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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

ý   Quarterly report under Section 13 or 15(d) of the Securities and Exchange
Act of 1934.

For the quarterly period ended December 31, 2004

o   Transition Report under Section 13 or 15(d) of the Exchange Act.

For the transition period from                          to                         

000-23697
(Commission file number)

NEW FRONTIER MEDIA, INC.
(Exact name of small business issuer as specified in its charter)

Colorado 84-1084061
(State or other jurisdiction of
Incorporation or organization) 		(I.R.S. Employer
Identification Number)

7007 Winchester Circle, Suite 200, Boulder, CO 80301
(Address of principal executive offices)

(303) 444-0900
(Issuer’s telephone number)

(Former name, former address and former fiscal year, if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý   No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o   No ý

As of February 8, 2005, 22,545,195 shares of Common Stock, par value $.0001, were outstanding.

Form 10-Q
NEW FRONTIER MEDIA, INC.
Index

        Page
Number
Part I.    Financial Information        
Item 1.    Financial Statements        
     Condensed Consolidated Balance Sheets as of December 31, 2004 (Unaudited) and March 31, 2004            3  
     Condensed Consolidated Statements of Operations (Unaudited) for the Quarter and Nine Months Ended December 31, 2004 and 2003            5  
     Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended December 31, 2004 and 2003            6  
     Consolidated Statement of Comprehensive Income (Unaudited) for the Quarter and Nine Months Ended December 31, 2004 and 2003            7  
     Statement of Changes in Shareholders’ Equity (Unaudited) for the Nine Months Ended December 31, 2004 and 2003            8  
     Notes to Consolidated Financial Statements (Unaudited)            9  
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations            17  
Item 3.    Quantitative and Qualitative Disclosures About Market Risk            27  
Item 4.    Controls and Procedures            27  
Part II.    Other Information        
Item 6.    Exhibits            29  
SIGNATURES            30  

2

PART I.   FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

NEW FRONTIER MEDIA, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in 000s)

ASSETS

    (Unaudited)
December 31,
2004
   March 31,
2004

CURRENT ASSETS:

               
   Cash and cash equivalents          $ 17,448                $ 15,352  
   Investments            9,854                  1,478  
   Accounts receivable, net of allowance for doubtful accounts of $68 and $68, respectively            7,438                  6,872  
   Prepaid expenses            456                  497  
   Deferred tax asset            534                  —  
   Note receivable            400                  —  
   Other            311                  236  
            
                
 

TOTAL CURRENT ASSETS

            36,441                  24,435  
            
                
 

FURNITURE AND EQUIPMENT, net

            3,623                  3,727  
            
                
 

OTHER ASSETS:

               
   Prepaid distribution rights, net            9,974                  11,627  
   Goodwill            3,743                  3,743  
   Investments            3,255                  —  
   Other identifiable intangible assets, net            165                  356  
   Deposits            41                  156  
   Other            618                  718  
            
                
 

TOTAL OTHER ASSETS

            17,796                  16,600  
            
                
 

TOTAL ASSETS

          $ 57,860                $ 44,762  
            
                
 

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

3



NEW FRONTIER MEDIA, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(in 000s)

LIABILITIES AND SHAREHOLDERS’ EQUITY

    (Unaudited)
December 31,
2004
   March 31,
2004

CURRENT LIABILITIES:

               
   Accounts payable          $ 1,449                $ 1,767  
   Current portion of obligations under capital leases            201                  356  
   Deferred revenue            717                  1,304  
   Current portion of notes payable            344                  653  
   Taxes payable            2,392                  —  
   Accrued restructuring expense            494                  1,026  
   Accrued compensation            1,221                  952  
   Accrued liabilities            1,175                  1,259  
            
                
 

TOTAL CURRENT LIABILITIES

            7,993                  7,317  
            
                
 

LONG-TERM LIABILITIES:

               
   Obligations under capital leases, net of current portion            19                  154  
   Notes payable, net of current portion            —                  275  
   Deferred tax liability            170                  —  
            
                
 

TOTAL LONG-TERM LIABILITIES

            189                  429  
            
                
 

TOTAL LIABILITIES

            8,182                  7,746  
            
                
 

COMMITMENTS AND CONTINGENCIES

               

SHAREHOLDERS’ EQUITY

               

Common stock, $.0001 par value, 50,000,000 shares authorized, 22,290,028 and 22,386,008 respectively, shares issued and outstanding

            2                  2  
   Preferred stock, $.10 par value, 5,000,000 shares authorized:                

Class A, no shares issued and outstanding

            —                  —  

Class B, no shares issued and outstanding

            —                  —  
   Additional paid-in capital            53,580                  49,590  
   Accumulated deficit            (3,862 )                (12,576 )
   Accumulated other comprehensive loss            (42 )                —  
            
                
 

TOTAL SHAREHOLDERS’ EQUITY

            49,678                  37,016  
            
                
 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

          $ 57,860                $ 44,762  
            
                
 

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

4

NEW FRONTIER MEDIA, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in 000s)

    (Unaudited)
Quarter Ended
December 31,
   (Unaudited)
Nine Months Ended
December 31,
    2004
   2003
   2004
   2003

SALES, net

          $ 11,991          $ 10,779                $ 35,493          $ 31,778  

COST OF SALES

            4,000            4,220                  12,078            12,407  
            
          
                
          
 

GROSS MARGIN

            7,991            6,559                  23,415            19,371  
            
          
                
          
 

OPERATING EXPENSES:

                               
   Sales and marketing            1,084            944                  3,410            3,480  
   General and administrative            2,615            2,609                  7,499            7,490  
   Restructuring expense            (146 )          —                  (146 )          —  
            
          
                
          
 

TOTAL OPERATING EXPENSES

            3,553            3,553                  10,763            10,970  
            
          
                
          
 

OPERATING INCOME

            4,438            3,006                  12,652            8,401  
            
          
                
          
 

OTHER INCOME (EXPENSE):

                               
   Interest income            120            11                  235            31  
   Interest expense            (23 )          (416 )                (85 )          (1,087 )
   Other income            21            129                  45            241  
            
          
                
          
 

TOTAL OTHER INCOME (EXPENSE)

            118            (276 )                195            (815 )
            
          
                
          
 

NET INCOME BEFORE PROVISION FOR INCOME TAXES

            4,556            2,730                  12,847            7,586  
            
          
                
          
 
   Provision for income taxes            (1,632 )          —                  (4,133 )          (2 )
            
          
                
          
 

NET INCOME

          $ 2,924          $ 2,730                $ 8,714          $ 7,584  
            
          
                
          
 

Basic income per share

          $ 0.13          $ 0.13                $ 0.39          $ 0.38  
            
          
                
          
 

Diluted income per share

          $ 0.13          $ 0.12                $ 0.38          $ 0.35  
            
          
                
          
 

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

5

NEW FRONTIER MEDIA, INC.
AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in 000s)

    (Unaudited)
Nine Months Ended
December 31,
    2004
   2003

CASH FLOWS FROM OPERATING ACTIVITIES:

               

Net income

          $ 8,714                $ 7,584  
   Adjustments to reconcile net income to net cash provided by operating activities:                
   Warrants issued/amortized for services and financing            —                  597  
   Tax provision for capital transaction            (1,122 )                —  
   Amortization of deferred debt offering costs            —                  173  
   Depreciation and amortization            4,403                  4,814  
   Write-off of marketable securities available for sale            —                  90  
   Tax benefit from option/warrant exercise            3,221                  —  
   Other            —                  39  
   (Increase) Decrease in operating assets                

Accounts receivable

            (566 )                (1,333 )

Receivables and prepaid expenses

            (448 )                335  

Prepaid distribution rights

            (1,489 )                (2,073 )

Deferred tax asset

            (534 )                —  

Other assets

            127                  (247 )
   Increase (Decrease) in operating liabilities                

Accounts payable

            (249 )                (90 )

Deferred revenue, net

            (587 )                (941 )

Taxes payable

            2,392                  —  

Deferred tax liability

            170                  —  

Accrued restructuring cost

            (532 )                (274 )

Other accrued liabilities

            186                  983  
            
                
 

NET CASH PROVIDED BY OPERATING ACTIVITIES

            13,686                  9,657  
            
                
 

CASH FLOWS FROM INVESTING ACTIVITIES:

               
   Purchase of investments            (17,512 )                —  
   Redemption of investments            5,939                  —  
   Purchase of equipment and furniture            (1,034 )                (751 )
            
                
 

NET CASH USED IN INVESTING ACTIVITIES

            (12,607 )                (751 )
            
                
 

CASH FLOWS FROM FINANCING ACTIVITIES:

               
   Payments on capital lease obligations            (290 )                (929 )
   Increase (decrease) in note payable            (400 )                400  
   Issuance of common stock            1,891                  4,812  
   Retirement of stock            —                  (1,500 )
   Issuance of redeemable preferred stock            —                  2,000  
   Redemption of redeemable preferred stock            —                  (5,250 )
   Decrease in other financing activities            (184 )                (120 )
            
                
 

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

            1,017                  (587 )
            
                
 

NET INCREASE IN CASH

            2,096                  8,319  

CASH AND CASH EQUIVALENTS, beginning of period

            15,352                  4,264  
            
                
 

CASH AND CASH EQUIVALENTS, end of period

          $ 17,448                $ 12,583  
            
                
 

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

6

NEW FRONTIER MEDIA, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in 000s)

    (Unaudited)
Quarter Ended
December 31,
   (Unaudited)
Nine Months Ended
December 31,
    2004
   2003
   2004
   2003

Net income

      $ 2,924          $ 2,730          $ 8,714          $ 7,584  

Other comprehensive loss
Unrealized loss on available-for-sale marketable securities, net of tax

        (39 )          —            (42 )          —  
         
          
          
          
 

Total comprehensive income

      $ 2,885          $ 2,730          $ 8,672          $ 7,584  
         
          
          
          
 

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

7

NEW FRONTIER MEDIA, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(in 000s)

    (Unaudited)
Nine Months Ended
December 31,
    2004
   2003

NEW FRONTIER MEDIA, INC. COMMON STOCK

               

Balance at beginning of year

            $ 2          $ 2  
              
          
 

Balance at end of period

              2            2  
              
          
 

ADDITIONAL PAID-IN CAPITAL

               

Balance at beginning of period

              49,590            45,943  

Exercise of stock options/warrants

              1,891            4,811  

Tax provision for capital transaction

              (1,122 )          —  

Tax benefit for stock option/warrant exercise

              3,221            —  

Retirement of stock

              —            (1,500 )

Legal settlement

              —            45  

Cancellation of warrants associated with license agreement

              —            (1,152 )

Stock issued in connection with financing

              —            410  

Elimination of inter-company investment

              —            (558 )

Other

              —            144  

            
          
 

Balance at end of period

              53,580            48,143  
              
          
 

ACCUMULATED DEFICIT

               

Balance at beginning of year

              (12,576 )          (23,489 )

Net income

              8,714            7,584  
              
          
 

Balance at end of period

              (3,862 )          (15,905 )
              
          
 

ACCUMULATED COMPREHENSIVE LOSS

               

Balance at beginning of year

              —            —