SECURITIES & EXCHANGE COMMISSION
                             Washington, D.C. 20549
     -----------------------------------------------------------------------
                                   FORM 10-KSB

                  Annual Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934
                        For the Year Ended March 31, 1998

                       Commission File Number: 33-27494-FW

                            NEW FRONTIER MEDIA, INC.
              ----------------------------------------------------
             (Exact name of registrant as specified in its charter)

                    Colorado                    84-1084061
             ------------------------------------------------------
             (State of Incorporation) (I.R.S. Employer I.D. Number)

                  1050 Walnut St., Suite 301, Boulder, CO 80302
               ---------------------------------------------------
              (Address of principal executive offices and Zip Code)

                                 (303) 444-0632
               --------------------------------------------------
              (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act: None.

Securities registered pursuant to Section 12(g) of the Exchange Act: Common 
Stock.

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: [ ] YES [X] NO

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III


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of this Form 10-KSB or any amendment to this Form 10-KSB: [ ]

Registrant's revenues for its most recent fiscal year (ended March 31,
1998): $1,645,192

Aggregate  market  value of voting stock held by non-affiliates: $13,684,450

Indicate the number of shares outstanding of each of the registrant's classes of
common stock:

6,542,000 common shares were outstanding as of March 31, 1998.

Documents Incorporated by Reference: Not Applicable



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                                   Form 10-KSB
--------------------------------------------------------------------------------

                            NEW FRONTIER MEDIA, INC.
              Form 10-KSB for the Fiscal Year ended March 31, 1998

                                Table of Contents

                                                                 Page of Report
PART I.

Item 1.    Description of Business.                                           3
Item 2.    Description of Property.                                           5
Item 3.    Legal Proceedings.                                                 5
Item 4.    Submission of Matters to a Vote of Security Holders.               6

PART II.

Item 5.    Market for Registrant's Common Equity and Related
            Stockholder Matters.                                              6
Item 6.    Management's Discussion and Analysis of Financial
            Condition and Results of Operations.                              6
Item 7.    Financial Statements.                                    F-1 to F-19
Item 8.    Changes In and Disagreements With Accountants on 
                Accounting and Financial Disclosure.                          9

PART III.

Item 9.    Directors, Executive Officers, Promoters and Control Persons;
           Compliance With Section 16(a) of the Exchange Act.                10
Item 10.   Executive Compensation.                                           11
Item 11.   Security Ownership of Certain Beneficial Owners and
             Management.                                                     11
Item 12.   Certain Relationships and Related Transactions.                   12
Item 13.   Exhibits and Reports on Form 8-K.                                 12

SIGNATURES                                                                   13




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PART I.

ITEM 1.  DESCRIPTION OF BUSINESS.

History of the Company

         The Company was originally incorporated in the State of Colorado on
February 23, 1988.

         On September 15, 1995, the Company consummated the acquisition of New
Frontier Media, Inc. in a stock-for-stock exchange. The Company first effected a
2,034.66:1 reverse split of all 569,706,000 shares of its common stock then
issued and outstanding, resulting in 280,000 shares of Common Stock being issued
and outstanding prior to the New Frontier acquisition. The Company also approved
a change of the Company's name to New Frontier Media, Inc. For a period of five
years preceding this acquisition, the Company had not conducted any significant
business operations.

         By reason of its 1995 acquisition of New Frontier's operations, the
Company became engaged in reference CD-ROM publishing, through a 70%-owned
subsidiary, Boulder Interactive Group, Inc. d/b/a Inroads Interactive
("Inroads"), and in the acquisition and distribution of unrated and adult
feature films in the digital versatile disc format through a wholly owned
subsidiary DaViD Entertainment, Inc. ("DaViD").

         On February 18, 1998, the Company consummated an underwritten public
offering of 1,500,000 units, each consisting of one share of common stock and
one redeemable common stock purchase warrant, raising $7,087,500 in net proceeds
after underwriting fees (excluding related offering expenses). Simultaneous with
the closing of the Company's public offering, pursuant to Asset Purchase
Agreements with Fifth Dimension Communications (Barbados), Inc., a Barbados
corporation, 1043133 Ontario Inc., an Ontario (Canada) corporation, 1248663
Ontario Inc., an Ontario (Canada) corporation, and Merlin Sierra, Inc., a
California corporation (hereinafter referred to collectively as "Fifth
Dimension"), the Company acquired the adult satellite television business of
Fifth Dimension, a leading provider of subscriber-based premium television
channels and transaction-based television networks.

         By reason of its 1998 acquisition of the adult satellite television
business of Fifth Dimension, the Company, through its wholly owned subsidiary,
Colorado Satellite Broadcasting, Inc. ("CSB") owns and is engaged in the
operation and distribution of, the three leading C-band adult programming
networks in the United States, and is a leading provider of adult programming
via direct to home ("DTH") C-band satellite.

         On June 16, 1998, the Company agreed to sell its 70% interest in
Inroads. See "DESCRIPTION OF BUSINESS - INROADS."

         The Company's executive offices are located at 1050 Walnut Street,
Suite 301, Boulder, Colorado 80302. The telephone number is (303) 444-0632.

                                        3

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Overview-Adult Entertainment Industry

         During the 1980s, the availability of adult movies on videocassette and
on cable television helped to legitimize the consumption of adult material by
putting it in the home setting. The result, in the opinion of Management, has
been the legitimization of adult industry products by other businesses not
traditionally associated with the adult entertainment industry. Video stores
(video rentals), long distance telephone carriers (adult conversation lines,
internet adult services), satellite providers (transponder leases, adult
networks), cable companies (adult channels and networks), hotel chains
(pay-per-view adult programming), and even mutual funds (investments in
publicly-traded adult entertainment companies) earn significant returns by
supplying or investing in adult entertainment either directly or indirectly.

         The distribution of adult entertainment materials is intensely
competitive. Hundreds of companies now produce and distribute films to
wholesalers and retailers, as well as directly to the consumer. The low cost of
videotape and the introduction of low cost video tape recorders, along with the
minimal production budgets of many adult films, has resulted in much lower
barriers to entry in the adult entertainment industry. The availability of adult
films on videocassette has virtually eliminated the adult theater business.

         Management believes that fully edited and partially edited adult
material routinely available on a variety of cable television systems and
satellite providers acts to reinforce consumer demand. Americans spent over $190
million on adult pay-per-view in 1997, according to Paul Kagan Associates, Inc.
Cable companies such as Time Warner, TeleCommunications, Inc., and Cablevision
Systems offer fully edited services like the Playboy Channel. Other cable
companies such as Jones Intercable, Verto Communications and Greater Media offer
partially-edited or fully-edited adult programming, such as that available from
Spice and the Company. According to public documents, the Playboy and Spice
channels generate as much as $200 million in revenue from cable and DTH
satellite services. Both companies have launched overseas services.

         The adult entertainment industry has continued to grow as technological
advances allow easier and more private access to products. Most major hotel
chains, including Marriott, Hyatt, and Hilton, offer in-room fully-edited adult
programming through services such as On Command. The tremendous growth of the
Internet, including chat rooms and web sites dedicated to adult entertainment,
has resulted in millions of potential customers accessing these sites through
the privacy of their personal computers. In a recent ruling, ACLU v. Reno, the
Supreme Court struck down portions of the Communications Decency Act. Management
believes that the adult entertainment industry in general, and the private
viewing segment of that industry in particular, will continue to experience
significant growth in the coming years, particularly as advances in technology
allow more private and secure adult access to adult themed material.


Overview-The Company's Adult Programming Networks

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         The Company, through its Colorado Satellite Broadcasting, Inc. ("CSB")
subsidiary, and by reason of its consummation of its Asset Purchase Agreements
with Fifth Dimension, is a leading provider of subscriber-based premium
television channels ("premium channels" or "pay television") and
transaction-based television networks ("pay-per-view"). CSB currently owns,
operates, and distributes the three leading C-band adult programming networks:
Extasy, True Blue, and Exotica (collectively referred to hereinafter as the
"Extasy Networks"). CSB, through the Extasy Networks, is a leading provider of
unedited adult programming via direct to home ("DTH") C-band satellite. To a
lesser extent, CSB provides its services through cable television and wireless
cable television multiple system operators ("MSOs"). CSB does not currently
provide its services via Ku-band (small dish or digital satellite) satellite
providers. CSB sells its network programming on a subscription basis and on a
pay-per-view basis. The Company's subscribers receive the Extasy Networks
through a television set-top decoder box. Subscribers have the option of
purchasing block programming (e.g., one day, one month, one year), or single
movies or events for a flat fee. As of March 31, 1998, the Extasy Networks were
available to an estimated 2.0 million C-band DTH subscribers, and approximately
100,000 cable television subscribers. The Extasy Networks maintain distribution 
agreements with nearly every major distributor of C-band satellite programming 
in the United States.

         CSB aggressively promotes its networks' brand names with bold logotypes
and high-quality interstitial programming between feature films and special
programming. The Extasy Networks also feature advertising which promotes
adult-oriented entertainment and information through pay-per-call telephone
lines.

         Extasy, True Blue, and Exotica each feature approximately 36 movie
titles per week, or 100 to 150 movies each month, with at least 15 first-time
exhibitions per month. There is little cross-over programming between channels.
All channels are available 24 hours per day, featuring a mix of standard
industry format 90 minute feature films and special 30-minute and 60-minute
features and interviews. Staggered movie start times occur three times daily,
allowing for maximum viewing flexibility. Currently, the Extasy Networks deliver
unedited adult programming exclusively.

 Extasy (Telstar T-405, Channel 19)

         Extasy is the premium channel of the three channels that make up the
Extasy Networks. As of March 31, 1998, Extasy had 50,472 active subscriptions.
Extasy offers a diverse programming mix within the adult genre, consisting of
movies and specials that appeal to a wide variety of tastes and interests. Each
day of the broadcast week is specially constructed to deliver the widest variety
of unedited adult programming in addition to special thematic segments and
features. Extasy is available on an all-day pay-per-view basis ($8.95), as well
as periodic 1-month ($29.95), 3-month ($49.95), 6-month ($79.95), and 1-year
($139.95) subscriptions.

 True Blue (Telstar T-405, Channel 05)

         True Blue is the budget service in the Extasy Networks family. As of
March 31, 1998, True Blue had 44,130 active subscriptions. True Blue is a leader
in "classic" adult programming

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(professionally produced titles more than 5 years old), and features a mix of
amateur adult movies and classic adult feature films. True Blue is available on
an all-day pay-per-view basis ($8.95), as well as periodic 1-month ($16.95),
3-month ($37.95), 6-month ($59.95), and 1-year ($99.00) subscriptions.

Exotica (Telstar T-405, Channel 22)

         Exotica is the internationally programmed service in the Extasy
Networks family. As of March 31, 1998, Exotica had 35,130 active subscriptions.
Exotica offers a mix of recent adult feature film hits, new adult features,
European adult films, and classic adult features. Exotica is available on an
all-day pay-per-view basis ($8.95), as well as periodic 1-month ($19.95),
3-month ($41.95), 6-month ($69.95), and 1-year ($129.95) subscriptions.

TeN: The Erotic Network (Telstar T02R, Test Broad cast on Channel 19)

         On August 15, 1998, CSB plans to launch TeN: The Erotic Network, a new,
24-hour adult network targeted specifically to cable television systems and
medium to high-powered satellite service providers ("DBS"). CSB plans to
position TeN as cable television's and DBS satellites' alternative to the
traditional fully edited adult movie services offered by Playboy and Spice. In
order to further increase the attractiveness and initial market share of TeN,
CSB is offering extremely competitive revenue sharing terms to those cable and
satellite distribution affiliates who agree to carry the service.

         Based on the recent developments described below, Management believes
that CSB has an unique opportunity to successfully launch a new adult network
exclusively programmed with adult films and videos that mirror the editing
standards of Spice Hot, a more liberally programmed sister network of Spice.

         * Playboy's recent $100 million acquisition of Spice, Inc. ( at a
         valuation of 4.5 times trailing 1997 revenue of $22 million), which
         effectively reduces the cable and DBS adult network industry to a
         single player;

         * Playboy's corporate policy to offer only fully edited adult 
         programming on its networks;

         * the quality and number of cable operators now willing to carry
         partially edited, more explicit services and the momentum toward
         broader market acceptance of unedited and partially edited adult
         programming by cable system operators and their subscribers;

         * the recent success of Spice Hot, a partially edited, more explicit
         version of Spice Channel in terms of the buy rates it has achieved (3
         to 4 times greater than fully edited adult programming); and

         * the Company's success in head-to-head competition with Spice in
         C-Band satellite.

                                        6

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Government Regulation

         In 1996, the United States Congress passed the Telecommunications Act
of 1996 (for this paragraph only, the "Act"), a comprehensive overhaul of the
Federal Communications Act of 1934. Section 641 of the Act requires full audio
and video scrambling of channels which are primarily dedicated to "sexually
explicit" programming. If a multi-channel video programming distributor,
including a cable television operator, cannot comply with the full scrambling
requirement, then the channel must be blocked during the hours when children are
likely to be watching television, i.e., from 6:00 a.m. to 10:00 p.m. Both fully
edited programming providers (such as Playboy) and partially edited programming
providers (such as Spice and the Extasy Networks) feature "sexually explicit"
programming within the contemplation of Section 641 of the Act. Although all
adult programming companies fully scramble their signals for security purposes,
several cable television MSOs lack the technical capability to fully scramble
the audio portion of the signal. These cable systems would be required to block
adult broadcasts between 6:00 a.m. and 10:00 p.m. The Company does not expect to
be impacted by this provision insofar as it broadcasts only a fully scrambled
signal. Section 641 of the Act would only affect the Company if it decided to
pursue cable television MSOs without technical scrambling ability as a source of
distribution for its programming.

Network Programming

         All of the Extasy Networks' broadcast programming is acquired from
third party adult content studios. In most cases, CSB pays a flat rate ranging
from $200 to $2,000 for unlimited broadcast rights to a feature film for a
specified period of time (usually one to four years). CSB has relationships with
nearly all of the major adult movie studios, and purchases a wide variety of
programming from each on a monthly basis. These studios send Betacam SP, 1" or
3/4" master tapes to a dubbing facility in Los Angeles, California. Dubbed
copies of the programming are then forwarded to the uplink facility, where they
are screened and edited, if necessary, for quality control purposes and to
comply with running time requirements.

Network Delivery

 The C-band Satellite Business

         Currently there are approximately 2.0 million C-band "big dish"
satellite systems in place in the United States. These systems feature receivers
which are larger (one meter) in diameter than digital satellite systems. C-band
systems, with their ability to scan different satellites, offer owners an
enormous variety of programming, significantly more than any other service or
delivery system (such as cable or digital satellite, which locks on only one
satellite). C-band satellite owners incur no cable charges or program supplier
fees for a vast majority of received programming. In the past several years, the
market for C-band satellites has declined significantly, as small digital
satellite services (Ku-band) have flourished. These 18-inch digital satellite
dishes are much less expensive than the large C-band satellite hardware ($200
versus approximately $3,000 for C-band), are

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relatively easy to mount in unobtrusive locations, and offer digital channels.
C-band satellite equipment is also negatively affected by stricter zoning
regulations and covenant restrictions.

         Approximately 90,000 C-band system owners replaced their big dishes
with the smaller Direct Broadcast Satellite ("DBS") dish systems in the last
year, according to General Instruments Access Control Center. Management
believes the C-band equipment base will remain in the 2.0 million range for the
next several years.

         The introduction and rapid growth of the number of digital channels,
due to introduction of DBS and reduced transponder costs, affects C-band
satellite, which is broadcast in analog format. Management believes digital and
analog formats will co-exist for several years, and that new technologies will
allow C-band systems to receive digital channels. For example, General
Instruments' new 4DTV technology enables C-band users to watch programming
transmitted via DigiCipher II format. C-band continues to be the "work horse" of
the satellite entertainment industry. Every major cable system in the United
States is C-band based, delivering dozens of C-band channels to more than 65
million subscribers. Hundreds of government, corporate, education, and network
broadcasters use C-band. C-band is also the preferred method of transmitting
sports backhauls, satellite news gathering, international broadcasts, and
syndicated program and wild feeds.

         Management believes that C-band also offers a more stable delivery
source, particularly concerning satellite lifespan. Most satellites have a
service life of approximately 15 years; however, when cosmic accidents occur, as
in the case of the Telstar 401 in January, 1997, all channel occupants on that
satellite must find immediate replacement residency. In the case of the Telstar
401, all channels were switched to other satellites that C-band customers could
access within a matter of hours. DBS customers, who are locked on one satellite,
could suffer significant delays in service if their satellite experienced a
problem similar to the Telstar 401 accident. It is unlikely the DBS provider
would be able to find an empty, viable "spare" satellite already in orbit to
switch to. Such a switch would involve re-programming every DBS dish to the new
satellite location. A more likely scenario would involve launch of a replacement
satellite, which could take weeks or months.

         The future of C-band is, in the opinion of management, far less
volatile. The gradual changeover from analog to digital satellites will proceed
as the market dictates. This slow, deliberate change could take as long as 15
years to fully implement. In the meantime, the introduction of digital receivers
to the C-band market has resulted in the transition of nearly 40,000 households
from C- band analogue to C-band analogue/digital receiving capability.

Cable Television Systems and DBS Providers

         According to Paul Kagan Associates ("Kagan"), a leading media industry
analyst, as of January, 1998, there were 98 million television households in the
U.S. of which approximately 65 million households receive cable television
service, 7 million households receive DBS (high- powered) satellite service and
2.0 million households receive C-band (large dish) satellite service.


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         Of the 65 million cable television households, approximately 51.5
million subscribers have the capacity to receive one or more adult channels and
100% of the DBS and C-band satellite households (total of 9 million households)
have the capacity to receive at lease one adult channel.

         According to Kagan, the market for adult pay-per-view and subscription
television is expected to grow from $200 million in 1998 to over $300 million in
2001.

         In an effort to greatly broaden its reach into the cable television and
DBS markets, the Company has announced that it will be launching TeN:The Erotic
Network on August 15, 1998 (see TeN:The Erotic Network, above).

 Satellite Transmission

         CSB delivers its video programming to its C-band customers (and to a
lesser extent to cable television customers) via satellite transmission.
Satellite delivery of video programming is accomplished as follows:

         Video programming is played directly from an uplink facility. The
program signal is then scrambled (encrypted) so that the signal is
unintelligible unless it is passed through the proper decoding devices. The
signal is then transmitted (uplinked) by the earth station to a designated
transponder on a communications satellite. The transponder receives the program
signal uplinked by the earth station, amplifies the program signal and
broadcasts (downlinks) it to satellite dishes located within the satellite's
area of signal coverage. The signal coverage of the domestic satellite used by
CSB is the continental United States, Hawaii, portions of the Caribbean, Mexico,
and Canada. Each transponder can retransmit one complete analog color television
signal, together with associated audio and data sidebands.

         For cable systems, the scrambled signal received by the cable system's
satellite dish is then descrambled. The cable system then rescrambles the signal
using rescrambling technology that is compatible with the addressable set top
decoders deployed in its system, and then distributes the signal throughout its
cable system. The satellite receivers of DTH and Digital Satellite customers
contain descrambling equipment. To offer pay-per-view services, the set top
boxes or satellite receivers must have an electronic "address" and the cable
system or satellite service provider must be able to remotely control each
customer's set-top box or satellite receiver, and cause it to descramble the
television signal for a specific period of time after the customer has made a
purchase of a premium service or pay-per-view movie or event. The ability to
control the scrambling and descrambling of a signal from a cable system's
facilities is essential for marketing and delivery of pay-per-view programming
services.

 Transponder Agreements

         In 1992, Fifth Dimension entered into contracts with AT&T's satellite
division to lease four channels on Telstar 401. Fifth Dimension delivered
Exxxtasy Network broadcasts utilizing Telstar

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401 until January 11, 1997, when Telstar 401 experienced an irreversible
equipment failure. Fifth Dimension immediately moved its transponders to
AnikE2(2) and Telstar 402R(2), and delivered its Extasy Networks programming
since January, 1997 via these two satellites. Fifth Dimension then entered into
an agreement to lease three transponders on Telstar 405, a new AT&T satellite
that was placed in service in June, 1997. CSB maintains a sub-lease with Fifth
Dimension under its non-cancelable sublease agreement on the three transponder
slots on the Telstar 405 satellite, and is currently broadcasting its three
Extasy Networks channels on this satellite. CSB's 24-hour "barker" or
promotional channel is currently broadcasting Telstar 402R, which enables it to
promote the Extasy Networks on the same satellite where most of its competitors'
services are offered.

 Uplink Facility

         CSB has engaged Fifth Dimension to maintain a fully operational uplink
facility in Ottawa, Canada, dedicated exclusively to the Extasy Networks. An
uplink facility is the means by which a video signal can be sent to a designated
satellite transponder so that it can be broadcast back to the earth to reach a
large geographic territory. The Ottawa uplink facility is equipped with the
necessary satellite equipment, editing equipment, power supplies and other
equipment necessary to provide 24-hour programming for its three networks, plus
a barker channel.

 Call Service Center

         Fifth Dimension had maintained a call service center in Ottawa, Canada.
Following the Fifth Dimension acquisition, CSB out-sourced these operations to
Turnervision, Inc. and relocated its call service function to the United States.
The call service center receives incoming calls from customers wishing to order
network programming, or having questions about service or billing. The call
service center is accessed from anywhere in the U.S. or Canada via a toll-free
"800" number. It is equipped with approximately 30 work stations, each of which
contains a networked computer work station, proprietary order processing
software, and telephone equipment. These components are tied into a master
switch which routes incoming calls and enables orders to be processed and
subscriber information to be updated "on-line."

         The call service center is operational 24 hours each day, and staffed
according to call traffic patterns which take into account time of day, day of
the week, seasonal variances, holidays, and special promotions. Customers pay
for their orders with credit cards, which are authorized and charged before the
order is sent electronically to General Instrument's satellite operations
facility in San Diego, California for processing. General Instrument receives
the subscriber order and the subscriber's identification information, and sends
a signal up to the appropriate satellite, which "unlocks" the service ordered
for the applicable period of time.

Competition

         The market for adult premium channel and pay-per-view programming is
divided into two separate and distinct types of programming: unedited adult
programming networks, and partially or

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fully edited programming networks. Unedited and partially edited adult
programming, like that offered by the Extasy Networks, TeN and Spice, consists
of movies and other programming that contains sexually explicit film and video.
Fully edited adult programming, like that offered by Playboy, is edited so as to
remove most of the explicit elements which make up a typical adult film. Fully
edited programming, while generally not rated by the Motion Picture Association
of America, would receive an "R" or "NC-17" rating if submitted for review.

         The Company also faces general competition from other forms of
non-adult entertainment, including sporting and cultural events, television,
feature films, and other programming. In addition, the Company will face
competition in the adult entertainment arena from other providers of adult
programming, adult video rentals and sales, adult film theaters, newspapers and
magazines aimed at adult consumers, telephone talk lines ("telephone sex"
services), and adult-oriented Internet services.

Marketing

         CSB markets its services primarily through an open-air, 24-hour,
broadcast on a channel which promotes the programming featured on the Extasy
Networks. This channel, known as a "barker" channel, uses fully edited movie
clips and interstitial programming to entice viewers who are "channel surfing"
to subscribe to one of the Extasy Networks channels (periodic subscription), or
the purchase a "block" of programming (a single pay-per-view movie or event, or
an all-day purchase). To a lesser extent, CSB advertises in print publications
such as satellite channel guides or adult themed magazines. CSB also
aggressively markets its Extasy Network programming directly to satellite
program packagers or distributors, through direct marketing campaigns,
face-to-face meetings, trade show exhibits and industry gatherings. CSB's
marketing department has developed numerous programs and promotions to support
the Extasy Networks. These have included the development of detailed monthly
program guides, glossy promotional pieces, and celebrity appearances at industry
trade shows. CSB also maintains a salesforce of four (4) full-time employees to
promote carriage of its programming on cable television, DBS and alternative
platform systems.

         The Company exhibits at two to three industry trade shows per year,
including the national Cable Television Association (NCTA) shows (Western and
National) and the Satellite Broadcasting and Communications Association (SBCA)
shows. In addition, the Company attends a variety of other industry trade shows,
including the Cable Television Advertising and Marketing (CTAM) and the DBS
Summit.

         With the planned August 15, 1998 launch of TeN, the Company's marketing
efforts have been enhanced to include cable television and DBS trade
advertisements, marketing binders, and air checks/test broadcasts.

DaViD


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         DaViD is a leading content owner of feature-length adult and unrated
motion pictures for the Digital Versatile Disc ("DVD") market.

Content Licensing

         DaViD is primarily engaged in the licensing of existing feature-length
adult and unrated motion picture content for periods ranging from seven years to
perpetuity, for distribution on DVD media. DaViD licenses its motion picture
programming from approximately ten motion picture studios and/or licensors.
DaViD has purchased approximately 90% of its titles for single licensing fees,
ranging from $2,000 to $5,000 per title. Prior to March 1997, DaViD had been
primarily engaged in the licensing of existing feature-length adult and unrated
motion picture content on Laser Disc media. DaViD no longer releases any titles
on Laser Disc media.

         DaViD's typical exclusive distribution term ranges from seven years to
perpetuity. Exclusive distribution territory ranges from North America
(approximately 80% of DaViD's titles) to worldwide (approximately 20% of DaViD's
titles). For a few, high-quality titles in DaViD's library (approximately five
percent of total library titles), DaViD pays royalties ranging from ten to
twenty percent of collected wholesale revenues.

         DaViD's contracted acquisition library includes classic and new release
adult features such as Hidden Obsessions and Japanese animation titles such as
Urotsukidoji: The Legend of the Overfiend.

         DaViD acquires video disc rights to approximately 100 feature films
each year, and historically has released four to five new titles per month. As
awareness and acceptance of DVD technology grows, DaViD intends to release up to
10 titles per month.

Jacket Printing

         DaViD maintains an in-house art department which designs and produces
the electronic art necessary to print DVD jewel case inserts. Jewel case inserts
are printed and inserted by the replication company.

Disc Replication

         DaViD contracts out the replication for its DVD titles to third-party
manufacturers. The replication companies receive masters from DaViD in the form
of digital "one- off" discs (DVD). Glass masters and stampers are created from
the one-off masters. Jacket printing and disc assembly (insertion into a jewel
case) is handled by the replication company.

Fifth Dimension Assets Acquisition

         On February 18, 1998, the Company, through its wholly owned subsidiary
CSB, acquired

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the assets relating to the subscription-based and transaction-based adult
satellite television business of Fifth Dimension. Pursuant to the terms of the
Asset Purchase Agreements between the Company and Fifth Dimension, the Company
acquired Fifth Dimension's satellite uplink facility equipment, call center
facility equipment, satellite transponder subleases, film inventories,
intangible assets (including trade names, trademarks, service marks, copyrights,
licenses, brand names, trade secrets, trade dress, technical know-how, good
will, and other intangibles), subscriber base and lists, vendor lists, books and
records, permits and licenses, and all other property of Fifth Dimension used in
connection with Fifth Dimension's adult programming business. The Company also
entered into an Uplink Management Services Agreement with Fifth Dimension,
pursuant to which Fifth Dimension will operate, maintain, manage, and sustain
the satellite uplink facility and will receive and process subscriber calls for
a period of nine months following the acquisition.

         The assets acquired from Fifth Dimension generated sales of $15,044,139
and pre-tax income of $999,148 (pre-tax income, as adjusted for non-recurring
expenses and related party transactions, would have been $2,755,297) for the
year ended March 31, 1997. The Company acquired the Fifth Dimension assets for a
total purchase price of $7,700,000, consisting of $3,500,000 in cash and Common
Stock of the Company valued at $4,200,000. The original purchase price for the
Fifth Dimension assets had been $8,700,000, however, on January 16, 1998, Fifth
Dimension waived the requirement that the Company issue a promissory note for
$1,000,000, reducing the purchase price by $1,000,000. The Company also issued
840,000 shares of Common Stock and warrants to purchase up to an additional
400,000 shares of the Company's Common Stock at $5.00 per share, to Fifth
Dimension as part of the purchase price. The Company also agreed to pay Fifth
Dimension "formula profits" exceeding $2,000,000 for the first 12 months after
closing. "Formula Profits" is defined in the Asset Purchase Agreements as the
total revenue from operations minus actual operating costs. Maximum operating
costs under this provision are limited to an amount not greater than 125% of the
projected costs set forth in Schedule 2.1(f) to the Asset Purchase Agreements.
Schedule 2.1(f) details projected costs of $12,294,444, and maximum operating
costs of $15,368,055.

         The Company intends to enhance shareholder value by:

         *        Integrating the Fifth Dimension Assets into the Company;

         *        Substantially reducing operating costs associated with the
                  Fifth Dimension assets by, among other things, outsourcing the
                  Call Center's operations to a third party provider in the
                  United States;

         *        Eliminating related-party leases and payments that were
                  previously made by Fifth Dimension;

         *        Reducing licensing fees by combining the purchasing power of
                  DaViD and CSB; and

         *        The implementation of simultaneous "web casting" of CSB 
                  programming via the

                                       13

<PAGE>



                  Internet.

         In the Asset Purchase Agreements, Fifth Dimension agreed to indemnify,
defend, and hold harmless the Company against claims and losses that arise,
result from or relate to any breach of, or failure by Fifth Dimension to
perform, any of its representations, warranties, covenants or agreements under
the Agreements. The Asset Purchase Agreements do not contain standard
indemnification language particularly relating to claims, losses, costs, damages
and liabilities that may arise after closing as a result of acts that occurred
prior to closing. The Company, however, has retained the right to set off
against the Formula Profits any claim it may have against Fifth Dimension
following the acquisition.

Inroads

         Inroads is a vertically integrated CD-ROM software publishing company.
As of December 31, 1997, the Company owned seventy percent (70%) of Inroads;
thirty percent (30%) of Inroads is owned by Quarto Holdings, Inc. ("Quarto"), a
subsidiary of the Quarto Group, Inc. On June 16, 1998, the Company agreed to
sell its 70% interest in Inroads to Quarto in exchange for, among other things,
the cancellation of Quarto's warrant to purchase up to 400,000 shares of Common
Stock of the Company, at an exercise price of $6.00 per share.

CD-ROM Development

         Inroads' in-house developed titles are produced, designed, and
developed directly by the Inroads' twelve-person staff. Inroads' licensed titles
(developed outside of the Company's offices) are localized, packaged, and, if
necessary, enhanced with new graphics or interface design/operating elements by
Inroads. Inroads' staff consists of producers, writers, software engineers,
artists, and management personnel. All of Inroads' CD-ROM titles, whether
developed in-house or licensed, contain video, still photography, audio,
original music, and text. These elements are combined with custom-designed
interfaces and computer code to deliver high-quality, easy-to-use, original
CD-ROM titles. Utilizing state-of-the-art technology, Inroads has developed and
released nine titles since its inception in June, 1994: (1) Multimedia Dogs: The
Complete Interactive Guide To Dogs; (2) Multimedia Dogs Version 2.0; (3)
Multimedia Cats: The Complete Interactive Guide To Cats; (4) Multimedia Exotic
Pets: Horses, Birds, Aquatics & Pocket Pets; (5) Multimedia Bugs: The Complete
Interactive Guide to Insects; (6) Multimedia Guns: The Enthusiast's Guide to
Firearms; (7) Multimedia Horses: The Complete Interactive Guide to Horses; (8)
Cigar Companion Interactive; and, (9) In Focus, The Guide to Better Photography.

CD-ROM Content Licensing and Creation

         Inroads has licensed most of the still photography contained in its
titles from third party photographers and stock photography companies. Most of
the video contained in Inroads' titles is shot with Inroads' equipment and by
Inroads' personnel. All text is either licensed from Quarto's library of books
or written by Inroads' in-house staff. All voices (narrative) and music used in

                                       14

<PAGE>



Inroads' titles are developed and owned by Inroads. Royalty arrangements for
licensed video and photography are negotiated on a title by title basis and
typically range from 2% to 5% of collected wholesale dollars.

CD-ROM Title Licensing

         In September 1996, the Company completed agreements with Quarto whereby
Quarto acquired 30 percent of Inroads for $1,250,000 in cash and digital
material valued by the Company at $-0-, and valued at $525,000 by Quarto. The
Quarto agreement granted Inroads the right to commercially exploit Quarto
titles. Inroads has completed and released two Quarto-based titles to date:
Cigar Companion Interactive, based on the best-selling Quarto title The Complete
Cigar Companion, and In Focus, The Guide to Better Photography, based on
best-selling Quarto books by Michael Freeman. On June 16, 1998, the Company
agreed to sell its 70% interest in Inroads to Quarto in exchange for, among
other things, the cancellation of Quarto's warrant to purchase up to 400,000
shares of Common Stock of the Company, at an exercise price of $6.00 per share.

CD-ROM Mastering

         CD-ROM titles are programmed, designed, developed, and tested by
Inroads. Once an optical disc master ("Gold Master") has been approved for
release, the Gold Master is then submitted to a replication company for
manufacture. Box and jewel case art is developed simultaneously with the
development of the software, and submitted for printing approximately three to
four weeks prior to disc replication.

CD-ROM Jewel Case Insert and Box Design and Printing

         The Company maintains an in-house art department which designs and
produces the electronic art necessary to print boxes and jewel case inserts.
Jewel case inserts are printed by the replication company, while boxes are
printed by third-party printers and shipped to the replication company for jewel
case insertion.

CD-ROM Disc Replication

         Inroads contracts out all CD-ROM replication to third-party
manufacturers, including Pioneer Video Manufacturing, Inc., a wholly-owned
subsidiary of Japan- based Pioneer Electronics. The replication companies
receive masters from Inroads in the form of a digital disc "one-off" master.
Glass masters and stampers are then created from the "one-off" master. CD-ROM
replication, jewel- case insert printing and insertion, and jewel-case packaging
are all handled by the replication companies. Inroads receives finished CD-ROM
goods from its manufacturers in boxes containing 200 units each.

Markets for Products


                                       15

<PAGE>



The Extasy Networks/ TeN

         According to Paul Kagan Associates, a leading media industry analyst,
as of January, 1998, their were 98 million television households in the U.S. of
which approximately 65 million households receive cable television, 7 million
households receive DBS (high-powered) satellite services and 2.0 million
households receive C-band (large dish) satellite services.

         Of the 65 million cable television households, approximately 51.5
million subscribers have the capacity to receive one or more adult channels and
100% of the DBS and C-band satellite households (total of 9 million households)
have the capacity to receive at least one adult channel.

         According to Kagan, the market for adult pay-per-view and subscription
television is expected to grow from $200 million in 1998 to over $300 million in
2001.

         On August 15, 1998, CSB plans to launch TeN: The Erotic Network, a new,
24-hour adult network targeted specifically to cable television systems and DBS
satellite service providers. CSB plans to position TeN as cable television's and
DBS satellites' alternative to the traditional fully edited adult movie services
offered by Playboy and Spice. In order to further increase the attractiveness
and initial market share of TeN, CSB is offering extremely competitive revenue
sharing terms to those cable and satellite distribution affiliates who agree to
carry the service.

         Based on the recent developments described under "Overview-The
Company's Adult Programming Networks-TeN: The Erotic Network (Telstar T02R, Test
Broad cast on Channel 19)" above, Management believes that CSB has an unique
opportunity to successfully launch a new adult network exclusively programmed
with adult films and videos that mirror the editing standards of Spice Hot.

Digital Versatile Disc Markets

         The market for Digital Versatile Disc ("DVD") is expected to grow
dramatically. Up until September, 1995, two competing technologies existed for
DVD video playback: Time Warner/Toshiba's technology and SONY/Philips'
technology. In September, 1995 these companies agreed upon a unified format for
DVD. In October, 1996 a unified, single standard was finalized for the mastering
(with copy protection) and replication of DVDs. It is widely believed that this
unified DVD format will make serious inroads into the market shares currently
held by LaserDisc and, to a much greater extent, the Video Cassette Recorder
("VCR"). DVD has several major advantages over competing home video delivery
technologies: 1) A single 5 1/4" DVD can hold up to 135 minutes per side of high
resolution digital full-motion video and audio. DVD discs contain information on
both sides; 2) Instant access is available to a favorite scene; 3) DVD contains
significantly higher image and audio quality than LaserDisc and Video Tape; 4)
Multiple language tracks can be incorporated on one disc; 5) Since DVD is 100%
digital (video and sound), the cost of replication will be comparable to CD-ROM
or audio CD at under $1.00 per unit in small press runs; and 6) A relatively low
replication cost will translate to a retail price for a motion picture of under
$20.00,

                                       16

<PAGE>



giving this medium tremendous mass-market potential.

         Experts at Toshiba estimate that the market for DVD software could
exceed $20 billion by the year 2005. Domestic hardware sales estimates made by
Panasonic range from 800,000 to 1 million DVD households by the calendar year
ending 1997, and 5 million to 10 million domestic DVD households by the calendar
year ending 1999.

         The earliest hardware segment to adapt to DVD will most likely be the
computer hardware industry. The next evolution of the CD-ROM drive, now standard
equipment for all multimedia computer systems, will be the DVD-ROM. Similar to a
CD-ROM in most respects, the DVD-ROM will be capable of holding more than ten
times more information than a CD-ROM. Management believes that the market for
feature-film software on DVD will initially consist of computer users with
DVD-ROM drives. Dataquest estimates that nearly five million multimedia computer
households will be equipped with a DVD-ROM drive by the year 2000.

Employees and Office Space

         As of the date of this Report, the Company has 19 full-time and no
part-time employees. Five full-time employees are employed in executive
positions; seven part-time employees are employed in administrative and clerical
positions; the remainder of the Company's employees are employed in sales or
software development. The Company's employees are not members of a union, and
the Company has never suffered a work stoppage. The Company leases approximately
3,500 square feet of office space at 1050 Walnut Street, Suite 301, Boulder,
Colorado 80302. The Company's lease on this office space runs through January,
1998, at a rate of approximately $5,898 per month. The Company also sub-leases
approximately 6,000 square feet of space in Marina Del Rey, California.

ITEM 2.   DESCRIPTION OF PROPERTY.

     The Company does not own any real property. The Company leases office space
via an entity controlled by an officer and shareholder of the Company. Under the
terms of the lease agreement, the Company pays $ 5,898 per month for 3,497
square feet of office space. The Company's office is located at 1050 Walnut
Street, Suite 301, Boulder, Colorado 80302. The telephone number is (303)
444-0632; the facsimile number is (303) 444-0734.

ITEM 3.   LEGAL PROCEEDINGS.

         On November 11, 1996, the Company entered into a financial consulting
agreement (the "Sands Agreement"), with Sands Brothers & Co., Ltd. ("Sands
Brothers"), a broker-dealer headquartered in New York City under which Sands
Brothers agreed to provide financial advisory services to the Company. The Sands
Agreement also contained a provision granting Sands Brothers the exclusive right
to underwrite or place any private or public financing undertaken by the Company
during the two-year term of the Sands Agreement.


                                       17

<PAGE>



         On May 20, 1997, the Company terminated the Sands Agreement based,
among other things, on the Company's allegation of non-performance on the part
of Sands Brothers. On September 26, 1997, counsel for Sands Brothers sent a
letter to Mark Kreloff, the Company's president, alleging that the Sands
Agreement was still in force, alleging breach of the Sands Agreement by the
Company and demanding that the Company comply with its terms.

         On October 3, 1997, the Company filed a Complaint in District Court in
Boulder, Colorado (Case No. 97 CV 1428) against Sands Brothers, alleging breach
of the terms of the Sands Agreement by Sands Brothers. The Company also alleged
fraud in the inducement, and is seeking return of its initial payment of $25,000
to Sands Brothers and rescission of the Sands Agreement. Sands Brothers has
filed an answer and counter-claim to the Company's complaint, and the Company
has filed an answer to Sands Brothers counter-claim. The Company intends to
vigorously pursue its claim against Sands Brothers and believes that Sands
Brothers' counter-claim against the Company is wholly without merit.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

         No matters were submitted for shareholder approval during the fourth
quarter of the fiscal year covered by this Report.


PART II.

ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.


     (a) Market information.

         Prior to February 11, 1998, a limited public market for the Company's
Common Stock existed on the NASDAQ Bulletin Board under the symbol NOOF.
Commencing on February 11, 1998, the Company's Common Stock and Units (each
consisting of one share of Common Stock and one redeemable common stock purchase
warrant) were quoted on the Nasdaq SmallCap Market under the symbols NOOF and
NOOFU, respectively. As of the close of business on May 18, 1998, the Company
split the Units into their component parts. Commencing on May 19, 1998, the
Company's warrants were quoted on the Nasdaq SmallCap Market.

         The following table sets forth the range of high and low close prices
for the Company's Common Stock for each quarterly period indicated, as reported
by brokers and dealers making a market in the capital stock. Such quotations
reflect inter-dealer prices without retail markup,

                                       18

<PAGE>



 markdown or commission, and may not necessarily represent actual transactions:

Quarter Ended                          High                     Low
-------------                         ------                  -------
June 30, 1997                         5-3/8                      5
September 30, 1997                    5-1/2                      5
December 31, 1997                     5-3/4                    4-3/4
March 31, 1998                        5-1/4                    2-7/8

         As of March 31, 1998, there were approximately 200 record holders of
the Company's Common Stock.

         The Company has not paid any cash or other dividends on its Common
Stock since its inception and does not anticipate paying any such dividends in
the foreseeable future. The Company intends to retain any earnings for use in
the Company's operations and to finance the expansion of its business.

         On February 18, 1998, the Company consummated an underwritten public
offering of 1,500,000 Units (each consisting of one share of common stock and
one redeemable common stock purchase warrant) through Centex Securities,
Incorporated ("Centex") pursuant to a Registration Statement on Form SB-2 (File
No. 333-35337), declared effective by the Securities and Exchange Commission on
February 11, 1998. In connection therewith, the Company raised $6,184,626 of net
proceeds after payment of $682,500 of underwriting commissions and $236,250 of a
non-accountable expense allowance to Centex, and $666,624 of offering expenses.

         The Company applied $3,500,000 of such net proceeds to acquire the
Fifth Dimension assets, $298,127 of such net proceeds to purchase equipment and
other materials related to its business, $250,000 of such net proceeds to repay
a $250,000 Line of Credit and $1,791,666 to working capital.

ITEM 6.  MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.

         The following discussion and analysis should be read in conjunction
with the Company's Consolidated Financial Statements and the Notes thereto
included elsewhere in this document. The discussion of results, causes and
trends should not be construed to imply any conclusion that such results or
trends will necessarily continue in the future.

                             SELECTED FINANCIAL DATA

 New Frontier Media, Inc.

         The following table sets forth selected operating data for the periods
and upon the basis indicated:

                                       19

<PAGE>




                                                       1998             1997
                                                         Year Ended March 31,
                                                    --------------------------
Sales, net..................................        $1,645,192      $2,515,802
Cost of Sales...............................         2,021,404       2,217,812
                                                   -----------     -----------
Gross Profit................................          (376,212)        297,990
Total Operating Expenses....................         1,415,002         931,342
Other Income (Expense)......................          (159,454)        182,516
                                                   -----------     -----------
Loss from continuing operations............        (1,950,668)       (450,836)
Discontinued Operations ....................        (1,595,548)            -0-
                                                   -----------     -----------
Net Income (Loss) Before Minority Interest..        (3,546,216)       (450,836)
Minority Interest in Loss of Subsidiary.....           287,873          64,806
                                                   -----------     -----------
Net Income (Loss)...........................        (3,258,343)      $(386,030)
                                                   ===========     ===========


Segment Information

         The Financial Accounting Standards Board released statement #131
"Disclosures about Segments of an Enterprise and Related Information" which will
be effective for all financial reporting periods subsequent to December 15,
1997. This statement requires the reporting of certain information about
operating segments. The following table reflects certain information as
promulgated by the statement for the years ended March 31, 1997 and 1998.

<TABLE>
<CAPTION>
                                                  March 31, 1997
                                                  --------------
                                                                          Boulder
                                  Corporate and          David          Interactive          Fuzzy
                                  Eliminations    Entertainment, Inc.   Group, Inc.   Entertainment, Inc.    Totals
                                  -------------   -------------------   -----------   -------------------    ------
<S>                                 <C>               <C>               <C>                 <C>            <C>       
Net Sales......................     $    400          $2,211,388        $  290,994          $13,020        $2,515,802
Other Income (loss)............       (5,882)                800           187,598               --           182,516
Net Income (loss)..............     (245,779)            141,736          (212,905)         (69,082)         (386,030)
Segment assets.................       52,729             535,132         1,432,541          166,069         2,186,471
Segment liabilities............       63,090             178,845           321,744          232,757           670,256
</TABLE>

                                       20

<PAGE>
<TABLE>
<CAPTION>
                                                  March 31, 1998
                                                  --------------
                                                                            Colorado
                                   Corporate and          David          Broadcasting,      Discontinued
                                   Eliminations    Entertainment, Inc.        Inc.           Operations         Totals
                                   -------------   -------------------   -------------   -------------------    ------
<S>                                 <C>                 <C>               <C>                <C>              <C>       
Net Sales.......................    $       --          $932,611          $  712,581         $353,128         $1,998,320
Other Income (loss).............       (94,705)               --             (64,749)         121,866            (37,588)
Net Income (loss)...............    (1,108,784)         (100,456)         (1,200,475)        (848,628)        (3,258,343)
Segment assets..................       524,598           395,388           9,409,797          418,166         10,747,949
Segment liabilities.............      (112,920)          139,557           2,207,990           48,000          2,282,627
</TABLE>

Comparison of Years Ended March 31, 1998 and 1997

Corporate

         New Frontier Media, Inc.'s corporate office ("Corporate") functions as
a holding company for its subsidiaries, and as such generates no independent
income. Corporate incurs administrative expenses relating to the operation of
its subsidiaries, particularly concerning financial, public relations, and
capital raising activities. Corporate also incurs expenses related to the
operation of the Company and its subsidiaries as a public entity, such as legal,
accounting and public relations.

New Frontier Media, Inc.

         The Company's total revenue for 1998 was $1,645,192, down $870,610
(34.6%) from 1997. Giving full recognition to collected revenue arising from the
sale of quarterly, semi-annual and annual subscriptions resulting from the
Company's Colorado Satellite Broadcasting, Inc. subsidiary, revenue for 1998 was
$2,092,136 as compared to $2,515,802 the prior year, down approximately 16.8%.

         The decrease in total revenue is largely attributable to a dramatic
reduction in the demand for the Company's 12 inch laser disc home video
products. Beginning in June, 1997, the Company's traditional video disc customer
began to migrate to the new Digital Versatile Disc (DVD) format. As a result of
the migration away from laser disc and toward DVD by the Company's wholesale and
retail customers, the Company's David Entertainment, Inc. subsidiary generated
revenue of $932,611 in 1998 as compared to $2,211,388 in 1997 (a reduction of
58%). As of January, 1998, the Company's David Entertainment, Inc. subsidiary
has fully transitioned to providing feature films utilizing the DVD format
exclusively. In June, 1998, the Company agreed to sell Boulder Interactive
Group, Inc., its CD-ROM software publishing subsidiary, to Quarto Holdings, Inc.
("Quarto") and thus did not include approximately $348,261 in 1998 subsidiary
revenue from continuing operations. The revenue shortfalls experienced by the
transition from laser disc to DVD and the discontinued status of Boulder
Interactive Group, Inc. were nearly entirely made up by the Company's Colorado
Satellite Broadcasting, Inc. ("CSB") subsidiary which reported revenue of
$712,581 and adjusted revenue (including full recognition of deferred revenue
related to quarterly, semi-annual and annual subscriptions) of $1,159,525. CSB
completed its acquisition of three subscription and pay-per-view

                                       21

<PAGE>



based television networks on February 18, 1998 and began recording revenue
generated from this acquisition on this date. The year ending March 31, 1998
represents approximately 41 days of revenue from the Company's CSB subsidiary.

         Cost of goods sold decreased to $2,021,404 for the 1998 year from
$2,217,812 (a decrease of 8.9 percent) due to the Company's decision to
discontinue the manufacture and sale of laser disc home video products resulting
from a dramatic drop-off in demand for this product line.

         For the 1998 year, the Company generated a negative gross profit of
$376,212 compared with gross profit of $297,990 for the prior year. The negative
gross profit for the 1998 year was attributable to two factors: 1) the
non-recognition of $446,944 in revenue actually collected related to quarterly,
semi-annual and annual subscriptions sold by the Company's CSB subsidiary and 2)
the dramatic drop-off in laser disc sales recorded by the Company's David
Entertainment, Inc.
subsidiary.

         Company operating expenses for the 1998 year were $1,415,002 up form
the prior year number of $931,342. The increase of $483,660 (52%) was largely
attributable to increased salary, wages, benefits and general and administrative
expenses associated with the Company's Colorado Satellite Broadcasting, Inc.
subsidiary. Specifically, the Company increased its number of personnel to
operate this subsidiary's subscription and pay-per-view business. In addition,
goodwill amortization increased to $73,226, up from $0 the prior year also due
to the acquisition.

         For the 1998 year, the Company's net loss from continuing operations
widened to $1,950,668 from a total loss of $450,836 for the prior year. The
increase in year-to-year net losses was due to the following: 1) the integration
of the acquired subscription and pay-per-view television services into the
Company and the costs incurred to adequately staff, upgrade systems and promote
and market these services, 2) the increase travel expenditures associated with
the Company's acquisition financing of $7.08 million and 3) the inability to
recognize $446,944 of revenue generated from Colorado Satellite Broadcasting's
sale of quarterly, semi-annual and annual subscriptions.

         In June, 1998, the Company completed a private placement of $1.75
million in convertible debentures and may, if certain conditions are met, the
Company can require an additional $1.75 million of debentures to be purchased by
the same institutional investors after 90 days from the placement date. Proceeds
of this offering will be utilized to launch a fourth network called TeN: The
Erotic Network. TeN will be targeted to a much broader distribution base
including cable television system operators and DBS providers.

         Management believes that the Company will become profitable in the next
two quarters based on the following: 1) the elimination, either through the sale
or discontinuation of the Company's Boulder Interactive Group, Inc. and Fuzzy
Entertainment, Inc. subsidiaries which collectively generated $1,595,548 in net
losses for 1998, 2) the decision by Management to focus solely on the electronic
distribution of adult entertainment content, 3) the full integration of the
subscription and pay-per-view television acquisition and the resulting cost
savings expected to be

                                       22

<PAGE>



generated by the Company's absorption of this business, and 3) the launch of the
Company's new network, TeN, which employs a more broadly accepted editing
standard for adult programming.

Colorado Satellite Broadcasting ("CSB")

         Colorado Satellite Broadcasting reported sales of $712,581 up from $0
for the prior year. Giving full credit for unrealized revenue attributable to
the sale of quarterly, semi-annual and annual subscriptions, sales (adjusted for
unrealized subscriptions longer than one month) were $1,159,525, up from $0 the
prior year. The increase in sales are entirely attributable to the CSB's
February 18, 1998 acquisition of the subscription and pay-per-view television
assets of Fifth Dimension. As a result of the acquisition date, only 41 days of
revenue are attributable to the 1998 year.

         Operating expenses, largely consisting of play-back, broadcasting and
transponder costs for the 1998 year were $1,227,150 up from $0. Gross profit for
the year was a negative $514,569 without giving effect to unrealized revenue
from non-monthly subscriptions. After fully crediting CSB for collected
subscription longer than one month, gross profit, adjusted for non-monthly
revenue realization, was negative $67,625. Management attributes the negative
gross profit to 1) one-time integration costs associated with the broadcasting
and play-out operation, 2) a temporary loss of continuity on subscription
renewals due to a major overhaul and transfer of the call center function to
Turnervision, Inc. in West Virginia and 3) transitional malaise associated with
the predecessor company and its effect on advertising, marketing,
distributor/dealer relations and confusion in the marketplace about the transfer
of ownership.

         Management believes that the vast majority of the transition issues
related to the acquisition and associated integration of assets are behind it
and CSB should generate strong cash flow from its newly acquired subscription
and pay-per-view television business in the coming quarters.

David Entertainment, Inc. ("David")

         David had net sales of $932,611 for the year compared to $2,211,388 for
the prior year or a decrease of 58%. The decrease in sales is largely
attributable to a dramatic reduction in the demand for David's 12 inch laser
disc home video products. Beginning in June, 1997, the Company's traditional
video disc customers began to migrate to the new Digital Versatile Disc (DVD)
format. As of January, 1998, David has fully transitioned to providing feature
films on the DVD format exclusively. Management believes that the DVD format
should achieve critical mass in the U.S. within the next two quarters and that
the Company's sales of DVD products should be equal to or higher than previous
years' sales generated from laser disc products.

         Cost of goods sold for the David were $757,928 versus $1,961,933 or a
decrease of 61% due to the Company's decision to discontinue the manufacture and
sale of laser disc titles resulting from a dramatic drop-of in demand for these
products. Operating expenses were $324,998 versus $71,216 for the prior year or
an increase of 356%. This increase was due to a complete transition from
third-party contracted distribution services to in-house personnel to handle all
aspects of film licensing,

                                       23

<PAGE>



replication, sales, marketing and distribution. In addition, David
Entertainment, Inc. expended nearly $23 thousand on the development of a
direct-sales web site.

         For the 1998 year, David generated a net loss from operations $150,315
versus net income of $178,239. Management anticipates revenue growth from David
for the following reasons: 1) DVD technology has advanced considerably in terms
of acceptance among US hardware purchasers, 2) The Company plans to aggressively
cross promote David's DVD product line on its subscription and pay-per-view
television networks and 3) David's web site, completed in April, 1998, gives
David a direct sales capability with DVD consumers.

Boulder Interactive Group, Inc.  ("Inroads")

         In June, 1998, the Company agreed to sell its remaining interest in
Inroads to Quarto Holdings, Inc. Inroads reported a 19.5% increase in sales for
the 1998 year. Sales were $348,261 versus $290,994 for the prior year. Cost of
goods sold increased to $683,555 from $245,589 the prior year resulting in a
negative gross profit of $335,294 versus gross profit of $45,405. Operating
expenses were $727,645 versus $510,715 for the prior year. Net losses from
operations widened to $1,062,939 from $465,310 the prior year. Management
attributes the increased year-to-year net loss to a declining market for
reference CD-ROM software and a ramp-up in title development associated with the
Quarto partnership.

Fuzzy Entertainment, Inc. ("Fuzzy")

         In March, 1998, the Company elected to discontinue Fuzzy. Fuzzy
reported revenue of $4,867 versus $13,020 for the prior year. Cost of goods sold
increased to $86,199 from $10,290 due to inventory write-downs associated with
the Company's decision to discontinue operations. Operating expenses were
$95,813 versus $71,812 for the prior year. Net loss was $177,144 versus a net
loss of $69,082 for the prior year. Management elected to discontinue Fuzzy
because of poor financial results and a decision to focus on its core
subscription and pay-per-view television business.

Comparison of Years Ended March 31, 1997 and 1996

 New Frontier Media, Inc.

         The Company's total revenue for 1997 was $2,515,802, down $49,869
(1.9%) from 1996. Cost of sales increased to $2,217,812 from $1,843,765 the
prior year, resulting in a $423,916 (58.7%) decrease in gross profit for the
fiscal year ended March 31, 1997 from the same period the prior year. The small
decrease in total revenue for 1997, as compared with 1996, is directly
attributable to the normal new product development and introduction timeline
experienced by Inroads as it develops and commercially exploits new titles under
the agreement with Quarto. Total operating expenses increased $148,997 (19.0%),
from $782,345 for the year ended March 31, 1996 to $931,342 for the year ended
March 31, 1997, resulting in a net loss from operations of $450,836

                                       24

<PAGE>



for the fiscal year ended March 31, 1997. This increase was also due to Inroads
beginning to develop and commercially exploit Quarto-based titles. In
particular, Inroads dedicated significant resources to developing the In Focus
and Cigar Companion titles, both of which were released after the end of the
fiscal year. Operating expenses for NOOF and Inroads remained relatively
constant for the year ($277,600 and $510,715, respectively), while operating
expenses for DaViD increased to $71,216, from $6,801 for the same period the
prior year (see Management's discussion concerning Inroads and DaViD, below).
NOOF performs many administrative functions for Inroads, DaViD, and Fuzzy, and
generates little or no revenue separately. As a result, NOOF reported total
revenue of $400, total operating expenses of $277,600, and a net loss from
operations of $277,200 for the fiscal year ended March 31, 1997, compared with a
net loss from operations of $206,858 for the same period the prior year.
Management attributes the higher net loss for the year ended March 31, 1997 to
increased travel and lodging expenses, office expenses, employee benefits
(health plan), and rent expense. NOOF will continue to show net operating losses
in the future, as it continues to function as the administrative holding company
for its subsidiaries.

 DaViD

         DaViD reported a $618,532 (38.8%) increase in revenue for the fiscal
year ended March 31, 1997, to $2,211,388 from $1,592,856 for the same period the
prior year; however, revenue and other financial results for DaViD for the
fiscal year ended March 31, 1996 represent only six months' of operations for
that year. DaViD reported total cost of sales of $1,961,933, operating expenses
of $71,216, and pre-tax earnings of $179,039 for the year ended March 31, 1997,
compared with total cost of sales of $1,215,543, operating expenses of $6,801,
and pre-tax profit of $353,895 for the same period in the prior year. Management
attributes the higher operating expenses for the year ended March 31, 1997 to
increased legal costs, printing costs, and distribution expenses being allocated
away from cost of sales to operating expense. Management anticipates revenue
growth from DaViD, as Digital Versatile Disc (DVD) technology advances in
acceptance in the consumer computer marketplace.

 Inroads

         In September, 1996, the Company sold 30 percent of its interest in
Inroads to Quarto Holdings, Inc. ("Quarto") for $1,250,000 in cash and $525,000
worth of digital material. For accounting purposes, the digital material was
valued at $0. Inroads also acquired the rights to develop and commercially
exploit Quarto materials in digital formats as a result of this transaction.
Since the date of the Quarto transaction, Inroads has allocated significant
corporate resources to identifying, developing, and commercially exploiting its
first Quarto-based products. Inroads reported total revenue of $290,994 for the
fiscal year ended March 31, 1997, compared with $971,370 for the same period the
prior year. Management attributes this 70 percent revenue decline to several
factors, including diversion of the Inroads resources to the Ralston Purina
project, normal delays in developing products under the Quarto agreement, and
Inroad's evolving market focus from "edutainment" products to alternative and
specialty products. See "BUSINESS." In addition, management attributes lower
revenue figures to the underperformance of its distributors, and the

                                       25

<PAGE>



transition of Inroads distribution strategy away from software retail outlets
and toward direct sales.

         Inroad's latest CD-ROM products are targeted at enthusiasts and
hobbyists, primarily as a result of the titles that Inroads is developing and
commercially exploiting under the Quarto agreement. The Company is currently
engaged in a dispute with Quarto. See "BUSINESS-Legal Proceedings." Inroads
dedicated a major portion of its resources over the past several months to
development of its Cigar Companion interactive CD-ROM, which was released to the
market on July 1, 1997. Management believes that Inroads and the Company will
realize revenues from Cigar Companion, based upon the surging popularity of
cigars and cigar-related products in the United States. Cigar Afficianado
magazine reports that in the first quarter of 1997, consumers in the United
States purchased over 500 million cigars, a 96 percent increase over 1996 and a
300 percent increase over 1995.

         In addition to Cigar Companion, Inroads has developed and recently
released a photography CD-ROM, In Focus, The Guide to Better Photography,
utilizing the material acquired from Quarto. Inroads recently signed agreements
for distribution of In Focus in Spain and Italy. In Focus is co-branded by
Olympus America, which includes a free roll of film from Kodak for every person
who registers the In Focus software with Inroads.

         Inroad's Multimedia Guns CD-ROM title was listed as the 17th-highest
selling software title on PC Data's top-selling software list for April, 1997.
Multimedia Guns reached number 15 on the PC Data list for June, 1997. Currently,
Inroads only sells the Multimedia Guns title through Wal-Mart at full retail.
Due to the success of Multimedia Guns in this limited distribution channel,
CompUSA has agreed to carry the title. Management of Inroads anticipates sales
of Multimedia Guns by CompUSA to meet or exceed sales of the title at Wal-Mart.

 Fuzzy Entertainment, Inc. dba In-Sight Editions ("In-Sight")

         The Company capitalized In-Sight in November and December, 1996.
In-Sight reported total revenue of $13,020, cost of goods of $10,290, operating
expenses of $71,812, and a net loss of $69,082 for the fiscal year ended March
31, 1997. In-Sight has not yet transitioned into the fully-operational stage.
Most of In-Sight's operating expenses were attributable to consulting expense of
$40,187.

Liquidity and Capital Resources

         The Company's cash and cash equivalents at March 31, 1998 were
$503,123, down $356,264 from $859,387 at March 31, 1997. This relative stability
of the Company's current assets was primarily the result of the Company's sale
of 1,500,000 Units in a public offering for $7,087,500 cash (less offering
expenses). The Company had cash and cash equivalents of $503,123 at March 31,
1998. Management believes that the Company has sufficient liquidity and capital
to operate for the next twelve months.

         On June 3, 1998, pursuant to a private placement, the Company sold
$1,750,000 of 8% convertible debentures, interest due quarterly and due on June
3, 2000. The debentures are convertible into shares of common stock of the
Company at a conversion price for each share of common stock equal to the lesser
of : (a) 125% of the closing price or (b) 90% of the market price on the
conversion date.

                                       26

<PAGE>



ITEM 7.   FINANCIAL STATEMENTS.

         The consolidated financial statements of New Frontier Media, Inc. and
its subsidiaries, including the notes thereto and the report of independent
accountants thereon, commence at page F-1 of this Report.

ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.

     None.

PART III.

ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS.

         The following table sets forth the name, age and position with the
Company of each officer and director of the Company as of the date of this
Report.


Name                 Age                       Position
----                 ---                       --------
Mark H. Kreloff..... 36  Chairman of the Board, President and Chief Executive
                         Officer, New Frontier Media, Inc.; Director, Inroads; 
                         Vice President and Director, DaViD; Director, In-Sight;
                         President and Director, CSB.
Andrew V. Brandt.... 29  Senior Vice President, New Frontier; President and
                         Director, Inroads.
Michael Weiner...... 56  Executive Vice President, Secretary-Treasurer and 
                         Director, New Frontier Media, Inc.; Director, Inroads; 
                         President, Secretary-Treasurer and Director,
                         DaViD; President, Secretary-Treasurer and Director,
                         In-Sight; Vice President, Secretary-Treasurer and
                         Director, CSB.
Daniel Bender......  51  Senior Vice President and Director, CSB.
Scott D. Wussow....  42  Chief Financial Officer, New Frontier Media, Inc.
Clive Ng...........  36  Director, New Frontier Media, Inc.
Koung Y. Wong......  45  Director, New Frontier Media, Inc.


    Mark H. Kreloff. Mr. Kreloff has held the title Chairman and Chief Executive
Officer of New Frontier Media, Inc. since the Company's inception in September,
1995. Mr. Kreloff has been actively involved in the cable television,
entertainment and computer software industries since 1977. Prior to founding the
Company and during the four years immediately preceding his employment with the
Company, he was the President and Chairman of the Board for LEI Partners, L.P.,
a LaserDisc publishing company; Elmfield IV, Inc., an entertainment production
and distribution company, and California Software Partners, L.P., a computer
software development and publishing

                                       27

<PAGE>



company. Previously, Mr. Kreloff held the title Vice President, Mergers and
Acquisitions, with Kidder Peabody & Co. and Drexel Burnham Lambert. From 1983
through 1986, Mr. Kreloff was employed by Butcher & Singer, Inc., a
Philadelphia-based investment bank, in the Cable Television and Broadcast Media
Group. From 1977 through 1983, Mr. Kreloff held a variety of positions,
including Marketing Director, in his family's cable television system based in
New Jersey. Mr. Kreloff is an honors graduate of Syracuse University and holds
B.S. degrees in Finance and Public Communications.

         Andrew V. Brandt. Mr. Brandt has held the title of President of Boulder
Interactive Group, Inc. since Inroads' inception in June, 1994. Mr. Brandt has
extensive experience in software company management, 3-D computer graphics, user
interface design, and software engineering. Prior to joining New Frontier Media,
Inc., Mr. Brandt spent two years developing numerous 3-D graphics libraries and
graphical user interfaces for a variety of platforms. Mr. Brandt developed a
system for medical applications utilizing real-time, three-dimensional
ultrasound acquisition and a video see-through head-mounted display. He also
helped prototype the first digital video interactive system and led the port of
Pixar's RenderMan to a supercomputer. Mr. Brandt graduated Magna Cum Laude from
the University of California, San Diego with a B.S. in Computer Engineering and
holds an M.S. in Computer Science from the University of North Carolina at
Chapel Hill.

         Michael Weiner. Mr. Weiner has been the Executive Vice President and a
director of New Frontier Media, Inc. since the Company's inception. Prior to
founding the Company, Mr. Weiner was actively involved as a principal and
director in a variety of publishing businesses, including a fine art poster
company. Mr. Weiner has been actively involved in creative businesses for the
past 25 years. His background includes 15 years in real estate development and
syndication as well as ownership in various publishing companies. Mr. Weiner is
a partner in the investment firm Maxim Financial Corporation, a private
portfolio management company based in Boulder, Colorado. From June, 1995 to the
present, Mr. Weiner has been Executive Vice President of the Company. For the 15
years prior to June, 1995, Mr. Weiner was self-employed as a real estate and
business consultant.

         Daniel Bender. Mr. Bender will become Senior Vice President and a
director of Colorado Satellite Broadcasting, Inc. upon completion of the Fifth
Dimension assets acquisition. Mr. Bender has been actively involved in the
satellite broadcasting industry for the past eleven years. In 1989, Mr. Bender
founded Satellite Source Programming, Inc. ("SSP"). SSP was responsible for the
sale and activation of 5 million C-band subscriber accounts through on-line
service marketing. In 1993, Mr. Bender launched T.V. Erotica, an adult satellite
subscription and pay-per-view service. Mr. Bender negotiated all key contracts
with AT&T, General Instrument, and Denver Uplink as part of his responsibilities
as CEO of T.V. Erotica. In 1995, T.V. Erotica's name was changed to XXXotica,
and the service was expanded to several European markets. In 1996, Mr. Bender
merged XXXotica with XTC Group to create Fifth Dimension, the largest C-band
satellite adult network in the world.

         Scott D. Wussow. Mr. Wussow has eighteen years of accounting and
finance experience, and is a Certified Public Accountant. He joined the Company
as Chief Financial Officer on April 1, 1996.

                                       28

<PAGE>



For the past five years before joining the Company, Mr. Wussow was Chief
Financial Officer for Hart Bornhoft Group, an investment firm. He was
responsible for financial reporting, systems development, operations,
compliance, and risk management. Previous to that, Mr. Wussow was Controller at
Neodata Services, a publisher services company, and was Accounting Manager for a
division of MCI Communications. While at MCI, Mr. Wussow was department head for
general accounting and special projects for the Western Division start-up. Among
his responsibilities was fixed asset accounting for the network system and the
establishment of the customer service call center. Mr. Wussow graduated Magna
Cum Laude from the University of Wisconsin at Eau Claire with a B.A. degree in
Accounting.

         Clive C.N. Ng. Mr. Ng is Deputy Chairman of Pacific Media PLC, a
publicly-listed UK company. Pacific Media PLC owns the United Artists Theaters
Asia with United Artists Theaters of the US and with TVB of Hongkong, the
Chinese Channel in Europe. Mr. Ng co-founded UIH Asia Holdings, a regional
partnership to develop Asian cable television markets, as well as Spectradyne
Asia, then the leader in the TV settop box business for hotels. In 1995 he led
Pacific Media's purchase of a key share in one of Hongkong's leading ISP's,
Hongkong Supernet. Mr. Ng earned a Bachelor of Arts degree from Syracuse
University's School of Management in 1983, and earned a Master's Degree in
Business Administration from New York University in 1985.

         Koung Y. Wong. Mr. Wong was born in Canton, China in 1952 and
immigrated to the United States in 1969 with his family. He earned a Bachelor of
Arts degree from City College of San Francisco in 1975, and studied Architecture
at the University of California at Berkeley for one year. In 1976, Mr. Wong
opened a stereo store, Wong's Hi-Fi, in San Francisco. For the last 21 years,
Mr. Wong has been the president and sole shareholder of Wong's Audio-Visual,
Inc. a leading commerce electronics hardware and software distribution company
based in South San Francisco, California. Wong's Audio-Visual, Inc. includes a
20,000 square-foot corporate headquarters and distribution center and an 8,500
square-foot retail superstore in San Francisco.

         No director or executive officer of the Company is related to any other
director or executive officer. None of the Company's officers or directors hold
any directorships in any other public company. There are currently two outside
directors on the Company's Board of Directors. The Company's compensation
committee is comprised of Messrs. Kreloff, Weiner, and Wong. The Company's audit
committee is comprised of Messrs. Kreloff, Ng and Wong. Fifth Dimension will be
entitled to name one nominee to the Company's Board of Directors upon completion
of the Fifth Dimension Assets Acquisition.

Section 16(a) Beneficial Ownership Reporting Compliance

         During the fiscal year ended March 31, 1998, Messrs. Kreloff, Weiner
and Brandt each inadvertently failed to file on a timely basis a Form 4 Report
with respect to private gift transactions effected in March 1998. With respect
to Mr. Kreloff, the late filing related to one (1) gift transaction, with
respect to Mr. Weiner, the late filing related to three (3) gift transactions,
and with respect to Mr. Brandt, the late filing related to four (4) gift
transactions. In none of the above transactions did

                                       29

<PAGE>



any of such executive officers receive any compensation for the disposed shares.

ITEM 10.  EXECUTIVE COMPENSATION.

         The following table sets forth the annual compensation paid to
executive officers of the Company for the fiscal year ended March 31, 1998. No
executive officer received annual compensation in excess of $100,000.

<TABLE>
<CAPTION>
Name and                                                       Other Annual  Restricted Stock   Options/SA     LTIP      All Other
Principal Position              Year   Salary($)   Bonus($)    Compensation        Awards           Rs        Payouts  Compensation
------------------              ----   ---------   --------    ------------  ----------------   ----------    -------  ------------
<S>                             <C>     <C>         <C>             <C>              <C>            <C>          <C>       <C>

Mark H. Kreloff, CEO, COO,
   Pres., and Chairman.......   1998    39,167      75,000          0                0              0            0         3,053
Michael Weiner, Sr. V.P.,
   Sec.-Treas. and Director..   1998    39,167      75,000          0                0                           0         6,229
Andrew V. Brandt, President,
   BIG.......................   1998    80,627           0          0                0              0            0         6,511
Scott D. Wussow, CFO.........   1998    55,108           0          0                0              0            0             0
</TABLE>

Employment Agreements

         The Company has an employment agreement with Mr. Brandt. Such agreement
will continue through August, 2000, unless earlier terminated for cause, and
provides for annual compensation of $75,695. Mr. Brandt also has agreed not to
solicit the Company's customers for a period of 5 years after his employment
ends; however, courts frequently find noncompetition clauses in employment
agreements to be unenforceable, or restrict the duration or geographic scope of
such agreements. Accordingly, there can be no assurance that Mr. Brandt's
agreement not to solicit would be enforced by a court if challenged.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.

         The following table sets forth, as of the date of this Report, the
number and percentage of shares of outstanding Common Stock owned by each person
owning at least 5% of the Company's Common Stock, each officer and director
owning stock, and all officers and directors as a group:


Name of                                              Number
Beneficial Owner                           Shares Beneficially Owned   Percent
----------------                           -------------------------   -------

Mark H. Kreloff............................        1,014,000            15.50%
1050 Walnut Street, Suite 301
Boulder, CO 80302
Michael Weiner.............................          595,400             9.10%
1050 Walnut Street, Suite 301
Boulder, CO 80302
Andrew V. Brandt...........................          224,500             3.43%
1050 Walnut Street, Suite 301
Boulder, CO 80302


                                       30

<PAGE>




Maxim Corporation(1).......................          475,000             7.26%
1035 Pearl Street
Boulder, CO 80302

All officers and directors as a group 
(7 persons)                                           22,500              .34%
                                                 -----------            ------
   Total...................................        2,331,400            35.64%
                                                 ===========            ======
-----------
(1) 195,000 Common Shares owned by Stephen P. Cherner; 80,000 Common Shares
    owned by Maxim Profit Sharing Plan; 200,000 Common Shares owned by Maxim 
    Corporation. Mr. Cherner is the owner of Maxim Corporation.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.


         As of March 31, 1998, the Company has notes payable to officers and
shareholders bearing interest of 8.5%, unsecured and due on demand any time
after December 31, 1996 in the amount of $106,465. 

         On March 2, 1998, the Company loaned an entity owned by two major
shareholders of the Company $100,000 in the form of a promissory note
receivable. The note bears interest at 8% per annum, is due on demand after
April 30, 1998 and is secured by common stock of the Company.

         The Company had an agreement with an entity related to a major
shareholder to sell, package, handle, replicate and ship adult video disc titles
at the Company's expense for a management fee of $35,000 per month through May
31, 1996 and $40,000 per month through July 1, 1997. As of July 1, 1997 this
agreement was terminated and the Company assumed all responsibilities associated
with the titles. During the years ended March 31, 1998 and 1997 this related
entity withheld from sales of $353,293 and $2,236,143, replicating costs of
$286,361 and $1,646,364 and management fees of $120,000 and $470,000,
respectively. Included in accounts receivable at March 31, 1997 was $141,585 due
from the related entity. Included in accounts payable at March 31, 1998 is
$22,332 due to the related entity. In June 1995, the Company issued a three year
note receivable to one of its officers in the amount of $38,000. The note
requires interest only payments at a rate of 6.1%, payable on a quarterly basis
with the principal due on August 31, 1998. Interest earned on this note for the
years ended March 31, 1998 and 1997 was $2,318 and $2,318.

         The Company  leases  certain  equipment  and office  space via entities
controlled by an officer and shareholder on a month to month basis (see Note 6).
During the years  ended March 31,  1998 and 1997 the  Company  paid  $87,033 and
$116,549 to these entities relating to these leases.


ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.

EXHIBITS


     3.01     Articles of Incorporation of Company, with Amendment 
              (incorporated by reference to Exhibit 3.01 of the Company's
              Registration Statement on Form SB-2 (File No. 333-35337) as
              amended (the "Registration Statement")).
     3.02     First Amended Bylaws of Company (incorporated by reference to 
              Exhibit 3.02 of the Company's Registration Statement).
     4.01     Form of Common Stock Certificate (incorporated by reference to 
              Exhibit 4.01 of the Company's Registration Statement).


                                       31

<PAGE>




    10.01     Asset Purchase Agreement Among the Company, CSB, Fifth Dimension
              Communications (Barbados) Inc., and Merlin Sierra,
              Inc.(incorporated by reference to Exhibit 10.01 of the Company's
              Registration Statement).
    10.02     Asset Purchase Agreement Among the Company, CSB, and 1043133
              Ontario Inc.(incorporated by reference to Exhibit 10.02 of the
              Company's Registration Statement).
    10.03     Asset Purchase Agreement Among the Company, CSB, and 1248663
              Ontario Inc.(incorporated by reference to Exhibit 10.03 of the
              Company's Registration Statement).
    10.04     Revocable Line of Credit Agreement (incorporated by reference to 
              Exhibit 10.04 of the Company's Registration Statement).
    10.05     Promissory Note (incorporated by reference to Exhibit 10.05 of 
              the Company's Registration Statement).
    10.07     Call Center Interim Service Agreement between the Company and
              1248663 Ontario Inc.(incorporated by reference to Exhibit 10.07 of
              the Company's Registration Statement).
    10.08     Settlement and Stock and Warrant Transfer Agreement, dated June
              16, 1998, by and among the Company, BIG, Quarto Holdings, Inc.,
              Old Frontier Media, Inc., Mark Kreloff, Michael Weiner, Andrew
              Brandt and Scott Wussow.
    21.01     Subsidiaries of the Company.
    27.01     Financial Data Schedule.


REPORTS ON FORM 8-K

None.


                                   SIGNATURES


In accordance with the requirements of Section 13 or 15(d) of the Exchange Act,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                              NEW FRONTIER MEDIA, INC.

                                          /s/Mark H. Kreloff
                                          ------------------
                                          Mark H. Kreloff
                                          Chairman of the Board of Directors,
                                          President and Chief Executive Officer


In accordance with the requirements of the Exchange Act, this report is signed
below by the following persons on behalf of the Registrant in the capacities and
on the dates indicated.

                                       32

<PAGE>


Name and Capacity                                          Date
-----------------                                          ----


/s/Mark H. Kreloff                                         June 29, 1998
------------------
Name: Mark H. Kreloff
Title: Chairman of the Board of Directors,
President and Chief Executive Officer
(Principal Executive Officer)

/s/Michael Weiner                                          June 29, 1998
-----------------
Name: Michael Weiner
Title: Director, Executive Vice President,
Secretary and Treasurer

/s/Scott Wussow                                            June 29, 1998
---------------
Name: Scott Wussow
Title: Chief  Financial Officer
(Principal Financial and Accounting Officer)

/s/Clive Ng                                                June 29, 1998
-----------
Name: Clive Ng
Title: Director

/s/Koung Y. Wong                                           June 29, 1998
----------------
Name:Koung Y. Wong
Title: Director

                                       33

<PAGE>


<PAGE>


                           NEW FRONTIER MEDIA, INC.
                               AND SUBSIDIARIES

                              TABLE OF CONTENTS
                                                                       Page
                                                                       ----
Independent Auditors' Report                                            F-2

Consolidated Balance Sheets                                       F-3 - F-4

Consolidated Statements of Operations                                   F-5

Consolidated Statements of Changes in Shareholders' Equity              F-6

Consolidated Statements of Cash Flows                             F-7 - F-8

Notes to Consolidated Financial Statements                       F-9 - F-19











                                     F-1


<PAGE>

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors
New Frontier Media, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of New Frontier
Media, Inc. and Subsidiaries as of March 31, 1998 and 1997, and the related
consolidated statements of operations, changes in shareholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of New Frontier Media,
Inc. and Subsidiaries as of March 31, 1998 and 1997, and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.

Denver, Colorado
June 11, 1998, except for Note 13, as
  to which the date is June 26, 1998


                                     F-2

<PAGE>

                                             NEW FRONTIER MEDIA, INC.
                                                 AND SUBSIDIARIES

                                            CONSOLIDATED BALANCE SHEETS
                                               MARCH 31, 1998 AND 1997

                                                      ASSETS

<TABLE>
<CAPTION>
                                                                              1998             1997
                                                                          -----------      -----------
<S>                                                                       <C>              <C>
CURRENT ASSETS:
  Cash - restricted (Note 4)                                              $   253,123      $   109,387
  Investment in certificates of deposit - restricted (Notes 4 and 7)          250,000          750,000
  Accounts receivable (Note 3)                                                813,456          212,370
  Inventorles (Note 1)                                                        182,508          659,503
  Prepaid distribution and film exhibition rights (Note 1)                    721,062           82,250
  Trading securities, at market value                                         193,350            -
  Transponder deposit                                                         495,000            _
  Notes receivable - related parties (Note 3)                                 138,000            _
  Other                                                                       243,148           68,225
                                                                          -----------      -----------
    Total current assets                                                    3,289,647        1 881,735
                                                                          -----------      -----------

FURNITURE AND EQUIPMENT, at cost (Note 1)                                   1,113,428           65,552
  Less: accumulated depreciation and amortization                             (62,209)         (22,661)
                                                                          -----------      -----------
    Net furniture and equipment                                             1,051,219           42,891
                                                                          -----------      -----------

OTHER ASSETS:
  Notes receivable - related parties (Note 3)                                   -               38,000
  Accounts receivable - retainage (Note 1)                                    108,304           88,844
  Other
  Goodwill, less accumulated amortization of $73,226 (Note 1)               6,287,665            -
                                                                          -----------      -----------
    Total other assets                                                      6,407,083          261,845
                                                                          -----------      -----------
                                                                          $10,747,949      $ 2,186,471
                                                                          -----------      -----------
                                                                          -----------      -----------
</TABLE>


See accompanying notes to consolidated financial statements.

                                     F-3


<PAGE>


                                             NEW FRONTIER MEDIA, INC.
                                                 AND SUBSIDIARIES

                                            CONSOLIDATED BALANCE SHEETS
                                              MARCH 31, 1998 AND 1997

                                       LIABILITIES AND SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                              1998             1997
                                                                          -----------      -----------
<S>                                                                       <C>              <C>
CURRENT LIABILITIES:
  Accountspayable                                                         $   585,001      $   125,928
  Note payable (Note 2)                                                       500,000           -
  Notes payable related parties (Note 3)                                      106,465          139,573
  Current portion of obligations under capital lease (Note 6)                   6,041            5,139
  Lines of credit (Note 7)                                                      -              341,274
  Otheraccrued liabilities                                                    172,410           45,416
  Accrued disposal costs (Note 9)                                             459,050           -
  Deferred revenue (Note 1)                                                   446,944           -
                                                                          -----------      -----------
    Total current liabilities                                               2,275,911          657,330
                                                                          -----------      -----------

LONG-TERM DEBT - Obligations under capital leases (Note 6)                      6,716           12,926
                                                                          -----------      -----------
    Total liabilities                                                       2,282,627          670,256
                                                                          -----------      -----------

MINORITY INTEREST IN SUBSIDIARY (Notes 1 and 4)                                17,570          305,443
                                                                          -----------      -----------

COMMITMENTS (Note 6)

SHAREHOLDERS' EQUITY (Notes 1, 4 and 8):
  Common stock, $.0001 par value, 50,000,000
    shares authorized, 6,542,000 and 4,189,000,
    shares issued and outstanding, respectively                                   654              419
  Preferred stock, $.10 par value, 5,000,000 shares authorized:
    Class A, 0 and 10,000 shares issued and outstanding, respectively           -                1,000
    Class B, 0 and 5,000 shares issued and outstanding, respectively            -                  500
  Additional paid-in capital                                               12,265,249        1,768,661
  Deficit                                                                  (3,818,151)        (559,808)
                                                                          -----------      -----------
    Total shareholders' equity                                              8,447,752        1,210,772
                                                                          -----------      -----------
                                                                          $10,747,949      $ 2,186,471
                                                                          -----------      -----------
                                                                          -----------      -----------
</TABLE>

See accompanying notes to consolidated financial statements.


                                     F-4

<PAGE>


                                             NEW FRONTIER MEDIA, INC.
                                                 AND SUBSIDIARIES

                                       CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                              Year ended March 31.
                                                                          ----------------------------
                                                                              1998             1997
                                                                          -----------      -----------
<S>                                                                       <C>              <C>
SALES, net                                                                $ 1,645,192      $ 2,515,802

COST OF SALES                                                               2,021,404        2,217,812
                                                                          -----------      -----------

GROSS MARGIN                                                                 (376,212)         297,990
                                                                          -----------      -----------
OPERATING EXPENSES:
  Occupancy andequipment                                                      161,883          190,675
  Legal and professional                                                      117,466           67,625
  Advertising and promotion                                                   204,061          199,238
  Salaries, wages and benefits                                                574,546          236,017
  Communications                                                               22,854           32,137
  General and administrative                                                  205,071          129,615
  Goodwill amortization                                                        73,226           -
  Consulting                                                                   55,895           76,035
                                                                          -----------      -----------
    Total operating expenses                                                1,415,002          931,342
                                                                          -----------      -----------
OTHER INCOME (EXPENSE):
  Unrealized loss on trading securities                                       (31,785)
  Licensing fees and royalties                                                  -              191,995
  Licensing commissions                                                         -              (27,193)
  Interest income                                                               3,427           37,736
  Interest expense                                                           (131,096)         (20,022)
                                                                          -----------      -----------
    Total other income (expense)                                             (159,454)         182,516
                                                                          -----------      -----------
    Lossfromcontinuingoperations                                           (1,950,668)        (450,836)
                                                                          -----------      -----------

DISCONTINUED OPERATIONS (Note 9):
  Loss from operations of discontinued subsidiaries                        (1,136,498)          -
  Loss on disposal of discontinued subsidiaries, including provision
    of $35,000 for operating losses during the phase out period              (459,050)          -
                                                                          -----------      -----------
                                                                           (1,595,548)          -
                                                                          -----------      -----------
    Net loss before minority interest                                      (3,546,216)        (450,836)

 Minority interest in loss of discontinued subsidiary                         287,873           64,806
                                                                          -----------      -----------

NET LOSS                                                                  $(3,258,343)     $  (386,030)
                                                                          -----------      -----------
                                                                          -----------      -----------
NET LOSS PER COMMON SHARE FROM
  CONTINUING OPERATIONS (Note 1)                                          $      (.44)     $      (.09)
                                                                          -----------      -----------
                                                                          -----------      -----------
NET LOSS PER COMMON SHARE FROM
  DISCONTINUED OPERTIONS (Note 1)                                         $      (.29)     $    -
                                                                          -----------      -----------
                                                                          -----------      -----------

NET LOSS PER COMMON SHARE (Note 1)                                        $      (.73)     $      (.09)
                                                                          -----------      -----------
                                                                          -----------      -----------

WEIGHTED AVERAGE SHARES OUTSTANDING (Note 1)                                4,460,744        4,188,459
                                                                          -----------      -----------
                                                                          -----------      -----------
</TABLE>


See accompanying notes to consolidated financial statements.


                                     F-5


<PAGE>
                                    NEW FRONTIER MEDIA, INC.
                                        AND SUBSIDIARIES

                   CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

                              YEARS ENDED MARCH 31, 1998 AND 1997

<TABLE>
<CAPTION>
                                                                   Class A               Class B
                                         Cornrnon Stock        Preferred Stock       Preferred Stock
                                      ---------------------   ------------------    ------------------   Additional
                                      $0.0001     Par Value   $0.10    Par Value    $0.10    Par Value    Paid-In
                                       Shares       Amount    Shares     Amount     Shares     Amount     Capital        Deficit
                                     ----------     ------   -------    --------    ------     ------   -----------    -----------
<S>                                  <C>          <C>        <C>        <C>         <C>        <C>      <C>            <C>
BALANCES, March 31, 1996              4,175,250     $  418    10,000    $  1,000        -      $   -    $   847,832    $  (173,778)

Issuance of subsidiary's cornmon 
  stock, less offering costs of 
  $11,085                                 -           -         -          -           -           -        863,915           - 

Issuance of Class B preferred 
  stock, less offering costs of 
  $6,663                                  _          _          _          _         5,000       500         12,837           -

Issuance of common stock, less 
  offering costs of $10,922             20,000          2       -          -           -          -          69,076           -

Retirement of common stock              (6,250)        (1)      -          -           -          -            -              -
                                     ----------     ------   -------    --------    ------     ------   -----------    -----------
Net loss                                  -           -         -          -           -          -            -              -

BALANCES, March 31, 1997              4,189,000        419    10,000       1,000     5,000        500     1,768,661       (559,808)

Issuance of common stock for 
  services                                8,000          1      -           -          -          -          39,999           -

Conversion of preferred stock 
  to common stock                         5,000       -      (10,000)     (1,000)   (5,000)      (500)        1,500           -

Issuance of common stock, 
  less offering costs of 
  $1,585,374                          1,500,000        150      -           -          -          -       6,184,476           -

Issuance of common stock for 
  acquisition of assets                 840,000         84      -           -          -          -       4,199,916           -

Related party notes and 
  accrued interest contributed 
  as capital                               -          _         -           -          -          -          70,697           -
Net loss                                   -          -         -           -          -          -           -         (3,258,343)
                                     ----------     ------   -------    --------    ------     ------   -----------    -----------
BALANCES, March 31, 1998              6,542,000     $  654      -       $   -          -       $  -     $12,265,249    $(3,818,151)
                                     ----------     ------   -------    --------    ------     ------   -----------    -----------
                                     ----------     ------   -------    --------    ------     ------   -----------    -----------
</TABLE>


See accompanying notes to consolidated financial statements.


                                     F-6
<PAGE>

                                             NEW FRONTIER MEDIA, INC.
                                                 AND SUBSIDIARIES

                                       CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                              Year ended March 31,
                                                                          ----------------------------
                                                                              1998             1997
                                                                          -----------      -----------
<S>                                                                       <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                                 $(3,258,343)     $  (386,030)
  Adjustments to reconcile net loss to net cash used in
    operating activities:
      Depreciation and amortization                                            112,959           12,244
      Unrealized loss on securities                                             31,785           -
      Increase (decrease) in accounts payable                                  459,073          (60,814)
      Increase in accounts receivable                                         (620,546)          (1,885)
      Decrease (increase) in inventories                                       476,995         (305,414)
      Decrease in prepaid distribution rights                                    8,126           12,250
      Decrease (increase) in other assets                                      457,372         (141,715)
      Decrease in income tax receivable                                          -               72,500
      Increase in other accrued liabilities                                    126,994           29,854
      Minority interest in loss of subsidiary                                 (287,873)         (64,806)
      Increase in transponder deposit                                         (495,000)         -
      Increase in accrued disposal costs                                       459,050          -
      Increase in deferred revenue                                             446,944          -
      Stock issued for services                                                 40,000          -
                                                                          -----------      -----------
        Net cash used in operating activities                               (2,042,464)       (833,816)
                                                                          -----------      -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of equipment and furniture                                         (77,210)          (6,928)
  Increase in notes receivable - related party                               (100,000)          -
  Sale (purchase) of certificates of deposit                                  500,000         (750,000)
  Increase in trading securities                                             (193,350)          -
  Acquisition of Fifth Dimension assets                                    (4,281,284)          -
                                                                          -----------      -----------
       Net cash used in investing activities                               (4,151,844)        (756,928)
                                                                          -----------      -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Payments on capital lease obligation                                         (5,308)          (1,245)
  Proceeds from line of credit                                                  -              341,274
  Payments on line of credit                                                 (341,274)          -
  Proceeds from note payable                                                  500,000           -
  Issuance of common stock, net of offering costs                           6,184,626           89,078
  Retirement of common stock                                                    -              (25,000)
  Issuance of preferred stock, net of offering costs                            -               13,337
  Issuance of subsidiary's common stock, net of offering costs                  -              863,915
  Increase in minority interest, net of offering costs of $4,751                -              370,249
                                                                          -----------      -----------
       Net cash provided by financing activities                            6,338,044        1,651,608
                                                                          -----------      -----------
                                                                          -----------      -----------
</TABLE>

See accompanying notes to consolidated financial statements.

                                     F-7

<PAGE>
                                             NEW FRONTIER MEDIA, INC.
                                                 AND SUBSIDIARIES

                                       CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                    (Concluded)

<TABLE>
<CAPTION>
                                                                              Year ended March 31,
                                                                          ----------------------------
                                                                              1998             1997
                                                                          -----------      -----------
<S>                                                                       <C>              <C>
NET INCREASE IN CASH                                                          143,736           60,864

CASH, beginning of year                                                       109,387           48,523
                                                                          -----------      -----------
CASH, end of year                                                         $   253,123      $   109,387
                                                                          -----------      -----------
                                                                          -----------      -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
 INFORMATION - Interestpaid                                               $    93,508      $     5,487
                                                                          -----------      -----------
                                                                          -----------      -----------
SUPPLEMENTAL DISCLOSURE OF NONCASH
  INVESTING AND FINANCING ACTIVITIES:
  Purchase of equipment via capital lease obligation                      $    -           $    19,310
                                                                          -----------      -----------
                                                                          -----------      -----------
  Common stock issued for services                                        $    40,000      $    -
                                                                          -----------      -----------
                                                                          -----------      -----------
  Common stock issued for acquisition of Fifth Dimension assets           $ 4,200,000      $    -
                                                                          -----------      -----------
                                                                          -----------      -----------
  Related party notes payable and accrued interest contributed
    as capital                                                            $    70,697      $    -
                                                                          -----------      -----------
                                                                          -----------      -----------
  Reclassification of accrued interest payable to related party
    notes payable                                                         $    21,465      $    -
                                                                          -----------      -----------
                                                                          -----------      -----------
</TABLE>

See accompanying notes to consolidated financial statements.


                                     F-8

<PAGE>
                           NEW FRONTIER MEDIA, INC.
                               AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       YEARS ENDED MARCH 31, 1998 AND 1997

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization, Business, and Consolidation

The Company was originally incorporated in the state of Colorado on February 23,
1988. On September 15, 1995 the Company acquired New Frontier Media, Inc. in a
stock for stock exchange and changed the Company's name to New Frontier Media,
Inc. ("NFMI" or the "Company"). For a period of five years preceding this
acquisition the Company had not conducted any significant business operations.
As of March 31, 1996 the Company had three wholly owned subsidiaries; Boulder
Interactive Group, Inc. ("BIG") (a developer and publisher of entertainment and
educational computer software on CD-ROM), David Entertainment, Inc. ("DVD")
(distributor of adult laserdisc and digital video disc format titles) and FUZZY
Entertainment, Inc. ("FUZZY") (developer and distributor of fine art posters and
decorative art posters).

On September 20, 1996 Quarto Holdings, Inc. ("Quarto") purchased 1,714 newly
issued common shares of BIG for a 30% minority interest (see Note 4).

On February 18, 1998 the Company purchased certain assets of Fifth Dimension
Communications (Barbados) Inc. and its related entities ("Fifth Dimension")
pursuant to an asset purchase agreement dated September 18, 1997. The Company
subsequently contributed these assets to its newly formed wholly owned
subsidiary Colorado Satellite Broadcasting, Inc. ("CSB"). The acquisition was
completed through the issuance of 840,000 shares of the Company's common stock
valued at $5.00 per share, warrants to purchase an additional 400,000 shares of
the Company's common stock at $5.00 per share and the payment of $4,281,284 in
cash. The acquisition was accounted for using the purchase method of accounting.
The excess of the cost of the acquisition over the fair value of the assets
acquired was recorded as goodwill. The acquisition was funded from the proceeds
of a public offering of the Company's common stock which also closed on February
18, 1998. The Company raised approximately $6,184,000 net of offering costs, by
selling 1,500,000 shares of the Company's common stock.

The Company, through its subsidiary CSB, and by reason of its consummation of
its Asset Purchase Agreements with Fifth Dimension, is a provider of
subscriber-based premium television channels ("premium channels" or "pay
television") and transaction-based television networks ("pay-per-view"). CSB
currently owns, operates and distributes three C-band adult programming
networks: Extasy, True Blue, and Exotica. CSB is a provider of unedited adult
programming via direct to home ("DTH") C-band satellite. CSB also provides its
services through cable television and wireless cable television multiple system
operators.

The accompanying consolidated financial statements include the historical
accounts of NFMI, BIG DVD and FUZZY for all periods presented and CSB since
inception. As a result of the issuance of the common stock of BIG, as mentioned
above, the accompanying financial statements include 100% of the operations of
BIG through September 20, 1996, and the minority interest in net loss of
subsidiary represents 30% of the operations of BIG after that date. All
intercompany accounts and transactions have been eliminated in consolidation.

                                     F-9
<PAGE>

                          NEW FRONTIER MEDIA, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED MARCH 31, 1998 AND 1997
                                 (Continued)

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (continued)

Accounts Receivable

In connection with BIG's sales and distribution of its products, BIG's major
distributor withholds 10% of its sales for returns from retailers. Per the
agreement dated December 23, 1994 with the distributor, these funds will be
retained until the agreement is terminated, but at no time shall the reserve
exceed the lesser of $150,000, or 10% of the total net receipts for the previous
twelve months. The agreement automatically renews after its three year term on a
year to year basis unless terminated by either party upon 180 days written
notice. At March 31, 1998 and 1997, retention amounts included in trade accounts
receivable were $108,304 and $88,844.

Inventories

Inventories are stated at the lower of cost (first in, first out) or market.
These costs include acquisition, duplication, production and the physical
packaging of the products for distribution on a unit-specific basis and are
charged to cost of sales when revenue from the sale of the units is recognized.

Furniture and equipment

Furniture and equipment are stated at cost. The cost of maintenance and repairs
is charged to operations as incurred; significant additions and betterments are
capitalized. Depreciation is computed using accelerated and straight-line
methods over the estimated useful lives of three to five years.

Income Taxes

Concurrent with the stock exchange discussed above, BIG terminated its
subchapter S election effective July 31, 1995. The Company filed a consolidated
income tax return with its subsidiaries through September 30, 1996 when a 30%
minority interest was sold. Subsequent to September 30, 1996 the Company files a
consolidated income tax return with its subsidiaries excluding BIG.

Cash Flows

For purposes of reporting cash flows, cash includes those investments which are
short-term in nature (three months or less to original maturity), are readily
convertible to cash, and represent insignificant risk of changes in value.

Prepaid Distribution Rights

Prepaid distribution rights include laserdisc and digital disc format title
rights purchased under agreements for replication and distribution.

                                     F-10
<PAGE>

                           NEW FRONTIER MEDIA, INC.
                               AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        YEARS ENDED MARCH 31, 1998 AND 1997
                                 (Continued)

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (continued)

Film Exhibition Rights

Rights to exhibit films are recorded at cost and are amortized on a
straight-line basis over the period of the contract, which is normally
twenty-four months.

Revenue Recognition

Revenue from sales of television movie subscriptions from three to twelve months
is recognized on a monthly basis over the term of the subscription.

Fair Value of Financial Instruments

The carrying amount of cash, certificates of deposit, accounts receivable,
accounts payable and notes receivable and payable approximates fair value.

Long-Lived Assets

The Company adopted the provisions of SFAS 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, in its financial
statements for the year ended March 31, 1998. The adoption of SFAS 121 had no
material affect on the Company's financial statements. The Company reviews its
long-lived assets for impairment to determine if the carrying amount of the
asset is recoverable.

Goodwill

Goodwill, which resulted from the acquisition of assets from Fifth Dimension, as
described above, is being amortized over a period of 120 months.

Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Stock Warrants

The Company follows the intrinsic value based method of accounting as prescribed
by APB 25, Accounting for Stock Issued to Employees, for its stock-based
compensation. Under the Company's stock warrant issuances, the exercise price is
in excess of the fair value of the warrants at the grant date and no
compensation cost is recognized.

                                     F-11
<PAGE>
                           NEW FRONTIER MEDIA, INC.
                               AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      YEARS ENDED MARCH 31, 1998 AND 1997
                                 (Continued)

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (continued)

Net Loss Per Share of Common Stock

Net loss per share of common stock is based on the weighted average number of
shares of common stock outstanding. Common stock equivalents are not included in
the weighted average calculation since their effect would be anti-dilutive.
Preferred dividends of $3,417 have been added back to the net loss to arrive at
net loss per common share for the year ended March 31, 1997. Net loss per common
share from discontinued operations includes the minority interest in loss of
discontinued subsidiary.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year
presentation.

NOTE 2 - NOTE PAYABLE

$500,000 note payable to an unrelated entity, dated August 29, 1997, secured by
all of the assets of the Company and the common stock of the Company owned by
the majority shareholders of the Company, bearing interest at 12% per annum and
due on August 29, 1998.

NOTE 3 - RELATED PARTY TRANSACTIONS
<TABLE>
<CAPTION>
                                                                                                  1998            1997
                                                                                             -------------    -------------
<S>                                                                                          <C>              <C>
Notes payable to officers and shareholders bearing interest at 8.5%,
  unsecured and due on demand anytime after December 31, 1996                                $      99,981    $      85,000

Notes payable to entities, controlled by officers and shareholders, bearing
  interest at 8.5%, unsecured and due on demand anytime
  after December 31, 1996                                                                            6,484           54,573
                                                                                             -------------    -------------
                                                                                             $     106,465    $     139,573
                                                                                             =============    =============
</TABLE>

On March 31, 1998, in connection with the discontinuance of the Company's
subsidiary BIG, $54,573 of the above related party notes payable, plus accrued
interest of $16,124 were forgiven and credited to additional paid in capital. In
addition at March 31, 1998, $21,465 of accrued interest on the remaining note
balances of $85,000 was credited to the notes. Included in other liabilities at
March 31, 1997 was $26,574 of accrued interest relating to these notes.

On March 2, 1998, the Company loaned an entity owned by two major shareholders
of the Company $100,000 in the form of a promissory note receivable. The note
bears interest at 8% per annum, is due on demand after April 30, 1998 and is
secured by common stock of the Company.

The Company had an agreement with an entity related to a major shareholder to
sell, package, handle, replicate and ship adult video disc titles at the
Company's expense for a management fee of $35,000 per month through May 31, 1996
and $40,000 per month through July 1, 1997. As of July 1, 1997

                                       F-12
<PAGE>


                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED MARCH 31, 1998 AND 1997
                                  (Continued)

NOTE 3 - RELATED PARTY TRANSACTIONS (continued)

this agreement was terminated and the Company assumed all responsibilities
associated with the titles. During the years ended March 31, 1998 and 1997 this
related entity withheld from sales of $353,293 and $2,236,143, replicating costs
of $286,361 and $1,646,364 and management fees of $120,000 and $470,000,
respectively. Included in accounts receivable at March 31, 1997 was $141,585 due
from the related entity. Included in accounts payable at March 31, 1998 is
$22,332 due to the related entity. In June 1995, the Company issued a three year
note receivable to one of its officers in the amount of $38,000. The note
requires interest only payments at a rate of 6.1%, payable on a quarterly basis
with the principal due on August 31, 1998. Interest earned on this note for the
years ended March 31, 1998 and 1997 was $2,318 and $2,318.

The Company leases certain equipment and office space via entities controlled by
an officer and shareholder on a month to month basis (see Note 6). During the
years ended March 31, 1998 and 1997 the Company paid $87,033 and $116,549 to
these entities relating to these leases.

NOTE 4 - SHAREHOLDERS' EQUITY

Common Stock

For the year ended March 31, 1996 the Company issued 195,250 units (one share of
common stock and one Class A warrant to purchase one share of common stock at an
exercise price of $5.50 expiring December 13, 1997) through a private placement
memorandum at a price of $4.00 per unit. In December, 1996, 6,250 units were
retired at the original subscription price.

On February 18, 1998 the Company issued 1,500,000 units (one share of common
stock and one warrant to purchase one share of common stock at an exercise price
of $6.50 expiring February 18, 2003) in a public offering for cash of $7,770,000
less offering costs of $1,585,374. A portion of these proceeds along with the
issuance of 840,000 shares of common stock valued at $5.00 per share were used
to acquire certain assets of Fifth Dimension (see Note 1).

In addition, in connection with the public offering, 150,000 warrants to
purchase one share of common stock at an exercise price of $6.75 expiring
February 18, 2003 were issued to the underwriter .

Preferred Stock

In February, 1997 the Company issued 5,000 shares of Series B, 8% cumulative,
convertible preferred stock at $4.00 per share. Each Series B preferred share is
convertible into one share of the Company's common stock subject to certain
conditions.

As of September 30, 1997, each share of Class A preferred stock was given back
to the Company and the shares were retired. In addition the Class B preferred
stock was converted into 5,000 shares of common stock. The dividends in arrears
on both the Class A and B preferred stock were forgiven in the above
transactions.

                                     F-13
<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       YEARS ENDED MARCH 31, 1998 AND 1997
                                  (Continued)

NOTE 4 - SHAREHOLDERS' EQUITY (continued)

Subsidiary Sale of Stock

On September 20, 1996 Quarto Holdings, Inc., a Delaware Corporation, purchased
30% of newly issued common stock of BIG for $1,250,000 in cash and rights to
develop and exploit digital material owned by Quarto. The Company placed a $-0-
value on the rights received from Quarto. The Company recorded 70% of the
$1,250,000 in proceeds as equity on a consolidated basis and 30% of this amount
as a minority interest, (see Note 1).

In connection with the purchase, NFMI entered into a stockholder agreement with
Quarto whereby at least 75% of stockholder approval is necessary to approve
certain actions taken on behalf of BIG. The agreement enumerates various actions
and restrictions as it relates to the operations of BIG, specifically (1) that
the funding proceeds can only be used to fund BIG's development and
commercialization of CD-ROM titles and (2) 75% shareholder approval is required
before encumbering any assets of BIG. Therefore, cash and certificates of
deposit of $250,000 and $841,568 at March 31, 1998 and 1997 were restricted to
BIG's operations and could not be used for the operations of NFMI or its
affiliates (see Note 7).

In connection with the above transaction, Quarto purchased a warrant from NFMI
for $400 cash which allows the right to purchase up to 400,000 common shares of
NFMI at an exercise price of $6.00 per share expiring on September 20, 2001.

As mentioned in Note 13, the above warrants were retired.

NOTE 5 - INCOME TAXES

The Company has an unused net operating loss carry forward of approximately
$2,400,000 for income tax purposes, of which approximately $240,000 expires in
2012 and the remainder in 2013. In addition, the Company's 70% owned subsidiary
BIG, which is not part of the consolidated income tax return, has a net
operating loss of approximately $1,160,000 of which approximately $216,000
expires in 2012 and the remainder in 2013. This net operating loss carryforward
may result in future income tax benefits; however, because realization is
uncertain at this time, a valuation reserve in the same amount has been
established. Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax liabilities and assets as of March 31,
1998 and 1997 are as follows:

                                      F-14
<PAGE>
                             NEW FRONTIER MEDIA, INC.
                                 AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       YEARS ENDED MARCH 31, 1998 AND 1997
                                   (Continued)

NOTE 5 - INCOME TAXES (continued)
<TABLE>
<CAPTION>
                                                                                      1998                      1997
                                                                                ----------------          ------------
<S>                                                                             <C>                       <C>
Deferred tax liabilities                                                        $       -                 $     -
                                                                                ================          =============
Deferred tax assets:
   Net operating loss carry forwards                                            $        898,206          $      78,544
   Deferred revenue                                                                      167,604                -
                                                                                ----------------          -------------
         Total deferred tax assets                                                     1,065,810                 78,544
   Valuation allowance for deferred tax assets                                        (1,065,810)               (78,544)
                                                                                ----------------          -------------
                                                                                $       -                 $     -
                                                                                ================          =============
</TABLE>


The valuation allowance for deferred tax assets was increased by $987,266 and
$76,123 during 1998 and 1997 respectively.

As a result of the disposition of BIG and FUZZY as discussed in Note 9,
approximately $1,400,000 of the above NOL will not be available to the Company.

NOTE 6 - COMMITMENTS AND AGREEMENTS

The Company has leases for office space and equipment under various operating
and capital leases. Included in furniture and equipment at March 31, 1998 is
$19,310 of equipment under capital lease and accumulated depreciation relating
to this lease of $11,586. In addition, CSB has entered into sub-lease agreements
with Fifth Dimension for the use of transponders to broadcast CSB's channels on
satellites.

Future minimum lease payments under these leases as of March 31, 1998 are as
follows:
<TABLE>
<CAPTION>
Year ended                                                              Principal Due
 March 31,                           Operating            Capital       Capital Lease
----------                         ------------          ---------      -------------
<S>                                <C>                   <C>            <C>
  1999                             $  6,889,968          $   7,609        $  6,041
  2000                                4,729,968              6,473           5,706
  2001                                  929,968              1,065           1,010
  2002                                    8,328              -                -
                                   ------------          ---------        --------
                                   $ 12,558,232             15,147        $ 12,757
                                   ============                           ========
Less amount representing interest                            2,390
                                                         ---------
Present value of net minimum lease payments              $  12,757
                                                         =========
</TABLE>

Total rent expense for the years ended March 31, 1998 and 1997, was $810,602,
which includes transponder payments, and $136,013, respectively.

In connection with the asset purchase agreement with Fifth Dimension (see Note
1), CSB has entered into a three year uplink service agreement requiring monthly
payments of $80,000. The agreement can be terminated upon 30 days written notice
for a termination fee of $21,800 and one half of the remaining payments or
$200,000, whichever is greater.

The Company has agreed to pay Fifth Dimension "formula profits" (total revenue
from CSB's operations less actual operating costs) exceeding $2,000,000 for the
first twelve months after closing.

                                       F-15
<PAGE>
                             NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       YEARS ENDED MARCH 31, 1998 AND 1997
                                   (Continued)

NOTE 7 - LINES OF CREDIT

The Company had lines of credit with a banking institution as follows:
<TABLE>
<CAPTION>
                                                           1998                 1997
                                                        ---------            ---------
<S>                                                     <C>                  <C>
$250,000 line of credit, dated November 4, 1996,
bearing interest at 7.950%, due November 4, 1997
secured by certificate of deposit                       $   -                $ 247,241

$100,000 line of credit, dated February 11, 1997,
bearing interest at 8.280%, due November 4, 1997
secured by certificate of deposit                           -                   94,033
                                                        ---------            ---------
                                                        $   -                $ 341,274
                                                        =========            =========
</TABLE>

The two certificates of deposit securing the above lines of credit were held in
the name of the Company's subsidiary BIG.

NOTE 8 - STOCK WARRANTS

The Company has no formal stock option plan; however, it has granted warrants to
officers and employees allowing them to purchase common stock of the Company at
a price in excess of the market value of the stock at date of grant. Warrants
granted are for a three-year term.

In addition, common stock warrants have been issued in connection with certain
offerings of stock, and in connection with a financial advisory agreement (see
Note 4). At March 31, 1998, warrants to purchase common stock at various prices
were outstanding which expire as follows:

      Expiration Date                       Warrants            Exercise Price
      ---------------                       ---------           --------------
      September, 2001                         400,000*               6.00
      February, 2003                        1,500,000                6.50
      February, 2003                          150,000                6.75
                                            ---------
                                            2,050,000
                                            =========

*As discussed in Note 13, these warrants were retired in connection with the
sale of BIG.

The following table describes certain information related to the Company's
compensatory stock warrant activity for the year ending March 31, 1997. There
were no compensatory stock warrants granted, exercised, forfeited or expired for
the year ending March 31, 1998.

<TABLE>
<CAPTION>
                                                                             Number               Weighted Average
                                                                           of Warrants             Exercise Price
                                                                           ------------           ----------------
<S>                                                                        <C>                    <C>
  Outstanding, March 31, 1996                                                     -                    $   -
  Grants during 1997 - Exercise price > market price                            146,666                  6.00
  Exercised, forfeited and expired during 1997                                     -                       -
                                                                           ------------
  Outstanding and exercisable, March 31, 1997 and 1998                          146,666                  6.00
                                                                           ============
</TABLE>

                                       F-16
<PAGE>
                              NEW FRONTIER MEDIA, INC.
                                  AND SUBSIDIARIES

                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        YEARS ENDED MARCH 31, 1998 AND 1997
                                   (Continued)

NOTE 8 - STOCK WARRANTS (continued)

The weighted average grant date fair value of the warrants granted in 1997 was
as follows:

                Exercise price > market price                 $ .9052
                                                              =======

The fair value of each option warrant is estimated using the Black-Scholes
option-pricing model with the following assumptions: risk-free interest rate of
6.50%; dividend yield of -0-%; expected life three years; and volatility of
16.71%.

A summary of the Company's outstanding and exercisable stock warrants as of
March 31, 1998 are as follows:

<TABLE>
<CAPTION>
                                                                                                Weighted Average
                                                                          Number              Remaining Contractual
Exercise prices                                                         of Warrants               Life (months)
---------------                                                         -----------           ---------------------
<S>                                                                     <C>                   <C>
         $6.00
           Outstanding and exercisable                                      546,666                    36
         $6.50
           Outstanding and exercisable                                    1,500,000                    59
         $6.75
           Outstanding and exercisable                                      150,000                    59
</TABLE>

As previously described, the Company applies APB 25 and related Interpretations
in accounting for its stock warrants. Accordingly, no compensation cost has been
recognized. Had compensation cost for the Company's warrants been determined
based on the fair value at the grant dates for awards consistent with the method
of SFAS 123, the Company's net loss and loss per share would have increased to
the pro-forma amounts indicated below:

                                                            March 31,
                                                              1997
                                                           ----------
    Net loss                                               $ (518,805)
                                                           ==========
    Net loss per share                                     $     (.12)
                                                           ==========

NOTE 9 - DISCONTINUED OPERATIONS

As of March 31, 1998, the Company formalized its plan to discontinue the
operations of its subsidiaries BIG and FUZZY. Accordingly, operating results
have been reclassified and reported in discontinued operations. The Company has
sold its interest in BIG to Quarto (see Note 13) and is in the process of
discontinuing FUZZY and expects the transaction to be completed in fiscal 1999. 
Management has accrued a $459,050 anticipated loss on the disposition of these 
subsidiaries. Operating results of discontinued operations are as follows:

                                                1998                 1997
                                            ------------          ----------
     Revenues                               $    474,994          $  491,612
     Loss before minority interest            (1,136,498)           (346,794)
     Net loss                                   (848,625)           (281,987)


                                      F-17
<PAGE>
                             NEW FRONTIER MEDIA, INC.
                                 AND SUBSIDIARIES

                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        YEARS ENDED MARCH 31, 1998 AND 1997
                                    (Continued)

NOTE 9 - DISCONTINUED OPERATIONS (continued)

Assets and liabilities of discontinued operations are as follows at March 31:

                                     1998                1997
                                  ----------          ----------
     Current assets               $  259,893          $1,598,610
     Noncurrent assets               158,273               3,186
                                  ----------          ----------
                                  $  418,166          $1,601,796
                                  ==========          ==========

     Current liabilities          $   41,284          $  554,501
     Long-term debt                    6,716              12,926
                                  ----------          ----------
                                  $   48,000          $  567,427
                                  ==========          ==========

NOTE 10 - SEGMENT INFORMATION

The Financial Accounting Standards Board has released statement #131
"Disclosures about Segments of an Enterprise and Related Information" which will
be effective for all financial reporting periods subsequent to December 15,
1997. This statement requires the reporting of certain information about
operating segments. The following table reflects certain information as
promulgated by the statement for the years ended March 31, 1997 and 1998:

                                                  March 31, 1997
<TABLE>
<CAPTION>
                                                                                            Corporate
                                                                                              and
                                   DVD                 BIG                 FUZZY          Eliminations           Totals
                               -----------        ------------        ------------        ------------         -----------
<S>                            <C>                <C>                 <C>                 <C>                  <C>
Net sales                      $ 2,211,388        $    290,994        $     13,020        $        400         $ 2,515,802
Other income (loss)                    800             187,598                -                 (5,882)            182,516
Net income (loss)                  141,736            (212,905)            (69,082)           (245,779)           (386,030)
Segment assets                     535,132           1,432,541             166,069              52,729           2 186,471
Segment liabilities                178,845             321,744             232,757             (63,090)            670,256
</TABLE>
                                                  March 31, 1998
<TABLE>
<CAPTION>
                                                                                           Corporate
                                                                      Discontinued            and
                                   DVD                 CSB             Operations         Eliminations           Totals
                               -----------        ------------        ------------        ------------         -----------
<S>                            <C>                <C>                 <C>                 <C>                  <C>
Net sales                      $   932,611        $    712,581        $    353,128        $       -            $ 1,998,320
Other income (loss)                   -                (64,749)            121,866             (94,705)            (37,588)
Net income (loss)                 (100,456)         (1,200,475)           (848,625)         (1,108,787)         (3,258,343)
Segment assets                     395,388           9,409,797             418,166             524,598          10,747,949
Segment liabilities                139,557           2,207,990              48,000            (112,920)          2,282,627
</TABLE>



                                      F-18
<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       YEARS ENDED MARCH 31, 1998 AND 1997
                                  (Concluded)

NOTE 11 - RISKS AND UNCERTAINTIES

CSB, as sublessee of the transponders under the transponder agreements, is
subject to arbitrary refusal of service by the service provider if that service
provider determines that the content being transmitted by the Company is harmful
to the service provider's name or business. Any such service disruption would
substantially and adversely affect the financial condition of the Company (see
Notes 1 and 6).

The Company has deposits in a bank in excess of the FDIC insured amounts of
$100,000. The amount in excess of the $100,000 is subject to loss should the
bank cease business.

NOTE 12 - SUBSEQUENT EVENT

On June 3, 1998, pursuant to a private placement, the Company sold $1,750,000 of
8% convertible debentures, interest due quarterly and due on June 3, 2000. The
debentures are convertible into shares of common stock of the Company at a
conversion price for each share of common stock equal to the lesser of : (a)
125% of the closing price or (b) 90% of the market price on the conversion date.

NOTE 13 - EVENT SUBSEQUENT TO THE DATE OF THE INDEPENDENT AUDITORS' REPORT

On June 26, 1998, the Company finalized the sale of it's 70% interest in BIG to
Quarto. In connection with the settlement, any and all claims arising from its
business with Quarto were settled. In addition, Quarto's warrant to purchase
400,000 shares of common stock of the Company was returned to the Company for
cancellation.
                                     F-19