, copyrights and other intellectual property rights. Litigation
would divert management resources, be expensive and may not effectively protect
our intellectual property.

WE MAY BE SUBJECT TO INTELLECTUAL PROPERTY LITIGATION

         We may be subject to litigation for claims of infringement of the
rights of others or to determine the scope and validity of the intellectual
property rights of others. If other parties file applications for marks used or
registered by us, we may have to oppose those applications and participate in
administrative proceedings to determine priority of rights to the mark, which
could result in substantial costs to us due to the diversion of management's
attention and the expense of this litigation, even if the eventual outcome is
favorable to us.

         Adverse determinations in litigation could result in the loss of
proprietary rights, subject us to significant liabilities, require us to seek
licenses from third parties or prevent us from selling our services. There can
be no assurance that we will be able to obtain these licenses on commercially
reasonable terms, if at all. Any of these



                                       36
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results could have a material adverse effect on the acceptance of the nFront
brand and on our business, financial condition and operating results.

GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD ADD ADDITIONAL COSTS TO
DOING BUSINESS ON THE INTERNET

         There are currently few laws or regulations that specifically regulate
communications or commerce on the Internet. However, laws and regulations may be
adopted in the future that address issues including user privacy, pricing, and
the characteristics and quality of products and services. For example, the
Telecommunications Act sought to prohibit transmitting various types of
information and content over the Internet. Several telecommunications companies
have petitioned the Federal Communications Commission to regulate Internet
service providers and on-line service providers in a manner similar to long
distance telephone carriers and to impose access fees on those companies. This
could increase the cost of transmitting data over the Internet. Moreover, it may
take years to determine the extent to which existing laws relating to issues
such as property ownership, libel and personal privacy issues apply to the
Internet. Any new laws or regulations relating to the Internet or the manner in
which existing laws are applied to the Internet could adversely affect our
business.

WE MAY BECOME SUBJECT TO GOVERNMENT REGULATION RELATING TO BANKING AND OUR
CLIENT BANKS MAY BECOME SUBJECT TO MORE STRINGENT ELECTRONIC BANKING
REGULATIONS, WHICH COULD AFFECT OUR GROWTH-RATE

         Our primary customers are banks. The banking industry, including
electronic banking, is regulated heavily, and we expect that this regulation
will affect the relative demand for our products and services. In addition,
through their ability to regulate our bank customers' system requirements, bank
regulators can effectively regulate the required security systems, communication
technologies and other features of our products and services.

         There can be no assurance that federal, state or foreign governmental
authorities will not adopt new regulations addressing electronic banking or
banking operations generally that could require us to modify our current or
future products and services. The adoption of laws or regulations affecting our
business or our client banks' business could reduce our growth rate or could
otherwise have a material adverse effect on our business, financial condition
and operating results.

THE INTERNET PRODUCTS AND SERVICES THAT WE AND OUR CLIENT BANKS PROVIDE COULD BE
SUBJECT TO SALES OR OTHER TAXES WHICH COULD AFFECT DEMAND FOR OUR PRODUCTS

         The tax treatment of the Internet and electronic commerce is currently
unsettled. A number of proposals at the federal, state and local level and
foreign governments would, if enacted, impose taxes on the sale of goods and
services and other Internet activities. A recently enacted law places a
temporary moratorium on some forms of taxation on Internet commerce. We cannot
predict the effect of current attempts to tax or regulate commerce over the
Internet. Any legislation that substantially impairs the growth of electronic
commerce could have a material adverse effect on our business, financial
condition and operating results.

TO EXECUTE OUR STRATEGY WE MAY REQUIRE ADDITIONAL FUNDING THAT MAY NOT BE
AVAILABLE ON FAVORABLE TERMS OR AT ALL

         Although we believe that our existing capital resources and available
financing will be adequate to fund our operations for at least the next 18
months, these sources may be inadequate. We have not sustained positive earnings
or cash flow and we are required to incur significant expenses to be
competitive. Consequently, we may require additional funds during or after this
period to successfully execute our strategy. Additional financing may not be
available on favorable terms or at all. If we cannot raise adequate funds to
satisfy our capital requirements, we may have to limit our operations
significantly. Our future capital requirements depend upon many factors,
including, but not limited to:

         -   the rate at which we expand our sales and marketing operations;

         -   the extent to which we expand our products and services;


                                       37
<PAGE>   38

         -   the extent to which we develop and upgrade our technology and data
             network infrastructure;

         -   the occurrence, timing, size and success of acquisitions; and

         -   the response of competitors to our service offerings.

OUR STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE

         We cannot predict the extent to which investor interest in nFront will
lead to the development of a trading market for our common stock or how liquid
that market might become. The initial public offering price for our common stock
was determined by negotiations between us and the representatives of the
underwriters and may not be indicative of prices that will prevail in the
trading market. Our common stock price could be subject to wide fluctuations in
response to several factors, which are discussed elsewhere in this Report.

         In addition, the market for Internet and technology companies has
experienced extreme price and volume volatility that have often been unrelated
or disproportionate to the operating performance of those companies. These broad
market and industry factors may materially and adversely affect our stock price,
regardless of our operating performance. The trading prices of the stocks of
many Internet and technology companies are at or near historical highs and
reflect relative valuation levels substantially above historical levels. These
trading prices and relative valuation levels may not be sustained.

OUR MANAGEMENT AND AFFILIATES CONTROL MORE THAN 60% OF OUR STOCK; NO CORPORATE
ACTIONS REQUIRING SHAREHOLDER APPROVAL CAN BE TAKEN WITHOUT THE APPROVAL OF THIS
GROUP

         Our officers, directors and affiliated persons beneficially own
approximately 65.8% of our common stock. Brady L. "Tripp" Rackley III, our Chief
Executive Officer, beneficially owns approximately 20.9% of our common stock. As
a result, our officers, directors and affiliated persons will effectively be
able to:

         -   elect, or defeat the election of, our directors;

         -   amend or prevent amendment of our Articles of Incorporation or
             Bylaws;

         -   effect or prevent a merger, sale of assets or other corporate
             transaction; and

         -   control the outcome of any other matter submitted to the
             shareholders for vote.

         Our public shareholders, for so long as they hold less than 50% of our
common stock, will be unable to control the outcome of these transactions.
Management's stock ownership may discourage a potential acquirer from offering
to purchase or otherwise attempting to obtain control of nFront, which in turn
could reduce our stock price or prevent our shareholders from realizing a
premium over our stock price.

FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE

         Sales of a substantial number of shares of our common stock in the
public market could adversely affect the market price of our common stock. There
are currently 14,196,136 shares of our common stock outstanding. Of these,
4,485,000 shares are freely tradable unless held by affiliates of nFront or by
persons subject to other contractual or legal restrictions on resale. The
remaining shares of common stock outstanding are restricted as a result of
securities laws or lock-up agreements signed by the holder and will be available
for sale in the public market as follows:



                                       38
<PAGE>   39

         -   approximately 386,425 restricted shares will be eligible for sale
             after January 24, 2000 upon the expiration of lock-up agreements
             with the underwriters of nFront's initial public offering; and

         -   approximately 9,909,727 restricted shares will become eligible for
             sale thereafter at various times upon the expiration of their
             respective holding periods and if otherwise in accordance with the
             provisions of Rule 144.

         Hambrecht & Quist LLC may, in its sole discretion and at any time
without prior notice, release all or any portion of the common stock subject to
lock-up agreements.

YEAR 2000 COMPLIANCE ISSUES COULD ADVERSELY IMPACT OUR BUSINESS

         We are in the process of assessing and remediating any Year 2000 issues
associated with our computer systems and software and other property and
equipment. Despite our testing and remediation efforts, our systems and those of
third parties, including client banks, core processors, other technology
companies, utilities, affiliates, and end users may contain errors or faults
with respect to the Year 2000. Our efforts to address this issue are described
in more detail in "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Impact of Year 2000 Computer Issues." We also face
risks relating to the potential Year 2000 noncompliance of our client banks and
other institutions that support the banks, such as the FedWire system governing
electronic fund transfers and the Federal Reserve system itself. Furthermore, if
a client bank is unable to achieve Year 2000 readiness, the regulators could
suspend that bank's operations, adversely affecting the volume of new bank
customers and transactions generated for us by that bank. Additionally, an
extended disruption in availability of electricity to our facilities resulting
from Year 2000 problems with utility service providers could adversely affect
our business, results of operations and financial condition. Known or unknown
errors or defects that affect the operation of our software and systems and
those of third parties, including content providers, advertisers, affiliates,
and end users could result in delay or loss of revenue, interruption of
services, cancellation of client bank contracts, diversion of development
resources, damage to our reputation, increased service and warranty costs, and
litigation costs, any of which could harm our business.

WE COULD BE LIABLE FOR INFORMATION RETRIEVED FROM OUR WEB SITES

         We may be subject to third party claims for defamation, negligence,
copyright or trademark infringement or other theories based on the nature and
content of information supplied on our web sites by us or third parties,
including our content providers or users. These types of claims have been
brought, sometimes successfully, against on-line services in the past. We could
be subject to liability with respect to content that may be accessible on web
sites maintained on our system. Even if these claims do not result in liability
to us, we could incur significant costs in investigating and defending against
these claims and in implementing measures to reduce our exposure to this
liability. Our insurance may not cover potential claims of this type or may not
be adequate to cover all costs incurred in defense of potential claims or to
indemnify us for all liability that we may incur.

POTENTIAL ACQUISITIONS INVOLVE RISKS

         Though we have not yet entered into negotiations on any potential
acquisitions and do not have any short-term plans to do so, we intend to
continuously evaluate our position within our industry, and we may acquire
complementary technologies or businesses in the future. Due to consolidation
trends within the online services industry, failure to adopt and successfully
implement a long-term acquisition strategy could damage our competitive
position. Future acquisitions may involve large one-time write-offs and
amortization expenses related to goodwill and other intangible assets. Any of
these factors could adversely affect our results of operations or stock price.
Acquisitions involve numerous risks, including:

         -   difficulties in assimilating the operations, products, technology,
             information systems and personnel of the acquired company with our
             operations;

         -   diverting our management's attention from other business concerns;



                                       39
<PAGE>   40

         -   impairing relationships with our employees, affiliates, strategic
             marketing alliances and content providers;

         -   being unable to maintain uniform standards, controls, procedures
             and policies;

         -   entering markets in which we have no direct prior experience; and

         -   losing key employees of the acquired company.

         Some or all of these risks could result in a material adverse effect on
our business, financial condition and results of operations. In addition, we
cannot assure you that we will be able to identify suitable acquisition
candidates that are available for sale at reasonable prices. We may elect to
finance future acquisitions using some or all of the proceeds from our initial
public offering. We may also elect to finance future acquisitions with debt
financing, which would increase our debt service requirements, or through the
issuance of additional common or preferred stock, which could result in dilution
to our shareholders. There can be no assurance that we will be able to arrange
adequate financing for any acquisitions on acceptable terms.

OUR ARTICLES OF INCORPORATION AND BYLAWS, AS WELL AS GEORGIA LAW, MAY PREVENT OR
DELAY A FUTURE TAKEOVER

         Our Second Amended and Restated Articles of Incorporation, as amended,
Bylaws, other agreements and Georgia law could make it more difficult for a
third party to acquire us, even if a change in control would be beneficial to
our shareholders. For example, our Second Amended and Restated Articles of
Incorporation and Bylaws provide, among other things, that:

         -   the Board of Directors, without shareholder approval, has the
             authority to issue preferred stock with rights superior to the
             rights of the holders of common stock;

         -   shareholders must comply with advance notice provisions contained
             in our Bylaws to make proposals at shareholder meetings and
             nominate candidates for election to our Board of Directors;

         -   the Board of Directors is classified and directors have staggered
             terms; and

         -   the shareholders  may call a special meeting only upon request of
             35% of votes entitled to be cast on an issue.

         Georgia law also contains "business combination" and "fair price"
provisions that may have the effect of delaying, deterring or preventing a
change in control of nFront.

ITEM 7A.          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         nFront's interest income is sensitive to changes in the general level
of U.S. interest rates. In this regard, changes in U.S. interest rates affect
the interest earned on nFront's cash equivalents. All of the Company's long-term
debt was repaid in July 1999 so there is no impact on interest expense. Based on
our cash equivalents balance at June 30, 1999, nFront's exposure to interest
rate risk is not material.

ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         Our financial statements are submitted as a separate section of this
Report beginning on page 47.

ITEM 9.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                  AND FINANCIAL DISCLOSURE.

         None.




                                       40
<PAGE>   41



                                    PART III


ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         Certain information required by this item is incorporated by reference
from the information contained in the Company's Proxy Statement for the 1999
Annual Meeting of Shareholders expected to be filed with the Securities and
Exchange Commission not later than 120 days after the end of the fiscal year
covered by this Report (the "1999 Proxy Statement") under the captions "Election
of Directors," "Executive Officers" and "Section 16(a) Beneficial Ownership
Reporting Compliance." Certain information regarding executive officers of the
Company is included in Item 4A. of Part I of this report on Form 10-K under the
caption "Executive Officers of the Registrant."


ITEM 11.          EXECUTIVE COMPENSATION.

         The information required by this item is incorporated by reference from
the information contained in the 1999 Proxy Statement under the caption
"Executive Compensation."


ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT.

         The information required by this item is incorporated by reference from
the information contained in the 1999 Proxy Statement under the caption
"Security Ownership of Certain Beneficial Owners and Management."


ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         The information required by this item is incorporated by reference from
the information contained in the 1999 Proxy Statement under the caption "Certain
Transactions."











                                       41
<PAGE>   42



                                     PART IV


ITEM 14.          EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
                  8-K.

         (a)      Financial Statements and Schedule

                  The financial statements are submitted as a separate section
                  of this Report beginning on page 47.

                  Financial statement schedules have been omitted either
                  because they are not applicable or because the information
                  that would be included in such schedules is included
                  elsewhere in the financial statements or the notes thereto.

         (b)      Reports on Form 8-K.

                  None.

         (c)      Exhibits.

                  The following exhibits are filed as part of, or are
                  incorporated by reference into, this report on Form 10-K:

<TABLE>
<CAPTION>
       EXHIBIT
       NUMBER                         DESCRIPTION
       --------                       -----------
       <S>        <C>
         3.1*     Second Amended and Restated Articles of Incorporation of the
                  Registrant.

         3.2*     Amended and Restated Bylaws of the Registrant

         4.1*     See Exhibits 3.1 and 3.2 for provisions of the Second Amended
                  and Restated Articles of Incorporation and Amended and
                  Restated Bylaws of the Registrant defining rights of the
                  holders of common stock of the Registrant.

         4.2*     Specimen Stock Certificate

         4.3*     Shareholder Agreement, dated as of May 13, 1998, as amended

         10.1*    Employment Agreement, dated July 14, 1998, between nFront,
                  Inc. and Robert L. Campbell.

         10.2*    Employment Agreement, dated April 21, 1999, between nFront,
                  Inc. and Brady L. "Tripp" Rackley III.

         10.3*+   Marketing Agreement, dated January 19, 1999, between nFront,
                  Inc. and BancTec USA, Inc.

         10.4*+   Marketing Agreement, dated March 1, 1999, between nFront, Inc.
                  and BancTec USA, Inc.

         10.5*+   Marketing Agreement, dated July 22, 1997, between nFront, Inc.
                  and CNL Financial Corporation.

         10.6*    Stock Purchase and Stock Option Agreement, dated January 15,
                  1998, between nFront, Inc. and CNL Financial Corporation.

         10.7*+   Marketing Agreement, dated April 10, 1998, between nFront,
                  Inc. and BISYS, Inc.

         10.8*+   nBusiness Addendum to nFront Marketing Agreement, dated
                  January 5, 1999, between nFront, Inc. and BISYS, Inc.

         10.9*+   Marketing Agreement, dated July 22, 1997, between nFront, Inc.
                  and Sparak Financial Systems, Inc.

         10.10*+  nBusiness Addendum to nFront Marketing Agreement, dated
                  February 15, 1999, between nFront, Inc. and Sparak Financial
                  Systems, Inc. and Addendum, dated June 22, 1999.
</TABLE>


                                       42
<PAGE>   43



<TABLE>
<CAPTION>
       EXHIBIT
       NUMBER                         DESCRIPTION
       --------                       -----------
       <S>        <C>
         10.11*+  Letter Agreement, dated May 2, 1997, between nFront, Inc. and
                  First Commerce Bank.

         10.12*+  Home Banking Bill Payment Processing and Funds Transfer
                  Services Agreement, dated July 25, 1997 by and between nFront,
                  Inc. and Moneyline Express, Inc.; Assignment to M&I Data
                  Services, dated January 19, 1999; and Amendment, dated
                  February 4, 1999, by and between nFront, Inc. and M&I Data
                  Services.

         10.13*   Lease, dated July 9, 1998, between Schneider Atlanta, L.P., a
                  Georgia limited partnership, and nFront, Inc.

         10.14*   Form of Indemnification Agreement with directors of the
                  Registrant.

         10.15*   Form of Indemnification Agreement with certain officers of the
                  Registrant.

         10.16*   nFront, Inc. Stock Incentive Plan.

         10.17*   Amendment No. 1 to the nFront, Inc. Stock Incentive Plan.

         10.18*   nFront, Inc. Director Stock Option Plan.

         10.19*   Internet Data Center Services Agreement, dated March 31, 1999,
                  by and between Exodus Communications, Inc. and nFront, Inc.

         10.20*   Debenture Purchase Agreement, dated April 22, 1999, between
                  nFront, Inc. and Noro-Moseley Partners IV, L.P.

         10.21*   Form of Senior Subordinated Debenture, between nFront, Inc.
                  and Noro-Moseley Partners IV, L.P.

         10.22*   Form of Stock Purchase Warrant between nFront, Inc. and
                  Noro-Moseley Partners IV, L.P.

         10.23*   Form of nFront, Inc. Stock Incentive Plan Stock Option Grant
                  Certificate.

         10.24*   Consulting Agreement, dated May 25, 1999, by and between
                  nFront, Inc. and Brady L. Rackley.

         10.26*   Description of nFront, Inc. Cash Incentive Compensation Plan.

         10.27*   Form of nFront Internet Banking Services Agreement

         10.28*   Amended and Restated Amendment No. 2 to nFront, Inc. Stock
                  Incentive Plan

         10.29*   nFront, Inc. Employee Stock Purchase Plan

         10.30*   Loan Agreement, dated June 17, 1999, by and between
                  NationsBank, N.A. and nFront, Inc.

         10.31*   Security Agreement, dated June 17, 1999 between NationsBank,
                  N.A. and nFront, Inc.

         10.32*   $4,425,000 Promissory Note, dated June 17, 1999 between
                  NationsBank, N.A. and nFront, Inc.

         10.33*   $575,000 Promissory Note, dated June 17, 1999 between
                  NationsBank, N.A. and nFront, Inc.

         10.34*   Sublease Agreement, dated June 1, 1999 between Gulliver
                  Ritchie Associates, Inc. and nFront, Inc.

         10.35*   Form of nFront, Inc. Director Stock Option Plan Stock Option
                  Grant Certificate.

         10.36*+  Marketing Agreement, dated July 22, 1997, between nFront, Inc.
                  and First Commerce Technologies
</TABLE>




                                       43
<PAGE>   44





<TABLE>
<CAPTION>
        EXHIBIT
        NUMBER                      DESCRIPTION
        -------                     -----------
<S>     <C>       <C>
         24.1**   Powers of Attorney (included on signature page).

         27.1**   Financial Data Schedule (for SEC use only).

*        Filed as an exhibit to the Registrant's Registration Statement on Form
         S-1 (Registration No. 333-76955) filed with the Commission on April 23,
         1999, as amended and incorporated herein by reference.)

**       Filed herewith.

+        Specific portions of this exhibit have been omitted and filed
         separately with the Secretary of the Commission pursuant to the
         Registrant's Application Requesting Confidential Treatment under Rule
         406 of the Securities Act of 1933.
</TABLE>




















                                       44
<PAGE>   45



                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                              NFRONT, INC.


                              By: /s/ Brady L. "Tripp" Rackley III
                                  --------------------------------
Date:  September 27, 1999          Brady L. "Tripp" Rackley III
                                   Chairman of the Board of Directors and Chief
                                   Executive Officer

                                POWER OF ATTORNEY

         KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Brady L. "Tripp" Rackley III and Robert
L. Campbell, and each of them, his true and lawful attorneys-in-fact and agents,
with the full power of substitution and resubstitution for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments to
this Report, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that each of said attorney-in-fact or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
          SIGNATURE                                TITLE                               DATE

<S>                                    <C>                                         <C>
/s/ Brady L. "Tripp" Rackley III       Chairman of the Board and Chief             September 27, 1999
--------------------------------       Executive Officer (Principal
  Brady L. "Tripp" Rackley III         Executive Officer)


/s/ Jeffrey W. Hodges                  Chief Financial Officer and                 September 27, 1999
--------------------------------       Secretary (Principal Financial and
        Jeffrey W. Hodges              Accounting Officer)


/s/ Robert L. Campbell                 President, Chief Operating Officer          September 27, 1999
--------------------------------       and Director
       Robert L. Campbell


/s/ Brady L. Rackley                   Director                                    September 27, 1999
--------------------------------
        Brady L. Rackley


/s/ Thomas E. Greene III               Director                                    September 27, 1999
--------------------------------
      Thomas E. Greene III


/s/ Charles D. Moseley, Jr.            Director                                    September 27, 1999
--------------------------------
     Charles D. Moseley, Jr.


/s/ William H. Scott III               Director                                    September 27, 1999
--------------------------------
      William H. Scott III


/s/ James A. Verbrugge                 Director                                    September 27, 1999
--------------------------------
       James A. Verbrugge
</TABLE>



                                       45


<PAGE>   46



                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                     PAGE
                                                                                     ----
<S>                                                                                  <C>
 FINANCIAL STATEMENTS:

 Report of Independent Auditors...........................................            47

 Balance Sheets as of June 30, 1998 and 1999..............................            48

 Statements of Operations for the Period from June 17, 1996
   (inception) through June 30, 1997 and for the Years Ended
   June 30, 1998 and 1999.................................................            49

 Statements of Redeemable Convertible Preferred Stock and
   Stockholders' Equity (Deficit) for the Period from June 17,
   1996 (inception) through June 30, 1997 and for the Years
   Ended June 30, 1998 and 1999...........................................            50

 Statements of Cash Flows for the Period from June 17, 1996
   (inception) through June 30, 1997 and for the Years Ended
   June 30, 1998 and 1999.................................................            51

 Notes to Financial Statements............................................            52
</TABLE>







                                       46
<PAGE>   47


                         REPORT OF INDEPENDENT AUDITORS


To the Board of Directors and Stockholders
nFront, Inc.

         We have audited the accompanying balance sheets of nFront, Inc. (the
"Company") as of June 30, 1998 and 1999 and the related statements of
operations, redeemable convertible preferred stock and stockholders' equity
(deficit) and cash flows for the period from June 17, 1996 (inception) through
June 30, 1997, and for the two years in the period ended June 30, 1999. 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 financial statements referred to above present
fairly, in all material respects, the financial position of nFront, Inc. at June
30, 1998 and 1999 and the results of its operations and its cash flows for the
period from June 17, 1996 (inception) through June 30, 1997, and for the two
years in the period ended June 30, 1999 in conformity with generally accepted
accounting principles.


                                               /s/ Ernst & Young LLP

Atlanta, Georgia
July 28, 1999










                                       47
<PAGE>   48


                                  NFRONT, INC.

                                 BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                           JUNE 30,            JUNE 30,
                                                                            1998                 1999
                                                                         -----------         -----------
<S>                                                                      <C>                 <C>
                                     ASSETS

Current assets:
  Cash and cash equivalents .....................................        $ 2,521,384         $   128,434
  Accounts receivable ...........................................            213,118           2,047,915
  Prepaid expenses and other assets .............................              2,811              41,859
  Refundable income taxes .......................................             51,850              47,198
                                                                         -----------         -----------
         Total current assets ...................................          2,789,163           2,265,406
Property and equipment:
  Projects in progress ..........................................                 --             358,107
  Leasehold improvements ........................................                 --              32,342
  Software ......................................................                 --             420,741
  Furniture and fixtures ........................................            197,541             353,421
  Equipment .....................................................             54,199             878,624
                                                                         -----------         -----------
                                                                             251,740           2,043,235
  Less accumulated depreciation .................................            (47,506)           (198,218)
                                                                         -----------         -----------
                                                                             204,234           1,845,017
Other assets ....................................................              4,731             984,803
                                                                         -----------         -----------
   Total assets .................................................        $ 2,998,128         $ 5,095,226
                                                                         ===========         ===========


                          LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
  Current portion of long-term debt .............................        $        --         $   777,880
  Accounts payable ..............................................             86,446           1,412,884
  Accrued liabilities ...........................................            191,195           1,840,588
  Deferred revenue ..............................................            554,317           1,331,847
                                                                         -----------         -----------
     Total current liabilities ..................................            831,958           5,363,199
Long-term debt, net of current portion ..........................                 --             307,566
Redeemable convertible preferred stock, no par value,
  10,000,000 shares authorized; issuable in series:
  Series A -- 255,885 shares authorized,
    issued and outstanding at June 30, 1998 and 1999,
    liquidation preference of $2,782,873 at June 30, 1999 .......          2,375,561           2,648,442
Stockholders' deficit:
  Common stock, no par value; 70,000,000 shares
    authorized; 8,132,993 and
    8,661,867 shares issued and outstanding at
    June 30, 1998 and 1999, respectively ........................            265,642             642,761
  Subscription receivable .......................................               (777)                 --
  Accumulated deficit ...........................................           (474,256)         (3,866,742)
                                                                         -----------         -----------
     Total stockholders' deficit ................................           (209,391)         (3,223,981)
                                                                         -----------         -----------
     Total liabilities and stockholders' deficit ................        $ 2,998,128         $ 5,095,226
                                                                         ===========         ===========
</TABLE>

                             See accompanying notes.




                                       48
<PAGE>   49

                                  NFRONT, INC.

                            STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                PERIOD FROM
                                               JUNE 17, 1996
                                                (INCEPTION)               YEAR ENDED JUNE 30,
                                                  THROUGH           --------------------------------
                                               JUNE 30, 1997            1998                 1999
                                               -------------        ------------         -----------
<S>                                            <C>                  <C>                  <C>
Revenues:
  Implementation fees ..................        $   358,245         $    722,859         $ 3,158,904
  Monthly service fees .................             34,263              185,283           1,446,092
  Other ................................            458,643              174,287             360,596
                                                -----------         ------------         -----------
  Total revenues .......................            851,151            1,082,429           4,965,592
Operating expenses:
  Cost of implementation ...............            246,544              346,054           1,073,484
  Cost of Internet banking data
     center ............................             61,681               96,732             455,748
  Selling and marketing ................            194,450              568,928           3,170,714
  Product development ..................            106,429              170,419           1,173,696
  General and administrative ...........            157,274              440,099           2,371,784
  Depreciation .........................             13,780               33,726             150,712
                                                -----------         ------------         -----------
Total operating expenses ...............            780,158            1,655,958           8,396,138
                                                -----------         ------------         -----------
Operating income (loss) ................             70,993             (573,529)         (3,430,546)
Other (income) expense:
  Interest income ......................             (3,672)             (26,692)            (72,511)
  Interest expense .....................                 --                2,084              34,451
                                                -----------         ------------         -----------
                                                     (3,672)             (24,608)            (38,060)
                                                -----------         ------------         -----------
Income (loss) before income taxes ......             74,665             (548,921)         (3,392,486)
Income tax expense (benefit) ...........             25,925              (25,925)                 --
                                                -----------         ------------         -----------
Net income (loss) ......................             48,740             (522,996)         (3,392,486)
Accretion on redeemable convertible
  preferred stock ......................                 --              (35,733)           (272,881)
                                                -----------         ------------         -----------

Net income (loss) attributable
  to common stock ......................        $    48,740         $   (558,729)        $(3,665,367)
                                                ===========         ============         ===========
Net income (loss) per common share
 -- basic and diluted ..................        $      0.01         $      (0.07)        $     (0.43)
                                                ===========         ============         ===========
Weighted average shares outstanding
 -- basic and diluted ..................          5,079,167            8,033,223           8,543,501
                                                ===========         ============         ===========
Unaudited pro forma net loss per share
 -- basic and diluted ..................                            $      (0.06)        $     (0.32)
                                                                    ============         ===========
Unaudited pro forma weighted average
  shares outstanding -- basic and
  diluted ..............................                               8,300,746          10,577,786
                                                                    ============         ===========
</TABLE>

                             See accompanying notes.





                                       49
<PAGE>   50


                                  NFRONT, INC.

              STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
                       AND STOCKHOLDERS' EQUITY (DEFICIT)
          PERIOD FROM JUNE 17, 1996 (INCEPTION) THROUGH JUNE 30, 1997,
                 AND FOR THE YEARS ENDED JUNE 30, 1998 AND 1999


<TABLE>
<CAPTION>
                                       REDEEMABLE CONVERTIBLE                                                           TOTAL
                                           PREFERRED STOCK             COMMON STOCK                     RETAINED    STOCKHOLDERS'
                                      -----------------------   ------------------------  SUBSCRIPTION  EARNINGS       EQUITY
                                       SHARES       AMOUNT        SHARES       AMOUNT      RECEIVABLE   (DEFICIT)     (DEFICIT)
                                      --------     ----------   ----------     ---------     -------   -----------  -------------
<S>                                    <C>         <C>           <C>           <C>        <C>          <C>           <C>
Balance at June 17,
  1996 (inception)................          --     $       --           --     $      --     $    --   $        --   $        --
  Proceeds from issuance
   of common stock................          --             --    7,950,000         1,375      (1,375)           --            --
  Payment of stock
   subscription receivable........          --             --           --            --         500            --           500
Net income........................          --             --           --            --          --        48,740        48,740
                                      --------     ----------   ----------     ---------     -------   -----------   ------------
Balance at June 30,
  1997............................          --             --    7,950,000         1,375        (875)       48,740        49,240
  Proceeds from issuance
   of common stock................          --             --      182,993       300,000          --            --       300,000
  Proceeds from the
    issuance of redeemable
    convertible preferred
   stock net of issuance
    costs of $160,172.............     255,885      2,339,828           --            --          --            --            --
  Accretion on redeemable
    convertible preferred
    stock.........................          --         35,733           --       (35,733)         --            --       (35,733)
  Payment of stock
    subscription
    receivable....................          --             --           --            --          98            --            98
  Net loss........................          --             --           --            --          --      (522,996)     (522,996)
                                      --------     ----------   ----------     ---------     -------   -----------   ------------
Balance at June 30,
  1998............................     255,885      2,375,561    8,132,993       265,642        (777)     (474,256)     (209,391)
  Proceeds from issuance
    of common stock...............          --             --      528,874       650,000          --            --       650,000
  Accretion on redeemable
    convertible preferred
    stock.........................          --        272,881           --      (272,881)         --            --      (272,881)
Payment of stock
  subscription receivable                   --             --           --            --         777            --           777
Net loss..........................          --             --           --            --          --    (3,392,486)   (3,392,486)
                                      --------     ----------   ----------     ---------     -------   -----------   ------------
Balance at June 30,
  1999............................     255,885     $2,648,442    8,661,867     $ 642,761     $    --   $(3,866,742)  $(3,223,981)
                                      ========     ==========   ==========     =========     =======   ===========   ===========
</TABLE>

                             See accompanying notes.



                                       50
<PAGE>   51


                                  NFRONT, INC.

                            STATEMENTS OF CASH FLOWS



<TABLE>
<CAPTION>
                                                                   PERIOD FROM
                                                                  JUNE 17, 1996
                                                                   (INCEPTION)                YEAR ENDED JUNE 30,
                                                                     THROUGH          -------------------------------
                                                                  JUNE 30, 1997           1998                1999
                                                                  -------------       -----------         -----------
<S>                                                               <C>                 <C>                 <C>
OPERATING ACTIVITIES:
Net income (loss) ..........................................        $  48,740         $  (522,996)        $(3,392,486)
Adjustments to reconcile net income (loss) to net cash
  provided by (used in) operating activities:
  Depreciation .............................................           13,780              33,726             150,712
  Changes in operating assets and liabilities:
    Accounts receivable ....................................          (37,793)           (175,325)         (1,834,797)
    Prepaid expenses and other assets ......................           (3,405)             (4,137)            (39,048)
    Income taxes ...........................................           25,925             (51,850)              4,652
    Accounts payable .......................................           (3,110)            (20,355)          1,326,438
    Accrued liabilities ....................................          213,900             (22,705)          1,649,393
    Deferred revenue .......................................           32,404             521,913             777,530
                                                                    ---------         -----------         -----------
Net cash provided by (used in)
  operating activities .....................................          290,441            (241,729)         (1,357,606)

INVESTING ACTIVITIES:
Purchase of property and equipment .........................          (47,416)           (120,338)         (1,791,495)
                                                                    ---------         -----------         -----------
Net cash used in investing activities ......................          (47,416)           (120,338)         (1,791,495)

FINANCING ACTIVITIES:
Proceeds from stockholder loan .............................               --              90,000                 777
Repayment of stockholder loan ..............................               --             (90,000)                 --
Proceeds from bank credit facility .........................               --                  --           1,835,446
Repayment of bank credit facility ..........................               --                  --            (750,000)
Proceeds from issuance of preferred stock ..................               --           2,339,828                  --
Proceeds from issuance of common stock .....................              500             300,098             650,000
Increase in stock offering costs ...........................               --                  --            (980,072)
                                                                    ---------         -----------         -----------
Net cash provided by financing activities ..................              500           2,639,926             756,151
                                                                    ---------         -----------         -----------
Net increase (decrease) in cash and
  cash equivalents .........................................          243,525           2,277,859          (2,392,950)
Cash and cash equivalents at the
  beginning of the period ..................................               --             243,525           2,521,384
                                                                    ---------         -----------         -----------
Cash and cash equivalents at the end
  of the period ............................................        $ 243,525         $ 2,521,384         $   128,434
                                                                    =========         ===========         ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
 AND FINANCING ACTIVITY:
Assets acquired in exchange for programming services .......        $  83,986         $        --         $        --
                                                                    =========         ===========         ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest .....................................        $      --         $        --         $    30,128
                                                                    =========         ===========         ===========
Cash paid for income taxes .................................        $      --         $    51,850         $        --
                                                                    =========         ===========         ===========
</TABLE>

                             See accompanying notes.



                                       51
<PAGE>   52


                                  NFRONT, INC.

                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 1999


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

         nFront, Inc. (the "Company") was incorporated on June 17, 1996 (date of
inception). As the Company had minimal activity between the date of inception
and June 30, 1996, the statements of operations, stockholders' equity (deficit)
and cash flows for the period ended June 30, 1997 include the period
June 17, 1996 to June 30, 1996. The Company's normal operating cycle is
twelve months.

DESCRIPTION OF BUSINESS

         The Company provides full-service Internet banking solutions to small
to mid-sized banks. The solutions provided by the Company include development
and implementation services, web site design, maintenance and hosting, customer
service training and support, and marketing consulting.

USE OF ESTIMATES

         The preparation of the Company's financial statements in conformity
with generally accepted accounting principles required management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates and such
differences may be material to the financial statements.

CASH AND CASH EQUIVALENTS

         The Company considers unrestricted, highly liquid investments with
initial maturities of less than three months to be cash equivalents.

PROPERTY AND EQUIPMENT

         Property and equipment are recorded at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of assets ranging
from three to seven years. Repairs and maintenance are charged to expense as
incurred.

PRODUCT DEVELOPMENT COSTS

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

REVENUE RECOGNITION

         The Company earns revenue from implementation fees, monthly user and
transaction fees and marketing and training support materials and services.




                                       52
<PAGE>   53

         The non-refundable implementation fee, which is billable to the client
bank when the contract is executed, is recognized as revenue ratably over the
implementation period, which currently averages approximately three months. The
Company's implementation costs are generally incurred ratably over the
implementation period. The Company records the unrecognized portion of billable
implementation fees as deferred revenue. Revenue from monthly user fees and
transaction fees are recognized monthly based on the number of users with
accounts on the bank's Internet branch at the end of the month and the
transactions occurring during the month. The service contracts with the banks
are typically five year exclusive agreements. The revenue from marketing and
training support materials and services is recognized at the time the materials
are delivered or the services are provided.

         In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 97-2, "Software Revenue Recognition." SOP
97-2 was effective July 1, 1998 and generally requires revenue earned on
software arrangements involving multiple elements such as software products,
upgrades, enhancements, post-contract customer support, installation and
training to be allocated to each element based on the relative fair values of
the elements. There was no material change to the Company's accounting for
revenue as a result of the adoption of SOP 97-2.

ADVERTISING

         The Company expenses the cost of advertising as incurred. Advertising
expense was $5,116, $59,710 and $490,936 for the period from June 17, 1996
(inception) through June 30, 1997, and for the years ended June 30, 1998 and
1999, respectively.

STOCK BASED COMPENSATION

         SFAS No. 123, Accounting for Stock Based Compensation ("SFAS 123"),
sets forth accounting and reporting standards for stock based employee
compensation plans. As permitted by SFAS 123, the Company accounts for stock
option grants in accordance with APB Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations ("APB 25"). Under APB 25, no
compensation expense is recognized for stock options granted to employees at
fair market value. To date, all of the Company's stock option grants have been
made with an option exercise price equal to or greater than the fair market
value of the underlying common stock and, accordingly, no compensation expense
has been recognized.

FAIR VALUE OF FINANCIAL INSTRUMENTS

         Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of cash and cash equivalents and
accounts receivable. The carrying amounts reported in the balance sheet for cash
and cash equivalents and accounts receivable approximate their fair values.

CONCENTRATION OF CREDIT RISK

         The Company's revenues are primarily derived from companies located in
the United States. The Company performs periodic credit evaluations of its
customers' financial condition and does not require collateral. The Company
provides for estimated credit losses at the time of sale.

         The Company's largest customers comprised the following percentages of
total revenues:


<TABLE>
<CAPTION>
                                                       PERIOD FROM
                                                      JUNE 17, 1996
                                                       (INCEPTION)       YEAR ENDED JUNE 30,
                                                         THROUGH       -----------------------
                                                      JUNE 30, 1997       1998         1999
                                                      -------------       ----         ----

                <S>                                   <C>                 <C>          <C>
                Client bank...................             57%              14%          --
                Strategic alliance partner....             --               --           29%
</TABLE>




                                       53
<PAGE>   54

         Accounts receivable from three client banks totaled approximately
$110,000 as of June 30, 1998. Accounts receivable from a strategic alliance
partner totaled approximately $303,000 as of June 30, 1999.

RECLASSIFICATIONS

         Certain amounts in the financial statements for the period from June
17, 1996 (inception) through June 30, 1997 and for the year ended June 30, 1998
have been reclassified to conform to the presentation for the year ended June
30, 1999.

NEW ACCOUNTING PRONOUNCEMENTS

         Effective July 1, 1998, the Company adopted SFAS No. 130, "Reporting
for Comprehensive Income," ("SFAS 130"). SFAS 130 requires disclosures of
components of non-stockholder changes in equity in interim periods and
additional disclosures of components of non-stockholder changes in equity on an
annual basis. Adoption of SFAS 130 had no impact on the Company's results of
operations or financial position.

         In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information,"
("SFAS 131"). The Company adopted SFAS 131 effective July 1, 1998. The adoption
of this standard did not have a material effect on the Company's financial
statement disclosures.

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", ("SFAS 133").
SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, (collectively referred to as derivatives), and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. The standard is effective for all fiscal quarters of
all fiscal years beginning after June 15, 2000. The standard is not expected to
have a significant impact on the Company's financial statements.

         In March 1998, the AICPA issued Statement of Position 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP
98-1"). The Company will adopt SOP 98-1 effective July 1, 1999. The Company has
not completed its evaluation of the impact of adopting SOP 98-1 but does not
expect the adoption to have a material effect on its financial position or
results of operations.

2.   LEASE COMMITMENTS

         The Company leases office facilities and certain equipment under
separate operating lease agreements which expire at various dates through 2003.
The Company has the option to renew the office facilities lease for an
additional five years through 2008. Rental expense under these operating leases
was $25,097, $52,361 and $232,792 for the period from June 17, 1996 (inception)
through June 30, 1997 and for the years ended June 30, 1998 and 1999,
respectively. Future commitments under noncancelable operating leases
outstanding as of June 30, 1999 are as follows:



<TABLE>
<CAPTION>
                                                          OPERATING
                                                            LEASE
               YEAR                                       PAYMENTS
               ----                                      ----------
               <S>                                       <C>
               2000................................      $  286,230
               2001................................         241,474
               2002................................         231,759
               2003................................         223,251
               2004................................          37,392
               Thereafter..........................              --
                                                         ----------
                                                         $1,020,106
                                                         ==========
</TABLE>




                                       54
<PAGE>   55



3.   LONG TERM DEBT

         In August 1998, the Company entered into a loan agreement with a bank
under which it could borrow up to $750,000. Amounts borrowed under this
agreement were charged interest at the bank's prime rate plus 1% per annum. This
loan was repaid as of June 30, 1999.

         On April 22, 1999, the Company executed a senior subordinated debenture
agreement with a stockholder under which the Company may borrow up to $5.0
million through the earlier of April 22, 2000 or the closing of an underwritten
public offering of the Company's common stock. Unanimous approval of the
Company's Board of Directors is required to borrow in excess of $3 million under
the agreement. Interest on any borrowings under the senior subordinated
debenture accrues at the prime rate plus 3% per annum, payable at maturity. In
exchange for the stockholder's commitment under this agreement, the Company
agreed to issue a three-year warrant to purchase shares of common stock, the
number of shares and exercise price of which were determined by reference to the
price per share in the initial public stock offering. Based on the price per
share in the initial public stock offering, the warrant entitles the stockholder
to purchase 50,000 shares of common stock at $10.00 per share.

    On June 17, 1999, the Company entered into a loan agreement which is
comprised of a $4,425,000 revolving line of credit (the "Line"), which bears
interest at Libor plus 1.75% per annum and a $575,000 term loan (the "Loan"),
which bears interest at the Prime Rate plus 1.0% per annum. The Line is due on
the earliest to occur of: (i) December 31, 1999; (ii) the consummation of a
public offering of the Company's common stock; or (iii) 25 days after request
for payment made by the lender. The Loan is due in 26 equal monthly installments
commencing on July 15, 1999. The Line and the Loan are secured by substantially
all of the assets of the Company and the Company used the proceeds of the Loan
to repay long-term debt. As of June 30, 1999, the outstanding borrowings under
the Line and the Loan were $512,500 and $572,946, respectively. All outstanding
borrowings under this loan agreement were repaid in July 1999 using proceeds
from the initial public stock offering. As a result of the consummation of the
initial public stock offering, this loan agreement is no longer in existence.


4.   COMMON STOCK

         On January 14, 1998, the Company declared a fifty-for-one stock split
of the Company's common stock. On September 16, 1998, the Company declared a
three-for-one stock split of the Company's common stock. On May 28, 1999, the
Company declared a 2.65 for 1 stock split of the Company's common stock. All
common stock, option and warrant information, weighted average shares and
earnings per share information has been retroactively restated to reflect the
common stock splits.

         As of June 30, 1999, the Company has reserved 4,523,185 shares of
common stock for future issuance upon the conversion of Series A Redeemable
Convertible Preferred Stock into common stock, issuance of common stock under
the Employee Stock Purchase Plan and upon the exercise of options to purchase
common stock.

         On April 21, 1999, the Company's Board of Directors increased the
number of authorized capital stock from 5,000,000 to 70,000,000 shares of common
stock and from 1,000,000 to 10,000,000 shares of preferred stock.



                                       55
<PAGE>   56

5.   REDEEMABLE CONVERTIBLE PREFERRED STOCK

         In May, 1998, the Company entered into an agreement to sell 255,885
shares of Series A Redeemable Convertible Preferred Stock (Series A) for $9.77
per share. In connection with the sale of Series A, the Company paid a fee of
$125,000 to an investment banking company controlled by one of the Company's
directors. This fee was recorded as an issuance cost.

         The holders of Series A have the right to convert all or part of the
shares of Series A into common stock initially on a one-for-one basis subject to
certain conversion ratio adjustments should the price of the common stock for
any transaction subsequent to the agreement be lower than $9.77 per share or
automatically if the Company completes an initial public offering at a specified
price per share of common stock which results in aggregate gross proceeds of not
less than $15.0 million. As a result of stock splits subsequent to the issuance
of the Series A, the Series A conversion price has been reduced to $1.23 per
share which results in a conversion ratio of 7.95-for-one. The holders of Series
A vote together with the holders of common stock as a single class on all
actions to be taken by the stockholders of the Company. The redemption price of
the Series A is equal to the original issuance price of the Series A plus a 10%
compound annual rate of return. The carrying amount of Series A is being
increased by periodic accretions so that its carrying amount will equal the
redemption amount at the redemption date.

         On July 2, 1999, in connection with the closing of the Company's
initial public stock offering, the Series A was converted into common stock.
Redeemable convertible preferred stock and stockholders' deficit are presented
below on an unaudited pro forma basis as of June 30, 1999 as if the conversion
of the outstanding Series A into 2,034,285 shares of the Company's common stock
had taken place at June 30, 1999:

<TABLE>
                     <S>                                             <C>
                     Redeemable convertible preferred stock          $       --
                     Stockholders' deficit:
                       Common stock, 10,696,152 pro forma shares
                        issued and outstanding                         3,291,203
                       Accumulated deficit                            (3,866,742)
                                                                     -----------
                     Total stockholders' deficit                     $  (575,539)
                                                                     ===========
</TABLE>

6.   STOCK INCENTIVE PLANS

     Employee Stock Incentive Plan

         In January 1998, the Company's Board of Directors approved a stock
incentive plan whereby shares of the Company's common stock were reserved for
grants to employees of the Company. At June 30, 1999, there were 2,188,900
shares available for grant under the employee stock incentive plan. Options
granted under the plan generally vest over a four year period and expire 10
years from the date of grant.

         A summary of the Company's stock options granted to employees, and
related information for the fiscal year ended June 30, 1999 follows:


<TABLE>
<CAPTION>
                                                                          NUMBER            WEIGHTED
                                                                            OF               AVERAGE
                                                                         OPTIONS         EXERCISE PRICE
                                                                         -------         --------------
<S>                                                                     <C>              <C>
Outstanding at June 30, 1998 .................................                  --           $     --
  Granted ....................................................           1,022,415               1.71
  Canceled ...................................................              (2,402)              1.78
                                                                        ----------
Outstanding at June 30, 1999 .................................           1,020,013           $   1.71
                                                                        ==========           ========
Exercisable at June 30, 1999 .................................              31,137           $   1.23
                                                                        ==========           ========
Weighted average fair value of options granted during year ...          $     0.41
                                                                        ==========
</TABLE>




                                       56
<PAGE>   57
         The following table summarizes information about stock options
outstanding at June 30, 1999:

<TABLE>
<CAPTION>
                                    OPTIONS OUTSTANDING                          OPTIONS EXERCISABLE
                    ---------------------------------------------------          -------------------
       RANGE            NUMBER        WEIGHTED AVERAGE      WEIGHTED         NUMBER             WEIGHTED
        OF          OUTSTANDING AT        REMAINING          AVERAGE       EXERCISABLE          AVERAGE
  EXERCISE PRICES    JUNE 30, 1999    CONTRACTUAL LIFE   EXERCISE PRICE  AT JUNE 30, 1999    EXERCISE PRICE
  ---------------   --------------    ----------------   --------------  ----------------    --------------
  <S>               <C>             <C>                  <C>             <C>                 <C>
   $     1.23           959,782          9.25 Years          $ 1.23           31,137             $ 1.23
   $8.98 - $10.00        60,231          9.84 Years          $ 9.42               --                 --
                      ---------                                              -------
                      1,020,013          9.28 Years          $ 1.71           31,137             $ 1.23
                      =========                                              =======
</TABLE>


         Pro forma information regarding net income (loss) per share is required
by SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method. The fair value of these
options was estimated at the date of grant using the Minimum Value option
pricing model with the following weighted-average assumptions for the fiscal
year ended June 30, 1999: risk-free interest rates of 5.39%; no dividend yields;
and a weighted-average expected life of an option of 5 years.

         The Minimum Value option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.

         For purposes of pro forma disclosures, the estimated fair value of the
options granted to employees is amortized to expense over the vesting period.
The Company's pro forma information follows:


<TABLE>
<CAPTION>
                                                                YEAR ENDED
                                                              JUNE 30, 1999
                                                              -------------
                 <S>                                          <C>
                 SFAS 123 pro forma net loss.............      $(3,724,094)
                                                               ===========
                 SFAS 123 pro forma loss per share.......      $     (0.44)
                                                               ===========
</TABLE>

     Director Stock Option Plan

         On April 21, 1999, the Company's Board of Directors approved the
Company's Director Stock Option Plan and has reserved 200,000 shares of the
Company's common stock for issuance under the plan. As of June 30, 1999, there
have been no options granted under this plan.

     Employee Stock Purchase Plan

         On May 25, 1999, the Company's Board of Directors approved the nFront,
Inc. Employee Stock Purchase Plan which, subject to certain terms and
conditions, will allow employees to purchase common stock through payroll
deductions for 85% of the fair market value of the common stock. Upon adoption,
100,000 shares of common stock were reserved for issuance under the plan, and
the number of shares available for issuance under the plan shall automatically
increase on the last trading day of each fiscal year, beginning with the fiscal
year ending June 30, 2000, by a number of shares equal to one-quarter percent
(0.25%) of the total number of shares of common stock outstanding.

7.   WARRANTS

         During January 1998, the Company entered into a transaction with a
reseller of the Company's services to purchase 182,993 shares of the Company's
common stock at $1.63 per share in cash. In connection with this transaction,
the Company agreed to issue warrants to purchase shares of common stock based on
the number of customer contracts the reseller is able to enter into prior to
September 30, 1998 and January 1, 2000. The reseller



                                       57
<PAGE>   58

did not enter into the required number of contracts at the September 30, 1998
target date. If the reseller enters into a certain number of contracts prior to
January 1, 2000, then the reseller will receive up to 114,988 warrants to
purchase common stock at $1.63 per share. Any issued and unexercised warrants
will expire on September 30, 2001. The value of the warrants will be determined
when it is probable that the reseller will enter into the target number of
contracts.

8.   INCOME TAXES

         The income tax provision (benefit) consists of the following:

<TABLE>
<CAPTION>
                                                       PERIOD FROM
                                                      JUNE 17, 1996
                                                       (INCEPTION)                YEAR ENDED JUNE 30,
                                                         THROUGH            -------------------------------
                                                      JUNE 30, 1997              1998              1999
                                                      -------------              ----              ----
                <S>                                   <C>                   <C>                <C>
                Current:
                  Federal...............              $      19,448         $   (19,448)       $         --
                  State.................                      6,477              (6,477)                 --
                                                      -------------         -----------        ------------
                                                      $      25,925         $   (25,925)       $         --
                                                      =============         ===========        ============
</TABLE>


         A reconciliation of the provision for income taxes (benefit) to the
federal statutory rate is as follows:

<TABLE>
<CAPTION>
                                                      PERIOD FROM
                                                     JUNE 17, 1996                YEAR ENDED JUNE 30,
(INCEPTION)                                             THROUGH             -------------------------------
                                                     JUNE 30, 1997               1998               1999
                                                     -------------               ----               ----
                <S>                                   <C>                   <C>               <C>
                Tax at statutory rate...              $    18,146           $  (208,479)      $  (1,289,145)
                Permanent differences...                    7,779                 5,089               6,214
                Other...................                       --                 8,800             (14,369)
                Valuation allowance.....                       --               168,665           1,297,300
                                                      -----------           -----------       -------------
                                                      $    25,925           $   (25,925)      $          --
                                                      ===========           ===========       =============
</TABLE>


         Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax liabilities and assets are as follows:

<TABLE>
<CAPTION>
                                                                         JUNE 30,
                                                               ---------------------------
                                                                    1998            1999
                                                                    ----            ----
                 <S>                                           <C>             <C>
                 Deferred tax assets:
                   Net operating loss....................      $    173,858    $  1,533,370
                   Other.................................                --          19,488
                                                               ------------    ------------
                 Total deferred tax assets...............           173,858       1,552,858
                 Deferred tax liabilities:
                   Depreciation..........................            (5,193)        (86,893)
                                                               ------------    ------------
                 Total deferred tax liabilities..........            (5,193)        (86,893)
                                                               ------------    ------------
                 Valuation allowance.....................          (168,665)     (1,465,965)
                                                               ------------    ------------
                 Net deferred taxes......................      $         --    $         --
                                                               ============    ============
</TABLE>


         For federal income tax purposes at June 30, 1999, the Company has net
operating loss carryforwards of approximately $4.0 million, of which
approximately $.5 million and $3.5 million begin expiring in 2013 and 2019,
respectively. Utilization of the Company's net operating loss carryforwards
could become subject to annual limitation due to the "change of ownership"
provisions of the Internal Revenue Code and similar state provisions. For
financial reporting purposes, a valuation allowance has been recognized to
reduce net deferred tax assets to zero due to uncertainties with respect to the
Company's ability to realize the benefit of net deferred income tax assets.



                                       58
<PAGE>   59

9.   401(K) PLAN

         In April, 1998, the Company adopted the nFront, Inc. Retirement Plan
(the "Plan"), which qualifies under Section 401(k) of the Internal Revenue Code.
Employees are eligible to participate in the plan after three months of service.
Participants may contribute a percentage of their base salaries up to the
maximum allowable under Section 401(k). Contributions made to the Plan by the
Company are discretionary. No employer contributions to the Plan have been made
through June 30, 1999.

10.  RELATED PARTY TRANSACTIONS

         In January 1997, the Company entered into an agreement with a company
owned by certain principal shareholders of the Company whereby the Company would
obtain certain furniture and equipment in exchange for programming services. The
parties valued these assets at $83,986 and the obligation was satisfied upon the
provision of $9,901 and $74,085 of programming services in the period from June
17, 1996 (inception) through June 30, 1997 and year ended June 30, 1998.

         In October 1997, the Company loaned a stockholder $20,000, which was
repaid in February 1998. The loan was unsecured and bore interest at 10.5% per
annum.

         During the period from October 1997 through January 1998, the Company
borrowed $90,000 from its Chief Executive Officer. The loans were unsecured and
bore interest at 10.5% per annum, and were repaid in February 1998.

         One of the Company's shareholders is a reseller of the Company's
services. During the year ended June 30, 1998 this reseller accounted for
$136,872 of the Company's revenues. There were no revenues from this reseller
during the fiscal year ended June 30, 1999.

11.  NET INCOME (LOSS) PER SHARE

         Net income (loss) per share has been computed in accordance with SFAS
128 which requires disclosure of basic and diluted earnings per share. Basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share includes the impact of
potentially dilutive securities. Potentially dilutive options to purchase
1,020,013 shares of common stock with a weighted average exercise price of $1.74
per share outstanding at June 30, 1999 and 2,034,285 common shares issuable upon
conversion of the redeemable convertible preferred stock were not included in
the computation of historical diluted loss per share for the periods outstanding
because the Company reported a loss and, therefore, the effect would be
anti-dilutive. There were no potentially dilutive securities outstanding during
the period from June 17, 1996 (inception) through June 30, 1997 and for the
fiscal year ended June 30, 1998.



                                       59
<PAGE>   60


         The following table sets forth the reconciliation of the numerators of
the basic and diluted income (loss) per share:

<TABLE>
<CAPTION>
                                                            PERIOD FROM
                                                           JUNE 17, 1996
                                                            (INCEPTION)        YEAR ENDED JUNE 30,
                                                              THROUGH      --------------------------
                                                           JUNE 30, 1997        1998           1999
                                                           -------------        ----           ----
           <S>                                             <C>            <C>             <C>
           Historical:
              Net income (loss).......................      $   48,740     $  (522,996)    $(3,392,486)

              Accretion on redeemable convertible
               preferred stock........................              --         (35,733)       (272,881)
                                                            ----------     -----------     -----------
              Net income (loss) attributable to common
               stock..................................      $   48,740     $  (558,729)    $(3,665,367)
                                                            ==========     ===========     ===========
              Net income (loss) per common share
              -- basic and diluted....................      $     0.01     $     (0.07)    $     (0.43)
                                                            ==========     ===========     ===========
              Weighted average shares outstanding--
               basic and diluted......................       5,079,167       8,033,223       8,543,501
                                                            ==========     ===========     ===========

           Unaudited pro forma:
              Net income (loss).......................      $   48,740     $  (522,996)    $(3,392,486)
                                                            ==========     ===========     ===========
              Weighted average shares outstanding
              -- basic and diluted (from above).......       5,079,167       8,033,223       8,543,501

              Adjustment to reflect assumed conversion
               of preferred stock from the date of
               issuance...............................              --         267,523       2,034,285
                                                            ----------     -----------     -----------
              Unaudited pro forma weighted average
               shares outstanding -- basic and diluted       5,079,167       8,300,746      10,577,786
                                                             =========       =========      ==========
              Unaudited pro forma net income (loss)
               per share -- basic and diluted.........      $     0.01     $     (0.06)    $     (0.32)
                                                            ==========     ===========     ===========
</TABLE>

12.  SUBSEQUENT EVENTS

         The Company received the proceeds from its initial public stock
offering of 3.5 million shares of common stock on July 2, 1999. The offering
price was $10.00 per share and raised approximately $32.5 million in new
capital, net of underwriter fees and other offering costs.






                                       60