-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G45n3nhYeB8GrJuHjpC5nbEIo7S3MPsiri7xwQdV9zf5kxlxOTpR6kxGu64Q9nuf /iR49I96aj52UYXj0BGWKA== 0001047469-97-006537.txt : 19971203 0001047469-97-006537.hdr.sgml : 19971203 ACCESSION NUMBER: 0001047469-97-006537 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971202 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW FRONTIER MEDIA INC /CO/ CENTRAL INDEX KEY: 0000847383 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE & VIDEO TAPE DISTRIBUTION [7822] IRS NUMBER: 841084061 STATE OF INCORPORATION: CO FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 033-27494 FILM NUMBER: 97731283 BUSINESS ADDRESS: STREET 1: 1050 WALNUT ST STREET 2: STE 301 CITY: BOULDER STATE: CO ZIP: 80302 BUSINESS PHONE: 3034440632 FORMER COMPANY: FORMER CONFORMED NAME: NATIONAL SECURITIES HOLDING CORPORATION DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: STRATEGIC ACQUISITIONS INC DATE OF NAME CHANGE: 19600201 10QSB 1 FORM 10QSB SECURITIES & EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended: September 30, 1997 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: 33-27494-FW New Frontier Media, Inc. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Colorado 84-1084061 ------------------------ ----------------------------- (State of Incorporation) (I.R.S. Employer I.D. Number) 1050 Walnut, Suite 301, Boulder, Colorado 80302 ----------------------------------------------------- (Address of principal executive offices and Zip Code) (303) 444-0632 ---------------------------------------------------- (Registrant's telephone number, including area code) 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 APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the registrant's classes of common stock: 4,195,368 common shares, including 189,000 Unit Shares, were outstanding as of September 30, 1997. NEW FRONTIER MEDIA, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) ASSETS
September 30, March 31, 1997 1997 ------------- ---------- CURRENT ASSETS Cash $ 296,015 $ 109,387 Investment in certificates of deposit 237,441 750,000 Accounts receivable 213,271 212,370 Inventories 739,258 659,503 Prepaid distribution rights 66,750 82,250 Other 124,890 68,225 ---------- ---------- TOTAL CURRENT ASSETS 1,677,625 1,881,735 ---------- ---------- FURNITURE & EQUIPMENT, AT COST 86,740 65,552 Less: Accumulated depreciation (30,882) (22,661) ---------- ---------- NET FURNITURE & EQUIPMENT 55,858 42,891 ---------- ---------- OTHER ASSETS Note receivable - officer 38,000 38,000 Accounts receivable - retainage 96,635 88,844 Deferred acquisition costs 50,782 0 Deferred stock offering costs 277,151 0 Other 107,466 135,001 ---------- ---------- TOTAL OTHER ASSETS 570,034 261,845 ---------- ---------- TOTAL ASSETS $ 2,303,517 $ 2,186,471 ---------- ---------- ---------- ----------
See notes to unaudited condensed consolidated financial statements. - 3 - NEW FRONTIER MEDIA, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) LIABILITIES AND SHAREHOLDERS' EQUITY
September 30, March 31, 1997 1997 ------------- ---------- CURRENT LIABILITIES Accounts payable $ 256,533 $ 125,928 Accounts payable - related parties 79,733 0 Leases payable 6,091 5,139 Bank credit Line 170,000 341,274 Notes payable 550,000 0 Current portion of long term debt 139,573 139,573 Other accrued liabilities 39,766 45,416 ---------- ---------- TOTAL CURRENT LIABILITIES 1,241,696 657,330 ---------- ---------- LONG TERM DEBT - Leases Payable 9,349 12,926 ---------- ---------- TOTAL LIABILITIES 1,251,045 670,256 ---------- ---------- MINORITY INTEREST 262,664 305,443 ---------- ---------- SHAREHOLDERS' EQUITY (NOTES 1 & 2) Common stock, $.0001 par value, 50,000,000 shares authorized, 4,195,368 and 4,189,000, shares issued and outstanding, respectively 420 419 Preferred stock, $.10 par value, 5,000,000 shares authorized: Class A, zero and 10,000 shares issued and outstanding, respectively 0 1,000 Class B, zero and 5,000 shares issued and outstanding and outstanding, respectively 0 500 Additional paid in capital 1,780,519 1,768,661 Deficit (991,131) (559,808) ---------- ---------- TOTAL SHAREHOLDERS' EQUITY 789,808 1,210,772 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,303,517 $2,186,471 ---------- ---------- ---------- ----------
See notes to unaudited condensed consolidated financial statements. - 4 - NEW FRONTIER MEDIA, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Six Months Ended Three Months Ended September 30, September 30, ------------------------- ------------------------- 1997 1996 1997 1996 ---------- ------------ ---------- ---------- SALES, NET $ 727,775 $ 1,322,094 $ 248,445 $ 697,000 COST OF SALES 507,053 844,626 175,270 433,101 ---------- ------------ ---------- ---------- GROSS PROFIT 220,722 477,468 73,175 263,899 ---------- ------------ ---------- ---------- OPERATING EXPENSES Occupancy and equipment 88,728 75,488 52,698 35,396 Legal and professional 39,907 21,764 9,643 14,477 Distribution expense 120,000 230,000 0 120,000 Advertising and promotion 145,981 77,018 78,305 53,417 Salaries, wages and benefits 222,597 87,246 153,785 42,550 Communications 21,350 14,560 13,565 6,502 Research and Development 7,048 0 0 0 Consulting 31,009 25,591 12,753 13,866 General and administrative 93,948 72,838 52,707 43,011 ---------- ------------ ---------- ---------- TOTAL OPERATING EXPENSES 770,568 604,505 373,456 329,219 ---------- ------------ ---------- ---------- OTHER INCOME (EXPENSE) Licensing Fees and royalties 95,283 117,812 67,746 55,241 Licensing commissions (15,398) (22,104) (10,443) (9,783) Interest income 21,265 4,116 9,197 3,467 Interest expense (25,403) (5,958 (14,525) (5,779) ---------- ------------ ---------- ---------- TOTAL OTHER INCOME 75,747 93,866 51,975 43,146 ---------- ------------ ---------- ---------- NET LOSS BEFORE INCOME TAXES AND MINORITY INTEREST (474,099) (33,171) (248,306) (22,174) ---------- ------------ ---------- ---------- INCOME TAXES 0 (2,454) 0 0 ---------- ------------ ---------- ---------- NET LOSS BEFORE MINORITY INTEREST (474,099) (35,625) (248,306) (22,174) MINORITY INTEREST IN LOSS OF SUBSIDIARY 42,779 0 20,971 0 ---------- ------------ ---------- ---------- NET LOSS $ (431,320) $ (35,625) $ (227,335) $ (22,174) ---------- ------------ ---------- ---------- ---------- ------------ ---------- ---------- NET LOSS PER COMMON SHARE (NOTE 1) $ (0.10) $ (0.01) $ (0.05) $ (0.01) ---------- ------------ ---------- ---------- ---------- ------------ ---------- ---------- WEIGHTED AVERAGE SHARES OUTSTANDING 4,195,321 4,188,583 4,193,463 4,195,250 ---------- ------------ ---------- ---------- ---------- ------------ ---------- ----------
* less than 1 cent per share See notes to unaudited condensed consolidated financial statements. - 5 - NEW FRONTIER MEDIA, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Six Months Ended September 30, ---------------------------- 1997 1996 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) $ (431,320) $ (35,625) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 8,221 0 Issuance of common stock for services 15,000 0 Increase (decrease) in accounts payable 210,338 (11,476) (Increase) decrease accounts receivable (8,692) 4,004 (Increase) decrease in inventories (79,755) (232,377) (Increase) decrease in income tax receivable 0 60,000 (Increase) decrease in distribution rights 15,500 (8,127) (Increase) decrease in other assets (4,130) 964 Decrease in minority interest (42,779) 0 Increase (decrease) in other accrued liabilities (5,650) 9,523 ------------ ----------- NET CASH USED IN OPERATING ACTIVITIES (323,267) (213,114) ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of equipment and furniture (21,188) (4,470) Increase in deferred acquisition costs (50,782) 0 Redemption of certificates of deposit 512,559 0 ------------ ----------- NET CASH USED IN INVESTING ACTIVITIES 440,589 (4,470) ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Retirement of common stock (37,177) 0 Issuance of common stock 7,534 100,002 Increase in deferred stock offering costs (277,151) 0 Contribution of capital 0 1,234,162 Increase in notes payable 550,000 0 Proceeds from line of credit (171,275) 0 Payments on capital lease obligation (2,625) 0 ------------ ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 69,306 1,334,164 ------------ ----------- NET INCREASE (DECREASE) IN CASH 186,628 1,116,580 CASH, BEGINNING OF PERIOD 109,387 48,523 ------------ ----------- CASH, END OF PERIOD $ 296,015 $ 1,165,103 ------------ ----------- ------------ ----------- SUPPLEMENTAL DISCLOSURE OF NON-CASH ITEMS Retirement of Preferred A Stock (1,000) 0 Conversion of Preferred B Stock (500) 0
See notes to unaudited condensed consolidated financial statements. - 6 - NEW FRONTIER MEDIA, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION, BUSINESS, AND CONSOLIDATION The accompanying unaudited condensed consolidated financial statements include the accounts of NFMI and its wholly owned subsidiaries David Entertainment, Inc. ("DAVID") and Fuzzy Entertainment, Inc. ("FUZZY"), and its 70% owned subsidiary, Boulder Interactive Group, Inc. ("BIG"). All adjustments consisting of normal accruals and elimination of intercompany accounts and transactions, which in the opinion of management, are necessary for a fair presentation, have been reflected in the accompanying financial statements. NET LOSS PER SHARE OF COMMON STOCK Net loss per share of common stock is based on the weighted average number of shares of common stock outstanding. Common stock equivalents are not included in the weighted average calculation since their effect would be anti-dilutive. PART 1 ITEM 2 MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 1) OVERVIEW All of the Company's current revenues are derived through its wholly owned subsidiaries David Entertainment, Inc., Fuzzy Entertainment, Inc. and its 70% owned subsidiary Boulder Interactive Group, Inc. The Company's offices are located at 1050 Walnut Street, Suite 301, Boulder, CO 80302. The telephone number is (303) 444-0632. 2) RESULTS OF OPERATIONS SECOND QUARTER 1997 COMPARED TO SECOND QUARTER 1996 NEW FRONTIER MEDIA, INC. ("NOOF" OR THE "COMPANY") The company functions as a holding company for its subsidiaries, and such generates no independent income. The Company incurs administrative expenses such as accounting, auditing, public relations, investor relations and legal. For the three month period ended September 30, 1997, the Company reported no income and total operating expenses of $135,530, compared with total operating expenses of $49,865 for the same period the prior year. The increase of $85,665 for the period was due to increases in travel expense ($36,899 in 1997 versus $8,988 in 1996), and payroll costs ($49,220 in 1997 versus $8,471 in 1996). These cost increases are primarily due to the planned public offering and acquisition of Fifth Dimension. BOULDER INTERACTIVE GROUP, INC. DBA INROADS INTERACTIVE ("INROADS") Inroads reported quarterly sales of $43,624 for the period, down from $90,800 the prior period last year. This decline in sales is due to no new titles released during the quarter. Operating expenses were $161,274, up from 133,973, as Inroads has hired more personnel and spent more on advertising and on development of new product. Net loss of $69,904 increased from the $19,319 loss in the prior period last year. Management believes its investment in product development and advertising will produce increased sales in the coming quarters. - 7 - DAVID ENTERTAINMENT, INC. ("DAVID") DaViD had sales of $203,420 for the period, down from $605,800 in the prior year period. Sales were limited by the advent of the DVD format and resulting consumer slow down in laser disc purchases. Operating expenses were $96,859 versus $148,439 last year due primarily to elimination of the distribution agreement with ELM Releasing, LP. and lower corresponding expenses associated with direct management of the distribution function. Net loss was $42,848 compared to a gain of $52,554 for the prior year period. Management believes that profitability will return in the following quarters as the DVD format gains acceptance. FUZZY ENTERTAINMENT, INC. DBA IN-SIGHT EDITIONS ("IN-SIGHT") In-Sight reported total revenue of $1,402 for the period, along with operating expenses of $947 and a net loss of $24. The Company is focused on its public offering and pending acquisition and is not devoting significant resources to In-Sight. FIRST SIX MONTHS OF 1997 COMPARED TO FIRST SIX MONTHS OF 1996 NEW FRONTIER MEDIA, INC. ("NOOF" OR THE "COMPANY") For the six month period ended September 30, 1997, the Company reported no income and total operating expenses of $264,752, compared with total operating expenses of $112,140 for the same period the prior year. The increase of $152,612 for the period was due to increases in travel expense ($54,260 in 1997 versus $11,575 in 1996), payroll costs ($57,884 in 1997 versus $16,893 in 1996), legal ($33,230 in 1997 versus $8,490 in 1996), and investor relations ($33,055 in 1997 verus $0 in 1996). These cost increases are primarily due to the planned public offering and acquisition of Fifth Dimension. BOULDER INTERACTIVE GROUP, INC. DBA INROADS INTERACTIVE ("INROADS") Inroads reported sales of $142,937 for the period, down from $84,152 the prior period last year. This decline in sales is due to no new titles released during the period. Operating expenses were $307,051, up from $242,407, as Inroads has hired more personnel and spent more on advertising and on development of new product. Net loss of $142,597 increased from the $61,691 loss in the prior period last year. Management believes its investment in product development and advertising will produce increased sales in the coming quarters. DAVID ENTERTAINMENT, INC. ("DAVID") DaViD had sales of $581,469 for the period, down from $1,237,542 in the prior year period. Sales were limited by the advent of the DVD format and resulting consumer slow down in laser disc purchases. Operating expenses were $220,694 versus $265,256 last year due primarily to elimination of the distribution agreement with ELM Releasing, LP. and lower corresponding expenses associated with direct management of the distribution function. Net loss was $56,898 compared to a gain of $146,204 for the prior year period. Management believes that profitability will return in the following quarters as the DVD format gains acceptance. FUZZY ENTERTAINMENT, INC. DBA IN-SIGHT EDITIONS ("IN-SIGHT") In-Sight reported total revenue of $3,369 for the period, along with operating expenses of $11,498 and a net loss of $9,852. The Company is focused on its public offering and pending acquisition and is not devoting significant resources to In-Sight. - 8 - FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES FIRST SIX MONTHS OF 1997 COMPARED TO FIRST SIX MONTHS OF 1996 The Company reported an increase in negative cash flow from operating activities from ($323,267) for the current period from ($213,114) during the same period last year. Cash flow from investing activities increased to $440,589 from ($4,470) due primarily to the redemption of certificates of deposit. Net cash flow from financing activities declined to $69,306 from $1,334,164 due to the one time selling of a 30% interest in BIG last year. Management believes that cash flow from operating activities will turn positive in the near future. PART II OTHER INFORMATION ITEM 1 LEGAL PROCEEDINGS SANDS BROTHERS On November 11, 1996, the Company entered into a financial consulting agreement (the "Sands Agreement"), with Sands Brothers & Co., Ltd. ("Sands Brothers"), a broker-dealer headquartered in New York City under which Sands Brothers agreed to provide financial advisory services to the Company. The Sands Agreement also contained a provision granting Sands Brothers the exclusive right to underwrite or place any private or public financing undertaken by the Company during the two-year term of the Sands Agreement. On May 20, 1997, the Company terminated the Sands Agreement based, among other things, on the Company's allegation of non-performance on the part of Sands Brothers. On September 26, 1997, counsel for Sands Brothers sent a letter to Mark Kreloff, the Company's president, alleging that the Sands Agreement was still in force, alleging breach of the Sands Agreement by the Company and demanding that the Company comply with its terms. On October 3, 1997, the Company filed a Complaint in District Court in Boulder, Colorado (Case No. 97 CV 1428) against Sands Brothers, alleging breach of the terms of the Sands Agreement by Sands Brothers. The Company also alleged fraud in the inducement, and is seeking return of its initial payment of $25,000 to Sands Brothers and recission of the Sands Agreement. As of the date of this prospectus, Sands Brothers has not filed an Answer to the Company's Complaint. The Company intends to vigorously defend any allegations made by Sands Brothers in such Answer. QUARTO On October 7, 1997, Quarto's counsel notified the Company of Quarto's claim that the Company had breached the Quarto Stockholder Agreement dated September 20, 1996. Counsel for Quarto demanded rescission of the Purchase Agreement between the Company and Quarto dated September 20, 1996, and a return of all amounts Quarto paid for its 30 percent interest in Inroads. Counsel for Quarto generally alleged fraud in the inducement, misrepresentation, violation of federal and state securities laws, and failure of consideration as basis for its demand for rescission and return of all amounts paid. The Company has obtained an opinion from J. John Combs III, its litigation counsel, stating that there is no basis for rescission of the Quarto agreements under the facts or under Colorado law, that any breach alleged by Quarto is not "material," and that Quarto has suffered no damages as the result of any alleged breach of the Quarto Purchase Agreement by the Company. On October 16, 1997, Quarto's counsel demanded that the Board of Directors of Inroads take all actions necessary to restore certain Inroads' certificates of deposit that had been encumbered by or for the benefit of the Company, and to obtain repayment of any funds loaned to the Company for the benefit of the Company. Counsel for Quarto also demanded that the Board of Directors of Inroads institute an action for misappropriation of assets, mismanagement, and breach of fiduciary duties against those members of Inroads' management who participated in the acts that Quarto's counsel alleges constituted a misappropriation of Inroads' assets. Counsel for Quarto has notified the Board of Directors of Inroads of Quarto's intent to institute a derivative action on behalf of Inroads against certain managers and directors of Inroads who allegedly participated in the claimed misappropriation of Inroads' assets, should Inroads' Board of Directors fail or refuse to initiate such an action on its own. On October 23, 1997, Quarto filed an action in the United States District Court for the District of Colorado (Civil Action No. 97-WM-2290) seeking, among other things, rescission of the purchase agreement, a temporary restraining order and preliminary injunction against Inroads and the Company, preventing them from transferring or encumbering the assets of Inroads. On October 28, 1997, the Company and Quarto entered into a Stipulation for Entry of Preliminary Injunction (the "Stipulation"). Pursuant to the terms of the Stipulation, Inroads and the Company agreed to not make any draws on any line or lines of credit extended to them from the Bank of Boulder, Boulder, Colorado, in which any assets of Inroads, including any certificates of deposit, are used as security, without the prior written consent of Quarto. Inroads and the Company further agreed to not encumber any additional assets of Inroads or any assets transferred by Inroads to the Company or used by Inroads for the benefit of the Company as part of any loan transaction, without the written consent of Quarto, and pending further order of the Court. Inroads also agreed to not transfer any assets or monies to or for the benefit of the Company for any purpose whatsoever, pending further order of the Court. The Court denied Quarto's motion for entry of a temporary restraining order and preliminary injunction which would have frozen Inroads' assets or imposed a constructive trust over those assets and the operations of Inroads. As of the date of this prospectus, Quarto had not instituted an action in arbitration against the Company. ITEM 2 CHANGES IN SECURITIES On September 1, 1997 the Class A preferred stock was given back to the Company and the shares were returned. In addition the Class B preferred stock was converted into 2,857 shares of common stock. The dividends in arrears on both the Class A and Class B preferred stock was forgiven. ITEM 3 DEFAULTS UPON SENIOR SECURITIES None. ITEM 4 SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS None. ITEM 5 OTHER INFORMATION None. ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K None. 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. NEW FRONTIER MEDIA, INC. November 26, 1997 By: /S/ MARK H. KRELOFF --------------------------------------- Mark H. Kreloff, President November 26, 1997 By: /S/ MICHAEL WEINER --------------------------------------- Michael Weiner, Secretary and Treasurer November 26, 1997 By: /S/ SCOTT WUSSOW --------------------------------------- Scott Wussow, Chief Financial Officer - 9 - EX-27 2 EXHIBIT 27
5 6-MOS 3-MOS MAR-31-1998 MAR-31-1998 APR-01-1997 JUL-01-1997 SEP-30-1997 SEP-30-1997 296,015 296,015 0 0 213,271 213,271 0 0 739,258 739,258 1,677,625 1,677,625 86,740 86,740 30,882 30,882 2,303,517 2,203,517 1,241,696 1,241,696 0 0 0 0 0 0 420 420 1,780,519 1,780,519 2,303,517 2,303,517 727,775 248,445 727,775 248,445 507,053 175,270 1,277,621 548,726 0 0 0 0 25,403 14,525 (431,320) (227,335) 0 0 0 0 0 0 0 0 0 0 (431,320) (227,335) (.10) (.05) (.10) (.05)
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