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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                            ------------------------
                                   FORM 10 -K

                 Annual Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934
                       For the Year Ended March 31, 2001

                      Commission File Number: 33-27494-FW

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

<TABLE>
<S>                                             <C>
                   Colorado                                       84-1084061
           (State or Incorporation)                     (I.R.S. Employer I.D. Number)
</TABLE>

              5435 Airport Boulevard, Suite 100, Boulder, CO 80301

             (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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K:  /X/

Aggregate market value of voting stock held by non-affiliates: $37,375,954 based
on 13,842,946 shares at June 19, 2001 held by non-affiliates and the closing
price on the Nasdaq SmallCap Market on that date which was $2.70.

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

         21,086,680 common shares were outstanding as of June 19, 2001

                      DOCUMENTS INCORPORATED BY REFERENCE

The information required in response to Part III of Form 10-K is hereby
incorporated by reference to the specified portions of the registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on August 22, 2001.

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<PAGE>
                                   FORM 10-K
               FORM 10-K FOR THE FISCAL YEAR ENDED MARCH 31, 2001
                               TABLE OF CONTENTS

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                                                                          PAGE
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<S>       <C>                                                           <C>
                               PART I.

Item 1.   Business....................................................       3

Item 2.   Properties..................................................      21

Item 3.   Legal Proceedings...........................................      22

Item 4.   Submission of Matters to a Vote of Security Holders.........      23

                               PART II.

Item 5.   Market for Registrant's Common Equity and Related                 23
          Stockholder Matters.........................................

Item 6.   Selected Financial Data.....................................      24

Item 7.   Management's Discussion and Analysis of Financial Condition       24
          and Results of Operations...................................

Item 7A.  Quantitative and Qualitative Disclosures About Market             34
          Risk........................................................

Item 8.   Financial Statements and Supplementary Data.................      35

Item 9.   Changes In and Disagreements With Accountants on Accounting       35
          and Financial Disclosure....................................

                              PART III.

Item 10.  Directors and Executive Officers of the Registrant..........      35

Item 11.  Executive Compensation......................................      35

Item 12.  Security Ownership of Certain Beneficial Owners and               35
          Management..................................................

Item 13.  Certain relationships and Related Transactions..............      35

                               PART IV.

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form       35
          8-K.........................................................

SIGNATURES............................................................      38

Table of Contents to Financial Statements.............................     F-1
</TABLE>

                                       2
<PAGE>
                                    PART I.

ITEM 1.  BUSINESS

     CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE
                    SECURITIES LITIGATION REFORM ACT OF 1995

     THIS ANNUAL REPORT ON FORM 10-K AND THE INFORMATION INCORPORATED BY
REFERENCE MAY INCLUDE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION
27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. THE COMPANY
INTENDS THE FORWARD-LOOKING STATEMENTS TO BE COVERED BY THE SAFE HARBOR
PROVISIONS FOR FORWARD-LOOKING STATEMENTS. ALL STATEMENTS REGARDING THE
COMPANY'S EXPECTED FINANCIAL POSITION AND OPERATING RESULTS, ITS BUSINESS
STRATEGY, ITS FINANCING PLANS AND THE OUTCOME OF ANY CONTINGENCIES ARE FORWARD-
LOOKING STATEMENTS. THE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
SET FORTH OR IMPLIED BY ANY FORWARD LOOKING STATEMENTS. SOME OF THESE RISKS ARE
DETAILED IN PART I, ITEM 1 "RISK FACTORS" AND ELSEWHERE IN THIS FORM 10-K. THE
COMPANY DISCLAIMS ANY OBLIGATION TO UPDATE THE FORWARD-LOOKING STATEMENTS
CONTAINED HEREIN, EXCEPT AS MAY BE OTHERWISE REQUIRED BY LAW.

GENERAL

     New Frontier Media, Inc. ("New Frontier Media" or "the Company") was
originally incorporated in the State of Colorado on February 23, 1988. On
September 15, 1995, the Company, then known as Old Frontier Media, Inc.,
consummated the acquisition of New Frontier Media, Inc. in a stock-for-stock
exchange. The Company first effected a 2,034.66:1 reverse split of all
569,706,000 shares of its common stock then issued and outstanding, resulting in
280,000 shares of Common Stock being issued and outstanding prior to the New
Frontier Media, Inc. acquisition. The Company also approved a change of the
Company's name to New Frontier Media, Inc.

     On February 18, 1998, the Company consummated an underwritten public
offering of 1,500,000 units, each consisting of one share of common stock and
one redeemable common stock purchase warrant, raising $7,087,000 in net proceeds
after underwriting fees (excluding related offering expenses). Simultaneous with
the public offering, New Frontier Media acquired the adult satellite television
assets of Fifth Dimension Communications (Barbados), Inc. and its related
entities ("Fifth Dimension").

     As a result of the Fifth Dimension acquisition, New Frontier Media, through
its wholly owned subsidiary Colorado Satellite Broadcasting, Inc., d/b/a The
Erotic Networks, ("TEN") became a leading provider of adult programming to
low-powered ("C-Band") direct-to-home ("DTH") households through its networks
Extasy, True Blue and X-Cubed (formerly GonzoX). Subsequent to this purchase,
the Company launched three networks targeted specifically to cable television
system operators and high-powered DTH satellite service providers (Direct
Broadcast Satellite or "DBS"): The Erotic Network ("TeN"), Pleasure, and Erotic
Television Clips ("ETC").

     On October 27, 1999, New Frontier Media completed an acquisition of three
related Internet companies: Interactive Gallery, Inc. ("IGallery"), Interactive
Telecom Network, Inc. ("ITN") and Card Transactions, Inc. ("CTI"). Under the
terms of the acquisition, which was accounted for as a pooling of interests, the
Company exchanged 6,000,000 shares of restricted common stock in exchange for
all of the outstanding common stock of IGallery and ITN and 90% of CTI.

     New Frontier Media is organized into two reportable segments:

     * Subscription/Pay-Per-View ("PPV") TV Group -- distributes branded adult
       entertainment programming networks through electronic distribution
       platforms including cable television, C-Band, DBS and Video on Demand
       ("VOD")

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     * Internet Group -- aggregates and resells adult content via the Internet.
       The Internet Group sells content to monthly subscribers as well as to
       various web masters.

     Information concerning revenue and profit attributable to each of the
Company's business segments is found in Part II, Item 7, "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," and
in Part IV, Item 14 of "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS," of this
Form 10-K, which information is incorporated by reference into this Part I,
Item 1.

SUBSCRIPTION/PPV TV GROUP

INDUSTRY OVERVIEW

     New Frontier Media, through its wholly owned subsidiary TEN ("PPV Group"),
is focused on the distribution of adult entertainment programming through
electronic distribution platforms including cable television, C-band, DBS and
VOD. Adult entertainment content distribution has evolved over the past
twenty-five years from home video platforms (video cassette) to cable television
systems and DBS providers, and most recently to the Internet. In the early
1980's, cable television operators began offering subscription and PPV adult
programming from network providers such as Playboy. In the 1990's, adult
programming became widely available with nearly every cable operator and DBS
provider in the U.S. offering subscription or PPV programming. Paul Kagan
Associates ("Kagan"), a leading media research organization, estimates that
adult PPV revenues will gross $544 million in 2001, up 17% from an estimated
$465 million in 2000. Adult PPV movie revenues were 35% of total PPV movie
revenues for Cable/DBS providers in 2000 according to Kagan.

     PPV technology enables cable television operators or satellite providers to
sell a block of programming, an individual movie, or an event for a set fee. PPV
also permits cable television operators or satellite providers to sell the PPV
Group's programming on a monthly, quarterly, semiannual and annual basis. PPV
programming competes well with other forms of entertainment because of its
relatively low price point.

     PPV programming is delivered through any number of delivery methods,
including: (a) cable television; (b) DTH to households with large satellite
dishes receiving a low-power analog or digital signal (C-Band) or DBS services
(such as those currently offered by EchoStar Communications Corporation and
DirecTV); (c) wireless cable systems; and (d) low speed (dial-up) or broadband
Internet connections (i.e., streaming video).

     The PPV Group provides its programming on both a PPV and subscription basis
to home satellite dish viewers through either large satellite dishes receiving a
low-power analog or digital signal (C-Band) or with small dishes receiving a
high-power digital signal (DBS providers). According to General Instrument
Corporation's Access Control Center reports, the U.S. C-band market has declined
from approximately 1.5 million households as of May 2000 to 1.1 million as of
May 2001. Kagan reports that there were approximately 15.8 million DBS
subscribers as of April 30, 2001, up from 12.6 million DBS subscribers a year
ago. Kagan estimates that the DBS market will grow to 24.7 million subscribers
by the year 2005.

     The PPV Group also provides its programming on both a PPV and subscription
basis through large multiple system operators ("MSOs") and their affiliated
cable systems. As of May 2001, the PPV Group maintained distribution
arrangements with seven of the ten largest domestic cable MSOs which control
access to 52.4 million, or 77%, of the total basic cable household market.
According to Kagan, cable MSOs delivered service to 68.4 million basic
households in the United States as of April 30, 2001, up from 67.6 million
households a year ago. In addition, Kagan indicates that total analog cable
(i.e., addressable households which have the capability of receiving PPV or
subscription services) as of April 30, 2001, was provided to 38.2 million
households up from 36 million households a year ago.

     Growth in the PPV market is expected to result in part from cable system
upgrades utilizing fiber-optic, digital compression technologies or other
bandwidth expansion methods that provide cable operators additional channel
capacity. In recent years, cable operators have begun the shift from analog to
digital technology in order to upgrade their cable systems and to respond to
competition

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from DBS providers who offer programming in a 100% digital environment. When
implemented, digital compression technology increases channel capacity, improves
audio and video quality, provides fully secure scrambled signals, allows for
advanced set-top boxes for increased interactivity, and provides for integrated
programming guides. Industry analysts expect a large percentage of the
additional channel capacity in the digital environment to be dedicated to PPV
programming. The timing and extent of these developments and their impact on the
PPV Group cannot yet be determined. The PPV Group expects that many of its
future cable launches will be on a digital platform. Kagan estimates that
digital cable households will grow from 10.1 million households as of December
31, 2000, to 51.7 million by the year 2005.

DESCRIPTION OF NETWORKS

     The PPV Group provides six, 24-hour per day adult programming networks:
TeN: the erotic network, Pleasure, ETC, Extasy, True Blue and X-Cubed. The
following table outlines the current distribution environment for each service:

                                    TABLE 1
                              SUMMARY OF NETWORKS

<TABLE>
<CAPTION>
                                              ESTIMATED ADDRESSABLE HOUSEHOLDS
                                              ---------------------------------
                                                       (IN THOUSANDS)
                                                AS OF       AS OF       AS OF
                                              MARCH 31,   MARCH 31,   MARCH 31,
  NETWORK          DISTRIBUTION METHOD          2001        2000        1999
  -------          -------------------        ---------   ---------   ---------
<S>          <C>                              <C>         <C>         <C>
Pleasure     Cable/DBS                         17,500       4,600         n/a

TeN          Cable/DBS                          5,800       5,300       2,500

ETC          Cable/DBS                          2,400         n/a         n/a

Extasy       C-band/Cable/DBS                   3,200       2,600       1,800

True Blue    C-band                             1,100       2,000       1,800

X-Cubed (1)  C-band                             1,100       1,500       1,800

TOTAL ADDRESSABLE SUBSCRIBERS                  31,100      16,000       7,900
</TABLE>

Note: "n/a" indicates that network was not launched at that time

(1) This network was GonzoX. The network was renamed X-Cubed in May 2001

(2) Extasy, True Blue and X-Cubed addressable household numbers include 1.8
million, 1.5 million and 1.1 million C-Band addressable households for the years
ended March 31, 1999, 2000 and 2001, respectively.

PLEASURE

     On June 1, 1999, the PPV Group launched Pleasure, a 24-hour per day adult
network that incorporates the most edited standard available in the category.
Pleasure is distributed via cable television operators and DBS providers.
Pleasure's programming consists of adult feature-length film and video
productions and is programmed to deliver subscription and PPV households 20
premiere adult movies per month with a total of 125 adult movies per month. As
of March 31, 2001, Pleasure was available to an estimated 17.5 million
addressable multi-channel households, including EchoStar Communications
Corporation's DISH Network ("DISH") and Hughes Electronic Corporation's DirecTV
("DirecTV"). Pleasure offers a favorable and highly competitive revenue split
for a cable television operator or DBS provider. Pleasure was specifically
designed to provide adult content programming to operators that have not yet
embraced a less inhibited adult programming philosophy

                                       5
<PAGE>
and for those operators that wish to use the service to "upsell" subscription or
PPV households to a less edited network such as TeN.

TEN: THE EROTIC NETWORK (TEN)

     On August 15, 1998, the PPV Group launched TeN, a 24-hour per day adult
network that incorporates a partial editing standard targeted to cable
television system operators and DBS providers. The PPV Group has programmed TeN
with feature-length film and video productions that incorporate less editing
than traditional adult premium networks. As of March 31, 2001, TeN was available
on a PPV basis to an estimated 5.8 million addressable multi-channel households.
In addition, TeN is offered on a monthly subscription basis by DISH for a retail
price of $19.99. As of March 31, 2001, TeN had approximately 58,000 monthly DISH
subscribers.

     TeN offers a diverse programming mix with movies and specials that appeal
to a wide variety of tastes and interests. TeN offers subscription and PPV
households 20 premiere adult movies per month and a minimum of 120 total adult
movies per month. TeN was developed to capitalize on the number of cable
operators/ DBS providers now willing to carry partially edited adult network
services and the momentum toward broader market acceptance of partially edited
adult programming by their subscribers. New Frontier Media believes the growing
market acceptance of partially edited programming is due, in large part, to the
higher subscriber buy rates (the theoretical percentage of addressable
households ordering one PPV movie, program or event in a month) achieved for
cable system operators/DBS providers as compared to network programming that
incorporates the most edited adult programming. Since its launch on August 15,
1998, TeN has averaged monthly buy rates of approximately 7% to 15% compared to
the most edited adult network programming (such as Pleasure) which averages
monthly buy rates of approximately 3% to 10%.

EROTIC TELEVISION CLIPS (ETC)

     The PPV Group launched ETC on May 17, 2000, as its newest, partially edited
24-hour per day adult network. ETC's unique formatting provides for thematically
organized 90-minute blocks of programming in order to encourage appointment
viewing by the PPV adult consumer. The PPV Group has organized its partially
edited content library into 60 thematic categories. Through the PPV Group's
proprietary database technology, approximately eight scenes are organized
thematically and programmed into one 90-minute block. ETC delivers 240 unique
thematic blocks with over 500 different adult film scenes during a typical
month. ETC is distributed via cable system operators and DBS providers on a PPV
and subscription basis. As of March 31, 2001, ETC was available to 2.4 million
addressable multi-channel households.

EXTASY

     Extasy was acquired from Fifth Dimension on February 18, 1998. Extasy's
programming consists of feature-length adult film and video productions and is
programmed with 20 premieres per month and a total of 135 adult movies per
month. Extasy's editing standard is least edited, which is similar to the
editing standard employed in the home video markets. The network offers a
diverse programming mix with movies and specials that appeal to a wide variety
of tastes and interests. Extasy is the Company's least edited programming
service available to multi-channel households and is distributed via C-band DTH,
Cable and DBS. Extasy is available on a PPV basis as well as on a monthly,
quarterly, semiannual and annual subscription basis. As of March 31, 2001,
Extasy had 48,099 active C-Band subscriptions compared to 59,910 at March 31,
2000. In addition, Extasy was available to 2.1 million Cable/DBS addressable
households as of March 31, 2001.

TRUE BLUE

     True Blue was acquired from Fifth Dimension on February 18, 1998. True Blue
incorporates the same editing standard as Extasy and is programmed with adult
movies that feature amateur talent, compilations, and other adult programming
genres. True Blue is programmed to deliver 80 adult

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movies per month. As of March 31, 2001, True Blue had 46,606 active C-Band
subscriptions compared to 56,210 at March 31, 2000. True Blue is available on a
PPV basis as well as on a monthly, quarterly, semiannual and annual subscription
basis.

X-CUBED

     X-Cubed (formerly GonzoX) was acquired from Fifth Dimension on February 18,
1998. X-Cubed incorporates the same editing standard as Extasy and is programmed
to deliver gonzo or "first person" perspective styled, amateur and foreign adult
feature films. X-Cubed is programmed to deliver 95 adult features per month.
X-Cubed is presently only distributed via the C-band DTH market. As of March 31,
2001, X-Cubed had 39,815 active C-Band subscriptions compared to 50,426 at March
31, 2000. X-Cubed is available on a PPV basis as well as on a monthly,
quarterly, semiannual and annual subscription basis.

SATELLITE TRANSMISSION

     The PPV Group delivers its video programming via satellite transmission.
Satellite delivery of video programming is accomplished as follows:

     Video programming is played directly from the PPV Group's Boulder, Colorado
based digital broadcast center. The program signal is then scrambled (encrypted)
so that the signal is unintelligible unless it is passed through the proper
decoding devices. The signal is transmitted (uplinked) by an earth station to a
designated transponder on a communications satellite. The transponder receives
the program signal uplinked by the earth station, amplifies the program signal
and broadcasts (downlinks) it to satellite dishes located within the satellite's
area of signal coverage. The signal coverage of the domestic satellite used by
New Frontier Media is the continental United States, Hawaii, Alaska, portions of
the Caribbean, Mexico, and Canada. Each analog transponder can retransmit one
complete analog color television video signal and two digital television video
signals, together with associated audio and data edgebands.

     Programming is received by C-Band subscribers, cable operators and DBS
providers. This programming is received in the form of a scrambled signal. In
order for subscribers to receive the programming the signal must be unscrambled.

     C-Band subscribers purchase programming directly from the Group or its
distributors. The satellite receivers of C-Band subscribers contain unscrambling
equipment that may be authorized to unscramble the PPV Group's satellite
services. Each set top box or satellite receiver has a unique electronic
"address". This "address" is activated for the requisite services purchased from
either the PPV Group or its distributors.

     Cable system operators or DBS providers receive their programming in the
same manner as a C-Band subscriber. These multichannel distributors in turn,
provide the received programming to their captive subscriber audience. The
equipment utilized by cable operators and DBS providers is similar to that
utilized by C-Band subscribers but manufactured to an industrial grade
specification. The cable system operators and DBS providers are able to remotely
control each subscriber's set-top box or satellite receiver on their network,
and cause it to unscramble the television signal for a specific period of time
after the subscriber has made a purchase of a premium service or PPV movie or
event.

TRANSPONDER AGREEMENTS

     New Frontier Media maintains satellite transponder sub-lease agreements for
four full-time analog transponders with Fifth Dimension on Loral Skynet's
Telstar 4 satellite. These transponders provide the satellite transmission
necessary to broadcast each of the Subscription/PPV TV Group's six adult
networks. By employing General Instrument Corporation's ("GI") DigiCipher II
Edgeband technology the Group is able to transmit its Pleasure, TeN and ETC
networks over the same satellite transponders as are used for Extasy, X-Cubed,
True Blue and its 24-hour promotional C-Band channel ("Barker"). GI's Edgeband
System permits multiple services to be carried over an existing satellite
transponder by adding a multiplex of MPEG-2 compressed programs at the band edge
of the transponder. These services can be received and decoded at the cable or
DBS headend and carried as

                                       7
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an analog cable service or be re-multiplexed in digital form for carriage as
part of a digital multiplex. Through the use of Edgeband technology, the Company
did not incur any additional cash outlays for transponder space as it added
Pleasure, TeN and ETC to its family of networks. The Company was the first
programmer to utilize this Edgeband technology developed by GI.

     In April 2000, the PPV Group signed a multi-year agreement with iN DEMAND
L.L.C. ("iN DEMAND") for carriage of its Pleasure network. As a result of the
contract, Pleasure is available to cable operators representing over 2.7 million
digital households across the country. iN DEMAND carries Pleasure on Telstar 7,
transponder 4. iN DEMAND is the nation's leading pay-per-view network, offering
titles from all of the major Hollywood and independent studios, plus sports,
subscription sports packages and entertainment events through its 60-channel
digital pay-per-view multiplex service. iN DEMAND serves over 1,900 affiliated
systems with approximately 28 million addressable households nationwide. iN
Demand's four shareholders include AT&T Broadband, LLC, Time Warner
Entertainment Advance/Newhouse Partnership, Comcast Programming Ventures, Inc.,
and Cox Communications, Inc.

DIGITAL BROADCAST CENTER

     New Frontier Media is the only adult entertainment company to internally
manage, broadcast, and distribute its own content. The Company has
differentiated itself by developing broadcast and broadband distribution
capabilities to fully control and exploit its large content library across
various platforms. The PPV Group acquired the necessary broadcast technologies
and support services, as well as internally developed its own media asset
management systems, for the distribution of video-based content to cable and DBS
providers.

     In April 1999, the PPV Group completed Phase One of its Digital Broadcast
Center in Boulder, Colorado, which allowed for the direct-to-broadcast playout
of TeN, Pleasure and its C-Band Barker channel. Phase Two of this center was
completed in January 2000. The Phase Two additions allowed the PPV Group to
bring the direct-to-broadcast playout of Extasy, True Blue and X-Cubed in-house
to its Boulder facility from Ottawa, Canada where it was being outsourced to
Fifth Dimension. Currently, the Boulder facility broadcasts 7 channels to
cable/DBS systems and direct-to-home C-band subscribers.

     Phase Two also added the capacity to broadcast a total of 12 channels,
allowing for 5 additional services. Broadcast of all media to air is now
accomplished utilizing the latest state-of-the-art technology solutions, which
includes: playlist automation for all channels; SeaChange MPEG 2 encoding and
playout to air and MPEG 1 encoding for internet and broadband use; archiving
capability on DLT data cartridges pushing and pulling the data through a
StorageTek jukebox; and complete integration of the media asset management
database to create automated playlists. The PPV Group has secured a license to
allow an 18ghz microwave transmission path to deliver a fully redundant
multiplexed signal of all 7 channels as a back-up to its uplinking vendor,
Williams Communication Vyvx Services ("Vyvx").

     The technology team that manages the broadcast center also oversees the PPV
Group's media asset management needs. As a result of developing its own
technological backbone, the Subscription/ PPV TV Group also developed its own
core proprietary asset management systems. These systems are supplemented with
other third party software programs to catalog, monitor, and exploit its
content.

NETWORK PROGRAMMING

     The Subscription/PPV TV Group contracts with Pegasus Programming
("Pegasus") in California to screen, edit, and program content for its networks.
The PPV Group acquires 100% of its feature-length broadcast programming for each
network by licensing the exclusive and non-exclusive rights from various third
party studios and independent producers within the industry. New Frontier Media
does not produce any of its own adult movie content for its networks. The PPV
Group works with fifteen studios on an exclusive content basis. In addition, the
PPV Group also licenses content on a non-exclusive basis from at least fifty
other independent and private content companies.

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     In most cases, New Frontier Media pays approximately $6,000 to $10,000 for
a Premiere and $500 for a title that has previously been exhibited via satellite
broadcast ("Encore") for exclusive/ nonexclusive broadcast, Internet and/or VOD
rights in the United States for a specified period of time (usually one to five
years). The PPV Group acquires approximately 80 new titles per month. Once the
PPV Group receives a title, a rigorous quality control process is completed
prior to playing to air to ensure compliance with the strict broadcasting
standards the PPV Group uses for its adult content.

     In February 1999, New Frontier Media licensed all of the broadcast and
electronic distribution rights to approximately 4,000 adult films under a
Content License Agreement with Pleasure Productions (see "Legal Proceedings").
In July 1999, the Company acquired the rights to Metro Global Media, Inc.'s
("Metro") 3,000 title adult film and video library and multi-million still image
archive in exchange for 500,000 shares of its common stock at $7.875 per share
and 100,000 warrants to purchase its common stock at an exercise price equal to
the market value of the stock on the date the warrants were issued. The Company
believes that as a result of these acquisitions it is one of the largest owners
of adult video content in the world.

CALL CENTER SERVICE

     Following the Fifth Dimension acquisition, New Frontier Media contracted
with TurnerVision, Inc. to provide its call center services. In August 1999, the
Subscription/PPV TV Group moved its call center functions in-house to its
Boulder, Colorado facility. The PPV Group's call center receives incoming calls
from customers wishing to order C-Band network programming, or having questions
about their C-Band service or billing. The call center is accessible from
anywhere in the U.S. or Canada via toll-free numbers. Its workstations are
equipped with a networked computer, Company-owned proprietary order processing
software, and telephone equipment. These components are tied into a computer
telephony integrated switch which routes incoming calls and enables orders to be
processed and subscriber information to be updated "on-line."

     The PPV Group's call center is operational 24-hours per day, seven days a
week, and is staffed according to call traffic patterns, which take into account
time of day, day of the week, seasonal variances, holidays, and special
promotions. Customers pay for their order with credit cards and electronic
checks, which are authorized and charged before the order is sent electronically
to GI's Access Control Center in San Diego, California for processing. GI
receives the subscriber order and the subscriber's identification information,
and sends a signal to the appropriate satellite, which "unlocks" the service
ordered for the applicable period of time.

MARKETING

     The Subscription/PPV TV Group markets its C-band networks primarily through
an open-air, 24-hour Barker channel which promotes the programming featured on
the three C-Band networks. This channel uses edited movie clips and interstitial
programming to entice viewers who are "channel surfing" to subscribe to one of
the PPV Group's C-Band channels (periodic subscription), or to purchase the PPV
Group's programming on a PPV basis. To a lesser extent, the Subscription/PPV TV
Group advertises in print publications such as satellite channel guides. The PPV
Group also markets its programming directly to satellite program packagers or
distributors, through direct marketing campaigns, face-to-face meetings, trade
shows and industry gatherings.

     The Group's marketing department has developed numerous programs and
promotions to support its cable/DBS networks. These include the development of
detailed monthly program guides, promotional pieces, and cross channel
interstitial programming for use on a cable or DBS systems' barker channel. The
Subscription/PPV TV Group also maintains a sales force of five full-time
employees to promote and sell carriage of its programming on cable television,
DBS and alternative platform systems.

     The Group's promotions department creates interstitial programming for use
on its networks between each movie to promote and market additional movies
premiering in the current month, movies premiering in the following month,
behind-the-scenes segments of its movies, and star and

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<PAGE>
director profiles. This interstitial programming encourages appointment viewing
of its networks by cable/DBS consumers.

     Representatives of the Subscription/PPV TV Group attend at least three to
four major industry trade shows per year, including the National Cable
Television Association (NCTA) shows (Western and National) and the Cable
Television Advertising and Marketing (CTAM) and DBS Summits. The Group no longer
exhibits at trade shows, preferring, instead, to focus its sales and marketing
efforts on more targeted meetings with cable and DBS affiliates.

     The Subscription/PPV TV Group engaged an outside advertising firm in March
2000 to assist it in branding its networks to the cable/DBS markets as well as
to the consumer. This agency developed network identities, established branding
methods, positioned the networks in trade and consumer magazines, and increased
the overall consistency of presentation and visibility of the PPV Group's
networks to the trades and the public. The PPV Group has rebranded its family of
networks as The Erotic Networks through this effort.

COMPETITION

     New Frontier Media principally competes with Playboy Enterprises, Inc.
("Playboy") in the subscription and PPV markets. Playboy has significantly
greater financial, sales, marketing and other resources to devote to the
development, promotion and sale of its cable programming products, as well as a
longer operating history and broader name recognition than New Frontier Media.
Playboy's size and market position makes it a more formidable competitor than if
it did not have the resources and name recognition that it has. New Frontier
Media competes directly with Playboy in editing standards of its programming,
network performance in terms of subscriber buy rates and the license fees that
New Frontier Media offers to cable and DBS providers. However, New Frontier
Media cannot and does not compete with Playboy in the area of money spent on
promoting its products. New Frontier Media believes that the quality and variety
of its programming, as well as the attractive revenue splits and subscriber buy
rates for the Company's programming, are the critical factors which will
influence cable operators and DBS providers to choose its programming over
Playboy's.

     The Company competes with other adult networks in the multi-channel and PPV
markets including Califa Entertainment (The Hot Network). The Company also faces
general competition from other forms of non-adult entertainment, including
sporting and cultural events, other television networks, feature films, and
other programming. In addition, the Company will face competition in the adult
entertainment arena from other providers of adult programming, adult video
rentals and sales, newspaper and magazines aimed at adult consumers, telephone
adult chat lines, and adult-oriented Internet services.

CUSTOMER CONCENTRATION

     New Frontier Media derived 19% of its total revenue for the year ended
March 31, 2001 from DISH for its TeN, Pleasure, ETC, and Extasy PPV and
subscription services.

GOVERNMENT REGULATION

     In 1996, the United States Congress passed the Telecommunications Act of
1996 ("the Act"), a comprehensive overhaul of the Federal Communication Act of
1934. Section 641 of the Act requires full audio and video scrambling of
channels which are primarily dedicated to "sexually explicit" programming. If a
multi-channel video programming distributor, including a cable television
operator, cannot comply with the full scrambling requirement, then the channel
must be blocked during the hours when children are likely to be watching
television, i.e., from 6:00 a.m. to 10:00 p.m. Programming providers offering
the most edited adult services (such as Pleasure) and programming providers
offering partially-edited adult services (such as TeN), feature "sexually
explicit" programming as contemplated by Section 641 of the Act. Although all
adult programming companies fully scramble their signals for security purposes,
several cable television MSOs lack the technical capability to fully scramble
the audio portion of the signal. These cable systems are required to block adult
broadcasts between 6:00 a.m. and 10:00 p.m. Section 641 of the Act affects New
Frontier Media

                                       10
<PAGE>
to the extent its programming is offered by cable television MSOs without such
technical scrambling ability.

     In February 1996, the leading adult network providers challenged Section
505 of the Act which, among other things, regulates the cable transmission of
adult programming such as New Frontier Media's domestic pay television networks.
Enforcement of Section 505 of the Act commenced May 18, 1997. The case was heard
by the United States District Court in Wilmington, Delaware (the "Delaware
District Court") in March 1998. In December 1998, the Delaware District Court
unanimously declared Section 505 of the Act unconstitutional. The defendants
appealed this judgement and the Supreme Court heard the appeal on November 30,
1999.

     On May 23, 2000 the Supreme Court ruled that Section 505 of the Act was
unconstitutional. By a vote of 5-4 the Supreme Court ruled that the 1996 federal
law was too broad and violated constitutional First Amendment free speech
rights. The Court ruled that the federal government failed to prove the law was
the least restrictive means of addressing the problem. The Court referred to an
alternative in the law that requires cable operators to block any channel, free
of charge, only if a customer requests it.

     New Frontier Media began offering adult programming to cable system
operators in February 1998, which is after the May 18, 1997 date that
enforcement of Section 505 of the Act commenced. Our business has not been
adversely affected by these regulations because we have never had the
opportunity, or prior history, of selling our programming under any other
regulatory structure.

INTERNET GROUP

     During the fiscal year ended March 31, 2001, the Company combined
Interactive Telecom Network, Inc. (known as the Internet Service Provider in the
Form 10-KSB filing for fiscal year 2000), Interactive Gallery, Inc. (known as
the Internet Content Provider Group in the Form 10-KSB filing for fiscal year
2000), and Card Transactions, Inc. (previously the Payment Service Provider
Group) into one reporting segment called the Internet Group. This combination
was necessary to reflect the change that New Frontier Media made during the year
to focus the Internet Service Provider and Payment Service Provider Groups
primarily on the support of the Internet Content Provider Group's operations.
The Company no longer intends to actively market the Internet Service Provider
and Payment Service Provider Groups to third parties as separate businesses.

INDUSTRY OVERVIEW

     Ipsos-Reid, a marketing research firm, estimates that the Internet user
population grew by 13% year-over-year, putting the global Internet population at
approximately 350 million adults at December 31, 2000. Mediamark, another
marketing research firm, estimates that 101 million adults in the United States
accessed the Internet during a recent 30-day period. According to Datamonitor,
consumer spending in the adult Internet industry generated approximately $1.0
billion in sales in 1999, and is expected to generate $3.12 billion by 2003. In
addition, Datamonitor estimates that adult entertainment accounts for the
majority of spending for online content (including subscription and
pay-on-demand services).

     In the early stages of the Internet, it was clear there was a great deal of
unmet consumer demand for adult entertainment and it was relatively easy for
operators to open up an adult storefront. With few hurdles to overcome online,
including city licensing, leasing, taxes, and objecting neighbors, many new
independent adult web sites were born, creating a highly fragmented environment.
As more and more competition emerged, operators were determined to create ways
in which to distinguish themselves. They developed more distinctive products and
methods of organizing content, and they developed technologies to improve
ease-of-use and increased speeds of content delivery. With more independent
operators opening up shop, reselling content and providing outsourced services
became the means by which some of the more innovative and sophisticated
operators could grow their businesses. This allowed for the evolution of a
business-to-business market in addition to the large business-to-consumer
market.

                                       11
<PAGE>
     Today, the segment of the adult Internet industry in which the Internet
Group competes is primarily comprised of approximately ten large companies, of
which only one is part of a publicly traded company - IGallery. Over the last 10
years, companies like IGallery have been able to establish themselves as leaders
in the adult Internet industry by implementing programs that create traffic flow
between their own web sites and thousands of adult webmaster sites. Those adult
webmasters, in turn, generate traffic from various other sources including
search engines, "vanity" domain names (i.e. nude.com) and opt-in email programs.

     Currently, the Internet Group's sites generate more than 2.5 million visits
per day. According to Media Metrix, several of the Internet Group's adult web
sites are included among the top 25 adult destinations on the Internet.

BUSINESS TO CONSUMER: MEMBERSHIP SITES

     The Internet Group designs, creates and implements membership-based web
sites for the adult Internet consumer market. The Internet Group currently owns
and operates more than 40 consumer web sites in addition to 1,300 vanity adult
domains. These web sites have been developed to convert web surfers into
subscribers through various subscription models. Recurring monthly subscription
rates range from $19.95 to $34.95. The Internet Group also offers consumers the
ability to view its web sites on a trial basis, generally one to five days, for
special rates ranging from free trials to $5.97.

     The Internet Group generates traffic to its web sites through three primary
sources. The first, "type-in" traffic, is generated when a consumer types the
name of one of the Internet Group's web sites or one of its 1,300 domain names
into their browser address bar. There is no cost to the Internet Group when
traffic comes to its web sites in this manner.

     The second way in which traffic is generated is through the Internet
Group's affiliate marketing programs utilizing banner ads, hypertext, or graphic
links. The marketing programs compensate an affiliated webmaster for a referred
visitor if the visitor becomes a member to one of the Internet Group's web
sites. These referral payments currently range from $40 - $45 per active member
obtained.

     The third, search engine traffic, is generated from listings of the
Internet Group's web sites in search engines and directories. The Internet Group
uses discreet and proprietary technology to position (optimize) its web sites
within a search engine's results page so that visitors using the search engine
to look for certain types of content have a higher chance of finding what they
want.

     In combination, these three methods generate over 2.5 million visits each
day to the Internet Group's business-to-consumer and business-to-business sites,
or over 75 million visits per month.

BUSINESS TO BUSINESS: CONTENT AND TRAFFIC SALES

     Content Sales: The Internet Group is one of the leading licensors of adult
content on the Internet, and currently markets its content to a database of over
20,000 webmasters. The Internet and PPV Groups have licensed thousands of hours
of adult content and over 500,000 still images from various adult studios, all
of which have been organized thematically and, if necessary, digitized for
Internet distribution. In addition, the Internet Group has exclusive rights to
four live streaming video feeds and produces several monthly online adult
publications. The Internet Group, in addition to using this content within its
own web sites, sublicenses this content to webmasters through its business-
to-business programs either on a flat-rate monthly basis or based on bandwidth
usage.

     Traffic Sales: The Internet Group has developed a significant source of
revenue by selling traffic from its own web sites to other adult web sites.
Since every visitor to the Internet Group's web sites does not necessarily
purchase a membership, the Internet Group maximizes its return on traffic by
pushing these exiting non-member visitors to other adult web sites. In doing so,
it is able to generate revenue from affiliate webmaster programs on a revenue
sharing basis. While the revenue from the sale of traffic does not have the
potential to generate long-term recurring revenue like the Group's membership
revenue, it also does not have the credit and working capital issues associated
with membership revenue.

                                       12
<PAGE>
MARKETING

     The Internet Group's affiliate marketing programs are incentive-based
traffic generation programs that compensate affiliated webmasters for traffic
referrals. A webmaster is compensated when a referred visitor becomes a member
to one of the Internet Group's web sites, at an average payout of $40 - $45 per
active member. The Internet Group markets these programs to its database of over
20,000 webmasters using its own internal sales team.

     The Internet Group provides incentives to webmasters to collect user's
e-mail addresses for a pay-per-address fee of up to 60 cents each. The Internet
Group has amassed over 2.5 million opt-in email addresses to which the Group
targets daily newsletters promoting its web sites and/or web sites and products
of its webmaster affiliates.

     The Internet Group markets to webmasters via advertisements in trade
magazines and on-line banner advertisements. In addition, representatives of the
Internet Group exhibit at industry trade shows specific to the Internet and the
adult industry.

INTERNET SERVICE PROVIDER FACILITY

     The Internet Group has its own in-house Internet service provider ("ISP")
facility in Sherman Oaks, California which provides for all of its data center,
hosting and co-location needs. The ISP occupies approximately 6,000 square feet
and is currently being built-out to allow for additional expansion space,
extended HVAC supply, and state-of-the art fire suppression and back-up
generator units.

     The ISP has two OC3 and three DS3 connections to the Internet. Bandwidth
providers, allowing for full redundancy, currently include Worldcom, PacBell,
and Global Crossing. The ISP currently has capacity through-rate of 445 Megabits
per second.

     The ISP utilizes its expertise across multiple platforms using leading
networking hardware, high-end web and database servers, and computer software to
more effectively address the Internet Group's diverse systems and network
integration needs. The ISP principally services the Internet Group, but also
provides some vendor services to a small group of third party adult companies.

     The ISP lends strong technology support and operational control to the
Internet Group's operations. As a result of the near-captive status of its ISP,
the Internet Group is able to remain at the leading edge of Internet technology.
In addition, an in-house ISP allows New Frontier Media to be uniquely positioned
for the coming convergence between the Internet and other distribution
platforms.

E-COMMERCE BILLING

     Historically, credit card purchases, primarily through VISA and MasterCard,
have been face-to-face paper transactions. This has evolved into face-to-face
swipe transactions with the advent of point-of-sale terminals and a magnetic
stripe on the back of the card storing the cardholder's information. The credit
card system, however, was never designed for non face-to-face transactions such
as those that occur on the Internet.

     Because the credit card system was not designed for non face-to-face
transactions, it is understandable that most fraud originates in this area. The
credit card networks were not engineered to verify a valid card in a "card not
present" environment such as the Internet.

     The card associations, instead of investing in modifications of its legacy
networks necessary to operate in this changing environment, have combated fraud
in "card not present" environments by charging high chargeback fees and
penalties to merchants and banks. In the past two years the number of banking
relationships available for merchant banking has dropped, the cost of
chargebacks has increased, and the acceptable level allowed for chargeback rates
has also been dramatically reduced. Third party processors that accept adult
Internet business is limited, and those that do process for adult businesses
have capitalized on this opportunity by charging discount rates in excess of
10%.

                                       13
<PAGE>
     The Internet Group maintains a level of in-house expertise that few other
Internet companies possess in order to ensure its continued ability to process
credit cards for its membership web sites. The current billing department
infrastructure of the Internet Group is based on more than ten years of online
credit card processing experience and utilizes secure Internet commerce
technologies. The Internet Group's e-commerce billing department specializes in
fraud prevention, global payment processing and billing management services,
including customer service. The department develops effective and sophisticated
fraud control techniques, customer profiling, and risk-scoring technologies used
in credit card processing for the Internet Group.

     The Internet Group has developed a payment gateway called Card.com.
Card.com is designed to provide a full range of secure, fully automated credit
card payment processing technologies including fraud control, authorization and
credit card settlement, real time transaction searching, and reporting for
monitoring business transactions over the Internet. The Internet Group is an
Independent Sales Organization and Member Service Provider with a leading
e-commerce merchant bank in the United States. This status provides a level of
stability in maintaining its credit card processing status that many adult
Internet companies do not possess. Currently, the Internet Group has merchant
banking relationships in the United States, Caribbean and Europe.

COMPETITION

     The adult Internet industry is highly competitive. The leading companies
are constantly vying for more members while also seeking to hold down member
acquisition costs paid to webmasters. Increased tightening of chargebacks by
credit card companies has reduced membership sales and further intensified this
already competitive environment.

     Because the barrier to entry has become substantial, the adult Internet
market is dominated by a short list of companies. All of the major adult
Internet competitors of the Company are privately held, though many have created
alliances with various publicly traded companies. Companies such as Cyber
Entertainment Network and VS Media have joint-venture websites with Private
Media Group (NASDAQ: PRVT). Rick's Cabaret International (NASDAQ: RICK) acquired
several membership websites from Voice Media, a leading adult Internet company.
In addition, companies such as Python Communications, a privately-held adult
Internet content provider and membership website company, have acquired smaller
adult properties in their attempt to expand their base of business via
acquisition. Other larger competitors of the Internet Group include RJB Telcom,
Python Video, Web Power, and Vivid Video.

EMPLOYEES

     As of the date of this report, New Frontier Media and its subsidiaries had
180 employees. New Frontier Media employees are not members of a union, and New
Frontier Media has never suffered a work stoppage. The Company believes that it
maintains a good relationship with its employees.

EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of New Frontier Media are as follows:

<TABLE>
<CAPTION>
                NAME                     AGE                           POSITION
                ----                     ---                           --------
<S>                                    <C>       <C>
Mark H. Kreloff......................     39     Chairman of the Board and Chief Executive Officer,
                                                 New Frontier Media, Inc.

Michael Weiner.......................     59     Executive Vice President, Secretary, Treasurer and
                                                 Director, New Frontier Media, Inc.

Karyn L. Miller......................     35     Chief Financial Officer, New Frontier Media, Inc.
</TABLE>

                                       14
<PAGE>

<TABLE>
<CAPTION>
                NAME                     AGE                           POSITION
                ----                     ---                           --------
<S>                                    <C>       <C>
Edward J. Bonn.                           49     Director, New Frontier Media, Inc.

Bradley Weber........................     41     Director, New Frontier Media, Inc. and Vice President
                                                 of Technology, Interactive Gallery, Inc.

Tom Nyiri............................     38     Senior Vice President of Technology, New Frontier
                                                 Media, Inc.

Ken Boenish..........................     34     President, The Erotic Networks, Inc.

Scott Schalin........................     34     President, Interactive Gallery, Inc.

Gregory Dumas........................     35     Vice President/Corporate Development, New Frontier
                                                 Media, Inc.

Jerry Howard.........................     62     Senior Vice President of Finance, Interactive
                                                 Gallery, Inc.
</TABLE>


     MARK H. KRELOFF. Mr. Kreloff has held the title Chairman and Chief
Executive Officer of New Frontier Media, Inc. since the Company's inception in
September, 1995. Mr. Kreloff has been actively involved in the cable television
industry since 1977. Prior to founding the Company, Mr. Kreloff held the title
Vice President, Mergers and Acquisitions, with Kidder Peabody & Co. and Drexel
Burnham Lambert. From 1983 through 1986, Mr. Kreloff was employed by Butcher &
Singer, Inc., a Philadelphia-based investment bank, in a variety of departments
including the Cable Television and Broadcast Media Group. From 1977 through
1983, Mr. Kreloff held a variety of positions, including Marketing Director, in
his family's cable television system based in New Jersey. Mr. Kreloff is an
honors graduate of Syracuse University and holds B.S. degrees in Finance and
Public Communications.

     MICHAEL WEINER. Mr. Weiner has been Executive Vice President and a director
of New Frontier Media, Inc. since the Company's inception. His background
includes 20 years in real estate development and syndication. Prior to founding
the Company, Mr. Weiner was actively involved as a principal and director in a
variety of publishing businesses, including a fine art poster company.

     KARYN L. MILLER. Ms. Miller joined New Frontier Media in February 1999 as
Chief Financial Officer. She began her career at Ernst & Young in Atlanta,
Georgia and brings twelve years of accounting and finance experience to the
Company. Prior to joining the Company, Ms. Miller was the Corporate Controller
for Airbase Services, Inc. a leading aircraft repair and maintenance company.
Previous to that she was the Finance Director for Community Medical Services
Organization and Controller for Summit Medical Group, P.L.L.C. Before joining
Summit Medical Group, P.L.L.C., Ms. Miller was a Treasury Analyst at Clayton
Homes, Inc., a $1 billion company traded on the NYSE. Ms. Miller graduated with
Honors with both a Bachelors of Science degree and a Masters in Accounting from
the University of Florida and is a licensed CPA in the state of Colorado.

     EDWARD J. BONN. Mr. Bonn held the title of President of New Frontier Media
from August 2000 to June 2001 and has been a director of the Company since
October 1999 when the Company acquired IGI, ITN and CTI. He is the founder and
former CEO of ITN and CTI. Prior to that, Mr. Bonn was Chairman of the Board of
Independent Entertainment Group, a California-based, publicly traded, service
bureau and information provider. He was also a founder and President of ICOM
Group, Inc., an audio text service bureau that specialized in automated credit
card processing and fraud control procedures, and is the founder and President
of Response Telemedia, Inc., a privately held company offering a variety of
800/900 information and entertainment. Mr. Bonn attended the University of
Oregon from 1969-1972 with a focus in International Studies and attended
business and accounting classes at UCLA from 1980-1982.

     BRADLEY WEBER. Mr. Weber oversees the technology operations of the
Company's Internet Group. He has been a director of New Frontier Media since
October 1999 when he became affiliated with the

                                       15

<PAGE>
Company through the Company's acquisition of IGI, ITN, and CTI. Mr. Weber joined
ITN in 1995 as Executive Vice President and became Chief Operating Officer in
January 1998. Mr. Weber was formerly Director of Interactive Audiotext Services,
Inc., an audio text service bureau and information provider. He was also a
founder and CEO of the ICOM Group, Inc., an audio text service bureau that
specialized in automated credit card processing and fraud control procedures.
Mr. Weber received his undergraduate degree in Economics at Occidental College
and received his Masters in Business Administration from California Lutheran
University.

     THOMAS W. NYIRI. Mr. Nyiri was appointed Senior Vice President of
Technology for New Frontier Media in June 2001. In addition, Mr. Nyiri oversees
the Group's broadcast and technology operations in Boulder, Colorado. Mr. Nyiri
has held various positions with Colorado Satellite Broadcasting since joining
the Group in 1997. Prior to his employment with Colorado Satellite Broadcasting,
Mr. Nyiri spent four years developing consumer e-commerce applications for the
Internet. He was a founder of Virtual Dreams, the first recognized adult
Internet service, and is considered a pioneer of several Internet consumer
interactive services. Mr. Nyiri has been featured in several prominent
publications including Forbes, Wired, and Time Digital.

     KEN BOENISH. Mr. Boenish is a 12-year veteran of the cable television
industry. In October 2000, he was named President of Colorado Satellite
Broadcasting. Mr. Boenish joined Colorado Satellite Broadcasting as the Senior
Vice President of Affiliate Sales in February 1999. Prior to joining the
Company, Mr. Boenish, was employed by Jones Intercable from 1994 - 1999. While
at Jones he held the positions of National Sales Manager for Superaudio, a cable
radio service serving more than 9 million cable customers. He was promoted to
Director of Sales for Great American Country a new country music video service
in 1997. While at Great American Country Mr. Boenish was responsible for adding
more than 5 million new customers to the service while competing directly with
Country Music Television, a CBS cable network. From 1988 - 1994 he sold cable
television advertising on systems owned by Time Warner, TCI, COX, Jones, Comcast
and other cable systems. Mr. Boenish holds a B.S. degree in Marketing from St.
Cloud State University.

     SCOTT SCHALIN. In March 2001, Mr. Schalin was named President of IGallery.
He joined IGallery in June 1996 as Creative Director and a year later was
promoted to Chief Operating Officer while still maintaining Creative Directorial
duties. Prior to joining IGallery, Mr. Schalin was recruited by Internet
Entertainment Group to help launch its flagship website, which quickly became
one of the most popular websites in the world. Mr. Schalin began his career in
broadcasting working for Stephen J. Cannell Productions as a Production
Coordinator for the television show, 21 Jump Street. Mr. Schalin later worked as
a freelance writer and editor for such publications as SPIN, Billboard Request
and Music Connection magazines, and was an editor for Hustler Magazine at Larry
Flynt Publications, Inc. ("LFP"). While working at LFP, Mr. Schalin helped to
launch several successful magazines, including Barely Legal, and was promoted to
Executive Editor of Chic magazine. Mr. Schalin attended California State
University Northridge and has a B.A. in Journalism.

     GREGORY DUMAS. In March 2001, Mr. Dumas was promoted to Vice President of
Corporate Development for New Frontier Media. Mr. Dumas served as President of
IGI since its formation in 1996. Prior to IGI, Mr. Dumas served as the Vice
President of Marketing for LFP. During Mr. Dumas' tenure at LFP, the flagship
title Hustler was launched on the Internet as Hustler Online. Mr. Dumas later
joined Internet Entertainment Group as its Director of Sales and Marketing and
was integral in the launch of its principal website. Mr. Dumas has earned a B.A.
in English and History from Idaho State University and a M.A. in Organizational
Management from University of Phoenix.

     JERRY HOWARD. Mr. Howard has over 35 years of accounting and finance
experience. He joined ITN in 1994 and took over the financial duties for IGI and
CTI as those groups were formed. Prior to joining ITN, Mr. Howard held various
financial and accounting positions, including seven years with Arthur Young and
Company, 14 years with Sprint, and four years as founder, president and CEO of
Quintessential Solutions, Inc., a leading decision support software maker. Mr.
Howard holds a B.S. degree in Business Administration from Drake University and
is a CPA.

                                       16
<PAGE>
     No director or executive officer of the Company is related to any other
director or executive officer. None of the Company's officers or directors hold
any directorships in any other public company.

                                  RISK FACTORS

     THIS REPORT AND THE DOCUMENTS INCORPORATED IN THIS REPORT BY REFERENCE MAY
CONTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. THESE FORWARD-LOOKING
STATEMENTS ARE BASED ON CURRENT EXPECTATIONS, ESTIMATES AND PROJECTIONS ABOUT
OUR INDUSTRY, MANAGEMENT'S BELIEFS AND ASSUMPTIONS MADE BY MANAGEMENT. WORDS
SUCH AS "ANTICIPATES," "EXPECTS," "INTENDS," "PLANS," "BELIEVES," "SEEKS,"
"ESTIMATES," VARIATIONS OF SUCH WORDS AND SIMILAR EXPRESSIONS ARE INTENDED TO
IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THESE STATEMENTS ARE NOT GUARANTEES OF
FUTURE PERFORMANCE AND ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND
ASSUMPTIONS THAT ARE DIFFICULT TO PREDICT.

     ACCORDINGLY, ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR
FORECASTED IN ANY SUCH FORWARD-LOOKING STATEMENTS. SUCH RISKS AND UNCERTAINTIES
INCLUDE THOSE RISK FACTORS AND SUCH OTHER UNCERTAINTIES NOTED IN THE PROSPECTUS
AND IN THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE. NEW FRONTIER MEDIA
ASSUMES NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS, WHETHER
AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.

LIMITS ON OUR ACCESS TO DISTRIBUTION CHANNELS COULD CAUSE US TO LOSE SUBSCRIBER
REVENUES AND ADVERSELY AFFECT OUR OPERATING PERFORMANCE.

     Our satellite uplink provider's services are critical to us. If our
satellite uplink provider fails to provide the contracted uplinking services,
our satellite programming operations would in all likelihood be suspended,
resulting in a loss of substantial revenue to the Company. If our satellite
uplink provider improperly manages its uplink facilities, we could experience
signal disruptions and other quality problems that, if not immediately
addressed, could cause us to lose subscribers and subscriber revenues.

     Our continued access to satellite transponders is critical to us. Our
satellite programming operations require continued access to satellite
transponders to transmit programming to our subscribers. We also use satellite
transponders to transmit programming to cable operators and DBS providers.
Material limitations to satellite transponder capacity could materially
adversely affect our operating performance. Access to transponders may be
restricted or denied if:

     * we or the satellite owner is indicted or otherwise charged as a defendant
       in a criminal proceeding;

     * the FCC issues an order initiating a proceeding to revoke the satellite
       owner's authorization to operate the satellite;

     * the satellite owner is ordered by a court or governmental authority to
       deny us access to the transponder;

     * we are deemed by a governmental authority to have violated any obscenity
       law; or

     * our satellite transponder provider determines that the content of our
       programming is harmful to its name or business.

     In addition to the above, the access of our networks to transponders may be
restricted or denied if a governmental authority commences an investigation
concerning the content of the transmissions.

                                       17
<PAGE>
     Our ability to convince cable operators and DBS providers to carry our
programming is critical to us. The primary way for us to expand our cable
subscriber base is to convince additional cable operators and DBS providers to
carry our programming. We can give no assurance, however, that our efforts to
increase our base of subscribers will be successful.

IF WE ARE UNABLE TO COMPETE EFFECTIVELY WITH OUR PRIMARY CABLE/DBS COMPETITOR,
WHO HAS SIGNIFICANTLY GREATER RESOURCES THAN US, WE WILL NOT BE ABLE TO INCREASE
SUBSCRIBER REVENUES.

     Our ability to increase subscriber revenues and operate profitably, is
directly related to our ability to compete effectively with Playboy, our
principal competitor. Playboy has significantly greater financial, sales,
marketing and other resources to devote to the development, promotion and sale
of its cable programming products, as well as a longer operating history and
broader name recognition, than we do. We compete with Playboy as to the editing
standards of its programming, network performance in terms of subscriber buy
rates and the license fees that we offer to cable operators and DBS providers.

IF WE ARE UNABLE TO COMPETE EFFECTIVELY WITH OUR PRIMARY INTERNET COMPETITORS,
SOME OF WHOM HAVE SIGNIFICANTLY GREATER RESOURCES THAN US, WE WILL NOT BE ABLE
TO INCREASE OUR WEB SITE MEMBERSHIP REVENUES.

     Our ability to increase our Internet web site membership revenues is
directly related to our ability to compete effectively with our Internet
competitors. Some of these competitors have significantly greater financial,
sales, marketing and other resources to devote to the development, promotion and
sale of their web site subscriptions, as well as a longer operating history and
broader name recognition, than we do. We compete with other adult-content web
sites as to the editing standards of their programming and the subscription fees
that are offered to web site members. In this regard, to the extent that the
availability of free adult content on the Internet increases, it may negatively
impact our ability to attract fee-paying members.

     In addition, our Internet operations benefit from, and compete with our
competitors for, traffic arrangements with third party webmasters who direct
traffic to our Internet sites. These traffic arrangements are short-term in
nature and, as such, are subject to rapid change. No assurances can be given
that we will be able to continue our arrangements with our affiliated webmasters
or that these arrangements will continue to be profitable for us.

IF WE ARE UNABLE TO COMPETE EFFECTIVELY WITH OTHER FORMS OF ADULT AND NON-ADULT
ENTERTAINMENT, WE WILL ALSO NOT BE ABLE TO INCREASE SUBSCRIBER REVENUE.

     Our ability to increase revenue is also related to our ability to compete
effectively with other forms of adult and non-adult entertainment. We face
competition in the adult entertainment industry from other providers of adult
programming, adult video rentals and sales, newspapers and magazines aimed at
adult consumers, adult oriented telephone chat lines, and adult oriented
Internet services. To a lesser extent, we also face general competition from
other forms of non-adult entertainment, including sporting and cultural events,
other television networks, feature films and other programming.

     Our ability to compete depends on many factors, some of which are outside
of our control. These factors include the quality and appeal of our competitors'
content, the technology utilized by our competitors, the effectiveness of their
sales and marketing efforts and the attractiveness of their product offerings.

     Our existing competitors, as well as potential new competitors, may have
significantly greater financial, technical and marketing resources than we do.
This may allow them to devote greater resources than we can to the development
and promotion of their product offerings. These competitors may also engage in
more extensive technology research and development and adopt more aggressive
pricing policies for their subscription-based content. Additionally, increased
competition could result in price reductions, lower margins and negatively
impact our financial results.

                                       18
<PAGE>
WE MAY BE LIABLE FOR THE CONTENT WE MAKE AVAILABLE ON THE INTERNET.

     Because of the adult-oriented content of our web sites, we may be subject
to obscenity or other legal claims by third parties. We may also be subject to
claims based upon the content that is available on our web sites through links
to other sites. Our business, financial condition and operating results could be
harmed if we were found liable for this content. Implementing measures to reduce
our exposure to this liability may require us to take steps that would
substantially limit the attractiveness of our web sites and/or their
availability in various geographic areas, which would negatively impact their
ability to generate revenue. Furthermore, our insurance may not adequately
protect us against all of these types of claims.

DISRUPTION OF OUR INTERNET SERVICES DUE TO SECURITY BREACHES OR OTHER SYSTEM
FAILURES COULD RESULT IN LESS TRAFFIC AT OUR WEB SITES AND SUBSCRIBER
CANCELLATIONS.

     The uninterrupted performance of our computer systems is critical to the
operation of our web sites. Our computer systems for our Internet services are
located in Southern California and, as such, are vulnerable to earthquakes,
fire, floods, power loss, telecommunications failures and other similar
catastrophes. In addition, we may have to restrict access to our web sites to
solve problems caused by computer viruses, security breaches or other system
failures. Our customers may become dissatisfied by any systems disruption or
failure that interrupts our ability to provide our content. Repeated system
failures could substantially reduce the attractiveness of our web sites and/or
interfere with commercial transactions, negatively impacting their ability to
generate revenues.

     Our web sites must accommodate a high volume of traffic and deliver
regularly updated content. Our sites have, on occasion, experienced slower
response times and network failures. These types of occurrences in the future
could cause users to perceive our web sites as not functioning properly and
therefore cause them to frequent other Internet web sites. In addition, our
customers depend on their own Internet service providers for access to our web
sites. To the extent that they experience outages or other difficulties
accessing our web sites due to system disruptions or failures unrelated to our
systems our revenues could be negatively impacted.

     Our insurance policies may not adequately compensate us for any losses that
may occur due to any failures in our service providers' systems or interruptions
in our Internet services.

INCREASED GOVERNMENT REGULATION IN THE UNITED STATES AND ABROAD COULD IMPEDE OUR
ABILITY TO DELIVER OUR CONTENT AND EXPAND OUR BUSINESS.

     New laws or regulations relating to the Internet, or the new application of
existing laws, could decrease the growth in the use of our web sites, prevent us
from making our content available in various jurisdictions or otherwise have a
material adverse effect on our business, financial condition and operating
results. These new laws or regulations may relate to liability for information
retrieved from or transmitted over the Internet, taxation, user privacy and
other matters relating to our products and services. Moreover, the application
to the Internet of existing laws governing issues such as intellectual property
ownership and infringement, pornography, obscenity, libel, employment and
personal privacy is uncertain and developing.

     Cable system operators could become subject to new governmental regulations
that could further restrict their ability to broadcast our programming. If new
regulations make it more difficult for cable operators to broadcast our
programming our operating performance would be adversely affected.

     The change to a Republican administration in Washington D.C. could result
in increased government regulation of our business. It is not possible for us to
predict what new governmental regulations we may be subject to in the future.

CONTINUED IMPOSITION OF TIGHTER PROCESSING RESTRICTIONS BY THE VARIOUS CARD
ASSOCIATIONS AND ACQUIRING BANKS WOULD MAKE IT MORE DIFFICULT TO GENERATE
REVENUES FROM OUR WEBSITES.

     Our ability to accept credit cards as a form of payment for our products
and services is critical to us. With the ongoing efforts of the card
associations to restrict the processing of credit cards for online

                                       19
<PAGE>
adult-related content, we must continue to invest heavily in new technologies to
better profile against fraud. Unlike a merchant handling a sales transaction in
a card present environment, the e-commerce merchant is 100% responsible for all
fraud perpetrated against them.

     Our ability to accept credit cards as a form of payment for our products
and services has been or could further be restricted or denied for a number of
reasons, including but not limited to:

     * Visa Tier 1 capital ratio requirements for financial institutions have
       significantly reduced the total dollar sales volume of Visa activity any
       bank can process in any given month;

     * Visa Tier 1 capital ratio requirements for financial institutions have
       significantly restricted the level of adult-related Internet activity a
       particular bank may be allowed to process in any given month;

     * if we experience excessive chargebacks and/or credits;

     * if we experience excessive fraud ratios;

     * there is a breach of our security resulting in theft of credit card data;

     * there is a change in policy of the acquiring banks and/or card
       associations with respect to the processing of credit card charges for
       adult-related content;

     * continued tightening of credit card association chargeback regulations in
       international areas of commerce;

     * association requirements for new technologies that consumers are less
       likely to use;

     * an increasing number of European and U.S. banks will not take accounts
       with adult-related content

     In this regard we note that American Express has instituted a policy of not
processing credit card charges for online adult-related content. To the extent
other credit card processing companies were to implement a similar policy it
could have a material adverse effect on our business operations and financial
condition.

IF WE ARE NOT ABLE TO RETAIN OUR KEY EXECUTIVES IT WILL BE MORE DIFFICULT FOR US
TO MANAGE OUR OPERATIONS AND OUR OPERATING PERFORMANCE COULD BE ADVERSELY
AFFECTED.

     As a small company with approximately 180 employees, our success depends
upon the contributions of our executive officers and our other key technical
personnel. The loss of the services of any of our executive officers or other
key personnel could have a significant adverse effect on our business and
operating results. We cannot assure that New Frontier Media will be successful
in attracting and retaining these personnel. It may also be more difficult for
us to attract and recruit new personnel due to the adult nature of our business.

OUR INABILITY TO IDENTIFY, FUND THE INVESTMENT IN, AND COMMERCIALLY EXPLOIT NEW
TECHNOLOGY COULD HAVE AN ADVERSE IMPACT ON OUR FINANCIAL CONDITION.

     We are engaged in a business that has experienced tremendous technological
change over the past several years. As a result, we face all the risks inherent
in businesses that are subject to rapid technological advancement, such as the
possibility that a technology that we have invested in may become obsolete. In
that event, we may be required to invest in new technology. Our inability to
identify, fund the investment in, and commercially exploit such new technology
could have an adverse impact on our financial condition. Our ability to
implement our business plan and to achieve the results projected by management
will be dependent upon management's ability to predict technological advances
and implement strategies to take advantage of such changes.

NEGATIVE PUBLICITY, LAWSUITS OR BOYCOTTS BY OPPONENTS OF ADULT CONTENT COULD
ADVERSELY AFFECT OUR OPERATING PERFORMANCE AND DISCOURAGE INVESTORS FROM
INVESTING IN OUR PUBLICLY TRADED SECURITIES.

     We could become a target of negative publicity, lawsuits or boycotts by one
or more advocacy groups who oppose the distribution of "adult entertainment."
These groups have mounted negative

                                       20
<PAGE>
publicity campaigns, filed lawsuits and encouraged boycotts against companies
whose businesses involve adult entertainment. The costs of defending against any
such negative publicity, lawsuits or boycotts could be significant, could hurt
our finances and could discourage investors from investing in our publicly
traded securities. To date, we have not been a target of any of these advocacy
groups. As a leading provider of adult entertainment, we can not assure you that
we may not become a target in the future.

BECAUSE WE ARE INVOLVED IN THE ADULT PROGRAMMING BUSINESS, IT MAY BE MORE
DIFFICULT FOR US TO RAISE MONEY OR ATTRACT MARKET SUPPORT FOR OUR STOCK.

     Some investors, investment banking entities, market makers, lenders and
others in the investment community may decide not to provide financing to us, or
to participate in our public market or other activities due to the nature of our
business, which, in turn, may hurt the value of our stock, and our ability to
attract market support.

BECAUSE IT MAY BE DIFFICULT TO EFFECT A CHANGE IN CONTROL OF NEW FRONTIER MEDIA
WITHOUT CURRENT MANAGEMENT'S CONSENT, A POTENTIAL SUITOR WHO OTHERWISE MIGHT BE
WILLING TO PAY A PREMIUM FOR ACQUIRING OUR COMPANY MAY DECIDE NOT TO ATTEMPT AN
ACQUISITION OF NEW FRONTIER MEDIA.

     Issuance of a poison-pill or a large block of preferred stock with voting
rights could have the effect of delaying, deferring or preventing a change in
control of New Frontier Media. Potential suitors who otherwise might be willing
to pay a premium to acquire New Frontier Media may decide not to try to acquire
us because it may be difficult to effect a change in control of New Frontier
Media without current management's consent. New Frontier Media's board of
directors has the authority to issue up to 5,000,000 shares of preferred stock
and to determine the price, rights, preferences, privileges and restrictions,
including voting rights, of such stock without further shareholder approval. The
rights of the holders of common stock will be subjected to, and may also be
adversely affected by, the rights of the holders of any preferred stock that may
be issued in the future.

FUTURE SALES OF COMMON STOCK MAY CAUSE THE MARKET PRICE OF THE COMMON STOCK TO
DROP.

     Future sales of shares of common stock by New Frontier Media and/or its
stockholders could cause the market price of the common stock to drop. As of
June 15, 2001, there were 8,534,982 restricted shares which are currently
eligible for resale under Rule 144 of the Securities Act and 12,551,698 shares
of common stock which are freely tradable. Sales of substantial amounts of
common stock in the public market, or the perception that such sales may occur,
could have a significant adverse effect on the market price of the common stock.

ITEM 2. PROPERTIES.

     COLORADO: New Frontier Media occupies one building in Boulder, Colorado
comprising approximately 12,000 square feet which is 100% leased. This facility
includes the Company's corporate headquarters and the operations of its
Subscription/PPV TV segment, including its digital broadcast facility and call
center operations. This facility is 100% utilized.

     The Company is currently building out an additional 18,000 leased square
feet in Boulder, Colorado. This space will be used by the Company as its
corporate headquarters as well as by the Subscription/PPV TV segment for its
marketing, sales, creative, broadband and administrative operations. The Company
anticipates moving into this space in September 2001 and expects that it will be
50% utilized at that time, allowing for future expansion. The current 12,000
leased square feet in Boulder will then be used for the digital broadcast
facility, technology operations, and call center operations of the
Subscription/PPV TV segment.

     CALIFORNIA: New Frontier Media leases two floors in one building in Sherman
Oaks, California comprising approximately 18,000 square feet and 6,000 square
feet. The 6,000 square feet is used by the Internet Group for its Internet
Service Provider facility and is 100% utilized as it is currently configured.
The Internet Group is currently building out this facility to provide for proper
air conditioning, back up generators, and power supply units and to allow for
additional rack space

                                       21
<PAGE>
expansion. The Group anticipates that this build out will be completed in August
2001, and that the new space will be 35% utilized.

     The 18,000 square feet is used by the Internet Group for its
administrative, creative, marketing, sales, billing and technology operations.
This space is 66% utilized.

ITEM 3. LEGAL PROCEEDINGS.

     The Company is involved in two material legal proceedings.

     On January 25, 1999, a lawsuit was filed against the Company and two of its
officers by J.P. Lipson ("Lipson Lawsuit") in the District Court in Boulder,
Colorado (Case No. 99CV30) alleging breach of contract, tort, and securities law
claims arising out of an October 5, 1998, letter of intent. The letter of intent
contemplated that a formal definitive agreement would be prepared and executed,
the definitive agreement would be subject to regulatory and shareholder
approval, and the definitive agreement would require Mr. Lipson to make
available to the Company a line of credit in exchange for securities convertible
into a 70% equity interest in the Company. Within weeks of the signing of the
letter of intent, a dispute arose between the Company and Mr. Lipson and no
formal definitive agreement was ever entered into with him. In his action, Mr.
Lipson sought, among other things, an order of the court requiring the Company
to convey the equity interest claimed by Mr. Lipson, monetary damages of
$10,000,000 pursuant to a liquidated damage clause contained in the letter of
intent, and additional compensatory and punitive damages.

     The trial commenced on August 14, 2000. On September 1, 2000, a jury
rendered a verdict partially in favor of Mr. Lipson. The court, on December 5,
2000, entered judgment awarding Mr. Lipson $10,000,000 in liquidated damages for
breach of contract and $1,000,000 in punitive damages against the Company. The
court rejected Mr. Lipson's claim for an equity interest in the Company.
Additional damages were awarded against the two officers of the Company. On
December 20, 2000, the court ordered that execution of the judgment be stayed
upon the Company's posting a bond of $1,200,000. The Company timely posted the
requisite bond and the stay remains in effect.

     On December 19, 2000, the Company filed its motion for judgment
notwithstanding the verdict or for a new trial. On February 20, 2001, the trial
court granted the Company's motion for judgment notwithstanding the verdict and
reduced the actual damages against the Company from $10,000,000 to $1,000,000,
thereby reducing Mr. Lipson's total award, exclusive of costs and interests,
against the Company and the two officers to $2,500,000.

     On January 26, 2001, the Company filed its motion to vacate the judgment on
the grounds that newly discovered evidence revealed that a key trial witness for
Mr. Lipson had received, in the months leading up to and including the time of
trial, approximately $139,000 from monies originating from Mr. Lipson. On March
19, 2001, the trial court ordered that an evidentiary hearing be held on January
21, 2002, with respect to the Company's motion to vacate the judgment.

     Mr. Lipson and the Company have filed cross-appeals from the judgment
entered in the trial court. However, on or about May 18, 2001, the appellate
court granted the Company's motion to remand the case to the trial court and to
stay appellate proceedings pending the resolution of the Company's motion to
vacate the judgment.

     On August 3, 1999, the Company filed a lawsuit in District Court for the
city and county of Denver (Colorado Satellite Broadcasting, Inc., et al. vs.
Pleasure Licensing LLC, et al., case no. 99CV4652) against Pleasure Licensing
LLC and Pleasure Productions, Inc. (collectively "Pleasure") alleging breach of
contract, breach of express warranties, breach of implied warranty of fitness
for a particular purpose, and rescission, seeking the return of 700,000 shares
of New Frontier Media stock and warrants for an additional 700,000 New Frontier
Media shares which were issued to Pleasure in connection with a motion picture
licensing agreement. Pleasure removed the District Court action to Federal
District Court in Colorado and filed counterclaims related to the Company's
refusal to permit Pleasure to trade the securities issued to Pleasure.
Pleasure's counterclaims allege breach of contract, copyright and trademark
infringement, and fraud.

                                       22
<PAGE>
     The Company contends that Pleasure, among other things, breached its
license agreement with the Company by failing to deliver to the Company
approximately 4,000 broadcast-quality pictures, as required by the agreement,
and by failing to deliver to the Company three "new releases" a month. The
Company intends to pursue vigorously its claims against Pleasure and to defend
the counterclaims asserted against it.

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

     No matters were submitted for a formal vote of the shareholders during the
fourth quarter of the fiscal year covered by this Report.

                                    PART II.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     The following table sets forth the range of high and low closing prices for
the Company's Common Stock for each quarterly period indicated, as reported by
brokers and dealers making a market in the capital stock. Such quotations
reflect inter-dealer prices without retail markup, markdown or commission, and
may not necessarily represent actual transactions:

<TABLE>
<CAPTION>
     QUARTER ENDED            HIGH          LOW                 QUARTER ENDED            HIGH          LOW
     -------------            ----          ---                 -------------            ----          ---
<S>                       <C>           <C>                <C>                       <C>           <C>
June 30, 1999...........     10.38          3.91           June 30, 2000...........     11.88          5.16

September 30, 1999......      9.00          5.00           September 30, 2000......      9.13          3.00

December 31, 1999.......      6.88          3.94           December 31, 2000.......      3.94          1.50

March 31, 2000..........     11.75          4.25           March 31, 2001..........      4.47          1.50
</TABLE>

     As of June 15, 2001, there were approximately 150 holders of record of New
Frontier Media's Common Stock.

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

                                       23
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
                FIVE YEAR SELECTED CONSOLIDATED FINANCIAL DATA(1)
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                 FISCAL YEAR ENDED MARCH 31,
                                               ----------------------------------------------------------------
<S>                                            <C>           <C>           <C>           <C>           <C>
                                                 2001          2000          1999          1998          1997
                                               --------      --------      --------      --------      --------

Net Sales................................      $ 58,638      $ 45,351      $ 25,969      $ 10,019      $     --

Income (loss) from continuing
  operations.............................      $  3,324      $  1,086      $ (5,518)     $ (3,416)     $   (172)

Income (loss) from continuing operations
  per basic common share.................      $   0.16      $   0.06      $  (0.42)     $  (0.76)     $  (0.04)

Total assets.............................      $ 52,606      $ 36,288      $ 20,764      $ 23,123      $    992

Long term obligations....................      $  7,076      $  2,003      $  1,800      $    349      $     --

Redeemable preferred stock...............      $     --      $  4,073      $     --      $     --      $     --

Cash dividends...........................      $     --      $     --      $     --      $     --      $     --
</TABLE>

(1) The selected consolidated financial data for 1997-2000 includes the effects
    of the acquisition of IGallery, ITN, and 90% of CTI on October 27, 1999,
    which was accounted for as a pooling-of-interests.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

     This annual report on Form 10-K includes forward-looking statements. These
are subject to certain risks and uncertainties, including those identified
below, which could cause actual results to differ materially from such
statements. The words "believe", "expect", "anticipate", "optimistic", "intend",
"will", and similar expressions identify forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date on which they are made. The Company undertakes no
obligation to update or revise any forward-looking statements. Factors that
could cause actual results to differ materially from the forward-looking
statements include, but are not limited to: 1) our ability to compete
effectively for quality content with our Subscription/PPV TV Group's primary
competitor who has significantly greater resources than us; 2) our ability to
compete effectively with our primary Internet competitors and to increase our
membership revenues both domestically and internationally; 3) our ability to
retain our key executives; 4) our ability to successfully manage our credit card
chargeback and credit percentage in order to maintain our ability to accept
credit cards as a form of payment for our products and services; 5) our ability
to generate compelling website content for resale; and 6) our ability to attract
market support for our stock.

                                       24
<PAGE>
The following table presents certain consolidated statement of operations
information.

                             RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                             (IN MILLIONS)
                                                                          TWELVE MONTHS ENDED
                                                                                MARCH 31
                                                                  ------------------------------------
<S>                                                               <C>           <C>           <C>
                                                                    2001          2000          1999
                                                                  --------      --------      --------
NET REVENUE
Subscription/Pay-Per-View TV
     Cable/DBS..............................................          14.5           6.3           0.3
     C-Band.................................................          10.0          10.5           9.1
Internet Group
     Net Membership.........................................          19.9          19.4          11.6
     Content/Sale of Traffic................................          13.2           7.0           2.2
     Internet Pay-Per-View..................................            --           0.5           2.4
     Other..................................................           0.9           1.5           0.3
Corporate Administration....................................           0.1           0.1            --
                                                                  --------      --------      --------
  TOTAL.....................................................          58.6          45.3          25.9
                                                                  --------      --------      --------
                                                                  --------      --------      --------
COST OF SALES
Subscription/Pay-Per-View TV................................          11.4          10.9           9.1
Internet Group..............................................          18.2          15.6           8.3
                                                                  --------      --------      --------
  TOTAL.....................................................          29.6          26.5          17.4
                                                                  --------      --------      --------
                                                                  --------      --------      --------
OPERATING INCOME (LOSS)
Subscription/Pay-Per-View TV................................           2.4          (2.0)         (6.5)
Internet Group..............................................           4.0           4.7           1.9
Corporate Administration....................................          (4.2)         (1.9)         (0.6)
                                                                  --------      --------      --------
  TOTAL.....................................................           2.2           0.8          (5.2)
                                                                  --------      --------      --------
                                                                  --------      --------      --------
</TABLE>

The above table for 2000 is based on the assumption that the companies were
combined for the full year, and 1999 has been restated to give effect to the
combination.

                                    OVERVIEW
NET REVENUE

     Net revenue for the Company was $58.6 million, $45.3 million and $25.9
million for the years ended March 31, 2001, 2000, and 1999, respectively,
representing increases of 29% from 2000 to 2001 and 75% from 1999 to 2000. The
increases in net revenue are a result of increases in net revenue for both the
Subscription/PPV TV and Internet Groups. Revenue from the Subscription/PPV TV
Group was $24.5 million, $16.8 million and $9.4 million for the years ended
March 31, 2001, 2000, and 1999, respectively, representing increases of 46% from
2000 to 2001 and 79% from 1999 to 2000. Revenue from the Internet Group was $34
million, $28.4 million and $16.5 million for the years ended March 31, 2001,
2000, and 1999, respectively, representing increases of 20% from 2000 to 2001
and 72% from 1999 to 2000.

OPERATING INCOME (LOSS)

     Operating income for the Company was $2.2 million and $0.8 million for the
years ended March 31, 2001 and 2000, respectively, and an operating loss of $5.2
million for the year ended March 31,

                                       25
<PAGE>
1999. The improvement in operating income from year to year is due to an
increase in operating income for the Subscription/PPV TV and Internet Groups.
Operating income for the Subscription/ PPV TV Group was $2.4 million for the
year ended March 31, 2001. Operating losses for the Subscription/PPV TV Group
for the years ended March 31, 2000 and 1999 were $2.0 million and $6.5 million,
respectively. Operating income for the Internet Group was $4.0 million, $4.7
million and $1.9 million for the years ended March 31, 2001, 2000, and 1999,
respectively.

SUBSCRIPTION/PAY-PER-VIEW TV GROUP

The following table outlines the current distribution environment and
addressable households for each network:

<TABLE>
<CAPTION>
                                              ESTIMATED ADDRESSABLE HOUSEHOLDS
                                              ---------------------------------
                                                       (IN THOUSANDS)
                                                AS OF       AS OF       AS OF
                                              MARCH 31,   MARCH 31,   MARCH 31,
  NETWORK          DISTRIBUTION METHOD          2001        2000        1999
  -------          -------------------        ---------   ---------   ---------
<S>          <C>                              <C>         <C>         <C>
Pleasure     Cable/DBS                         17,500       4,600         n/a
TeN          Cable/DBS                          5,800       5,300       2,500
ETC          Cable/DBS                          2,400         n/a         n/a
Extasy       C-band/Cable/DBS                   3,200       2,600       1,800
True Blue    C-band                             1,100       2,000       1,800
X-Cubed (1)  C-band                             1,100       1,500       1,800
TOTAL ADDRESSABLE SUBSCRIBERS                  31,100      16,000       7,900
</TABLE>

Note: "n/a" indicates that network was not launched at that time

(1) This network was GonzoX. The network was renamed X-Cubed in May 2001

(2) Extasy, True Blue and X-Cubed addressable household numbers include 1.8
million, 1.5 million and 1.1 million C-Band addressable households for the years
ended March 31, 1999, 2000 and 2001, respectively.

NET REVENUE

     Total net revenue for the Subscription/PPV TV Group was $24.5 million,
$16.8 million, and $9.4 million for the years ended March 31, 2001, 2000 and
1999, respectively, representing increases of 46% from 2000 to 2001 and 79% from
1999 to 2000. Of total net revenue, C-Band net revenue was $10 million, $10.5
million, and $9.1 million for the years ended March 31, 2001, 2000, and 1999,
respectively, representing a 5% decrease from 2000 to 2001 and an increase of
15% from 1999 to 2000. Revenue from the Group's Cable/DBS services was $14.5
million, $6.3 million and $.3 million for the years ended March 31, 2001, 2000
and 1999, respectively, representing an increase of 130% from 2000 to 2001 and
2000% from 1999 to 2000. Revenue from the Group's Cable/DBS services is
responsible for approximately 59%, 37% and 3% of the Group's total net revenue
for the years ended March 31, 2001, 2000 and 1999, respectively.

     The decrease in C-Band revenue from 2000 to 2001 is due to the declining
C-Band market as the consumer's trend towards converting C-Band "big dish"
analog satellite systems to smaller, 18-inch digital DBS satellite systems has
continued. The total C-Band market declined 27% from 2000 to 2001 and 25% from
1999 to 2000.

     Total C-Band subscriptions to the Group's networks (Extasy, True Blue and
X-Cubed) declined 20% from 166,546 as of March 31, 2000 to 138,448 as of March
31, 2001, resulting in a corresponding decrease in revenue for this period.

                                       26
<PAGE>
     The increase in C-Band revenue from 1999 to 2000 was primarily due to an
increase in the number of total subscriptions to the Group's C-Band networks.
Total C-Band subscriptions to the Group's networks increased 11% from 1999 to
2000.

     The Group acquired the C-Band subscriber base of Emerald Media, Inc.
("EMI") in April 2001. EMI was formerly the Group's largest competitor in the
adult C-Band market, operating two competing networks. The Subscription/PPV TV
Group acquired approximately 27,000 unique subscribers to its three C-Band
networks, and EMI's two networks were subsequently shut down.

     Increases in the Subscription/PPV TV Group's Cable/DBS revenues year to
year are a result of several factors: 1) an increase in distribution of TeN; 2)
the launch of Pleasure in June 1999 and ETC in July 2000; 3) adding TeN as a PPV
service on DISH in addition to its availability on a monthly and yearly
subscription basis; and 4) the successful launch of Extasy in the Cable and DBS
markets.

     As of March 31, 2001, TeN was available to 5.8 million addressable Cable
and DBS households, up from 5.3 million as of March 31, 2000 and 2.5 million as
of March 31, 1999. This represents increases of 9% and 112%, respectively, as a
result of both the launch of new Cable and DBS systems and on-line growth of
existing affiliates. TeN experienced a disaffiliation of 500,000 Express Vu DBS
households during the year ended March 31, 2001.

     In addition, TeN is available on a monthly and annual subscription basis to
DBS households via DISH. TeN had approximately 58,000, 76,000 and 40,000 monthly
DISH subscribers as of March 31, 2001, 2000 and 1999, respectively. The increase
in monthly DISH subscribers between 1999 and 2000 was due to the fact that
during much of this period TeN was offered by DISH as a subscription service
only.

     TeN launched on DISH in September 1998 and was initially available to DISH
households on a monthly and annual subscription basis. In September 1999, TeN
was made available to DISH households on both a subscription and PPV basis. In
addition, the price of a monthly subscription was increased $5.00 to $19.99. At
the time, these two changes resulted in a 50% increase in monthly revenues for
TeN. Adding TeN as a PPV service on the DISH platform has also resulted in a 24%
decrease in monthly DISH subscribers from March 31, 2000 to March 31, 2001.

     TeN is offered by Cable MSOs/DBS providers on a PPV basis with retail rates
ranging from $5.95 to $8.99 per block. A block of programming, depending upon
the MSO/DBS provider, can range from 90 minutes to 6 hours. TeN's monthly buy
rates, which depend upon customer demographics and the number of total adult
networks provided by the multi-channel distributor, average 7%-15% per month.

     Pleasure was launched on June 1, 1999, and has grown to a total of 17.5
million addressable households as of March 31, 2001, up from 4.6 million as of
March 31, 2000, an increase of 280%. The Subscription/PPV TV Group signed a
corporate carriage agreement with Time Warner Cable in January 2000 for
distribution of Pleasure on all of its digital systems. As of March 31, 2001,
the Group had added 2.4 million Time Warner analog and digital households,
including 255,000 video-on-demand ("VOD") households.

     In August 2000, the Group signed a contract with Hughes Electronic
Corporation's DirecTV ("DirecTV") for carriage of a daily six-hour feed of
Pleasure branded as "Pleasure Island". Pleasure Island airs each night on
DirecTV from 10:00 p.m. to 4:00 a.m. ET and is sold as two, three-hour blocks of
programming.

     In December 2000, the Subscription/PPV TV Group announced a corporate
carriage agreement with Comcast Corporation ("Comcast") for distribution of
Pleasure on all of its digital systems. As of March 31, 2001, the Group had
added 965,000 digital Comcast households.

     Pleasure is offered by cable MSO's/DBS providers on a PPV basis with retail
rates ranging from $4.95 to $7.95 per block. Pleasure's buy rates, which depend
upon customer demographics and the number of total adult networks provided by
the multi-channel distributor, average approximately 3-10% per month.

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<PAGE>
     The Subscription/PPV TV Group began to market Extasy on a limited basis to
Cable MSOs and DBS providers during the fiscal year ended March 31, 2000. In
January 2000, DISH launched Extasy on its satellite at 110 degrees and made it
available to its DISH 500 customers. DISH markets Extasy as both a subscription
and PPV service, as well as offering a monthly combination subscription to both
Extasy and TeN. Extasy experienced a disaffiliation of 500,000 Express Vu DBS
households in March 2001.

     Extasy was available to approximately 2.1 million, 1.1 million and 0
Cable/DBS addressable households as of March 31, 2001, 2000, and 1999,
respectively. In addition, Extasy had 24,000 and 4,000 monthly DISH subscribers
at a retail rate of $24.99 as of March 31, 2001 and 2000, respectively, plus
9,300 and 1,300 monthly DISH subscribers to the Extasy/TeN combination package
as of March 31, 2001 and 2000, respectively, at a retail rate of $34.99.

     Extasy is offered by Cable MSOs/DBS providers on a PPV basis with retail
prices ranging from $7.95 to $9.99 per block. Extasy's buy rates, which depend
upon customer demographics and the number of total adult networks provided by
the multi-channel distributor, average approximately 7-20% per month.

     The Subscription/PPV TV Group has seen modest revenue gains during the
fiscal year ended March 31, 2001 from the launch of ETC, the launch of its
TeN.com broadband website, and its Pleasure VOD service on Time Warner Cable
systems. Together these three products accounted for 7% of total Cable/DBS
revenue for the year ended March 31, 2001. ETC has grown from 1.2 million
addressable households in July 2000 to 2.4 million addressable households as of
March 31, 2001. Time Warner VOD addressable households total 255,000 as of March
31, 2001.

COST OF SALES

     Cost of sales for the Subscription/PPV TV Group was $11.4 million, $10.9
million and $9.1 million for the years ended March 31, 2001, 2000 and 1999,
respectively, representing increases of 5% from 2000 to 2001 and 20% from 1999
to 2000. Cost of sales as a percentage of revenue was 47%, 65% and 97% for the
years ended March 31, 2001, 2000 and 1999, respectively. Cost of sales consists
of expenses associated with broadcast playout, satellite uplinking, satellite
transponder leases, programming acquisition costs, amortization of content
licenses, TeN.com internet costs, and call center operations.

     The 20% increase in cost of sales from 1999 to 2000 is primarily due to the
following: a) an increase in the amortization of content licenses due to the
acquisition of the Metro library and the purchase of additional content licenses
necessary to program Pleasure, TeN, and Extasy; b) an increase in costs
associated with the creation and expansion of the broadcast playout facility in
Boulder, Colorado; and c) an increase in programming acquisition costs for
screening, QC'ing and editing of the Group's content.

OPERATING INCOME (LOSS)

     Operating income (loss) for the Subscription/PPV TV Group was operating
income of $2.4 million, operating loss of $2 million and operating loss of $6.5
million for the years ended March 31, 2001, 2000, and 1999, respectively. The
increase in operating income (decreases in operating losses) were attributable
to the 45% and 79% increase in revenue from 2000 to 2001 and 1999 to 2000,
respectively. In addition, the Group's gross margin percentage increased from 3%
as of the period ended March 31, 1999 to 53% as of the period ended March 31,
2001, due to both the Group's revenue growth and to the fixed nature of its cost
of sales components.

     Total operating expenses increased 33% from 2000 to 2001 and 14% from 1999
to 2000. Operating expenses as a percentage of revenue were 43%, 48% and 74% as
of March 31, 2001, 2000, and 1999, respectively. The increase in total operating
expenses during the periods presented is due to 1) an increase in payroll and
employee benefit costs associated with hiring the necessary sales, marketing and
creative personnel required to support the Group; 2) increased commission
expenses

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paid to the Group's sales department as additional addressable households have
been added; 3) additional trade show and travel/entertainment expenses necessary
to market the Group's networks; 4) an increase in advertising costs; 5) an
increase in consulting costs related to the outside advertising firm hired to
assist in the branding and imaging of the Group's networks; and 6) an increase
in depreciation expense.

INTERNET GROUP

     During the twelve months ended March 31, 2001, the Company completed the
integration of its Internet Service Provider and Payment Service Provider Groups
with its Internet Content Provider Group. The new entity is now called the
Internet Group for purposes of this Management, Discussion & Analysis.

NET REVENUE

     Total net revenue for the Internet Group was $34 million, $28.4 million,
and $16.5 million for the twelve months ended March 31, 2001, 2000 and 1999,
respectively, representing increases of 19.7% from 2000 to 2001, and 72% from
1999 to 2000.

     Gross membership revenue was $22.6 million, $23.0 million, and $15.9
million for the twelve months ended March 31, 2001, 2000, and 1999,
respectively, representing a 2% decrease from 2000 to 2001, and a 45% increase
from 1999 to 2000. Growth in gross membership revenue for the twelve months
ended March 31, 2001 was slowed due to the implementation of more stringent
fraud controls, including the reduction of sign-ups from international credit
card users due to a lack of effective verification procedures.

     Management reclassified its credit card chargebacks and credits from its
cost of sales to net against its membership revenue during the third quarter of
2001, in order to comply with the guidance provided by the SEC Staff Accounting
Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements. All
comparative information provided reflects this reclassification.

     Credits and chargebacks were $2.7 million, $3.6 million, and $4.3 million
for the twelve months ended March 31, 2001, 2000 and 1999, respectively,
representing decreases of 25% from 2000 to 2001, and 16% from 1999 to 2000.
Credit card chargebacks and credits as a percentage of gross membership revenue
were 12%, 16% and 27% for the years ended March 31, 2001, 2000, and 1999. The
decreases are due to the implementation of tighter fraud controls by management
in response to credit card companies' (Visa and Mastercard) efforts to target
chargeback activities of certain industries, including Direct Marketing, Travel
Agencies, Outbound Telemarketing Merchants and Videotext (Internet) Merchants.
The effect of this effort by Visa and Mastercard has been the elimination of
warning periods by these organizations (i.e., fees are assessed without any
warning periods) and increased review fees and chargebacks fees when chargebacks
exceed the chargeback parameters.

     The Group began accepting international credit cards for new memberships
during the year ended March 31, 1999. The acceptance of international credit
cards became a major contributor to the Group's chargebacks and credits. The
fraud control programs implemented by the Group during the last quarter of the
year ended March 31, 2000, resulted in reducing international credit card
revenue to 9% of gross membership revenue for the twelve months ended March 31,
2001, compared to 27% and 13% for the twelve months ended March 31, 2000 and
1999, respectively. The international revenue earned during the twelve months
ended March 31, 2001, is primarily from renewal memberships.

     Group owned web sites totaled more than 40 at March 31, 2001, 27 as of
March 31, 2000, and 13 as of March 31, 1999. These web sites hosted a daily
average of 2.5 million visitors, 2.0 million visitors, and .7 million visitors
as of March 31, 2001, 2000, and 1999, respectively, an increase of 25% from 2000
to 2001, and an increase of 185% from 1999 to 2000. While the daily average
visits to the Group's web sites have increased, the rate at which this traffic
is converted into new memberships

                                       29
<PAGE>
("conversion rate") has decreased due to management's emphasis on fraud control
programs to reduce the level of chargebacks and credits.

     The standard one-month membership prices to the Group's web sites ranged
from $20 to $30 for all three periods. Marketing programs offering three-day
trial memberships at prices varying from $2.00 to $3.00 were introduced during
the year ended March 31, 2000, which resulted in an average membership price of
$15.00 during the last two quarters of the year ended March 31, 2000. An
additional marketing program offering free 5-day trials was implemented during
the fourth quarter of the year ended March 31, 2001, which resulted in an
average membership price of $10 to $12 during the last quarter of the year ended
March 31, 2001.

     Combined revenue from content sales and the sale of traffic was $13.2
million, $7.0 million and $2.2 million for the twelve months ended March 31,
2001, 2000, and 1999, respectively, an 89% increase from 2000 to 2001, and a
218% increase from 1999 to 2000.

     Revenue is earned from traffic sales by forwarding exit traffic and traffic
from selected vanity domains to other affiliate marketing programs. Due to the
increase in traffic to the Internet Group's web sites during the fiscal years
reported, it has been able to increase exit traffic sales to other affiliate
marketing programs at similar rates paid by the Internet Group for its purchased
traffic (i.e., $30 - $45 per active member). Revenue from the sale of domestic
traffic was $5.6 million, $3.3 million and $.4 million for the twelve months
ended March 31, 2001, 2000, and 1999, respectively, a 70% increase from 2000 to
2001, and a 725% increase from 1999 to 2000. The Internet Group began to sell
its international traffic during the fiscal year ended March 31, 2000 to offset
its decision to curtail the acceptance of international credit cards for its
membership web sites. Revenue from the sale of international traffic was $3.8
million and $.4 million for the twelve months ended March 31, 2001 and 2000,
respectively, an increase of 850% from 2000 to 2001.

     Revenue from the sale of content was $3.8 million, $3.3 million, and $1.8
million for the twelve months ended March 31, 2001, 2000, and 1999,
respectively, a 15% increase from 2000 to 2001 and an 83% increase from 1999 to
2000. The emphasis by the Internet Group on creating quality content contributed
to the increase in sales to webmasters, although competition has caused the
average content price to decrease. The average price collected for each product
was $429 at March 31, 2001, $500 at March 31, 2000, and $1,000 at March 31,
1999. Content was sold to 303 webmasters at March 31, 2001, 280 webmasters at
March 31, 2000, and 90 webmasters at March 31, 1999. Management expects that
increased price competition may further reduce the average price for content and
will cause a slower growth in revenue from content sales in future periods.
Management continues to offer additional, high-quality content through new web
sites to offset this risk.

     Revenue from the Internet Group's Pay-Per-View service was $0, $0.5
million, and $2.4 million for the years ended March 31, 2001, 2000, and 1999,
respectively. This decrease in revenue was expected as the Internet Pay-Per-View
subscribers switched to the Internet Group's membership products.

     The Internet Group's other revenue was earned from the sale of its Internet
Service Provider (ISP) services such as hosting, co-location, and bandwidth
management to non-affiliated companies. The Group's other revenue was $0.9
million, $1.5 million, and $.3 million for the twelve months ended March 31,
2001, 2000, and 1999, respectively, a decrease of 40% from 2000 to 2001, and an
increase of 400% from 1999 to 2000. This decrease in other revenue from 2000 to
2001 was due to the Internet Group's major non-affiliated customer changing
service providers during the year. The Group does not anticipate revenue growth
in this area as it continues to focus its ISP on its internal needs.

SUBSEQUENT EVENT

     Subsequent to year-end, the Internet Group entered into an affiliated
marketing contract with a leading search engine that provides its services to
large web portals. This contract is currently in a testing and development
phase. The revenue potential from this contract cannot be quantified at this
time and the Company can give no assurances as to the success of this contract.

                                       30
<PAGE>
COST OF SALES

     Cost of sales for the Internet Group was $18.2 million, $15.6 million, and
$8.3 million for the twelve months ended March 31, 2001, 2000, and 1999,
respectively, an increase of 17% from 2000 to 2001, and an increase of 88% from
1999 to 2000. Cost of sales consists of variable expenses associated with credit
card fees, merchant banking fees, bandwidth, traffic acquisition costs, and web
site content costs. Cost of sales as a percentage of revenue was 54%, 55%, and
50% for the years ended March 31, 2001, 2000, and 1999, respectively.

     Approximately 70% of the traffic to the Internet Group's web sites is
acquired through affiliate programs that it markets to webmasters. These
programs compensate webmasters for traffic referrals to the Internet Group's web
sites. A webmaster will be paid a fee of $40 - 45 per referral resulting in a
membership to one of the Internet Group's web sites. Any traffic referred that
does not result in a membership to the Internet Group's web sites will be sold
by the Internet Group to other webmasters via affiliate programs to which it
belongs, resulting in revenue from traffic sales.

     The Internet Group's traffic acquisition costs were $10.1 million, $7.4
million and $3.4 million for the twelve months ended March 31, 2001, 2000 and
1999, respectively, representing increases of 36% from 2000 to 2001, and 118%
from 1999 to 2000. The Internet Group's traffic acquisition costs as a
percentage of net revenue were 30%, 26%, and 21%, for the twelve months ended
March 31, 2001, 2000, and 1999, respectively. Management has implemented a new
affiliate program subsequent to March 31, 2001 which it hopes will significantly
reduce its traffic acquisition costs. The reduction in traffic acquisition costs
may also result in the reduction of revenue, but increase operating income;
however, it is too early in the program to determine the effect of this change.

     The Group has purchased $1.6 million, $2.8 million and $0.2 million of new
domain names during the twelve months ended March 31, 2001, 2000 and 1999,
respectively. The purchase price for these domain names is capitalized and
amortized over a three to five year period of time. Amortization of the domain
names, which is included in cost of sales, was $.9 million and $.2 million for
the twelve months ended March 31, 2001 and 2000, respectively.

     Merchant banking fees were $2.0 million, $3.3 million, $2.0 million for the
twelve months ended March 31, 2001, 2000, and 1999, respectively, a decrease of
39% from 2000 to 2001, and an increase of 65% from 1999 to 2000. Merchant
banking fees were 9%, 14% and 13% of gross membership revenue for the twelve
months ended March 31, 2001, 2000 and 1999, respectively. The decrease for the
twelve months ended March 31, 2001 is due to lower negotiated check debit fees
and the transfer of the Internet Group's credit card processing to companies
with lower merchant fees.

OPERATING INCOME

     Operating Income for the Internet Group was $4.0 million, $4.7 million, and
$1.9 million for the years ended March 31, 2001, 2000, and 1999, respectively,
representing a 15% decrease from 2000 to 2001 and a 147% increase from 1999 to
2000. The decline in operating income from 2000 to 2001 was primarily due to an
increase in operating expenses.

     Operating expenses were $11.8 million, $8.0 million, and $6.3 million for
the twelve months ended March 31, 2001, 2000, and 1999, respectively, a 48%
increase from 2000 to 2001, and a 27% increase from 1999 to 2000. Operating
expenses were 35%, 28%, and 38% of net revenue for the fiscal years ended March
31, 2001, 2000, and 1999, respectively.

     The increase in operating expenses for the twelve months ended March 31,
2001, was attributable to increases in personnel costs, advertising and
promotion costs, and the establishment of a reserve for bad debts.

     Personnel costs were $6.4 million, $4.5 million, and $2.6 million for the
twelve months ended March 31, 2001, 2000, and 1999, respectively, an increase of
42% from 2000 to 2001 and an increase of 73% from 1999 to 2000. The increases in
personnel costs were the result of adding new positions to support the Internet
Group's infrastructure, as well as to the increase in wages of certain positions

                                       31
<PAGE>
necessary to remain competitive in the environment in which the Internet Group
is operating. The Internet Group restructured its organization during the third
quarter of 2001, resulting in the elimination of certain positions supporting
its ISP and billing departments. The Internet Group expects to experience a
decline in its personnel costs in future periods.

     Advertising and promotion costs were $1.5 million, $1.2 million and $1.7
million for the twelve months ended March 31, 2001, 2000, and 1999,
respectively, an increase of 25% from 2000 to 2001 and a decrease of 30% from
1999 to 2000. The increase from 2000 to 2001 was due primarily to the increase
in commissions paid on content and traffic sales, and increased trade show
costs. Bad debt expense was $1.0 million for the twelve months ended March 31,
2001. Operating expenses during the year ended March 31, 2000 included $.4
million of non-recurring costs associated with the sale of the Internet Group to
New Frontier Media.

CORPORATE ADMINISTRATION

     The Corporate Administration segment includes all costs associated with the
operation of the public holding company, New Frontier Media, Inc. These costs
include, but are not limited to, legal and accounting expenses, insurance,
registration and filing fees with NASDAQ and the SEC, investor relation cost,
officers' salaries, and printing costs associated with the Company's public
filings.

     The operating loss for this segment was $4.2 million, $1.9 million and $.6
million as of March 31, 2001, 2000, and 1999, respectively, representing
increases of 121% from 2000 to 2001 and 217% from 1999 to 2000.

     The 217% increase in operating loss for this segment from 1999 to 2000 was
primarily related to a 200% increase in legal fees, an increase in consulting
costs related to investor and public relations activity, and an increase in
printing costs related to the Company's public filings.

     The 121% increase in operating loss for this segment from 2000 to 2001
relates to 1) an increase in legal costs associated with the Company's defense
in the Lipson Lawsuit; 2) an increase in consulting costs related to the hiring
of an investment banking advisor, the use of outside investor/ public relations
consultants, and the development of a new public imaging campaign, logo and
corporate website; 3) an increase in payroll related to the addition of an
in-house investor relations person and the allocation of officers' salaries to
this segment; and 4) amortization expense related to debt offering costs.

OTHER INCOME (EXPENSE)

     Other income (expense) for the year ended March 31, 2001, includes two
nonrecurring items: 1) a $2 million reserve for the jury verdict issued in the
Lipson Lawsuit, and 2) a $507,500 loss for the write down of Metro Global Media,
Inc. ("Metro") stock.

     As previously disclosed, the Company was a defendant in the Lipson Lawsuit
filed on January 25, 1999 in which J.P. Lipson sought to enforce an alleged
agreement by the Company to convey to Mr. Lipson a 70% equity interest in the
Company. The lawsuit went to trial on August 14, 2000. On September 1, 2000, the
jury entered a verdict awarding damages to the plaintiff on his damage claim. On
December 5, 2000, the Court entered judgment awarding Mr. Lipson $10 million
against the Company for breach of contract and $1 million in punitive damages.
On December 20, 2000, the Court ordered that execution of the judgment be stayed
upon the Company's posting a bond of $1.2 million. The Company posted this bond
with the District Court in the form of a letter of credit provided by a third
party.

     The Company filed a motion for judgment notwithstanding the verdict, a
motion for a new trial, and a motion for vacating the judgment. On February 20,
2001, the Boulder District Court entered an order granting the Company's motion
to reduce the actual damages against the Company from $10 million to $1 million,
thereby reducing Mr. Lipson's total award, exclusive of interest, against the
Company and two officers to $2.5 million.

                                       32
<PAGE>
     On March 19, 2001, the Boulder District Court granted the Company's request
for an evidentiary hearing to determine whether the major witness for Mr. Lipson
was paid substantial monies in connection with the witness' testimony at the
August 2000 trial. The evidentiary hearing has been set for January 21, 2002.

     Notwithstanding that the Company intends to appeal any judgment which may
ultimately be entered against it, the Company has established a $2.5 million
reserve on its books as a result of the jury verdict.

     In July 1999, the Company entered into an agreement with Metro in which it
received 250,000 shares of Metro common stock. The market value of this stock on
the date of the transaction was $2.47 per share. Subsequent to this agreement
the stock was delisted from the NASDAQ, is now thinly traded on the
over-the-counter market, and its value as of September 30, 2000 had declined to
$0.47 per share. Due to the permanent impairment in the value of this stock, the
Company wrote the stock down to $117,500 on its books during its second quarter
of fiscal year 2001 and took a write off against income of $507,500.

DEFERRED TAX ASSET

     SFAS 109, "Accounting for Income Taxes" requires, among other things, the
separate recognition, measured at currently enacted tax rates, of deferred tax
assets and deferred tax liabilities for the tax effect of temporary differences
between the financial reporting and tax reporting bases of assets and
liabilities, and net operating loss and tax credit carryforwards for tax
purposes. A valuation allowance must be established for deferred tax assets if
it is "more likely than not" that all or a portion will not be realized.

     As of March 31, 2001 and 2000, the Company estimated that it had $7.5
million and $9.2 million, respectively, in net operating loss carryfowards.
Based on the recent history of operating profits and the expected profitability
of the Company in future periods, the Company provided a valuation allowance of
$0 and $3.4 million for the years ended March 31, 2001 and 2000, respectively,
of its net deferred assets, while recognizing the benefit of $4.1 million and
$.8 million for each respective year.

     The Company concluded that it is "more likely than not" that the full
benefit of its deferred tax assets will be realized in future years.

     The Company expects to realize its deferred tax assets through the
generation of future taxable income. The amount of future income required based
on currently enacted tax rates applied to the deferred tax asset amount as of
March 31, 2001, is approximately $19.2 million. Due to the fact that the Company
has recorded several years of operating profitability the Company has concluded
that a valuation allowance is not necessary for its net deferred tax assets.

LIQUIDITY AND CAPITAL RESOURCES

     Cash provided by/(used in) operating activities was $1.8 million, ($0.8
million) and $0.2 million for the years ended March 31, 2001, 2000 and 1999,
respectively. The increase in cash provided by operating activities from 2000 to
2001 was primarily associated with an increase in net income from $1 million to
$3.3 million, a $2.5 million increase in the litigation reserve for the Lipson
Lawsuit, and an increase in depreciation and amortization expense from $4.2
million to $6.2 million. Cash provided by operating activities was offset by an
increase in prepaid distribution rights related to the licensing of content for
the Company's distribution channels, an increase in the Company's accounts
receivables primarily related to the Subscription/PPV TV Group and an increase
in the Company's deferred tax asset.

     The decrease in cash provided by operating activities from 1999 to 2000 was
primarily associated with an increase in prepaid distribution rights of $2.6
million, a decrease in accounts payable of $1.4 million, an increase in accounts
receivable of $2 million, and an increase in the Company's net deferred tax
asset of $.7 million. This use of cash was offset by net income of $1.0 million,
depreciation and amortization of $4.2 million, and an increase in accrued
liabilities of $1.2 million.

                                       33
<PAGE>
     Cash used in investing activities for the year ended March 31, 2001 was
$4.5 million. This use of cash was primarily related to the purchase of domain
names for the Internet Group in the amount of $1.6 million, equipment purchased
for the broadcast and Internet service provider facilities and leasehold
improvements and furniture for the Internet Group's new facility. Cash used in
investing activities was $4.6 million for the year ended March 31, 2000. This
use of cash was primarily for capital expenditures comprised of broadcast
equipment, editing equipment, receiver/decoder equipment, computer equipment,
and domain name purchases. Cash used in investing activities for the year ended
March 31, 1999 was $1.0 million and was primarily comprised of capital
expenditures related to broadcast equipment, editing equipment, and computer
equipment.

     Cash provided by financing activities was $4.8 million for the year ended
March 31, 2001, and was primarily attributable to the contribution of $1.3
million made by the senior management group as part of the agreement reached by
NASDAQ to maintain the Company's listing and an increase in notes payable of $6
million. This cash provided from financing activities was offset by $0.7 million
used to payoff monies owed to the previous shareholders of the Internet Group,
$1.3 million in capital lease payments and $0.9 million paid to related-parties.

     Cash provided by financing activities was $8.7 million for the year ended
March 31, 2000. Cash provided by financing activities for the year ended March
31, 2000 was attributable to the issuance of $6.0 million of convertible
redeemable preferred stock and $3.9 million raised from the exercise of 600,000
of the Company's 1.5 million publicly traded warrants. Cash provided by
financing activities for the year ended March 31, 1999 was $2.9 million and was
primarily attributable to a private placement by New Frontier Media which raised
$5.2 million. This cash provided by financing activities was partially offset by
a $2.2 million distribution to the previous shareholders of the Internet Group
prior to its acquisition by New Frontier Media.

     During the first and second quarters of fiscal 2002 the Company will be
completing the expansion of its Internet service provider facility at a cost of
$1.2 million and will be building out its new Boulder headquarters at an
estimated cost of $1.2 million. The Company expects these capital expenditures
to be funded by cash flows from operations and lease financing.

     The Company will continue to pursue its strategy to purchase additional
vanity domain names based on its available cash balances. The Company estimates
a return of capital on these purchases within 18 - 24 months.

     The Company's balance sheet as of March 31, 2001 shows $6.0 million in
notes payable outstanding. The notes bear interest at 12 - 15% per annum and the
principal is due in 2002 and 2003. The Company expects to pay the interest due
in common stock where possible and out of cash flow from operations in all other
instances. The Company repaid $2 million of principal on this debt in May 2001.
The Company expects to repay the remaining principal amounts due in 2002 and
2003 out of cash flows from operations or through a refinancing of the notes at
the time of maturity.

     The Company is seeking to raise up to $20 million of senior and
subordinated debt during fiscal 2002 in order to fund its expansion and to
assist with consolidation opportunities in the Internet market. There can be no
assurances provided that the Company will be successful in its ability to
complete this financing.

     New Frontier Media believes that existing cash and cash generated from
operations will be sufficient to satisfy its operating requirements and the $2.5
million judgment entered against it in the Lipson lawsuit (see Item 3 - Legal
Proceedings). The Company has booked a $2.5 million reserve for this judgment.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK. The Company's exposure to market risk is principally confined to
cash in the bank, money market accounts, and notes payable, which have short
maturities and, therefore, minimal and immaterial market risk.

                                       34
<PAGE>
INTEREST RATE SENSITIVITY. As of June 15, 2001, the Company had cash in checking
and money market accounts. Because of the short maturities of these instruments,
a sudden change in market interest rates would not have a material impact on the
fair value of these assets.

FOREIGN CURRENCY EXCHANGE RISK. The Company does not have any foreign currency
exposure because it currently does not transact business in foreign currencies.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

     (a) By letter dated December 22, 2000, New Frontier Media, Inc. (the
"Company") terminated Spicer, Jeffries & Co. as independent certified
accountants for the Company. The decision to change accountants was recommended
by the Company's Board of Directors.

     The Company's former independent accountants', Spicer, Jeffries & Co.
("Spicer, Jeffries"), annual report covering the two fiscal years ended March
31, 2000 and 1999 did not include an adverse opinion or disclaimer of opinion,
and was not qualified as to the audit scope or accounting principles. The
opinions, however, did include an emphasis of a matter relating to uncertainty
as to the litigation disclosed.

     In connection with the audits of the two most recent fiscal years and
during any subsequent interm periods preceding the termination of Spicer,
Jeffries, there did not develop any disagreement on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure between such former independent certified accountants and management
of the Company or other reportable events which have not been resolved to the
Company's former independent certified accountants' satisfaction. Spicer,
Jeffries had been the Company's independent certified accountants since
approximately June, 1991.

     (b) As of December 22, 2000, the Company engaged Singer, Lewak, Greenbaum &
Goldstein, LLP as the Company's independent auditors to replace Spicer,
Jeffries.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     New Frontier Media will furnish to the Securities and Exchange Commission a
definitive Proxy Statement (the "Proxy Statement") not later than 120 days after
the close of the fiscal year ended March 31, 2001. The information required by
this item is incorporated herein by reference to the Proxy Statement. Also see
"Executive Officers of the Registrant" in Part I of this form.

ITEM 11. EXECUTIVE COMPENSATION

     The information required by this item is incorporated herein by reference
to the Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this item is incorporated herein by reference
to the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this item is incorporated herein by reference
to the Proxy Statement.

                                       35
<PAGE>
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K.

The following documents are filed as part of this report:

1) Financial Statements

   The financial statements listed in the Table of Contents to Consolidated
   Financial Statements are filed as part of this report.

2) Financial Statement Schedules

   All schedules have been included in the Consolidated Financial Statements or
   Notes thereto.

3) Exhibits

                                       36
<PAGE>

<TABLE>
<CAPTION>
    EXHIBITS
     NUMBER                            DESCRIPTION
    --------                           -----------
    <C>        <S>
      3.01     --Articles of Incorporation of Company, with Amendment*
      3.02     --First Amended Bylaws of Company*
      4.01     --Form of Common Stock Certificate*
     10.01     -- Asset Purchase Agreement Among the Company, CSB, Fifth
               Dimension Communications (Barbados) Inc., and Merlin Sierra,
                 Inc.*
     10.02     --Asset Purchase Agreement Among the Company, CSB, and
               1043133 Ontario Inc.*
     10.03     --Asset Purchase Agreement Among the Company, CSB, and
               1248663 Ontario Inc.*
     10.08     -- Employment Agreement, dated December 22, 1998, by and
               between the Company and Mark Kreloff.****
     10.09     -- Employment Agreement, dated December 22, 1998, by and
               between the Company and Michael Weiner.****
     10.10     -- Office Lease Agreement, dated August 12, 1998, for
               premises at 5435 Airport Boulevard, Boulder CO.***
     10.11     --Content License Agreement with Pleasure Productions LLC***
     10.12     -- Stock Purchase Agreement by and between Edward J. Bonn,
               Bradley A. Weber, and Jerry D. Howard and the Company, dated
                 August 19, 1999******
     10.13     -- Employment Agreement, dated October 27, 1999, by and
               between Interactive Gallery, Inc. and Gregory Dumas*******
     10.14     -- Employment Agreement, dated October 27, 1999, by and
               between Interactive Gallery, Inc. and Scott Schalin*******
     10.15     -- Employment Agreement, dated October 27, 1999, by and
               between Interactive Telecom Network, Inc. and Jerry
                 Howard*******
     10.16     -- Employment Agreement, dated October 27, 1999, by and
               between Interactive Telecom Network, Inc. and Brad
                 Weber*******
     10.17     -- Employment Agreement, dated October 27, 1999, by and
               between Interactive Telecom Network, Inc. and Edward
                 Bonn*******
     10.18     -- Employment Agreement, dated August 1, 1999, by and
               between the Company and Karyn Miller*******
     10.19     -- Employment Agreement, dated February 22, 1999, by and
               between Colorado Satellite Broadcasting, Inc. and Ken
                 Boenish*******
     10.20     -- Employment Agreement, dated December 31, 1998, by and
               between the Company and Tom Nyiri*******
     10.21     --Promissory Note between Interactive Gallery, Inc. and Net
               Play Media, Inc.*******
     10.22     -- Amendment to Employment Agreement, dated December 22,
               2000, by and between the Company and Mark Kreloff********
     10.23     -- Amendment to Employment Agreement dated December 22,
               2000, by and between the Company and Michael Weiner********
     21.01     --Subsidiaries of the Company*******
</TABLE>

        * Incorporated by reference to the Company's Registration Statement on
          Form SB-2 (File No. 333-35337)

       ** Incorporated by reference to the Company's Annual Report on Form
          10-KSB for the year ended March 31, 1998.

      *** Incorporated by reference to the Company's Annual Report on Form
          10-KSB for the year ended March 31, 1999.

                                       37
<PAGE>
     **** Incorporated by reference to the Company's Registration Statement No.
          333-75733 on Form S-3 filed on April 6, 1999.

   ***** Incorporated by reference to the Company's Registration Statement on
         Form S-3 filed November 12, 1999 (File No. 333-35337).

  ****** Incorporated by reference to the Company's Proxy Statement Form 14A
         filed on October 13, 1999.

 ******* Incorporated by reference to the Company's Annual Reports on Form
         10-KSB for the year ended March 31, 2000.

******** Filed with this Form 10-K.

REPORTS ON FORM 8-K

     The Company did not file any reports on Form 8-K during the quarter ended
March 31, 2001.

                                       38
<PAGE>
                                   SIGNATURES

     In accordance with the requirements of Section 13 or 15(d) of the Exchange
Act, New Frontier Media has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
                                          NEW FRONTIER MEDIA, INC.
                                          -----------------------------------
                                          Mark H. Kreloff
                                          Chairman of the Board of Directors,
                                          Chief Executive Officer

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

<TABLE>
<CAPTION>
                   NAME AND CAPACITY                          DATE
                   -----------------                          ----
<S>                                                       <C>
/s/ MARK H. KRELOFF                                       June 29, 2001
 .......................................................
Name: Mark H. Kreloff
Title: Chairman of the Board of Directors,
Chief Executive Officer
(Principal Executive Officer)

/s/ MICHAEL WEINER                                        June 29, 2001
 .......................................................
Name: Michael Weiner
Title: Director, Executive Vice President,
Secretary, Treasurer

/s/ KARYN MILLER                                          June 29, 2001
 .......................................................
Name: Karyn Miller
Title: Chief Financial Officer
(Principal Financial and Accounting Officer)

/s/ EDWARD BONN                                           June 29, 2001
 .......................................................
Name: Edward Bonn
Title: Director

/s/ KOUNG Y. WONG                                         June 29, 2001
 .......................................................
Name: Koung Y. Wong
Title: Director

/s/ ALAN ISAACMAN                                         June 29, 2001
 .......................................................
Name: Alan Isaacman
Title: Director

/s/ BRADLEY WEBER                                         June 29, 2001
 .......................................................
Name: Bradley Weber
Title: Director

/s/ HIRAM WOO                                             June 29, 2001
 .......................................................
Name: Hiram Woo
Title: Director
</TABLE>

                                       39
<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                  PAGE
                                                                  ----
<S>                                                            <C>
Independent Auditors' Reports...............................       F-2

Consolidated Balance Sheets.................................       F-4

Consolidated Statements of Operations.......................       F-6

Consolidated Statements of Comprehensive Income (Loss)......       F-7

Consolidated Statements of Changes in Shareholders'
Equity......................................................       F-8

Consolidated Statements of Cash Flows.......................       F-9

Notes to Consolidated Financial Statements..................      F-11

SUPPLEMENTAL INFORMATION

  Reports of Independent Certified Public Accountants on
  Financial Statement Schedules.............................      F-35

  Valuation and Qualifying Accounts -- Schedule II..........      F-37
</TABLE>

                                      F-1
<PAGE>
               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors
New Frontier Media, Inc. and subsidiaries
Boulder, Colorado

     We have audited the accompanying consolidated balance sheet of New Frontier
Media, Inc. and subsidiaries as of March 31, 2001, and the related consolidated
statements of operations, comprehensive income (loss), stockholders' equity and
cash flows for the year ended March 31, 2001. 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 audit.

     We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. 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 audit provides 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, 2001, and the results of their
operations and their cash flows for the year ended March 31, 2001 in conformity
with accounting principles generally accepted in the United States of America.

SINGER LEWAK GREENBAUM & GOLDSTEIN LLP

Los Angeles, California
May 18, 2001

                                      F-2
<PAGE>
                          INDEPENDENT AUDITOR'S REPORT

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

We have audited the consolidated balance sheet of New Frontier Media, Inc. and
subsidiaries as of March 31, 2000, and the related consolidated statements of
operations, changes in shareholders' equity, and cash flows for the years ended
March 31, 2000 and 1999. 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 did not audit the financial
statements of Interactive Gallery, Inc., Interactive Telecom Network, Inc. (100%
owned subsidiaries) or Card Transactions, Inc. (90% owned subsidiary), which
statements reflect total assets of 26 percent at March 31, 2000 and revenues of
65 percent and 69 percent for the years ended March 31, 2000 and 1999 of the
related consolidated totals. Those statements were audited by other auditors
whose report has been furnished to us, and our opinion, insofar as it relates to
the amounts included for Interactive Gallery, Inc., Interactive Telecom Network,
Inc., and Card Transactions, Inc., is based solely on the report of the other
auditors.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 and the reports of the other auditors provide a
reasonable basis for our opinion.

In our opinion, based on our audits and the reports of the other auditors, 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, 2000, and the results of their operations and their
cash flows for the years ended March 31, 2000 and 1999 in conformity with
generally accepted accounting principles.

We previously audited and reported on the consolidated statement of operations
and cash flows of New Frontier Media, Inc. and subsidiaries for the year ended
March 31, 1999, prior to their restatement for the 1999 pooling of interests.
The contribution of New Frontier Media, Inc. and subsidiaries to revenues was
$9,452,423 and to net income (loss) was ($7,581,124) of the restated totals.
Separate financial statements of the other companies included in the 1999
restated consolidated statement of operations and cash flows were audited and
reported on separately by other auditors. We also audited the combination of the
accompanying consolidated balance sheet as of March 31, 2000 and statements of
operations and cash flows for the years ended March 31, 2000 and 1999, after
restatement for the 1999 pooling of interests; in our opinion, such consolidated
statements have been properly combined on the basis described in Note 1 of notes
to consolidated financial statements.

SPICER, JEFFRIES & CO.

Denver, Colorado
May 23, 2000

                                      F-3
<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                                   (IN 000S)
                                     ASSETS

<TABLE>
<CAPTION>
                                                                         MARCH 31,
                                                                  -----------------------
<S>                                                               <C>            <C>
                                                                   2001           2000
                                                                  -------        -------
CURRENT ASSETS:
  Cash and cash equivalents, including restricted cash of
     $705,393 and $684,665, respectively....................      $ 9,373        $ 7,329
  Accounts receivable, net of allowance for doubtful
     accounts of $363,000 and $6,000, respectively..........        5,747          2,996
  Prepaid distribution rights...............................        2,228          1,531
  Prepaid expenses..........................................        2,118            975
  Deferred tax asset........................................        5,365            750
  Due from related party....................................           64              0
  Other.....................................................        1,046            597
                                                                  -------        -------
          TOTAL CURRENT ASSETS..............................       25,941         14,178
                                                                  -------        -------
FURNITURE AND EQUIPMENT, at cost............................       19,230         12,832
  Less: accumulated depreciation and amortization...........       (7,082)        (3,693)
                                                                  -------        -------
          NET FURNITURE AND EQUIPMENT.......................       12,148          9,139
                                                                  -------        -------
OTHER ASSETS:
  Prepaid distribution rights...............................        8,869          6,776
  Excess cost over fair value of net assets acquired, less
     accumulated amortization of $1,981,499 and $1,345,404,
     respectively...........................................        4,379          5,015
  Marketable securities -- available for sale...............           25            188
  Other.....................................................        1,244            992
                                                                  -------        -------
          TOTAL OTHER ASSETS................................       14,517         12,971
                                                                  -------        -------
          TOTAL ASSETS......................................      $52,606        $36,288
                                                                  -------        -------
                                                                  -------        -------
</TABLE>

    The accompanying notes are an integral part of the audited consolidated
                             financial statements.

                                      F-4
<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES

                    CONSOLIDATED BALANCE SHEETS (CONTINUED)
                                   (IN 000S)
                      LIABILITIES AND SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                         MARCH 31,
                                                                  -----------------------
<S>                                                               <C>            <C>
                                                                   2001           2000
                                                                  -------        -------
CURRENT LIABILITIES:
  Accounts payable..........................................      $ 1,632        $ 1,079
  Current portion of obligations under capital lease........        1,459            918
  Deferred revenue..........................................        3,860          3,999
  Reserve for chargebacks/credits...........................          443            452
  Litigation reserve........................................        2,500             --
  Due to related party......................................           --             12
  Distribution payable to shareholders......................           --            672
  Other accrued liabilities.................................        2,981          2,573
                                                                  -------        -------
          TOTAL CURRENT LIABILITIES.........................       12,875          9,705
                                                                  -------        -------
LONG-TERM LIABILITIES:
  Obligations under capital leases, net of current
     portion................................................        1,035          1,120
  Note payable-related parties..............................           --            809
  Note payable..............................................        6,000             --
  Other.....................................................           41             74
                                                                  -------        -------
          TOTAL LONG-TERM LIABILITIES.......................        7,076          2,003
                                                                  -------        -------
          TOTAL LIABILITIES.................................       19,951         11,708
                                                                  -------        -------
SERIES C REDEEMABLE PREFERRED STOCK.........................           --          4,073
SHAREHOLDERS' EQUITY:
  Common stock, $.0001 par value, 50,000,000 shares
     authorized, 20,938,420 and 20,524,636 shares issued and
     outstanding, respectively..............................            2              2
  Preferred stock, $.10 par value, 5,000,000 shares
     authorized:
     Class A, no shares issued and outstanding..............           --             --
     Class B, no shares issued and outstanding..............           --             --
     Additional paid-in capital.............................       43,929         35,335
  Minority interest in subsidiary...........................         (171)           (56)
  Other comprehensive loss..................................          (93)          (438)
  Accumulated deficit.......................................      (11,012)       (14,336)
                                                                  -------        -------
          TOTAL SHAREHOLDERS' EQUITY........................       32,655         20,507
                                                                  -------        -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..................      $52,606        $36,288
                                                                  -------        -------
                                                                  -------        -------
</TABLE>

    The accompanying notes are an integral part of the audited consolidated
                             financial statements.

                                      F-5
<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (IN 000S)

<TABLE>
<CAPTION>
                                                                               MARCH 31,
                                                                 --------------------------------------
<S>                                                              <C>            <C>            <C>
                                                                  2001           2000           1999
                                                                 -------        -------        -------
SALES, net.................................................      $58,638        $45,351        $25,969
COST OF SALES..............................................       29,589         26,504         17,435
                                                                 -------        -------        -------
GROSS MARGIN...............................................       29,049         18,847          8,534
                                                                 -------        -------        -------
OPERATING EXPENSES:
  Sales and marketing......................................        8,715          6,258          5,534
  General and administrative...............................       17,454         11,061          7,555
  Goodwill amortization....................................          636            635            626
                                                                 -------        -------        -------
          TOTAL OPERATING EXPENSES.........................       26,805         17,954         13,715
                                                                 -------        -------        -------
          OPERATING INCOME (LOSS)..........................        2,244            893         (5,181)
                                                                 -------        -------        -------
OTHER INCOME (EXPENSE):
  Income (loss) on trading securities......................           --              6             (5)
  Interest income..........................................          219            170             36
  Interest expense.........................................         (868)          (778)          (365)
  Reserve for legal settlement.............................       (2,019)            --             --
  Loss on write-off of stock...............................         (507)            --             --
                                                                 -------        -------        -------
          TOTAL OTHER INCOME (EXPENSE).....................       (3,175)          (602)          (334)
                                                                 -------        -------        -------
INCOME (LOSS) BEFORE MINORITY INTEREST, INCOME TAXES AND
  DISCONTINUED OPERATIONS..................................         (931)           291         (5,515)
                                                                 -------        -------        -------
  Minority interest in loss of subsidiary..................          115             45             12
                                                                 -------        -------        -------
NET INCOME (LOSS) BEFORE PROVISION FOR
  INCOME TAXES AND DISCONTINUED OPERATIONS.................         (816)           336         (5,503)
  Benefit (provision) for income taxes.....................        4,140            750            (15)
                                                                 -------        -------        -------
          INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS.....        3,324          1,086         (5,518)
                                                                 -------        -------        -------
DISCONTINUED OPERATIONS:
  Loss from operations of discontinued subsidiaries........           --             --           (179)
  Loss on disposal of discontinued subsidiaries............           --             (4)          (138)
                                                                 -------        -------        -------
NET INCOME (LOSS)..........................................      $ 3,324        $ 1,082        $(5,835)
                                                                 -------        -------        -------
                                                                 -------        -------        -------
Basic Earnings (loss) per share
  From continuing operations...............................      $  0.16        $  0.06        $ (0.42)
  From discontinued operations.............................         0.00           0.00          (0.02)
                                                                 -------        -------        -------
     Total basic earnings (loss) per share.................      $  0.16        $  0.06        $ (0.44)
                                                                 -------        -------        -------
                                                                 -------        -------        -------
Diluted Earnings (loss) per share
  From continuing operations...............................      $  0.14        $  0.05        $ (0.42)
  From discontinued operations.............................         0.00           0.00          (0.02)
                                                                 -------        -------        -------
     Total diluted earnings (loss) per share...............      $  0.14        $  0.05        $ (0.44)
                                                                 -------        -------        -------
                                                                 -------        -------        -------
</TABLE>

    The accompanying notes are an integral part of the audited consolidated
                             financial statements.

                                      F-6
<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES

             CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
                                   IN (000'S)

<TABLE>
<CAPTION>
                                                                               MARCH 31,
                                                                 --------------------------------------
<S>                                                              <C>            <C>            <C>
                                                                  2001           2000           1999
                                                                 -------        -------        -------
  Net income (loss)........................................      $ 3,324        $ 1,082        $(5,835)
  Other comprehensive income (loss)
     Unrealized loss on available-for-sale marketable
     securities............................................         (162)          (438)            --
                                                                 -------        -------        -------
       Total comprehensive income (loss)...................      $ 3,162            644        $(5,835)
                                                                 -------        -------        -------
                                                                 -------        -------        -------
</TABLE>

    The accompanying notes are an integral part of the audited consolidated
                             financial statements.

                                      F-7
<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                         COMMON STOCK        (IN 000S)
                                       $.0001 PAR VALUE      ADDITIONAL   (IN 000S)     (IN 000S)      (IN 000S)
                                     ---------------------    PAID-IN     MINORITY    COMPREHENSIVE   ACCUMULATED   (IN 000S)
                                       SHARES     AMOUNTS     CAPITAL     INTEREST    INCOME (LOSS)     DEFICIT       TOTAL
                                     ----------   --------   ----------   ---------   -------------   -----------   ----------
<S>                                  <C>          <C>        <C>          <C>         <C>             <C>           <C>
BALANCES, March 31, 1998..........    6,542,000    $  654     $12,265       $   0         $   0        $ (9,869)        2,397
 Issuance of common stock for ITN/
   IGI/CTI Acquisition............    6,000,000       600       3,147                                                   3,148
 Conversion of debentures plus
   accrued interest into common
   stock..........................    2,474,184       247       1,826                                                   1,826
 Exercise of warrants.............      135,000        14         470                                                     470
 Issuance of common stock for
   license agreement..............      700,000        70       2,184                                                   2,184
 Issuance of common stock for
   services.......................       78,333         8         237                                                     237
 Issuance of common stock in
   private placement, less
   offering costs of $514,323.....    2,610,000       261       4,705                                                   4,705
 Sale of discontinued
   subsidiary.....................           --                (1,121)                                    1,121            --
 Minority Interest................                                            (12)                                        (12)
 Net loss.........................           --                    --                                    (5,835)       (5,835)
                                     ----------    ------     -------       -----         -----        --------      --------
BALANCES, March 31, 1999..........   18,539,517     1,854      23,713         (12)            0         (14,583)        9,120
 Conversion of series C redeemable
   preferred stock plus interest
   into common stock and issuance
   of warrants....................      187,813        19       2,162                                                   2,162
 Exercise of warrants.............    1,166,681       116       5,373                                                   5,373
 Exercise of stock options........      125,625        13         126                                                     126
 Issuance of common stock for
   settlement of lawsuit..........        5,000         1          23                                                      23
 Issuance of common stock for
   license agreement..............      500,000        50       3,938                                                   3,938
 Unrealized losses on
   available-for-sale
   securities.....................                                                         (438)                         (438)
 Distribution to shareholders in
   connection with the elimination
   of related party balances......                                                                          (14)          (14)
 Distribution to shareholders
   (including distribution payable
   of $671,828)...................                                                                         (821)         (821)
 Minority Interest................                                            (44)                                        (44)
 Net income.......................                                                                        1,082         1,082
                                     ----------    ------     -------       -----         -----        --------      --------
BALANCES, March 31, 2000..........   20,524,636     2,053      35,335         (56)         (438)        (14,336)       20,507
 Conversion of series C Preferred
   stock plus accrued interest
   into common stock..............      690,420        69       4,325                                                   4,325
 Exercise of warrants.............      203,842        20         348                                                     348
 Exercise of stock options........       78,658         8          82                                                      82
 Nasdaq settlement................     (589,136)      (59)      1,300                                                   1,300
 Issuance of stock/warrants for
   other..........................       30,000         3         262                                                     262
 Issuance of warrants for debt
   offering.......................                     --         809                                                     809
 Issuance of warrants for equity
   raising........................                     --         236                                                     236
 Issuance of warrants for
   consulting.....................                     --         439                                                     439
 Issuance of warrants for prpd
   interest.......................                     --         369                                                     369
 Tax benefit related to exercise
   of non-statutory stock
   options........................                     --         424                                                     424
 Unrealized losses on
   available-for-sale
   securities.....................                                                         (162)                         (162)
 Permanent impairment to
   investment.....................                                                          507                           507
 Minority Interest................                                           (115)                                       (115)
 Net income.......................                                                                        3,324         3,324
                                     ----------    ------     -------       -----         -----        --------      --------
BALANCES, March 31, 2001..........   20,938,420    $2,094     $43,929       $(171)        $ (93)       $(11,012)     $ 32,655
                                     ----------    ------     -------       -----         -----        --------      --------
                                     ----------    ------     -------       -----         -----        --------      --------
</TABLE>

    The accompanying notes are an integral part of the audited consolidated
                             financial statements.

                                      F-8
<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (IN 000S)

<TABLE>
<CAPTION>
                                                                          YEAR ENDED MARCH 31,
                                                                  -------------------------------------
                                                                    2001          2000           1999
                                                                  --------      --------       --------
<S>                                                               <C>           <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...........................................      $ 3,324       $ 1,082        $(5,835)
     Adjustments to reconcile net income (loss) to net cash
       (used in) provided by operating activities:
     Conversion of interest to common stock.................          233           172             76
     Accretion of interest..................................           69           125             --
     Stock/warrants issued for services and legal
       settlement...........................................          122            23              9
     Recognition of expense related to warrants.............          139            --             --
     Gain on disposal of subsidiary.........................           --            --            (67)
     Depreciation and amortization..........................        6,231         4,167          2,331
     Increase in legal reserve..............................        2,500            --             --
     Minority interest in loss of subsidiary................         (115)          (44)           (12)
     Write-off of marketable securities -- available for
       sale.................................................          507            --             --
     (Gain) Loss on securities..............................           --            (6)             5
     Tax benefit related to the exercise of non-statutory
       stock options........................................          424            --             --
     (Increase) Decrease in operating assets................
            Accounts receivable.............................       (2,752)       (1,950)           363
            Deferred tax asset..............................       (4,615)         (750)            --
            Other assets....................................          245           (72)        (1,098)
            Deposits and prepaid expenses...................         (546)         (117)            93
            Inventories.....................................           --            --            182
            Prepaid distribution rights.....................       (4,775)       (2,634)        (1,369)
     Increase (Decrease) operating liabilities..............
            Accounts payable................................          553        (1,420)         1,313
            Royalties payable...............................          (32)          (24)            (8)
            Deferred revenue, net...........................         (139)         (269)         2,911
            Reserve for chargebacks/credits.................          (10)         (246)           447
            Other accrued liabilities.......................          409         1,186            817
                                                                  -------       -------        -------
               NET CASH (USED IN) PROVIDED BY OPERATING
                 ACTIVITIES.................................        1,772          (777)           158
                                                                  -------       -------        -------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchase of equipment and furniture....................       (4,509)       (4,699)        (1,196)
     Decrease in notes receivable -- related party..........           --            --            100
     Proceeds from trading securities.......................           --            56            138
                                                                  -------       -------        -------
          NET CASH USED IN INVESTING ACTIVITIES.............       (4,509)       (4,643)          (958)
                                                                  -------       -------        -------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Payments on capital lease obligations..................       (1,327)         (865)          (552)
     Payment of related party notes payable.................         (885)       (1,598)          (802)
     Increase (decrease) in note payable....................        6,000            --           (500)
     Issuance of common stock...............................        1,733         5,522          6,935
     Issuance of Series C preferred stock...................           --         6,000             --
     Distribution to shareholders...........................         (672)         (150)        (2,208)
     Increase in debt offering cost.........................          (68)         (180)            --
                                                                  -------       -------        -------
          NET CASH PROVIDED BY FINANCING ACTIVITIES.........        4,781         8,729          2,873
                                                                  -------       -------        -------
</TABLE>

    The accompanying notes are an integral part of the audited consolidated
                             financial statements.

                                      F-9
<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (IN 000S)
                                  (CONCLUDED)

<TABLE>
<CAPTION>
                                                                          YEAR ENDED MARCH 31,
                                                                  -------------------------------------
                                                                    2001          2000           1999
                                                                  --------      --------       --------
<S>                                                               <C>           <C>            <C>
NET INCREASE IN CASH........................................      $ 2,044       $ 3,309        $ 2,073
CASH, beginning of year.....................................        7,329         4,020          1,947
                                                                  -------       -------        -------
CASH, end of year...........................................      $ 9,373       $ 7,329        $ 4,020
                                                                  -------       -------        -------
                                                                  -------       -------        -------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
     Interest paid..........................................      $   620       $   488        $   266
                                                                  -------       -------        -------
                                                                  -------       -------        -------
     Income taxes paid......................................      $    --       $    --        $    13
                                                                  -------       -------        -------
                                                                  -------       -------        -------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
  ACTIVITIES:
     Purchase of equipment via capital lease obligation.....      $ 1,783       $ 1,096        $ 1,653
                                                                  -------       -------        -------
                                                                  -------       -------        -------
     Common stock/warrants issued for prepaid distribution
       right license........................................      $    77       $ 3,938        $ 2,184
                                                                  -------       -------        -------
                                                                  -------       -------        -------
     Allocation of preferred stock proceeds to warrants.....      $    --       $   752        $    --
                                                                  -------       -------        -------
                                                                  -------       -------        -------
     Receipt of available for sale securities in exchange
       for services to be provided over a five year
       period...............................................      $    --       $   625        $    --
                                                                  -------       -------        -------
                                                                  -------       -------        -------
     Acquired domain names with a note payable to a related
       party................................................      $    --       $   809        $    --
                                                                  -------       -------        -------
                                                                  -------       -------        -------
     Distribution to shareholders in connection with the
       elimination of related party balances................      $    --       $    14        $    --
                                                                  -------       -------        -------
                                                                  -------       -------        -------
     Warrants issued for equity raising.....................      $   236       $    --        $    --
                                                                  -------       -------        -------
                                                                  -------       -------        -------
     Warrants issued for debt raising.......................      $   810       $    --        $    --
                                                                  -------       -------        -------
                                                                  -------       -------        -------
     Common stock issued for investment.....................      $    90       $    --        $    --
                                                                  -------       -------        -------
                                                                  -------       -------        -------
     Warrants issued for prepaid interest...................      $   369       $    --        $    --
                                                                  -------       -------        -------
                                                                  -------       -------        -------
     Reclassification from deposits to furniture and
       equipment............................................      $   251       $    --        $    --
                                                                  -------       -------        -------
                                                                  -------       -------        -------
     Warrants issued for prepaid consulting fees............      $   359       $    --        $    --
                                                                  -------       -------        -------
                                                                  -------       -------        -------
     Conversion of redeemable preferred stock to common
       stock................................................      $ 4,325       $    --        $    --
                                                                  -------       -------        -------
                                                                  -------       -------        -------
</TABLE>

    The accompanying notes are an integral part of the audited consolidated
                             financial statements.

                                      F-10
<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION

     The accompanying audited consolidated financial statements include the
accounts of New Frontier Media, Inc. ("the Company" or "New Frontier Media") and
its wholly owned subsidiaries Colorado Satellite Broadcasting, Inc. d/b/a The
Erotic Networks ("CSB" or "TEN"), David Entertainment, Inc. ("David"),
Interactive Telecom Network, Inc. ("ITN"), Interactive Gallery, Inc. ("IGI") and
90% of Card Transactions, Inc. ("CTI"). The Company discontinued operations of
David during the year ended March 31, 1999. On October 27, 1999, the Company
completed its acquisition of 100% of ITN and IGI and 90% of CTI. These
acquisitions have been accounted for in the accompanying financial statements as
a pooling of interests. The accompanying financial statements for 2000 are based
on the assumption that the companies were combined for the full year, and
financial statements of the prior year have been restated to give effect to the
combination.

BUSINESS

     New Frontier Media is a publicly traded holding company for the operating
subsidiaries.

     TEN is a leading provider of adult programming to multi-channel television
providers and low powered direct-to-home C-Band households. Through its six
networks, Pleasure, TeN, ETC, Extasy, True Blue and X-Cubed, TEN is able to
provide a variety of editing styles and programming mixes that appeal to a broad
range of adult customers.

     IGI is a leading aggregator and reseller of adult content via the Internet.
IGI aggregates adult-recorded video, live-feed video and still photography from
adult content studios and distributes it via its membership websites and
Pay-Per-View feeds. In addition, IGI resells its aggregated content to
third-party web masters and resells its Internet traffic that does not convert
into memberships.

     ITN serves as a single source for a comprehensive range of high-performance
Internet products and services, including Internet/Broadband Service Provider
services, dedicated access, web hosting, co-location, streaming media, and
bandwidth management.

     CTI is a provider of various Internet billing options including secure,
fully automated credit card payment processing to IGI.

PRINCIPLES OF CONSOLIDATION

     The accompanying consolidated financial statements include the accounts of
New Frontier Media, Inc. and its majority owned subsidiaries (collectively
hereinafter referred to as New Frontier Media or the Company). All intercompany
accounts and transactions have been eliminated in consolidation.

USE OF ESTIMATES

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Although these estimates are based on management's knowledge
of current events and actions it may undertake in the future, they may
ultimately differ from actual results.

RECLASSIFICATIONS

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

                                      F-11
<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

MARKETABLE SECURITIES

     Marketable securities are classified as available-for-sale securities as
defined by Statement of Financial Accounting Standard (SFAS) No. 115, Accounting
for Certain Investments in Debt and Equity Securities. These securities are
stated at fair value and unrealized holding gains and losses are reflected as a
net amount as a separate component of shareholders' equity.

     When an other-than-temporary impairment loss on an individual security
classified as an available-for-sale security is considered to have occurred, the
cost basis of the individual security is written down, and such a write-down is
recorded in earnings.

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 the straight-line
method over the estimated useful life of three to five years.

INCOME TAXES

     The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred income taxes are
recognized for the tax consequences in future years of differences between the
tax bases of assets and liabilities and their financial reporting amounts at
each period end based on enacted tax laws and statutory tax rates applicable to
the periods in which the differences are expected to affect taxable income.
Valuation allowances are established, when necessary, to reduce deferred tax
assets to the amount expected to be realized. The provision for income taxes
represents the tax payable for the period and the change during the period in
deferred tax assets and liabilities.

CASH EQUIVALENTS

     Cash equivalents are short-term, highly liquid investments that are both
readily convertible to cash and have original maturities of three months or less
at the time of acquisition. The Company has several merchant accounts, which
require the Company to maintain reserve accounts. These reserve accounts are
restricted from the Company's daily operations. As of March 31, 2001 and 2000,
the reserve accounts totaled $705,393 and $684,665, respectively.

PREPAID DISTRIBUTION RIGHTS

     Prepaid distribution rights represent content license agreements. These
rights typically range from one to ten years. The Company amortizes these rights
on a straight line basis over the respective terms of the agreements.

REVENUE RECOGNITION

     Revenue from sales of movie subscriptions, ranging from one to twelve
months, is recognized on a monthly basis over the term of the subscription.
Revenue from internet membership fees is recognized over the life of the
membership. The Company provides an allowance for refunds based on expected
membership cancellations, credits and chargebacks. Revenue from processing fees
is recorded in the period services are rendered. A significant portion of the
Company's Internet sales are from the United States. International sales were
$5,411,223, $5,141,352 and $1,500,634 for the years ended March 31, 2001, 2000
and 1999, respectively.

                                      F-12
<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     After giving consideration to guidance provided by SEC Staff Accounting
Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements, the Company
changed certain revenue recognition policies affecting the Internet Group. These
changes affected the reporting of sales for membership revenue, net of credits
and chargebacks. These changes reduced sales and cost of goods sold by
$2,725,000, $3,566,000, and $4,226,000 for the years ended March 31, 2001, 2000
and 1999, respectively. The change has no effect on net income (loss).

LONG-LIVED ASSETS

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

ADVERTISING COSTS

     The Company expenses advertising costs as incurred. Advertising costs for
the years ended March 31, 2001, 2000 and 1999 were $3,448,362, $4,262,190, and
$3,626,504, respectively.

EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED

     The excess of the purchase price over the estimated fair value of the
assets acquired has been recorded as excess cost over fair value of net assets
acquired, and is being amortized on a straight-line basis over 10 years. For the
years ended March 31, 2001, 2000, and 1999, amortization expense was $636,095,
$635,522 and $626,000 respectively. When events and circumstances so indicate,
all long-term assets, including the excess cost over fair value of net assets
acquired, are assessed for recoverability based upon cash flow forecasts. As of
March 31, 2001, the Company has not recognized any impairment losses.

DEFERRED OFFERING COSTS

     Amounts paid for costs associated with an anticipated equity offering are
capitalized and will be recorded as a reduction to additional paid-in capital
upon the completion of the funding. In the event that the equity funding is not
successful, the deferred offering costs will be charged to expense. As of March
31, 2001, and 2000, the Company capitalized deferred offering costs of $236,250,
and $152,500 respectively. These amounts are included in other currents assets
on the balance sheet.

DEBT ISSUE COSTS

     Fees and warrants issued in connection with the issuance of notes payable
and letters of credit were capitalized and are being amortized using the
straight-line method over the term of the notes. As of March 31, 2001 and 2000,
the Company capitalized debt issue costs of $883,195 and $0 respectively, net of
accumulated amortization of $146,361 and $0 respectively. Of these amounts,
$514,764 and $368,431 are included in other current assets and other long-term
assets on the balance sheet.

STOCK-BASED COMPENSATION

     SFAS No. 123, "Accounting for Stock-Based Compensation," established and
encourages the use of the fair value based method of accounting for stock-based
compensation arrangements under which compensation costs are determined using
the fair value of stock-based compensation determined as of the date of grant.
It is recognized over the periods in which the related services are rendered.
For

                                      F-13
<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

stock-based compensation issued to non-employees, the Company uses the fair
value method of accounting under the provision of SFAS No. 123.

COMPREHENSIVE INCOME

     The Company utilizes Statement of Financial Accounting Standards ("SFAS")
No. 130, "Reporting Comprehensive Income." This statement establishes standards
for reporting comprehensive income and its components in a financial statement.
Comprehensive income as defined includes all changes in equity (net assets)
during a period from non-owner sources. Examples of items to be included in
comprehensive income, which are excluded from net income, include foreign
currency translation adjustments and unrealized gains and losses on
available-for-sale securities.

FAIR VALUE OF FINANCIAL INSTRUMENTS

     The Company measures its financial assets and liabilities in accordance
with generally accepted accounting principles. For certain of the Company's
financial instruments, including cash, accounts receivable, accounts payable,
and accrued expenses and other liabilities, the carrying amounts approximate
fair value due to their short maturities. The amount shown for note payable --
related party also approximates fair value because current interest rates
offered to the Company for debt of similar maturities were substantially the
same.

INCOME (LOSS) PER COMMON SHARE

     The Company adopted the provisions of SFAS No. 128, Earnings per Share.
SFAS 128 simplifies the previous standards for computing earnings per share and
requires dual presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     In March 2000, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation," (an Interpretation of Accounting Principles Bulletin Opinion No.
25 ("APB 25")) ("FIN 44"). FIN 44 provides guidance on the application of APB
25, particularly as it relates to options. The effective date of FIN 44 is July
1, 2000, and the Company has adopted FIN 44 as of that date.

     In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Instruments and Certain Hedging Activities." This statement is not applicable to
the Company.

     In June 2000, the FASB issued SFAS No. 139, "Rescission of FASB Statement
No. 53 and Amendments to Statements No. 63, 89, and 121." This statement is not
applicable to the Company.

     In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities, a
replacement of FASB Statement No. 125." This statement is not applicable to the
Company.

NOTE 2 -- ACQUISITIONS

     On October 27, 1999, the Company acquired ITN, IGI, and 90% of CTI. ITN is
a leading Internet technology and e-commerce company that provides turnkey
Internet software engineering and bandwidth management. IGI is a leading
aggregator and reseller of adult content via the Internet. CTI is a transaction
processing company. Under the terms of the acquisition, which was accounted for
as a pooling of interests, the Company exchanged 6,000,000 shares of restricted
common stock for all of the outstanding stock in ITN and IGI and 90% of the
outstanding stock of CTI.

                                      F-14
<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The unaudited summarized results of operations of the separate companies
for the period April 1, 1999 through October 26, 1999 (date of acquisition), are
as follows (in thousands):

<TABLE>
<CAPTION>
                                                                      ACQUIRED
                                                    COMPANY           COMPANIES
                                                    ---------         ---------
<S>                                                  <C>              <C>
Net sales.....................................       $ 8,690           $17,126
Net income....................................       $(2,769)          $ 1,987
</TABLE>

     The unaudited summarized assets and liabilities of the separate companies
on October 26, 1999, were as follows (in thousands):

<TABLE>
<CAPTION>
                                                                      ACQUIRED
                                                    COMPANY          COMPANIES
                                                   ---------         ---------
<S>                                                  <C>              <C>
Cash and cash equivalents.....................        $6,761           $   765
Other current assets..........................        10,274               906
Property, plant & equipment...................         3,040             2,278
Other assets..................................         6,664               432
                                                     -------           -------
                                                      26,739             4,381
Current liabilities...........................       (20,610)           (3,697)
Long-term debt................................        (6,591)             (670)
                                                     -------           -------
Equity........................................       $  (462)          $    14
                                                     -------           -------
                                                     -------           -------
</TABLE>

     Following is a reconciliation of the amounts of net sales and net income
previously reported for the year ended March 31, 1999 with restated amounts (in
thousands):

<TABLE>
<CAPTION>
                                                              YEAR ENDED
                                                            MARCH 31, 1999
                                                            --------------
<S>                                                         <C>
Net sales and other revenue:
     As previously reported.....................               $ 9,452
     Acquired companies.........................                16,517
                                                               -------
     As restated................................               $25,969
                                                               -------
                                                               -------
Net income:
     As previously reported.....................               $(7,581)
     Acquired companies.........................                 1,746
                                                               -------
     As restated................................               $(5,835)
                                                               -------
                                                               -------
</TABLE>

                                      F-15
<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 3 -- FURNITURE AND FIXTURES

     Property and equipment at March 31, 2001 and 2000 consisted of the
following:

<TABLE>
<CAPTION>
                                                                 2001             2000
                                                                 ----             ----
<S>                                                           <C>              <C>
Furniture, fixtures and equipment.......................      $   689,639      $   498,303
Software................................................          274,232          183,389
Computer equipment......................................        7,314,578        4,788,093
Capitalized leased equipment............................        5,224,781        3,976,997
Capitalized URLs........................................        4,748,757        3,099,307
Leasehold improvements..................................          320,857          286,103
Assets in the course of construction....................          656,824               --
                                                              -----------      -----------
                                                               19,229,668       12,832,192
Less accumulated depreciation and amortization
  (including $2,666,206 and $1,591,231, respectively for
  capitalized leases)...................................        7,082,376        3,693,329
                                                              -----------      -----------
TOTAL...................................................      $12,147,292      $ 9,138,863
                                                              -----------      -----------
                                                              -----------      -----------
</TABLE>

     Depreciation and amortization expense was $3,389,047 and $2,496,083 for the
years ended March 31, 2001 and 2000, respectively.

NOTE 4 -- EARNINGS PER SHARE

     Basic earnings per share is computed on the basis of the weighted average
number of common shares outstanding. Diluted earnings per share is computed on
the basis of the weighted average number of common shares outstanding plus the
effect of outstanding warrants and stock options using the "treasury stock"
method.

     The components of basic and diluted earnings per share are as follows:

                               EARNINGS PER SHARE
                                   (IN 000S)

<TABLE>
<CAPTION>
                                                                12 MONTHS ENDED
                                                                   MARCH 31,
                                                      ------------------------------------
                                                        2001          2000          1999
                                                      --------      --------      --------
<S>                                                   <C>           <C>           <C>
Net income (loss) available for common
  shareholders..................................      $  3,324      $  1,082      $ (5,835)
                                                      --------      --------      --------
                                                      --------      --------      --------
Average outstanding shares of common stock......        20,702        19,257        13,288
Dilutive effect of:
Warrants/Employee Stock Options.................         2,361         1,926            --
                                                      --------      --------      --------
Common stock and common stock equivalents.......        23,063        21,183        13,288
                                                      --------      --------      --------
                                                      --------      --------      --------
Earnings per share:
Basic...........................................      $    .16      $    .06      $   (.44)
Diluted.........................................      $    .14      $    .05      $   (.44)
</TABLE>

                                      F-16
<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 5 -- SHAREHOLDERS' EQUITY

     On June 3, 1998, the Company sold $1,750,000 of 8% convertible debentures,
interest due quarterly and due on June 3, 2000. The debentures were convertible
into shares of common stock of the Company at a conversion price for each share
of common stock equal to the lesser of: (a) 125% of the closing price or (b) 90%
of the market price on the conversion date. During the year ended March 31,
1999, these debentures plus accrued interest of $76,219 were converted into
2,474,184 shares of the Company's common stock. In addition, the debenture
holders received 175,000 common stock purchase warrants exercisable at $3.47875
per share expiring in July, 2001. In March 1999, 135,000 of these warrants were
exercised and in May 1999 the remaining 40,000 warrants were exercised.

     In February 1999, the Company issued 700,000 shares of its common stock to
an unrelated entity at $2.12 per share for consideration in obtaining a license
agreement for the rights to distribute approximately 4,000 adult motion
pictures. In addition, the Company issued a five year common stock purchase
warrant valued at $1.00 per share to purchase 700,000 shares of the Company's
common stock at an exercise price of $1.12 per share.

     In March 1999, the Company issued 2,610,000 common shares at $2.00 per
share pursuant to a private placement less offering costs of $514,323.

     In July 1999, New Frontier Media issued 500,000 shares of its common stock
to Metro Global Media, Inc. ("Metro") at $7.875 per share as consideration in
obtaining a license agreement for the rights to distribute the entity's 3,000
title adult film and video library and multi-million still image archive. In
addition, the Company issued 100,000 warrants to purchase its common stock at an
exercise price equal to the market value of the stock on the date the warrants
were issued.

     In August 1999, the Company raised $3,901,177 less redemption costs of
$43,749 through the exercise of 600,181 of its 1,500,000 publicly traded
warrants to purchase common stock. These warrants had been called by the Company
in June 1999 with a redemption date of August 13, 1999. The remaining
outstanding warrants were redeemed at $.05 per share.

     On October 27, 1999, the Company completed its acquisition of ITN and IGI
and 90% of CTI. Under the terms of the Stock Purchase Agreement, New Frontier
Media issued 6,000,000 shares of the Company's restricted common stock to the
Sellers of the companies. This acquisition has been accounted for as a pooling
of interests.

     In October 1999, the Company issued 5,000 shares of its common stock as
part of a settlement of a lawsuit to which it was a party.

     During the years ended March 31, 2001 and 2000, the Company issued 690,420
and 187,813 shares, respectively, of its common stock for the conversion of 470
and 130 shares, respectively, of Series C Convertible Redeemable Preferred Stock
and related interest.

     During the years ended March 31, 2001, 2000, and 1999, the Company issued
an aggregate of 207,000, 1,166,681, and 135,000 shares, respectively, of common
stock in connection with the exercise of warrants for each of $268,000,
$5,374,490, and $469,632, respectively.

     During the years ended March 31, 2001, 2000, and 1999, the Company issued
an aggregate of 78,658, 125,625, and 0 shares, respectively, of common stock in
connection with the exercise of stock options for cash of $90,000, $125,625, and
$0, respectively.

     During the years ended March 31, 2001, 2000, and 1999, the Company issued
an aggregate of 10,000, 0, and 78,333 shares, respectively, of common stock in
exchange for services rendered valued at $17,000, $0, and $236,867,
respectively, which is the fair market value of the services rendered.

                                      F-17
<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     During the year ended March 31, 2001, the Company obtained a 2% interest in
a company in exchange for issuing 20,000 shares of common stock valued at
$90,000.

NOTE 6 -- STOCK OPTIONS AND WARRANTS

STOCK OPTION PLANS

     The Company has adopted three stock option plans: the 1998 Incentive Stock
Option Plan, the 1999 Incentive Stock Option Plan, and the Millennium Incentive
Stock Option Plan. The shares issued pursuant to the plans are restricted shares
until or unless registered by the Company.

1998 Incentive Stock Option Plan

     Under the 1998 Incentive Stock Option Plan (the "1998 Plan"), options may
be granted by the Compensation Committee to officers, employees, and directors.
Options granted under the 1998 Plan may either be incentive stock options or
non-qualified stock options. The aggregate number of shares that may be issued
pursuant to the 1998 Plan is 750,000 over the life of the 1998 Plan. The maximum
number of shares of common stock subject to options of any combination that may
be granted during any 12-consecutive-month period to any one individual is
limited to 250,000 shares. Incentive stock options may only be issued to
employees of the Company or subsidiaries of the Company. The exercise price of
the options is determined by the Compensation Committee, but in the case of
incentive stock options, the exercise price may not be less than 100% of the
fair market value on the date of grant.

     No incentive stock option may be granted to any person who owns more than
10% ("10% Shareholders") of the total combined voting power of all classes of
the Company's stock unless the exercise price is at least equal to 110% of the
fair market value on the date of grant. No incentive stock options may be
granted to an optionee if the aggregate fair market value of the stock with
respect to which incentive stock options are exercisable by the optionee in any
calendar year under all such plans of the Company and its affiliates exceeds
$100,000. Options may be granted under the 1998 Plan for terms of up to 10
years, except for incentive stock options granted to 10% Shareholders, which are
limited to the five-year terms.

     The 1998 Plan is effective as of July 21, 1998 and will terminate at the
close of business on July 21, 2008.

1999 Incentive Stock Option Plan

     Under the 1999 Incentive Stock Option Plan (the "1999 Plan"), options may
be granted by the Compensation Committee to officers, employees, and directors.
Options granted under the 1999 Plan may either be incentive stock options or
non-qualified stock options. The aggregate number of shares that may be issued
pursuant to the 1999 Plan is 1,500,000 over the life of the 1999 Plan. The
maximum number of shares of common stock subject to options of any combination
that may be granted during any 12-consecutive-month period to any one individual
is limited to 250,000 shares. Incentive stock options may only be issued to
employees of the Company or subsidiaries of the Company. The exercise price of
the options is determined by the Compensation Committee, but in the case of
incentive stock options, the exercise price may not be less than 100% of the
fair market value on the date of grant.

     No incentive stock option may be granted to any person who is a 10%
Shareholder unless the exercise price is at least equal to 110% of the fair
market value on the date of grant. No incentive stock options may be granted to
an optionee if the aggregate fair market value of the stock with

                                      F-18
<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
respect to which incentive stock options are exercisable by the optionee in any
calendar year under all such plans of the Company and its affiliates exceeds
$100,000. Options may be granted under the 1999 Plan for terms of up to 10
years, except for incentive stock options granted to 10% Shareholders, which are
limited to the five-year terms.

     The 1999 Plan is effective as of June 18, 1999 and will terminate at the
close of business on June 18, 2009.

Millennium Incentive Stock Option Plan

     Under the Millennium Incentive Stock Option Plan (the "2000 Plan"), options
may be granted by the Compensation Committee to officers, employees, and
directors. Options granted under the 2000 Plan may either be incentive stock
options or non-qualified stock options. The aggregate number of shares that may
be issued pursuant to the 2000 Plan is 2,500,000 over the life of the 2000 Plan.
The maximum number of shares of common stock subject to options of any
combination that may be granted during any 12-consecutive-month period to any
one individual is limited to 250,000 shares. Incentive stock options may only be
issued to employees of the Company or subsidiaries of the Company. The exercise
price of the options is determined by the Compensation Committee, but in the
case of incentive stock options, the exercise price may not be less than 100% of
the fair market value on the date of grant.

     No incentive stock option may be granted to any person who is a 10%
Shareholder unless the exercise price is at least equal to 110% of the fair
market value on the date of grant. No incentive stock options may be granted to
an optionee if the aggregate fair market value of the stock with respect to
which incentive stock options are exercisable by the optionee in any calendar
year under all such plans of the Company and its affiliates exceeds $100,000.
Options may be granted under the 2000 Plan for terms of up to 10 years, except
for incentive stock options granted to 10% Shareholders, which are limited to
the five-year terms.

     The 2000 Plan is effective as of July 13, 2000 and will terminate at the
close of business on July 13, 2010.

General

     The 2000, 1999, and 1998 Plans were adopted to provide the Company with a
means to promote the long-term growth and profitability of the Company by:

     i)  Providing key people with incentives to improve stockholder value and
         to contribute to the growth and financial success of the Company.

     ii) Enabling the Company to attract, retain, and reward the best available
         people for positions of substantial responsibility.

CONSULTANT STOCK PLANS

     The Company has adopted two Consultant Stock Plans: the 1999 Consultant
Stock Plan and the Millennium Consultant Stock Plan.

1999 Consultant Stock Plan

     Under the 1999 Consultant Stock Plan (the "1999 Consultant Plan"), awards
may be granted by the Board of Directors, who have sole discretion. The maximum
number of shares of common stock to which awards may be granted under the 1999
Consultant Plan is 500,000 shares.

                                      F-19
<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The 1999 Consultant Plan is effective as of March 18, 1999, and the Board
of Directors may suspend or terminate it at any time or from time to time.
However, no such action shall adversely affect the rights of a person awarded a
grant under the 1999 Consultant Plan prior to that date.

Millennium Consultant Stock Plan

     Under the Millennium Consultant Stock Plan (the "2000 Consultant Plan"),
awards may be granted by the Board of Directors, who have sole discretion. The
maximum number of shares of common stock to which awards may be granted under
the 2000 Consultant Plan is 500,000 shares.

     The 2000 Consultant Plan is effective as of December 15, 2000, and the
Board of Directors may suspend or terminate it at any time or from time to time.
However, no such action shall adversely affect the rights of a person awarded a
grant under the 2000 Consultant Plan prior to that date.

General

     The 2000 and 1999 Consultant Plans were adopted to further the growth of
the Company and its subsidiaries by allowing the Company to compensate
consultants and certain other people providing bona fide services to the
Company.

COMMON STOCK WARRANTS

     Common stock warrants have been issued in connection with the acquisition
of assets, the acquisition of license agreements, and legal settlements. The
following table describes certain information relating to these warrants.

<TABLE>
<CAPTION>
              EXPIRATION DATE                     WARRANTS          EXERCISE PRICE
              ---------------                     --------          --------------
<S>                                               <C>               <C>
September, 2002............................          92,500             $6.00
February, 2003.............................         100,000             $6.75
February, 2004.............................         700,000             $1.12
July, 2004.................................         100,000             $7.88
September, 2004............................         400,000             $5.00
September, 2004............................         360,000             $7.87
                                                  ---------
                                                  1,752,500
                                                  ---------
                                                  ---------
</TABLE>

WARRANTS

     1) During the year ended March 31, 2001, the Company issued 658,808
warrants to purchase common stock. The warrants were issued in exchange for loan
fees. The warrants were valued at $809,556, which were capitalized as debt issue
costs and are being amortized over the life of the loan. The warrants expire
through January 2004.

     2) During the year ended March 31, 2001, the Company issued 375,000
warrants to purchase common stock. The warrants were issued in exchange for
equity finance raising fees. The warrants were valued at $236,250, which was
capitalized as debt deferred offering cost. The warrants expire through March
2004.

     3) During the year ended March 31, 2001, the Company issued 310,000
warrants to purchase common stock. The warrants were issued in exchange for
consulting fees. The warrants were valued at

                                      F-20
<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$358,750, which were capitalized as prepaid expenses and are being amortized
over the term of the consulting agreements. The warrants expire through December
2005.

     4) During the year ended March 31, 2001, the Company issued 300,000
warrants to purchase common stock. The warrants were issued in payment of the
interest and fees on an irrevocable standby letter of credit. The warrants were
valued at $369,000, which were capitalized as prepaid interest and are being
amortized over the term of the agreement. The warrants expire in December 2003.

     5) During the year ended March 31, 2001, the Company issued 16,500 warrants
to purchase common stock. The warrants were issued in exchange for distribution
rights. The warrants were valued at $76,610, which were capitalized as prepaid
distribution rights and are being amortized over the term of the distribution
rights agreements. The warrants expire in May 2003.

     6) During the year ended March 31, 2001, the Company issued 40,000 warrants
to purchase Common Stock. The warrants were issued in exchange for consulting
fees. The warrants were valued at $79,800, which was expensed during the year
ended March 31, 2001. The warrants expire in October 2005.

     7) During the year ended March 31, 2001, the Company issued 100,000
warrants to purchase Common Stock. The warrants were issued in settlement of a
legal dispute. The warrants were valued at $80,211, which was expensed during
the year ended March 31, 2001. The warrants expire in June 2003.

                                      F-21
<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

SUMMARY INFORMATION

     The following table describes certain information related to the Company's
compensatory stock option and warrant activity for the years ending March 31,
2001, 2000, and 1999:

<TABLE>
<CAPTION>
                                                                                           WEIGHTED-
                                                                                            AVERAGE
                                           STOCK                              EXERCISE     EXERCISE
                                          OPTIONS    WARRANTS      TOTAL     PRICE RANGE     PRICE
                                         ---------   ---------   ---------   -----------   ---------
<S>                                      <C>         <C>         <C>         <C>           <C>
Balances at March 31, 1998.............         --     146,666     146,666   $      6.00     $6.00

     Granted...........................    735,500   2,030,000   2,765,500   $ 1.00-8.50     $1.88
                                         ---------   ---------   ---------

Balances at March 31, 1999.............    735,500   2,176,666   2,912,166   $ 1.00-8.50     $2.09

     Granted...........................  1,568,700     774,642   2,343,342   $1.00-10.00     $5.03

     Exercised.........................   (130,625)   (482,000)   (612,625)  $ 1.00-6.75     $2.03

     Expired...........................         --    (246,668)   (246,668)  $ 1.00-6.00     $4.07

     Forfeited.........................    (25,500)    (22,000)    (47,500)  $ 1.00-9.50     $3.38
                                         ---------   ---------   ---------

Balances at March 31, 2000.............  2,148,075   2,200,640   4,348,715   $1.00-10.50     $3.61

     Granted...........................  2,275,250   1,800,308   4,075,558   $2.00-10.25     $2.66

     Exercised.........................    (78,658)   (207,000)   (285,658)  $ 1.00-4.50     $0.92

     Forfeited.........................   (199,784)   (230,000)   (429,784)  $2.00-10.50     $0.49
                                         ---------   ---------   ---------

BALANCES AT MARCH 31, 2001.............  4,144,883   3,563,948   7,708,831   $1.00-10.25     $3.09
                                         ---------   ---------   ---------
                                         ---------   ---------   ---------

NUMBER OF OPTIONS AND WARRANTS
  EXERCISABLE AT MARCH 31, 1999........         --   1,031,666   1,031,666   $ 1.00-6.00     $4.13
                                         ---------   ---------   ---------
                                         ---------   ---------   ---------

NUMBER OF OPTIONS AND WARRANTS
  EXERCISABLE AT MARCH 31, 2000........    443,332   1,099,974   1,543,306   $ 1.00-9.00     $2.41
                                         ---------   ---------   ---------
                                         ---------   ---------   ---------

NUMBER OF OPTIONS AND WARRANTS
  EXERCISABLE AT MARCH 31, 2001........  1,100,032   2,538,446   3,638,478   $1.00-10.00     $3.20
                                         ---------   ---------   ---------
                                         ---------   ---------   ---------
</TABLE>

                                      F-22
<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following table summarizes additional information regarding all stock
options and warrants outstanding at March 31, 2001:

<TABLE>
<CAPTION>
                                  OPTIONS AND WARRANTS OUTSTANDING                 OPTIONS AND WARRANTS
                         --------------------------------------------------             EXERCISABLE
                                             WEIGHTED-                        -------------------------------
                             NUMBER           AVERAGE          WEIGHTED-          NUMBER         WEIGHTED-
         RANGE OF        OUTSTANDING AT      REMAINING          AVERAGE       EXERCISABLE AT      AVERAGE
      EXERCISE PRICES    MARCH 31, 2001   CONTRACTUAL LIFE   EXERCISE PRICE   MARCH 31, 2001   EXERCISE PRICE
      ---------------    --------------   ----------------   --------------   --------------   --------------
    <S>                  <C>              <C>                <C>              <C>              <C>
    $1.00- $2.00           3,566,049         7.69 years          $ 1.60         1,447,601          $ 1.09

    $2.01- $3.00           1,935,474         3.06 years          $ 2.34         1,457,418          $ 2.39

    $3.01- $5.00           2,351,750         5.54 years          $ 4.40         1,264,329          $ 4.51

    $5.01- $7.00             929,475         5.40 years          $ 5.90           588,799          $ 6.00

    $7.01- $9.00             652,833         3.43 years          $ 7.85           624,498          $ 7.86

    $9.01-$10.50              25,750         2.76 years          $10.01             8,333          $10.00
                           ---------                                            ---------

                           9,461,331                                            5,390,978
                           ---------                                            ---------
                           ---------                                            ---------
</TABLE>

     Pro forma information regarding net income (loss) and earnings (loss) per
share is required by SFAS No. 123 and has been determined as if the Company had
accounted for its employee stock options under the fair value method of SFAS No.
123. The fair value for these options was estimated at the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions for the years ended March 31, 2001 and 2000: risk free interest
rates of 5.6% and 6.2% to 6.8%, respectively; dividend yields of 0% and 0%,
respectively; expected lives of 2.25 years and 1.5 to 10 years, respectively;
and expected volatility of 100% and 112%, respectively.

     The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

                                      F-23
<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options vesting period. Adjustments are
made for options forfeited prior to vesting. The effect on compensation expense,
net income (loss), and net earnings (loss) per common share had compensation
costs for the Company's stock option plans been determined based on a fair value
at the date of grant consistent with the provisions of SFAS No. 123 for the
years ended March 31, 2001, 2000 and 1999 is as follows:

<TABLE>
<CAPTION>
                                                               (IN 000S)         (IN 000S)         (IN 000S)
                                                                 2001              2000              1999
                                                               ---------         ---------         ---------
<S>                                                            <C>               <C>               <C>
Net income (loss)
     As reported........................................        $ 3,324           $ 1,082           $(5,835)
     Pro forma..........................................        $ 1,740           $(3,031)          $(8,805)
Basic earnings (loss) per common share
     As reported........................................        $  0.16           $  0.06           $ (0.44)
     Pro forma..........................................        $  0.08           $ (0.16)          $ (0.66)
Diluted earnings (loss) per common share
     As reported........................................        $  0.14           $  0.05           $ (0.44)
     Pro Forma..........................................        $  0.08           $ (0.16)          $ (0.66)
</TABLE>

NOTE 7 -- INCOME TAXES

     A reconciliation of the expected income tax (benefit) computed using the
federal statutory income tax rate to the Company's effective income tax rate is
as follows for the years ended March 31:

<TABLE>
<CAPTION>
                                                                 2001             2000
                                                               --------         --------
<S>                                                            <C>              <C>
Income tax computed at federal statutory tax rate.......         (34.0)%          (34.0)%
State taxes, net of federal benefit.....................          (3.4)            (3.4)
Change in valuation allowance...........................        (367.8)          (272.8)
Non-deductible items....................................          12.8             48.9
Other...................................................         (54.9)              --
                                                                ------           ------
          TOTAL.........................................        (447.3)%         (261.3)%
                                                                ------           ------
                                                                ------           ------
</TABLE>

                                      F-24
<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Significant components of the Company's deferred tax liabilities and assets
as of March 31 are as follows:

<TABLE>
<CAPTION>
                                                        (IN 000S)         (IN 000S)
                                                          2001              2000
            Deferred tax liabilities:                   ---------         ---------
<S>                                                     <C>               <C>
  State taxes....................................        $  (240)          $    --
  Depreciation...................................           (989)             (263)
  Change in accounting method....................            (19)             (231)
                                                         -------           -------
                                                          (1,248)             (494)
Deferred tax assets:
  Litigation reserve.............................          1,071                --
  Net operating loss carryforward................          2,653             3,450
  Deferred revenue...............................          1,650             1,040
  Goodwill.......................................            289               179
  Capital loss carryforward......................            400                --
  Other..........................................            550                --
                                                         -------           -------
                                                           5,365             4,175
Valuation allowance for deferred tax asset.......             --            (3,425)
                                                         -------           -------
  NET DEFERRED TAX ASSET.........................        $ 5,365           $   750
                                                         -------           -------
                                                         -------           -------
</TABLE>

     The benefit for income taxes includes federal income taxes at statutory
rates and state income taxes.

     The valuation allowance for deferred tax assets was decreased by $550,000
during 2000.

     The Company has an unused net operating loss carryforward of approximately
$7,500,000 for income tax purposes, which expires through 2020. Deferred income
taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amount used for income tax purposes.

     The components of the income tax provision for (benefit from) the years
ended March 31 were as follows:

<TABLE>
<CAPTION>
                                                        (IN 000S)         (IN 000S)
                                                          2001              2000
                                                        ---------         ---------
<S>                                                     <C>               <C>
Current
  Federal........................................        $    21           $    --
  State..........................................              8                --
                                                         -------           -------
                                                              29                --
                                                         -------           -------
Deferred
  Federal........................................         (4,240)             (393)
  State..........................................           (353)             (357)
                                                         -------           -------
                                                          (4,593)             (750)
                                                         -------           -------
Additional paid-in capital.......................            424                --
                                                         -------           -------
          TOTAL..................................        $(4,140)          $  (750)
                                                         -------           -------
                                                         -------           -------
</TABLE>

                                      F-25
<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 8 -- SEGMENT INFORMATION

     For internal reporting purposes, management segregates the Company into
three divisions: 1) Subscription/Pay-Per View TV, 2) Internet Group and 3)
Corporate Administration.

     The following tables represent financial information by reportable segment
(in thousands):

<TABLE>
<CAPTION>
                                                                        TWELVE MONTHS ENDED
                                                                             MARCH 31,
                                                               --------------------------------------
                                                                 2001           2000           1999
                                                               --------       --------       --------
<S>                                                            <C>            <C>            <C>
NET REVENUE
     Subscription/Pay-Per-View TV........................      $24,521        $16,841        $ 9,390
     Internet Group......................................       33,992         28,434         16,517
     Corporate Administration............................          125             76             62
                                                               -------        -------        -------
          Total..........................................      $58,638        $45,351        $25,969
                                                               -------        -------        -------
                                                               -------        -------        -------
INCOME (LOSS) BEFORE MINORITY INTEREST, INCOME TAXES AND
DISCONTINUED OPERATIONS
     Subscription/Pay-Per-View TV........................      $ 2,331        $(2,146)       $(6,479)
     Internet Group......................................        3,681          4,540          1,749
     Corporate Administration............................       (6,943)        (2,103)          (785)
                                                               -------        -------        -------
          Total..........................................      $  (931)       $   291        $(5,515)
                                                               -------        -------        -------
                                                               -------        -------        -------
INTEREST INCOME
     Subscription/Pay-Per-View TV........................      $    19        $    20        $     8
     Internet Group......................................           24             35             15
     Corporate Administration............................          176            115             13
                                                               -------        -------        -------
          Total..........................................      $   219        $   170        $    36
                                                               -------        -------        -------
                                                               -------        -------        -------
INTEREST EXPENSE
     Subscription/Pay-Per-View TV........................      $   132        $   123        $    34
     Internet Group......................................          319            254            141
     Corporate Administration............................          417            401            190
                                                               -------        -------        -------
          Total..........................................      $   868        $   778        $   365
                                                               -------        -------        -------
                                                               -------        -------        -------
DEPRECIATION AND AMORTIZATION
     Subscription/Pay-Per-View TV........................      $ 3,928        $ 3,776        $   974
     Internet Group......................................        2,302            346          1,334
     Corporate Administration............................            1             45             23
                                                               -------        -------        -------
          Total..........................................      $ 6,231        $ 4,167        $ 2,331
                                                               -------        -------        -------
                                                               -------        -------        -------

<CAPTION>
                                                                      MARCH 31,
                                                               -----------------------
                                                                 2001           2000
                                                               --------       --------
IDENTIFIABLE ASSETS
<S>                                                            <C>            <C>
     Subscription/Pay-Per-View TV........................      $25,268        $21,346
     Internet Group......................................       18,248         16,371
     Corporate Administration............................       35,610         24,946
     Eliminations........................................      (26,520)       (26,375)
                                                               -------        -------
          Total..........................................      $52,606        $36,288
                                                               -------        -------
                                                               -------        -------
</TABLE>

                                      F-26
<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 9 -- MAJOR CUSTOMER

     The Company's revenue from a major customer (revenues in excess of 10% of
total sales) is from an entity involved in the satellite broadcast industry. The
revenue from such customer as a percentage of total revenues for each of the
three years ended March 31 are as follows:

<TABLE>
<CAPTION>
                                                    2001             2000             1999
                                                  --------         --------         --------
<S>                                               <C>              <C>              <C>
Customer A.................................          19%              12%               1%
</TABLE>

     At March 31, 2001 and 2000, accounts receivable from Customer A is
$2,887,734 and $785,575, respectively. There were no other customers with
receivable balances in excess of 10% of consolidated accounts receivable.
Customer A is included in the Subscription/Pay-Per-View TV Segment.

     The loss of its significant customer could have a materially adverse effect
on the Company's business, operating results or financial condition. To limit
the Company's credit risk, management performs ongoing credit evaluations of its
customers and maintains allowances for potentially uncollectable accounts.

NOTE 10 -- DISCONTINUED OPERATIONS

     As of March 31, 1999, the Company discontinued the operations of David. In
connection with the discontinuance of David the Company incurred a loss of
$383,708.

     Included in loss on disposal of discontinued subsidiaries at March 31, 1999
is $66,762 of gain. This gain is due to the estimated cost for the
discontinuance of Boulder Interactive Group, Inc. and Fuzzy Entertainment, Inc.
which was overstated by $66,762 for the year ended March 31, 1998.

     Operating results of discontinued operations for David are as follows in
000s:

<TABLE>
<CAPTION>
                                                            2001          2000          1999
                                                          --------      --------      --------
<S>                                                       <C>           <C>           <C>
Revenues................................................   $  --         $  --         $ 201
Net Loss................................................   $  --         $  --         $(179)
</TABLE>

NOTE 11 -- RELATED PARTY TRANSACTIONS

     Amounts due to related parties for the years ended March 31, 2001 and 2000
aggregated to $0 and $12,142, respectively. These amounts due are
non-interest-bearing and are payable on demand.

     The Company issued a note payable to a related party in the amount of
$809,000 for the purchase of domain names during the year ended March 31, 2000.
This note and the related interest were paid in full on August 31, 2000.
Interest on the notes was calculated using the prime rate.

     The Company carries out administrative and processing services for a
company in which a director has an interest. The Company recognized revenue of
$48,363 and $79,467 during the years ended March 31, 2001 and 2000,
respectively, by charging a processing fee of 3% of the related party's revenue.

     During the year ended March 31, 2001, the Company entered into an office
lease agreement, which is personally guaranteed by the president of the Company
and his wife. As an inducement to the guarantors, they were granted a security
interest in certain domain names, which has an original purchase price of
approximately $1,600,000.

     Amounts due from related parties for the years ended March 31, 2001 and
2000 aggregated to $64,061 and $0, respectively. During the year ended March 31,
2001, the Company gave related parties

                                      F-27
<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
an advance of $43,804, which is non-interest-bearing, and a loan of $36,912,
which bears interest at 8% per annum. The loan matures on October 17, 2001.

NOTE 12 -- SERIES C CONVERTIBLE REDEEMABLE PREFERRED STOCK

     On October 14, 1999, the Company issued 600 shares of 7% Series C
Convertible Preferred Stock at $10,000 per share to a single institutional
investor.

     The Preferred Stock was initially convertible into the Company's common
stock at a price of $7.87 per share which was equal to 140% of the market price
of the Company's stock at the closing date of the transaction. The Company had
the right to redeem the Preferred Stock at any time, in whole or in part, at a
price equal to the amount the investor would have received if the investor had
then converted its shares of Preferred Stock into common stock, or, if greater,
115% of the amount paid by the investor for the Preferred Stock. The preferred
stock was redeemable by the holder upon certain triggering events outside the
control of the Company. The triggering events were: 1) lapsing of the
effectiveness of the underlying shares registration statement for more than
three trading days; 2) failure of the Company's Common Stock to be listed for
trading on the NASDAQ or on a subsequent market or the suspension of the Common
Stock from trading on the NASDAQ or on a subsequent market for more than three
trading days; 3) failure of the Company to deliver certificates representing the
underlying shares issuable upon a conversion within ten days of a Conversion
Date; 4) the Company is a party to any Change of Control transaction as defined
in the agreement; 5) failure to cure a breach of any material term of the
agreement within the time frame specified in the agreement; 6) failure to pay in
full the amount of cash due pursuant to a Buy-In within seven days after notice
is delivered; and 7) the Company fails to have available a sufficient number of
authorized and unreserved shares of Common Stock to issue upon a conversion. The
shares automatically convert after three years, or September 30, 2002, if not
redeemed earlier. As of March 31, 2001, all convertible preferred stock had been
converted to common stock.

     In connection with this transaction, the Company also issued to its
investor 60,000 warrants dated September 30, 1999, exercisable at $7.87 per
share, to purchase common stock of the Company for each $1 million invested with
the Company. These warrants were valued at $752,000.

NOTE 13 -- COMMITMENTS

LEASES

     The Company maintains non-cancelable leases for office space and equipment
under various operating and capital leases. Included in property and equipment
at March 31, 2001, 2000, and 1999 is $5,224,781, $3,976,997, and $2,881,107,
respectively, of equipment under capital leases. Accumulated depreciation
relating to these leases was $2,666,206, $1,591,231, and $779,956, respectively.
In addition, CSB has entered into sub-lease agreements with an unrelated party
for the use of transponders to broadcast CSB's channels on satellites. The
leases expire through March 31, 2012.

                                      F-28
<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Future minimum lease payments under these leases as of March 31, 2001 were
as follows:

<TABLE>
<CAPTION>

YEAR ENDED
MARCH 31,                                                OPERATING           CAPITAL
-------------                                           -----------         ----------
<S>                                                     <C>                 <C>
2002..............................................      $ 5,208,678         $1,731,584
2003..............................................        2,066,474            929,951
2004..............................................          912,290            254,080
2005..............................................          815,145             34,778
2006..............................................          767,432                 --
Thereafter........................................        3,787,129                 --
                                                        -----------         ----------
                                                        $13,557,148          2,950,393
Less amount representing interest.................                             455,923
                                                                            ----------
                                                                             2,494,470
Less current portion..............................                           1,459,452
                                                                            ----------
          LONG-TERM PORTION.......................                          $1,035,018
                                                                            ----------
                                                                            ----------
</TABLE>

     Rent expense for the years ended March 31, 2001, 2000, and 1999 was
$6,411,751, $6,782,134 and $6,184,214, which includes transponder payments,
respectively.

EMPLOYMENT CONTRACTS

     The Company employs certain key staff and directors under non-cancelable
employment contracts in California and Colorado. These employment contracts
expire through March 31, 2004.

     Commitments under these obligations at March 31, 2001 were as follows:

<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
-----------
<S>                                                                  <C>
2002........................................................         $1,643,917
2003........................................................          1,464,333
2004........................................................             40,000
                                                                     ----------
          TOTAL.............................................         $3,148,250
                                                                     ----------
                                                                     ----------
</TABLE>

                                      F-29
<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 14 -- NOTES PAYABLE

     Notes payable at March 31 consisted of the following:

<TABLE>
<CAPTION>
                                                                      2001             2000
                                                                   ----------       ----------
<S>                                                                <C>              <C>
  Unsecured note payable bearing interest at 15% per annum.
     The principal is payable in cash on January 16, 2003.
     Interest is payable at the option of the Holder in cash
     or stock on a quarterly basis, in arrears, commencing
     May 1, 2001............................................       $  250,000       $       --

  Unsecured note payable bearing interest at 15% per annum.
     The principal is payable in cash on January 30, 2003.
     Interest is payable at the option of the Holder in cash
     or stock on a quarterly basis, in arrears, commencing
     May 1, 2001............................................          250,000               --

  Unsecured note payable bearing interest at 15% per annum.
     The principal is payable in cash on February 2, 2003.
     Interest is payable at the option of the Holder in cash
     or stock on a quarterly basis, in arrears, commencing
     May 1, 2001............................................          500,000               --

  Unsecured note payable bearing interest at 1% per month.
     The principal is payable in cash on or before December
     17, 2002. Interest will be paid on the outstanding
     principal amount on a monthly basis on or before the
     fifth day of each month................................        5,000,000
                                                                   ----------       ----------
                                                                    6,000,000               --
                                                                   ----------       ----------
  Less current portion......................................               --               --
                                                                   ----------       ----------
          LONG-TERM PORTION.................................       $6,000,000       $       --
                                                                   ----------       ----------
                                                                   ----------       ----------
</TABLE>

     Future minimum principal payments under notes payable as of March 31, 2001
were as follows:

<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
------------
<S>                                                                  <C>
2002........................................................         $       --
2003........................................................          6,000,000
                                                                     ----------
                 TOTAL......................................         $6,000,000
                                                                     ----------
                                                                     ----------
</TABLE>

NOTE 15 -- LICENSE AGREEMENTS

     In February of 1999, the Company entered into a licensing agreement with an
unrelated entity. Pursuant to the agreement, the Company obtained the rights to
distribute the entity's current library of approximately 4,000 adult pictures
and the rights to three new adult pictures ("New Releases") that are produced by
the entity or its affiliated companies per month (for a period of five years).
The Company currently is in litigation with this unrelated party regarding the
breach of the license agreement. The Company believes that the unrelated party
has breached its license agreement with the Company by, among other things,
failing to deliver to the Company the 4,000 adult pictures and the New Releases.

     As discussed in Note 5, New Frontier Media executed a definitive license
agreement to acquire exclusive rights to Metro's 3,000 title adult film and
video library and multi-million still image archive for a period of seven years
with renewal provisions. In addition, the Company entered into a multi-year
production agreement with Metro which calls for the delivery of at least three
new adult feature titles per month over the next five years.

                                      F-30
<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 16 -- ACCRUED GUARANTEED PAYMENTS

     The Company has made on-line arrangements with various webmasters which
guarantee variable payments based on the percentage of total converted sales. At
March 31, 2001 and 2000, the amount due was $424,664 and $309,793, respectively.

NOTE 17 -- FOURTH QUARTER ADJUSTMENTS

     As of December 31, 1998, the Company miscalculated the amount of deferred
revenue by approximately $698,000. In addition, the aggregate effect of year-end
adjustments amounted to approximately $356,000. The effect of the above items
increased the net loss for the year ending March 31, 1999 by approximately
$1,054,000.

NOTE 18 -- DEFERRED COMPENSATION PLAN

     The Company sponsors a 401(k) retirement plan. The plan covers
substantially all eligible employees of the Company. Employee contributions to
the plan are elective, and the Company has discretion to match employee
contributions. All contributions by the Company are vested over a five-year
period. Contributions by the Company for the years ended March 31, 2001, 2000
and 1999 were $150,577, $199,778 and $130,855, respectively.

NOTE 19 -- CONTINGENCIES

     On January 25, 1999, a lawsuit was filed against the Company and two of its
officers by J.P. Lipson ("Lipson Lawsuit") in the District Court in Boulder,
Colorado (Case No. 99CV30) alleging breach of contract, tort, and securities law
claims arising out of an October 5, 1998, letter of intent. The letter of intent
contemplated that a formal definitive agreement would be prepared and executed,
the definitive agreement would be subject to regulatory and shareholder
approval, and the definitive agreement would require Mr. Lipson to make
available to the Company a line of credit in exchange for securities convertible
into a 70% equity interest in the Company. Within weeks of the signing of the
letter of intent, a dispute arose between the Company and Mr. Lipson and no
formal definitive agreement was ever entered. In his action, Mr. Lipson sought,
among other things, an order of the court requiring the Company to convey the
equity interest claimed by Mr. Lipson, monetary damages of $10,000,000 pursuant
to a liquidated damage clause contained in the letter of intent, and additional
compensatory and punitive damages.

     The trial commenced on August 14, 2000. On September 1, 2000, a jury
rendered a verdict partially in favor of Mr. Lipson. The court, on December 5,
2000, entered judgment awarding Mr. Lipson $10,000,000 in liquidated damages for
breach of contract and $1,000,000 in punitive damages. The court rejected Mr.
Lipson's claim for an equity in the Company. Additional damages were awarded
against the two officers of the Company. On December 20, 2000, the court ordered
that execution of the judgment be stayed upon the Company's posting a bond of
$1,200,000. The Company timely posted the requisite bond and the stay remains in
effect.

     On December 19, 2000, the Company filed its motion for judgment
notwithstanding the verdict or for a new trial. On February 20, 2001, the trial
court granted the Company's motion for judgment notwithstanding the verdict and
reduced the actual damages against the Company from $10,000,000 to $1,000,000,
thereby reducing Mr. Lipson's total award, exclusive of costs and interest,
against the Company and two officers to $2,500,000.

     On January 26, 2001, the Company filed its motion to vacate the judgment on
the grounds that newly discovered evidence revealed that a key trial witness for
Mr. Lipson had received, in the months leading up to and including the time of
trial, approximately $139,000 from monies originating from Mr. Lipson.

     On March 19, 2001, the trial court ordered that an evidentiary hearing be
held on January 21, 2002, with respect to the Company's motion to vacate the
judgment.

                                      F-31
<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Mr. Lipson and the Company have filed cross-appeals from the judgment
entered in the trial court. However, on or about May 18, 2001, the appellate
court granted the Company's motion to remand the case to the trial court and to
stay appellate proceedings pending the resolution of the Company's motion to
vacate the judgment.

     The Company has booked a $2.5 million reserve for the judgment. The Company
believes that its existing cash balances and cash flow from operations will be
sufficient to satisfy this judgment should it become necessary.

OTHER LITIGATION

     In the normal course of business, the Company is subject to various other
lawsuits and claims. Management of the Company believes that the final outcome
of these matters, either individually or in the aggregate, will not have a
material effect on its financial statements.

NOTE 20 -- RISKS AND UNCERTAINTIES

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

     In addition, the Company bears the risk that the access of their networks
to transponders may be restricted or denied if a governmental authority
commences an investigation concerning the content of the transmissions. Also,
certain cable operators may be reluctant to carry less edited or partially
edited adult programming on their systems. This could adversely affect the
Company's business if either of the above occurs.

     To remain competitive, the Company must continue to enhance and improve the
responsiveness, functionality, and features of the Company's websites. The
Internet and the on-line commerce industry are characterized by rapid
technological changes, changes in user and customer requirements and
preferences, frequent new service and membership introductions embodying new
technologies, and the emergence of new industry standards and practices that
could render the Company's existing websites and proprietary technology and
systems obsolete. The Company's success will depend, in part, on their ability
to license leading technologies useful in their business, enhance their existing
services, develop new services and technology that address the increasingly
sophisticated and varied needs of their prospective customers, and respond to
technological advances and emerging industry standards and practices on a
cost-effective and timely basis.

     A significant barrier to on-line commerce and communications is the secure
transmission of confidential information over public networks. On a minority of
the Company's websites, the Company does not provide the security and
authentication necessary to effectively secure transmission of confidential
information, such as customer credit card numbers; however, the Company does
provide extensive fraud control measures in its processing, including negative
database lookup and real-time risk analysis.

     The Company relies on encryption and authentication technology licensed
from third parties to provide the security and authentication necessary to
effect secure transmission of confidential information for those websites
providing secure transmissions. Furthermore, there can be no assurance that
advances in computer capabilities, new discoveries in the field of cryptography,
or other events or developments will result in a compromise or breach of the
algorithms used by the Company to protect customer transaction data.

     The on-line commerce market, particularly over the Internet, is new,
rapidly evolving, and intensely competitive. The Company currently or
potentially competes with a variety of other companies.

                                      F-32
<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

NOTE 21 -- SUBSEQUENT EVENTS

     In April 2001, the Company acquired the C-Band subscriber base of Emerald
Media, Inc. ("EMI") for $750,000 paid in cash and stock. EMI was formerly the
Company's largest competitor in the adult C-Band market, operating two competing
networks which were subsequently shut down after the acquisition.

     In May 2001, the Company repaid $2,000,000 in principal on its $5,000,000
unsecured note payable.

     The Company entered into approximately $1.3 million in capital leases
subsequent to year end.

     The Company entered into a new building lease subsequent to year end.
Monthly payments are $22,500 and the lease expires in the year 2011.

                                      F-33
<PAGE>
                            SUPPLEMENTAL INFORMATION

                                      F-34
<PAGE>
               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
                        ON FINANCIAL STATEMENT SCHEDULES

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

     Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The consolidated
supplemental schedule II is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not a part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in our audit of the basic consolidated financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic consolidated financial statements taken as a whole.

SINGER LEWAK GREENBAUM & GOLDSTEIN LLP

Los Angeles, California
May 18, 2001

                                      F-35
<PAGE>
               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
                        ON FINANCIAL STATEMENT SCHEDULES

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

Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The consolidated
supplemental schedule II for the years ended March 31, 2000 and 1999 is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not a part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in our audit of the basic consolidated financial statements and, in our opinion,
is fairly stated in all material respects in relation to the basic consolidated
financial statements taken as a whole.

SPICER, JEFFRIES & CO.

Denver, Colorado
May 23, 2000

                                      F-36
<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES
                VALUATION AND QUALIFYING ACCOUNTS - SCHEDULE II
                                   (IN 000S)

<TABLE>
<CAPTION>
                                                            ADDITIONS      ADDITIONS
                                               BALANCE,    (DEDUCTIONS)   (DEDUCTIONS)       BALANCE,
                                               BEGINNING    CHARGED TO        FROM             END
                                                OF YEAR     OPERATIONS      RESERVE          OF YEAR
                                               ---------   ------------   ------------       --------
<S>                                            <C>         <C>            <C>                <C>
Allowance for doubtful accounts
  March 31, 2001.............................   $     6      $ 1,053        $  (696)         $    363
                                                -------      -------        -------          --------
                                                -------      -------        -------          --------
  March 31, 2000.............................   $    --      $     6        $    --          $      6
                                                -------      -------        -------          --------
                                                -------      -------        -------          --------
  March 31, 1999.............................   $    --      $    --        $    --          $     --
                                                -------      -------        -------          --------
                                                -------      -------        -------          --------

<CAPTION>
                                                            ADDITIONS      ADDITIONS
                                               BALANCE,    (DEDUCTIONS)   (DEDUCTIONS)       BALANCE,
                                               BEGINNING    CHARGED TO        FROM             END
                                                OF YEAR     OPERATIONS      RESERVE          OF YEAR
                                               ---------   ------------   ------------       --------
Valuation allowance for deferred tax asset
<S>                                            <C>         <C>            <C>                <C>
  March 31, 2001.............................   $ 3,425      $(3,425)       $    --          $      0
                                                -------      -------        -------          --------
                                                -------      -------        -------          --------
  March 31, 2000.............................   $ 3,980      $    --        $  (555)         $  3,425
                                                -------      -------        -------          --------
                                                -------      -------        -------          --------
  March 31, 1999.............................   $ 1,132      $    --        $ 2,848          $  3,980
                                                -------      -------        -------          --------
                                                -------      -------        -------          --------

<CAPTION>
                                                            ADDITIONS      ADDITIONS
                                               BALANCE,    (DEDUCTIONS)   (DEDUCTIONS)       BALANCE,
                                               BEGINNING    CHARGED TO        FROM             END
                                                OF YEAR     OPERATIONS      RESERVE          OF YEAR
                                               ---------   ------------   ------------       --------
Reserve for chargebacks/credits
<S>                                            <C>         <C>            <C>                <C>
  March 31, 2001.............................   $   453      $ 2,936        $(2,946)         $    443
                                                -------      -------        -------          --------
                                                -------      -------        -------          --------
  March 31, 2000.............................   $   698      $ 3,852        $(4,097)         $    453
                                                -------      -------        -------          --------
                                                -------      -------        -------          --------
  March 31, 1999.............................   $   251      $ 4,225        $(3,778)         $    698
                                                -------      -------        -------          --------
                                                -------      -------        -------          --------
</TABLE>

                                      F-37