New Frontier Media Inc NOOF

Porn Company gets financing

[EthicalInvestor]

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.