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NewStar Files for Chapter 11 Protection
Jim Milliot -- 7/17/00

Unable to secure adequate financing, cash-strapped NewStar Media filed for Chapter 11 bankruptcy protection in late June in the U.S. Bankruptcy Court for the Central District of California. In its filing, NewStar listed assets of $21.2 million and debts of $20.1 million, but the company has had a chronic cash shortage for months and earlier this year reported that unless it received new funding it was in danger of going bankrupt (News, May 1).

In an official statement, NewStar said that due to a shortage of working capital it has had to "substantially curtail" the operations of its publishing division. John Hunt, president of the publishing division, told PW his unit "hasn't manufactured or acquired" new titles since he assumed his new role March 1. "I was told funding was coming, but it never came," said Hunt, who sold his Audio Literature company to NewStar last year (News, June 21, 1999). In its statement, NewStar said it is continuing to fund the operations of its television production and film and television distribution business and has hired Crossroads LLC and J.D. Publishing Ltd. to help it prepare a strategy for maximizing the company's value.

Among the alternatives NewStar is considering is selling the company, either as a single entity or in parts, Marc Cohen, the attorney for NewStar, said. Cohen added that NewStar is close to completing an agreement with its bank that will provide the publisher with funds to keep operating.

The company's largest creditor is RSB Disques/Disc of Quebec, which is owed $370,803, followed by Bay Cities Container Corp., which is owed $333,021. Evermark is due $321,422, while Audio Literature is owed $300,000. Other major creditors include Ingram, which is owed $295,070, Mercedes Distribution Center, owed $163,298, and Tin Man Enterprises, due $129,102. Publishers listed among NewStar's top 20 creditors are Hampton Roads, due $65,894, and Hyperion, due $61,000.

For the first quarter ended March 31, 2000, NewStar sales rose to $1.6 million from $1.4 million due to a 405% increase in revenues in its film and television business to $632,000, attributable to the production of the National Enquirer. Sales in its publishing division fell to $960,000 from $1.3 million due to the lack of capital for producing new products. Net loss for the company was $1.2 million.

At the end of May, NewStar's chief financial officer, John Brady, resigned, although he is still serving as acting CFO. Also in May, NewStar director Lee Masters resigned.

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