Porn Company gets financing
BOULDER, Colo., Oct. 15
New Frontier Media Inc., which sells pornography over the
Internet, has received a $6 million infusion of equity
capital from an unidentified investor.
The company (Nasdaq: NOOF) said Friday it has sold
$6 million in convertible preferred stock to a “single
institutional investor.” No further information about the
investor was provided, and company officials didn’t
immediately return calls.
New Frontier shares were trading at $5.38 on Friday
afternoon, down from Thursday’s $5.69 close. The
stock has been in the 63 cents to $10.69 range in the
past year.
The Boulder-based company said it will use proceeds
from the investment to speed an upgrade of its
operations center, which distributes pay-per-view adult
programming via Internet, cable and satellite; to repay
$1.7 million in debt; and to boost working capital for
the company’s broadband (high-speed Internet)
programming strategy.
A review of recent Securities and Exchange
Commission filings didn’t provide clues as to the
investor’s identity.
But the company's SEC filings did turn up another
interesting tidbit: NOOF acknowledged a couple of
financial goofs that it is scrambling to rectify.
In a transaction that took place between December
1998 and February of this year, New Frontier allowed
holders of $1.75 million in debt to convert the debt to
shares of stock. The conversion was done at a stock
price below the market price. In March of this year, the
company issued 20 percent of its shares - valued at
$5.25 million - in a private offering.
Shareholders weren’t asked to approve either of the
transactions, an apparent violation of Nasdaq rules.
A Nasdaq panel reviewed the issue, according to New
Frontier documents, but didn’t recommend action
against the company. In late August, however, a larger
Nasdaq committee said it was reviewing the panel’s
work and that it had concerns about the company’s
failure to give shareholders a say in the two
transactions.
To show the exchange its “commitment to complying”
with Nasdaq rules, the company has formed a special
Nasdaq Compliance Committee that will review all
future transactions, the SEC filings indicate.
Further, the company will ask shareholders at the
upcoming Oct. 27 annual meeting to give after-the-fact
approval to the two transactions in question.
In connection with the $6 million investment
announced Friday, NOOF also issued the unidentified
investor 60,000 warrants, exercisable at $7.87 a share,
for every $1 million invested in NOOF. Warrants are
options to buy stock at a specified price.
The company pointed out in a Friday statement that
its special Nasdaq Compliance Committee reviewed
and approved the $6 million deal.