Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x
|
Quarterly
report under Section 13 or 15(d) of the Securities and Exchange Act
of 1934.
|
|
|
For the quarterly period ended June 30, 2008
|
|
|
o
|
Transition
Report under Section 13 or 15(d) of the Exchange Act.
|
|
|
For the transition period from
to
|
0-23697
(Commission file number)
NEW FRONTIER MEDIA, INC.
(Exact name of registrant as specified in its
charter)
Colorado
|
|
84-1084061
|
(State or other
jurisdiction of
|
|
(I.R.S. Employer
|
Incorporation or
organization)
|
|
Identification Number)
|
7007
Winchester Circle, Suite 200, Boulder, CO 80301
(Address of principal executive offices)
(303)
444-0900
(Registrants telephone number, including
area code)
(Former name, former address and former
fiscal year, if changed since last report)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes
x
No
o
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of large accelerated filer, accelerated filer, and
smaller reporting company in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer
o
|
Accelerated
filer
x
|
Non-accelerated
filer
o
|
Smaller
reporting company
o
|
|
|
(Do not check if a smaller
reporting company)
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act). Yes
o
No
x
As
of August 1, 2008, 23,391,778 shares of Common Stock, par value $.0001,
were outstanding.
Table
of Contents
Form 10-Q
NEW FRONTIER MEDIA, INC.
FOR THE FISCAL QUARTER ENDED JUNE 30, 2008
Table of Contents
2
Table
of Contents
PART I. FINANCIAL
INFORMATION
ITEM 1. FINANCIAL
STATEMENTS
NEW
FRONTIER MEDIA, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(in thousands,
except par values)
|
|
(Unaudited)
|
|
|
|
|
|
June 30,
|
|
March 31,
|
|
|
|
2008
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|
2008
|
|
Assets
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
16,395
|
|
$
|
18,325
|
|
Restricted cash
|
|
110
|
|
38
|
|
Marketable securities
|
|
679
|
|
930
|
|
Accounts receivable, net of allowance for
doubtful accounts of $194 and $169, at June 30, 2008 and March 31,
2008, respectively
|
|
11,540
|
|
13,873
|
|
Deferred tax asset
|
|
627
|
|
620
|
|
Prepaid and other assets
|
|
1,512
|
|
1,899
|
|
|
|
|
|
|
|
Total current assets
|
|
30,863
|
|
35,685
|
|
|
|
|
|
|
|
Equipment and furniture, net
|
|
6,007
|
|
4,861
|
|
Prepaid distribution rights, net
|
|
10,538
|
|
10,381
|
|
Recoupable costs and producer advances, net
|
|
3,039
|
|
2,448
|
|
Film costs, net
|
|
7,350
|
|
7,626
|
|
Goodwill
|
|
18,608
|
|
18,608
|
|
Other identifiable intangible assets, net
|
|
3,057
|
|
3,033
|
|
Other assets
|
|
1,049
|
|
1,019
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
80,511
|
|
$
|
83,661
|
|
|
|
|
|
|
|
Liabilities and shareholders equity
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Accounts payable
|
|
$
|
2,666
|
|
$
|
2,937
|
|
Dividend payable
|
|
|
|
2,982
|
|
Taxes payable
|
|
1,476
|
|
760
|
|
Producers payable
|
|
1,239
|
|
1,012
|
|
Deferred revenue
|
|
1,742
|
|
984
|
|
Accrued compensation
|
|
1,092
|
|
1,817
|
|
Deferred producer liabilities
|
|
2,018
|
|
2,862
|
|
Accrued and other liabilities
|
|
2,509
|
|
2,257
|
|
|
|
|
|
|
|
Total current liabilities
|
|
12,742
|
|
15,611
|
|
|
|
|
|
|
|
Deferred tax liability
|
|
776
|
|
795
|
|
Taxes payable
|
|
216
|
|
216
|
|
Other long-term liabilities
|
|
806
|
|
1,002
|
|
|
|
|
|
|
|
Total liabilities
|
|
14,540
|
|
17,624
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
Preferred stock, $.10 par value, 4,999
shares authorized, no shares issued and outstanding
|
|
|
|
|
|
Common stock, $.0001 par value, 50,000
shares authorized, 23,392 and 23,775 shares issued and outstanding, at
June 30, 2008 and March 31, 2008, respectively
|
|
2
|
|
2
|
|
Additional paid-in capital
|
|
60,609
|
|
61,854
|
|
Retained earnings
|
|
5,370
|
|
4,191
|
|
Accumulated other comprehensive loss
|
|
(10
|
)
|
(10
|
)
|
|
|
|
|
|
|
Total shareholders equity
|
|
65,971
|
|
66,037
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
80,511
|
|
$
|
83,661
|
|
The
accompanying notes are an integral part of the unaudited condensed consolidated
financial statements.
3
Table
of Contents
NEW
FRONTIER MEDIA, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
(in
thousands, except per share amounts)
|
|
(Unaudited)
Quarter Ended
June 30,
|
|
|
|
2008
|
|
2007
|
|
Net sales
|
|
$
|
13,061
|
|
$
|
12,940
|
|
Cost of sales
|
|
3,929
|
|
3,797
|
|
|
|
|
|
|
|
Gross margin
|
|
9,132
|
|
9,143
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
Sales and marketing
|
|
2,425
|
|
2,068
|
|
General and administrative
|
|
4,721
|
|
4,663
|
|
Charge for asset dispositions and
impairments
|
|
|
|
273
|
|
|
|
|
|
|
|
Total operating expenses
|
|
7,146
|
|
7,004
|
|
|
|
|
|
|
|
Operating income
|
|
1,986
|
|
2,139
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
Interest income
|
|
78
|
|
254
|
|
Interest expense
|
|
(56
|
)
|
(43
|
)
|
Other income, net
|
|
|
|
25
|
|
|
|
|
|
|
|
Total other income
|
|
22
|
|
236
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
2,008
|
|
2,375
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
(829
|
)
|
(878
|
)
|
|
|
|
|
|
|
Net income
|
|
$
|
1,179
|
|
$
|
1,497
|
|
|
|
|
|
|
|
Basic income per share
|
|
$
|
0.05
|
|
$
|
0.06
|
|
|
|
|
|
|
|
Diluted income per share
|
|
$
|
0.05
|
|
$
|
0.06
|
|
|
|
|
|
|
|
Dividends declared per common share
|
|
$
|
|
|
$
|
0.13
|
|
The
accompanying notes are an integral part of the unaudited condensed consolidated
financial statements.
4
Table
of Contents
NEW
FRONTIER MEDIA, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in
thousands)
|
|
(Unaudited)
Quarter Ended
June 30,
|
|
|
|
2008
|
|
2007
|
|
Cash flows from operating activities:
|
|
|
|
|
|
Net income
|
|
$
|
1,179
|
|
$
|
1,497
|
|
Adjustments to reconcile net income to net
cash provided by operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
|
2,179
|
|
1,896
|
|
Tax benefit from option/warrant exercises
|
|
|
|
119
|
|
Share-based compensation
|
|
257
|
|
275
|
|
Charge for asset dispositions and
impairments
|
|
|
|
273
|
|
Change in operating assets and liabilities
|
|
|
|
|
|
Accounts receivable
|
|
2,333
|
|
1,407
|
|
Accounts payable
|
|
46
|
|
(468
|
)
|
Prepaid distribution rights
|
|
(1,018
|
)
|
(815
|
)
|
Capitalized film costs
|
|
(371
|
)
|
(1,529
|
)
|
Deferred revenue
|
|
758
|
|
90
|
|
Producers payable
|
|
227
|
|
(312
|
)
|
Taxes receivable and payable, net
|
|
716
|
|
877
|
|
Deferred tax asset and liability, net
|
|
(26
|
)
|
(271
|
)
|
Accrued compensation
|
|
(725
|
)
|
(2,091
|
)
|
Other assets and liabilities, net
|
|
(1,086
|
)
|
152
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
4,469
|
|
1,100
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
Purchase of investments available-for-sale
|
|
(586
|
)
|
(2,681
|
)
|
Redemption of investments
available-for-sale
|
|
837
|
|
1,724
|
|
Purchase of equipment and furniture
|
|
(1,662
|
)
|
(507
|
)
|
Purchase of intangible assets
|
|
(489
|
)
|
|
|
Payment of related party note arising from
business acquisition
|
|
(15
|
)
|
(528
|
)
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
(1,915
|
)
|
(1,992
|
)
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
Proceeds from exercise of stock
options/warrants
|
|
|
|
241
|
|
Purchase of common stock
|
|
(1,502
|
)
|
|
|
Payment of dividends
|
|
(2,982
|
)
|
(3,049
|
)
|
Excess tax benefit from option/warrant
exercise
|
|
|
|
1
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
(4,484
|
)
|
(2,807
|
)
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
(1,930
|
)
|
(3,699
|
)
|
Cash and cash equivalents, beginning of
period
|
|
18,325
|
|
17,345
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
16,395
|
|
$
|
13,646
|
|
The
accompanying notes are an integral part of the unaudited condensed consolidated
financial statements.
5
Table
of Contents
NEW
FRONTIER MEDIA, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in
thousands)
|
|
(Unaudited)
Quarter Ended
June 30,
|
|
|
|
2008
|
|
2007
|
|
Net income
|
|
$
|
1,179
|
|
$
|
1,497
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
Unrealized gain (loss) on
available-for-sale marketable securities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
1,179
|
|
$
|
1,497
|
|
The
accompanying notes are an integral part of the unaudited condensed consolidated
financial statements.
6
Table
of Contents
NEW
FRONTIER MEDIA, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS EQUITY
(in
thousands)
|
|
(Unaudited)
Quarter Ended
June 30,
|
|
|
|
2008
|
|
2007
|
|
Common Stock
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
2
|
|
$
|
2
|
|
|
|
|
|
|
|
Balance at end of period
|
|
2
|
|
2
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
|
|
|
Balance at beginning of period
|
|
61,854
|
|
64,191
|
|
Exercise of stock options/warrants
|
|
|
|
241
|
|
Tax benefit for stock option/warrant
exercise
|
|
|
|
120
|
|
Purchase of common stock
|
|
(1,502
|
)
|
|
|
Share-based compensation
|
|
257
|
|
275
|
|
|
|
|
|
|
|
Balance at end of period
|
|
60,609
|
|
64,827
|
|
|
|
|
|
|
|
Retained earnings
|
|
|
|
|
|
Balance at beginning of period
|
|
4,191
|
|
7,536
|
|
Net income
|
|
1,179
|
|
1,497
|
|
Declared dividend
|
|
|
|
(3,049
|
)
|
|
|
|
|
|
|
Balance at end of period
|
|
5,370
|
|
5,984
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
|
|
|
|
Balance at beginning of period
|
|
(10
|
)
|
(30
|
)
|
|
|
|
|
|
|
Balance at end of period
|
|
(10
|
)
|
(30
|
)
|
|
|
|
|
|
|
Total shareholders equity
|
|
$
|
65,971
|
|
$
|
70,783
|
|
The
accompanying notes are an integral part of the unaudited condensed consolidated
financial statements.
7
Table of Contents
NEW
FRONTIER MEDIA, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Business
New
Frontier Media, Inc. is a publicly traded holding company for its
operating subsidiaries which are reflected in the Transactional TV segment
(formerly the Pay TV segment), the Film Production segment and the
Direct-to-Consumer segment (formerly the Internet segment).
Transactional TV Segment
The
Transactional TV segment is a leading provider of adult programming to multiple
system cable operators and direct broadcast satellite providers. The
Transactional TV segment is able to provide a variety of editing styles and
programming mixes to a broad range of adult consumers. Ten Sales, Inc.,
which is also reflected within the operating results of the Transactional TV
segment, was formed in April 2003 and is responsible for selling the
segments services.
Film Production Segment
The
Film Production segment derives its revenue from two principal businesses:
a) the production and distribution of original motion pictures known as erotic
thrillers, horror movies, and erotic, event styled content (collectively, owned
content) which is provided through the MRG Entertainment label and b) the
licensing of domestic third party films in international and domestic markets
where it acts as a sales agent for the product (repped content) which is
provided through the Lightning Entertainment Group label. This segment also
periodically provides contract film production services to certain major
Hollywood studios (producer-for-hire arrangements).
Direct-to-Consumer Segment
The
Direct-to-Consumer segment aggregates and resells content through the internet.
Revenue in this segment is primarily generated through the acquisition of
monthly subscribers on adult-oriented consumer websites. The Direct-to-Consumer
segment also recently acquired intellectual property rights for a set-top box
that provides content to consumers through internet protocol television (IPTV)
technology. The Company is currently testing this business model concept.
Basis of Presentation
The
accompanying financial statements of New Frontier Media, Inc. and its
wholly owned subsidiaries (collectively hereinafter referred to as New
Frontier Media, the Company, we, and other similar pronouns) have been
prepared without audit pursuant to the rules and regulations of the United
States Securities and Exchange Commission (SEC). Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles in the United States
have been condensed or omitted pursuant to such rules and regulations,
although the Company believes that the disclosures made are adequate to make
the information not misleading. The Company believes these statements include
all adjustments, which are of a normal and recurring nature, considered
necessary for a fair presentation of New Frontier Medias financial position
and results of operations. The financial statements included herein should be
read in conjunction with the financial statements and notes thereto included in
New Frontier Medias latest annual report on Form 10-K filed with the SEC
on June 13, 2008.
The
results of operations for the three month period ended June 30, 2008 are
not necessarily indicative of the results to be expected for the full year.
Significant Accounting Policies
Principles of Consolidation
The
accompanying condensed consolidated financial statements include the accounts
of New Frontier Media. All intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in
conformity with U.S. generally accepted accounting principles requires the
Company to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Estimates have been made by
the Company in several areas, including, but not limited to, estimated revenue
for certain Transactional TV segment pay-per-view and video-on-demand (VOD)
services; the recognition and measurement of deferred income tax assets and liabilities
(including the measurement of uncertain tax positions); the valuation of
recoupable costs including producer advances, direct costs and chargebacks; the
achievement of certain earn-out targets associated with the Companys
acquisition of MRG Entertainment, Inc., and its subsidiaries and a related
company, Lifestyles Entertainment, Inc. (collectively MRG) and the use
of this information to estimate earn-out expense; the forecast of anticipated
revenue (ultimate revenue), which is used to amortize film costs; the
reporting of prepaid distribution rights for the Transactional TV segment; the
assessment of goodwill, intangibles and other long-lived assets; and the
valuation and recognition of share-based compensation.
8
Table of Contents
NEW
FRONTIER MEDIA, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
The Company bases its estimates and judgments
on historical experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results could differ materially
from these estimates.
Reclassifications
The
Company has reclassified its prior year segment reporting to conform to the
current period presentation.
Fair Values of Financial Instruments
The
Company adopted Statement of Financial Accounting Standards (SFAS) No. 157,
Fair Value Measurement
, effective April 1,
2008. There was no material impact on
the Companys condensed consolidated financial statements from the adoption of
the SFAS No. 157. SFAS No. 157 currently applies to all financial
assets and liabilities and for nonfinancial assets and liabilities recognized
or disclosed at fair value on a recurring basis. For all other nonfinancial
assets and liabilities, SFAS No. 157 is effective for the first quarter of
fiscal year 2010. In February 2008, the Financial Accounting Standards
Board (FASB) issued FASB Staff Position SFAS No. 157-2,
Effective Date of FASB Statement No. 157
, which defers
the application date of the provisions of SFAS No. 157 for all
nonfinancial assets and liabilities except for items that are recognized or
disclosed at fair value in the financial statements on a recurring basis. Due
to the deferral, the Company has delayed the implementation of the provisions
of SFAS No. 157 related to the fair value of goodwill, intangible assets
with indefinite lives and nonfinancial long-lived assets. SFAS No. 157
requires a new disclosure that establishes a framework for measuring fair value
in accordance with generally accepted accounting principles in the U.S. and the
disclosure requirement related to fair value measurements. SFAS No. 157 is
intended to enable the readers of financial statements to assess the inputs
used to develop those measurements by establishing a hierarchy for ranking the
quality and reliability of the information used to determine fair values. SFAS No. 157
requires that assets and liabilities carried at fair value be classified and
disclosed in one of the following categories:
Level
1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market based inputs or unobservable inputs that are
corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
At
June 30, 2008, the Company had $0.7 million of available-for-sale
financial assets. The fair value for these assets was determined through a
Level 1 category and was based on quoted market prices on active markets. The Company had no other financial assets and
liabilities carried at fair value at June 30, 2008.
Recently Issued Accounting
Pronouncements
In
April 2008, the FASB issued Staff Position No. FAS 142-3,
Determination of the Useful Life of Intangible Assets
(FSP
FAS 142-3). FSP FAS 142-3 amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life
of a recognized intangible asset under SFAS No. 142,
Goodwill and
Other Intangible Assets
. The intent of FSP FAS 142-3 is to improve
the consistency between the useful life of a recognized intangible asset under
SFAS No. 142 and the period of expected cash flows used to measure the
fair value of the asset under SFAS No. 141(R) and other applicable
accounting literature. FSP FAS 142-3 is effective for fiscal years beginning
after December 15, 2008. The Company is currently evaluating the potential
impact of FSP FAS 142-3 on its results of operations and financial position.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007),
Business Combinations
. SFAS No. 141(R) establishes
principles and requirements for how the acquirer in a business combination (a) recognizes
and measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any controlling interest; (b) recognizes and
measures the goodwill acquired in the business combination or a gain from a
bargain purchase; and (c) determines what information to disclose to
enable users of the financial statements to evaluate the nature and financial
effects of the business combination. SFAS No. 141(R) applies to
business combinations for which the acquisition date is on or after December 15,
2008. The adoption of SFAS No. 141(R) will impact the Companys
results of operations and financial position to the extent that the Company
makes acquisitions subsequent to December 15, 2008.
In
December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment to ARB No. 51
. SFAS No. 160
establishes accounting and reporting standards that require (a) the
ownership interest in subsidiaries held by parties other than the parent to be
clearly identified and presented in the Consolidated Balance Sheets within
equity, but separate from the parents equity; (b) the amount of
consolidated net income attributable to the parent and the noncontrolling
interest to be clearly identified and presented on the face of the Consolidated
Statement of Earnings; and (c) changes in a parents ownership interest
while the parent retains its controlling financial interest in its subsidiary
to be accounted for consistently. This statement is effective for fiscal years
beginning on or after December 15, 2008. The Company does not expect the
adoption of SFAS No. 160 will have a material impact on its results of
operations and financial position because the Company does not have
noncontrolling interests in any entity.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets
and Financial Liabilities
. SFAS No. 159 permits companies to
choose to measure certain financial instruments and certain other items at fair
value. The standard requires that unrealized gains and losses on items for
which the fair value option has been elected be reported in earnings. SFAS No. 159
was effective for the fiscal year beginning April 1, 2008 for the Company,
although earlier adoption was permitted. The adoption of SFAS No. 159 did
not have a material impact on the Companys results of operations and financial
position.
9
Table of Contents
NEW
FRONTIER MEDIA, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 2 INCOME PER SHARE
The
components of basic and diluted income per share are as follows (in thousands,
except per share amounts):
|
|
(Unaudited)
Quarter Ended
June 30,
|
|
|
|
2008
|
|
2007
|
|
Net income
|
|
$
|
1,179
|
|
$
|
1,497
|
|
|
|
|
|
|
|
Average outstanding shares of common stock
|
|
23,692
|
|
24,315
|
|
Dilutive effect of warrants/stock options
|
|
43
|
|
279
|
|
|
|
|
|
|
|
Common stock and common stock equivalents
|
|
23,735
|
|
24,594
|
|
|
|
|
|
|
|
Basic income per share
|
|
$
|
0.05
|
|
$
|
0.06
|
|
|
|
|
|
|
|
Diluted income per share
|
|
$
|
0.05
|
|
$
|
0.06
|
|
Options
and warrants which were excluded from the calculation of diluted earnings per
share because the exercise price of the options and warrants was greater than
the average market price of the common shares were approximately 2.2 million
and 0.1 million for the quarters ended June 30, 2008 and 2007,
respectively. Inclusion of these options
and warrants would be antidilutive.
NOTE 3 EMPLOYEE EQUITY INCENTIVE PLANS
The
Company adopted the New Frontier Media, Inc. 2007 Stock Incentive Plan
(the 2007 Plan) during fiscal year 2008.
The 2007 Plan was approved by the Companys shareholders and the purpose
of the 2007 plan was to replace prior plans with one incentive plan. No awards
or grants are available to be made under prior plans. Under the 2007 Plan,
employees and directors of the Company may be granted incentive stock options,
restricted stock, bonus stock and other awards, or any combination thereof.
There were 1,250,000 shares of the Companys common stock originally authorized
for issuance under the 2007 Plan and the maximum number of shares of common
stock that may be subject to one or more awards granted to a participant during
any calendar year is 350,000 shares. As of June 30, 2008, approximately
0.2 million awards were available for issuance under the 2007 Plan.
Share-Based Compensation
In
accordance with the provisions of SFAS No. 123(R), the Company accounts
for employee and non-employee director stock options under the fair value
method which requires the use of an option pricing model for estimating fair
value. Accordingly, share-based compensation is measured at grant date based on
the fair value of the award. The Company uses the straight-line attribution
method to recognize share-based compensation costs over the requisite service
period of the award.
Share-based
compensation is determined using the Black-Scholes option pricing model for
estimating the fair value of options granted under the Companys equity
incentive plan. The Company uses certain assumptions in order to calculate the
fair value of an option using the Black-Scholes option pricing model. The
volatility assumptions are derived using historical volatility data. The
expected term assumptions are stratified between officers and non-officers and
are determined using the estimated weighted average exercise behavior for these
two groups of employees. The dividend yield assumption is based on historical
and estimated dividends declared by the Companys Board of Directors. The
weighted average estimated values of stock option grants and the weighted
average assumptions that were used in calculating such values for the quarter
ended June 30, 2008 are presented below.
The Company did not grant any stock options during the quarter ended June 30,
2007.
|
|
Quarter Ended
June 30, 2008
|
|
Weighted average estimated fair values per
award
|
|
$
|
2.33
|
|
Expected term (in years)
|
|
5
|
|
Risk free interest rate
|
|
2.7
|
%
|
Volatility
|
|
52
|
%
|
Dividend yield
|
|
-
|
%
|
|
|
|
|
|
|
|
|
|
Share-based
compensation expense recognized in the condensed consolidated statements of
income during the quarters ended June 30, 2008 and 2007 is based on awards
ultimately expected to vest, which considers estimated forfeitures. SFAS No. 123(R) requires
forfeitures to be estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from those estimates.
Forfeitures were estimated based on historical experience and are different for
officers and non-officers. The estimated forfeitures used for the quarter ended
June 30, 2008 were approximately 1% for officers and 16% for
non-officers. The estimated forfeitures
used for the quarter ended June 30, 2007 were 0% for officers and 17% for
non-officers.
The
following table summarizes the effects of share-based compensation resulting from
the application of SFAS No. 123(R) to options granted under the
Companys equity incentive plans. This expense is included in cost of sales and
selling, general and administrative expenses (in thousands, except per share
amounts):
10
Table
of Contents
NEW
FRONTIER MEDIA, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
|
|
Quarter Ended
June 30,
|
|
|
|
2008
|
|
2007
|
|
Share-based compensation expense before
income taxes
|
|
$
|
257
|
|
$
|
275
|
|
Income tax benefit
|
|
(106
|
)
|
(102
|
)
|
|
|
|
|
|
|
Total share-based compensation expense
after income taxes
|
|
$
|
151
|
|
$
|
173
|
|
|
|
|
|
|
|
Share-based compensation effects on basic
earnings per common share
|
|
$
|
0.01
|
|
$
|
0.01
|
|
|
|
|
|
|
|
Share-based compensation effects on diluted
earnings per common share
|
|
$
|
0.01
|
|
$
|
0.01
|
|
Stock
option transactions during the quarter ended June 30, 2008 are summarized
as follows:
|
|
Shares
|
|
Weighted Avg.
Exercise Price
|
|
Weighted
Average
Remaining
Contractual
Term (Years)
|
|
Aggregate
Intrinsic
Value(1)
(in thousands)
|
|
Outstanding at March 31, 2008
|
|
1,727,802
|
|
$
|
6.39
|
|
|
|
|
|
Granted
|
|
623,500
|
|
$
|
4.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2008
|
|
2,351,302
|
|
$
|
5.95
|
|
7.6
|
|
$
|
91
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at June 30, 2008
|
|
1,052,652
|
|
$
|
6.65
|
|
5.7
|
|
$
|
91
|
|
|
|
|
|
|
|
|
|
|
|
Options vested and expected to
vestNon-Officers
|
|
827,030
|
|
$
|
6.47
|
|
7.4
|
|
$
|
71
|
|
|
|
|
|
|
|
|
|
|
|
Options vested and expected to
vestOfficers
|
|
1,401,668
|
|
$
|
5.72
|
|
7.5
|
|
$
|
19
|
|
(1) The
aggregate intrinsic value represents the difference between the exercise price
and the value of New Frontier Media, Inc. stock at the time of exercise or
at the end of the quarter if unexercised.
Net
cash proceeds from the exercise of stock options were $0 and $0.2 million for
the quarters ended June 30, 2008 and 2007, respectively. The Company
issues new shares of common stock upon the exercise of stock options. As of June 30,
2008, there was $0.5 million and $1.9 million of total unrecognized
compensation costs for non-officers and officers, respectively, related to
stock options granted under the Companys equity incentive plan. The
unrecognized compensation cost for non-officers and officers is expected to be
recognized over a weighted average period of 3.0 years and 3.4 years,
respectively.
NOTE 4 SEGMENT INFORMATION
The
Company has adopted SFAS No. 131,
Disclosures
about Segments of an Enterprise and Related Information
, which
establishes reporting and disclosure standards for an enterprises operating segments.
Operating segments are defined as components of an enterprise for which
separate financial information is available and regularly reviewed by the
Companys chief operating decision maker.
The
Company has the following three reportable operating segments:
·
Transactional TVdistributes branded adult
entertainment programming networks and VOD content through electronic
distribution platforms including cable television and DBS operators.
·
Film Productionproduces and distributes
mainstream films and erotic features and events. These titles are distributed
on U.S. and international premium channels, pay-per-view channels and VOD
systems across a range of cable and satellite distribution platforms. The Film
Production segment also distributes a full range of independently produced
motion pictures to markets around the world. Additionally, this segment
periodically provides producer-for-hire services to certain major Hollywood
studios.
·
Direct-to-Consumeraggregates and resells
adult content via the Internet. The Direct-to-Consumer segment sells content to
monthly subscribers primarily through its consumer websites. This segment also
includes the results of a set-top box IPTV business that began incurring costs
in the fourth quarter of fiscal year 2008 in connection with the testing of the
business model concept.
Expenses
reported as Corporate Administration include all costs associated with the
operation of the public holding company, New Frontier Media, Inc., that
are not directly allocable to the Transactional TV, Film Production, or
Direct-to-Consumer segments. These costs include, but are not limited to, legal
and accounting expenses, insurance, registration and filing fees with NASDAQ,
executive employee costs, and the SEC, investor relations and printing costs
associated with the Companys public filings and shareholder communications.
11
Table of Contents
NEW
FRONTIER MEDIA, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
The
accounting policies of the reportable segments are the same as those described
in the summary of accounting policies. Segment profit is based on income before
income taxes. The reportable segments are distinct business units, separately
managed with different distribution channels. The selected balance sheet
information and operating results of the Companys segments at the dates and
during the periods presented below were as follows (in thousands):
|
|
(Unaudited)
Quarter Ended
June 30,
|
|
|
|
2008
|
|
2007
|
|
Net sales
|
|
|
|
|
|
Transactional TV
|
|
$
|
10,556
|
|
$
|
10,367
|
|
Film Production
|
|
2,047
|
|
2,090
|
|
Direct-to-Consumer
|
|
458
|
|
483
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,061
|
|
$
|
12,940
|
|
|
|
|
|
|
|
Segment profit (loss)
|
|
|
|
|
|
Transactional TV
|
|
$
|
5,502
|
|
$
|
5,114
|
|
Film Production
|
|
(68
|
)
|
(137
|
)
|
Direct-to-Consumer
|
|
(540
|
)
|
(21
|
)
|
Corporate Administration
|
|
(2,886
|
)
|
(2,581
|
)
|
|
|
|
|
|
|
Total
|
|
$
|
2,008
|
|
$
|
2,375
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
Transactional TV
|
|
$
|
|
|
$
|
1
|
|
Film Production
|
|
2
|
|
1
|
|
Corporate Administration
|
|
76
|
|
252
|
|
|
|
|
|
|
|
Total
|
|
$
|
78
|
|
$
|
254
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
Direct-to-Consumer
|
|
$
|
4
|
|
$
|
|
|
Corporate Administration
|
|
52
|
|
43
|
|
|
|
|
|
|
|
Total
|
|
$
|
56
|
|
$
|
43
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
Transactional TV
|
|
$
|
1,186
|
|
$
|
1,056
|
|
Film Production
|
|
854
|
|
786
|
|
Direct-to-Consumer
|
|
136
|
|
51
|
|
Corporate Administration
|
|
3
|
|
3
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,179
|
|
$
|
1,896
|
|
|
|
(Unaudited)
June 30,
2008
|
|
March 31, 2008
|
|
Identifiable assets
|
|
|
|
|
|
Transactional TV
|
|
$
|
132,205
|
|
$
|
125,500
|
|
Film Production
|
|
33,587
|
|
34,269
|
|
Direct-to-Consumer
|
|
18,816
|
|
17,904
|
|
Corporate Administration
|
|
46,206
|
|
47,838
|
|
Eliminations
|
|
(150,303
|
)
|
(141,850
|
)
|
|
|
|
|
|
|
Total
|
|
$
|
80,511
|
|
$
|
83,661
|
|
NOTE 5 MAJOR CUSTOMERS
The
Companys major customers (revenues in excess of 10% of total sales) are
Comcast Corporation (Comcast), DirecTV, Inc. (DirecTV), Time Warner, Inc.
(Time Warner) and DISH Network Corporation (DISH). These customers are
included in the Transactional TV and Film Production segments. Revenue from
these customers as a percentage of total revenue for each of the quarters ended
June 30 are as follows:
12
Table of Contents
NEW
FRONTIER MEDIA, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
|
|
(Unaudited)
Quarter Ended
June 30,
|
|
|
|
2008
|
|
2007
|
|
Comcast
|
|
21
|
%
|
18
|
%
|
DirecTV
|
|
16
|
%
|
12
|
%
|
Time Warner
|
|
15
|
%
|
14
|
%
|
DISH
|
|
14
|
%
|
17
|
%
|
The
Companys outstanding accounts receivable balance due from its major customers
as of June 30, 2008 and March 31, 2008 are as follows (in thousands):
|
|
(Unaudited)
June 30, 2008
|
|
March 31, 2008
|
|
Comcast
|
|
$
|
1,949
|
|
$
|
1,882
|
|
DirecTV
|
|
1,318
|
|
2,011
|
|
Time Warner
|
|
905
|
|
1,015
|
|
DISH
|
|
1,188
|
|
1,817
|
|
|
|
|
|
|
|
|
|
The
loss of any of the Companys major customers would have a material adverse
effect on the Companys results of operations and financial position.
NOTE 6 MARKETABLE SECURITIES
Marketable
securities are required to be categorized as trading, available-for-sale or
held-to-maturity. As of June 30, 2008, the Company had no trading or
held-to-maturity securities. The marketable securities held by the Company at June 30,
2008 are categorized as available-for-sale and are reported at fair value.
Marketable securities held by the Company at June 30, 2008 were as follows
(in thousands):
|
|
|
|
Gross Unrealized
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
|
|
|
Estimated
|
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
97
|
|
$
|
|
|
$
|
|
|
$
|
97
|
|
Tax exempt municipal securities
|
|
576
|
|
6
|
|
|
|
582
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities
|
|
$
|
673
|
|
$
|
6
|
|
$
|
|
|
$
|
679
|
|
The
contractual maturities of these marketable securities as of June 30, 2008,
were as follows (in thousands):
|
|
Available-for-Sale
|
|
|
|
Securities
|
|
Year Ended
|
|
Gross
|
|
|
|
March 31,
|
|
Amortized Cost
|
|
Fair Value
|
|
2009
|
|
$
|
673
|
|
$
|
679
|
|
|
|
|
|
|
|
|
|
NOTE 7 ACQUISITION EARN-OUT
As
part of the MRG acquisition, the Company entered into an earn-out arrangement
which provides for three additional earn-out payments totaling $2.0 million
payable to the selling shareholders of MRG over a three year term if certain
performance targets as defined by the purchase agreement are achieved each
year. The 2006 calendar year earn-out target was exceeded and the amount due to
the former principals of MRG of approximately $0.7 million was paid in May 2007.
During
the first nine months of calendar year 2007, the Company estimated that the
second annual earn-out target for the twelve months ended December 31,
2007 would be met. However, actual results for MRG were not sufficient to
achieve the second annual performance target. As a result, the previously
accrued earn-out liability of approximately $0.5 million was reversed. The
second annual earn-out payment could still be obtained by the selling
shareholders of MRG if the performance results in year three of the earn-out
period exceed the related year three target by an amount greater than the year
two target shortfall. If actual performance or estimates for the twelve month
period ending December 31, 2008 indicate that an overachievement equal to
the shortfall in 2007 is likely to occur, the Company may be required to record
the earn-out expenses that were reversed in subsequent future periods. The
Company does not believe that the year three earn-out or recoupment of the year
two earn-out is probable based on current estimates and historical performance
data. As a result, the Company has not accrued any earn-out amounts at June 30,
2008.
13
Table of Contents
NEW
FRONTIER MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(continued)
NOTE 8 LITIGATION
In
the normal course of business, the Company is subject to various lawsuits and
claims. The Company believes that the final outcome of these matters, either
individually or in the aggregate, will not have a material effect on its
financial statements.
NOTE 9 CASH DIVIDENDS AND STOCK REPURCHASE
In
December 2005, the Companys Board of Directors approved a
2.0 million share repurchase plan to be executed over 30 months, and
the Company purchased approximately 0.9 million shares through the original
plan. In June 2008, the Companys Board of Directors extended the plan
through June 2010. During the
quarter ended June 30, 2008, the Company repurchased approximately
0.4 million shares for a total purchase price of approximately $1.5
million. The Company did not repurchase any shares during the prior year
quarter ended June 30, 2007.
The
Companys Board of Directors declared a cash dividend of $0.125 per share of
common stock during the fourth quarter of fiscal year 2008, and the Company
paid approximately $3.0 million for this cash dividend in April 2008. The Board of Directors did not declare a
dividend for the first quarter of fiscal year 2009, and the payment of future
dividends is at the discretion of the Board of Directors.
NOTE 10 INCOME TAXES
Effective
at the beginning of the first fiscal quarter of 2008, the Company adopted the
provisions of Financial Accounting Standards Interpretation (FIN) No. 48,
Accounting for Uncertainty in Income
Taxesan interpretation of FASB Statement No. 109
. FIN No. 48
contains a two-step approach to recognizing and measuring uncertain tax
positions accounted for in accordance with SFAS No. 109,
Accounting for Income Taxes
. The first
step is to evaluate the tax position for recognition by determining if the
weight of available evidence indicates that it is more likely than not that the
position will be sustained on audit, including resolution of related appeals or
litigation processes, if any. The second step is to measure the tax benefit as
the largest amount that is more than 50% likely of being realized upon
effective settlement.
In
accordance with the provisions of FIN No. 48, the Company has total
unrecognized tax benefits of approximately $1.8 million of which
approximately $0.2 million are not expected to be settled within one year
and have been classified as other long-term liabilities at June 30, 2008.
If the Company were to prevail on all uncertain tax positions, the net effect
is estimated to be a benefit to the Companys effective tax rate of
approximately $0.4 million. As of June 30, 2008, the Company had
accrued approximately $0.4 million and $0 of interest expense and
penalties, respectively, of which approximately $46 thousand was recognized
through interest expense during the quarter ended June 30, 2008. If the
Company were to prevail on all uncertain tax positions, the reversal of this
accrual would result in a benefit to the Company. The Company estimates that it
is reasonably possible that the unrecognized tax benefits will be settled
during the fiscal year ended March 31, 2009 because either a) the
more-likely-than-not recognition threshold will be met during the period,
b) the tax is settled through negotiation or litigation, or c) the
statute of limitations for the relevant taxing authority to examine and
challenge the tax position will expire. At this time, an estimate of the range
of reasonably possible outcomes cannot be made.
The
Company files U.S. federal and state income tax returns. The Company is
currently under audit by the Internal Revenue Service for its fiscal year 2007
tax year, and an estimation of the possible outcome of such audit cannot be
made. With few exceptions, the Company
is no longer subject to examination of its federal and state income tax returns
for years prior to fiscal year 1999.
NOTE 11 BORROWING ARRANGEMENTS
In
July 2007, the Company obtained a $7.5 million line of credit from an
outside financial institution. Amounts borrowed under the line of credit can be
used to support the Companys short-term working capital needs. The line of
credit was secured by the Companys trade accounts receivable and matured in July 2008.
The interest rate applied to any borrowings under the line of credit was based
on the current prime rate less 0.13%. The terms of the line of credit included
certain defined negative and affirmative covenants customary for facilities of
this type, and the Company was in compliance with these covenants at June 30,
2008. The Company made no borrowings under the line of credit.
NOTE 12 COMMITMENTS AND CONTINGENCIES
In
April and May 2008, certain executive officers and other key
employees executed new or amended employment contracts with the Company. The
terms and conditions of the amended contracts are materially equivalent to the
original agreements. The impact of the new and amended contracts on the
Companys contractual future obligations is to increase the amounts by $0.9
million, $2.3 million and $1.6 million in each of the fiscal years ended March 31,
2009, 2010 and 2011, respectively.
NOTE 13 SUBSEQUENT EVENTS
In July 2008, the Company obtained a $9.0
million line of credit
from
an outside financial institution upon
the maturity of the line of credit discussed in Note 11 above. Amounts borrowed
under the line of credit can be used to support the Companys short-term
working capital needs. The line of credit is secured by the Companys trade
accounts receivable and will mature in July 2009. The interest rate
applied to borrowings under the line of credit is based on the greater of the
current prime rate less 0.13% or 5.75%. The terms of the line of credit include
certain defined negative and affirmative covenants customary for facilities of
this type. The Company has made no borrowings under the line of credit.
14
Table
of Contents
ITEM 2. MANAGEMENTS DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Forward-Looking
Statements
This
quarterly report on Form 10-Q includes forward-looking statements. These
are subject to certain risks and uncertainties, including those identified
below, which could cause actual results to differ materially from such
statements. The words believe, expect, anticipate, optimistic, intend,
will, could, and similar expressions identify forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date on which they are made. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events, or
otherwise.
Factors
that could cause actual results to differ materially from the forward-looking
statements include, but are not limited to, our ability to: 1) retain our
four major customers that accounted for approximately 66% of our total revenue
for the quarter ended June 30, 2008; 2) maintain the license fee
structures currently in place with our customers; 3) compete effectively
with our current competitors and potential future competitors that distribute
adult content to U.S. and international cable multiple system operators (MSOs)
and direct broadcast satellite (DBS) providers; 4) retain our key executives;
5) produce film content that is well received by our Film Production
segments customers; 6) successfully manage our credit card chargeback and
credit percentages in order to maintain our ability to accept credit cards as a
form of payment for our products and services; 7) effectively manage the test
set-top box business model and attract customers for the related product and
8) attract market support for our stock. The foregoing list of factors is
not exhaustive. For a more complete list of factors that may cause results to
differ materially from projections, please refer to the Risk Factors section of
our most recently filed Form 10-K and Item 1A located in Part II
herein, as updated by periodic and current reports that we may file from time
to time with the Securities and Exchange Commission that amend or update such
factors.
Executive Summary
We
are a leader in transactional television and the international distribution of
independent and general motion picture entertainment. Our key customers are
large cable and satellite operators in the United States. Our products are sold
to these operators who then distribute them to retail customers via
pay-per-view and video-on-demand technology. We earn revenue through
contractual percentage splits of the retail price. Our three principal
businesses are reflected in the Transactional TV (formerly referred to as the
Pay TV segment), Film Production and Direct-to-Consumer (formerly referred to
as Internet segment) operating segments. Our most profitable business lines are
the Transactional TV and Film Production segments. Our Direct-to-Consumer
segment is currently operating at a loss as a result of costs we are incurring
to develop an internet protocol television (IPTV) test business model. Our
Corporate Administration segment includes all costs associated with the
operation of the public holding company, New Frontier Media, Inc.,
including costs such as legal and accounting expenses, human resources and
training, insurance, registration and filing fees with NASDAQ, executive
employee costs and the SEC, investor relations, and printing costs associated
with our public filings and shareholder communications.
The
business models of each of our segments are summarized below.
Transactional TV Segment
Our
Transactional TV segment is focused on the distribution of its pay-per-view and
video-on-demand service to MSOs and DBS providers. We earn a percentage of
revenue, or split, from our content for each pay-per-view, subscription, or
video-on-demand transaction that is purchased on our customers platform.
Revenue growth occurs as we launch our services to new cable MSOs or DBS
providers, experience growth in the number of digital subscribers for systems
where our services are currently distributed, when we launch additional
services with existing cable and DBS providers, when our proportional buy rates
improve relative to our competitors, and when there is a general increase in
category buys on our customers platform. Revenue growth can also occur when operators
increase retail prices. Alternatively, our revenue could decline if we
experience lower buy rates, if the revenue splits we receive from our customers
decline, if our customers reduce the retail price of our content or if
additional competitive channels are added to our customers platforms.
Film Production Segment
The
Film Production segment has historically derived the majority of its revenue
from two principal businesses: (1) the production and distribution of
original motion pictures such as erotic thrillers, horror movies, and erotic,
event styled content (owned content); and (2) the licensing of domestic
third party films in international and domestic markets where we act as a sales
agent for the product (repped content). This segment also periodically
provides contract film production services to certain major Hollywood studios
(producer-for-hire arrangements).
Direct-to-Consumer Segment
Our
Direct-to-Consumer segment generates revenue primarily by selling monthly
memberships to our consumer websites. During fiscal year 2008, we focused our
efforts on improving all aspects of our internet product in terms of site
design, navigation, features, content and performance in an effort to increase
traffic to the website and the conversion of that traffic into paying members.
We plan to launch a new version of our primary consumer website during fiscal
year 2009 that will provide potential customers with new functionality and the
opportunity to participate in a virtual website community. This segment has
also recently launched a test initiative related to the development of a
set-top box IPTV business model. During January 2008, we acquired certain
intellectual property rights to an internet protocol set-top box. Through the
set-top box, consumers can access content through the internet and view the
content on their television. The service would be provided through a monthly
subscription. We have been incurring
costs associated with this initiative which we will be testing during fiscal
year 2009.
15
Table
of Contents
Critical Accounting Policies
The
significant accounting policies set forth in Note 1 to our audited consolidated
financial statements included in our Annual Report on Form 10-K for the
fiscal year ended March 31, 2008, as updated by Note 1 of the Notes to the
Condensed Consolidated Financial Statements included herein, and Managements
Discussion and Analysis of Financial Condition and Results of Operations,
appropriately represent, in all material respects, the current status of our
critical accounting policies, and are incorporated herein by reference.
Transactional TV Segment
The
following table sets forth certain financial information for the Transactional
TV segment for each of the periods presented:
|
|
(In Millions)
Quarter Ended
June 30,
|
|
Percent
Change
|
|
|
|
2008
|
|
2007(1)
|
|
08 vs07
|
|
Net revenue
|
|
|
|
|
|
|
|
VOD
|
|
$
|
5.3
|
|
$
|
4.6
|
|
15
|
%
|
PPV - Cable/DBS
|
|
5.0
|
|
5.3
|
|
(6
|
)%
|
C-Band and other
|
|
0.2
|
|
0.5
|
|
(60
|
)%
|
|
|
|
|
|
|
|
|
Total(2)
|
|
10.6
|
|
10.4
|
|
2
|
%
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
2.6
|
|
2.8
|
|
(7
|
)%
|
|
|
|
|
|
|
|
|
Gross profit(2)
|
|
7.9
|
|
7.6
|
|
4
|
%
|
|
|
|
|
|
|
|
|
Gross profit percentage
|
|
75
|
%
|
73
|
%
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
2.4
|
|
2.5
|
|
(4
|
)%
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
5.5
|
|
$
|
5.1
|
|
8
|
%
|
(1) Net
revenue from advertising has been reclassified from PPV - Cable/DBS to C-Band
and other revenue to conform with the current period presentation. Additionally, the Company has reclassified
certain prepaid distribution rights amortization from the Transactional TV
segment to the Direct-to-Consumer segment to conform with the current period
presentation.
(2) Amounts
may not sum due to rounding.
Net Revenue
VOD
Revenue
from our VOD services increased approximately 15% during the current quarter
ended June 30, 2008 as compared to the same prior year quarter as a result
of an improvement in the performance of our content on the largest cable MSO in
the U.S.
PPV Cable/DBS
PPV
Cable/DBS revenue declined during the current quarter ended June 30,
2008 by approximately 6% due primarily to a decrease in revenue from the second
largest DBS provider in the U.S. associated with an increase in competition on
that platform. Revenue from the largest
MSO in the U.S. also declined from the disaffiliation of a cable system in
Seattle. These declines were partially offset by an increase in revenue from
the largest DBS provider in the U.S. associated with the addition of a new channel
on that platform during the prior fiscal year 2008.
C-Band and Other Revenue
The
decline in C-Band and other revenue is from the C-Band services that we ceased
offering during the third quarter of fiscal year 2008.
Cost of Sales
Our
cost of sales consists of expenses associated with our digital broadcast
center, satellite uplinking, satellite transponder leases, programming
acquisitions, video-on-demand transport, and amortization of content
licenses. These costs also included in-house call center operations
related to the C-Band services that we ceased offering during the third quarter
of fiscal year 2008. The decline in cost
of sales during the quarter ended June 30, 2008 as compared to the same
prior year quarter is primarily due to the above mentioned C-Band services that
we ceased offering in the third quarter of fiscal year 2008.
Operating Expenses and Operating Income
Operating
expenses during the quarter ended June 30, 2008 were generally consistent
with the same prior year quarter. Operating
income for the current quarter was $5.5 million and improved approximately 8%
as compared to $5.1 million in the same prior year quarter.
16
Table
of Contents
Film Production Segment
The
following table sets forth certain financial information for the Film
Production segment for each of the periods presented:
|
|
(In Millions)
Quarter Ended
June 30,
|
|
Percent
Change
|
|
|
|
2008
|
|
2007(1)
|
|
08 vs07
|
|
Net revenue
|
|
|
|
|
|
|
|
Owned
content
|
|
$
|
1.7
|
|
$
|
1.4
|
|
21
|
%
|
Repped
content
|
|
0.3
|
|
0.5
|
|
(40
|
)%
|
Other
revenue
|
|
0.1
|
|
0.2
|
|
(50
|
)%
|
|
|
|
|
|
|
|
|
Total
(2)
|
|
2.0
|
|
2.1
|
|
(5
|
)%
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
0.9
|
|
0.8
|
|
13
|
%
|
|
|
|
|
|
|
|
|
Gross profit
(2)
|
|
1.2
|
|
1.3
|
|
(8
|
)%
|
|
|
|
|
|
|
|
|
Gross profit percentage
|
|
60
|
%
|
62
|
%
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
1.3
|
|
1.5
|
|
(13
|
)%
|
|
|
|
|
|
|
|
|
Operating loss
|
|
$
|
(0.1
|
)
|
$
|
(0.2
|
)
|
50
|
%
|
(1) Other
revenue was previously classified within owned content revenue and has been
reclassified to conform with the current period presentation.
(2) Amounts
may not sum due to rounding.
Net Revenue
Owned Content
Revenue
increased during the quarter ended June 30, 2008 primarily from the
delivery of six titles from a thirteen episode series to a premium cable channel
customer. Revenue was also higher during the current quarter due to our
delivery of VOD content to the second largest DBS provider and other top ten
MSOs in the U.S. These increases in revenue were partially offset by a
decline in revenue from a large pay-per-view aggregator and from the largest
DBS provider in the U.S.
Repped Content
Repped
content revenue includes revenue from the licensing of film titles that we
represent (but do not own) under sales agency relationships with various
independent film producers. The revenue we generated from four titles accounted
for approximately 50% of the total repped content revenue during the quarter
ended June 30, 2008.
Other Revenue
Other
revenue relates to amounts earned through producer-for-hire arrangements, music
royalty fees and the delivery of other miscellaneous film materials to
distributors. Other revenue during the current quarter was generally
consistent with the prior year quarter.
Cost of sales
Our
cost of sales is comprised of the amortization of our owned content film costs
as well as delivery and distribution costs related to that content. These
expenses also include the costs we incur to provide producer-for-hire
services. There is no significant cost of sales related to the repped
content business.
The
increase in cost of sales during the quarter ended June 30, 2008 as
compared to the same prior year quarter is primarily due to higher film cost
amortization in connection with the increase in owned content revenue from the
delivery of 6 episodes of a 13 episode series. Film cost amortization as
a percentage of the related owned content revenue during the three month
periods ended June 30, 2008 and 2007 was 39% and 41%, respectively.
Operating Expenses and Operating Loss
Operating
expenses during the current quarter ended June 30, 2008 declined as
compared to the prior year quarter because the prior year quarter results
included a $0.2 million bad debt expense associated with an uncollectible
customer account and a $0.1 million charge associated with unrecoupable repped
content costs. These charges did not
recur in the current quarter. Partially
offsetting this decline in expenses was an increase in employee costs during
the quarter ended June 30, 2008 from our efforts to expand into DVD retail
markets with our repped content. The
Film Production segment incurred a $0.1 million operating loss during the
quarter ended June 30, 2008 as compared to an operating loss of $0.2
million during the same prior year quarter.
17
Table of Contents
Direct-to-Consumer Segment
The
following table sets forth certain financial information for the
Direct-to-Consumer segment for each of the periods presented:
|
|
(In Millions)
Quarter Ended
June 30,
|
|
Percent
Change
|
|
|
|
2008
|
|
2007(1)
|
|
08 vs07
|
|
Net revenue
|
|
|
|
|
|
|
|
Net membership
|
|
$
|
0.4
|
|
$
|
0.4
|
|
0
|
%
|
Other
|
|
0.1
|
|
0.1
|
|
0
|
%
|
|
|
|
|
|
|
|
|
Total
|
|
0.5
|
|
0.5
|
|
0
|
%
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
0.4
|
|
0.2
|
|
#
|
|
|
|
|
|
|
|
|
|
Gross profit(2)
|
|
|
|
0.3
|
|
#
|
|
|
|
|
|
|
|
|
|
Gross profit percentage
|
|
|
%
|
60
|
%
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
0.6
|
|
0.3
|
|
#
|
|
|
|
|
|
|
|
|
|
Operating (loss) income(2)
|
|
$
|
(0.5
|
)
|
$
|
0.0
|
|
#
|
|
(1) We
have reclassified certain prepaid distribution rights amortization from the
Transactional TV segment to the Direct-to-Consumer segment to conform with the
current period presentation.
(2) Amounts
may not sum due to rounding.
#
Change is in excess of 100%.
Net Revenue
Revenue
from our Direct-to-Consumer segment primarily consists of amounts earned
through the provision of internet subscriptions to customers. Net membership revenue was flat during the
quarter ended June 30, 2008 as compared to the same prior year quarter.
Other
revenue has been consistent and comparable with prior periods. This
revenue primarily relates to the sale of content to other webmasters, the
distribution of our website to the LodgeNet Entertainment Corporation customer
base, and revenue from the distribution of our content through wireless
platforms.
Cost of Sales
Cost
of sales consists of expenses associated with credit card processing,
bandwidth, traffic acquisition, content and depreciation of assets. These costs also include expenses incurred in
connection with our efforts to launch a test IPTV business model and primarily
include the initial employee, depreciation, amortization and travel costs
incurred for the future distribution of content through that product line.
The
Direct-to-Consumer segments cost of sales increased during the current quarter
ended June 30, 2008 as a result of additional costs incurred for the test
IPTV business model.
Operating Expenses and Operating Income
(Loss)
Operating
expenses increased during the quarter ended June 30, 2008 as compared to
the same quarter in the prior year due to additional costs incurred in
connection with the test IPTV business model.
We incurred an operating loss of $0.5 million for the quarter ended
June 30, 2008 as compared to break-even for the same prior year quarter.
Corporate Administration Segment
The
following table sets forth certain financial information for the Corporate
Administration segment for each of the periods presented:
|
|
(In Millions)
Quarter Ended
June 30,
|
|
Percent
Change
|
|
|
|
2008
|
|
2007
|
|
08 vs07
|
|
Operating
expenses
|
|
$
|
2.9
|
|
$
|
2.8
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
Expenses
related to the Corporate Administration segment include all costs associated
with the operation of the public holding company, New Frontier Media, Inc.,
which are not directly allocable to the Transactional TV, Film Production, and
Direct-to-Consumer segments. These costs include, but are not limited to, legal
and accounting expenses, human resources and training, insurance, registration
and filing fees with NASDAQ, executive employee costs and the SEC, investor
relations, and printing costs associated with our public filings and
shareholder communications.
Corporate
administration expenses incurred during the quarter ended June 30, 2008
slightly increased as compared to the same quarter in the prior year. The increase in costs was primarily due to
higher administrative legal costs and an increase in expenses associated with
new stock options that were granted in April 2008.
18
Liquidity and Capital Resources
Our
current priorities for the use of our cash are:
·
investments in processes intended to
improve the quality and marketability of our products;
·
funding the operations of the set-top
box IPTV business within our Direct-to-Consumer segment;
·
funding our operating and capital
requirements; and
·
funding the repurchase from time to
time of shares of our common stock pursuant to our stock repurchase program.
We
believe that existing cash and estimated cash generated from operations will be
sufficient to satisfy our operating requirements for the foreseeable future,
and we believe that any foreseeable capital expenditures, content licensing,
film production costs, stock repurchases and set-top box purchases that may be
incurred can be financed through our current existing cash and investments and
cash flows from operations.
Sources and Uses of Cash
Cash Flows from Operating
and Investing Activities
Our
cash flows from operating and investing activities are summarized as follows
(in millions):
|
|
Quarter Ended
June 30,
|
|
|
|
2008
|
|
2007
|
|
Net cash provided by operating activities
|
|
$
|
4.5
|
|
$
|
1.1
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
Purchase of investments available-for-sale
|
|
(0.6
|
)
|
(2.7
|
)
|
Redemption of investments available-for-sale
|
|
0.8
|
|
1.7
|
|
Purchases of equipment and furniture
|
|
(1.7
|
)
|
(0.5
|
)
|
Purchases of intangible assets
|
|
(0.5
|
)
|
|
|
Payment of related party note arising from
business acquisition
|
|
(0.0
|
)
|
(0.5
|
)
|
|
|
|
|
|
|
Net cash used in investing activities(1)
|
|
$
|
(1.9
|
)
|
$
|
(2.0
|
)
|
(1) Amounts
may not sum due to rounding.
The
increase in cash provided by operating activities during the quarter ended June 30,
2008 as compared to the same prior year quarter is primarily from the
following:
·
an increase in cash flows
from accounts receivable collections associated with our Transactional TV and
Film Production segments;
·
an increase in cash flows
from a decline in the fiscal year 2008 bonus amounts that were paid during the
current quarter; and
·
an increase in cash flows
from the decline in content creation within the Film Production segment.
Cash
used in investing activities was relatively flat as compared to the same prior
year quarter. We received $0.2 million
from net redemptions of investments as compared to net purchases of investments
in the same prior year quarter of $1.0 million.
We used cash during the current quarter to purchase $1.7 million of
equipment and furniture as compared to $0.5 million in the same prior year
quarter primarily related to the acquisition of electronic storage equipment
for our Transactional TV segment. We
also used approximately $0.5 million to purchase intangible assets within our
Direct-to-Consumer segment. We made no
material related party payments during the quarter.
Cash Flows from Financing
Activities
Our
cash flows from financing activities are as follows (in millions):
|
|
Quarter Ended
June 30,
|
|
|
|
2008
|
|
2007
|
|
Cash flows from financing activities:
|
|
|
|
|
|
Proceeds from exercise of stock options/warrants
|
|
$
|
|
|
$
|
0.2
|
|
Purchase of common stock
|
|
(1.5
|
)
|
|
|
Payment of dividends
|
|
(3.0
|
)
|
(3.0
|
)
|
Net cash used in financing activities
|
|
$
|
(4.5
|
)
|
$
|
(2.8
|
)
|
Net
cash used in financing activities during the current quarter includes $3.0
million in payments for cash dividends and $1.5 million for the purchase of
approximately 0.4 million shares of our common stock through our stock
repurchase program.
Stock Repurchase Plan and Dividends
In
December 2005, our Board of Directors approved a 2.0 million share repurchase
plan to be executed over 30 months, and we purchased approximately 0.9
million shares through the original plan. In June 2008, our Board of
Directors extended the plan through June 2010. During the quarter ended June 30, 2008,
we repurchased approximately 0.4 million shares for a total purchase price
of approximately $1.5 million. We did not repurchase any shares during the
prior year quarter ended June 30, 2007.
19
Our
Board of Directors declared a cash dividend of $0.125 per share of common stock
during the fourth quarter of fiscal year 2008, and we paid approximately $3.0
million for this cash dividend in April 2008. The Board of Directors did not declare a
dividend during the first quarter of fiscal year 2009, and the payment of
future dividends is at the discretion of the Board of Directors.
Borrowing Arrangements
In
July 2007, we obtained a $7.5 million line of credit from an outside
financial institution. Amounts borrowed under the line of credit could be used
to support our short-term working capital needs. The interest rate applied to
borrowings under the line of credit was based on the current prime rate less
0.13%. The terms of the line of credit included certain defined negative and affirmative
covenants customary for facilities of this type, and we were in compliance with
these covenants at June 30, 2008. We made no borrowings under the line of
credit.
Upon
the maturity of the line of credit discussed above, in July 2008, we
obtained a $9.0 million line of credit from an outside financial institution.
Amounts borrowed under the line of credit can be used to support our short-term
working capital needs. The line of credit is secured by our trade accounts
receivable and will mature in July 2009. The interest rate applied to
borrowings under the line of credit is based on the greater of the current
prime rate less 0.13% or 5.75%. The terms of the line of credit include certain
defined negative and affirmative covenants customary for facilities of this
type. We have made no borrowings under the line of credit.
Commitments and Contingencies
As
part of the MRG Entertainment, Inc. (MRG) acquisition that occurred in
fiscal year 2006, we entered into an earn-out arrangement which provides for
three additional earn-out payments totaling $2.0 million payable to the selling
shareholders of MRG over a three year term if certain performance targets as
defined by the purchase agreement are achieved each year. The 2006 calendar
year earn-out target was exceeded and the amount due to the former principals
of MRG of approximately $0.7 million was paid in May 2007.
During
the first nine months of calendar year 2007, we estimated that the second
annual earn-out target for the twelve months ended December 31, 2007 would
be met. However, actual results for MRG were not sufficient to achieve the
second annual performance target. As a result, the previously accrued earn-out
liability of approximately $0.5 million was reversed. The second annual
earn-out payment could still be obtained by the selling shareholders of MRG if
the performance results in year three of the earn-out period exceed the related
year three target by an amount greater than the year two target shortfall. If
actual performance or estimates for the twelve month period ending December 31,
2008 indicate that an overachievement equal to the shortfall in 2007 is likely
to occur, we may be required to record the earn-out expenses that were reversed
in subsequent future periods. We do not believe that the year three earn-out or
recoupment of the year two earn-out is probable based on current estimates and
historical performance data. As a result, we have not accrued any earn-out
amounts at June 30, 2008.
In
connection with our adoption of FIN 48,
Accounting
for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109
,
we have a $1.8 million liability recorded for unrecognized tax benefits at June 30,
2008. We cannot reasonably estimate when or if this liability will be paid.
Recent Accounting Pronouncements
For
a discussion of the recent accounting pronouncements related to our operations,
please refer to the related information provided under Note 1 Business and
Summary of Significant Accounting Policies to the accompanying Condensed
Consolidated Financial Statements, which information is incorporated herein by
reference.
ITEM 3. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market Risk.
The Companys exposure to market risk is principally confined to cash
in the bank, money market accounts, and notes payable, which have short
maturities and, therefore, minimal and immaterial market risk.
Interest Rate Sensitivity.
As of August 1, 2008, the Company had
cash in checking and money market accounts, certificates of deposits, and fixed
income debt securities. Because of the short maturities of these instruments, a
sudden change in market interest rates would not have a material impact on the
fair value of these assets.
As
of August 1, 2008, the Company had no borrowings under its line of credit
and so a sudden change in the prime rate would not have a material impact on
the Companys results of operations.
Foreign Currency Exchange Risk.
The Company does not have any material
foreign currency transactions.
ITEM 4. CONTROLS AND PROCEDURES.
(a)
Disclosure Controls and Procedures.
Our
Companys management, with the participation of our Chief Executive Officer and
Chief Financial Officer, evaluated the effectiveness of the design and
operation of our Companys disclosure controls and procedures (as defined in Rule 13a-15(e) under
the Securities Exchange Act of 1934, as amended) as of the end of the period
covered by this report. Based on that evaluation, our Chief Executive Officer
and the Chief Financial Officer concluded that, as of June 30, 2008, the
Companys disclosure controls and procedures were effective.
(b)
Internal Controls.
There were no changes
in our internal control over financial reporting that occurred during our first
fiscal quarter of 2009 that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.
20
Table of Contents
PART II
OTHER INFORMATION
ITEM 1A. RISK FACTORS.
In
addition to the other information set forth in this report, you should
carefully consider the factors discussed in Part I, Item 1A Risk Factors
in our Annual Report on Form 10-K for the year ended March 31, 2008,
as such risk factors have been updated by the filing with the SEC of subsequent
periodic and current reports from time to time, which factors could materially
affect our business, financial condition, or future results. The risks
described in our Annual Report on Form 10-K are not the only risks facing
our Company. Additional risks and uncertainties not currently known to us or
that we currently deem to be immaterial also may materially adversely affect
our business, financial condition, and/or reporting results.
ITEM 2. UNREGISTERED SALES OF
EQUITY SECURITIES AND USE OF PROCEEDS.
On
December 13, 2005, the Board of Directors of the Company approved the
repurchase of two million shares of common stock to be implemented over 30
months. The Company purchased approximately 0.9 million shares of common stock
through this initial plan. In June 2008, the Board of Directors of the
Company extended the duration of the plan through June 2010. During the quarter ended June 30, 2008,
the Company purchased shares in connection with the extended program (in
thousands, except per share amounts):
Period
|
|
Total Number of
Shares Purchased
|
|
Average Price
Paid Per Share
|
|
Total Number of
Shares
Purchased as
Part of
Publicly
Announced
Plans or Programs
|
|
Maximum
Number of
Shares that
May Yet Be
Purchased Under
the Plans or
Programs
|
|
April 1-30, 2008
|
|
|
|
$
|
|
|
|
|
1,129
|
|
May 1-31, 2008
|
|
|
|
|
|
|
|
1,129
|
|
June 1-30, 2008
|
|
383
|
|
3.92
|
|
383
|
|
746
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
383
|
|
$
|
3.92
|
|
383
|
|
|
|
ITEM 6. EXHIBITS.
Exhibit No.
|
|
Exhibit Description
|
10.01
|
|
Business
Loan Agreement, as supplemented (including related Promissory Note and Commercial
Security Agreement), dated July 1, 2008 between New Frontier
Media, Inc. and First Community Bank
|
10.02
|
|
Employment
Agreement between New Frontier Media, Inc. and Grant H. Williams(1)
|
10.03
|
|
Employment
Agreement between Colorado Satellite Broadcasting, Inc. and Scott A.
Piper(1)
|
10.04
|
|
Amendment
to Employment Agreement between New Frontier Media, Inc. and Ira Bahr(1)
|
10.05
|
|
Amendment
to Employment Agreement between New Frontier Media, Inc. and Ken
Boenish(1)
|
10.06
|
|
Amendment
to Employment Agreement between New Frontier Media, Inc. and Michael
Weiner(1)
|
31.01
|
|
Certification
by CEO Michael Weiner pursuant to Rule 13a-14(a)/15d-14(d)
|
31.02
|
|
Certification
by CFO Grant Williams pursuant to Rule 13a-14(a)/15d-14(d)
|
32.01
|
|
Certification
by CEO Michael Weiner pursuant to U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
32.02
|
|
Certification
by CFO Grant Williams pursuant to U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
(1) Incorporated
by reference to the Companys Annual Report filed on Form 10-K for the
year ended March 31, 2008 (File No. 000-23697).
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
|
NEW
FRONTIER MEDIA, INC.
|
Dated:
August 8, 2008
|
By:
|
/s/
Michael Weiner
|
|
Name:
|
Michael
Weiner
|
|
Title:
|
Chief
Executive Officer
|
|
|
|
|
|
Dated:
August 8, 2008
|
By:
|
/s/
Grant Williams
|
|
Name:
Grant Williams
|
|
Title: Chief
Financial Officer
|
|
|
|
|
|
21
Table of Contents
EXHIBIT
INDEX
Exhibit No.
|
|
Exhibit Description
|
10.01
|
|
Business
Loan Agreement, as supplemented (including related Promissory Note and Commercial
Security Agreement), dated July 1, 2008 between New Frontier
Media, Inc. and First Community Bank
|
10.02
|
|
Employment
Agreement between New Frontier Media, Inc. and Grant H. Williams(1)
|
10.03
|
|
Employment
Agreement between Colorado Satellite Broadcasting, Inc. and Scott A.
Piper(1)
|
10.04
|
|
Amendment
to Employment Agreement between New Frontier Media, Inc. and Ira Bahr(1)
|
10.05
|
|
Amendment
to Employment Agreement between New Frontier Media, Inc. and Ken
Boenish(1)
|
10.06
|
|
Amendment
to Employment Agreement between New Frontier Media, Inc. and Michael
Weiner(1)
|
31.01
|
|
Certification
by CEO Michael Weiner pursuant to Rule 13a-14(a)/15d-14(d)
|
31.02
|
|
Certification
by CFO Grant Williams pursuant to Rule 13a-14(a)/15d-14(d)
|
32.01
|
|
Certification
by CEO Michael Weiner pursuant to U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
32.02
|
|
Certification
by CFO Grant Williams pursuant to U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
(1) Incorporated
by reference to the Companys Annual Report filed on Form 10-K for the
year ended March 31, 2008 (File No. 000-23697).
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