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, 1997

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

Registrant's  revenues for its most recent  fiscal year (ended March 31,  1997):
$2,515,802

Aggregate  market  value of voting stock held by  non-affiliates,  and method of
computation:

$6,666,500,   based  on   approximately   1,333,300   Common   Shares   held  by
non-affiliates  and an average bid/ask price of $5.00 per Share (NASDAQ Bulletin
Board) during the 90 days prior to date of this report.

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

4,189,000 common shares were outstanding as of March 31, 1997.

Documents incorporated by reference:        None.
                                                                               1

<PAGE>

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


                            NEW FRONTIER MEDIA, INC.
              Form 10-KSB for the Fiscal Year ended March 31, 1997

                                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-17

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



                                                                               2

<PAGE>

PART I.

Item 1.   Description of Business.

     (a)  Business   Development.   New  Frontier  Media,  Inc.  was  originally
incorporated as Strategic Acquisitions,  Inc. ("Strategic") on February 23, 1988
in the State of Colorado.  Strategic undertook a public offering of its stock in
May, 1989, as a "blind pool" company.  Strategic  acquired  National  Securities
Network,  Inc. in September,  1989, and the Company changed its name to National
Securities Holding  Corporation  ("NSHC").  NSHC sold its underlying business in
October, 1990, and had no operations until September 15, 1995, when it completed
the reverse acquisition of Old Frontier Media, Inc., and changed its name to New
Frontier Media, Inc.

     In September,  1996, the Company sold 30 percent of its Boulder Interactive
Group, Inc.  Subsidiary to Quarto Holdings,  Inc., a Delaware  corporation,  for
$1,250,000 in cash and $525,000 of digital  material.  For accounting  purposes,
the digital material was valued at $ 0 . The Company has two other  wholly-owned
subsidiaries: DaViD Entertainment, Inc., and Fuzzy Entertainment, Inc.

     All of the  Company's  revenues are derived from  operations of its wholly-
and majority-owned subsidiaries. The Company's corporate headquarters is located
at 1050  Walnut  Street,  Suite 301,  Boulder,  Colorado  80302.  The  Company's
telephone number is (303) 444-0632.

     (b) Business of the Registrant. New Frontier Media, Inc. (the "Company") is
a  publicly-traded  holding company,  doing business through Old Frontier Media,
Inc.  ("Old  Frontier"),   its  wholly-owned  subsidiary.   Old  Frontier  is  a
diversified  entertainment , publishing,  and computer  software  production and
distribution  company,  consisting of two  wholly-owned  and one majority- owned
subsidiaries:   (1)  Boulder   Interactive   Group,  Inc.  ("BIG");   (2)  DaViD
Entertainment, Inc. ("DaViD"); and, (3) Fuzzy Entertainment, Inc. ("Fuzzy").

          (1) Principal products or services and their markets.  BIG is a CD-ROM
software  publishing  company,   designing  and  developing  CD-ROM  titles  and
licensing  third  party-developed  titles.  BIG has developed and released eight
CD-ROM titles to date. Other titles are under  development.  All of BIG's CD-ROM
titles contain video, still photography,  audio,  original music and text. DaViD
is in the business of  acquiring  content  rights to existing  rated and unrated
motion  picture  titles for  distribution  on laserdisc  and digital  video disc
("DVD") by  third-party  distributors.  DaViD  currently  owns content rights to
approximately  500 rated and unrated  motion  picture  titles.  Fuzzy  acquires,
produces, and distributes fine art images and decorative posters.

          (2) Distribution  methods.  BIG has entered into an exclusive software
distribution  agreement (for North America only) with Broderbund Software,  Inc.
("Broderbund"),  a publicly-traded  (NASDAQ, symbol "BROD") distribution company
considered to be one of the premier  software  publishers  in the industry.  BIG
expects to release  one  in-house  developed  CD-ROM  title per  quarter and one
third-party developed title per quarter. Through a distribution arrangement with
Disc Replication International,  an entity related to a principal shareholder of

                                                                               3

<PAGE>


the Company, DaViD's titles are distributed in the 8" and 12" LaserDisc formats,
and  will  be  distributed  in  the 5  1/4"  Digital  Video  Disc  format,  once
implementation  of DVD hardware reaches a critical mass in the marketplace.  The
distribution terms for these titles range from seven years to perpetuity.  DaViD
releases 5 to 8 titles per month for distribution.

          (3) Status of any publicly announced new products. None.

          (4) Competition,  the Company's  competitive position in the industry,
and methods of  competition.  The  domestic  and  international  markets for the
products  developed,  licensed,  and  marketed  by  the  Company's  wholly-owned
subsidiaries  are highly  competitive.  Many of the Company's  competitors  have
longer operating histories, greater name recognition,  greater market acceptance
of their  products,  and  significantly  greater  financial,  technical,  sales,
marketing and other resources to devote to the development,  promotion, and sale
of their products. Many large companies with sophisticated product marketing and
technical  abilities and financial  resources that do not currently compete with
the  Company may enter the PC software  market and  quickly  become  significant
competitors,  particularly  to BIG. To the extent such  competitors  establish a
performance,  price or  distribution  advantage,  the Company could be adversely
affected.

     The PC consumer software industry is intensely competitive.  The market for
CD-ROM products has increased  dramatically the past two years.  CD-ROM software
is quickly  replacing  the floppy  disc as the most  popular  personal  computer
format for programs,  games, and  information.  The fluid nature of the consumer
software  industry and rapidly changing demand for products make it difficult to
predict the future success of the Company in the business of producing  packaged
software products for the retail market.  Numerous large,  well-funded  software
developing and publishing  competitors  exist.  These  competitors  have greater
capital,  marketing  resources  and brand  recognition  than the Company.  BIG's
success is dependent upon the ability of its staff to continue to develop CD-ROM
titles and products  that are  commercially  viable.  BIG will face  significant
competition for the foreseeable future.

     The  management  of DaViD  intends to complete the  acquisition  of content
rights to  approximately  1,000 rated and unrated  motion  picture  titles,  and
releasing those titles gradually over time, as the market dictates. DaViD relies
on one or more third-party distributors to market its titles. Competition in the
distribution of rated and unrated motion pictures has become intense in the past
five years.  There is no assurance that the distributor(s) of DaViD's titles are
the  best  in the  industry.  DaViD  is  subject  to the  competition  that  its
distributor(s) will face.

     Fuzzy faces significant competition from large,  well-funded decorative art
producers  and  distributors.  Many  of  Fuzzy's  competitors  have  significant
financial  resources  and  contacts  in  the  industry,  including  distribution
channels, superior to the Company's.

          (5)  Sources of raw materials. Raw materials for all of the  Company's
products are readily available from many sources worldwide.

          (6)  Dependence  on one or a few major  customers.  DaViD  distributes
its titles through  various distributors, who then sell  the  titles  to  buyers
worldwide. BIG sells a portion of its CD-ROM products to and through Broderbund.
BIG has  reduced its  reliance on  Broderbund  as it has  expanded  sales of its
CD-ROM products; however, loss of this relationship would have an adverse affect
on the Company's operations.

                                                                               4

<PAGE>


          (7)  Patents,  trademarks,   licenses,  and  royalty  agreements.  BIG
licenses its titles to  publishers  via  republishing  agreements  and licenses,
primarily  for  distribution  and sale of the  titles  in Europe  and Asia.  The
publisher  licensees  then  translate the titles,  and arrange for  repackaging,
marketing and distribution in their designated areas.  Typically,  licensees pay
an up-front licensing fee, as well as ongoing royalties to the Company, based on
sales of the titles.

          (8) Government  approval.  No government  approval is required for the
Company's products.

          (9) Effect of government regulations on the business. None.

          (10) Research and development expenses. BIG's business is particularly
dependent upon development of new CD-ROM  products,  which for most companies in
BIG's business  necessarily entails expenditures for research and development by
the  Company.  Partially  in  response  to this need to  continue to develop new
products,  the Company  sold a 30 percent  interest  in BIG to Quarto  Holdings,
Inc., a subsidiary of The Quarto  Group,  Inc.  ("Quarto")  in September,  1996.
Quarto is one of the largest  co-edition book publishers in the world. The terms
of the  agreement  between  the  Company  and Quarto  allow BIG to  commercially
exploit Quarto text and other material on digital formats.  The Company believes
this  agreement  with Quarto will  provide a  substantial  base of material  for
CD-ROM title development in the future. To date, BIG has commercially  developed
and released one Quarto title, and development of two other titles is ongoing.

          (11) Costs of environmental compliance. None.

          (12)  Employees.  As of March 31, 1997, the Company had nine full time
employees.

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.

     None.

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.

                                                                               5

<PAGE>


PART II.

Item 5.   Market for Common Equity and Related Stockholder Matters.

     (a) Market information.  The Company's Common Stock is traded on the NASDAQ
Bulletin Board under the symbol NOOF.

Quarter Ended                                        Low Bid           High Bid
-------------                                        -------           --------

June 30, 1996                                         $ 3.50            $ 4.00
September 30, 1996                                      3.50              4.50
December 31, 1996                                       4.25              5.00
March 31, 1997                                          5.00              6.00

     The  foregoing  high and low bid  information  was  obtained  from  various
over-the-counter  brokers that have effected trades in the Company's securities.
The quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not represent actual transactions.

     (b) Holders. As of March 31, 1997 there were approximately 305 shareholders
of record of the Company.

     (c)  Dividends.  As of March 31,  1997,  the Company had not  declared  any
dividends  on its Common Stock since  inception.  The Company does not intend to
pay any cash dividends on its common stock in the foreseeable future.

Item 6. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations.

General.

     New Frontier  Media,  Inc. is a  publicly-traded  holding  company with two
operating wholly- owned and one operating majority-owned  subsidiaries:  Boulder
Interactive Group, Inc. ("BIG") and DaViD  Entertainment,  Inc.  ("DaViD"),  and
Fuzzy Entertainment, Inc. ("Fuzzy").

     BIG is a CD-ROM  software  publishing  company,  designing  and  developing
CD-ROM  titles  and  licensing  third  party-developed  titles.  DaViD is in the
business  of  acquiring  content  rights to existing  rated and  unrated  motion
picture titles for  distribution  on laserdisc and digital video disc ("DVD") by
third-party  distributors.  DaViD currently owns content rights to approximately
500  unrated  adult  motion  picture  titles.  Fuzzy  acquires,   produces,  and
distributes fine art images and decorative posters.

     The results of operations discussed herein pertain to the fiscal year ended
March 31, for the years discussed.




                                                                               6

<PAGE>

Results of Operations
<TABLE>
<CAPTION>

                             SELECTED FINANCIAL DATA

                                                        Year Ended March 31,
                                                   -----------------------------
                                                       1997             1996
                                                   -----------      ------------
<S>                                                <C>              <C>        
Sales, net ...................................     $ 2,515,802      $ 2,565,671
Cost of Sales ................................     $ 2,217,812      $ 1,843,765
                                                   -----------      -----------
Gross Profit .................................     $   297,990      $   721,906
Total Operating Expenses .....................     $   931,342      $   782,345
Other Income (Expense) .......................     $   182,516      $    65,716
                                                   -----------      -----------
Net Income (Loss) Before Income Taxes
 and Minority Interest .......................     ($  450,836)     $     5,277
Income Taxes .................................            --        ($   12,147)
Minority Interest in Loss of Subsidiary ......     $    64,806             --
                                                   -----------      -----------
Net Profit (Loss) ............................     ($  386,030)     ($    6,870)
                                                   ===========      ===========
</TABLE>

1997 versus 1996

     New Frontier Media, Inc. ("NOOF" or the "Company")

     NOOF  is  a   publicly-traded   holding   company,   consisting   of  three
subsidiaries: Boulder Interactive Group, Inc. ("BIG"), 70 percent owned by NOOF;
and DaViD Entertainment, Inc. ("DaViD") and Fuzzy Entertainment, Inc. ("Fuzzy"),
both wholly-owned subsidiaries of NOOF.

     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.  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
operations  of $ 450,836  for the fiscal year ended  March 31,  1997.  Operating
expenses for NOOF and BIG 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 (please see Management's
discussion  concerning BIG and DaViD,  below). NOOF performs many administrative
functions  for BIG,  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.


                                                                               7

<PAGE>


     Boulder Interactive Group, Inc. ("BIG")

     In  September,  1996,  the Company  sold a 30 percent of interest in BIG to
Quarto Holdings, Inc. ("Quarto") for $1,250,000 in cash and other $525,000 worth
of digital material.  For accounting purposes, the digital material is valued at
$ 0. BIG 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,  BIG has allocated  significant  corporate resources to
identifying,  developing,  and  commercially  exploiting its first  Quarto-based
products.  BIG  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 BIG  resources  to the Ralston  Purina  project (as
reported by the Company in its Form 8-K dated September 16, 1996), normal delays
in developing products under the Quarto agreement (as reported by the Company in
its Form 8-K dated  September 27, 1996),  and BIG's  evolving  market focus from
"edutainment"  products to  alternative  and  specialty  products.  In addition,
management  attributes  lower  revenue  figures to the  underperformance  of its
distributors,  and the  transition  of BIG's  distribution  strategy  away  from
software retail outlets and toward direct sales.

     BIG's latest CD-ROM  products are targeted at  enthusiasts  and  hobbyists,
primarily  as a result of the titles  that BIG is  developing  and  commercially
exploiting  under the Quarto  agreement.  BIG  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 BIG and the Company will realize  revenues  from Cigar  Companion,
based upon the surging  popularity of cigars and  cigar-related  products in the
United  States.  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,  BIG has developed and recently  released a
photography  CD-ROM, In Focus,  utilizing the material acquired from Quarto. BIG
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 BIG.

     BIG'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,
BIG 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 BIG  anticipates  sales of Multimedia
Guns by CompUSA to meet or exceed sales of the title at Wal-Mart.

     The Company  believes that BIG will  successfully  develop and commercially
exploit  several  Quarto-based  titles in the fiscal year ending March 31, 1998,
and that revenues will rebound  accordingly.  In addition,  Management  believes
that BIG and the Company will begin to realize  revenue from the Ralston  Purina
project in the next two quarters.



                                                                               8

<PAGE>


     DaViD Entertainment, Inc. ("DaViD")

     DaViD is a  wholly-owned  subsidiary  of the  Company.  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 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 continued revenue growth from
DaViD, as Digital Virtual Disc technology advances in 1997 and 1998.

     Fuzzy Entertainment, Inc. ("Fuzzy")

     The  Company  capitalized  Fuzzy in  November  and  December,  1996.  Fuzzy
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.
Fuzzy has not yet transitioned into the fully-operational stage. Most of Fuzzy's
operating   expenses  were  attributable  to  consulting   expense  of  $40,187.
Management  anticipates moderate revenue growth for Fuzzy during the fiscal year
ending March 31, 1998.

Liquidity and Capital Resources

     The  Company's  net  increase in cash and  certificates  of deposit for the
fiscal year ended March 31, 1997 was $ 810,864 (1,671.1%), up from $ 48,523 to $
859,387.  This increase was  primarily  the result of the  Company's  sale of 30
percent of BIG to Quarto for  $1,250,000  cash,  and digital  material which for
accounting  purposes has been valued at $ 0. $840,184 of the Company's  cash and
cash  equivalents  are held in BIG's  bank  accounts,  and are  restricted  from
transfer to or use by NOOF or its other  subsidiaries by the terms of the Quarto
agreements.  NOOF has cash and cash  equivalents  of $1,384  at March 31,  1997.
DaViD has cash and cash equivalents of $18,441 at March 31, 1997. Fuzzy has cash
and cash  equivalents of $ (622) at March 31, 1997.  NOOF retains some operating
revenue from its share of the net income of DaViD,  and by  assessing  operating
costs to its subsidiaries on a pro rata basis.

Business Development and Outlook

     BIG continues to develop new CD-ROM  products,  and Management  believes it
has  secured  a source of future  titles  by  virtue of the  Quarto  agreements.
Although  CD-ROM  software  publishing  remains a highly  competitive  business,
Management  believes BIG has  demonstrated  its ability to create demand for its
products  through  conventional  (e.g.,  Wal-Mart and  CompUSA) and  alternative
(e.g., Ralston Purina and Time Warner licensing agreements) retail channels

     Digital  Versatile  Disc ("DVD")  Players are quickly  becoming part of the
consumer  electronic  landscape  in the  United  States  and  abroad.  Dataquest
estimates that  approximately 2.0 million DVD players will be sold in the United
States  by  the  end  of  December,  1997.  Management  believes  that  the  low
replication price of DVD (and the  correspondingly low retail price of titles on
DVD) will  result in a software to hardware  purchase  ratio of 5:1.  Management

                                                                               9

<PAGE>


expects that approximately 5 percent of the total forecasted 10 million units of
DVD software sold in 1997, or 500,000 units, will be in the adult  entertainment
category.  DaViD expects to capture 50 percent of the adult DVD software segment
in 1997.  DaViD continues to acquire content rights to unrated motion  pictures,
and to release 4 to 8 titles  per  month,  primarily  on  laserdisc.  Management
believes  DaViD  revenues and net income will continue to grow as DVD technology
is introduced to the consumer market.

     Fuzzy  is in the  early  development  stages,  and  Management  anticipates
reaching break-even by March 31, 1998.

Item 7.   Financial Statements.

     The  following  pages  F-1  through  F-17  contain  the  audited  financial
statements  of the Company  for the fiscal  years ended March 31, 1997 and 1996.
These  statements  were  audited by Spicer,  Jeffries  & Co.,  Certified  Public
Accountants, Denver, Colorado.

Item 8.   Changes In and Disagreements With Accountants.

     None.



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                                                                              10

<PAGE>

PART III.

Item 9.   Directors, Executive Officers, Promoters and Control Persons.

     (a) Directors and executive officers of the Company (as of the date of this
Report):
<TABLE>
<CAPTION>

Name                    Age              Position
----                    ---              --------

<S>                     <C>     <C>
                  
Mark H. Kreloff          35     Chairman of the Board, President and Chief Executive
                                Officer, New Frontier Media, Inc.; Director, BIG; Vice
                                Director, DaViD;  Director, Fuzzy.

Andrew V. Brandt         28     Director, New Frontier; President and Director, BIG.

Michael Weiner           55     Executive Vice President, Secretary-Treasurer and
                                Director, New Frontier Media, Inc.; Director, BIG;
                                President and Director, DaViD; President and Director, Fuzzy.

Scott D. Wussow          41     Chief Financial Officer, New Frontier Media, Inc.


---------------
</TABLE>

     Mark  H.  Kreloff.   Mr.   Kreloff  has  been  actively   involved  in  the
entertainment and computer software industries since 1990. Prior to joining OFMI
and during the last five years,  he was the  President and Chairman of the Board
for LEI Partners,  L.P., a LaserDisc  publishing,  entertainment  production and
distribution  company;  and  California  Software  Partners,  L.P.,  a  computer
software  development and publishing company.  Previously,  Mr. Kreloff held the
title Vice  President,  Mergers and  Acquisitions,  with the wall  street  firms
Kidder  Peabody & Co.  and  Drexel  Burnham  Lambert  where he was  involved  in
transactions  totaling over one billion  dollars,  including the sale of certain
assets  relating to KKR's  acquisition of R. J.  Reynolds/Nabisco,  and numerous
cable TV transactions.  Mr. Kreloff is an honors graduate of Syracuse University
with a B.S. degree in Finance/Public Communications and is 35 years old.

     Andrew V.  Brandt.  Mr.  Brandt has  extensive  experience  in 3-D computer
graphics,  user interface  design,  and software  engineering.  Prior to joining
OFMI, 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.  Commercial work experience  includes work
with  General  Electric  Aerospace,  San  Diego  Supercomputer  Center,  General
Atomics,  and Numerical  Design Limited.  Educational  work experience  includes
work-study  positions  with the  University  of North  Carolina,  University  of
California  and Rutgers  University.  Mr.  Brandt has  published  works with ACM
Siggraph and North  Carolina  Conference  on Volume  Visualization.  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. Mr. Brandt is 28 years old.


                                                                              11

<PAGE>


     Michael  Weiner.   Mr.  Weiner  has  been  actively  involved  in  creative
businesses  for the past 25  years.  His  background  includes  25 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 multi-million dollar trading and investment banking concern based
in Boulder, Colorado. He is 55 years old.

     Scott D. Wussow.  Mr. Wussow has eighteen  years of accounting  and finance
experience,  and is a Certified  Public  Accountant.  He joined New  Frontier as
Chief Financial Officer on April 1, 1996. For the past five years before joining
the Company,  Mr. Wussow was Chief Financial Officer for Hart Bornhoft Group, an
investment  firm.  Previous  to that,  Mr.  Wussow  was  Controller  at  Neodata
Services,  a  publisher  services  company,  and was  Accounting  Manager  for a
division of MCI  Communications.  Mr. Wussow  graduated Magna Cum Laude from the
University of Wisconsin at Eau Claire with a B.A. degree in Accounting. He is 41
years old.

     (b) Other significant employees. None.

     (c) Family relationships. None.

     (d) Involvement in certain legal proceedings. None.

Item 10.  Executive Compensation.

<TABLE>
<CAPTION>

     Name and principal    Year    Salary      Bonus    Other annual   Restricted  Options/    LTIP      All other
          position                  ($)         ($)     compensation  stock awards   SARs     payouts  compensation
     ------------------    ----    ------      -----    ------------  ------------  -------   -------  ------------
<S>                        <C>       <C>       <C>           <C>           <C>        <C>        <C>      <C>   
Mark H. Kreloff, CEO,      1997      0         15,000        0             0          0          0        36,028
COO, Pres., and
Chairman
Michael Weiner, Sr.        1997      0         15,828        0             0                     0           0
V.P., Sec.-Treas. and
Director
Andrew V. Brandt,          1997    75,695      3,125         0             0          0          0         5,053
President, BIG
Scott D. Wussow, CFO       1997    46,333      2,083         0             0          0          0           0
</TABLE>


Item 11.  Security Ownership of Certain Beneficial Owners and Management.

     (a) Security  ownership of certain beneficial owners other than management.
All persons,  including groups,  known to the Company to be the beneficial owner
of more than five percent (5%) of any class of the Company's  voting  securities
(other than management), as of March 31, 1997:

     Stephen Cherner  (individually  and through Maxim Profit Sharing),  595,000
shares (14.2%).


                                                                              12

<PAGE>


     (b) Security ownership of management. The table below sets forth the number
of  shares  of each  class of the  Company's  equity  securities,  or any of its
parents  or  subsidiaries,  beneficially  owned by all  executive  officers  and
directors of the Company as of March 31, 1997:

<TABLE>
<CAPTION>

     Title of Class              Name and Address of Beneficial              Amount and Nature          Percent of
                                             Owner                          of Beneficial Owner            Class
     --------------              ------------------------------             -------------------          ---------
<S>                      <C>                                                   <C>                      <C>  
Common Stock             Andrew Brandt                                            279,500                  6.67%
                         1050 Walnut Street, Suite 301
                         Boulder, CO 80302
Common Stock             Mark H. Kreloff                                         1,014,000                24.21%
                         1050 Walnut Street, Suite 301
                         Boulder, CO 80302
Common Stock             Michael Weiner                                           615,000                 14.68%
                         1050 Walnut Street, Suite 301
                         Boulder, CO 80302
</TABLE>

     (c) Changes in control. None.

Item 12.  Certain Relationships and Related Transactions.

     The  Company  purchased  $65,000 of adult  laserdisc  format  titles from a
related entity through the issuance of preferred stock (see Notes 3 and 4 to the
financial statements filed herewith).  In addition, the Company has an agreement
with another related entity to sell, package, handle,  replicate, and ship these
adult  laserdisc  format titles at the Company's  expense for a mangement fee of
$40,000 per month.  During the year ended March 31, 1997 and 1996,  this related
entity  withheld from sales of $2,236,143  and $1,592,856  replicating  costs of
$1,646,364  and  $  939,622  and  management  fees  of  $470,000  and  $262,500,
respectively.  Included in accounts  receivable  at March 31, 1997 and 1996 were
$141,585 and $222,276, respectively, from the related entity.

     In June,  1995,  the  Company  issued a three year note  receivable  in the
amount of $38,000 to one of its officers.  The note requires  quarterly interest
only  payments at a rate of 6.1 percent per annum.  The principal is due on June
19, 1998.

     The  Company  leases  certain  equipment  and  office  space  via  entities
controlled  by a shareholder  on a month to month basis.  During the years ended
March 31, 1997 and 1996 the Company paid $116,549 and $98,212,  respectively, to
these entities relating to these leases.

Item 13.  Exhibits and Reports on Form 8-K.

     None.



                                                                              13

<PAGE>

                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                              NEW FRONTIER MEDIA, INC.



July 8, 1997                                   By:   /S/ MARK H. KRELOFF
                                                     --------------------------
                                               Mark H. Kreloff, CEO and Chairman


July 8, 1997                                  By:   /S/ SCOTT D. WUSSOW
                                                    ----------------------------
                                                    Scott D. Wussow, CFO


July 8, 1997                                  By:   /S/ MICHAEL WEINER
                                                    ----------------------------
                                                    Michael Weiner, Sr. V.P.,
                                                    Secretary-Treasurer and
                                                    Director


                                                                              14


<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES

                              FINANCIAL STATEMENTS

                       YEARS ENDED MARCH 31, 1997 AND 1996



<PAGE>

                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES

                                TABLE OF CONTENTS


                                                                            Page
                                                                            ----
Independent Auditors' Report                                                 F-2

Balance Sheets                                                         F-3 - F-4

Statements of Operations                                                     F-5

Statements of Shareholders' Equity                                           F-6

Statements of Cash Flows                                                     F-7

Notes to Financial Statements                                         F-8 - F-17



                                                                             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, 1997 and 1996,  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, 1997 and 1996,  and the results of their
operations  and their cash flows for the years then ended,  in  conformity  with
generally accepted accounting principles.


                                        /s/ Spicer, Jeffries & Co.
                                        SPICER, JEFFRIES & CO.

Denver, Colorado
July 3, 1997

                                                                             F-2

<PAGE>

<TABLE>
<CAPTION>
                             NEW FRONTIER MEDIA INC.
                                AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                             MARCH 31, 1997 AND 1996

                                     ASSETS



                                                                                      1997          1996
                                                                                      ----          ----
<S>                                                                               <C>           <C>
CURRENT ASSETS
   Cash (Note 4) .................................................................$  109 387    $   48 523
   Investment in certificates of deposit (Notes 4 and 7) .........................   750 000         --
   Accounts receivable (Notes 1 and 3) ...........................................   212 370       222 276
   Inventories (Note 1) ..........................................................   659 503       354 089
   Prepaid distribution rights (Note 1) ..........................................    82 250        94 500
   Common stock subscribed .......................................................     --           20 000
   Income tax receivable .........................................................     --           72 500
   Other .........................................................................    68 225        48 990
                                                                                   ---------      --------
          Total current assets ................................................... 1 881 735       860 878
                                                                                   ---------      --------

FURNITURE AND EQUIPMENT, at cost (Note 1) ........................................    65 552        39 314
   Less: accumulated depreciation and amortization ...............................   (22 661)      (10 479)
                                                                                   ---------      --------
          Net furniture and equipment ............................................    42 891        28 835
                                                                                   ---------      --------

OTHER ASSETS
   Notes receivable - officer (Note 3) ...........................................    38 000        38 000
   Accounts receivable - retainage (Note 1) ......................................    88 844        77 053
   Other .........................................................................   135 001        12 583
                                                                                   ---------      ---------
          Total other assets .....................................................   261 845       127 636
                                                                                   ---------      --------

                                                                                  $2 186 471    $1 017 349
                                                                                   =========     =========
</TABLE>


See accompanying notes to consolidated financial statements.


                                                                             F-3

<PAGE>

<TABLE>
<CAPTION>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                             MARCH 31, 1997 AND 1996

                      LIABILITIES AND SHAREHOLDERS' EQUITY
                                                                                                     1997          1996
                                                                                                     ----          ----

<S>                                                                                                  <C>          <C>
CURRENT LIABILITIES
  Accounts payable ...............................................................................   $125 928      $186 742
  Current portion of long-term debt (Note 2) .....................................................    139 573       139 573
  Current portion of obligations under capital lease (Note 6) ....................................      5 139          --
  Lines of credit (Note 7) .......................................................................    341 274          --
  Other accrued liabilities ......................................................................     45 416        15 562
                                                                                                    ---------      --------
          Total current liabilities ..............................................................    657 330       341 877

LONG-TERM DEBT - Obligations under capital leases (Note 6) .......................................     12 926          --
                                                                                                    ---------      --------
          Total liabilities ......................................................................    670 256       341 877
                                                                                                    ---------      --------
MINORITY INTEREST IN SUBSIDIARY (Notes 1 and 4) ..................................................    305 443          --
                                                                                                    ---------      --------
COMMITMENTS AND CONTINGENCIES (Notes 4 and 6)

SHAREHOLDERS' EQUITY (Notes 1 and 4):
   Common stock, $.0001 par value, 50,000,000
     shares authorized, 4,189,000 and 4,175,250,
     shares issued and outstanding, respectively .................................................        419           418
   Preferred stock, $.10 par value, 5,000,000 shares authorized:
Class A, 10,000 shares issued and outstanding ....................................................      1 000         1 000
       Class B, 5,000 shares issued and outstanding ..............................................        500          --
   Additional paid-in capital ....................................................................  1 768 661       847 832
   Deficit .......................................................................................   (559 808)     (173 778)
                                                                                                    ---------      --------
          Total shareholders' equity .............................................................  1 210 772       675 472
                                                                                                    ---------      --------

                                                                                                   $2 186 471    $1 017 349
                                                                                                    =========     =========
</TABLE>


See accompanying notes to consolidated financial statements.

                                                                             F-4

<PAGE>

<TABLE>
<CAPTION>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                                                                Year ended March 31,
                                                                                --------------------
                                                                                 1997         1996
                                                                                 ----         ----

<S>                                                                           <C>           <C>
SALES, net .................................................................  $2 515 802    $2 565 671

COST OF SALES ..............................................................   2 217 812     1 843 765
                                                                               ---------     ---------
GROSS PROFIT ...............................................................     297 990       721 906
                                                                               ---------     ---------
OPERATING EXPENSES
   Occupancy and equipment .................................................     190 675       118 960
   Legal and professional ..................................................      67 625        96 101
   Advertising and promotion ...............................................     199 238       225 319
   Salaries wages and benefits .............................................     236 017       184 282
   Communications ..........................................................      32 137        22 609
   General and administrative ..............................................     129 615        60 942
   Research and development ................................................          --         8 851
   Consulting ..............................................................      76 035        65 281
                                                                               ---------     ---------
     Total operating expenses ..............................................     931 342       782 345
                                                                               ---------     ---------
OTHER INCOME (EXPENSE)
    Licensing fees and royalties ...........................................     191 995       157 106
    Licensing commissions ..................................................     (27 193)      (54 665)
    Interest income ........................................................      37 736         4 152
    Interest expense .......................................................     (20 022)      (15 561)
    Abandoned project costs ................................................         --        (25 316)
                                                                               ---------     ---------

     Total other income ....................................................     182 516        65 716
                                                                               ---------     ---------

     Net income (loss) before income taxes and minority interest ...........    (450 836)        5 277

INCOME TAXES (Notes 1 and 5) ...............................................         --        (12 147)
                                                                               ---------     ---------

     Net loss before minority interest .....................................    (450 836)       (6 870)

Minority interest in loss of subsidiary ....................................      64 806         --
                                                                               ---------     ---------

NET LOSS ...................................................................   $(386 030)    $  (6 870)
                                                                               =========     =========

NET LOSS PER COMMON SHARE (Note 1) .........................................   $    (.09)    $   *
                                                                               =========     =========

WEIGHTED AVERAGE  SHARES OUTSTANDING (Note 1) ..............................   4 188 459     4 051 896
                                                                               =========     ==========
</TABLE>

* less than 1(cent) per share


                                                                             F-5

<PAGE>
<TABLE>
<CAPTION>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                       YEARS ENDED MARCH 31, 1997 AND 1996
                                                                           Common Stock
                                                             ----------------------------------------
                                                                No Par Value         $0.01 Par Value
                                                             Shares     Amount      Shares     Amount
                                                             ------     ------      ------     ------
<S>                                                          <C>       <C>         <C>        <C>
BALANCES, March 31, 1995 .................................    4 000    $ 80 000       --      $  --   

 Contribution of capital .................................     --         3 250       --         --   

 Reverse acquisition of National
  Securities Holding Corporation
  (Note 1) ...............................................   (4 000)    (83 250)   4 000 000      400

 Issuance of Class A preferred stock .....................      --         --         --         --   

 Issuance of common stock ................................      --         --        175 250       18

 Net loss ................................................      --         --         --          -- 
                                                            --------   --------    ---------   -------

BALANCES, March 31, 1996 .................................      --         --      4 175 250      418

 Issuance of subsidiary's common
  stock, less offering costs
   of $11,085 ............................................      --         --         --          --

 Issuance of Class B preferred
  stock, less offering costs of $6,663 ...................      --         --         --          --

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

 Retirement of common stock ..............................      --         --         (6 250)      (1)

 Net loss ................................................      --         --         --          --
                                                            --------   --------    ---------   ------
BALANCES, March 31, 1997 .................................      --     $   --      4 189 000  $   419
                                                            ========   ========    =========   =======
<PAGE>

<CAPTION>
                                                         Class A Preferred Stock Class B Preferred Stock
                                                         ----------------------- -----------------------    Additional
                                                              $0.10 Par Value        $0.10 Par Value         Paid-In
                                                             Shares     Amount      Shares     Amount        Capital     Deficit
                                                             ------     ------      ------     ------       ----------   -------

<S>                                                          <C>       <C>         <C>        <C>          <C>          <C>
BALANCES, March 31, 1995 .................................      --     $   --         --      $   --       $    --      $ (166 908)

 Contribution of capital .................................      --         --         --          --            --            --

 Reverse acquisition of National
  Securities Holding Corporation
  (Note 1) ...............................................      --         --         --          --          82 850          --

 Issuance of Class A preferred stock .....................   10 000       1 000       --          --          64 000          --

 Issuance of common stock ................................      --         --         --          --         700 982          --

 Net loss ................................................      --         --         --          --            --          (6 870)
                                                            --------   --------    ---------   ------       --------      --------
BALANCES, March 31, 1996 .................................   10 000       1 000       --          --         847 832      (173 778)

 Issuance of subsidiary's common
  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 ..............................      --         --         --          --          69 076          --

 Retirement of common stock ..............................      --         --         --           --        (24 999)         --   

 Net loss ................................................      --         --         --           --            --       (386 030)
                                                            -------    --------    ---------   ------       ---------     --------
BALANCES, March 31, 1997 .................................   10 000    $  1 000     5 000     $   500      $1 768 661   $ (559 808)
                                                            =======    ========    =========   ======       =========     ========
</TABLE>


See accompanying notes to consolidated financial statements.
                                                                             F-6

<PAGE>

<TABLE>
<CAPTION>

                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                              Years Ended March 31,
                                                                                           -------------------------
                                                                                               1997            1996
                                                                                               ----            ----
CASH FLOWS FROM OPERATING ACTIVITIES:
                                     
<S>                                                                                        <C>           <C>  
   Net loss..............................................................................  $ (386 030)   $    (6 870)
   Adjustments to reconcile net loss to net cash used in operating
     activities:
         Depreciation and amortization ..................................................      12 244          7 807 
         Increase (decrease) in accounts payable ........................................     (60 814)       170 491  
         Increase in accounts receivable ................................................      (1 885)      (233 997) 
         Increase in inventories ........................................................    (305 414)      (326 929) 
         (Increase) decrease in prepaid distribution rights .............................      12 250        (94 500) 
         Increase in other assets .......................................................    (141 715)       (59 309)
         (Increase) decrease in income tax receivable ...................................      72 500        (72 500)
         Increase in other accrued liabilities ..........................................      29 854         15 562
         Minority interest in loss of subsidiary ........................................     (64 806)          --
                                                                                            ---------       --------
          Net cash used in operating activities .........................................    (833 816)      (600 245)

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of equipment and furniture ..................................................      (6 928)       (17 732)
   Increase in notes receivable - officer ...............................................        --          (38 000)
   Purchase of certificates of deposit ..................................................    (750 000)          --
                                                                                            ---------       --------
          Net cash used in investing activities .........................................    (756 928)       (55 732)

CASH FLOWS FROM FINANCING ACTIVITIES:
   Payments on capital lease obligation .................................................      (1 245)          --
   Proceeds from line of credit .........................................................     341 274           --
   Payments of notes payable ............................................................       --           (45 427)
   Issuance of common stock, net of offering costs ......................................      89 978        681,000
   Retirement of common stock ...........................................................     (25 000)          --
   Issuance of preferred stock, net of offering costs ...................................      13 337         65 000
   Contribution of capital ..............................................................       --             3 250
   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 .....................................   1 651 608        703 823
                                                                                          
NET INCREASE IN CASH ....................................................................      60 864         47 846

CASH, BEGINNING OF YEAR..................................................................      48 523            677
                                                                                            ---------       --------
CASH, END OF YEAR........................................................................  $  109 387      $  48 523
                                                                                            =========       ========


See accompanying notes to consolidated financial statements.
                                                                             F-7

<PAGE>

<CAPTION>

                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Concluded)
                                                                                              Years Ended March 31,
                                                                                           -------------------------
                                                                                               1997            1996
                                                                                               ----            ----

<S>                                                                                        <C>           <C>  
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION:

    Interest paid........................................................................  $    5 487      $    --  
                                                                                            =========       ========
    Income taxes paid....................................................................  $    --         $  12 147
                                                                                            =========       ========

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
  AND FINANCING ACTIVITIES:

    Common stock subscribed..............................................................  $   --          $  20 000
                                                                                            =========       ========
    Purchase of equipment via capital lease obligation...................................  $   19 310      $    --
                                                                                            =========       ========
</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, 1997 AND 1996

NOTE 1       -     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization, Business, and Consolidation

The Company was  incorporated on July 26, 1995 as New Frontier  Media,  Inc. and
subsequently changed its name to Old Frontier Media, Inc. ("OFMI").  On July 31,
1995, OFMI acquired 100% of the outstanding common stock of Boulder  Interactive
Group,  Inc. ("BIG") (a developer and publisher of entertainment and educational
computer  software on CD-ROM),  incorporated on June 3, 1994, for 100% of OFMI's
outstanding  common stock.  In addition,  on July 31, 1995 OFMI  capitalized two
subsidiaries, 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  15,  1995,  the  shareholders  of  National   Securities  Holding
Corporation  ("NSHC")  approved  an  exchange  of  common  stock of NSHC for the
outstanding  common stock of Old Frontier Media, Inc. ("OFMI") and a name change
from NSHC to New Frontier Media, Inc. ("NFMI"). As a result of this transaction,
NFMI  owns  OFMI as a  wholly  owned  subsidiary.  OFMI is  presently  the  only
operating subsidiary (through its subsidiaries BIG, DVD, and FUZZY) of NFMI. The
stock exchange between NSHC and OFMI has been considered a reverse  acquisition.
Under  reverse  acquisition  accounting,  OFMI was  considered  the acquiror for
accounting and financial reporting purposes, and acquired the assets and assumed
the liabilities of NSHC. The acquisition was  accomplished  through the exchange
of all the outstanding common stock of OFMI for 3,720,000 shares of common stock
and 40,000 shares of preferred  stock (after giving effect to the  conversion of
the preferred  stock to common stock and then giving effect to a 1-for  2,034.66
reverse stock split of NSHC's common stock) representing a controlling  interest
in NSHC. 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).

The  accompanying  consolidated  financial  statements  include  the  historical
accounts  of BIG for all periods and the  accounts of NFMI since  September  15,
1995 and OFMI, DVD and FUZZY 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.

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, 1997 and 1996, retention amounts included in trade accounts
receivable  were  $88,844  and  $77,053.  In  addition,   included  in  accounts
receivable at March 31, 1997 is $17,141 from this distributor.

                                                                             F-9

<PAGE>

                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       YEARS ENDED MARCH 31, 1997 AND 1996
                                   (continued)

NOTE 1       -     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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 files a consolidated
income tax return with its  subsidiaries  through  September 30, 1996 when a 30%
minority interest was sold.

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  with related (see Note 3) and  non-related
entities for replication and distribution.

Research and Development Costs

All costs  incurred to  establish  technological  feasibility  of the  Company's
products  are  expensed as  incurred.  The  majority of these costs are contract
services.

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.

                                                                            F-10

<PAGE>

                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       YEARS ENDED MARCH 31, 1997 AND 1996
                                   (continued)

NOTE 1       -     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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.

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, giving effect to the reverse acquisition and
reverse stock split of NFMI discussed  above.  Common stock  equivalents are not
included  in the  weighted  average  calculation  since  their  effect  would be
anti-dillutive. Preferred dividends of $3,417 and $1,718 have been added back to
the net loss to arrive at net loss per common  share for the years  ended  March
31, 1997 and 1996, respectively.

Reclassifications

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

NOTE 2       -     LONG-TERM DEBT
<TABLE>
<CAPTION>
                                                                    1997                  1996
                                                             ---------------       --------------
<S>                                                          <C>                   <C> 
Notes payable to officers and shareholders
bearing interest at 8.5%, unsecured and
due on demand anytime after December 31, 1996                $       85,000        $       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                                      54 573                54 573
                                                             --------------        --------------
                                                                    139 573               139 573
             Less current portion                                  (139 573)             (139 573)
                                                             --------------        --------------

                                                             $       -             $         -
                                                             ==============        ==============
</TABLE>
Included in other liabilities at March 31, 1997 and 1996 are $11,012 and $15,562
of accrued interest relating to the above notes, respectively.

NOTE 3       -     RELATED PARTY TRANSACTIONS

The Company  purchased  $65,000 of adult laserdisc  format titles from a related
entity  through the issuance of preferred  stock (see Note 4). In addition,  the
Company has an agreement with another related entity to sell,  package,  handle,
replicate, and ship these adult laserdisc format titles at the Company's expense

                                                                            F-11
<PAGE>

                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       YEARS ENDED MARCH 31, 1997 AND 1996
                                   (continued)

NOTE 3       -     RELATED PARTY TRANSACTIONS (continued)

for a management  fee of $35,000 per month  through May 31, 1996 and $40,000 per
month  thereafter.  During the year ended March 31,  1997 and 1996 this  related
entity  withheld from sales of $2,236,143 and $1,592,856,  replicating  costs of
$1,646,364  and  $939,622  and   management   fees  of  $470,000  and  $262,500,
respectively.  Included  in accounts  receivable  at March 31, 1997 and 1996 was
$141,585 and $222,276 from 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 June 19,
1998.  Interest  earned on this note for the years ended March 31, 1997 and 1996
was $2,318 and $1,346.

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, 1997 and 1996 the  Company  paid  $116,549  and $98,212 to
these entities relating to these leases.

NOTE 4       -     SHAREHOLDERS' EQUITY

Common Stock

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.

Preferred Stock

On September 20, 1995, the Company issued 10,000 shares of Class A preferred, 5%
cumulative  stock in exchange for adult  laserdisc  format content titles from a
related entity (see Note 3).

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 March 31, 1997, cumulative dividends in arrears on Class A and B preferred
stock totalled $5,135.

                                                                            F-12

<PAGE>

                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       YEARS ENDED MARCH 31, 1997 AND 1996
                                   (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 $841,568 at March 31, 1997 was restricted to BIG's operations and can
not be used for the  operations of NFMI or its  affiliates.  On November 4, 1996
and  February  11, 1997 NFMI opened  lines of credit with a banking  institution
(see Note 7) and  secured  these  lines of credit  with  BIG's  certificates  of
deposit. Under (2) above NFMI breached the terms of the stockholder agreement by
not obtaining 75% stockholder  approval before encumbering the assets of BIG. On
July 2, 1997, the Company unencumbered the certificates of deposits.

Warrants

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.

On October, 12, 1995, the Company issued 20,000 warrants at an exercise price of
$4.00,  expiring October 12, 1998, to an investment  banker in connection with a
financial advisor agreement.


                                                                            F-13

<PAGE>

                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       YEARS ENDED MARCH 31, 1997 AND 1996
                                   (continued)

NOTE 5       -     INCOME TAXES

The  Company has an unused net  operating  loss carry  forward of  approximately
$240,000 for income tax purposes,  which  principally  expires in 2012. 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.  Temporary  differences arise from the recording of
depreciation.  Significant  components of the Company's deferred tax liabilities
and assets as of March 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
                                                                1997                  1996
                                                          --------------        --------------
<S>                                                       <C>                   <C>     
Deferred tax liabilities                                  $         -           $         -
                                                          ==============        ==============
Deferred tax assets
  Net operating loss carry forwards                               78 544                 2 421
  Valuation allowance for deferred tax assets                    (78 544)               (2 421)
                                                          --------------        --------------
                                                          $         -           $         -
                                                          ==============        ==============
</TABLE>

The income tax provision  reflected on the statement of operations of $12,147 in
1996  was due to  filing  a short  period  return  to  coincide  the  respective
entities' tax year end. This provision is not  recoverable  from the utilization
of the above net operating loss.

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, 1997 is
$19,310 of equipment under capital lease and accumulated  depreciation  relating
to this lease of $3,862.

Future  minimum  lease  payments  under these leases as of March 31, 1997 are as
follows:

                                                                      Principal
Year ended                                                               Due
 March 31,                  Operating                Capital       Capital Lease
----------                  ---------                -------      --------------
  1998                   $       56 000         $      7 606        $      5 139
  1999                             -                   7 606               5 814
  2000                             -                   6 473               6 102
  2001                             -                   1 414               1 010
                          -------------         ------------        ------------

                         $       56 000               23 099        $     18 065
                          =============                             ============
Less amount
  representing interest                                5 034
                                                -------------

Present value of net
  minimum lease payments                        $     18 065
                                                 ===========

Total rent expense for the years ended March 31, 1997 and 1996, was $136,013 and
$100,441, respectively.

                                                                            F-14
<PAGE>

                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       YEARS ENDED MARCH 31, 1997 AND 1996
                                   (continued)

NOTE 6       -     COMMITMENTS AND AGREEMENTS (continued)

On November 11, 1996 the Company entered into a two year financial  advisory and
consulting  agreement  requiring  annual  payments  of $50,000  and  warrants to
purchase  150,000  shares of NFMI's  common  stock at an  exercise  price of the
market value of the common  stock at the date of issuance.  As of March 31, 1997
none of the above warrants were issued.

The Company's  subsidiary FUZZY has entered into an agreement with an individual
to find images,  negotiate artist contracts,  finalize prints and proofs and the
marketing and selling of the prints.  The agreement is for a term of seven years
and the  Company  has  agreed to advance  the  venture as a line of credit up to
$250,000.  Net profits will be split on a 50%/50% basis;  however,  in the event
advances are drawn by this individual,  profits will be split on a 60%/40% basis
until the advances have been paid in full.  Included in other assets as of March
31,  1997 is  approximately  $70,000 of advances  to this  individual  under the
agreement.

NOTE 7        -    LINES OF CREDIT

The Company has lines of credit with a banking institution as follows:
<TABLE>
<CAPTION>

                                                                1997                     1996
                                                       -----------------        -------------
<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 are held in
the name of the Company's subsidiary BIG. The certificates bear interest ranging
from 6% to 7% and mature in November and December of 1997 (see Note 4).

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 in
excess of the market value of the stock at date of grant.  Warrants  granted are
for a three-year term.

                                                                            F-15

<PAGE>

                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       YEARS ENDED MARCH 31, 1997 AND 1996
                                   (continued)


NOTE 8 -  STOCK WARRANTS (continued)

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, 1997,  warrants to purchase common stock at various prices
were outstanding which expire as follows:

         Expiration                                                  Exercise
         Date                                Warrants                  Price
         -----------                         --------                --------

         December, 1997                           189 000        $       5.50
         October, 1998                             20 000                4.00
         September, 2001                          400 000                6.00
                                          ---------------
                                                  609 000
                                          ===============

The  following  table  describes  certain  information  related to the Company's
compensatory stock warrant activity for the year ending March 31, 1997.

                                        Number       Weighted Average
                                       of Warrants    Exercise Price
                                       -----------   ----------------
  Outstanding, March 31, 1996              -         $      -


  Grants during year-
      Exercise price -- market price     146 666            6.00

  Exercised, forfeited and
          expired during year               -                -
                                       ---------

  Outstanding and exercisable,
   March 31, 1997                        146 666            6.00
                                       =========

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

                          Exercise price -- market price   .5329
                                                           =====

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%.

                                                                            F-17

<PAGE>

                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       YEARS ENDED MARCH 31, 1997 AND 1996
                                   (concluded)

NOTE 8 -  STOCK WARRANTS (continued)

A summary of the Company's  outstanding  and  exercisable  stock  warrants as of
March 31, 1997 are as follows:
                                                          Weighted Average
                                        Number         Remaining Contractual
   Exercise prices                    of Warrants          Life (months)
   ---------------                    -----------      ---------------------

   $6.00
      Outstanding and exercisable        546 666                 48

   $4.00
      Outstanding and exercisable         20 000                 18

   $5.50
      Outstanding and exercisable        189 000                  9

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:

                                                  1997
                                            -----------------
    Net loss                                $        (464 189)
                                            =================

    Net loss per share                      $            (.11)
                                            =================


NOTE 10 -  RISKS AND UNCERTAINTIES

As previously  discussed in Note 3, the Company  distributes,  through a related
entity,  its adult  laserdisc  format  titles.  This  related  entity  generates
substantially all of its sales from two distributors in California.

The Company sells the majority of its CD-Rom  products  through a distributor in
California.  For the periods  ended March 31, 1997 and 1996, 6% and 35% of total
sales  were  received  from  this  distributor  (see  Note 1).  The loss of this
distributor or the loss of the related  entity's  distributors  mentioned  above
could have an adverse effect on the Company's operations.

The  Company  also  uses one  major  vendor to  replicate  all of its  laserdisc
products;  management  believes  that  other  vendors  could be  substituted  on
materially the same terms if the loss of this vendor occurred.

The Company  has  deposits  in a bank in excess of the FDIC  insured  amounts of
$100,000.  The amounts in excess of the $100,000  ($650,000)  is subject to loss
should the bank cease business.

                                                                            F-18